Commercial Paper I. Key Concepts A. Note Instrument where maker promises to pay payee.

. (Where promise by bank to repay = certificate of deposit) B. Draft - Instrument where drawer orders drawee to pay payee. (Where payable on demand and drawn on bank even without words of negotiability = check) C. Indorsement signature other than maker, drawer, or acceptor II. Holder v. Maker (HDC Rule) A. Negotiable instrument 1. Writing 2. Signed by maker (drawer) 3. Unconditional a. No express conditions b. not subject to any other writing c. limitation of funds ok 4. Promise or order 5. To pay a fixed amount (with or without interest) fixed or variable rate 6. Of money 7. No other unauthorized promise 8. On demand or at definite time 9. To bearer or to order at time of issue (unless check) B. Negotiated 1. Order = proper indorsement plus delivery 2. Bearer mere delivery alone 3. Last indorsement rule = a. Special/Order b. Blank/Bearer C. Holder in due course 1. For value a. executed consideration b. antecedent claim c. your (depository) bank HDC if value given (cash check) 2. In good faith a. honesty-in-fact, and b. observance of reasonable commercial standards of fair dealing (merchants test) 3. Without knowledge or notice of overdueness, dishonor, claim defense, forgery, irregularity, or incompleteness which questions authenticity 4. Non-holders in due course a. bulk

b. estate c. judicial sale D. Free from personal defenses and claims, but subject to real defenses F. Forgery, fraud in factum A. Alteration, adjudicated insanity I. Infancy, Illegality D. Duress, Discharge in insolvency S. Suretyship defenses (if notice of suretsyship), Statute of Limitations (3years for drafts, 6 years for notes; unless no demand, then 10 years) 1. FTC amelioration Human buys consumer goods or services on credit. No HDC rule 2. Shelter rule anyone who takes after HDC, gets rights of HDC, except participant III. Holder v. Indorser (contract of secondary liability at time of indorsement) A. Presentment B. Dishonor C. Notice of Dishonor (Warranty if without recourse or delivery except no warranty against forgery) IV. Holder v. Drawee (none, unless acceptance (certification)) A. Liable for consequential damages B. Drawer Discharge V. Drawer v. Drawee (contractual relationship) A. (Drawer puts money in drawee (drawee acts as agent for collection), and drawee pays out according to drawers order) properly payable rule B. Where drawee doesnt pay, but should have, drawee liable to drawer for wrongful dishonor. C. where drawee does pay, but shouldnt, drawee is liable to drawer for breach of contract Exceptions 1. Fictious indorsements are effective 2. Drawer negligent in the drafting 3. Drawer negligent in the notifying VI. Bank Recovery (Finality) A. Where the bank pays on a forged drawers signature or other mistake (e.g., insufficient funds), payment is final and no recovery is permitted from the innocent party whom the bank paid b. Where the bank pays on a forged indorsemet, payment is not final and the bank can recover from the innocent party whom it paid (breach of warranty of presentment) (Right to enforce title)