Chapter 26 Outline

Chapter 26 Outline - Chapter 26 Negotiability Negotiability...

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Chapter 26 Negotiability Negotiability is a legal concept that makes written instruments more freely transferable and therefore a readily accepted form of payment in substitution for money. Development of Law of Negotiable Instruments With the flourishing of trade and commerce, it became essential to develop a more effective means of exchanging contractual rights for money. The concept of holder in due course, whereby certain good faith transferees who gave value acquired the right to be paid, free of most of the defenses to which an assignee would be subject. By reason on this doctrine, a transferee of a negotiable instrument could acquire greater rights than his transferor, whereas an assignee would only acquire only the right rights of his assignor. Assignment Compared with Negotiation Negotiability invests negotiable instruments with a high degree of marketability and commercial utility. For example, assume that George sells and delivers goods to Elaine for $50,000 on sixty days credit and that, a few days later, George assigns this account to Marsha. Unless Elaine is duly notified of this assignment, she may safety pay the $50,000 to George on the due date without incurring any liability to Marsha, the assignee. Types of Negotiable Instruments There are four types of negotiable instruments: drafts, checks, notes, and certificates of deposits. The first two contain orders, and the next two promises to pay money. Draft Draft involves three parties, each in a 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. Drafts may be either “time” or “sight”, a time draft is one payable at a specified future date, whereas a sight draft is payable on demand.
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A form of time draft known as a trade acceptance is frequently used as a credit device in commercial transactions. Check A check is a specialized form of draft, namely, an order to pay your money drawn on a bank and payable on demand. A cashiers check is a check drawn by a bank upon itself to the
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Chapter 26 Outline - Chapter 26 Negotiability Negotiability...

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