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Commercial Paper 2 > Commercial Paper 2 > Flashcards

Commercial Paper 2 Flashcards

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1
Q

Definition of a Note

A

Note = a priories to pay.

2 parties involved 1) maker and 2) the payee or bearer

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2
Q

Note - Certificate of Deposit - Definition

A

= an instrument made by a bank containing:
1) acknowledgement of money received and

2) a promise to repay

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3
Q

Definition of a Draft

A

= an order to pay.

3 parties involved: 1) drawer, 2) the drawee and 3) the payee

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4
Q

Undertakings/Authorizations that ARE allowed by the UCC

A

1) an undertaking or power to give, maintain, or protect collateral
2) an auth. Or power to the holder to confess judgement or to realize on or dispose of the collateral AND
3) a waiver of a benefit of law

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5
Q

A promise/order to pay is NOT conditional merely because:

A

1) refers to another writing about collateral, repayment or acceleration
2) limits payment to a particular source of funds
3) requires a counter signature - think travelers check
4) contains a statement required by law that the holder is subject to the claims and defenses of the original payee
5) states the consideration required

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6
Q

Definition of “definite time”

A

Payable at a definite time if:

1) on a fixed date
2) after an elapse of a specified period
3) at a time readily ascertainable - does not include uncertain dates

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7
Q

Handwriting vs. Type and print

A

Handwriting controls

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8
Q

Type vs. Print

A

Type controls print

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9
Q

Unambiguous words vs. Figures

A

Unambiguous words control figures

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10
Q

Incomplete instruments

A

Incomplete instruments may be enforced according to their incomplete terms.

If it is completed without authority it is considered fraudulently altered

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11
Q

Multiple payees for indorsement

A

Can be either jointly payable or severally payable depending on the languge

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12
Q

Effect of transferring without indorsement - what about the rules for banks?

A
  • transfers possession but is NOT a negotiation. The person is not a holder without the indorsement

Banks - a depository bank that takes an instrument for collection = a holder IF the customer was a holder at the time of delivery. This is true even if the customer did not indorse.

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13
Q

Indorsement of the names NOT necessary to tile

A

Forgery of names not necessary to the chain of title will NOT keep later takers from becoming holders

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14
Q

Restrictive indorsements - do these limit the transfer or negotiation

A

These are ineffective to limit transfer or negotiation or to condition payment

“For deposit” words - must be paid consistently eight the indorsement by any person or the first bank to which it is dpeosited will be deemed to have been converted

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15
Q

Forgery of the drawer’s name

A

This does NOT break the chain of title so subsequent transferees can still be holders

The forgery is the genuine signature of the FORGER

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16
Q

Anomalous indorsement

A

= it is an indorsement by a person who is not a holder of the instrument

Typically for accommodation

They become liable on the instrument

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17
Q

Steps to determine whether a person is an HDC

A

1) is the person a holder

2) does the person hold in due course

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18
Q

Due course requires the holder to take …

A

For value, in GF and without notice

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19
Q

What is considered value

A

1) performance of the agreed consideration
2) n acquisition by the holder of the lien or security interest in the instrument
3) taking the payment of or security for an antecedent debt
4) trading a negotiable instrument
5) giving it in exchange for incurring an irrevocable obligation

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20
Q

Partial vs. Discount HDC

A

Partial - only part of the amount is paid so only a partial HDC

Discount - full discounted price is paid - whole price reduced so full HDC

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21
Q

When are good faith and noticed determined

A

At the time value is paid

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22
Q

Bank deposited - when does the bank become a holder for value

A

Bank becomes. A holder for value to the extent that it permits withdrawals of the amount credited to the account

“First money in first money out rule” is used

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23
Q

Facts that = notice are…

A

1) . Instrument is overdue: a) any part is overdue, 2) acceleration or 3) more than reasonable time has elapsed after issuance of a demand (check = 90 days)
2) unauthorized signature or alteration
3) claims
4) defenses or claims in recoupment

