Commercial Paper

Question 1

What are the 6 requirements of negotiability?

Answer 1

(1) Signed writing
(2) Promise to pay must be unconditional
(3) Fixed amount of money
(4) Payable to order or bearer
(5) Payable on demand or certain time
(6) Obligate payor to pay money, nothing else

Question 2

What are the four types of indorsement?

Answer 2

• Special =Indorsed to specific person.
• Blank = Not specific person, basically becomes bearer paper.
• Qualified = “Without recourse” - restricts personal liability
• Restrictive = Limits the next holder’s rights. Ex. of valid one = “For deposit only”

Question 3

What are the four elements of a Holder in Due Course?

Answer 3

(1) Must be a holder
(2) Takes for value (requires holder to give, do, or forgive something of value)
(3) In good faith
(4) Without notice

Question 4

What are the 6 transfer warranties?

Answer 4

• Warrantor is a person entitled to the instrument
• All signatures are authentic and valid
• Instrument has NOT been altered
• No defenses or claims that can be asserted against transferor
• Warrantor has no knowledge of any insolvency proceedings
• Regarding a remotely-created consumer check, person whose account check is drawn authorized the issuance of the item in the amount for which the check is drawn

Question 5

What must plaintiff seeking enforcement of a NI prove? (Prima Facie Case)

Answer 5

Plaintiff must prove they (1) are a person entitled to enforce the instrument (PEEI), and (2) all signatures on the instrument are valid.

Question 6

Who is a Person Entitled to Enforce (PEEI)?

Answer 6

(1) Holder, (2) non-holder in possession who has rights of holder, or (3) a person not in possession with the right to enforce (Ex: Instrument was stolen)

Question 7

Once the plaintiff proves a prima facie case to enforce a NI, what can defendant do?

Answer 7

Defendant can assert any Real or Personal defenses

Question 8

What are the Real Defenses?

Answer 8

• Infancy
• Incapacity
• Duress (needs to be extreme or it’s a personal defense)
• Illegality
• Fraud in the Factum (not inducement, that is personal defenses. Factum occurs when signer not aware he is signing a NI and did not have reasonably opportunity to become aware)
• Discharge of Insolvency Proceedings (bankruptcy)
• Alteration and Forgery
• Statute of Limitations (Drafts = 3 years* and Notes = 6 years)

Question 9

What are the personal defenses?

Answer 9

• Issuance (“I did not issue to you, thief.”)
• Contract Defenses (Breach, Failure of Consideration, Breach of warranty)
• Claims in Recoupment (Offset against an amount owed on an instrument. Must arise from initial transaction)
• Duress (minor)
• Fraud in the Inducement (Knows he is signing NI, but doing so because of misrepresentations)

Question 10

Who are real defenses available against? Personal defenses?

Answer 10

RD are available against Holders AND HDC. Personal defenses are only available against Holders (not HDC)

Question 11

What are the 4 presentment warranties?

Answer 11

• Warrantor is a PEEI
• Draft has not been altered
• Warrantor has no knowledge that drawer’s signature is unauthorized
• Regarding a remotely-created consumer check, person whose account check is drawn authorized the issuance of the item in the amount for which the check is drawn