CPA REG: Commercial Paper

A person who takes a negotiable instrument for value, in good faith, and without notice of any defenses on or claims to the instrument

If a negotiable insturment is negotiated to a holder in due course, the holder in due course takes free from personal defenses and claims and is subject only to real defenses

two-party commercial paper. It is simply a promise by one party (the maker) to pay money to another party (the payee or to bearer)

a CD also involves two parties (a bank and a payee)

three-party commercial paper. It is an order by one person (the drawer) to another person (the drawee) demanding that the drawee pay money to a third person (the payee)

Drawee must be a bank and must be payable on demand

a draft drawn by the payee (usually the seller of goods) on the drawee (usually the byer of the seller's goods) and accepted by the drawee (accepting liability on the instrument).

an instrument payable on demand

an instrument payable at a future date

1. be in writing 2. signed by the maker (note) or drawer (draft) 3. contain an unconditional promise (note) or order (draft) to pay 4. be for a fixed amount of money 5. be payable on demand or at a definite time 6. be payable to order or to bearer, with the exception of checks 7. contain no additional undertaking or instruction not authorized by the UCC

An insturment is not negotiable if on the front it states that payment is conditional

A holder will take commercial paper in due course to the extent that he take the paper: 1. for value 2. in good faith 3. without notice of any defenses or claims to ownership 4. negotiable

even though the transferee himself might not qualify as an HDC, he can claim the rights of an HDC who held the commercial paper before him

maker/drawer does not have to pay anyone (\"FAIDS\") Fraud in the execution Forgery Adjudicated insanity Alteration Infancy Illegality Duress Discharge in bankruptcy Suretyship defenses Statute of limitations

Cannot be raised against an HDC or their assignees. Anything else not under FAIDS (unauthorized completion, failure of consideration)

1. maker 2. endorser

1. Drawee if they accet 2. Drawer and endorsers

can be liable in either of two entirely independent ways: contract and warranty

Secondarily liable unless endorsement without recourse

exists even if you do not sign or sign without recourse

1. The transferor is entitles to enforce the instrument (has good title) or is authorized to act for one who is entitled to enforce 2. all signatures are genuine or authorized 3. the instrument has not been materially altered 4. no defense od any party is good against the transferor 5. the transferor has no knowledge of any insolvency proceeding that has been instituted against the maker, acceptor, or drawer of an unaccepted instrument