Commercial Paper MA
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When a negotiable instrument is duly negotiated to a holder in due course:
the holder in due course takes the instrument free of all claims to it, free of personal defenses and subject only to real defenses.
The two types of negotiable Instruments are:
1. A promissory note
2. A draft.
A promissory note is a:
affirmative promise to pay and not just a mere IOU.
In regards to a promissory note the parties are known as:
1. Maker -promisor
2. Promisee - Payee
A draft contains an:
order or command. (typically a check)
An Indorser signs:
the back of a draft.
In regards to a draft the parties are:
1. The drawer who gives the order
2. The drawee who is ordered to do the paying.
3. The payee who is the beneficiary of the order.
A writing is a negotiable instrument when (WOSSUPP):
- 1. Writing
- 2. Payable to order/bearer
- 3. Signed by maker/drawer
- 4. Sum certain
- 5. Unconditional promise/no additional promise
- 6. Payable on demand or at a definite time
- 7. Payable in currency
If an instrument endeavors to be governed by or subject to the terms of some other agreement or states that rights or obligations with respect to the promise or order are contained in another writing:
the document is non-negotiable.
A variable interest rate or indexed interest rate is:
permissible in a negotiable instrument.
if an instrument is not payable to order, it must be payable to:
All drafts must contain the magic words, order, assigns, or bearer, except for:
The two theories of liability under a commercial paper suit are:
1. K theory
2. Warranty or Transfer Liability
Under K/signature liability:
the D is liable because he signed the instrument and promised to pay it.
When a party indorses a check and adds "without recourse":
the indorser disclaims signature liability
If a check is signed by the drawer and it bounces:
the drawer must pay and can be sued if he does not.
Warranty or transfer liability is:
the seller's liability for selling a defective instrument.
If a D indorses the instrument any plaintiff:
in possession of it may sue.
If a D does not indorse the instrument, then only the D's __________ __________ may sue.
A donor defendant:
may not be sued over an instrument.
If an instrument has been properly transferred:
the transferee is a holder in due course (HDC).
When an instrument is payable to the order of a specific payee, it is negotiated by:
delivery of the instrument to that payee. Any further negotiation requires that the payee indorse the instrument and deliver it to the transferee.
An endorsement must be:
authorized and valid for it to have weight.
If an instrument is payable to the bearer, indorsement:
is not required.
A special indorsement is one which names a ____ ______ as indorsee. An indorsee ______ ________ in order for the instrument to be further negotiated.
A blank indorsement is one that:
does not name a specific indorsee.
A blank indorsement may be negotiated by:
A restrictive indorsement:
contains a restriction on for the purpose of the instrument, such as "For deposit only".
A party that cashes a check in violation of a restrictive indorsement:
is liable for conversion.
An HDC is a holder who takes the instrument:
1. For value
2. In good faith and
3. Without notice that it is overdue or has been dishonored or is subject to any defense or claim.
Consideration does not equal:
value for HDC purposes.
Good faith for HDC purposes means:
honesty in fact.
Without notice for HDC purposes means that:
the holder must acquire the instrument without notice that it is overdue, has been dishonored, or is subject to any defense or claim.
According to the shelter rule, the transferee acquires whatever rights her:
transferor had. Allows the transferee to step into the shoes of the previous HDC, even if she would not qualify as an HDC.
An HDC takes the instrument free from claims, free from personal defenses, and subject only to:
An HDC takes an instrument subject to the following real defenses (MAD FiFI^4):
Fraud in factum, or real fraud is:
a lie about the instrument.
Writing check without authority is:
A drawee bank that honors a forged or materially altered check must:
re-credit the drawer's account, as long as the drawer was not negligent.
A drawer is negligent when he:
1. Leaves blanks or spaces on the instrument
2. Fails to follow internal procedures designed to avoid forgeries.
3. An imposter induces the drawer to write a check.
4. Forgeries by an employee who was entrusted with responsibility for handling checks.
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