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24
Q

How must notice be given

A

In such time and manner to give someone reasonable opportunity to act on it

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25
Facts that are NOT notice …
1) outdated, post dated, undated 2) instrument is a return for an executor promise unless notice of claims and defenses from its 3) signed for accommodation 4) an incomplete instrument has been completed unless notice that it was improper 5) any person negotiating was a fiduciary unless knowledge that the negotiation was because of breach of duties 6) default in interest payments 7) public filing or recording of the document 8) sold the doc at a discount 9) party has been discharged - other than insolvency
26
A holder does not become an HDC for an instrument taken by
1) legal process 2) judicial sale 3) purchase not in the ordinary course of business 4) acquiring as successor in interest
27
HDC status is determined when
1) when the instrument is negotiated OR 2) when she gives value, whichever is later
28
Exceptions to the Shelter Rule
1) fraud | 2) illegality
29
Real Defense - forgery of names necessary to title
If signature of the payee or special indorsee was forged - generally no subsequent taker can be an HDC, BUT if the person whose name was forged ratifies the unauthorized signature or estopped, subsequent takers can be HDCs
30
Alteration of instrument
“Partial” real defense
31
Real Defenses - forgery of names not necessary to title
Does not effect the right to enforce and subsequent takers can be HDC
32
Statute of limitations - 3 years
1) unaccepted drafts 2) acceptors/issuers of cashiers checks, certified checks etc 3) for conversion 4) breach of warranty 5) to enforce other Article 3 rights
33
SOL - 6 years
1) on notes payable at a definite time or on demand | 2) on cert. of deposits
34
SOL - 10 years
Applies to notes on which no demand for payment was made and no principal or interst pay me by has been made for 10 years.
35
Accommodation Defenses
Accommodation party = a surety Incur liability without being a direct beneficiary If HDC knows of the accommodation, takes subject to surety of defenses caused by: 1) extension of a due date; 2) material modification of obligation or 3) impairment of collateral
36
An HDC takes subject to any discharge of which he had notice. Discharge means
It means the discharging events in Art. 3 or other acts that would discharge obligations If no notice, the discharge is a personal defense
37
Partial failure of consideration is a defense to the extent of?
The failure
38
Negotiable instruments must be supported by consideration. Lack of consideration is a defense EXCEPT against a HDC.
39
What does the payment rule say about liability
Liability to pay is discharged by payment to a person entitled to enforce the instrument UNLESS another person has an enforceable claim to the instrument AND 1) payment is made with knowledge that it is prohibited by an injunction 2) the paying party has been indemnified from a person with a claim for refusal to pay the person entitled to enforce OR 3) the paying party knows that the instrument is stolen and the person paid is in wrongful possession
40
Typically CANT use the claims or defenses of another, but what is the exception?
Must raised the defense that a non-HDC acquired the instrument by theft and the person holding it is in wrongful possession if this is known by the person paying. If not, the payment will not discharge liability
41
3 types of people that may enforce an instrument
1) the holder 2) a non holder in possession with rights of a holder 3) a person not in possession but entitled to enforce it - think lost, stolen, destroyed
42
What is a PFC for someone trying to enforce an instrument
1) signatures are genuine - presumed unless denied | 2) the person presenting the instrument is entitled to enforce
43
How can a person with a lost, stolen, or destroyed instrument become entitled to enforce?
If she can prove that: 1) she was in possession of it when the loss occurred 2) the terms of the instrument 3) the facts describing why she can’t produce the document
44
What happens when PFC is satisfied
Once this burden is meant, the plaintiff is entitled to payment UNLESS the defendant raises a defense or claim in recoupment
45
How can Plaintiff cut off Defendant’s defenses?
If the plaintiff can establish HDC status, then it will cut off defendant’s claims
46
Who can bring an action for conversion
Anyone entitled to enforce the instrument except issuers, payees and indorsees who DID NOT receive delivery
47
Is the maker of a note or issuer of a cashier’s check liable on the instrument
Yes. Because she signed her name on the note. This makes it a contract to pay the instrument according to the terms. It is unconditional. Can raise defenses. Similar liability for issuer of a cashier’ so check. Both owe their obligation to a person entitled to enforce and to an indorsement who paid the instrument after dishonor.
