Mod 28 Commercial Paper Flashcards Preview

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Flashcards in Mod 28 Commercial Paper Deck (132):
1

4 types of commercial paper

1 promissory note
2 certificates of deposit
3 drafts and checks
4 trade acceptance

2

Promissory note

2) it will have the word...

Promise to pay

2) "promise" in it

3

Promissory note has 2 parties

1 maker

2 payee

4

Certificates of deposit 2

1 Bank acknowledges receipt of money

2 and promises to repay with interest (a bank promissory note)

5

Drafts and checks are...

An order to a 3rd party to pay

6

A draft has 3 parties

1 drawer

2 payee

3 drawee

7

Checks must be...2

1 payable on demand and

2 the drawer must be a bank

8

Trade acceptance

Draft drawn by seller ordering a buyer to pay

9

Trade acceptance:

The seller is usually...2

1 Both the drawer and payee and

2 is secondarily liable

10

Trade acceptance:

The buyer accepts by...2

1 Signing in lower left hand corner and

2 is primarily liable

11

Investment securities...

Stocks and bonds

12

Documents of title 2

1 warehouse receipts and

2 bills of lading

13

Investment securities and documents of title are...

Not commercial paper, but they usually follow the same rules

14

5 elements of negotiability neumonic

SUMBOD

15

5 elements of negotiability:

What does SUMBOD stand for?

1 signed
2 unconditional
3 money
4 payable to Bearer or to Order
5 demand/definite time

16

5 elements of negotiability:

S

Must be signed

17

5 elements of negotiability:

U

Must be unconditional promise or order

18

5 elements of negotiability:

M

Must be Money, nothing else but money

19

5 elements of negotiability:

BO

Must be payable to bearer or payable to order

20

5 elements of negotiability:

Must be payable to bearer or payable to order. What is the exception?

Checks do not need to be payable to bearer or order

21

5 elements of negotiability:

D

Must be payable on Demand or payable at a definite time

22

Once commercial paper is negotiable on its front, it's...

Always negotiable

23

Commercial paper must be signed by...

Maker or drawer

24

The promise or order must be...

Unconditional for it to be commercial paper

25

The promise or order must be unconditional for it to be commercial paper:

It is not negotiable if it is...

2) however references to another agreement will...

It is subject to or contingent upon another agreement

2) not prevent negotiability

26

The promise or order must be unconditional for it to be commercial paper:

2 things that do not prevent negotiability

1 references to collateral or security

2 provisions as to consideration

27

Commercial paper must be payable in...

A fixed sum of money

28

Commercial paper must be payable in a fixed some of money. 3

1 it must be payable in money and nothing else but money

2 interest and collection costs are ok

3 the words control

29

Interest and collection costs

To include attorney's fees

30

If numbers differ from words...

Words always control

31

Commercial paper must be payable to...

Bearer or order

32

Commercial paper must be payable to bearer or order:

Bearer paper...2

1 names no specific payee and

2 can be transferred without signing it

33

Bearer paper names no specific payee and can be transferred without signing it. Examples 3

Pay "to bearer", "to the order of cash" or "to X or bearer"

34

Commercial paper must be payable to bearer or order:

Order paper requires...

An endorsement and delivery to negotiate it

35

Order paper requires an endorsement and delivery to negotiate it. Must have the word...

"Order" on the front to be negotiable

36

Commercial paper must be payable to bearer or order:

What is the exception?

Checks do not need to be payable to bearer or order

37

Commercial paper must be payable on...

Demand and definite time

38

Commercial paper must be payable on demand or at a definite time 4

1 ok if payable X days after presentment or acceptance
2 ok if it is postdated, ante dated or if it has no date
3 acceleration clauses or prepayment clauses ok
4 on if payable at definite time and extended to another definite
Time

39

If commercial paper has not date, it's...

Payable on demand

40

Negotiation is

Transferring commercial paper to a 3rd party

41

To negotiate what does bearer paper require?

Bearer paper requires mere delivery

42

To negotiate, what does order paper require?

To negotiate order paper requires delivery plus a proper
endorsement

43

All endorsements are either...2

1 blank endorsements or

2 special endorsements

44

Blank endorsement 2

1 doesn't name a new payee and

2 always makes commercial paper bearer paper

45

special endorsement 2

1 names a new payee and

2 always makes commercial paper order paper

46

Restrictive endorsement

Adds a restriction, but doesn't prevent further negotiation

47

2 examples of restrictive endorsement

1 "for deposit only" or

2 "for collection only"

48

Qualified endorsement is...

