Study Guide Unit 3: Negotiable Instruments

This set of flashcards includes key terms and definitions related to negotiable instruments, negotiation, holder in due course, and related concepts from Chapters 31-34.

Negotiable Instrument

A document that is either a promise to pay money or an order to pay money.

Holder in Due Course (HIDC)

A holder who has a good title to the instrument, paid for it, took it in good faith, and received no notice of defenses.

Promissory Note

A written promise from the maker to the payee to pay a specific amount at a future date.

Certificate of Deposit (CD)

A bank's promise to repay with interest at a future time.

Check

A written order directing a bank to pay the bearer or a named person.

Draft

Like a check, but requires bank verification first.

Negotiability

A characteristic of a document that allows it to move freely in the financial system and be accepted like money.

Blank Endorsement

An endorsement that consists only of the signature of the endorser.

Special Endorsement

An endorsement that names a specific person to whom the instrument is payable.

Restrictive Endorsement

An endorsement that limits the holder's control over the instrument.

Qualified Endorsement

An endorsement that states 'without recourse,' limiting liability.

Real Defenses

Defenses that an HIDC does not take free from, such as minority or duress.

Bank's Duty to Pay

A bank must pay a properly drawn check when funds exist.

Stop Payment Order

A directive to a bank to not honor a specific check.

Wire Transfers

Instant, large-money transfers between banks.

Transfer Warranty

Warranties regarding the transfer of negotiable instruments, including entitlement to enforce.

Contractual Liability Types

Different liabilities associated with parties involved in a negotiable instrument, such as makers and indorsers.