Requisites of negotiability and Negotiation

Question 1

What is a negotiable instrument?

Answer 1

Singed writing that orders or promises payment of money, (notes, drafts and checks)

Question 2

What is a note?

Answer 2

2 party instrument in which one party (maker) promises to pay a second (payee) a sum of money

Question 3

What is a draft?

Answer 3

3 party instrument in which one party (drawer) orders a 2nd party (drawee/payor) to pay a sum of money to a 3rd party (payee)

Question 4

What is a check?

Answer 4

draft drawn upon a bank and payable on demand. (money order; cashier’s check’ and teller’s check)

Question 5

What happens if an instrument falls within the definition of both note and draft?

Answer 5

Can be enforced as either.

Question 6

What are the requirements of a negotiable instrument?

Answer 6

1. signed writing
2. unconditional promise or order
3. to pay fixed amount of money
4. Payable to order or to bearer
5. Payable on demand or at a definite time
6. Contains no undertaking or instruction.

Question 7

What are the requirements of a signed writing?

Answer 7

• can be made manually or mechanically, (name, word, symbol). May be typewritten or printed.
• writing the name of another person constitutes the signature of the writer if writer lacks authority to use the other’s name as long as person who pays the instrument acts in good faith

Question 8

What are the requirements of the promise or order?

Answer 8

Order: written instruction to pay money signed by person giving the instruction
Promise: written undertaking to pay money signed by the person undertaking to pay

Negotiable instrument must be payable in all events .

Question 9

When is a promise conditional?

Answer 9

1. Contains an express condition to payment
2. States that it is subject to or governed by another writing; or
3. States that rights or obligations with respect to it are stated in another writing.

Question 10

When is a promise Unconditional?

Answer 10

Reference to another writing - does not of itself make a promise or order conditional
Reference to another writing stating rights w.r.t collateral, prepayment or acceleration - does not of itself make a promise or order conditional

Question 11

Pay a Fixed amount

Answer 11

Instrument is not payable with interest unless it specifies otherwise. Interest may be stated as a fixed or variable amt of money, or as a fixed or vairable rate.

Question 12

What happens if instrument provides for interest but the amount cannot be ascertained from the description?

Answer 12

Interest is payable at the rate PAYABLE ON JUDGMENTS at the place and time interest first accrues

Question 13

Payable in Money

Answer 13

Instrument must be payable in money and only money, and amt due must be ascertainable from the instrument.
-Instrument rendered non-negotiable if the obligor agrees to pay in goods or services, even as an alternative option

Question 14

When is an instrument payable to bearer?

Answer 14

1. states its payable to bearer or order of bearer
2. does not state a payee
3. states it is payable to cash; or
4. indicates it is not payable to an identified person

Question 15

If a check is not payable to bearer or order, but otherwise satisfies all the requirements for negotiabilty?

Answer 15

Is negotiable

Question 16

When is an instrument payable to order?

Answer 16

If it is payable to the order of an identified person or to an identified person or order

Question 17

what is an instrument contains BOTH order and bearer language?

Answer 17

The bearer language controls

Question 18

Multiple Payees - alternatively (X or Y)

Answer 18

Payable to any of them, and may be negotiated, discharged, or enforced by any or all or them in possession of the instrument

Question 19

Multiple Payees - jointly (X and Y)

Answer 19

Payable to all of them, and may be negotiated, discharged, or enforced only by all of them; neither, acting alone, can be the holder of the instrument.

Question 20

Instrument ambiguous as to payable to persons alternatively or jointly

Answer 20

Payable to persons alternatively

Question 21

When is an instrument payable on demand?

Answer 21

if it states that it is payable on demand or at sight, otherwise indicates that it is payable at the will of the holder, or it does not state any time for payment.

Question 22

When is instrument payable at a definite time?

Answer 22

If payable

1. at the end of a definite period of time (90 days)
2. At a fixed date; or
3. at a time readily ascertainable at the time of issue, even if subject to rights of:
   - prepayment;
   - acceleration;
   - extension at the holder’s option; or
   - extension to a further definite time at the maker’s option or automatically upon or after a specified act or event

Question 23

What happens if instrument payable at a fixed date and payable on demand before the fixed date?

Answer 23

Payable on demand until the fixed date, and if no demand has yet been made, becomes payable at a definite time on the fixed date

Question 24

If an instrument is payable ONLY UPON THE HAPPENING OF AN EVENT?

Answer 24

Non-negotiable, even if that even is certain to happen, SO LONG AS THE TIME IS UNCERTAIN

Question 25

Contain No Undertaking or Instruction

Answer 25

Negotiable instrument may not state any other undertaking or instruction by the person promising or ordering payment to do anything besides pay money

Question 26

What “undertakings” do not destroy negotiability?

Answer 26

1. An undertaking or power to maintain or protect collateral to secure payment;
2. an authorization or power to confess judgment or realize on or dispose of collateral;
3. a promise or provision waiving benefit of any law intended for the obligor’s protection.