A signature which adds the words "without recourse"

49

Without recourse means...

There is no guarantee of payment (no contract liability)

50

A qualified endorser still has...

Warranty liability

51

Contract liability is...

A guarantee of payment

52

Contract liability is a guarantee of payment. 2

1 only those who sign commercial paper have contract liability

2 parties who sign are either primary liable or secondary liable

53

CP

Commercial Paper

54

Primary liable parties are...

Parties first expected to pay on the instrument

55

Primary liable parties 2

1 makers of notes are primarily liable

2 drawees of draft or checks are primarily liable only after they
accept

56

drawees of draft or checks are primarily liable only after they
accept. There is...

There is no obligation for the drawee to accept

57

Secondary liable parties are...

Liable only after presentment and notice of dishonor

58

Secondary liable parties 2

1 drawers are secondarily liable

2 endorsers are secondarily liable except for qualified endorser

59

Drawers can never be...

Never be primarily liable

60

Checks must be presented within...3

1 30 days to hold drawers liable

2 7 days to hold endorsers liable

61

Warranty liability is...

Liability form transferring commercial paper

62

Warranty liability is a liability from transferring commercial paper:

If you transfer by signing, you...

Make warranties to all subsequent parties

63

Warranty liability is a liability from transferring commercial paper:

If you transfer without signing, you...

Only make warranties to immediate transferee

64

There are 5 warranties from...

Transferring commercial paper

65

There are 5 warranties from transferring commercial paper:

Transferor so warrant...5

1 good title
2 all signatures are genuine
3 the instrument is not materially altered
4 they know of no insolvency proceeding against issuer
5 no defense is good against them

66

2 requirements to be a holder of commercial paper

1 to be a holder of bearer paper requires mere possession

2 to be a holder of order paper requires possession and proper endorsement

67

To be a holder in due course (HIDC) you must meet 4 requirements

1 you must be a holder of a negotiable instrument
2 you must give present value
3 you must have good faith
4 you must be without notice of any problems or defenses

68

Holder in due course:

You must give present value, future value is...

No good

69

Holder in due course:

You must be without notice of any problems or defenses. 3 examples

1 overdue

2 missing signature

3 party is told there's a problem (payment refused)

70

Holder in due course takes free of...

2) but loses to...

Takes free of personal defenses

2) but loses to real defenses

71

Real defenses are defenses that...

Beat Holders in due course

72

Real defense are defenses that beat a holders in due course:

Neumonic

I'M BIFF

73

Real defenses:

I'M BIFF

1 Infancy
2 Material Alterations
3 Bankruptcy
4 adjudicated Insanity or Illegslity
5 Fraud in exception only
6 Forgery

74

Adjudicate Insanity or Illegality or anything that...

Would make a contract void

75

Holders in due course will beat the defense of...

Fraud in the inducement

76

Duress is sometimes a...

Real defense

77

Duress is sometimes a real defense, but only to the extent...

Only to the extent it makes an instrument void

78

All other defenses that I'M BIFF are...2

Personal defenses and holders in due course (HIDC) beats them

79

Shelter provision

Anyone who takes from an HDIC gets standing of an HDIC

80

Shelter provision: anyone who takes from an HDIC gets standing of an HDIC, they are called...

a holder under holder in due course (HUHIDC)

81

Material alterations:

If drawer is negligent...

The drawer is liable for the full amount

82

Material alterations:

If drawer wasn't negligent, the drawer is...

Only liable for unaltered amount

83

Forgery rules:

Forger is...

Always liable

84

Forgery rules:

Forgery of drawer's name

Absent the forger, the drawee is liable if they accept and pay

85

Forgery rules:

Forgery of payee's name does...

Does not usually pass title

86

Forgery rules:

Forgery of payee's name does not usually pass good title. Thus, absent the forger, the...

First one the forger passed it to is liable

87

Discharge of liability:

Payment in full by a party...

Discharges that party

88

Holders intentional destruction of the instrument...

Discharges all prior parties

89

Accidental destruction of instrument...

