Commercial Paper-Bar Exam

1) Note (e.g., promissory note)
2) draft (e.g., check)

1) Identify the type of paper (representation of money)
2) Identify the parties
3) Detremine if the instrument is negotioable
4) determin if instrument was peroperly negotiated
5) Determine if trasnferee is an HDC
6) Determie P's cause(s) of action such as contract, warranty, tort or not properly payable
7) Determine D's defenses
8) if D is held liable, may D pass liabilty to another party?

Note is a promise to pay. There is a maker (payor, obligor) and a payee.

A note issued by a financial instution. Contained 1) an acknowledgment of money recieved and 2) a promise to pay the payee/depositor the moeny.

Draft is an order to pay. There are three basic parties involved: 1) Drawer (person ordering payment); 2) Drawee (person to make the payment, often a bank); 3) Payee (person to receive the payment.

Any draft paybable on demand and drawn on a bank.

Cert. Check: ordinary check with bank has "accepted", i.e., agreed to pay. Cash. Check: drawer and rawee are the same bank. Person bying the check is the remitter. Tell. Check: check drawn by one bank on another bank. Person buying the check is the remitter. Traveler's check: demand instrument requirng a countersignature by a person whose speciman signature already appears on the instrument.

Formerly known as a "demand draft." A draft not signed by the drawer but created with the drawer's authority so that a thrid party can get paid from the drawer's account at a bank. The third party is usually a seller in a phone or internet transaction or hwne you pay bills over the telephon by giving cridotr your checking account number.

IT refers to the form of th einstrument, determined at the time of issuance. If isntrument says it is non-negotioable, it is non-negotiable. Cannot "opt in"

1) In writing
2) signed by maker or drawer
3) unconditional promise or order to pay
4) A fixed amount of money (with or w/o interest)
5) with no other undertaking or instruction
6) payable on demand or at a definite time
7) Contains words of negotiability

If the paper is negotiable (form) and properly negotiated (trasnferred), it may reach the hands of a special good faither pruchaser called a Holder in Due Course (HDC). The HDC obatines BETTER rights than transferor and thus can get paid from obligor even thought the obligor (maker or drawer) hads defense. If instrument is not negotiable, it is not invalid or unenforceable, it is ust a regular contract.

Must be MORE than a mere acknowledgment of a dept, such as an IOU. There is a presumption of unconditional promise or order. Items that MAKE promise or order conditional and thus not negotiable:
1) Express condition to payment
2) promise or order "subject to " or "Governd by" another record
3) incorporation by reference.
A writing is NOT conditional if:
1) There is a statement of consideration
2) there is reference to another record ("as per" or "in accordance with")
3) Incorporation by reference of items that would not hurt holder (Rights regarding collateral, prepayment--right of obligor to pay erarly, acceleration--right of holder to get paid early upon some event)
4) limitation of payment to a particular fund or source
5) countersignature
6) consumer protection language (statement required by law that they holder is subject to claims and defenses of the original payee--but this does prevent holder from being an HDC)

Presumption of no interest. You can have a fixed or variable rate, or a reference to outside interest ("2% above the prime rate). If a paper provides for "interest" but doe snot state the rate, the rate will be the judgment rate.

A commercial paper only requires payment of moeny, it is not a full contract. EXCEPTIONS: you can include promises concerning collateral, confession of judgment clauses (clause in which one party agrees to let another party enter a judgment against him in certain circumstance), waiver of law meant to benefit the obligor (maker, drawer).

An instrument may have an express statement saying a note is payable on deman if it says "on demand" or "at sight" If the instrument is SILENT, it is POD. There may be n express statement by indicated a date stated on the interstumet (Aug. 1, 2014), or a fixed period after sight or acceptance, or a time readily ascertianable at the time the promise or order is issued ("On the first day of Fall 2011"). Obligor may have the right to pay earlier than stated and there may be an accerlation due date--neither prevent instrument from being payable at a definite time.