Regulation Ch 6

Regulation Ch 6 - REG - Notes Chapter 6...

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REG - Notes Chapter 6 http://cpacfa.blogspot.com Commercial Paper Commercial paper is promissory notes (CD’s) or drafts (checks) The commercial paper laws arose, in part, to provide a convenient and safe substitute for cash Article 3 – governs any type of note or draft (check or installment note) - not warehouse receipts, bills of lading, stocks and bonds Step 1: identify the type of paper A note – is a two party commercial paper. It is a promise by one party (the maker) to pay money to another party (the payee) Certificate of deposit (a bank promissory note) – A CD is a negotiable instrument issued by a bank that acknowledges receipt of money and promises to repay at a future date Drafts – is a 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) Checks – drawee must be a bank and be payable on demand Trade acceptances – draft drawn by seller ordering the buyer to pay Demand note/draft – an instrument payable on demand Time note/draft – an instrument payable at a future date Step 2: is the instrument negotiable To be a negotiable instrument, the instrument must: Be in writing Be signed my the maker (note) or drawer (draft) - UCC is liberal on what constitutes a signature, could be an X or a scribble as long as you wrote it Contain an unconditional promise (note) or order (draft) to pay - not negotiable if on the front it states payment is conditional (“subject to” or “contingent upon”) Be a fixed amount of money only - on the face of the instrument and be a specifically ascertainable amount (its not uncertain if its payable with interest, with stated disc/prem or with cost of legal fees) Be payable on demand or at a definite time - Checks don’t have to be dates, but it should - Notes may have to be dated if the notes says payable after 90 or 180 days Be payable to order or to bearer, with the exception of checks, and - Unless it’s a check, it must state order or bearer (“pay to the order of John”) - an instrument payable to bearer, is payable to anyone who possesses it Contain no undertaking or instruction not authorized by the UCC - certain authorized promises will not destroy negotiability such as, collateral, promises to pay legal fees, waivers of the right to a jury trial, promises to pay prepayment penalty, interest, pay off early Type written terms control over pre-printed terms. Hand written terms control over both Words controls figures. Pay five dollars and 5,000 is construed as an order to pay 5 dollars 1
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REG - Notes Chapter 6 http://cpacfa.blogspot.com If an instrument is not negotiable there can be no holder in due course and the holder in due course rule cannot apply. Thus, transferees of the instrument will take the instrument subject to any defense against payment that a party might have Step 3: Does the holder qualify as an HDC? The process by which commercial paper is transferred is called “negotiation”, and the persons whom the UCC
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This note was uploaded on 05/11/2010 for the course CPA 2010 taught by Professor ?? during the Spring '10 term at Becker College.

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Regulation Ch 6 - REG - Notes Chapter 6...

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