Exam 2 - Chapter 25 Negotiable instruments
Is the maker/drawee under any obligation to pay before the specified date?
NO. No obligation besets them.
What qualifies as a signature under the UCC?
Nearly any symbol executed or adopted by a person with the intent to authenticate a written or electronic document can be a signature
What is a demand instrument?
Negotiable instrument that is payable on demand. It is payable immediately after it is issued and therefore for a reasonable period of time.
What is a time instrument?
Negotiable instrument, payable at a future date
Is an I.O.U sufficient under the UCC?
No
Is a check nonnegotiable if it says it is nonnegotiable?
No, a check is still negotiable.
Does interest need to be fixed?
No, it can be either at a fixed or variable rate.
Is a promissory note debt?
No, it is only evidence of a debt
Would an order instrument with "payable to the order of my cutest dog" be negotiable?
No, it isn't negotiable. The payee isn't clearly identified with certainty
Does the statement "The instrument that payment can be made only out of a particular fund or source render an instrument conditional?
No, it will not render the instrument nonnegotiable
Does the acknowledgement of a debt work with the UCC?
No, such as an IOU. It might logically imply a promise, but it isn't sufficient for the UCC>
Does the reference of another writing or record make a promise or order conditional?
No, this is not the case.
Is gold a medium of exchange under the UCC?
No. A note made payable in gold is non-negotiable.
Can a bearer instrument be payable to a nonexistent organization?
No. It isn't a bearer or order instrument. It isn't a negotiable instrument at all
Does this work with other instruments?
No. It the drawer/marker indicates it is non-negotiable conspicuously is non-negotiable.
Can negotiable instruments be oral?
No. Must be in a tangible form/writing.
Why should you be careful with what you use a signature as?
Oddities on a negotiable instrument can open the door to disputes and lead to litigation. Furthermore, an unusual signature clearly will decrease the marketability of an instrument because it creates uncertainty.
Who is the maker?
One who promises to pay a certain sum to the holder of a promissory note or certificate of deposit (CD).
How does postdating an instrument impact its negotiability?
Postdating doesn't affect an instruments negotiability as well
What classifies as a promise to pay?
Promissory notes and CDs
How would one access the funds of CB before maturity?
Sell it to a 3rd party (negotiate)
Is a negotiable instrument the same as cash?
Sorta, it can substitute for cash or as an extension of credit
Can a maker/drawee pay early?
Sure. That wouldn't be an issue
What does section 3-104 (a) of the UCC state?
That a fixed amount is to be payable in money.
What is presentment?
The act of presenting an instrument to the party liable on the instrument to collect payment; the act of presenting an instrument to a drawee for acceptance. It is when you initiate the transfer of the instrument to the 2nd party involved for payment or acceptance
How are cashier's checks different?
The bank is the drawer and drawee
What market resells trade acceptances?
The commercial money market. It is a market that businesses use for short-term borrowing.
How do we ensure that time instruments with extension clauses remain negotiable?
The interval of the extension must be specified if the right to extend the time of payment is given to the maker or drawer of the instrument.
If a check is undated, when is the issue date?
The issue date is the date on which the drawer first delivers the check to another person to give that person rights in the check
Does placement of a signature matter?
The location of the signature on the document is unimportant, although the usual place is the lower right-hand corner.
Who determines the identified person?
The maker or drawer
What if the person who signed the instrument is an authorized agent for the maker or drawer?
The maker or drawer has effectively signed the instrument
Who is the drawer?
The party that initiates a draft (writes a check, for example), thereby ordering the drawee to pay. Bob
Who is the drawee
The party that is ordered to pay a draft or check. With a check, a financial institution is always the drawee. Summit bank
Who is an acceptor?
The person (the drawee) who accepts a draft and who agrees to be primarily responsible for its payment. They have accepted or agreed to pay.
What words must be present on the face of a negotiable instrument?
The terms of "the promise" or "order" must be included in writing on the face of a negotiable instrument Must also be unconditional
What if the payment is to be made from a fund that does not yet exist, or is conditioned on the occurrence of some future event?
Then the instrument would be nonnegotiable
What if no time for payment is specified?
