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Essentials Of Business Law Chapter 20 Transfer And Discharge Of Commercial Paper McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

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Page 1: Essentials Of Business Law Chapter 20 Transfer And Discharge Of Commercial Paper McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All

Essentials Of Business Law

Chapter 20

Transfer And Discharge Of Commercial Paper

McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Page 2: Essentials Of Business Law Chapter 20 Transfer And Discharge Of Commercial Paper McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All

Essentials of Business Law Chapter 20-2

Indorsing Commercial Paper

Indorsement The holder of commercial paper signs his or her name

on the back of the instrument Transfers ownership of the instrument to another Transferee becomes the new holder

Indorser The person who signs his or her name on it

Indorsee The person to whom the instrument is transferred

Indorsement must be written for the entire amount stated in the instrument

Page 3: Essentials Of Business Law Chapter 20 Transfer And Discharge Of Commercial Paper McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All

Essentials of Business Law Chapter 20-3

Types Of Indorsements

Blank indorsement The name of the payee is written by the payee on the

back of a negotiable instrument Special indorsement The payee specifies the person to whom it is to be

paid Restrictive indorsement A signature to which words have been added

restricting the further indorsement of the instrument Qualified indorsement The indorser avoids liability for payment even if the

maker or drawer defaults on the instrument

Page 4: Essentials Of Business Law Chapter 20 Transfer And Discharge Of Commercial Paper McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All

Essentials of Business Law Chapter 20-4

Holder In Due Course

A holder in due course takes commercial paper: In good faith and for value Before maturity Without actual or constructive notice of any

defects in the instrument

Page 5: Essentials Of Business Law Chapter 20 Transfer And Discharge Of Commercial Paper McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All

Essentials of Business Law Chapter 20-5

Holder In Due Course

To be a holder in due course, the commercial paper must: Be complete and regular on its face Have been acquired on or before the due date Have been acquired for a valuable

consideration Have been taken in good faith and for value

Page 6: Essentials Of Business Law Chapter 20 Transfer And Discharge Of Commercial Paper McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All

Essentials of Business Law Chapter 20-6

Defenses Against Payment Of Commercial Paper

Personal defense Defense against payment of commercial paper May be used against any party except a holder in due

course Relate to the acts or circumstances leading to the

issue of the paper

Real defense Defense against payment of commercial paper Claims the instrument was void from the beginning May be used by the maker or drawer against any

party to a paper, including a holder in due course

Page 7: Essentials Of Business Law Chapter 20 Transfer And Discharge Of Commercial Paper McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All

Essentials of Business Law Chapter 20-7

Personal Defenses

Lack of considerationFraudDuressUndue influenceNon-delivery of an incomplete instrumentNon-delivery of a completed instrumentPayment before maturityCounterclaim

Page 8: Essentials Of Business Law Chapter 20 Transfer And Discharge Of Commercial Paper McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All

Essentials of Business Law Chapter 20-8

Real Defenses

Forgery

Material alteration

Lack of intent to execute commercial paper

Incapacity of the parties to contract

Illegality created by law

Page 9: Essentials Of Business Law Chapter 20 Transfer And Discharge Of Commercial Paper McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All

Essentials of Business Law Chapter 20-9

Presentment

Tender a note to the maker and demand its paymentShow a draft or check to the drawer and request its acceptance or paymentPresentment may be made by: Mail At the place of acceptance of payment specified in the

instrumentMust be presented for payment during business hours on the due date A demand instrument must be presented for payment

within a reasonable time after the date of issue

Page 10: Essentials Of Business Law Chapter 20 Transfer And Discharge Of Commercial Paper McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All

Essentials of Business Law Chapter 20-10

Dishonor Of Commercial Paper

A negotiable instrument is considered dishonored if: Is not accepted when presented Is not paid when presented for payment at maturity Presentment is excused or waived and the instrument

is past due and unpaid

The holder of dishonored commercial paper must give notice of the dishonor immediately Any drawer or indorser to whom such notice is not

given is relieved from liability


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