Gilbert Law Summaries on Commercial Paper and Payment Law
Author:
Whaley, Douglas J.
Edition:
17th
Copyright Date:
2013
16 chapters
have results for commercial paper
Chapter One: Introduction to Commercial Paper 18 results (showing 5 best matches)
- This chapter discusses the purposes of commercial paper and the historical background of the law in this area. While you are not likely to be tested on this introductory material, the law of commercial paper is best understood in light of these purposes and the important historical developments that culminated in Articles 3 and 4 of the Uniform Commercial Code.
- On the other hand, some types of commercial paper are used primarily as a means of paying obligations in lieu of money, which may be too awkward (or dangerous) to transfer directly. Checks, drafts, bills of exchange, and trade acceptances are examples of commercial paper used as payment.
- The justification for protecting HDCs in this fashion is that it promotes the commercial viability of negotiable instruments. Institutions that purchase negotiable paper as HDCs need not worry about whether the paper will be paid at maturity, because it circulates very much like money.
- Some forms of commercial paper are used primarily to obtain credit now, to be repaid out of future income. Examples of such paper include promissory notes, certificates of deposit, and investment securities ( , stocks and bonds, which are covered by Article 8 of the Uniform Commercial Code (“U.C.C.”) and are therefore excluded from Article 3 [
- A. Purposes of Commercial Paper
- Open Chapter
Approach to Exams 2 results
- This Summary deals with the rights and liabilities of parties to commercial paper. “Commerical paper” is the term applied to the negotiable instruments most widely employed in everyday business practice-checks, drafts, promissory notes, and certificates of deposit.
- First of all, does the instrument meet formal requirements of negotiable paper? Unless it does, a holder has no greater rights than the assignee of an ordinary contract. Furthermore, if the instrument is not negotiable, Article 3 of the Uniform Commericial code may not apply.
- Open Chapter
Chapter Four: Holders in Due Course 8 results (showing 5 best matches)
- The underlying reason for the shelter rule is to protect the free negotiability of commercial paper. Once the instrument comes into the hands of an HDC, defenses that could not be asserted against the HDC cannot be allowed against any transferee. Otherwise, the obligor could, by putting all potential transferees on notice of claimed defenses, vastly restrict the HDC’s market for the instrument and thereby interfere with the free passage of commercial paper. [
- , sells) the note to Happy Jack Finance Company (“HJFC”) and declares bankruptcy. The car blows up and injures Proprietor, but HJFC still demands payment on the note as an HDC. It is discovered that HJAS and HJFC have the same officers, stockholders, and place of business, that HJFC bought all HJAS commercial paper, and that HJFC supplied HJAS with forms and ran credit checks on prospective HJAS customers. HJFC would probably be considered too “closely connected” with HJAS to become an HDC of the promissory note, so that Proprietor could assert her defenses when pressed for payment by HJFC.
- When a court denies HDC status to the seller’s assignee under the “close connection” theory, it may do so on the ground that: (i) the assignee did not take the paper in as the original seller—so that it was a party to the transaction creating the paper and not an assignee at all. [
- paper. [U.C.C. §§ 9–308, 9–309;
- It is a basic rule of commercial law that a transferee acquires
- Open Chapter
Summary of Contents 4 results
Chapter Two: Negotiability 7 results (showing 5 best matches)
- The extensive protection afforded to buyers of commercial paper (HDCs and others) applies
- However, the writing need not be on paper, and writings on objects other than paper are sometimes encountered. For example, the I.R.S. is faced from time to time with checks from irate taxpayers written on the backs of shirts!
- a. But note—paper not essential
- A check “Pay to the order of Happy Birthday” creates bearer paper. [U.C.C. § 3 109(a)(3)]
- that the instrument must meet to qualify as a negotiable instrument subject to Article 3 of the Uniform Commercial Code. If the instrument’s form fails to meet the necessary requirements, Article 3 applies only by analogy, and the concept of holding in due course does not come into play.
- Open Chapter
Exam Questions and Answers Part 2 2 results
- After Debtor leaves the NLC office, the loan officer cleverly changes the amount shown on the note to $8,000. The note is then sold by NLC at a slight discount to Big Bank, which buys such commercial paper from time to time. Big Bank had no basis for suspecting that the face amount of the note had been changed by an NLC employee.
- Donna agrees, and fills in her name on the first blank and at the bottom of the form. There are two blank lines below her name, and Warmth indicates it will pay the $5,000 as soon as she obtains the two cosignatures. Donna takes the note to her aging Aunt Martha and asks her to sign. Martha, who does not have her glasses, asks the amount of the note and Donna replies that it is for $200. Martha, who has always liked Donna, signs on the line indicated by her niece. That night, Donna takes the note with her to a concert starring Donny Dull, the new rock sensation. After the performance, Dull is mobbed by autograph seekers and screaming teenagers as he tries to leave the concert hall. In the confusion, Donna manages to get him to sign the second blank line below her name, but before she can leave, the note is ripped from her hand and trampled underfoot. Donna searches but cannot find the paper.
