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Commercial Paper Bar Exam Outline

Law Outlines > Oklahoma Bar Bundle Outlines

This is an extract of our Commercial Paper Bar Exam document, which we sell as part of our Oklahoma Bar Bundle Outlines collection written by the top tier of Oklahoma City University School Of Law students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Oklahoma Bar Bundle Outlines. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Commercial Paper Main Idea: Party is paying money for good and services in the form of paper FORMS OF COMMERCIAL PAPER

* Notes: 2 Instrument ( M & P) o Maker- person who signs or is identified in a note as the person promising/undertaking to pay o Payee- person to whom the note is made payable

*
Ex. Jake promises to pay to the order of Sarah the sum of $100 Jake= MakerSarah= Payee* Drafts: 3 Party Instrument (DDP) o Drawer- person who signs or is identified in a draft as the person ordering payment (writing of the check) o Drawee- the person ordered in a draft/check to make payment (bank) o Payee- the person to whom the draft is payable

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Ex. A check NEGOTIABILITY

* A negotiable instrument is one that can be negotiated or assigned to a 3rd Party

* Requirements o Written & Singed (by maker/drawer)

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On something tangible

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Almost always paper Could be cow, tshirt, etc.*
Signed: Any symbol executed/adopted by a party w/ a present intention toauthenticate a writing

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Ex. Printed, stamped, initials, thumbprint Can appear in body of instrumento Unconditional

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Conditional promises okay but destroy negotiability Ex. "I promise to pay IF"= not negotiable*
Referring to another document will not destroy negotiability so long as payment not made subject to or conditioned upon performance of the underlying contract Ex. "in accordance with" or "as per" is okay*
Negotiability must be clear on the face of the instrument!!
Not conditional merely if*
Refers to another writing for statement of rights regarding the collateral or payment

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Limits payment to particular source of funds

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Requires as a condition to payment a countersignature by a person whose signature appears on the promise (traveler checks) o Promise (note) or Order (draft) to Pay

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IOU not negotiable- not a promise to pay

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I wish you would pay- not an order to pay not negotiable

o

A fixed Amount of $, that is;

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MUST BE pay in $, not goods or services

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Holder must be able tell from instrument itself what amount is due

o

Payable to Order/Bearer (at time it is issued)

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Instrument must contain certain magic words either:
? Order language, or
? Bearer language
? Writing lacking these words is not negotiable

* I promise to pay Paul= not negotiable

* Exception: Checks --> "Pay Jake Sandlin" are fully negotiable

o

Payable on Demand or at a Definite Time

*
Holder must be able to tell when it comes due otherwise non-negotiable

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Does not require a date

*
Undated instrument which specifies no time for payment treated as instrument payable on demand by holder
? Ex. Post dated checks, note containing acceleration clause, note containing extension clause as long as extension is to a future definite time
? Not: event certain to happen but uncertain as to time

* Ex. When uncle mark dies : not negotiable

Does not State any unauthorized undertaking or instruction (by the person promising/ordering payment)

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Must not be burdened by anything other than simple, clean unconditional promise or order

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What is allowed: (things that strengthen a promise or order)
? Undertaking or power to give, maintain, or protect collateral to secure payment;
? Authorization or power to holder to realize on or dispose collateral
? Waiver of benefit of law intended to benefit or protect obligor
? Promise to pay costs of collection o

NEGOTIATION

* Assignment vs. Negotiation o If Assigned to 3rd Party:

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3rd party= assignee & has only same rights as assignor does on instrument

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Any defenses that could be raised against the payee could be raised against the assignee o If Negotiated to 3rd Party: (BETTER TO HAVE THIS)

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3rd Party= A Holder If holder gives value, takes in good faith, and w/o notice thenHOLDER IN DUE COURSE (HIDC)!!!
HIDC will take free from most personal defenses that could havebeen raised against payee Real defenses can be used against HIDC* How to Transfer o Order Paper: Transfer of Possession & Indorsement by Holder (Safer)

*

*

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Holder: the identified person to whom the instrument is payable Transfer may be voluntary or involuntary (Pick Pocket) Indorsement: Special Indorsement- Specifies to whom the instrument is payable*
An instrument specially indorsed becomes order paper Blank Indorsement- doesn't specify the person to whom theinstrument is payable; generally consists of just a mere signature

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Blank indorsement makes instrument bearer paper

Bearer Paper: Transfer of Possession Alone

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Transfer may be voluntary or involuntary (pick pocket)

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Thief of bearer paper cannot be a HIDC but can transfer possession to another who can then become a HIDC!!
o Exam Tip: looks at the last indorsement to determine whether the instrument is bearer paper or order paper o Special Rule:

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Depository bank ( a bank in which an item is 1st deposited) that takes an unendorsed instrument for collection becomes a holder of the instrument IF the customer was a holder at time of delivery, even if customer has not indorsed the instrument

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When order paper contains a forged indorsement, none of the parties from the forger on are holders--none have good title--none are entitled to the money o

HOLDER IN DUE COURSE!!!!!!!!!!

* Determined at the moment the instrument is negotiated to the holder AND she gives value therefor, whichever occurs later o So if transferee of negotiable instrument acquires notice of a claim or defense to the instrument prior to negotiation or giving value, they cant be a HIDC

* Requirements o Holder;

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In possession of bearer paper/ order paper properly indorsed to him o

Who gives value;

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A party is a HIDC only to the extent that the agreed upon consideration has been performed

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Look for EXECUTED CONSIDERATION

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Mere promise to pay not enough

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Watch for discounts where only a % of consideration has been performed
? Whomever takes can only be holder for the % of consideration performed

*
Giving a negotiable instrument is giving value

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Holder also gives value for an instrument when he takes it in payment of or as security for an antecedent (past) claim/debt OR when he makes an irrevocable commitment to 3rd person
? On 1/1/2012, Mary borrowed $1K from Lois, orally promising to pay by 6/1/2012. Mary unable to pay the $1K, but negotiates a note she received from Charles. Lois has given value for the note

*
Banks
? Automatically become holders when customer is permitted to draw against a deposited item

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