Summary: (19) Commercial Paper + Secured Transactions

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• Commercial Paper

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• HDC Status (6 elements): Important when obligor raises a defense to payment

  1. Negotiable instrument 
  2. Holder 
  3. Authenticity not apparently questioned 
  4. Holder paid value for the instrument (gets protection to extent of payment)
  5. Good faith 
  6. Without notice at time of instrument acquisition 

• Basic Idea of Commercial Paper

  Written instruments for the payment of money

• Commercial Paper: 9 Major Topics

  1. Instruments and Parties 
  2. Negotiability: Is the instrument negotiable? 
  3. Negotiation Was the instrument properly negotiated? 
  4. Holders in Due Course 
  5. Rights of HDC 
  6. Contract Liability 
  7. Warranty Liability 
  8. Other Issues 
  9. Forgery and Alteration 

• (1) Instruments + Parties: Two Types of Instruments

  1. Note 
  2. Draft 

• Certificate of Deposit (CoD)

  A CoD is like a notice. It is an instrument made by a bank containing (1) an acknowledgment that a sum of money has been received by the bank and (2) a promise by the bank to repay the sum of money [to the payee or the depositor]

• Most common form of a Draft?

  Check. A "check" is a specific type of draft, namely one drawn by a bank and payable on demand. An instrument will be deemed a check if it meets these requirements, even if the instrument is described on its face by another term (e.g., a "money order").

• "Remotely Created Item" Defined

  "A remotely-created item is a draft that is not signed by the drawer but created with the authority from the drawer so that a 3P (seller in an internet transaction) can get paid from the drawer's account."
  

  • A draft not signed by the drawer but created with the drawer's authority so that a 3P can get paid from the drawer's account at a bank.
  • 3P is usually a seller in an internet transaction. 3P can also be a creditor: i.e., when you pay bills by phone and give the representative your checking account #. 

• Major Topic 2: "Negotiability" -- Defined

  Whether an instrument is negotiable depends on its form; it must meet the very technical formal requisites of negotiability listed in the UCC.

• 8 Elements of Negotiability - in brief

  1. In writing 
  2. Signed (by maker/drawer)
  3. Unconditional promise (note) or order (draft) to pay 
  4. Fixed amount 
  5. In money 
  6. No other undertaking or instruction 
  7. Payable on demand or at a definite time. 
  8. Words of negotiability 

• Element (2) of Negotiability: "Signed" by Maker (note) or Drawer (draft)

  Any symbol executed or adopted by the maker/drawer with present intent to authenticate a writing.