Does not discharge parties

90

What 2 actions discharge an endorser only?

1 cancellation or

2 crossing out a party's endorsement

91

Renunciation 2

1 written renunciation discharges a party

2 oral renunciation of liability does not

92

Unexcused delay in...

In presentment discharges all prior endorsers

93

Discharge of liability:

A material alteration...

Discharges all prior parties as to the evil doer

94

Documents of title are...

Written documents covering goods being transported or stored

95

2 types of documents of title tested on CPA exam

1 warehouse receipts

2 bills of lading

96

Warehouse receipts are...2

1 issued by a warehouse acknowledging receipt and

2 storage of goods specified in document

97

Warehouse receipts need not be...

Need not be bonded and licensed

98

Warehouse receipts must state if goods are to be delivered to...3

1 bearer

2 specified party

3 the order of a specified party

99

Warehouse receipts must state the...

Location of the warehouse

100

Bills of lading are...2

1 Documents issued by a carrier acknowledging receipt of goods
And

2 a contract for transportation

101

A document of title is negotiable if by its terms...3

1 Goods are delivered to bearer or

2 the order of a named party

3 magic words are "bearer" and "order"

102

Possession of a negotiable document is...

Tantamount to ownership

103

Documents of title:

Negotiation is...

Transferring a document of title to a 3rd party

104

Negotiation is transferring transferring a document of title to a 3rd party. 2

1 a bearer document requires mere delivery for negotiation

2 an order document requires delivery plus an endorsement for negotiation

105

Delivery requirements with negotiable documents:

Carrier or warehouse is required to deliver goods to...2

1 the party legally in possession of negotiable document of title and

2 must take possession of negotiable document

106

Delivery requirements with negotiable documents:

With bearer documents of title goods must...2

1 Be delivered only to party possessing the bearer document or

2 to someone designated by that party

107

Delivery requirements with negotiable documents:

With order documents of title, the goods must be...2

1 delivered only to that party or

2 to one holding a document of title properly endorsed by that
Party

108

Delivery requirements with negotiable documents:

With nonnegotiable documents the goods must be...

2) who is it not sent to?

E delivered to the party named in the document (consigned)

2) not sent to one legally in possession of the document

109

A holder by due negotiation is very similar to...2

1 A holder in due course of commercial paper and

2 acquires the same rights as holder in due course does

110

4 requirements to be a holder by due negotiation

1 present value
2 good faith
3 without any notice
4 must obtain it in regular course of business

111

4 requirements of due negotiation:

Present value

Must give present value for the document title

112

4 requirements of due negotiation:

Good faith

Must take in good faith

113

4 requirements of due negotiation:

Without any notice

Must take without any notice of an adverse claim or defense

114

4 requirements of due negotiation:

Must obtain it in regular course of business

The purchaser must obtain it in the regular course of business or financing

115

The purchaser must obtain it in the regular course of business or financing:

Purchaser may not...

May not obtain it as payment for or settlement of an antecedent
debt

116

3 warranties made by transferors of negotiable documents of title

1 document is genuine

2 transfer is effective and rightful

3 transferor had no knowledge of facts that would impair validity
Of the document

117

Title and risk of loss only pass when...

Buyer gets document of title

118

Rights and liabilities of warehousers and carriers:

Both may...

Limit their liability by contract

119

Rights and liabilities of warehousers and carriers:

They are always liable for...

Negligence (lack of due care)

120

Rights and liabilities of warehousers and carriers:

Both are liable for...

Misdelivery of goods to a good faith purchaser

121

Rights and liabilities of warehousers and carriers:

Who is strictly liable?

Common carriers are strictly liable (warehousers are not)

122

Rights and liabilities of warehousers and carriers:

They may commingle...

Fungible goods

123

Fungible goods

Any unit is treated as the equivalent of any other unit

Ex. Wheat, oil, coal of same quality

124

Documents of title:

Both have a liens for changes and expenses on goods in their possession. 2

1 lien may be enforced against a purchaser of the document of title

2 may be enforced for selling the goods at public or private sale

125

Maker

Makes up instrument

126

Payee

Gets paid

127

What is the most common type of draft?

a check

128

Drawer

Writes check

129

Drawee

Bank

130

IOU

Payable to specific person

131

Antedated

Predated

132

Restrictive endorsement destroys...

Transferability

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