Negotiable Instruments Flashcards
When do the rights to enforce an instrument arise
The rights to enforce an instrument arise after issue – the moment when the maker or drawer of the
instrument delivers the instrument for the purpose of giving rights on the instrument to any person –
UCC 3-105
Drafts and Checks: Orders to Pay or Promises to Pay
Orders to Pay
Notes and Certificates of Deposits: Orders to Pay or Promises to Pay
Promises to Pay
When are demand instruments required
demand instruments are payable on demand immediately after issuance or after a reasonable period of time,
When are time instruments required
time instrument is payable at a future date
Drafts: The creator of the draft
The drawer
Drafts: orders another party to pay money
The drawee
Drafts/Notes: third party in draft
The payee
Time Draft:
Payable at a definite future time.
Sight Draft:
Payable on sight (typically when it is presented to a bank or financial institution).
Drafts: What is a way to show acceptance
Acceptance is a drawee’s written promise to pay the draft when due. Typically acceptance is denoted by writing the word “ACCEPTED” on the draft, followed by the date
of acceptance and the signature of the drawee
Trade Acceptance:
Situation where the drawer is both the drawer and payee.
Example of what Type of Draft: Jackson Street Bistro buys its restaurant supplies from Osaka Industries. When Jackson requests supplies, Osaka creates a drat ordering Jackson to pay Osaka for the supplies within ninety day and sends it along with the supplies. When the supplies arrive, Jackson accepts the draft by signing its face and is then obligated to make the payment.
Options: Time Draft, Sight Draft, Trade Draft
Example: Jackson Street Bistro buys its restaurant supplies from Osaka Industries. When Jackson
requests supplies, Osaka creates a drat ordering Jackson to pay Osaka for the supplies within ninety
day and sends it along with the supplies. When the supplies arrive, Jackson accepts the draft by signing
its face and is then obligated to make the payment. This signed draft is a trade acceptance and can be
sold to a third party if Osaka needs cash before the payment is due.
banker’s acceptance.
When the draft orders the buyer’s bank to pay, it is called a banker’s acceptance. Banker’s
acceptances are commonly used in international trade.
Check, Notes, or Certificates of Deposits : Draft drawn on a bank and payable on demand
Check
Drawer: Notes or Drafts
Drafts
Maker: Notes or Drafts
Notes
Collateral Note:
A note that is secured by personal property, such as an automobile.
Installment Note:
A note payable in installments
Assignment of Promissory Notes:
Promissory notes are commonly assigned from one lender to
another lender. Assignment does not affect the maker’s obligation to pay the note as promised.
Draft, Check, Certificate of Deposit: Note issued when a party deposits funds with a bank, and the bank promises
to repay the funds, with interest, on a certain date. UCC 3-104(j). The bank is the maker of the note,
and the depositor the payee.
Certificate of Deposit
Can a note be written on sand or carved in a block of ice?
Hypos: Can a note be written on sand or carved in a block of ice?
No, the writing must be on material that lends itself to permanence
Can a note be written on a napkin? Shirt?
Can a note be written on a napkin? Shirt?
Yes
Can a note be written on the side of a cow?
No, the writing must also have portability. Because a cow cannot be easily transferred in the ordinary
course of business, the “instrument” is nonnegotiable.