LAW332 Ch 25 Exam 1

Bearer Instrument

Instrument that does not designate a specific payee. Refers to person in possession of an instrument that is payable to bearer or indorsed in blank

Traveler's Checks (Drafts)

Must be endorsed in presence of teller. (should be called drafts). Drawn on financial institution, not a bank.

Time Instruments

Must wait for it to mature, promissory notes.

Drawer-Drawee-Payee Relationship

The drawer orders the drawee to pay money to the payee

6 Elements of Negotiability

1. Be in writing 2. Be signed by maker or drawer 3. Be an unconditional promise or order to pay 4. State a fixed amount of money 5. Be payable on demand or at a definite time 6. Be payable to order or to bearer

Modifications made to the U.C.C.

1. E-commerce 2. Paperless/telephone checks 3. Elements of negotiability

Describe details of promissory notes

1. Made by one person (maker of promise) to pay to another (payee) a specified sum. 2. Commonly assigned (negotiated or transferred) from one lender/payee to another 3. Credit device that carries name of transaction involved - can be made as collateral or in installments

Different types of promissory notes

1. Mortgage - real property 2. Collateral - personal property 3. Installment - regular payments 4. Judgment - if default, take any property with no defense

What are 3 ways commercial paper is better than money?

1. Safety 2. Convenience 3. Credit (promissory notes)

Describe the different kinds of drafts

1. Time draft - payable at definite future time 2. Sight draft - (or demand draft) payable on sight when presented to the drawee (usually bank or financial institution) 3. Acceptance - drawee's written promise to pay draft when it comes due (write accepted across draft with date and signature of drawee)

Drafts

1. Unconditional written order. 2. Involves the drawer (creates the draft,) the drawee (orders another party,) and the payee (usually pays the money)

Name the two elements that make a draft a check

1. Writer of check is drawer, bank of check is drawee, person to check is made payable is payee 2. Demand instruments

Extension Clause

Allows date of maturity to be extended into future (must be specified if right to extend time of payment is given to maker or drawer)

Acceleration Clause

Allows payee or other holder of a time instrument to demand payment of the entire amount due, with interest, if a certain event occurs such as default in payment of installment when due.

Drawee

Bank

C.D.'s

Certificate of Deposit Issued when party deposits fund in a bank and bank promises to repay funds with interest on certain date. (Maker - bank, payee - you.)

Demand Instruments

Checks - instant.

Drawer

Creates the draft

Checks

Demand instrument because payable on demand. Drawer - writer of check Drawee - bank Payee - Person to whom check is made

Cashiers Checks

Functions same as cash because bank has committed itself to paying stated amount in demand

Negotiable Instruments

Go through six tests. Low risk and fast through the system.

Nonnegotiable Instruments

High risk and go slow through the system.

As Per

Motivation for doing something nonnegotiable

Presentment

Occurs when demand to pay or accept instrument is made by or on behalf of a person entitled to enforce instrument

Commercial Paper

Otherwise called negotiable instruments. Includes drafts, checks, promissory notes, and CDs

Maker

Promise made by one person

Maker-Payee relationship

Promise made by one person to pay a specified amount to another

Subject To

Subject to terms prior to promissory note nonnegotiable

Issue

The first delivery of an instrument by maker or drawer for purpose of giving rights on instrument to any person

Payee

Third Party

Trade Acceptance

Type of draft frequently used in sale of goods. Seller of goods both the drawer and payee, buyer to whom credit is extended is drawee.

Bills of Exchange

Used to be synonymous with commercial paper. Now includes only drafts.

Banker's Acceptance

When a draft orders the buyers bank to pay (common in international trade)

Promissory Notes

Written promise made by a maker to pay payee specified sum