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21 Cards in this Set
- Front
- Back
requirements of negotiable instrument
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1) In writing
2) Unconditional promise/ order to pay 3) Be a fixed amount of $ 4) Payable at a definite time or on demand 5) Payable to order or bearer (except checks) 6) No other obligation or promise; must not incorporate terms outside the instrument 7) signed by maker (note)/drawer (draft) |
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steps to determine commercial paper on cpa exam
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1. type of paper? note or draft
2. negotiable? 7 requirements 3. does holder qualify as HDC? 4. does maker/drawer have a real or personal defense? |
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what must be done to become a holder in due course?
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NEGOTIABLE INSTRUMENT HOLDER
1.for VALUE-past debt ok, not future (executory promise) 2. in GOOD FAITH-honesty in fact 3. W/O NOTICE OF ANY DEFENSES |
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what happens if instrument is not negotiable?
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1.no HDC
2. transferee must take instruments subject to any defense against payment 3. becomes an ordinary contract |
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what is a holder? for bearer paper? for order paper?
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a person with "good title" to the commercial paper, proper negotiation:
bearer paper-delivery order paper-delivery & endorsement |
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a person with "good title" to the commercial paper means
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1.properly current negotiation
2.every prior negotiation was proper 3. can't break chain of title |
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"without recourse" means
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no guarantee of pymt by the endorser (no contract liability). still has warranty liab
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what is the shelter doctrine?
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"a holder through a HDC". any transferee after an HDC gets that HDC's claims. not subject to personal defenses
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an HDC will take a negotiable instrument subject to which defenses?
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real defenses-FAIDS
Fraud in execution Forgery of necessary signature Adjudicated insanity Alterations that are material Infancy that renders contract vvoidable Illegality Duress Discharge in Bankruptcy Suretyship if status know Statute of limitations-3 drafts, 6 on notes |
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what are some personal defenses?
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unauthorized completion-issuer leaves part of instrument blank, filled in by someone else
fraud in inducement, failure of consideration, theft of instrument after signed, break of contract, mistake, impossibility, etc |
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how does an endorser negate his contract liability?
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write "without recourse" on back
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what are the transfer warranties of those transferring for consideration?
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1.transferor has good title or surety
2.all signatures genuine and authorized 3.no material alterations 4. no defense is good against the transferor 5.no knowledge of insolvency procedding has been put against the maker, acceptor, or drawer |
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transfer warranties exist even if...
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signed w/o recourse or transferor doesn't sign at all (only to subsequent transferee)
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who is liable if the forger is missing?
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drawee- if drawer or payees name is forged
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when is the drawee primarily liable?
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after acceptance
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when is the maker primarily liable?
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always
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a qualified endorsement means
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"without recourse"
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a restrictive endorsement means
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specifies use of instrument "for deposit only" or condistions of use "pay to John only", "for collection"
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a special endorsement means
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pay to a specific person
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which two parties are primary liable?
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maker and acceptor
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The rights acquired by due negotiation include:
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1) title to the document
(2) title to the goods (3) the direct obligation of the issuer to hold or deliver the goods according to the terms of the document free of any defense or claim by the issuer. |