R7 Com Paper 1 (F) Flashcards
Holder in Due Course Rule
If a negotiable instrument is negotiated to aholder in due course, the holder in due course will take the instrument subject to very few defenses
Holder in Due Course
A person who takes a negotiable instrument for value, in good faith, and without notice of any defenses on or claims to the instrument
Note
Two-party commercial paper
A promise by one party (the maker) to pay money to another party (the payee or the bearer)
Certificate of Deposit (CD)
Involves two parties (a bank and apayee)
A negotiable instrument issued by a bank that acknowledges receipt of money and promises to repay at a future date
Draft
Three-party commercial paper
An order by one person (the drawer) to another person (the drawee) demanding that the drawee pay money to a third person (the payee)
Check
A type of draft drawn on a bank and payable on demand.
They do not need to state that they are payable “to the order of” or”bearer”
Trade Acceptance
A draft drawn by the payee (usually the seller of goods)on the drawee (usually the buyer of the seller’s goods) and accepted by the drawee.(accepting liability on the instrument)
“Demand” (Sight) Note or Draft
An instrument payable on demand
“Time” Note or Draft
An instrument payable at a future date
Negotiable Instrument Characteristics
Be in writing
Be signed by the maker (note) or drawer (draft)
Contain an unconditional promise (note) or order (draft) to pay
Be for a fixed amount of money only
Be payable on demand or at a definite time
Be payable to order or to bearer; besides checks
Unconditional Promise or Order
An instrument is generaly not negotiable if it states that payment is conditional
If a payment states that it is governed or subject to another agreement
No express conditions
Conditions that do not Destroy Negotiability
The instrument
is subject to implied conditions
states its consideration
refers to the transaction out of which the instrument arose or states that the instrument was made in accordance with or as per the transaction
Limits payment to a particular source or fund
Fixed Amount of Money
The amount must be fixed on the face of the instrument and must be a specificaly ascertainable amount and payable in money. It can be:
Payable with interest
Payable with a stated discount or addition if paid before or after the date fixed for payment
Payable with the cost of collection attorney’s fees upon default
On Demand or at a Definite Time
Checks do not have to be dated
Latest possible maturity date - at a fixed period after the stated date
Events certain to happen but uncertain to time are not negotiable
Accelerated and Extension Clauses do not destroy negotiability and instruments can be undated, postdated, or antedated
Order Paper
Must state that it is payable to the order of an identified person or payable to an identified person or order
