Commercial Paper Flashcards
Note
a two party instrument
• maker: person who signs or is identified in a note as the person undertaking to pay
• payee: the person to whom the note is payable
I, Maker, promised to pay to the order of Payee the sum of One Hundred Dollars ($100). Signed Maker
Draft
Three party instrument.
• Drawer: the person who signs or is identified in a draft as the person ordering payment
• Drawee: the person ordered in a draft to make payment.
• Payee: the person to whom the draft is payable
Check:When drawee is a bank and payable on demand.
To Drawee Bank, pay to the order of Payee, $100, signed drawer.
cert. of Dep. bank acknowledgment of amt rec’d , AND promise by bank to repay
Negotiable instrument
It can be transferred free of personal defenses.
Unlike non-negotiable instruments in which the assignee stands in the same shoes as the assignor, subject to personal defenses.
Requirements of negotiable instrument
- A writing
- signed by Maker or Drawer
- Unconditional
- Promise to pay or order to pay
- fixed amount
- in money
- no other undertaking or instruction
- on demand or at a definite time
- To order or to bearer
A writing
Must be on something tangible. paper, t=shirt, cow, tamale
Signed by Maker or Drawer
Code defines signed as including: any symbol executed or adopted by a party with a present intention to authenticate a writing.
Whenever party intended it to be his or her signature.
Can be printed stamped, written
initials or thumbprint
trade name or assumed name
can appear in the body of the instrument
Unconditional
Conditions fine under K law, but destroys negotiability.
Not a condition if merely refers to another agreement. (I promis to pay 100 as per the contract I signed today)
BUT subject to K does destroy. We look at negotiability on the face of the document, do not look at the K.
NOT a condition IF
• merely refers to another writing for statement of rights regarding collateral prepayment, or acceleration
• Limits payment to a particular source or fund
• requires as a condition to payment a countersignature by a person whose specimen signature appears on the promise or order.
Promise to pay or order to pay
IOU is not negotiable it is not a promise to pay.
I wish you would pay is not an order to pay.
Fixed amount
Where the instrument is payable, the holder must be able to determine from the instrument itself the principal amount due.
THIS ONLY APPLIES TO PRINCIPAL, not interest, collection costs, and attorney fees.
So interest may vary, or the court may determine the interest.
In Money
A promise to pay 100 bales of cotton is a non-negotiable promise.
Foreign money is OK, as long as US recognizes the currency.
No Other Undertaking or Instruction
Must be a courier without luggage. Must not be burdened with anything other than a simple unconditional promise or order. If note contains other undertakings or instructions, the holder is given notice that the note is or may be conditioned on the performance of those additional undertakings or instructions.
Exceptions: (each has no value w/o note)UCC allows
• an undertaking or power to give, maintain, or protect collateral to secure payment (OK also to promise to pay costs, atty fees)
• an authorization or power to the holder to confess judgment or realize on or dispose of collateral
• A waiver of the benefit of any law intended for the advantage or protection of the obligor
On demand or at a definit time
holder of an instrument must be able to tell when it comes due or the instrument is non-negotiable. Doesn’t need to be dated, treated as on demand.
Post dated check, ok. due on date.
Note containing an acceleration clause, ok.
Note containing extension clause: extended by maker. as long as extension clause extends to a definite time. Can extend for one month after due date. If extension at will of maker NOT negotiable.
Extension by the holder is always allowed no matter what.
Also events certain to happen but uncertain as to time: is not a definite time for payment, not negotiable.
To order or to Bearer
Must contain either order or bearer language.
• I promise to pay paul: NOT negotiable
• I promise to pay to the order of Paul. Negotiable, order paper
• I promise to pay (paul or) bearer. Negotiable, bearer paper
• Pay to the order of caseh. Negotiable, bearer paper
• Pay to the order of a bowl of soup (a keg of nails or a Happy Birthday). Negotiable, bearer paper, when otherwise does not indicate it is payable to a specific person
A CHECK does not need to have words of negotiability.
Negotiability (or not) by declaration
A writing cannot be made negotiable instrument within Article 3 by contract or conduct of the parties.
Writing stating: this note is negotiable, is not enough to make it negotiable.
Parties can use a form that is a negotiable instrument and avoid negotiability by stamping “not negotiable” on it. EXCEPT for a check. (it is inaffective on a check).
differences between assignment and negotiation
Assignment: assignor assigns a right to payment to another. The assignee has no greater rights than the assignor does on the instrument. Any defenses that could be raised against the payee also could be raised against the assignee
