Payment Systems Flashcards
What types of negotiable instruments do article 3 cover?
Notes and drafts
What is a note?
A note is a written promise to pay money
What is a draft?
A draft is a written order by a drawer to the drawee directing the drawee to pay money to a payee
What is a drawee ?
An entity directed to pay a sum if money on an instrument usually a bank.
A draft written on a bank and payable on demand is called what?
A check
What is a negotiable instrument?
- An unconditional
- promise or order to pay,
- A fixed amount of money
- With or without interest or other charges
- Payable to bearer or order
- Payable on demand or at a definite time.
- Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to payment of money.
What is an order?
A written instruction to pay money signed by the person giving the instruction (drawer)
What is a maker?
A person who signs or is identified in a note as a person undertaking to pay
What is the difference between a note and a draft?
An instrument is a note if it is a PROMISE to pay and a Draft if it is an ORDER to pay.
What is the holding in Triffin v Dillabough ? Is a money order a NI?
The court said a money order is a negotiable instrument and the holder Triffin was holder in due course.
A money Oder fits the NI rules:
1. Be signed by the maker or drawer
2. Contain an unconstitutional promise or order to pay a certain sum of money and no other power given by maker
3. Payable on demand or at a definite time.
4. Payable to the order or to bearer.
Define condition?
- An event
- Not certain to occur
- That must occur
- Unless excused
- Before performance is due
Define a holder
A person
- In possession
- Of a negotiable instrument
- Payable to either bearer or identified person that is the person in possession (himself)
Payable to Bearer means
A promise or order is payable to bearer if it per 3-109
- Indicates that the person in possession is entitled to payment
- Does not state a payee
- State that it is payable to the order of cash.
Three stages of negotiable instruments
- Issuance
- Transfer
- Presentment
What is a negotiation?
Per 3-201
- A transfer of possession
- Whether voluntary or involuntary
- By a person other than the issuer
- To a person who thereby becomes its holder.
When is a negotiation subject to rescission?
If obtained from:
- An infant
- A corporation exceeding its powers
- A person without capacity
- By fraud, duress or mistake
- In breach if duty or as part of an illegal transaction.
What is a holder in due course
- Must have possession
- Of a negotiable instrument
- Who took it for value
- In good faith
- Without notice of certain problems with the instrument.
What are words of negotiability?
Words making a promise or order payable to bearer or to the order
What are the qualification for not payable to bearer per 3-109
Per 3-109
A promise is not payable to bearer and payable to order if it is
1. Is payable to the ORDER OF an identified person
Or to an identified person or order (
2. Payable to bearer becomes payable to an identified person if it is specially endorsed.
Does notes that are subject to acceleration or prepayment prevent the note from being a NI?
A statement if rights and obligations concerning collateral prepayment or ac creation does not prevent the note from being an NI if the statement is in the note itself.
What does payable on demand mean?
- An instrument payable at sight
- Or payable at the will of the holder
- Or Does not state a time of payment
Define payable at a definite time
Means payable on elapse of a definite period of time after sight or acceptance. Or payable on a fixed date
What is payable on a fixed date mean?
Payable upon demand made before the fixed date, or payable on demand until the fixed date
What are the two types of endorsements?
Blank and special endorsements