Then the person responsible for payment must pay on the instrument's presentment. This is when the instrument is payable on demand.
What words must be included for instruments that are payable on demand?
These instruments need to contain words "Payable at sight" or "Payable upon presentment".
How is freedom to transfer demonstrated with negotiable instruments?
They the instrument is payable to order or to the bearer at the time it is issued or first comes into possession of the holder. An instrument cannot be negotiable unless it meets this requirement
What happens when it has interest but the rate isn't specified?
They use the judgment rate. It is the rate of interest fixed by statute
How do we insure that an instrument is negotiable?
To be negotiable, an instrument must contain an express promise or order to pay.
What if an instrument is not payable on demand? How does it remain negotiable?
To remain negotiable, it must be payable at a definite time.
What UCC article deals with negotiable instruments?
UCC article 3-104 (B)
What terms work for a bearer instrument?
1) "Payable to the order of bearer." 2) "Payable to Simon Reed or bearer." 3) "Payable to bearer." 4) "Pay cash." 5) "Pay to the order of cash."
What are requirements of 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
For an instrument to be negotiable, it must be signed by:
1) The maker if it is a note or a certificate of deposit 2) The drawer if it is a draft or a check
Why can't negotiable instruments be oral?
1) The writing must be on material that leads itself to permanence. 2) The writing must also have portability. (can it easily be transported in the normal course of business) (not written on side of boulder)
What are the 4 types of negotiable instruments?
1) drafts 2) checks 3) notes 4) certificates of deposit (CDs)
How many parties are tied to orders?
3 party instruments
How do you address more than one person jointly?
A and B
What is a banker's acceptance?
A banker's acceptance is a promised future payment, or time draft, which is accepted and guaranteed by a bank and drawn on a deposit at the bank. The banker's acceptance specifies the amount of money, the date, and the person to which the payment is due, and is commonly used in international trade.
Why type of instrument is payable to a nonexistent person?
A bearer instrument
What is the most commonly used draft?
A check.
What is an extension clause?
A clause in a time instrument that allows the instrument's date of maturity to be extended into the future.
What is a check?
A draft drawn by a drawer ordering the drawee bank or financial institution to pay a certain amount of money to the holder on demand
What is a 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. 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.
What is an order instrument?
A negotiable instrument that is payable 1) "to the order of an identified person" 2) "to an identified person or order."
What is a certificate of deposit?
A note of a bank in which the bank acknowledges a receipt of money from a party and promises to repay the money, with interest, to the party on a specified date.
How do you address more than one person alternatively?
A or B
Who is the bearer?
A person in the possession of an instrument payable to bearer or indorsed in blank.
Who is the payee?
A person to whom an instrument is made payable. Jill
What are examples of signatures?
A signature can be made by a device, such as a rubber stamp, or a thumbprint, and can consist of any name, including a trade or assumed name, or a word, mark, or symbol
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.
What is a promissory note?
A written promise made by one person (the maker) to pay a fixed sum of money to another person (the payee or a subsequent holder) on demand or on a specified date.
How does antedating an instrument impact its negotiability?
Antedating (when party puts a date on an instrument that precedes the actual calendar date was in the past). This doesn't affect an instruments negotiability
What is a 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. Bob pays Jill. Bob banks at Summit bank
What is a bearer instrument?
Any instrument that is not payable to a specific person, including instruments payable to the bearer or to "cash." Payable to holder
How does the UCC define money?
As "a medium of exchange authorized or adopted by a domestic or foreign government as a part of its currency"
How is a CD weird?
Because no express promise is required. The bank's acknowledgement of the deposit and the other terms of the instrument clearly indicate a promise by the bank to repay the sum of money
Why doesn't an IOU/Acknowledgement of debt work?
Because the UCC requires that a promise be an affirmative (express) undertaking.
How could one make an IOU affirmative?
By adding such words as "to be paid on demand" or "due on demand". This makes it an express promise.
How is an instrument usually accepted?
By having the word "accepted" written across its face, followed by the date of acceptance and the signature of the drawee
What materials can work for permanence?
Checks and notes have been written on napkins, menus, tablecloths, shirts, and a variety of other materials.
What are negotiable instruments also called?
