Commercial Paper
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26 terms
Terms | Definitions |
|---|---|
 Law of Commercial Paper | Article 3 |
| RULE of Commercial Paper | when a negotiable instrument is duly negotiated to a holder in due course, the holder in due course takes free of all claims to it, free of personal defenses and subject only to real defenses |
| Types of Negotiable Instruments | Promissory Note -- affirmative promise to pay (not mere IOU) Draft -- order or command to pay (ex/ a check) |
| Parties to a Promissory Note | Promisor (maker) plus Promisee (Payee) |
| Parties to a Draft | Drawer (orderer), Drawee (the paying), Payee (beneficiary), MAYBE Indorser (signs on back) |
| Requirements for a Negotiable Instrument | - Writing - payable to Order or the Bearer (magic words "order" "assigns" or "to bearer" or "to cash" (w/o magic words it's just a contract) - Signed by maker or drawer - Sum certain - Unconditional promise or order AND no additional promises (CANNOT be "governed by"/"subject to" another agreement w/ obligations, but reference to other doc to describe ok) - Payable on demand or at definite time ("on demand" "at sight" "on presentation" or silence ok; Acceleration clause ok) - Payable in currency |
| Negotiable Instrument Theories of Liability | Contract or Signature Liability (liable if signed) Warranty or Transfer Liability (seller liability for selling defective instrument) |
| Contract or Signature Liability | liable if signed - Maker (by signing promissory note, agrees to pay instrument) - Indorser (promises if it bounces, he will pay) - Drawer (signs the check, agrees to pay) - BUT drawee (pays the draft; typically the bank) - NOT liable (didn't sign) - AND the words "without recourse" accompanying signature pass title but assumes no signature liability. |
| Warranty or Transfer Liability | seller liability for selling defective instrument - Defendant (any transferor who sells negotiable instrument, but NOT donors) - Plaintiff o If D indorsed, any P in possession may sue (warranties run w/ the instrument) o If D did not indorse, only D's immediate transferee may sue (warranties don't run) |
| Warranties made by D (any transferor who sells negotiable instrument, but NOT donors) | o P has good title to instrument o All signatures are genuine and authorized (no forgery) o Instrument has not been materially altered o No defense or claim good against D (enforceable) o No knowledge of any bankruptcy of insolvency against maker or drawer |
| Transfer | due negotiation = proper transfer and transferee is a holder |
| Payable to Order | negotiated by delivery to specific payee, further negotiation requires payee endorse & deliver |
| Payable to Bearer | no endorsement necessary |
| Endorsements | special endorsement blank endorsement restrictive endorsement |
| special endorsement | names a particular person as "endorsee", who then must sign for further negotiation |
| blank endorsement | doesn't name specific endorsee; may be further negotiated by delivery alone |
| restrictive endorsement | contains a condition that must be followed |
| Holder in Due Course | takes instrument (1) for value (2) in good faith and (3) w/o notice overdue/dishonored |
| For value | holder must give value for instrument (NOT mere promise, BUT old value is good value) |
| In good faith | honesty in fact (subjective) AND w/ reasonable commercial standards in fair dealing (objective) |
| Without notice | that it's overdue, dishonored, or subject to defense/claim (objective test = know/reason to know) - BUT ok if interest is in arrears (NOT principal though) |
| Shelter Rule | transferee acquires whatever rights transferor had (donee can step in shoes of HDC) |
| Defenses | Claims, Personal Defenses, Real Defenses |
| Claims | right to a negotiable instrument because of superior ownership |
| Personal Defenses | lack of consideration, unconscionability, waiver, estoppel, fraud in the inducement |
| Real Defenses | material alteration, duress, fraud in the factum, incapacity, illegality, infancy, insolvency |
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