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MGMT 212
The Function & Creation of Negotiable Instruments (Ch. 24)
19
Management
Undergraduate 2
06/30/2009

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Term
Commercial paper
Definition
= Negotiable Instruments: A signed writing that contains an unconditional promise or order to pay an exact sum of money either on demand or at an exact future date.
Term
Negotiable v. non-negotiable
Definition
Negotiable: special requirements relating to form and content must be met. Negotiable instruments are governed by the UCC; non-negotiable instruments are governed by the common law.
Term
Order to pay
Definition
Draft/check. Paid whenever collector says.
Term
Promise to pay
Definition
Notes/CDs. Pay at a specific date.
Term
Demand Instrument
Definition
States it is payable on demand or on sight.
Term
Time Instrument
Definition
Payable at a future date.
Term
Draft
Definition
Unconditional written order to pay (3 parties). // Drawer: party who creates instrument. Drawee: party ordered to pay (Bank, through drawer's bank account). Payee: party to receive money.
Term
3 Types of Drafts
Definition
1.) Time draft (has a due date or time limit). 2.) Sight draft (doesn't have a due date). 3.) Trade acceptance (most commonly used, very marketable. Seller of goods is both drawer and payee).
Term
Check
Definition
Type of draft. Demand instrument, meaning payable on sight. // Drawer: writer of check/acct holder. Drawee: bank acct. Payee: person to which check is payable.
Term
Promissory Note
Definition
Written promise between 2 parties. // Maker: signs note, liable to pay (borrower). Payee: one to whom promise is made (bank)
Term
Certificate of Deposit
Definition
Bank issued note. // Maker: bank. Payee: lender.
Term
Requirements of a Negotiable Instrument (6)
Definition
1.) In writing. 2.) Signed by the Maker (note/CD) or Drawer (draft/check). 3.) Unconditional Promise or Order to Pay. 4.) Fixed Amount of Money. 5.) Payable on Demand or at a Definite Time. 6.) Payable to Order or to Bearer.
Term
In Writing -- 1st Requirement of a Negotiable Instrument
Definition
In writing on material that lends itself to permanence. Portable.
Term
Signed by the Maker (CD/note) or Drawer (draft/check) -- 2nd Requirement of a Negotiable Instrument
Definition
Signed (any symbol used with the intent to authenticate a writing). Placement of signature is irrelevant. Burden of Proof: signature is presumed valid. Instrument can be signed by an authorized agent.
Term
Unconditional Promise or Order to Pay -- 3rd Requirement of a Negotiable Instrument
Definition
Terms of the promise or order must be on the face of the instrument. Must be affirmative, not just an implication. An order must be a command. Unconditional: only unconditional promises or orders can be negotiable. // If there are conditions, marketability is limited.
Term
Fixed Amount of Money -- 4th Requirement of a Negotiable Instrument
Definition
Amount must be ascertainable from the face of the instrument. Payable in money and no other promise. // Can the amount due be calculated on the date due? If so, the amount is fixed. "With interest" works, because a statutory rate can be found.
Term
Payable on Demand or at a Definite Time -- 5th Requirement of a Negotiable Instrument
Definition
Payable on Demand: "payable at sight" or "payable on presentment." If no payment is specified, then it is payable on demand. // Payable at a Definite Time: On a specified later date; within a definite period of time after being presented for payment; on a date readily ascertainable at the time of the order or promise. // Acceleration Clause: allows the holder of a time instrument to demand payment of the entire amount due if a certain event occurs, such as default. // If time for payment is based on the occurrence of an uncertain event, the instrument is non-negotiable! NO CONDITIONS!
Term
Payable to Order or to Bearer -- 6th Requirement of a Negotiable Instrument
Definition
Order Instrument: payable to an identified person or Order. Order = the instrument is payable to whomever the "identified person" may later designate. // Bearer Instrument: doesn't designate a specific person to whom it is payable. They're either not payable to an identified person, or indorsed in blank.
Term
Factors that don't Affect Negotiability (8)
Definition
1.) Date (unless date is necessary to fix the time for payment). 2.) Postdating or antedating an instrument. 3.) Handwritten terms outweigh typed, which outweigh print. 4.) Words outweigh figures. 5.) Omission of place where instrument is payable or drawn. 6.) Promise to maintain/protect collateral. 7.) If instrument states "with interest." 8.) Notation of non-negotiable on a check (on any other instrument, it makes it non-negotiable).
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