Commercial Paper

Shelter Doctrine

A transferee of an instrument obtains any right of the transferor to enforce it, including any right as a holder in due course. A transferee who engaged in fraud or illegality affecting the instrument cannot obtain the rights of a holder in due course from this transfer.

Real Defenses

Holder in Due Course takes free of personal defenses, but still subject to REAL DEFENSES: - infancy - duress, capacity, illegality - Fraud in the factum - discharge in insolvency proceedings - discharge of which the debtor has notice

Forgery

Real Defense - available against HIDC for person whose name is signed unless estopped; NOT available for forger against HIDC

Imposter

When a person impersonate the payee and induces the drawer or maker to issue an instrument to the imposter payable to the name of the impersonated person, an indorsement by anyone in the name of the payee is effective in favor of a person who, IN GOOD FAITH, pays the instrument or takes if FOR VALUE or for COLLECTION.

Pesonal Defenses (no good against HIDC)

- Contract Defenses - Non-issuance/Conditional issuance/Issuance for a special purpose - Failure of consideration - No title/lost or stolen instrument - Discharge (available against HIDC if HIDC had notice)

Negotiable Instrument Requirements

1. Signed writing; 2. Must contain an unconditional promise or order; 3. To pay a fixed amount of money; 4. Payable to order or to bearer; 5. Payable on demand or at a definite time; 6. And contain no undertaking or instruction

No Holder in Due Course

Even if they meet the rqmnts, they don't take if: 1. Instrument taken by legal process or in execution, bankruptcy, or creditor's sale; 2. by purchase as part of a bulk transaction not in transferor's ordinary course of biz; 3. as the successor in interest to an estate or other organization

Accomodation Party Defenses

Derivative Defenses - can assert any defense or claim in recoupment except discharge in insolvency, infancy, and lack of legal capacity. Suretyship Defenses - if due date extended, instrument modified or value of collateral imparied by person entitled to enforce, and accomodation party suffers loss with repsect to its right of recourse, accomodation party obligation discharged to extent of loss. Accomodation Party not discharged if: - person entitled to enforce did not know of accomodation - accomodation party consents to event or conduct that is basis of discharge; - accomodation party has waived any defenses that could be basis for discharge

Signed Writing

Signature can be in handwriting or mechanical

Presentment Warranties

- runs from person presenting and all previous transferors to drawee - entitled to enforce the instrument - the instrument has not been altered - no knowledge that drawer's signature is unauthorized

Transferor Warranties

1. Transferor is entitled to enforce the instrument; 2. all signatures are authentic and authorized; 3. The instrument has not been altered; 4. the instrument is not subject to a defense or claim in recoupment of any part against the transferor; and 5. the transferor has no knowledge of any insolvency proceeding commenced with respect to the maker, acceptor, or drawer of an unaccepted draft.

Liabilities

Makers have primary liability; Indorsers/drawers have secondary liability; Drawees - primary with acceptance; secondary without acceptance.

Accomodation Party

One who signs commercial paper that is issued for value simply to lend his credit to some other party to the instrument, and who does not directly receive any of the value given. (Liable in whatever capacity they sign (maker, indorser, etc.))

Burdens of Proof

Signatures - on person claiming validity Plaintiff's status - that all necessary sigs valid and he is authorized to enforce instrument Defenses or Claims in recoupment - if validity of sigs is admitted or proved and P also show he's entitled/authorized, BoP shift to defendant Holder in Due Course Status - if D is proven, burden shifts to party claiming to Holder in Due course to prove this status.

Holder in Due Course

Takes the instrument: 1. For value; 2. In good faith; 3. Without notice that the instrument is overdue, has been dishonored, bears an unauthorized signature or alteration, or of any defense or claim against the instrument.