MBE Commercial Paper Barbri

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MBE Commercial Paper Barbri
2014-07-04 15:04:07
MBE Law commercial paper Douglas Moll
MBE Prof. Douglas Moll
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  1. Two basic instruments of commercial paper
    Note and a Draft
  2. Note
    Maker promises to pay the bearer
  3. Draft
    Drawer orders the drawee to pay the payee
  4. Negotiability
    • 1. Unconditional
    • 2. Promise or order to pay
    • 3. Fixed amount of money
    • 4. To order or bearer
    • 5. On demand or definite time
    • 6. States no unauthorized undertaking or instruction
  5. Conditional instrument
    • 1. A statement is conditional and NON-negotiable if expressly states a condition, OR
    • 2. That the promise or order is subject or governed by another writing
  6. Non-conditional instrument
    • Not conditional because it refers to another writing:
    • 1. Refers to another writing regarding collateral, prepayment, or acceleration
    • 2. Limits payment to a particular source or fund
    • 3. Requires counter signature
    • 4. Contains the statement required by law that holder is subject to claims and defenses of the original payee
  7. Holder in due course
    • 1. Value
    • 2. Good faith
    • 3. Without notice
  8. Value
    • 1. Consideration
    • 2. Security interest
    • 3. Payment of antecedent debt
    • 4. Negotiable instrument
    • 5. Irrevocable obligation
  9. Notice (both actual and constructive)
    • 1. Instrument is overdue
    • 2. Unauthorized signature or alteration
    • 3. Claims on the instrument
    • 4. Defenses of claims in recoupment (infancy, duress)
    • 5. When and how notice must be received
  10. Recoupment
    Claim by obligor that reduce the amount payable
  11. Facts not constituting notice
    • 1. Postdated, ante-dated, undated
    • 2. Return for executory promise
    • 3. Part of a signed accommodation
    • 4. Default in payment of interest
    • 5. Any party negotiation the instrument was a fiduciary
    • 6. Public filing
    • 7. Sold at a discount
    • 8. Notice of discharge
  12. Shelter rule
    The transferee takes the same rights the transferor had
  13. Exception to the shelter rule
    No HDC can be given to persons who were parties to fraud or illegality
  14. Real Defenses to HDC - FAIDS
    • 1. Fraud,
    • 2. Forgery,
    • 3. Alteration of instrument,
    • 4. Accommodation
    • 5. Infancy,
    • 6. Incapacity,
    • 7. Illegality,
    • 8. Duress,
    • 9. Discharge in insolvency proceedings,
    • 10. Discharge known to HDC
    • 11. Statute of limitations
    • 12. surety
  15. Fraud in the factum
    Getting someone to sign something that they honestly did not know was commercial paper
  16. Alteration of instrument collection
    The HDC may still be able to collect the original amount.
  17. Unauthorized completion
    The maker will generally only be liable for what they did, but will also be liable for portions they left incomplete and someone else filled it in.
  18. Personal defenses – May not be raised against the HDC
    Contract defenses – payor must raise the defense of theft – accommodation party can raise most defenses available to the party accommodated
  19. Transfer warranties – made by the defendant
    • 1. entitled to enforce
    • 2. signatures are authentic and authorized
    • 3. not been altered
    • 4. no defense or claim is good
    • 5. no knowledge of insolvency proceedings
  20. Forging breaks what
    Breaks the chain of title and no subsequent possessors of the instrument can qualify as holders. The person whom the check was stolen from did not lose title
  21. Presentment warranty
    Anyone who presents instruments for payment warrants that he is entitled to enforce it. Drawee (bank) can go after those who it paid.
  22. Forged signatures are valid as the signature of:
    The forger
  23. Order paper requirements
    Possession AND necessary signatures
  24. Minor endorsement validity
    Minors or incompetents may endorse
  25. Buyer of stolen goods
    Seller makes an implied warranty of good title unless disclaimed. This means rightful property owners can come and reclaim or replevin.
  26. An instrument is negotiable when it is:
    • 1. Unconditional
    • 2. Promise to order or to pay
    • 3. Fixed amount of money
    • 4. Payable to the order or the bearer
    • 5. Payable on demand or at a definite time
    • 6. States no unauthorized taking or instruction
  27. Fixed amount of money is defined as
    A principle of the payment that is fixed, the interest can be variable
  28. Bearer
    • The person identified on an order instrument or the person in possession of the bearer instrument
    • Definite time
    • On a specific date, after a specific event, or any time readily ascertainable
  29. No unauthorized undertaking
    • 1. Any undertaking to give, maintain, or protect collateral (Payment for debt)
    • 2. A confession of judgment
    • 3. A waiver of benefit of the law
  30. Forging a payee name breaks…
    The chain of title
  31. Multiple Payees “and” v. “or”
    And means all have to sign. Or means only one must sign
  32. Unindorsed order instruments, possessor
    The possessor is not a holder until the order instrument is signed
  33. Special indorsements - names not necessary to chain of title
    Forgery of names not needed in the chain of title will not keep later takers from being holders
  34. Forgery of the drawer’s name
    This does not break the chain of title as the forgery operates as a genuine signature of the forger
  35. Multiple endorsements – who controls
    The last endorsement controls what is necessary for further negotiation
  36. Restrictive endorsement
    Generally ineffective – except when something like “For Deposit” or “For Collection”
  37. For Deposit – what does it do to negotiability
    It must be paid consistently with the indorsement to specific person, or the first bank which the instrument is deposited
  38. Anomalous endorsement
    Any endorsement by someone who is not a holder creates a surety liability for the signer
  39. Does the person have possession? No
    Not a holder
  40. Is it a bearer instrument? Yes/No
    • Yes – The possessor is a holder and thus can negotiate the instrument
    • No – is the person in possession the named payee?
