Chapter 24 The Function and Creation of Negotiable Instruments See Separate Lecture Outline System I NTRODUCTION Because the holder of a negotiable instrument may enjoy greater rights than the holder of a nonnegotiable instrument, it is important for your students to understand the distinctions between these types of instruments. A negotiable instrument has two functions—as a substitute for money and as a credit device. To fulfill these functions, an instrument must be easily transferable and collectible. This chapter examines the essential fea- tures of various instruments that qualify as negotiable and the roles and responsibilities of the parties who cre- ate these instruments. Also, this chapter discusses the requirements for a negotiable instrument, and some of the omissions and terms that do not affect an instrument’s negotiability. A DDITIONAL R ESOURCES — A UDIO & V IDEO S UPPLEMENTS 221
222 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW , ELEVENTH EDITION The following audio and video supplements relate to topics discussed in this chapter— PowerPoint Slides To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for Chapter 24. South-Western’s Business Law Video Series The situational video Commercial Paper provides background on the topics covered in this chapter of WBL. C HAPTER O UTLINE I. Articles 3 and 4 of the UCC When an instrument is negotiable, UCC Article 3 governs its transfer. To qualify as negotiable, an in- strument must meet the requirements imposed by UCC 3–103. A. T HE 1990 R EVISION OF A RTICLES 3 AND 4 In 1990, a revised version of Article 3 was issued for adoption by the states. Some of the changes to Article 3 clarified old sections. Some altered the existing provisions. The revised Article 3 is the ba- sis for the discussion in this and the other chapters on negotiable instruments. Article 4 was also revised in 1990, in part to reflect the changes to Article 3. References to Article 4 are also to the re - vised provisions. B. T HE 2002 A MENDMENTS TO A RTICLES 3 AND 4 Both articles were updated with proposed amendments in 2002 to comport with the Uniform Electronic Transactions Act (UETA) and the needs of e-commerce. II. Types of Negotiable Instruments A. D RAFTS AND C HECKS (O RDERS TO P AY ) A draft (bill of exchange) is an unconditional written order.
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