Chapter 37 - Negotiable Instruments and Banking Flashcards
Negotiable Instrument
- Written promise or order to pay a fixed amount of money with or without interest, on demand, or at a definite time.
Checks
- Most common negotiable instrument
Drawer
- Person who writes the check
Drawee
- The bank
Payee
- Who the check is written to.
Order Instrument
- “Pay to the order of”
- Only the payee can negotiate
- If is endorsed, it becomes a bearer instrument
Bearer Instrument
- “Pay to the order of cash”
- Anyone who holds can negotiate
Personal Checks
- Personal account
Cashiers Checks
- Bank writes a check
- You give the bank money plus a fee
- Guarantees that the check will clear.
Certified Checks
- Bank certifies that the drawer has enough money in account.
- If I write the check the bank will honor it.
Endorse
- Payee will sign. Creates a negotiable intrument.
Presentation
- If I am a payee and endorse, I present it to the bank.
Blank Endorsement
- Just the payee’s signature
- Bearer Instrument.
For-Deposit-Only Endorsement
- It can only go into a specific bank account.
Special Endorsement
- Sign check, “pay to the order of”, another person’s name.
Holder
- Person who receives the check and endorses it.
- If the check doesn’t clear, I have a right to sue.
Holder in Due Course
1) Has greater rights than a mere holder.
2) If I took instrument in return for value, in good faith, and without notice that it was fraudulent or altered or another party had a claim to it.
- Ex. 3rd party who was paid in exchange for backpack gets $200 no matter what because HDC.
State Security v. American General
- An impostor represents himself as someone else and gets a loan from American General.
- The impostor cashes the check from AG at State Security.
- AG finds out it was an impostor because secret service notified the true identity ($18000).
- AG puts a stop payment on the check
- State Security out 18000.00.
- SS sues AG. SS was a HDC so State Security wins.
Undated Check
- Still negotiable.
Post-dated Check
- Can take to the bank now.
- Drawer has to contact the bank so the check won’t be negotiated until the date.
Stale Checks
- More than 6 months old.
- Bank doesn’t have to accept.
Stop Payment Order
- Drawer goes to bank and says I don’t want you to pay it.
Forged and Altered Checks
- Bank in on the hook and ultimately the criminal is on the hook.
Inconsistencies
- If the number is different than the written amount, the bank goes with the written amount.
