Identify Instrument and Parties

Question 1

What are the two basic instruments of commercial paper?

Answer 1

The note and the draft
* The UCC doesn’t apply to money

Question 2

What is a note?

Answer 2

A promise to pay money (two-party instrument)

Question 3

Who are the parties to a note?

Answer 3

(1) The maker–the person who promises to pay (“promisor” or “obligor”)
(2) The payee–the person entitled to payment (“promisee”)

Question 4

What is a CD?

Answer 4

A certificate of deposit–note issued by bank containing: (1) acknowledgment of money received; and (2) a promise to repay

Question 5

What is a draft?

Answer 5

An order to pay, and it’s a 3-party instrument

Question 6

Who are the parties to a draft?

Answer 6

(1) The drawer–the person ordering payment
(2) The drawee–the person to make the payment (in check context, the “payor bank”), and
(3) The payee the person to receive the payment

Question 7

What is a check?

Answer 7

A draft that meets two additional requirements:
(1) A bank is the drawee, and
(2) The instrument is payable on demand

Question 8

What is a “certified” check?

Answer 8

An ordinary check which the bank has accepted (i.e., agreed to pay)

Question 9

What is a cashier’s check?

Answer 9

A draft where the drawer and drawee are the same bank
* Person buying the check is called the remitter

Question 10

What is a “teller’s” check?

Answer 10

A draft drawn by one bank on another bank
* Person buying the check is called the remitter

Question 11

What is a “traveler’s” check?

Answer 11

A demand instrument requiring a “countersignature” by a person whose specimen signature already appears on the instrument