Commercial paper (they were originally on paper)
What classifies as an order to pay?
Drafts and checks
How does wording work?
Words>figures. Unless words are ambiguous. This rule is important when the numerical amount and the written amount on a check differ
Do negotiable instruments need to be written?
Yes (but can be evidenced by electronic rocord).
Can a instrument payable in the US with a face amount stated in a foreign currency be paid in USD?
Yes or the foreign currency. As long as they are equivalent.
Does the drawer need to have certainty on the payee?
Yes, as there is an indorsement required.
Can the identified person transfer the instrument to anyone else?
Yes, it is transferable once the maker/drawer has identified an individual.
Can a draft be both a time and sight draft?
Yes, such a draft is payable at a stated time after sight. Ex: a draft that states it is payable 90 days after sight
How does the order work for writing?
Handwriting>Typewritten>printed terms
How is a promise or order conditional (not negotiable)?
If it states any of the following: 1) An express condition of 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.
How is an instrument payable at a definite time?
If it states any of the following: 1) That it is payable on a specified date 2) That it is payable within definite period of time (such as thirty days) after being presented for payment 3) That it is payable on a date or time readily ascertainable at the time the promise or order is issued.
What would cause a negotiable instrument to not operate practically like cash substitute or credit device?
If it were not easily transferable without danger of being uncollectible
Is "pay" mandatory?
If presented as a command, yes. If it has courteous words (please, kindly,etc) it is still a command.
How can one access a CD early?
In limited cases such as disability or death
Why do we need to do this?
In order to determine the instrument's present value
What is acceptance?
Is the drawee's written promise to pay the draft when it comes due.
How does the statute of limitations apply?
It applies because we need to know when an instrument is due in order to calculate when the statute of limitations may apply
Why must we do this?
It ensures that the value of the instrument can be determined with clarity and certainty.
What does the word "pay" mean?
It is a command.
How do we determine the value of a negotiable instrument?
It is necessary to know when the maker, drawee, or acceptor is required to pay.
Who is the identified person?
It is to whom the instrument is initially payable
What does the term fixed amount mean?
It means that the amount must be ascertainable from the face of the instrument.
What does unconditional mean?
It means that the promise/order on a negotiable instrument cannot be dependent on an occurrence/ nonoccurrence of some other event or agreement
When must a negotiable instrument be paid?
It must be payable on demand or at a definite time
Do negotiable instruments need to state a fixed amount of money to be paid at the time the instrument is payable?
Yes, they must state with certainty a fixed amount of money to be paid at the time the instrument is payable.
Is it necessary to know when the obligations of secondary parties will arise?
Yes, this is necessary.
Does the nature of an instrument indicate that it is payable on demand?
Yes, this works with checks.
Are mortgage notes tied to a variable rate of interest (a rate that fluctuates as a result of market conditions) be negotiable as well?
Yes.
Can a formula or source work as a rate of interest?
Yes.
Can an order be addressed to more than one person?
Yes. An order can be addressed to one person or multiple
Can a trade acceptance be sold?
Yes. It can be resold if the initial seller needs cash
Are checks negotiable instruments?
Yes. It functions like cash but isn't as quick. Venmo is the same as well
Can the bearer be anyone?
Yes. The bearer is whoever presents it for payment
Do we need to know the interval during which the interest will accrue for an interest-bearing instrument?
Yes. We need to know the interval for when interest will accrue on an interest-bearing instrument.
What is a sight draft
a draft payable on presentation to the drawee (may be payable at acceptance)
What terms could be used without making a contract conditional?
"as per contract" or "This debt arises from the sale of goods X and Y" do not render an instrument nonnegotiable.
Only _________ promises or orders can be negotiable?
unconditional
Are instruments with acceleration clauses negotiable?
yes, because the exact value of the instrument can be ascertained. If acceleration clause isn't initiated, it is still payable on a specified date.
Is this different if the holder of the time instrument has the ability to extend the time of payment?
yes, in this case the extended maturity date need not be specified. It is in effect, a demand instrument.
What is an 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. Essentially says installment instrument is payable now, even though the contract said otherwise.
Does "I wish you would pay" count?
no
What is a time draft?
payable at a definite future time
