Commercial Paper-Short Outline PDF

Preview

Summary

outline...

Description

I always created outlines to prepare for my law school exams, so I knew that I would need to create outlines for the bar exam. My general process was to create an outline using my lecture notes. Then, I would supplement the content of my outline as I reviewed multiple choice questions or essay questions. The first draft of my outline was usually pretty long. As I learned the material, I tried to reduce the length my outline to less than five pages, making it more like a checklist. This is the final version of my commercial paper outline. The week before the exam I would take long walks and review my outline as I went, trying to memorize and recall the important tests. Laura McNabb, Class of 2012 (pass the July 2012 bar exam)

Commercial Paper 1.

Does UCC Art 3 apply?  payment of money via check, promissory note

2.

Holder v. Maker a. What kind of instrument?  Note= maker, payee (SOL= 6 yrs after demand or due date)  Draf= drawer, drawee, payee (SOL= 3 yrs after dishonor) b.

Is the instrument negotiable? (automatic if check, negotiability must be clear on the face of instrument)  1) Written + signed by maker/drawer (any mark w. present intent to authenticate)  2) Promise to pay/order to pay a fixed sum of money (no “IOU”; must state principal; no payment in goods)  3) “To order” or “To bearer” (need the magic words unless a check)  4) On demand or at definite time (no payment upon uncertain events, if no date payable on demand)  5) Unconditional (ok if refers to another K, but ≠ make payment “subject to” perf of underlying K)  6) No other instructions/undertakings of independent value (only negot if a “courier w/o luggage”) **if not met, not negotiable; if met, parties can declare “not negotiable”**

c.

Has the instrument been negotiated? (alternative to assignment, look to the last endorsement)  Order paper transfer of possession (involuntary ok) + endorsement by holder (thief ≠ holder) o Special endorsement—specifies to whom payable, stays/converts to order paper o Blank endorsement—mere signature, becomes bearer paper  Bearer paper mere transfer of possession (involuntary ok, thief = holder + can transfer to HDC)

d.

Is this a HDC? (HDC= super P, will take free of personal defenses)  Requirements o 1) Holder (possess bearer paper; possess order paper properly endorsed to HDC) o 2) Gave value (mere promise to perfm ≠ suff)  HDC to extent CNS is executed before learning of defense  Taking instrument as payment of pre-existing claim ok  NOT: purchaser at bankruptcy/creditor’s sale, successor in interest to an estate o 3) Good faith (honesty in fact, subjective; observ rsnbl commercial stndrds of fair dealing, objective) o 4) W/o notice (actual knowledge or rsn to know)  Inauthentic, altered, overdue, dishonored, claim or defense against instrument  Look for huge discounts in value, knowledge principal overdue, close connectedness o NUANCES:  Shelter rule applies (if take from HDC, you have HDC rights even if you have notice)  No HDC status if customer credit K (FTC rule)



e.

3.

Still subject to real defenses [FAIDS] o Fraud in factum o Forgery o Alteration o Adjudicated incompetent o Infancy

o o o o o

Illegality Duress Discharge in bankruptcy Suretyship defenses SOL

Maker/Drawer liab  Maker must pay note according to its terms at time made: if more than 1 maker, all J&S Rules re accom-ing party/co-signor o Holder has right to enforce against co-S first, co-S can raise any defenses avail to principal (except insolvency, infancy, lack of legal capacity), can seek complete reimbursement o Extend/modif/discharge of collateral w/o co-S knowledge/consent binds co-S unless prove harm o If “collection guaranteed” co-S only liab if holder cannot collected against principal (unsatisfied judgment, principal insolvent, can’t be served with process)  Drawer must pay draft according to terms when drawer signed o Secondarily liable if timely presentment (delay ≠ excuse unless drawee bank becomes insolvent during delay + no insrnc to cover loss) + dishonor (gen not entitled to notice)

