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    Commercial Paper

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    Anuj Khadria
    Commercial paper refers to negotiable instruments like promissory notes and checks governed by Article 3 of the Uniform Commercial Code. There are specific requirements for an instrument to be negotiable including being in writing, signed, for a fixed sum of money payable on demand or at a determinable future time. Negotiable instruments can be transferred through endorsement and delivery or delivery alone for bearer paper. Parties to negotiable instruments assume roles like maker, drawer, drawee, and payee. A holder in due course takes the instrument free from many personal defenses between original parties but subject to real defenses.

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    Attribution Non-Commercial (BY-NC)
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    Commercial Paper

    Uploaded by

    Anuj Khadria
    178 views26 pages
    Commercial paper refers to negotiable instruments like promissory notes and checks governed by Article 3 of the Uniform Commercial Code. There are specific requirements for an instrument to be negotiable including being in writing, signed, for a fixed sum of money payable on demand or at a determinable future time. Negotiable instruments can be transferred through endorsement and delivery or delivery alone for bearer paper. Parties to negotiable instruments assume roles like maker, drawer, drawee, and payee. A holder in due course takes the instrument free from many personal defenses between original parties but subject to real defenses.

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    Commercial paper refers to negotiable instruments like promissory notes and checks governed by Article 3 of the Uniform Commercial Code. There are specific requirements for an instrument to be negotiable including being in writing, signed, for a fixed sum of money payable on demand or at a determinable future time. Negotiable instruments can be transferred through endorsement and delivery or delivery alone for bearer paper. Parties to negotiable instruments assume roles like maker, drawer, drawee, and payee. A holder in due course takes the instrument free from many personal defenses between original parties but subject to real defenses.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    178 views26 pages

    Commercial Paper

    Uploaded by

    Anuj Khadria
    Commercial paper refers to negotiable instruments like promissory notes and checks governed by Article 3 of the Uniform Commercial Code. There are specific requirements for an instrument to be negotiable including being in writing, signed, for a fixed sum of money payable on demand or at a determinable future time. Negotiable instruments can be transferred through endorsement and delivery or delivery alone for bearer paper. Parties to negotiable instruments assume roles like maker, drawer, drawee, and payee. A holder in due course takes the instrument free from many personal defenses between original parties but subject to real defenses.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 26

    Commercial Paper

    The law of negotiable instruments UCC Article 3

    Types of Negotiable Instruments


    Promissory Note: A promise in writing to pay a sum of money. Draft: An order addressed by one person to another, ordering the person to whom it is addressed to pay a sum of money to a third party Check Drawee is a bank

    Parties
    Note: Two party document
    Maker One who promises to pay Payee - One to be paid

    Draft Drawer One giving the order to pay Drawee - One who is directed to pay Payee - One to be paid

    Negotiability
    In writing Signed Payable at fixed or determinable time or on demand Payable to order or bearer Unconditional promise or order To pay a sum certain Payable in money

    Time for Payment


    On demand:
    If stated in Instrument No time for payment is stated
    Acceleration clause is permitted Postdating does not affect negotiability

    Time for Payment


    Determinable future time
    on or before a stated date Fixed period after date

    Payable to Order or Bearer


    Exception : If a check meets all other requirements of negotiability it will remain negotiable even if the words order of or bearer are missing

    Unconditional
    May make reference to another agreement May limit payment to a particular fund or source. (Revised Article 3)

    Sum Certain (Fixed amount of Money)


    Minimum amount to be paid to holder must be specified. May call for the payment of interest

    Negotiation
    Order Paper Endorsement and Delivery

    Bearer Paper Delivery alone

    Imposter and Fictitious Payee Rules


    Imposter Rule: Forged payee endorsement when maker/drawer has been induced by imposter to issue note/draft is effective for negotiation.

    Fictitious Payee Rule: A forged endorsement is effective for negotiation when maker/drawer has been induced by dishonest employee to issue note/draft.

    Types of Endorsements
    Blank
    Signature only Names no endorsee
    Instrument becomes bearer paper Endorser guarantees payment

    Blank Indorsement
    Jane Doe

    Types of Endorsements
    Special
    Endorser specifically names the transferee to whom the instrument is payable.
    Only transferee can negotiate instrument further Instrument is order paper Payment guaranteed by endorser

    Special Indorsement
    Pay to the order of Bill Smith Jane Doe

    Types of Endorsements
    Qualified
    Blank endorsement Without Recourse added
    Endorser does not guarantee payment in event of default Warranty liability still applies

    Qualified Indorsement
    Without Recourse Without Warranty Jane Doe

    Types of Endorsements
    Restrictive
    Attempt to restrict further negotiation General Rule: Endorsement is Not effective / Once instrument is negotiable no endorsement can prevent further negotiation
    Exception: For Deposit Only / For Collection Only bank can become holder

    Restrictive Indorsement
    For Deposit Only Jane Doe

    Holder in Due Course


    Holder: Possession of Instrument with all necessary endorsements. Holder in Due Course Must Take Instrument
    In good faith For value Without notice of:
    Overdue Defects Dishonor Altered or unauthorized signatures Defenses

    Holder in Due Course


    Holder in Due Course : Takes instrument free of personal defenses Subject to universal (real) defenses

    Personal Defenses
    Ordinary contract defenses Incapacity other than minority and adjudicated incompetents Fraud in the inducement Unauthorized completion Theft, when instrument is bearer paper

    Real Defenses
    Fraud in the execution Forgery Material Alteration Incapacity of a minor or adjudicated incompetent Illegality or Duress that renders instrument void Bankruptcy

    Warranty Liability
    Implied liability whenever instrument is negotiated for value
    Bearer Paper : Warranties extend only to immediate transferee Order paper : Endorser warrants to all subsequent holders

    Warranties
    All signatures are genuine Good title (transferor is entitled to enforce the instrument Instrument has not been materially altered Transferee has no knowledge of insolvency proceedings against any part to instrument No defense of any party is good against transferee

    Shelter Rule
    One who takes from a Holder in Due Course or traces possession back to a Holder in Due Course takes with the rights of a Holder in Due Course even if they do not qualify as a Holder in Due Course.

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