Ch27–Negotiable Instruments: Types, Parties, Transfer, Liability

Define Negotiable Instrument?

Signed written promise or order to pay $ taht satisfies special legal erquirement

Define Promissory Note?

Legally binding written agreement in which one party promises to pay a specific sum of $ to on-demand or at defined future date

Difference between negotiable instrument and cash?

Cash: Transfers value immediately when handed over

Negotiable Instrument: Represents right to receive $ (ex. check, note)

Difference between ordinary contract and negotiable instrument?

Ordinary Contract: Enforces performance, but pmt duty depends on another act

Negotiable Instrument: Pmt promise can be determined from instrument itself

List 5 Benefits of Negotiable instrument rules?

1) Predictability

2) Transferability

3) Confidence in Commerce

4) Clear liability

5) Protection for Certain Purchasers

Define predictability?

Person receiving check or note should be able to determine pmt promise by reading doc

Define transferability?

Biz can transfer qualifying pmt rights instead of keeping every note until it’s paid

Define Confidence in Commerce

Rules make checks, notes, and similar pmt docs more useful in everyday transactions

Define 2 types of negotiable instruments, who’s speaking, and ex?

Define 2 parties involved for a Promise to Pay negotiable instrument?

Maker: Signs note and promises pmt (ex. Student signs note for $2k loan)
Makee: Person named to receive pmt (ex. Landlord’s listed on a rent check)

Define 3 parties involved for an Order to Pay negotiable instrument?

Drawer: Writes order to pay (check) (Ex. Customer writes rent check)

Drawee: Person/institution instructed to apy (Ex. Customer’s bank’s named on check)

Payee: Receives pmt (Ex. Person who’s “order to Pay to” (receives pmt)")

Define Indorser?

Person who signs to transfer instrument and receives $ (signs back of check)

Define 6 requirements for negotiability?

Difference between Bearer Paper and Order Paper?

Bearer Paper: Delivery of possession

Order Paper: Indorsement by proper holder plus delivery (ex. Check payable to Mia is signed by Mia and handed to Lee)

Define 4 Indorsement Types?