Negotiability Flashcards
Negotiability: definition
1) legal status and form of the instrument
2) determined at issuance
3) if instrument says non-negotiable, it is unless it is a check
Requirements for Negotiability
1) Writing
2) Signed by Maker (Drawer)
3) Unconditional promise or order to pay
4) a fixed amount
5) of money
6) no other unauthorized promises or undertakings
7) on demand or at a definite time
8) To order or to bearer (not for checks)
Negotiability: signed by maker
any symbol executed by a party with present intent to create a writing
Negotiability: unconditional promise to pay
Cannot make the promise or order conditional:
1) express condition to payment
2) promise or order “subject to” or “governed by”
Things that do not disrupt negotiability:
1) statement of consideration
2) reference to another record
3) limitation of payment to a particular fund or source
Negotiability: to pay a fixed amount
1) determine principal amount due
2) interest rate may be fixed or variable
3) fees such as attorney’s fees, late fees, collection fees do not impede negotiability
Negotiability: Of money
1) Must be an authorized medium of exchange adopted by an intergovernmental unit (EU) or government as part of its currency
2) Includes foreign money
3) Cannot be payable in precious metals or commodities
Negotiability: No other unauthorized promises or undertakings exceptions
1) promise to protect collateral
2) confession of judgement
3) waiver of law meant to benefit maker of instrument
Negotiability: On demand
1) express statements like “on demand” or “at sight”
2) silent instrument, when the note or check does not state when it is due, merely date issued
Negotiability: At a definite Time, express statements
1) date stated in the instrument
2) fixed period after sight or acceptance
3) time readily ascertainable at the time the promise or order is issued
EXAMPLES: “first day of fall” NOT “when Uncle Fred dies”
Negotiability: At a definite Time, date changes/extensions
Permitted:
1) prepayment of instrument
2) acceleration of due date
3) extensions unless infinite
Negotiability: Order Paper Magic Language
1) to the order,
2) to x and her order
Negotiability: Bearer paper Magic Language
1) to bearer
2) to the order of bearer
3) to cash
4) to blank
5) to the order of X or to bearer
6) to the order of X and to bearer
Negotiability: exception for checks
1) A check payable “to X” is negotiable despite lacking order or bearer language.
2) BUT notes require the special language.
