Commercial Transactions Final.docx

Commercial Transactions Final.docx - Ch 26 Negotiable...

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Ch. 26 Negotiable instrument Purpose: To foster liquidity, to create substitutes for cash, and to facilitate credit Approach: To establish holder-in-due-course status, which enables certain holders of instruments to collect without regard to adverse claims of ownership and without regard to most defenses against payment Holder in due course—certain good faith transferees who gave value acquired the right to be paid, free o most of the defenses to which an assignee would be subject Types of Negotiable Instruments Draft (order to pay) Involves three parties, each of distinct capacity One party, the drawer, orders a second party, the drawee, to pay a fixed amount of money to a third party, the payee o Thus, the drawer “draws” the draft on the drawee Time Draft o Payable at a specified future day Trade of Acceptance o A time draft, drawn by the seller (drawer) on the buyer (drawee), that names the seller or some third party as the payee Sight Draft o Payable on demand Check (order to pay) A specialized form of a draft, namely, an order to pay money drawn on a bank and payable on demand I.e. upon the payee’s request for payment Cashier’s check—a check drawn by a bank upon itself to the order of a named payee Notes (promise to pay) Promissory note o An instrument involving two parties in two capacities o One party, the maker, promises to pay a second party, the payee, a stated sum of money, either on demand or at a stated future date Certificate of Deposit, CD (promise to pay) A specialized form of promise to pay money given by a bank A written acknowledgement by a bank of the receipt of money that it promises to repay The issuing party, the maker, which is always a bank, promises to pay a second party, the payee, who is named in the CD Requirements of Negotiable Instruments To be negotiable, the instrument must: Be in writing, o Printed, typewritten, handwritten, or any other intentional tangible expression is sufficient to satisfy the requirement
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Be signed, o Note or certificate of deposit must be signed by the maker o Draft or check must be signed by the drawer o Signature can be any symbol a party executes or adopts with the present intention to authenticate a writing o May consist of any word or mark used in place of a written signature, such as initials, an X, or a thumbprint Contain a promise or order to pay, o Due bill or IOU Not a promise, but an acknowledgement of indebtedness Is not negotiable because it does not contain a promise to pay o Order to pay: an instruction to pay Must be more than authorization or request Must identify with reasonable certainty the person to be paid “Pay to the order of John Smith” or “Pay bearer” Words of courtesy “please pay” or “kindly pay” will not destroy negotiability Be unconditional, o A promise or order is unconditional if it is absolute and not subject to any contingencies or qualifications o
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  • Spring '13
  • Prof.NormanBerle

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