48
What liability does an indorser have?
Secondary liability.
49
What theories can an indorser be held liable under?
Contracts and warranty
50
Why might an indorser sign an instrument?
1) restricting payment 2) negotiating the instrument 3) incurring liability
51
Basic obligation for an indorser’s contract?
Pay according to the terms of the instrument at the time of indorsement - this obligation comes from just signing their own name.
52
What is a way to negate indorser liability?
“Without recourse”
53
What are three things a holder must do before looking to an indorser for payment?
1) presentment 2) dishonor 3) notice of dishonor
54
What is presentment?
It is a demand for payment made by a person entitled to enforce the instrument.
55
Who is presentment made on
The drawee or a draft | Maker of a note
56
Is an indorser’s liability on a check discharged
Typically yes UNLESS the check is presented for payment or given to a bank for collection within 30 days after indorsement
57
Ways to make presentment
By any commercially available needs
58
When is presentment excused
If: 1) the person entitled to present cannot with reasonable diligence 2) the maker has repudiated the obligation to pay 3) maker is deceased, or insolvent 4) the terms of the instrument 5) presentment was waived 6) drawer instructed the drawee not to pay or drawee was not obligated to pay
59
What is dishonor
This is when the maker or the draweee does not pay within the allowed time after presentment
60
When are demand instruments other than checks considered dishonored
When not paid on the date of presentment
61
When are time instruments payable at or through a bank considered dishonored
If not paid on the day they become payable or on the day of presentment, whichever is later
62
When are time notes not involving a bank dishonored
If they are not paid on the day they are payable
63
When are checks presented for something other than immediate payment (like depositing) dishonored?
If the bank returns the check or sends written notice before final payment (before the bank’s midnight deadline)
64
An indorser is not liable on an instrument unless?
She receives timely notice that the instrument has been dishonored
65
How can notice of dishonor be given
Through any reasonable commercial means
66
How many days do you have to give notice of dishonor
Within 30 days after the dishonor
67
Do you have to give notice of dishonor to the maker fo the note or drawer of the draft
No
68
When is delay in notice excused
When it is caused by circumstances outside the control of the notifier who used reasonable diligence a father the cause of the delay ended
69
When is notice entirely excused
1) the terms of the instrument make it unnecessary or | 2) the obligor waives notice
70
Multiple indorsers and liability
An indorser is liable for the full amount of the instrument at the time she indorsed to any holder or later indorser
71
Warranty liability of an indorser
If an indorser transfers for consideration, the indorser is now a transferor and can be liable for the transfer warranties
72
The five transfer warranties attach when
The instrument is transferred and for consideration
73
When discussing the liability fo an indorser, what should you discuss on the exam
Both the contract and warranty liability and why either or both are applicable/not applicable
74
What if the transfer is made only by possession and not indorsement
The warranties only run to the immediate transferee
75
Are presentment and notice of dishonor relevant to warranty liability
No
76
Other than for checks, how can warranty liability be engaged by the transferor
Include the words “without warranty”
77
If a draft is dishonored when is the drawer obliged too pay according to the terms
When the drawer signed
78
When does a drawer have secondary liability
Like an indorser, there is secondary liability if the draft is accepted by a bank. This discharges the drawer.
79
When does a drawee have liability on a draft
No liability unless and until she sits the instrument - makes them an acceptor
80
What are the customers duties to the bank
Customer has a duty to discover and notify the bank of any unauthorized payments resulting from forgery or alteration Customer can rebut by showing the bank was negligent Loss allocated between the bank and customer in proportion to fault
81
What is an acceptor
Usually it is a drawee bank, but is it someone who signs the draft and becomes primarily bound to pay the instrument They contract to pay the draft when due in accordance with the the accepted terms
82
Process for acceptance
The draft is presented to the acceptor Acceptor signs the draft and charges the customer account at that time Acceptor then returns it to the presenting party = presentment for acceptance
83
