Chapter 25: The Function and Creation of Negotiable Instruments

handwritten statement in regard to signatures

"I, Sasha Brooks, promise to pay Jane Doe" is sufficient to act as a signature

Check

A draft drawn on the bank and payable on demand

collateral note; collateral

A note may be secured by personal property, such as an automobile. This type of note is referred to as a ____________ because property pledged as security for the satisfaction of a debt is called ________________

installment note

A note payable in installments, such as installment payments for a large-screen 3D LCD television over a twelve-month period, is called an ___________ .

Can; CANNOT

An instrument ________be payable to nonexistent person (as though it were payable to cash; __________ be payable to nonexistent organization

A note can name a _____________

Specific person or be payable to bearer

indorsement

a signature placed on an instrument generally for the purpose of transferring one's ownership rights in the instrument

extension clause

allows the date of maturity to be extended into the future, to stay negotiable, the interval of extension must be specified if the right to extend the time of payment is given to the maker or the drawer of the instrument

Sight Draft

also demand draft, is payable on sight, when it is presented on sight --- to the drawee (usually a bank or financial institution) for payment.

order instrument

an instrument that is payable 1. "to the order of an identified person" or 2. "to an identified person or order

bearer instrument

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

bearer

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

What happens when the promissory note is lost? Does the owner lose his right?

bill or note is not a debt; it is only primary evidence of a debt; and where this is lost, impaired or destroyed bona fide, it may be supplied by secondary evidence * . The loss of a bill or note alters not the rights of the owner, but merely renders secondary evidence necessary and proper

Notes can be assigned

happens all the time between banks. You an assign the note, if you owe Bank A then you'll have to pay Bank B

Promissory Note

is a written promise made by one person (the maker) to pay another usually a payee a specified amount

Time Instrument

is payable at a future date

Demand instrument

is payable on demand; payable immediately after it is issued and thereafter for a reasonable time period

What is acceptance for drafts?

is the drawee's written promise to pay the draft when it's due . Usually instrument is accepted by writing accepted over the face, followed by the date of acceptance and the signature of the drawee (bank).

mere acknowledgement of the debt (i owe you)

logically implies a promise but is not sufficient under the UCC, UCC requires that a promise be an affirmative (express) undertaking

2 parts to the writing requirement

must be on permanent material and must be portable

Is promissory note a debt?

no, a promissory note is not a debt. it is only the evidence of a debt.

certificate of deposit

A note of a bank in which a bank acknowledges a receipt of money from a party and promises to repay the money, with interest, to the party on a certain date.

Payee

A person to whom an instrument is made payable

Negotiable Instrument

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

How does the cashier check work?

Bank customer purchases a cashier check from bank by paying the amount of the check and indicating to whom the check should be made payable to as a result the bank is both drawee and drawer.

When can a Note be made payable?

Can be both payable at a definite time or on demand

What is another classification for negotiable instruments?

Demand or time instruments

What are the four types of Negotiable Instrument?

Draft, Check, Promissory Note, and Certificates of deposit.

Acceptance

In negotiable instruments law, the drawee's signed agreement to pay a draft when presented

Issue

The first transfer, or delivery, of an instrument to a holder (by maker or drawer for purpose to give rights on instrument)

Placement of the Signature

The location of the signature on the document is unimportant, although the usual place is the lower right-hand corner

Drawer

The party that initiates a draft (writes a check), for example), thereby ordering the drawee to pay

Drawee

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

Drawer is the ________? Drawee is the ________? Payee is the __________?

The writer The Bank drawn from Person made payable to

acceptor

the person (the drawee) who accepts a draft and who agrees to be primarily responsible for its payment

judgement rate of interest

the rate of interest fixed by statute that applies to monetary judgement awarded by a court

Postdating

when a party puts a date on an instrument that is after the actual date

Antedating

when a party puts a date on an instrument that precedes the actual calendar date.

acceleration clause

(1) A clause in an installment contract that provides for all future payments to become due immediately on the failure to tender timely payments or on the occurrence of a specified event. (2) A clause in a mortgage loan contract that makes the entire loan balance become due if the borrower misses or is late making monthly mortgage payments.

What are the requirements for an instruments to be negotiable?

1) Must be in Writing 2) Be signed by the maker or the drawer 3) Be 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

a promise or order is conditional (therefore not negotiable) if it states any of the following:

1. an express condition to payment 2. that the promise is subject to or governed by another writing (or record) 3. that the rights or obligations with respect to the promise or order are stated in another writing or record

factors that do not affect negotiability (ambiguities):

1. an undated instrument, unless the date is necessary to determine a definite time for payment 2. antedating or postdating an instrument (before or after the actual date) 3. handwritten terms outweigh typewritten and printed terms 4. typewritten terms outweigh printed terms 5. words outweigh figures unless the words are ambiguous (checks, writes 100.00 and one thousand dollars, check is for 1,000.00) 6. when an instrument simply states "with interest" 7. a check is negotiable even if there is a notation that states it is nonegotiable or not governed by article 3, but any other instrument can be made nonnegotiable with this language

examples of bearer instrument language:

1. payable to the order of bearer 2. payable to Sasha or bearer 3. payable to bearer 4. pay cash 5. pay to the order of cash 6. payable to X 7. payable to Captain America (because it is payable to a nonexistent person)

2 reasons that instruments with acceleration clauses are negotiable

1. the exact value of the instrument can be ascertained 2. the instrument will be payable on a specified date if the event allowing acceleration does not occur

Trade Acceptance

A draft that is drawn by a seller of goods ordering the buyer to pay a specified sum of money to the seller, usually at a stated time in the future. (not drawn on bank) The buyer accepts the draft by signing the face of the draft, thus creating an enforceable obligation to pay the draft when it comes due. On a trade acceptance, the seller is both the drawer and the payee

Draft

Any instrument (such as a check) drawn on a drawee (such as a bank) that orders the drawee to pay a certain sum of money, usually to a third party (the payee), on demand or at a definite future time

Can a payee negotiate CD (note)?

If a payee wants to access the funds before to the maturity date, he or she can sell (negotiate) the CD to a third party.

A Fixed Amount of Money

Negotiable instruments must state with certainty a fixed amount of money to be paid at the time the instrument is payable (ensures the value of the instrument is determined)

Time Draft

Payable at a deftinite time

With Cashier's Checks who is the Drawer and the Drawee?

The Bank

presentment

The act of presenting an instrument to the party liable on the instrument to collect payment; presentment also occurs when a person presents an instrument to a drawee for acceptance.

Signature

Under the Uniform Commercial Code, "any symbol executed or adopted by a party with a present intention to authenticate a writing."

Banker's Acceptance

When a draft orders the buyer's bank to pay A negotiable instrument that is commonly used in international trade. A banker's acceptance is drawn by a creditor against the debtor who pays

TRUE.

Whether the time period is a month or a year, if the date is uncertain, the instrument is not payable at a definite time. An instrument that is undated and made payable "one month after date" is clearly nonnegotiable.

Can a draft be both a time and sight draft?

Yes, a draft can be both a time and a sight draft. Such a draft is payable at a stated time after sight. (i.e. payable 90 days after sight)

check

a draft drawn ordering the drawee bank or financial institution to pay a certain amount of money

fixed amount/sum certain

the amount must be ascertainable from the face of the instrument. Interest may be stated as a fixed or variable rate.

identified person

the person "to whom the instrument is initially payable"