commercial paper cards.txt

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commercial paper cards.txt
2013-06-23 21:18:21
commercial paper cards

commercial paper cards
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  1. elements of negotiability
    (1) writing; (2) signed by maker/drawer; (3) unconditional promise or order to pay; (4) fixed amount; (5) in money; (6) no other undertaking or instruction; (7) payable on demand at definite time; (8) contains words of negotiability
  2. elements of holder in due course status
    (1) negotiable instrument; (2) holder; (3) authenticity not apparently questioned; (4) holder must pay value; (5) good faith; (6) without notice at time of instrument acquisition; (7) shelter rule application?; (8) burden of proof on HDC
  3. REAL defenses
    infancy; duress which voids; lack of capacity (if voids); illegality (if voids); fraud in the execution; discharge in bankruptcy; omission of required consumer protection language; SOL; payment to former holder; alteration; unauthorized signatures/forgeries
  4. the approach to answering a commercial paper question
    1. identify the type of paper. 2. identify the parties. 3. determine whether the document is negotiABLE. 4. determine if the instrument was properly negotIATED. 5. Determine if transferee is a HDC. 6. Determine P's cause of action (k, tort, warranty, not properly payable). 8. if d liable, can D pass on liability to anyone else?
  5. note
    2 party instrument. it is a promise to pay.
  6. maker
    the promisor (obligor) in a note - the person who has to pay
  7. payee
    the promisee in a note - the person who is entitled to payment
  8. certificate of deposit
    this is a note issued by a financial institution. it acknowledges receipt of money & the financial institution is promising the payee/depositor to repay the money
  9. draft
    this is an order to pay money - it's a 3 party instrument
  10. drawer
    this is the person ordering payment in a draft. this is you when you write a check.
  11. drawee
    this is the person who has to make the payment. often the PAYOR bank.
  12. payee
    this is the person who will receive the money. the person who receives the check, for example.
  13. what is required to be a check?
    a financial institution must be the drawee & it has to be payable on demand. that is, whenever the payee wants the money, thus it cannot be contingent upon the satisfaction of any prior condition.
  14. certified check
    ordinary check w/ a bank has accepted - that is, the bank has agreed to pay it already
  15. cashier's check
    this is where the drawer & drawee are the same bank. the person buying the check is the remitter.
  16. teller's check
    check drawn by one bank on another bank. the person buying the check is the remitter.
  17. traveler's check
    this is a demand instrument that requires a COUNTERSIGNATURE by a person whose specimen signature is already on the instrument. that is, there is already a signature to compare it to
  18. remotely-created item
    draft not signed by drawer but created w/ authority given by drawer so that 3P can get paid from the drawer's acct at bank. you'll use this when you purchase things over the internet or pay bills over the phone by giving acct #
  19. how can you opt out of negotiability?
    you can make an instrument non-negotiable by stating on the document. can't opt in of course. can't opt out for CHECKS.
  20. NEGOTIABILITY: what counts as a signature?
    any mark executed/adopted w/ present intent to authenticate a writing
  21. NEGOTIABILITY: things that make a promise or order to pay conditional (thus rendering document non-negotiable)
    express condition precedent to payment; making the promise/order "subject to" or "governed by" another record; incorporation by reference (i.e., where rights/obligations are stated in another record).
  22. NEGOTIABILITY: things that do NOT render a promise or order conditional (& thus would not negate negotiability status)
    mere statement of consideration; reference to another record (stating "as per" or "in accordance w/"); incorporation by reference of items that would not hurt holder (rights regarding collateral, prepayment, acceleration); limitation of payment to a particular fund or source; countersignature; consumer protection language (this can ruin HDC status though)
  23. NEGOTIABILITY: fixed amount requirement
    need to be able to look at the instrument & determine the PRINCIPAL amount due. there is a presumption of no interest. will still be negotiable despite reference to outside source for determination. if the actual interest rate isn't stated, then the rate will be the judgment rate
  24. NEGOTIABILITY: "in money" requirement
    must be some kind of "authorized medium of exchange" (i.e., some kind of real money)
  25. words vs figures
    words will prevail over figures
  26. NEGOTIABILITY: no other undertaking or instruction
    an instrument is not a full k--it's just a promise to pay.
  27. NEGOTIABILITY: exceptions to the requirement that there be no other untaking or instruction
    promises concerning collateral; confession of judgment clauses; waiver of law intended to benefit the obligor
  28. NEGOTIABILITY: "payable on demand or at a definite time" requirement
    can expressly state payable date or, if silent, it is a demand instrument. can be a fixed period after sight/acceptance. time must be readily ascertainable when promise/order issued. the fact that the date can be changed doesn't affect negotiability status.
  29. examples of bearer language
    "payable to bearer"; "payable to the order of bearer"; "to cash"/"to order of cash"; indicating that possessor is entitled to payment; if no payee is stated. for example, a check where payee name is blank is bearer paper.
  30. order language
    pay to the order of X. usually pre-printed on checks.
