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