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FL Contracts & UCC3 Bar Exam 2020 > Commercial Paper > Flashcards

Flashcards in Commercial Paper Deck (40)
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1

The types of commercial paper governed by Article 3 of the UCC can be divided into two basic categories: _____ and _____.

notes and drafts

2

A note is a _____ party instrument and a draft is a _____ party instrument.

Two

Three

3

I, Max Maker, promised to pay to the order of Peter Payee the sum of One Hundred Dollars ($100)
Max Maker

Is an example of a _____.

Note.

4

TO: DRAWEE NATIONAL BANK
PAY TO THE ORDER OF Patricia Payee One-Hundred Dollars ($100)
Donna Drawer___

Is an example of a _____.

Draft.

5

_____ is the person who signs or is identified in a note as the
person undertaking to pay.

Maker

6

_____ is the person to whom the note is payable.

Payee

7

What parties are involved in making a note?

Maker and Payee

8

_____ the person who signs or is identified in a draft as the person ordering payment

_____ the person ordered in a draft to make payment
_____ the person to whom the draft is payable

Drawer

Drawee

Payee

9

Parties involved in draft . . .

Drawer

Drawee

Payee

10

When the drawee is a bank, and it is payable on demand, then the draft is a _____.

check

11

When the drawee is a _____, and _____, then the draft is a check.

bank

it is payable on demand

12

Also included in the general definition of commercial paper is a certificate of deposit. It is an acknowledgment by a bank that _____, and a _____.

a sum of money has been received

promise by the bank to repay the sum of money

13

1. Seller and Buyer sign a contract. Seller delivers goods to Buyer, with Buyer agreeing
to pay within 60 days. Can Seller assign this right to receive payment to X?

a. If the goods turn out to be defective, must Buyer pay X?

2. Now assume that when Seller delivers goods to Buyer, Buyer issues to Seller a negotiable instrument (check or promissory note). Seller then negotiates the negotiable instrument to X, a holder in due course (HDC) who gives value, in good faith, with no notice that it is overdue or has been dishonored or of any defenses or claims. Here, X _____.

But note: certain defenses (real defenses) can be raised even as against a HDC [will discuss later].

If commercial paper is non-negotiable, then _____-- the _____ stands in the shoes of the _____.

1. Yes. Seller assignor and x is the assignee.

a. No. Generally, any defense that can be raised against the assignor, can be raised against the assignee.

2. takes free of most defenses (personal defenses) that Buyer could raise against Seller (including the defense that the goods are defective)

general principles of contract law apply

assignee

assignor

14

What are the requirements for a negotiable instrument?

1. Writing
2. Signed By Maker or Drawer
3. Unconditional
4. Promise To Pay or Order To Pay
5. Fixed Amount
6. In Money
7. No Other Undertaking or Instruction
8. On Demand or at a Definite Time
9. To Order or To Bearer

15

Requirements of the writing element for negotiable instrument . . .

There is no such thing as an oral negotiable instrument. It must be something tangible. Almost always a piece of paper, but need not be (a t-shirt, a cow, a tamale, etc. -- all technically O.K.)

16

How does the code define signed, for purposes of the signed by maker or drawer element for a negotiable instrument and what is the key to this element . . .

Signed by Maker (if note) or Drawer (if check):

Code defines "signed" as including "any symbol executed or adopted by a party with a present intention to authenticate a writing."
a. Can be printed, stamped, written
Can be initials or thumbprint
Can be a trade name or assumed name Can appear in the body of the instrument
b. Key: Whether the party intended for that symbol to operate as her signature

17

Unconditional: Conditional promises are O.K. under contract law, but they _____ negotiability. (unconditional element of negotiable instrument)

destroy

18

Maker promises to pay $100 to the order of Payee only if the Atlanta Braves win the World Series. Is this negotiable?

No.

Unconditional: Conditional promises are O.K. under contract law, but they destroy negotiability.

19

I promise to pay $100 to the order of Payee "in accordance with" (or "as per") the contract we signed today. Is this negotiable?

This is negotiable. It is okay to mention the underlying contract without destroying negotiability so long as payment of the instrument is not made “subject to” or “conditioned upon” performance of the underlying contract.

20

It is okay to mention the underlying contract without destroying negotiability so long as _____.

payment of the instrument is not made “subject to” or “conditioned upon” performance of the underlying contract

21

Assume the promise to pay is "subject to" a contract. Upon examining the contract, it is clear that it puts no conditions on the promise to pay. Is this negotiable?

This is not negotiable. The negotiability of an instrument must be clear on the face of the instrument itself. The terms of the incorporated document are irrelevant. The fact of incorporation destroys negotiability.

22

Article 3 specifically provides that a promise or order will not be deemed conditional merely because it:

(1) Refers to another writing for a statement of rights regarding collateral, prepayment, or acceleration;
(2) Limits payment to a particular source or fund (e.g., AI promise to pay out of the funds received from the sale of my next wheat crop);
(3) Requires as a condition to payment a countersignature by a person whose specimen signature appears on the promise or order (such conditions are common on traveler’s checks).

23

Article 3 specifically provides that a promise or order will not be deemed conditional merely because it:

(1) Refers to another writing for _____;
(2) Limits payment to a particular _____;
(3) Requires as a condition to payment a _____ by a person whose _____ appears on the _____ (such conditions are common on traveler’s checks).

a statement of rights regarding collateral, prepayment, or acceleration

source or fund (e.g., AI promise to pay out of the funds received from the sale of my next wheat crop);

countersignature

specimen signature

promise or order

24

Is an IOU negotiable? (Promise To Pay or Order To Pay element of negotiable instrument)

An IOU is not negotiable. It is not a promise to pay.

25

Is "I wish you would pay" an order to pay? Is it negotiable?

(Promise To Pay or Order To Pay element of negotiable instrument)

No.

Not negotiable.

26

When the instrument is payable, the holder must be able to determine from _____ the _____. The requirement of a fixed amount applies ONL Y to _____; it does not apply to _____ (or to _____).

(A Fixed Amount element of negotiable instrument)

the instrument itself

principal amount due

principal

interest

other charges that are often included in an instrument, such as collection costs and attorneys fees

27

Is a note providing for variable interest rates (e.g., 3% over prime, adjusted each six months based on then prevailing bank rates in New York City") negotiable?

If the instrument states that it is payable with interest but does not state how much interest, the _____.

(A Fixed Amount element of negotiable instrument)

Yes.

A Fixed Amount: When the instrument is payable, the holder must be able to determine from the instrument itself the principal amount due. The requirement of a fixed amount applies ONL Y to principal; it does not apply to interest (or to other charges that are often included in an instrument, such as collection costs and attorneys fees).

judgment rate (the rate on a court judgment) will be implied

28

Is a promise to pay 100 bales of cotton a negotiable promise?

No.

29

For purposes of the "in money" element of a negotiable instrument, is Foreign money O.K.?

Yes. (as long as the U.S. recognizes the currency).

30

A negotiable instrument must be a "courier _____" -- it must not be burdened with anything other than _____. If a note contains additional undertakings or instructions, the holder is _____.

NOTE: The UCC does permit a number of extra undertakings or instructions.

without luggage

a simple, clean unconditional promise or order

given notice that the note is or may be conditioned on the performance of those additional undertakings or instructions