  31. what happens if both order & bearer language are present on a neg instrument?
    bearer language will control - thus bearer paper
  32. what is required for HOLDER status?
    (1) possession AND (2) good title
  33. what will qualify you for good title for bearer paper? for order paper?
    for bearer paper, you just need possession. for order paper, you need possession AND necessary indorsements
  34. blank indorsement vs. special indorsement
    blank indorsement creates bearer paper--it's just the payee signature, which lets anyone cash it. a special indorsement designates a new payee basically--creates order paper.
  35. restrictive indorsement
    limits what can be done w/ the instrument. for example, limiting it for deposit or collection only
  36. how do you identify the person to whom an instrument is payable?
    the intent of the issuer of the neg instrument will determine who the initial payee is
  37. a bank can become a holder even w/o
    transferee's signature
  38. capacity & indorsement
    can't indorse w/o capacity. thus, minor/incompetent/undue influence can all be problems.
  39. HDC STATUS: "authenticity not apparently questioned" requirement
    i.e., there is no evid of forgery/alternation, irregularity or its incomplete such that it will call into question whether the instrument is legit
  40. HDC STATUS: "holder must pay value" requirement
    can't be grossly disproportionate to the face value of the note
  41. HDC STATUS: "good faith" requirement
    both subjective & objective component. honesty in fact (subj) & rznable commercial standard of fair dealing (obj)
  42. HDC STATUS: "without notice at time of instrument acquisition" requirement
    refers to ACTUAL (subj) knowledge. there must be notice AND rznable time on which to act. look to the circumstances (subj) to determine whether a person had rzn to know (obj). mere filing is not notice. if instrument is dishonored, overdue prinicipal (not interest) can be notice. if due date of neg inst. or 90 days after issuance of check have elapsed. also, uncured default re: another instrument as part of same series. unauthorized signature, alteration, other claims or defenses to the instrument.
  43. HDC STATUS: the shelter rule
    even if a holder is not a HDC, that person can have the same protections afforded a HDC b/c of this rule. this is b/c the transfer of an instrument will vest in the transferee the rights. thus, you have the rights, but are not a HDC. shelter rule will not apply if fraud/illegality
  44. burden of proof for HDC status
    on the party claiming HDC status
  45. it is not enough for a fraud in the execution defense to say that you didn't know that you were signing a negotiable instrument, rather, you must establish
    excusable ignorance (or excusable ignorance test)
  46. what happens if consumer protection language is omitted?
    treat the instrument as if it actually contains the language (thus providing the defense despite the lack of the provision)
  47. what is the SOL for enforcing the neg instrument?
    NOTES: 6 yrs from DUE DATE (NOT ISSUANCE). For unaccepted DRAFTS, it is 3 yrs after dishonor or 10 yrs after ISSUE
  48. REAL DEFENSE: payment to a former holder
    will discharge liability unless the obligated party had received proper notice re: the transfer. to be proper, notice must be signed by the transferor/transferee, rznably identify the note, provide addresses for payment.
  49. HDC vs true owner
    HDC will win, despite the rightful claim to the neg instrument
  50. disclaiming liability
    you can do this on anything but a check as the drawer (you can do it as payee). for example, writing "without recourse." this won't work on a check, but it would prevent the drawer from being liable w/r/t other neg instruments
  51. a drawer is liable only after two conditions are met
    (1) presentment; AND (2) dishonor. presentment to drawee must occur within 30 days (however, this will only save you if the bank had become insolvent).
  52. what does it mean to dishonor a draft?
    to refuse to pay the instrument despite proper presentment
  53. how do we determine indorser liability order?
    it is based on the order of signatures. you sue prior indorsers, you are liable to later indorsers.
  54. indorser is liable only after
    (1) presentment; (2) dishonor; AND (3) notice of dishonor
  55. the general rule regarding liability for the drawee
    the drawee didn't sign, so they have no liability. there is an exception if there is acceptance or certification, however.
  56. if a bank certifies the check but doesn't pay
    you can sue the bank, you can't sue the drawer - their liability is discharged upon certification by the payor bank
  57. final payment
    final payment occurs when the drawee bank (1) pays in chas or (2) does not revoke a provision settlement by midnight of the next banking day after the banking on which the neg instrument was received
  58. if a drawee pays out on a forged indorsement
    the drawee is liable to the payee for conversion. to sue for conversion, you must have RECEIVED DELIVERY of the instrument. no conversion suit possible if they caused it to get lost & never received, for example
  59. payment of check after the drawer's death
    drawee bank MAY continue to pay checks until it knows of death of drawer & has a rznable opportunity to act on this knowledge. drawee bank may make payments for no more than 10 days after the death of the drawer if the bank knows of the death. if someone CLAIMING AN INTEREST in the acct requests the drawee bank to cease making payments immediately, the bank must comply, regardless of the 10 day rule.
  60. must a creditor attempt to recover from the principal or debtor before attempting to recover from the surety/co-signer?
    no. can attempt to collect from either. the co-signer can limit its liability to collection only, however.
