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My CPA-REGmodule28

Notecards I made from Wiley's 2012 CPA Exam Review

What are the two important functions of commercial paper? used as substitute for money, used as extension of credit
When do laws the favorable laws of Article 3 of the UCC apply to commercial paper? laws of ordinary contract law? How(where) is this difference determined? 1.When instrument is negotiable 2.When instrument is nonnegotiable 3.only by looking at the form and content on the face of the instrument
What are the two types of negotiable commercial paper under article 3 of the UCC? 1.A draft(bill exchange)-3 parties one person(drawer) orders another(drawee) to pay 3rd party(payee) i.e a check 2.Note(promissory note)-one party(maker) promises pay specified sum to another party(payee), must be payable on demand/definite time i.e a CD
What must be on the face of an instrument for it to be a negotiable instrument? IMPORTANT be written, signed by maker or drawer, contain unconditional promise or order to pay, state a fixed amount of money, payable on demand or definite time, payable to order or bearer unless it is a check
What counts as a signature of a maker or drawer on a negotiable instrument? rubber stamp, initials, even letterhead all count. May use assumed name or trade name to operate as partys signature
If the payment on a negotiable commercial paper depends upon another agreement or event is it still negotiable? No it is conditional then and destroys negotiability
What statements on a negotiable commercial paper would not destroy the instruments negotiability? may state instruments purpose, may refer to or state it ARISES(not subject to) from another agreement, show its secured by collateral, contain promise to provide extra collateral, limit payment from a particular fund
What are promises? Orders? 1.usually in a note, must be affirmative obligation to pay (not acknowledgement of debt) 2.contained in a draft, is a command to drawee to pay (on a check this is the word pay)
For the requirement of stating a fixed amount on a negotiable instrument, does the interest need to be determinable from instrument?Are variable interest rates allowed? 1.No only the principal must be clearly stated on the instrument 2.Yes, even if formula or amount requires reference to other info outside of instrument
Do changes in rates before or after default or a specified date destroy negotiability? stated discounts or additions if pay before after a date? clauses allowing collection costs and attorney fees on default? Can it payable in something other than money? 1.No 2.No 3.No because reduce risk and promote transferability 4.No, option to be payable destroys negotiability because of POSSIBILITY payment isn't made in money
What does the term payable on demand include? Payable at a definite time? 1.payable on sight, on presentation, no time for payment stated 2.on certain date, fixed period after sight, w/in certain time, on certain date subject to acceleration(payment missed=total bal due)/extension(maker/drawer exten limit to definite amt time)
When is a negotiable instrument made payable to order? Is a check payable to order if it merely states pay Fredric Weiss? TESTED HEAVILY 1.if made payable to the order of Any person(includes maker/drawer), two person together or alternatively, any entity, or payable "to A or to order" 2.No must include 'to the order of' (excludes checks)
When is a negotiable instrument made payable to a bearer? If it is payable to bearer, cash, "a person OR bearer" if bearer handwritten(person,bearer only refers to person as bearer makes nonnegotiable), 'order of bearer' or 'order of cash', 'pay to the order of _' payee left blank means bearer paper
If there are contradictory terms in a negotiable instrument how is priority decided between words and figures? Typed, handwritten, and printed terms? 1.Words over figures 2.handwritten over typewritten over printed(typeset)
Is the omission of a date allowed on a negotiable instrument? interest rate? 1.Yes (payable on demand then) unless the date is necessary to determine when its payable 2.yes because the judgment rate(rate used on court judgement) is then automatically used
Can an instrument be postdated or antedated and remain negotiable? Yes, bank not liable for damages either if pays on postdated check either, unless person notifies bank not to pay in a separate document
Can an instrument be negotiable and have a provision on it that by endorsing/cashing it the payee acknowledges full satisfaction of debt? What happens if an instrument is payable to the order of more than one person? 1.Yes 2.either payee may negotiate or enforce if payable in the alternative (either x OR y), if not in the alternative ALL payees must negotiate or enforce
