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Unformatted text preview: Negotiable Instruments Chapter 1 Negotiability I. Introduction a. The problem of the physical transfer of money solved by putting the money into a guarded depository (bank) and issuing written orders (drafts) for its transfer to various people II. Types of Negotiable Instruments a. Dollar bill = bill of exchange (draft drawn on the US Treasury) b. Notes (promise) 3-104(e) i. 2 parties to a note ii. Written promise to pay money. 1. CDs- If created by the bank, it is called a Certificate of Deposit (CD) 3- 104(j) 2. Promissory Notes typically not made by a bank signed by those who borrow money or to make purchases c. Draft (order) 3-104(e) i. 3 parties to a draft, because a draft is an order ii. Written order by 1 person (Drawer - 3-103(a)(5)) to another (Drawee - 3-103(a) (4) ), directing the latter to pay money to a 3 rd person (the payee) 1. Checks 3-104(f) a draft that happens when someone deposits money in a checking account and then writes checks addressed to the bank ordering it to pay out the account money to those nominated. a. Drawer = Banks Customer b. Drawee = Bank c. Payee = the nominee of the check 2. Cashiers Check 3-104(g) when the check is drawn on the bank itself 3. Tellers Check 3-104(h) if one bank draws a draft on another or makes the draft payable through another bank Problem 1 A: Portia is a remitter ( 3-103(a)(11) )person who purchases an instrument from its issuer if the instrument is payable to an identified person other than the purchaser. ONB (cashiers check) seller Portia buys cashiers check from ONB ONB is drawer/drawee, seller is payee, Portia is remitter. 3-103(a)(15) Remitter means a person who purchases an instrument from its issuer (Portia purchased the cashiers check from Octopus bank) if the instrument is payable to an identified person other than the purchaser (the man in the newspaper) iii. If the Drawee on the draft is NOT a bank, Art. 3 still applies but the instrument no longer meets the technical definition of a check (which requires the drawee be a bank) 1. The most common situation in which non-bank drafts are written occurs in the sale of goods III. The Negotiability Concept o If a paper is technically negotiable (refers to its form) and it is technically negotiated (refers to transfer process), reaching the hands of purchaser for value without knowledge of problems with transaction which gave rise to creation of the paper, the purchaser is called a holder in due course ( 3-302(a) )....
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This note was uploaded on 04/27/2010 for the course LAW 840 taught by Professor Tim during the Spring '10 term at University of Louisville.
- Spring '10
- The Land