Chapter 25- negotiable instruments Flashcards
Types of negotiable instruments
1) Drafts
2) checks
3) notes
4) CDs
Orders to pay
Drafts and checks
Promises to pay
notes and CDs
Demand instrument
payable on demand or on sight, or indicates it is payable at the will of the holder, or it does not state any time of payment. Checks
Time instrument
Payable at future date
Draft
unconditional written order that involves three parties
(order to pay)
parties involved in a draft
1) Party creating draft (drawer)
2) Drawee (bank)
3) payee
Time draft vs Sight draft
Time draft: payable at a future time
Sight draft: payable on sight
A draft can be both sight and time (payable x days after presentation)
Trade acceptance
type of draft where the seller is a drawer and payee by extending credit to the buyer.
buyer of goods is drawee and pays at a future date
Cashier’s checks
Bank is a drawer and drawee
Promissory note
1) A promise to pay a specified sum,
2) can be specific or payable to bearer, can be payable at a specific time or on demand
3) not a debt, only evidence of a debt
CDs
1) type of promissory note
2) is issued when a party deposits funds with a bank, and bank promises to repay funds with interest
3) bank is the maker, depositor is payee
Requirements for negotiability
1) be in writing
2) be signed by maker or 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 bearer
Writing requirement for negotiability
1) writing must be on permeant material
2) be portable
3) may be evidenced by electronic record
Be signed by maker or drawer requirement
1) Almost anything can qualify as a signature; symbol, stamp
2) Location of signature doesn’t matter
3) hand written testimony can count as signature
Unconditional promise to pay requirement
1) terms of promise must be on face of instrument
2) must contain express promise or order to pay
a promise or order to pay is conditional if any of the following
1) an express condition to payment
2) the promise or order is subject to another writing
3) the rights or obligations with respect to the promise or order are stated in another writing
(a reference to another writing does not make it conditional)
State a fixed amount of money requirement
1) must be ascertainable from the face of instrument
2) must be in currency adopted by government (no bitcoin or gold)
An instrument is payable at a definite time if any of the following
1) payable at a specific date
2) payable within a definite time frame after being presented for payment
3) payable at a date ascertainable at the time the promise is issued (not some conditional or far away date)
Acceleration clause
Allows a payee or other holder of an instrument to demand payment of the entire amount due with interest if a specific event occurs. (remains negotiable)
Extension clause
allows the date of maturity to be extended;
1) to keep the instrument negotiable, the time interval must be specified if the right to extend is given to the maker
2) if the holder has the right to extend the time, specific date need not be stated
Instrument is a bearer instrument if any of the following
1) payable to the order of bearer
2) payable to bearer
3) pay cash
4) pay to the order of cash
5) payable to a fake person or organization
Factors that do NOT affect Negotiability
1) Omission of date
2) Postdating or antedating
3) Handwritten terms always outweigh typewritten terms
4) A check is always negotiable, even if it says “non-negotiable” on it