  41. Is the person in possession the named payee? Yes/No
    • Yes – The possessor is a holder and thus can negotiate the instrument
    • No – are all the necessary signatures on the instrument genuine?
  42. Are all the necessary signatures on the instrument genuine? Yes/No
    • Yes – The possessor is a holder and thus can negotiate the instrument
    • No – the person is not a holder
  43. Holder
    A person in possession of the document
  44. Due course
    A holder must take for value, in good faith, and without notice
  45. Due Course – Value
    • 1. Performance of agreed consideration
    • 2. Security interest in the instrument other than judicial lien
    • 3. Taking as payment or security for antecedent debt
    • 4. Traded for another negotiable instrument
    • 5. Giving in exchange for incurring irrevocable obligation to pay debt
    • Value is NOT Consideration
  46. Value v. face amount
    Value need not be for the face amount
  47. Consideration v. face amount
    If one pays less than the agreed upon consideration, the possessor becomes a HDC in proportion to the percentage of value paid
  48. Good Faith – Negotiable instruments
    Honesty in fact and observance of reasonable commercial standards
  49. Notice to purchaser – negotiable instruments
    • Facts Constituting Notice
    • 1. Instrument overdue – any part of principle overdue, acceleration, or over 90 days after issue of demand
    • 2. Unauthorized signature or alteration
    • 3. Claims to instrument – property or possessory right to instrument
    • 4. Notice of defenses or claims of recoupment (obligor disputing amount)
    • 5. When and how notice is to be received (reasonable allowed)
  50. Facts NOT Constituting Notice
    • 1. Pre, Post, or Un – dated
    • 2. Intended in return for executory promise – future promise
    • 3. Any party signed for accommodation
    • 4. Incomplete instrument has been completed
    • 5. Default in payment of interest
    • 6. Public filing or recording
    • 7. Sold at discount
    • 8. Notice of discharge
  51. Time at which HDC status is determined
    Later of when negotiated or when value is given
  52. Shelter Rule
    Transferee acquires the rights of the transferor had
  53. Exception to the Shelter Rule
    No HDC rights to those who were parties to fraud or illegality affecting the instrument
  54. Real Defenses – The only defenses against HDC
    • 1. Forgery
    • 2. Fraud in the factum – signor doesn’t know what they are signing
    • 3. Alteration to instrument
    • 4. Incapacity to contract
    • 5. Infancy
    • 6. Illegality
    • 7. Duress
    • 8. Discharge in insolvency proceedings
    • 9. Statute of limitations
    • 10. Accommodation (suretyship)
    • 11. Discharges known to HDC
  55. Accommodation (surety)
    If HDC knows of the accommodation he takes subject to surety defenses, 1 Extension of due date, 2 Material modification of obligation, 3 Impairment of collateral
  56. Fraud in the factum
    Signor doesn’t know what they are signing
  57. Commercial paper defenses
    • Real defenses – against HDC
    • Personal Defenses – may NOT be used against HDC
  58. Personal defenses
    • Simple contract defenses – often not proper performance
    • Must be own defenses except: accommodation party can raise most defenses available to an accommodated party AND payor must raise the defense if known
  59. Indorser – secondary liability
    • Incurs secondary liability after the person entitled to enforce looks first to the drawee or maker
    • Secondary liability limitations – only good for 30 days
  60. Prior to secondary liability these three things must occur
    Presentment, dishonor, and notice of dishonor
  61. Transfer warranty of transferor
    • 1. Entitled to enforce
    • 2. Signatures authentic and authorized
    • 3. Not been altered
    • 4. No defense is good
    • 5. No knowledge of insolvency proceedings
  62. Bank Liability after death
    Bank must know of death and reasonable time to act. Bank may pay up to 10 days after death
  63. Stop payment order
    Good for 14 days, 6 months if written
  64. Agent signs name without principle name or agency relationship
    Agent is liable to HDC who take without notice. Not liable to non-HDC if can prove original parties did not intend liability.
  65. Negligence – Check
    Leaving blank spaces, making to another with the same name as payee, failing to follow internal procedures to avoid forgeries
  66. Negligence – Check, later parties
    Negligence on behalf of the drawer does not relieve later parties from same standard
  67. Estopple by certification
    Bank certifies check it is estopped from claiming the paying is not the original payee as against subsequent parties.
  68. Forged Indorser signature v. drawers signature
    A forged indorser signature destroys good title, a forged drawee signature does not.
  69. Forged Maker signature – liability
    An alleged maker is not liable, BUT the forger IS Liable
  70. Drawee bank’s defense for no payment
    Payment would overdraw the account, OR check is more than 6 months old
  71. Payment in full check
    Conspicuous indication that the payment is to act as full payment when the existing obligation is unliquidated or subject to bona fide dispute ACTS AS FULL PAYMENT
  72. Payment in full check acts as:
    And accord and satisfaction of original obligation to pay, unless payee returns money within 90 days OR the payment in full check was supposed to go to a specific address.