296Fall07Handoutsthroughtest3

296Fall07Handoutsthroughtest3 - Negotiable Instruments...

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Negotiable Instruments Chapters 17 - 20 A. Introduction -- If you have a negotiable instrument that has been properly negotiated, then you apply the law of negotiable instruments. Under the law of negotiable instruments, a holder of an instrument may have more rights under the instrument than the transferor. Example (w/o a negotiable instrument): Al represents to Bob that the car he has for sale has only been driven 50,000 miles. Bob relied on Al’s representation and buys Al’s car for $500 and promises to pay Al $500 in two weeks. Al lied…the car really has 150,000 miles on it. Al transfers his rights under the contract with Bob to Charlie (an assignee). Bob finds out about Al’s lie and refuses to pay the $500. Does Bob owe Charlie? NO. There was fraud in the inducement. Note : In the event that you do not have a negotiable instrument, then you apply the law of assignments and the assignee has no more rights than the assignor would have under the instrument. Example (w/ a negotiable instrument): Using the same example as above…What if Bob gives Al a check for $500. Al negotiates the check (endorses it to Charlie). Now Bob refuses to pay the check that Charlie now holds. Can Charlie collect from Bob? YES…the check in this example is a negotiable instrument. Articles 3 and 4 applies to two types of negotiable instruments: 1. Draft --a written order from one party directing a second party to pay a third party. A check is special type of a draft with the bank as the drawee. It is always drawn on a bank and is payable on demand. 2. Promissory note --a promise to pay a certain amount in money. There are 2 parties. A certificate of deposit (CD) is a two party note. It is a written acknowledgment of a receipt of money along with a promise to pay. B. Requirements of Negotiability 1. A writing in some permanent movable form. Ex. A check on the back of a shirt. 2. Signed by the appropriate party. (Ex. A person making his X is acceptable as long as it was intended as a signature.) 3. Unconditional promise or order to pay a sum certain in MONEY. How about the following: I promise to pay you in US savings bonds. .. What about a check to be paid in Euros? Foreign currency is OK. What if there’s a discrepancy between the amount written in words and the numerals? What if the payee’s name is misspelled? Beware of conditions such as: “I promise to pay $500 for the TV provided that it works for 12 months.” 4. Payable on demand or at a definite time. Ex. IOU $500 would not be negotiable.
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Quaere: Is a postdated check a negotiable instrument? What happens if the bank pays a postdated check? 5. Words of negotiability must be on the face of the instrument. In other words, order or bearer must be on the face of the instrument, if it isn’t a check, in order to be negotiable. This defect cannot be cured by endorsement. C.
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This note was uploaded on 04/17/2008 for the course HIST 101 taught by Professor Gerghaty during the Spring '08 term at Longwood.

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296Fall07Handoutsthroughtest3 - Negotiable Instruments...

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