What is a instrument treated as if it isn't clear weather it is a draft or a note? What does the UCC require from negotiable instruments? 1.Holder may treat it as either 2.needs to be written, lend itself to permanence, and be easily transferable
What are the two methods of transferring commercial paper? 1.Assignment- occurs if transfer doesnt meet all requirements of negotiation, assignee only obtain same rights assignor and subject to same defenses that can be asserted against assignor 2. Negotiation
In terms of negotiation of transfered commercial paper, who is a holder? What are the two methods of negotiation that can occur in transferring commercial paper? 1.the one receiving the negotiable instrument 2.Order paper-payable to specific party, transferred by physical deliver of instrument AND endorsement to holder 3.Bearer paper-payable to any party, transferred by delivery alone(holder may endorse if choos
What does endorsement mean in transferring commercial paper? What are the types? 1.signature of payee, drawee, accommodation endorser, or holder 2.Blank endorsement, special endorsement, restrictive endorsement, qualified endorsement, and combinations of endorsements may occur
What is a blank endorsement? Doesnt specify any endorsee, converts order paper into bearer paper(only need delivery to negotiate as bearer so thief/finder are valid holders)
What is a special endorsement? How can bearer paper be converted into order paper with this endorsement? 1.Indicates specific person to whom endorsee wishes to negotiate instrument (back of check payable to order of Fred, Fred writes Pay to Janus, (signed) Fred) 2.check made to cash write on back Pay to Will,(signed) Jack- Jack was the holder
What are the valid restrictive endorsements that can be made in transferring commercial paper? Examples of Invalid? Can endorsements affect negotiability? 1.Collection endorsements(for deposit only), Endorsements in trust(pay Smith for Jones) 2.Pay to Frank only, Pay to Frank if Frank washes my car 3.No
What is the purpose of a qualified endorsements? How is it worded? 1.disclaims liability to automatically pay holder or any subsequent endorser amount of instrument if it is later dishonored 2.Without recourse,(signed) endorser
What are the combination of endorsements that may occur? special qualified endorsement, blank qualified endorsement, endorsement that is restrictive, qualified, and blank
If a payees name is misspelled, how can the payee endorse the instrument? Can an endorsee make a requirement? 1. may endorse in proper spelling or misspelling or both 2. may require both
If an order instrument is transfered for value without endorsement, can the transferee require endorsement from transferor? If a check has statement that is nonnegotiable on it, does it make the check nonnegotiable? How about other negotiable instruments? 1.Yes transferee may require endorsement from transferor 2.NO, check is still negotiable 3.other negotiable instruments would become nonnegotiable if they have a statement stating as such
How is a taker of instrument be a holder in due course? Must be a holder of a properly negotiated negotiable instrument, give value for instrument, take in good faith, take without notice the instrument is overdue/has been dishonored/any person has defense or claim of ownership
What is a holder in due course(HDC)? KNOW THIS holder with enhanced right to negotiable instrument, include best claim of ownership and entitled to payment on instrument despite personal defenses that maker or drawer of instrument may have
What counts as giving value for a holder in due course to be valid? pay/perform agreed consideration, gives another negotiable instrument, acquires security interest in instrument. promise for future performance doesnt count
When does a holder have notice an instrument is overdue/dishonored/someone has a claim of ownership to instrument (making them no longer a HDC)? What qualifies for each / above? 1.he knows or has reason to know 2.default on principal. interest doesn't count, check payable on demand overdue 90 days after date 3.obvious sign of of forgery calls into question authenticity, instrument is incomplete, has notice of parties claim
What if notice instrument is overdue/dishonored/person has claim is acquired after becoming holder & giving value can you still be a HDC? May still be a holder in due course to extent of PERCENT value given
Is there notice of a defense or claim making HDC impossible if the instrument is antedated/postdated? He knows there has been a default in payment of interest? The note was purchased at a discount? None of three would be a notice of defense or a claim
What is the general rule regarding the rights of a HDC in a transfer of a negotiable instrument to a HDC? transfer cuts off all personal defenses against a HDC. Real(universal) defenses are still assertable as the are assertable against any party.