Holder v. Endorser a. Endorser secondarily liable (signature on instrument creates liab, even if HDC, unless “w/o recourse”)  Must pay according to terms of instrument at time of endorsement, liab attaches after: o 1) Presentment (to maker if note, drawee bank if check)  Due w/in rnsbl time after endorser becomes liab  Check req presentment w/in 30 days of endorsmnt (otherwise liab discharged for non-HDC) o 2) Dishonor o 3) Notice of dishonor (w/in 30 days of dishonor; if bank notice by midnight deadline) o Will excuse req’s if inability to comply rnsbl/beyond holder’s control  ALL endorsers fully liable, BUT later endorsers can get complete reimbursement from earlier endorsers o If anomalous endorsements (e.g., suretyship), joint endorsements (“to H + W”) J&S liab If forged endorsementEndorser that transferred for CNS liab for breach of Transfer Warranty Each party that transfers instrument and receives CNS warrants that:  Entitled to enforce  Signatures are genuine (authentic + authorized)  No material alterations  No defenses/claims available against warrantor  No knowledge of insolvency proceedings ** Effect= loss will pass to the earliest solvent person after the forger since forger typically unavail/insolvent

b.

4.

Holder v. Drawee a. No rights against the bank bank ≠ liab on instrument, only liable to its customers

5.

Drawer customer v. Drawee bank a. General rule—bank can only pay-out customer’s money if properly payable b.

When bank must re-credit customer’s account:  Wrongful dishonor (should have been paid but wasn’t, customer must prove actual damages)  Material alteration (bank can only charge customer for original amt, altered amt ≠ properly payable)  Paying post-dated check despite notice (notice must describe check w. rsnbl certainty)



Failure to stop payment (notice must describe check w. rsnbl certainty) o Must be rec’d at time/in manner that gives bank rsnbl opportunity to act o Oral notice lasts 14 days, lasts 6 mos if confirm in writing



*Forged drawer signature (unauthorized signature ≠ properly payable b/c customer ≠ order payment) o Drawee bank bears the risk of loss unless (1) forger available/solvent, or (2) someone in chain knew the signature was unauthorized (depository bank tech had good title since thief was the drawer) *Forged endorsement + order paper (no one from forger on= holder, bank can only properly pay a holder)

 c.

Defenses (Exceptions to above, when bank does NOT have re-credit customer’s account)  Ratification req full knowledge of forgery/alteration + accepting benefits or affirmatively assenting  Fictitious payee even if person id as payee is fictitious, endorsement in that name valid  ER entrustment rule if ER entrusts EE w. respons w. respect to an instr, EE’s fraudulent endrsmnt= effective o Look for EE with authority to: (1) sign/endorse instr on ER’s behalf; (2) process instr rec’d by ER; (3) prepare/process instr for issue in ER’s name; (4) supply info determining names/addresses of payees of instr to be issued by ER; (5) control disposition of instr issued in ER’s name 

Drawer negligence if customer’s neg substant contrib to matrl alt/unauthor sign, ≠ recover paymt by bank o Causation req’d, did customer’s neg afford opp that was taken advantage of?



Failure to inspect/notify customer must exercise rsnbl promptness in examin. stmt to discv unauthr pymt o Must give bank prompt notice of any unauth payments customer rsnbly should have discovered  If >30 days, estopped from re-credit of items forged/altered by on-going wrongdoer  If unauth sign/alter, SOL = 1 yr after stmt made available  If forged endorsement, SOL = 3 yrs after cause of action arose o If improper notice, bank ≠ have to re-credit IF it can show it suffered a loss b/c of customer’s failure Comparative negligence applies customer subject to above defenses make recover from bank or other payor who failed to exercise ordinary care to the extent such failure contributed to the customer’s loss.



6.

Drawee bank v. Presenter a. General rule: Drawee’s payment over a forged endorsement is final as to: (1) HDC or (2) if good faith reliance on pymt EXCEPT if these parties breached the presentment warranty b.

If forged endorsement Presenter liable for breach of Presentment Warranty ANY party obtaining payment (even HDC) + previous transferors warrant:  Entitled to enforce;  Instrument has not been altered; AND  No knowledge that drawer’s signature forged ** No one after forged endorsement will have good title, thus bank can recovery from any...