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Commercial Paper I. Key Concepts A. Note – Instrument where maker promises to pay payee.

(Where promise by bank to repay = certificate of deposit) B. Draft - Instrument where drawer orders drawee to pay payee. (Where payable on demand and drawn on bank – even without words of negotiability = check) C. Indorsement – signature other than maker, drawer, or acceptor II. Holder v. Maker (HDC Rule) A. Negotiable instrument 1. Writing 2. Signed by maker (drawer) 3. Unconditional a. No express conditions b. not subject to any other writing c. limitation of funds ok 4. Promise or order 5. To pay a fixed amount (with or without interest) – fixed or variable rate 6. Of money 7. No other unauthorized promise 8. On demand or at definite time 9. To bearer or to order at time of issue (unless check) B. Negotiated 1. Order = proper indorsement plus delivery 2. Bearer – mere delivery alone 3. Last indorsement rule = a. Special/Order b. Blank/Bearer C. Holder in due course 1. For value a. executed consideration b. antecedent claim c. your (depository) bank HDC – if value given (cash check) 2. In good faith a. honesty-in-fact, and b. observance of reasonable commercial standards of fair dealing (merchants test) 3. Without knowledge or notice of overdueness, dishonor, claim defense, forgery, irregularity, or incompleteness which questions authenticity 4. Non-holders in due course a. bulk


Indorser (contract of secondary liability – at time of indorsement) A. Drawee (none. Statute of Limitations (3years for drafts.g. Forgery. Suretyship defenses (if notice of suretsyship). but subject to real defenses F. (Drawer puts money in drawee (drawee acts as agent for collection). Presentment B. Drawer negligent in the notifying VI. Duress. and drawee pays out according to drawer’s order) – properly payable rule B. Illegality D. payment is not final and the bank can recover from the innocent party whom it paid (breach of warranty of presentment) (Right to enforce title) 2 . Dishonor C. unless acceptance (certification)) A. Discharge in insolvency S. FTC amelioration – Human buys consumer goods or services on credit. Where drawee doesn’t pay. Drawer v. Drawer Discharge V.b. Holder v. judicial sale D. fraud in factum A. but should have. Drawer negligent in the drafting 3.. Notice of Dishonor (Warranty if without recourse or delivery except no warranty against forgery) IV. adjudicated insanity I. gets rights of HDC. except participant III. Free from personal defenses and claims. insufficient funds). unless no demand. estate c. Bank Recovery (Finality) A. Holder v. Infancy. but shouldn’t. Where the bank pays on a forged drawer’s signature or other mistake (e. then 10 years) 1. Drawee (contractual relationship) A. payment is final and no recovery is permitted from the innocent party whom the bank paid b. Fictious indorsements are effective 2. where drawee does pay. Liable for consequential damages B. drawee liable to drawer for wrongful dishonor. No HDC rule 2. Shelter rule – anyone who takes after HDC. drawee is liable to drawer for breach of contract Exceptions 1. Alteration. C. 6 years for notes. Where the bank pays on a forged indorsemet.