What are the types of personal defenses? breach contract(including breach warranty), lack consideration, prior payment, unauthorized completion, fraud in inducement, nondelivery, ordinary duress/undue influence(extreme=real defense), mental capacity/illegality(if law make trans voidable), theft
What are the types of real defenses? Forgery, bankruptcy, fraud in execution(not apply if should have known what was happening), minority, mental capacity/illegality/extreme duress(if state law make trans void), material alteration of instrument(partially real defense)
In a material alteration of instrument what is an HDC allowed to get when the dollar amount is altered? Non HDC? If an instrument was incomplete originally and completed w/o authorizatoin?Non HDC? 1.HDC can collect according to original terms 2.Nothing 3.HDC can enforce it as completed 4.Nothing
What changes are included in a material alteration? changes in amount/interest rate/days, additions to writing/removal part of instrument, completion of instrument without authorization -Considered material even if small change such as a penny
What rights does a party have who does not qualify as a HDC but obtains a negotiable instrument from a HDC? all rights of a HDC, still NOT a HDC. called shelter provision
What are the exceptions to the shelter rule (Holder through a holder in due course)? party who reacquires instrument has status remain what it originally was, if involved in fraud or illegality affecting instrument may not subsequently become holder through HDC
Which takes precedence, the Federal Trade Commission (FTC) Rule or the UCC? Federal Trade Commission Rule. Its federal, UCC is state
Why was the Federal Trade Commission Rule created (who is it aimed to protect)? Consumers who signed notes for goods that turned out to be defective, but couldnt get important remedies from the retailer because they sold the note to another party
When do FTC rules apply to consumer credit transactions? consumer signs installment sales contract containing waiver of defenses, consumer signs sales contract containing promissory note, retailer arranges financing with a separate party for consumer financing
What are the two general types of warranties on negotiable instruments? Contractual liability and warranty liability. - explains who is responsible to pay the holder/holder in due course
What is a contractual liability? What are the types? 1.liability for payment of instruments face value 2.Primary and secondary
Under contractual liability, what and who is primary liability? Secondary? 1.holder/HDC seek payment first from this party, primary on note is the maker on draft is the acceptor of a draft get from primary then sue or get from secondary. are endorsers, drawers (if accepted by drawee then no secondary liability)
What several conditions that must be met to hold a secondary party liable for payment? presentment(payment demand) of instrument to primary party by holder/HDC, dishonor of instrument by primary party, timely notice of dishonor provided to endorsers(notice not required for drawer, banks have till midnight next day, others have 30 days)
Can drawers or endorsers avoid secondary liability? What about drawers of a check? What happens upon certification of a check in terms of liability? what signatories parties can a holder/HDC seek to collect 1.Yes by signing without recourse 2.No 3.drawer and all previous endorses are discharged from liability because bank accepted check and agreed to pay it 4.prior signatory parties not subsequent signers
What are the two types of warranty liability? 1.transfer and presentment warranties
Describe a transfer warranty. (what are the 5 transfer warranties) transferor give warranty that he has good title(no missing/unauthorized endorsements), all signatures genuine/authorized, instrument not materially altered, no defense any party good against him, he has no notice of insolvency maker/drawer/acceptor
If a transferor endorses the instrument, who does he make all five warranties to? If he doesnt endorse? 1.All subsequent holders who take instrument in good faith 2.only to immediate transferee
What is a presentment warranty? holder/HDC presenting negotiable instrument for payment/acceptance and all prior transferors provide presentment warranties to the party who pays on the instrument
What are the three presentment warranties for an unaccepted draft? For all other warranties 1.the warrantor is entitled to enforce the instrument (warrantor has good title), warrantor has no knowledge that drawers signature is forged or unauthorized, instrument is not altered 2.only the first one, good title.