- Open Chapter
Capsule Summary 10 results (showing 5 best matches)
Chapter Six: Liability of the Parties 10 results (showing 5 best matches)
- When a dispute arises over commercial paper, it must first be determined whether the instrument is technically “negotiable” so as to come within the scope of U.C.C. Article 3. If so, the U.C.C. authorizes the following types of lawsuits on the instrument:
- 1. Commercial Paper “Contracts”—In General
- and does not depend upon the intentions of the parties. Moreover, the plaintiff need not qualify as a “holder” of the instrument—a prerequisite to suit on any of the commercial paper “obligations” discussed above.
- because it embodies the promise to pay the loaned amount. These two documents (the mortgage contract and the promissory note) should be kept together if and when the original lender sells (“assign”) them to another entity, which is commonly done. Unfortunately those in the business community do not akways appreciate this, and they often assign the mortgage contract and neglect to pass the promissory note along with it. What happens to the promissory note? It is often lost, misplaced, or (in one egregious legal mess) destroyed in a “paper reduction” effort. See Whaley, Mortgage Foreclosures, Promissory Notes, and the Uniform Commercial Code, 39 W. St. U. L. Rev. 313 (2012).
- Banks are more solvent and trustworthy than most individuals, so their paper is deemed to have the same effect as money (unless the parties agree otherwise). Moreover, many courts have held that payment cannot be stopped on bank obligations of this kind.
- Open Chapter
Chapter Nine: Electronic Banking 4 results
- Rather than move around tons of paper each day, bankers have taken steps to speed up and simplify the process of check collection by turning the paper instruments into electronic signals that can be read by automatic check processing equipment and/or computers. More and more of this will be done, and the law has had to adapt to the dramatic changes that electronic banking brings. As already discussed in Chapter Seven, Check 21 creates a federal system for the movement of checks as electronic images. Two other bodies of law deal more closely with the subject: (Funds Transfers) of the Uniform Commercial Code and the
- A transfer of funds not initiated by paper instruction (such as a check), initiated through an electronic terminal (
- Article 4A of the Uniform Commercial Code governs fund transfers in which payment orders are given to move money from one bank account to another.
- The Federal Reserve regulates the collection of checks and wire transfers through Regulation J [12 C.F.R. § 210], which has been amended so that its wire transfer rules are virtually identical to those of Article 4A of the Uniform Commercial Code.
- Open Chapter
Chapter Three: Negotiation 13 results (showing 5 best matches)
- bearer paper
- Harry cannot qualify as a holder of the check. As originally drawn, the check was order paper (“paper to the order of Paula Payee”). When Paula indorsed, she named a specific payee (John Smith) and so the paper remained order paper (requiring Smith’s signature for negotiation). Smith signed in blank (he did not name a new special indorsee) and so the check was converted to bearer paper and could be negotiated by delivery alone. At some point, the paper was negotiated to Fred Farmer, who changed the check back into order paper by naming a new special indorsee (Peggy Lee). Thus, further negotiation required Peggy Lee’s indorsement plus delivery. The check apparently was delivered to Delta Dawn, but there was no indorsement by Peggy Lee. Delta Dawn signed in blank and the paper was delivered to Harry. Unfortunately, Harry does not qualify as a holder because the check was not properly negotiated, because Peggy Lee did not indorse.
- Bearer paper is often considered too negotiable because it must be guarded like cash. Thus, a holder of bearer paper may convert it into order paper by writing in the name of a new payee above the last indorsement.
- An “allonge” is a separate piece of paper “firmly affixed” to an instrument and upon which an indorsement is written. [U.C.C. § 3 204(a)] The common law required that an allonge be glued to the original instrument, but under the U.C.C. the courts have held that an allonge may be stapled to the instrument. [
- A negotiable instrument created as bearer paper or subsequently converted into bearer paper (
- Open Chapter
- Commercial Discount Corp. v. Milwaukee Western Bank,
- of the check and pass it on if the receiving bank or person agrees to that. If not, the bank can then create a paper version of the check from the image, and this is called a
- No one can refuse to take the substitute check, which is legally the same for all purposes (state and federal, including criminal prosecution and tax collection), as the original. Customers cannot insist on getting the original back. If the parties agree to imaging without a paper copy being created, the image also has the same legal effect as the original. These rules greatly speed up check collection, though there are some downsides to loss of the original (no fingerprints,
- In so-called check truncation systems, the banks avoid the necessity of passing around tons of paper each day by photocopying the check at the depositary bank end and then destroying it. All that is passed on through the bank collection process is a description of the check, and this is all that the payor bank receives. The effect of check truncation on the law was unclear until Regulation CC encouraged it and the Revision presented some rules of law about it. Under the U.C.C., anyone who retains an item pursuant to a check truncation system makes a
- Open Chapter
Exam Questions and Answers Part 3 1 result
- According to section 3-605(c) of the Uniform Commercial Code, an extension of time given to the accommodated party (Wastrel) without the consent of the sureties and indorsers discharges them to the extent that they can prove loss caused by the extension, and they have the burden of doing so. [
- Open Chapter
- Publication Date: September 6th, 2013
- ISBN: 9780314282699
- Subject: Commercial Law
- Series: Gilbert Law Summaries
- Type: Outlines
- Description: The topics covered in this outline include types of commercial paper, negotiability, negotiation, holders in due course, and claims and defenses on negotiable instruments, including real defenses and personal defenses. Also discussed are liability of the parties (including merger rule, suits on the instrument, warranty suits, and conversion), bank deposits and collections, forgery or alteration of negotiable instruments, and electronic banking.