What is certification of a check
The acceptance of a check by the bank on which it was drawn
84
What does certification do
It discharges the drawer and all prior indorsers
85
What does the bank do by certifying
They put their own credit on the line and charges the customer’s account immediately upon certification rather than waiting for the item to be paid.
86
What does an accommodation party do
They sign the instrument and lend her credit to another party to the instrument. Receives no direct benefit
87
Accommodation party’s liability is to?
Liability is in the capacity in which she signed. She is never liable to the accommodated party
88
What defenses can an accommodation party raise
Surety defenses
89
What action will an accommodation party have if she pays the instrument
An action on the instrument against the party accommodated Also subrogates/acquires the rights of the party paid - including collateral. Impairment of collateral discharges her to the extent of the impairment
90
When is signing of an instrument presumed to be an accommodation party?
There needs to be notice of an accommodation status 1) if the signature is anomalous (signed by a person not a holder) 2) any indication that they are acting as a surety
91
What evidence is used (and when) to show accommodation status
Parole evidence Not used if the holder is an HDC without notice of the status
92
When will a party who indicates that they are a guarantor of collection be liable
Only if 1) the person entitled to enforce has reduced the claim to judgement against the maker or acceptor AND judgment is returned unsatisfied OR 2) seeking judgment would be futile
93
What is the effect of people signing jointly and is there a right to contribution
Joint and several liability Can get contribution for someone who paid more than his share
94
General rule about signing:
No one is liable on the instrument unless their signature or signature of an authorized agent is on it.
95
Effect of an unauthorized signer
It is ineffective as the signature of the person whose name is signed, but it is effective as the signature of the signer
96
What are the 5 circumstances in which a forgery or unauthorized signature will be validated because the person whose name is used has done something to preclude them from raising the issue?
1) imposter of fictitious payer 2) fraudulent indorsements by employees 3) failure to exercise ordinary care - negligence 4) bank statement rule 5) estoppel by certification
97
Safely paying - 1) determine if the party seeking payment is a holder.
If they are a holder - safely pay them | Not a holder - wait for the true holder
98
What can a third party do to protect his claim on the instrument
Offer to indemnify the maker or acceptor in an amount deemed sufficient by the maker or acceptor while the two parties fight ot get injunction
99
Should you pay it you know that the holder acquired the instrument through theft
No. However if the holder is an HDC, then pay him
100
When are payments on an instrument not final, so you can recover payment
When there has been a breach of transfer or presentment warranties If the person didn’t take for value and in GF
101
Who can recover for breach of presentment warranties even from HDCs and persons who detrimentally relied on payment
A drawee (bank)
102
Warranties on an unaccepted draft
1) entitled to enforce - good title 2) no knowledge that drawer’s signature is unauthorized 3) no alteration
103
Difference between a forged drawer’s signature and a forged indorser’s signature
Forged indorser’s signature destroys “good title” - no breaks the presentment warranties Forged drawer’s signature DOESNT (treated as valid signature of the forger)
104
Presentment warranties on other instruments
Only entitled to enforce
105
Who makes the presentment warranties
1) any person who obtains payment or acceptance AND | 2) any prior transferor
106
Who makes the transfer warranties
An indorser
107
Who are the warranties made to
Any person who in good faith pays or accepts
108
What type of a defense is discharge
A personal defense
109
What happens to the obligation if a certified check cashiers check or tellers check is given to fulfill an obligation
The obligation is discharged as if cash were given Does not affect any indorser liability
110
What happens to the obligation if any other negotiable instrument is given to fulfill an obligation
The obligation is suspended until the instrument is paid or certified (discharged) or dishonored If dishonored - can sue on the instrument
111
What happens to the obligation when a person is no longer in possession of an instrument because it was lost, stolen, destroyed
If the obligee is entitled to enforce, the obligation is suspended to the extent of the instrument and enforcement is limited
112
REVIEW PAGES 32-33

Commercial Paper 2 (1 decks)

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