In order to recover under warranty liabilities does a party need to meet the same presentment/dishonor/timely notice requirements needed under contractual liability? No not required
What amount of recovery is allowed under the warranty theory? inured party can receive what they paid for the instrument (not face value as under contract liability)
Can authorized agents sign negotiable instruments on behalf of drawers/makers? Would an agent be personably liable? 1.Yes, corporations often use corporate officers/employees to be agents and sign their negotiable instruments 2.No drawers or makers are liable still
What is an accommodation party? are they liable? who signs to lend his name to the other party 2.Yes liable on instrument in capacity he signed even if taker knows of his accommodation status, has right of recourse against accommodated party though if held liable
If primary party pays, who is discharged from liability? What about the cancellation of prior parties endorsement? Intentional destruction of instrument by holder? 1.all endorsers discharged from liability 2.prior party discharged from liability (must be written) 3.discharges prior parties to instrument from liability
If a person whose signature was forged on instrument can they be held liable? Can instrument still be negotiated between parties? 1.Only if later ratify it 2.Yes if signature of maker or drawer is forged holder can acquire good title(forgery is real defense so innocent maker/drawer cant be required to pay)
Can a forged endorsement transfer title? Are there exceptions to this? 1.No person receiving after forgery cannot collect on it 2.Yes, imposter rule, fictious payee rule, and negligence of maker/drawer cause the maker/drawer to be liable
What is the imposter rule for a forged endorsement? applies when maker/drawer issues a note/drat to an imposter thinking he is the real payee/payees agent. When imposter forges real payees name the note/draft is negotiated. Innocent subsequent holder can collect from maker/drawer
What is the fictitious payee rule for a forged endorsement? maker/drawer issues note/check to fictitious payee. Then maker/drawer forges endorsement, subsequent parties can enforce note/check against maker/drawer (can be real person so long as not intended to ever get payment)
What is a trade acceptance? seller extends credit to buyer by drawing a draft on buyer directing him to pay seller sum on specified date (seller may sell at discount to another party to get immediate cash)
What is a bankers acceptance? Sight draft? Time draft? Money order? 1.draft where drawee and drawer are a bank payable upon presentment to drawee payable at specified date or certain time period after date 4.draft purchased by one party to pay payee, 3rd party is post office, bank, or company
What is a travelers check? purchased from bank, drawer(traveler) must sign twice for identification (once when purchase, once when use)
What is a cashiers check? tellers check? certified check? 1.Check where drawer and drawee are same bank with separate party being the payee (still a three-party instrument) 2.draft drawn by one bank on another bank 3.check that payor bank agreed in advance to pay (bank primarily liable)
What are included in the term bank? savings and loan associations, credit unions, trust companies
Who is the only person who can take action against bank(drawee) for wrongfully dishonoring a check? Drawer (customer of bank)
What transactions must the bank report to IRS? IRS report crimes? 1.any transaction or series of related transactions greater than $10,000 (ordinary checks are exempt) 2.suspected crimes involving $1,000 or more in funds
When are banks no longer obligated to pay on a check? Who is the bank liable to for a payment of bad checks (forged/altered)? 1.if presented more than six months after it is due 2.liable to drawer for payment unless drawers negligence contributed(bank should know signatures of customers) or didnt notify bank within 30 days of bank statement
When are banks no longer obligated to pay a check? Who is liable for damages caused by wrongful dishonor of a check? What about a payment of bad checks? 1.if presented more than 6 months after date insufficient funds, wrong) know customer signatures) unless drawers negligence contributed or drawer if fail to notify w/in 30 days
How are payments of bad checks treated when endorsements are forged? depositor has 3 years to notify bank and bank may charge check bak to party that presented it (one cashing check gave warranty that all signatures are genuine)
How long is a stop payment order good for if oral? written? When is the bank liable if it pays after effective stop order? Not liable? 1. 14 days 2. 6 months 3. when drawer can prove banks failure caused drawers loss 4. drawer has no valid defense to justify dishonoring instrument
If a bank receives several checks in the day, how do they determine which check to charge first? Bank may choose, no rhyme or reason
If a customer loses or has their debit card stolen what is the customer liable for? limit of $50 if notify bank within two days, $500 if after 2 days before 60 days unauthorized use appears, No limit if fail to 60 days too
Unauthorized use of electronic fund transfer is a felony Yes or no? Who does the electronic fund transfer act and regulation E apply to? How about fund transfer Act and Regulation E 1.Yes 2.consumer electronic fund transfers 3.Commercial electronic fund transfers
When is a document of title duly negotiated? When negotiated to a holder who takes it in good faith in the ordinary course of business without notice of a defense and pay value
What rights does a holder by due negotiation receive? Similar to HDC, title to document/ goods, rights accrued under law of agency or estoppel, direct obligation of issuer to hold/deliver goods according to terms of document
Who can assert better title to goods if a thief places stolen goods in a warehouse and acquires a document of title and subsequently sells the goods/title to another holder. Subsequent holder or original owner? Original owner because document of title procured by thief confers no rights to the goods
What does a transferor of value warrant? document is genuine, he has no knowledge of any fact that would impair its validity/worth, his negotiation/transfer is rightful and fully effective w/respect to document of title and goods it represents
What does the federal reserve do? FDIC? OCC? CTFC? OTS? 1.regulates US money/oversees bank holding companies 2.insures customer deposits against bank failure 3.regulate/supervise national banks/federal branches of foreign banks 4.ensure open/efficient operation of futures market with savings and lo
Created by: Bsantoro
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