Commercial Paper speed

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  1. Maker
    The person making the promise to pay.
  2. Payee
    The person to whom the instrument is payable.
  3. Draft.
    A draft is an order to pay money.
  4. Drawer
    A person ordering payment.
  5. Drawee
    A person being ordered to pay.
  6. Payee
    A person to whom the instrument is payable.
  7. Check.
    A check is draft to pay money. The bank is the drawee and the instrument is payable on demand.
  8. Contradictory terms.
    • Handwritten trumps typewritten.
    • Typewritten trumps printed.
    • Words prevail over numbers.
  9. NI: In writing and signed by maker/drawer.
    • Must be written.
    • Must be signed includes
    • Any executed or adopted with the present intention to adopt or accept a writing.
  10. NI - Unconditional order to pay.
    • No conditions to payment are permitted.
    • Can't be subject to another writing.
    • Mere reference to another document does not make it condition (“in accordance with”).
    • Payment from a particular fund - not conditional.
  11. NI - Fixed payment obligation.
    • Principal is a fixed amount of money.
    • Interest can be variable.
  12. NI - Payable to order/bearer.
    A negotiable instrument must be payable to an order or a bearer instrument.
  13. Order instrument
    • Payable to a specific person.
    • Requires specific person
    • Specific language of negotiability - pay to the order of.”
  14. Bearer instrument
    Payable to: bearer, order of bearer, cash, or payee line left blank.
  15. NI - Payable on demand or at a definite time.
    • Time must be readily ascertainable.
    • On demand
    • At a definite time
    • Acceleration or an extension clauses allowed.
  16. NI - Obligation only to pay money.
    The writing must only commit the obligor to one legal obligation – to pay money.
  17. Holder Status.
    By issuance or negotiation.
  18. Issuance.
    • The first delivery of an instrument.
    • The maker/drawer gives instrument to the payee.
  19. Negotiation.
    Subsequent transfers by payee to other, whether voluntary or involuntary
  20. Special indorsement
    An indorsement to another.
  21. Blank indorsement
    An indorsement not made a specific person.
  22. Qualified indorsement
    An indorsement made with limitations on liability. “Without recourse.”
  23. Restrictive indorsement
    • Used to limit what a holder can do.
    • Can limit how the instrument can be used, but may not place conditions on the transfer.
  24. Multiple payees on an instrument.
    • If jointly, all payees are required to indorse
    • If severally, either party can indorse
  25. Holder in Due Course.
    • To become a holder in due course, one must:
    • (1) acquire status as a holder,
    • (2) pay value for the instrument and
    • (3) take the instrument in good faith and without notice that there are problems which might affect the obligor’s obligation to pay.
  26. HDC - Value.
    • A person must give/do/forgive something of value.
    • Gift - not value
    • Unexecuted promises to perform - not value
    • Executed promises to perform and paying less than the note’s full face value - value.
    • Forgiving preexisting obligation - value.
  27. HDC - Good Faith.
    • Subjective - honesty in fact
    • Objective - reasonable commercial standards of fair dealing.
  28. HDC - Without Notice.
    • Actual notice
    • Notice through the mail
    • Constructive notice.
  29. Shelter Rule.
    • Whatever rights that the transferor had now transfer to the transferee.
    • Focus on previous party'’s HDC status.
    • Does not protect a transferee who commits fraud or engages in illegal activity as it relates to the instrument.
  30. Right to Transferor’'s Indorsement.
    Transferee has the legal right to have the transferor provide the indorsement to complete the negotiation.
  31. Right to Enforce the Instrument
    A transfer warranty
  32. Authentic and Authorized Signatures
    A transfer warranty
  33. Unaltered Instrument
    A transfer warranty
  34. No defenses or claims
    A transfer warranty
  35. No knowledge of insolvency proceedings
    A transfer warranty
  36. Prima Facie Case.
    • (1) the plaintiff is the person entitled to enforce the instrument
    • (2) that the signatures on the instrument are valid.
  37. Lost/Destroyed/Stolen Instrument.
    • A plaintiff has a right to enforce an instrument even if it was lost or stolen.
    • Loss of instrument cannot be due to transfer of instrument, and holder cannot reasonably obtain possession of the instrument.
  38. Conversion.
    • Wrongful deprivation of another'’s instrument when taken by transfer from a person not entitled to enforce the instrument or receive payment.
    • Damages are the amount payable on the instrument.
  39. Real Defenses
    Available against holders and holders in due course.
  40. Real Defense of Infancy.
    RD. If not 18, a note or draft is voidable by minor. Unlikely in MD.
  41. Real Defense of Incapacity.
    RD. If contract with incapable person is void (not voidable). Unlikely in MD.
  42. Real Defense of Duress.
    RD. When MD state law would make a contract void due to duress.
  43. Real Defense of Illegality.
    RD. When MD state law would make contracts related to gaming void.
  44. Real Defense of Fraud in the Factum.
    RD. (1) Signer is unaware that he is signing a negotiable instrument and (2) did not have a reasonable opportunity to become aware.
  45. Real Defense of Bankruptcy.
    RD. If obligor’s debts have become discharged through bankruptcy.
  46. Real Defense of Alteration & Forgery.
    RD. If a reasonable person would question the authenticity of the negotiable instrument.
  47. Real Defense of Statute of Limitations.
    • RD.
    • For unaccepted drafts, claims must be brought within 3 years of dishonor or 10 years from the date of the draft – whichever is earlier.
    • For other kinds of checks, within 3 years from demand for payment.
    • For notes payable at a definite time, 6 years from the due date.
    • For notes payable on demand, within 6 years after demand for payment.
  48. Personal Defenses
    Only effective against those with holder status. Not a defense to a HDC.
