BL-Chapt24 - Print Chapter Page 1 of 22 The Function and...

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The Function and Creation of Negotiable Instruments Chapter Introduction 24-1 Articles 3 and 4 of the UCC 24-1a The 1990 Revision of Articles 3 and 4 24-1b The 2002 Amendments to Articles 3 and 4 24-2 Types of Negotiable Instruments 24-2a Drafts and Checks (Orders to Pay) 24-2b Promissory Notes and CDs (Promises to Pay) 24-3 Requirements for Negotiability 24-3a Written Form 24-3b Signatures 24-3c Unconditional Promise or Order to Pay 24-3d A Fixed Amount of Money 24-3e Payable on Demand or at a Definite Time 24-3f Payable to Order or to Bearer 24-4 Factors Not Affecting Negotiability Chapter Recap Page 1 of 22 Print Chapter 2010-8-30 ..
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A negotiable instrument is a signed writing (or record) that contains an unconditional promise or order to pay an exact amount of money, either on demand or at a specific future time. The checks you write to pay for groceries, rent, your monthly car payment, insurance premiums, and other items are negotiable instruments. Most commercial transactions that take place in the modern business world would be inconceivable without negotiable instruments. A negotiable instrument can function as a substitute for cash or as an extension of credit. For example, when a buyer writes a check to pay for goods, the check serves as a substitute for cash. When a buyer gives a seller a promissory note in which the buyer promises to pay the seller the purchase price within sixty days, the seller has essentially extended credit to the buyer for a sixty-day period. For a negotiable instrument to operate practically as either a substitute for cash or a credit device, or both, it is essential that the instrument be easily transferable without danger of being uncollectible. This is a fundamental function of negotiable instruments. Each rule described in the following pages can be examined in light of this function. The law governing negotiable instruments grew out of commercial necessity. In the medieval world, merchants engaging in foreign trade used bills of exchange to finance and conduct their affairs, rather than risk transporting gold or coins. Because the English king's courts of those times did not recognize the validity of these bills of exchange, the merchants developed their own set of rules, which were enforced by "fair" or "borough" courts. Eventually, the decisions of these courts became a distinct set of laws known as the Lex Mercatoria (Law Merchant). The Law Merchant was codified in England in the Bills of Exchange Act of 1882. In 1896, in the United States, the National Conference of Commissioners on Uniform State Laws (NCCUSL) drafted the Uniform Negotiable Instruments Law. This law was the forerunner of Article 3 of the Uniform Commercial Code (UCC). Page 2 of 22
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BL-Chapt24 - Print Chapter Page 1 of 22 The Function and...

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