Commercial Paper

Question 1

Law that covers negotiable commercial paper

Answer 1

Article 3 of UCC

Question 2

A type of commercial paper that has 3 parties in which one person or entity (drawer) orders another (drawee) to pay a 3rd party (payee) a sum of money

Answer 2

Draft (Bill of exchange)

Question 3

A special type of draft that is payable on demand (unless postdated) and drawee must be bank and the one writing it is the drawer

Answer 3

Check

Question 4

A type of commercial paper that is a two-party instrument in which one party (maker) promises to pay a specified some of money to another party (payee)

Answer 4

Note (ex. promissory notes, certificates of deposit)

Question 5

A promise to pay in which the payment does not depend upon, or is not “subject to”, another agreement or event

Answer 5

Unconditional promise to pay

Question 6

Is entitled to payment on a negotiable instrument despite personal defenses that a maker/drawer of the instrument may have

Answer 6

Holder in Due Course

Question 7

A promise to give value in the future–does not qualify as given consideration to be a holder in due course

Answer 7

Executory promise

Question 8

Honesty in fact and observance of reasonable commercial standards of fair dealing

Answer 8

Good faith

Question 9

Defenses that are assertable against any party, including a HDC

Answer 9

REal (universal) defenses

Question 10

Defenses that are not assertable against HDC

Answer 10

Personal defenses (ex. breach of contract, lack/failure of consideration, prior payment, etc.)

Question 11

Occurs wehn a person signs a negotiable instrument and knows what s/he issigning; however, s/he was induced into doing so by intentiaonal misrepresentation

Answer 11

Fraud in the inducement–a personal defense

Question 12

Occurs when a party is tricked into signing a negotiable instruement believing it to be something else

Answer 12

Fraud in the execution–a real defense

Question 13

Under this rule, a party who does not quality as a HDC but obtains a negotiable instrument from a HDC has the standing of an HDC

Answer 13

Shelter rule

Question 14

A rule intended to limit unfair hardship on consumers who sign notes promising to pay retailers for goods purcharsed that were defective (b/c they could sell them to a HDC); does NOT apply to any goods/services paid for by check

Answer 14

Federal Trade Commission Rule (FDC)

–takes precedent over UCC where it applies

Question 15

The liability for payment of the instrument’s face value that appliese to any party who signs a negotiable instrument

Answer 15

Contractual liability

Question 16

Liability under which a holder can seek payment from secondary parties; includes transfer warranties and presentment warranties

Answer 16

Warranty liability

Question 17

A warranty liability under which the transferor gives these warranties whenever a negotiable instruemnt is transferred for consideration

Answer 17

Transfer warranties

Question 18

A warranty in which the holder/HDC presenting the negotiable instrument for payment or acceptance and all prior transferors of the instrument provide to the party that pays the instrument

Answer 18

Presentment warranty

Question 19

A party who signs to lend his/her name to another party (ex. A father-in-law endorses a note for son-in-law so creditor will accept it)

Answer 19

Accomdation party

Question 20

Rule that applies when a maker/drawer issues a note or draft to an imposter thinking s/he actually is the real payee, and the imposter forges the real payee’s name

• -effectively negotiates note/draft so that a subsequent holder CAN collect from maker/drawer
• an exception to rule that forged endorsements cannot transfer title

Answer 20

Imposter rule

Question 21

Rule that applies when maker/drawer, or his/her agent issues a note or a check to a fictitious payee and then the maker/drawer, or employee forges the endorsement

• -subsequent holder CAN enforce the note/check
• exception to the rule that forged endorsements cannot transfer title

Answer 21

Fictitious payee rule

Question 22

A draft in which a seller of goods extends credit to buyer by drawing a draft on that buyer directing him/her to pay seller a sum of money on a specified date

Answer 22

Trade acceptance

Question 23

A draft in which the drawee and drawer are a bank

Answer 23

Banker’s acceptance

Question 24

A draft payable upon presentment to drawee

Answer 24

Sight draft

Question 25

A draft payable at a specified date or payable a certain period of time after a specified date

Answer 25

Time draft

Question 26

A draft purchased by one party to pay payee in which the 3rd party is typically post office, bank, or a company

Answer 26

Money order

Question 27

A check purchased from a bank or company in which the drawer (traveler) must sign twice for purposes of identification, and the drawee is the bank or company

Answer 27

Traveler’s check

Question 28

A check in which the drawer and drawee are the same bank witha separate party being hte payee

Answer 28

Cashier’s check

Question 29

A check that payor bank has agreed in advance to pay so that bank becomes primarily liable

Answer 29

Certified check

Question 30

A draft drawn by one bank on another bank

Answer 30

Teller’s check (bank draft)

Question 31

A document issued by a common carrier and given to the seller evidencing receipt of ot hte goods for shipment

Answer 31

Bill of lading

Question 32

A document issued by a warehouseman and given to seller evidencing receipt of goods for storage

Answer 32

WArehouse receipt

Question 33

Occurs when a document of title is negotiated to a holder who takes it in good faith in the ordinary course of business without notice of a defense and pays value

Answer 33

Due negotiation

Question 34

The Central Bank of US which regulates US monetary system and overseees bank holding companies

Answer 34

Federal Reserve

Question 35

US entity which insures customer deposits against bank failure and promotes sound banking practices

Answer 35

FDIC

Question 36

An arm of the Treasury Department establsihed to regulate and supervise national banks and federal branches of foreign banks; conducts on-site examinations of banks

Answer 36

OCC

Question 37

A US agency established to ensure open and efficient operation of futures markets which have grown from trading agricultural futures to more sophisticated financial products

Answer 37

CFTC

Question 38

Issues and enforces regulation governing nation’s savings and loan industry

Answer 38

OTS

Question 39

Currently, many are recommending mergin these 2 entities, to reglect the blurred lines between securities and comodities

Answer 39

SEC and CFTC