Ch. 38 Negotiable Instruments
*negotiability
*accepted as a substitute for money
*check (bank is what?)
*draft payable on demand (bank is the drawee)
*cashier's check
*is a draft in which the drawer or drawee are the same bank
Ambiguous terms (TEST)
*typewritten prevail over printed *handwritten prevail over printed and typewritten *words control numbers
requirement of a promise or order
-An IOU is NOT a negotiable instrument -For an order, a simple request to pay a favor is not sufficient but a politely phrased demand could suffice -the word "if" makes the stmt conditional
commercial paper
-includes checks, promissory notes, and certificates of deposit -a "contract for the payment of money" -MAY serve as a SUBSTITUTE FOR MONEY immediately (check) or be used to extend credit
payable at a definite time if
-it is payable at a fixed date
importance of form
-negotiability should not be confused w/ validity or collectibility -if negotiable, the law of negotiable instruments controls rights and liabilities -if nonnegotiable, the general rules of contract law control -the purpose of determining negotiability is to ascertain whether a possessor can become a holder in due course
promissory notes
-the MAKER makes an unconditional promise in writing to pay the PAYEE
Additional terms (to be negotiable)
-the person promising payment MAY NOT STATE UNDERTAKINGS in addition to the payment of money
2 basic types of negotiable instruments
1) PROMISES to pay money 2) ORDERS to pay money
*A holder in due course has (4 things)
1) TITLE to instrument 2) PAID VALUE for it 3) acquired it in GOOD FAITH 4) NO NOTICE of certain claims or defenses against payment (OF OVERDUE OR DISHONOR) -instrument can't have FACIAL IRREGULARITIES (evidence of forgery)
certificates of deposit contains
1) an ACKNOWLEDGMENT by a bank that it has received a deposit of money AND 2) a PROMISE by the bank to repay the sum of money
*For an instrument to be negotiable (6 things)
1) be in WRITING 2) be SIGNED by the MAKER or DRAWER 3) contain an UNCONDITIONAL PROMISE/ORDER to pay a FIXED amount of money 4) be payable to order or to bearer 5) be payable on demand or at definite time 6) not state any other undertaking
payable on demand if
1) it states that its payable on "demand" or "sight" OR 2) it does not state any time for payment
Purpose of a negotiable instrument is to have it accepted readily as a substitute for money
True
*draft
form of commercial paper that involves an ORDER to pay money -most common example is a CHECK has three parties to it: 1) drawer orders the 2) drawee to pay money to 3) the payee
payable to order or bearer
must contain the words "to the order of" OR "to bearer"
judgement rate
rate of interest courts impose on losing parties until they pay winning parties
*A person who cannot write their name might make an X and have it witnessed by someone else
true
To be negotiable, an instrument must be in writing (whether handwritten, typed, etc)
true