Commercial Paper

  1. Scope (Com. Paper)
    Art 3 - negotiable intersuments, Art 4 bank relations and checks
  2. Negotiable Instrument
    • (1) writing
    • (2) signed by maker or drawer
    • (3) containing unconditional
    • (4) promise or order to pay
    • (5) a fixed amount
    • (6) of money
    • (7) payable to order or to bearer
    • (8)payable on demand or a definite time
    • (9) containing no unauthorized promises or undertakings
  3. Holder in Due Course - Benefit
    Takes instrument free of personal defenses and claims, subject only to real defenses.

    Must be (1) negotiated to (2) a holder in due course
  4. Holder in Due Course - Requirements
    • (1) Instrument negotiated when it is transferred to a holder
    • (2) Holder is one with possession of the instrument and good title to it

    • holder in due course 
    • (1) holder
    • (2) taken
    • (3) in good faith (honesty in fact and observance of reasonable commercial standards of fair dealing)
    • (4) for value
    • (5) with no knowledge of underlying defenses or problems with the instrument 
  5. Real Defenses
    • Forgery
    • Fraud in factum
    • material alteration
    • adjudicated insanity
    • illegality
    • infancy
    • duress
    • discharge of insolvency
    • discharge of surety - with notice
  6. Shelter Rule
    A party may have rights as a HDC if tranferor was an HDC. Transferee takes shelter in status of his tranferor
  7. Types of Liabilities
    • Contract Liability
    • Transfer Warranty Liability
    • Presentment warranty 
  8. Contract Liability
    When a party signs an instrument, he becomes liable on it by virtue of his signature.

    Makers a primarily liable on notes; indorcers are secondarily liable if the maker dishonors the instrument and the indorser has been given notice of the maker's dishonor.

    Contract liability (only) cvan be dsiclaimed by making a qualified indorsement (adding phrase "without recourse" to an indorsement) 
  9. Transfer Liability
    • Each Person who transfers an instrument for consideration makes five tranfer warranties by operation of law
    • (1) good title
    • (2) no alterations
    • (3) all signatures genuine/authorized
    • (4) no defenses
    • (5) no knowledge of insolvency proceeding involving the maker

     Go without negotiation, indorsement, or qualified. 

    Transfer with endorsement means it runs to every subsquent transferee; without means only immediate transferee
  10. Presentment warranty liability
    Note is presented for payment - presentment warranty

    obtains payment on note warrants that he is person entitled to obtain payment

    Breach, paying party can sue presented or a prior transfere for the amount. 
  11. Drawer and Drawee - who bears the loss? (Generally)
    Bank generally bears loss from forgery because of properly payable rule (must pay properly payable, must not pay not) (wrongful dishonor, wrongful honor)

    Checks that are forged are not properly payable. 
  12. Properly Payable Rule - Exceptions
    • (1) negligence on the part of the customer that substantially contributes to the forgery or alteration
    • (2) issuing an instrument to an imposter or ficitious payee
    • (3) forgery or alterations effectuated by an employee with responsibility for check writing
    • (4) failure to examine a bank statement promptly
Card Set
Commercial Paper
Commercial Paper