Chapter 23

Fictitious Payee

A payee on a negotiable instrument whom the maker or drawer did not intend to have an interest in the instrument.

Payee

A person to whom an instrument is made payable.

Presentment Warranty

A person who present s an instrument for payment or acceptance impliedly makes three warranties relating to good title, no alterations, and no unauthorized signatures

draft

Any instrument drawn on a drawee that orders the drawee to pay a certain amount of funds, usually to a third party (the payee), on demand or at a definite future time.

bearer instrument

Any instrument that is not payable to a specific person, including instruments payable to the bearer or to "cash"

Extension Clause

A clause in a time instrument that allows the instrument's date of maturity to be extended into the future.

Holder in Due Course

A holder who acquires a negotiable instrument for value, in good faith, and without notice that the instrument is defective

Order Instrument

A negotiable instrument that is payable "to the order of an identified person" or "to an identified person or holder"

Indorsement

A signature placed on an instrument for the purpose of transferring ownership rights in the instrument.

Negotiable Instrument

A signed writing (record) that contains an unconditional promise or order to pay an exact sum on demand or at a specified future time to a specific person or order, or to bearer

Promissory Note

A written promise made by one person (the maker) to pay a fixed amount of funds to another person (the payee or subsequent holder) on demand or on a specified date.

Trust Indorsement

An Indorsement to persons who are to hold or use the funds for the benefit of the indorser or a third party

Presentment

Is a demand made by or on behalf of a person entitled to enforce an instrument to either pay or accept the instrument

Maker

One who promises to pay a fixed amount of funds to the holder in the promissory note or a certificate of deposit (CD)

drawer

The party that initiates a draft (such as a check), thereby ordering the drawee to pay.

drawee

The party that is ordered to pay a draft or check. With a check, a bank or a financial institute is always the drawee.

Shelter Principle

The principle that the holder of a negotiable instrument who cannot qualify as a holder in due course (HDC) but who derives his/her title through an HDC, acquires the rights of an HDC

Negotiation

The transfer of an instrument in such form that the transferee (the person to whom the instrument is transferred) becomes a holder.

dishonor

To refuse to pay (or to accept) a negotiable instrument that has been presented in a timely and proper manner.

acceptance

in negotiable instruments law, a drawee's signed agreement to pay a draft when its presented

requirements for an instrument to be negotiable

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, unless the instrument is a check

Universal Defense

A defense that can be used to avoid payment to all holders of a negotiable instrument, including holder in due course (HDC) or a holder with the rights of an HDC. Also called a real defense.

Personal Defense

A defense that can be used to avoid payment to an ordinary holder of a negotiable instrument but not a holder in due course (HDC) or a holder with the rights of an HDC

Check

A draft drawn by a drawer ordering the drawee bank or financial institution to pay a certain amount of funds to the payee on demand.

Certificate of Deposit

A note issued by a bank in which the bank acknowledges the receipt of funds from a party and promises to repay that amount, with interest, to the party on a certain date.

Transfer Warranty

A person who present s an instrument for consideration impliedly makes five warranties relating to good title, authentic signatures, no alterations, defenses, or insolvencies to all subsequent transferees

Qualified Indorsement

An indorsement on a negotiable instrument in which the indorser disclaims any contract liability on the instrument

Restrictive Indorsement

An indorsement on a negotiable instrument that requires the indorsee to comply with certain instructions regarding the funds involved

Special Indorsement

An indorsement on an instrument that identifies the specific person to whom the indorser intends to make the instrument payable

Blank indorsement

An indorsement on an instrument that specifies no indorsee. An order instrument that is indorsed in blank becomes a bearer instrument.

Holder

Any person in possession of an instrument drawn, issued, or indorsed to him or her, to his or her order, bearer, or in blank.

Imposter

One who induces a maker or drawer to issue a negotiable instrument in the name of an impersonated payee.

Acceleration clause

a clause that allows a 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 the default in payment of an installment when due

acceptor

a drawer that accepts, or promises to pay an instrument when it is presented later for payment

bearer

a person in possession of an instrument payable to bearer or endorsed in blank