  61. reimbursement for sureties
    an accommodation party is entitled to reimbursement for paying for the principal
  62. can demonstrate accommodation status by either
    express language or by an anomalous indorsement (i.e., an indorsement outside the chain of title)
  63. who can be liable for a transfer warranty? DEFENDANT
    a transferor who receives CONSIDERATION. thus you can't have a transfer warranty if given as a gift.
  64. who are the transfer warranties made to? PLAINTIFF
    immediate transferees as well as subsequent transferees if the transferor indorsed. however, for banks, liability runs w/o endorsement.
  65. can drawer/maker ever sue for breach of transfer warranty?
    no. they get the instrument presrented to them, not transfered.
  66. what does a transfer warranty guarantee?
    (1) that the warrantor is entitled to enforce the instrument--says that the holder has good title. (2/3) guarrantees that there are no alterations, that all sigantures & authentic & authorized & (4) that there aren't any defenses against the transferor--perfect plaintiff warranty. no knowledge is required for these 4 warranties. also warrants there is no KNOWLEDGE of insolvency proceedings. also, if it is a remotely-created instrument, warrants that it was made w/ authorization
  67. can you have made both a presentment & transfer warranty?
    NO. they are mutually exclusive. a P can only have one of these warranty causes of action despite the fact that both warranties might have been made.
  68. who makes a presentment warranty? (who is the defendant)
    presenter & ALL previous transferors.
  69. who is a presentment warranty made to? that is, who is the PLAINTIIFF
    made to parties who pay in good faith, that is the mater for notes or the drawer for checks or the acceptor for certified checks. if the plaintiff is the holder (i.e., the holder has not paid on the instrument yet b/c a check bounces or a promissory note is not paid), then the holder will sue the indorser on the indorser's k. However, if the plaintiff is the payor & the payor has paid & later discovered that he should not have b/c of forgery or alteration for example, then the payor will sue for breach of warranty.
  70. how can a holder discharge obligation?
    surrending instrument to obligor, destroying it, canceling it (writing void)
  71. postdated check
    bank can pay postdated check unless customer gives notice of postdating & describes the check w/ rznable certainty
  72. stop payment order
    only drawer can stop payment on a check--no other party can do this. it must be in WRITING (although a bank can if it so desires do so for an oral. the writing must be signed, dated, describe. valid for 6 mo.
  73. what defenses could a bank claim if it paid contrary to a stop payment order
    argue that the order did not meet the requirements; argue no loss as the drawee would had to have paid the check even if payment had been stopped (e.g., presenter had HDC status)
  74. wrongful dishonor
    drawer may bring action against drawee for bouncing a check wrongfully. payee can't sue. drawer can recover all damages. bank defenses: check 6+ mo old, would overdraw acct.
  75. accord & satisfaction
    can indicate on the check that it is for satisfaction of an unliquidated or bona fide disputed claim. 90 days to return, can tell ahead of time to make full payments.
  76. if forged maker's signature
    maker is not liable--not their signature. will count as the signature of the forger & they will be liable.
  77. if forged drawer's signature
    drawer is not liable. drawee bank must recredit the drawer's acct unless bank has a defense. bank cannot pass on this loss unless there was a breach of presentment warranty. normally there will not be a breach of presentment warranty as the parties had a right to enforce the obligation on the forger. drawee takes the risk unless presented KNEW that it was an unauthorized
  78. what are the banks defenses to recrediting an account (that is, defenses to the alleged drawer's not properly payable action in response to fraudulent check, etc.)?
    drawer's negligence - argue that the drawer substantially contributed to the forgery, thus cannot bring the claim.
  79. bank statement rule
    duty to inspect statement. must look at statement & canceled checks in a timely manner. if drawer does not & bank can prove a loss beyond original mistaken payment then customer is precluded from bringing not properly payable action. forged drawer's signature must be reported to bank within 1 yr regardless of negligence, however
  80. forgery: repeat offender rule
    if the same person is forging a series of checks, must report the forgery within 30 days of when the statement was available - if they don't do so then the bank won't have to recredit the acct for subsequent forgeries by that same forger
  81. forgery of payee's name on bearer paper
    seeing as indorsement is not necessary for bearer paper, it is irrelevant here
  82. forgery of payee's name on order paper
    breaks the chain of title & thus the check is not properly payable. drawer may demand that the drawee bank recredit the drawer's acct as the check was not properly payable
  83. imposter rule
    the issuer is estopped from denying the validity of the forged document. estopped b/c the issuer acted carelessly & thus is deemed to have contributed to the forgery of the instrument
  84. what happens if there is fraudulent indorsement by an employee?
    if the EE had responsibility w/r/t an instrument & that EE makes a fraudulent indorsement, ER can't prevent enforcement
  85. types of alterations
    change in obligation; unauthorized completion
  86. if alteration by change in obligation, can HDC enforce?
    only for original amount--not for enhanced amount
  87. if alteration by unauthorized completion, can HDC enforce?
  88. effects of alteration on non-HDC
    fraudulently made by holder will result in a total discharge of obligor. if not fraudulently made, then the obligor will be liable for the original terms