Law 332 Wayne Anderson MSU Exam 1
In the medieval world, merchants developed their own set of rules, which eventually became known as,
Lex Mercatoria (Law Merchant)
In a certificate of deposit, the bank is the _______ of the note, and the depositor is the _______.
Maker; payee
A note that satisfies the definite time requirement is
Negotiable
Only unconditional promises or orders can be
Negotiable
UCC defines an instrument as a
Negotiable instrument
Presentment
Occurs when a demand to either pay or accept an instrument is made by or on behalf of a person entitled to enforce the instrument
Time draft
Payable at a definite future time
If an instrument is not payable on demand, to be negotiable it must be
Payable at a definite time
Payable on demand wording
Payable at sight Payable upon request
A demand instrument is
Payable on demand
Sight draft (or demand draft)
Payable on sight; in other words, when it is presented to the drawee (usually a bank or financial institution) for payment.
The writing of negotiable instruments must have
Permanence and portability (ex: sand is not permanent and a cow is not portable so writing on these would not qualify)
Unconditional meaning
States no promise other than the promise to pay a fixed amount of money
Fixed amount is sometimes called
Sum certain
Acceptance
The drawee's written promise to pay the draft when it comes due
Identified person
The person "to whom the instrument is initially payable" as determined by the intent of the maker or drawer
Payee (orders to pay)
The person to whom payment is ordered
Drawee
The person to whom the order to pay is made
Payee (promises to pay)
The person to whom the promise is made
Maker
The person who promises to pay
Drawer
The person who signs or makes the order ti pay
Trade acceptance
The seller of goods is both the drawer and the payee
An order directs a
Third party to pay the instrument as drawn
Certificate of deposits are _______ deposits.
Time
"Pay cash" and "Pay to the order of cash" qualify as bearer instruments
True
A check is negotiable even if there is a notation on it stating that it is "nonnegotiable" or "not governed by Article 3"
True
A handwritten statement, such as, "I, Kammie Orlik, promise to pay Janis Tan." is sufficient to act as a signature.
True
A mere reference to another writing or record does not of itself make the promise or order conditional.
True
Checks and notes written on napkins, menus, tablecloths, and shirts are enforceable negotiable instruments
True
Negotiable instruments must state with certainty a fixed amount of money to be paid at the time the instrument is payable.
True
The UCC does not accept an instrument issued to a nonexistent organization as payable to bearer
True
Words out weigh figures
True
A draft can be both a time and sight draft
True; it is payable at a stated time after sight
Judgment rate of interest
When an instrument simply states "with interest" and does not specify a particular interest rate
A promise or order is conditional (and not negotiable) if it states any of the following:
1. An express condition to payment 2. That the promise or order is subject to or governed by another writing 3. That the rights or obligations with respect to the promise or order are stated in another writing
Requirements for Negotiability
1. Be in writing 2. Be signed by the maker or the 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
4 types of negotiable instruments
1. Drafts 2. Checks 3. Notes 4. Certificates of deposit (CDs)
Two classifications of negotiable instruments
1. Orders to pay (drafts and checks) 2. Promises to pay (notes and CD's)
For an instrument to be negotiable it must be signed by
1. The maker if it is a note or a certificate of deposit Or 2. The drawer if it is a draft or a check
Acceptor
A drawee who has accepted, or agreed to pay, an instrument when it is presented later for payment
The UCC defines money ss
A medium of exchange authorized or adopted by a domestic or foreign government as a part of its currency
Certificate of deposit
A note made by a bank acknowledging a deposit of funds made payable to the holder of the note
Promissory note
A promise by one party to pay money to another party or to bearer
Indorsement
A signature placed on an instrument for the purpose of transferring one's ownership rights in the instrument.
Negotiable instrument
A signed writing that contains an unconditional promise or order to pay an exact amount, either on demand or at a specific future time
Negotiable instrument can function as
A substitute for cash or as an extension or credit
Promissory note
A written promise made by one person (the maker of the promise) to pay another (usually a payee) a specified sum
A sight draft may be payable on
Acceptance
Acceleration clause
Allows a payee or other holder of a time instrument to demand payment of the entire amount due, with interest, if a specified event occurs
Extension clause
Allows the date of maturity to be extended into the future
For an instrument to be negotiable, it must contain
An express promise or order to pay
Order instrument
An instrument that is payable (1) "to the order of an identified person" or (2) "to an identified person or order"
Draft
An unconditional written order that involves three parties (the drawer, the drawee, the payee)
Holder
Any person in possession of a negotiable instrument that is payable either to the bearer or to an identified person that is the person in possession
When the draft orders a buyer's bank to pay, it is called a
Banker's acceptance
In a cashier's check, the bank is
Both the drawer and the drawee
Payable to x
Can be negotiated as a bearer instrument, as though it were payable to cash
Unconditional
Cannot be conditioned on the occurrence or non occurrence of some other event or agreement
Negotiable instruments are sometimes referred to as
Commercial paper
Banker's acceptance
Commonly used in international trade
All checks are __________ instruments.
Demand
Negotiable instruments may also be classified as _______ instruments or ________ instruments.
Demand; time
For a negotiable instrument to operate practically as either a cash substitute or a credit device, it is essential that the instrument be
Easily transferable without danger of being uncollectible
Usually, an instrument is accepted by
Writing the word "accepted" across its face, followed by the date of acceptance, and the signature of the drawee
The reverse of an acceleration clause is an
Extension clause
Issue
First delivery of an instrument by the maker or drawer for the purpose of giving rights on the instrument to any person
Terms of a promise or order must be
Included in the writing on the face of a negotiable instrument and must be unconditional
Order
Is associated with three-party instruments, such as, checks, drafts, and trade acceptances
Payable to captain america
Is negotiable as a bearer instrument because it is obvious that it is payable to a nonexistent person
Certificate of Deposit (CD)
Issued when a party deposits funds with a bank and the bank promises to repay the funds, with interest, on a certain date.
A note is not negotiable if
It does not satisfy the definite time requirement
payable on demand
It is payable immediately after it is issued and for a reasonable period of time thereafter
Bearer instrument
an instrument that does not designate a specific payee
Postdating
occurs when a party puts a date on an instrument that is after the actual date
Antedating
occurs when a party puts a date on an instrument that precedes the actual calendar date
A time instrument is
payable at a future date
Bearer
refers to a person in possession of an instrument that is payable to bearer or indorsed in blank
Judgment rate of interest
refers to a rate of interest fixed by statute that applies to court judgments
Commercial money market
the market that businesses use for short-term borrowing
