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Commercial Paper
SUNY Buffalo Law School
Buckley, Elizabeth F.

Negotiable instruments
Negotiation and Transfer
·         3-301- who can enforce (holders, non-holders in possession, not in possession but entitled to enforce-ie a person who lost a check)
·         3-104- harsh doctrine of negotiable instruments
·         Transfers- Shelter doctrine- 3-203- when transferred a non-holder can enforce as a holder
o        Problems page 606
·         Payee- to whom payment is owed
o        Can also be holders and/or transferors
·         Burdens for holders and makers
o        Holder- bear the instrument (for banks, they were authorized by someone to do it)3-308
o        Maker- any defenses or claims of recoupment (3-305, 3-117,etc)
o        Holder- all elements of HDIC doctrine
§         Problem page 610- bank is holder in due course
·         Note: Mark could have protected himself by putting ‘non-negot’on note
o        Instruments are also non-negot if no “pay to order/bearer”
·         Real defenses
o        May be subjected to HDIC
§         Infancy, duress, etc
§         Not fraud
·         Case law- if a note does not have a fixed interest rate, it is non-negotiable *(Taylor v. Roeder)
·         Holder in Due Course- requirements
o        Must hold instrument
o        Paper has to be clean (no irregularities, write-overs, etc)
o        Taken for good value (3.303)
§         Performance has to be delivered upon
·         Problem example page 661 (1)- no value b/c promise not delivered upon. Executory promise is not value!
§         Holder cant assert HIDC against maker if taken as a gift
·         Code doesn’t like windfalls
o        Note: exception to this with 3-203 shelter rule (transfer). If transferor was HIDC, transferee is HIDC (p.607 problem 2)
§         Windfall v. free market for HIDC to transfer
§         Note: even if holder bought 1,000 note for 100, still value. But there may be notice issues b/c not was so cheap
·         Problem (2) p. 661-if holder only paid part of note before learning of fraud, he can still benefit from HIDC- but use discount analysis- new to Article 3- 3-302(d) comment 6 (p.268)
§         Note: problem 3 page 662: collateral=value
o        In good faith
§         Revised Art. 3 added more objective reasonable business standard
§         More objective than‘clear heart empty head’
o        Not overdue (3.304)
o        Without notice (1-202)
§         Actual knowledge (someone told me it was bad)
§         Defense appears in accompanying document- note itself is fine but other papers it comes with is wrong. Banker should realize this.
§         Information appears in written instrument itself (overdue, etc.). Or the note is a mess. (problems page 642)
§         Knowledge of business transactions- if holder buys a lot of holder from the dealer- close-connectedness doctrine
o        Thus Brushetts case would be decide differently today
§         Note- forgotten notice is still notice (problems page 630)
·         Main Family v. Sun Life (good faith analysis)
o        Insurance scam with beneficiaries and agent, Credit Union (P) is not HIDC b.c it did not comport with good faith- in a reasonable business matter sense. Should have held on to check because of the high amount, out of state payor bank, etc.
§         Credit Union was a holder by transferee b/c frauder was holder
§         HIDC analysis- Bank- We hold the instrument; Children- 3.305- possessory claim/defense; bank- HIDC- (which is fails b/c no good faith)
§         Ruling shows revised 3-303 good faith- must exercise reas. Business standards
o        Statutes (3-205- blank endorsements; 3.403 payor banks duty to stop unauthorized signature; 3-408 drawee bank not liable on stopped draft- payee to go after drawer- b/c 3-415-endorser liability)
·         Probl

     Similar for Accommodation parties (3-419)
§         (guarantors) are liable to holder, who can go after them before attaching to accommodated party(who benefitted from –tion’party’s signature. Reasoning: signed as an endorser- must pay as endorser
§         -tion party can protect itself by guaranteeing collection rather than payment, thus holder first has to go after –ated party. (3-419)(d)
§         -tion party can go after –ed party for $, but not vice versa (3-116)(b)
·        Ordinarily, -tion party can get 50% back from the accommodator, but 3-419(f) gives 100% recovery against principle
§         Problems, page 695
§         Suretyship defenses (discharge of secondary obligors). Skipped in class because they are frequently waived.
§         Liability of Agent on Notes (3-402b)
·        Problems page 702
·        3-402(b)- Signature by Representative
o       Agents may be personally liable if their signature on behalf of principle corporation is unclear
§         Bad- X, treasurer
§         Good- Z corp, by X, treasurer; Z corp. by X
o       Company may be liable for agent, if agent is insolvent
§         Z corp liable if X just signed ‘X’
·        Looks like a personal guarantee of payment
·        X definitely liable to HIDC
·        For a holder, has opportunity to fight
§         Liability for Agent on Checks (3-402c)
·        Case law- Triffin v. Ameripay
·        Principle not liable if payee would understand the agent signing the check is not meant to be liable