  49. PD: Fraud in the Inducement.
    Signer is aware that he is signing a negotiable instrument but signer is induced based upon misrepresentations.
  50. PD: Issuance.
    When a drawer does not issue the check to the payee.
  51. Contractual Defenses.
    Any contractual defense also applies
  52. Claims in Recoupment.
    An offset against an amount owed on a draft/note which arises from the same transaction or occurrence.
  53. Instruments Issued to Impostors.
    Risk of loss is on the drawer, as he is in the best position to avoid loss.
  54. Instruments Payable to Fictitious or Unintended Payees.
    The drawer is responsible for the instruments that an employee or officer with check-writing abilities makes an instrument to fictitious payee or converts an instrument to a real payee to his own use.
  55. Employer Liability for Employee’s Fraudulent Indorsement.
    An employer bears the risk of loss for an employee with check-writing privilege who forges indorsements.
  56. Benefitted Parties.
    • A party, such a bank or a purchaser for value, who takes a fraudulent instrument.
    • These benefitted parties will not be responsible for the fraudulent nature of the instrument except where the benefitting parties fail to exercise ordinary care in taking the instruments which substantially contributes to a loss resulting from the payment.
  57. Alterations.
    • An unauthorized modification of an instrument by either words or numbers.
    • May not be enforced in court as altered.
    • May be enforced according to the original terms.
  58. Incomplete Instruments.
    • When there is a signed writing where the maker leaves key information blank with the intent to complete the information later.
    • Authorized completions are enforceable, but the obligor is discharged on the instrument from unauthorized completions.
    • A payor bank or HDC can enforce the instrument as completed. Must be signed.
  59. Presentment
    A demand for payment made to a maker or drawee by person entitled to enforce the agreement must be honored when presented.
  60. Dishonor
    If presented but dishonored, this is a precondition for liability of other parties to the instrument.
  61. Presentment Excuses.
    • (1) Presenter cannot locate the person liable to whom presentment must be made,
    • (2) maker/acceptor has repudiated the obligation to pay,
    • (3) instrument’s terms do not require presentment,
    • (4) drawer/indorser has waived presentment requirement, or
    • (5) drawer has instructed drawee not to pay the instrument.
  62. Presentment Warranties.
    • 1. Warrantor is entitled to enforce.
    • 2. Draft has not been altered.
    • 3. No knowledge that a drawer’s signature is unauthorized.
  63. Parties to the Instrument - Maker’s Liability.
    Primary liability and must pay the instrument when it comes due.
  64. Parties to the Instrument - Drawer’s Liability.
    Secondary liability, and liability ripens only upon dishonor.
  65. Parties to the Instrument - Indorser'’s Liability.
    • By indorsing an instrument, you agree to pay the instrument in the event that the one who has primary liability does not pay.
    • Ripens open (1) dishonor of the note and (2) notice to the indorser. Signers have joint and several liability.
  66. Properly payable rule.
    • A bank is obligated to honor a check which is properly payable.
    • Customer must have sufficient funds in his account. If altered, bank may only charge account for the original amount.
  67. Wrongful Dishonor.
    A customer may sue a bank for damages proximately caused by the bank’s failure to honor a properly payable check.
  68. Duty to Inspect a Bank Statement.
    A customer must exercise reasonable care and promptness in inspecting a bank statement to discover unauthorized payments resulting from a forged signature or alteration.
  69. Oral stop payment
    Valid for 14 days
  70. Written stop payment
    Valid for 6 months.
  71. Principal's’ Liability for Agent
    • Principal not bound if agent lacked actual authority to sign.
    • Principal may ratify the agent'’s unauthorized signature.
    • Principal estopped from denying liability when he negligently contributes to unauthorized signature.
  72. Agent’'s Signature on Negotiable Instruments
    • Authorized agent is not liable when clearly signed in his capacity as an agent.
    • An authorized agent who signs his own name but does not clearly indicate his representative capacity or identify the principal has personal liability to the
  73. Unauthorized agent's signature
    Bound by signing an instrument when lacking authority to act on the principal'’s behalf.
  74. Forged Maker’s Signature.
    • A person whose signature was forged is not liable.
    • A person who forged the signature is laible.
  75. Forged Drawer’s Signature.
    • A person whose signature was forged is not liable.
    • A person who forged the signature is liable.
  76. Forged Indorser’s Signature.
    • A person whose signature was forged is not liable.
    • A person who forged the signature is liable.
  77. Payment by Mistake.
    • Drawee may seek restitution on NI when:
    • (1) drawee pays on a check on the mistaken belief that the drawer’s signature was an authorized signature, or
    • (2) drawee pays a check on the mistaken belief that a stop payment order had not been issued.
    • Restitution may not be recovered for a mistaken payment from a good faith purchaser for value or a person who in good faith changed position in reliance on the payment.
  78. Certified/cashier/teller’s check is taken for obligation
    Underlying obligation is discharged.
  79. Uncertified check/note is taken for obligation
    • Underlying obligation is suspended.
    • Discharged upon honor
    • Breached upon dishonor.
  80. Discharge - Lost instrument.
    One entitled to enforce the instrument who has lost the instrument may only sue on the instrument.
  81. Discharge by tender of payment.
    • When a person tenders payment, interest after the due date is discharged.
    • When a person tenders payment and is refused, indorsers and accommodation parties are discharged.
  82. Impairment of collateral.
    If a party’s obligation to pay an instrument is secured by collateral and the person entitled to enforce the instruments impairs the value of the interest of the collateral, then indorsers and accommodation parties are discharged.
Card Set:
Commercial Paper speed
2015-07-24 18:03:24
speed MD
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