bus.law L6 Ch11 UCC -article 3

Negotiable instruments

or commercial paper – is a writing drawn in a special form which can be transferred from person to person as a substitute for money or as an instrument of credit.

paper documents

Most Negotiable Instruments, which is why they are often referred to as commercial paper.

a Negotiable Instrument

As a substitute for money; is a powerful document because it can be passed on like money without fear it will not be uncollectible.

Commercial Paper/Negotiable Instruments may be classified as:

•    Promissory Notes (Promises to Pay)

•    Orders to Pay (Check)

Promissory Note

A negotiable instrument containing a promise to pay

Check

An order by a depositor on their bank to pay a sum of money to a payee.  This written order is signed by 1 person directing another (financial institution) to pay money to a third person.

Payee

The party to whom a negotiable instrument is made payable

Drawer

Person who executes any check

Drawee

Person, or company or financial institution ordered to pay a check

Frank writes and signs a personal check, thereby ordering his financial institution – Regions Bank – to pay Paul $100.

 who are the Drawer; Drawee; Payee

Frank is the Drawer, a person who executes a draft (in this case a personal check)

Regions Bank is the Drawee, the institution on which the check is being drawn

Paul is the Payee, the party to whom a negotiable instrument is made payable

Certified Check

A check which the bank assures the Drawer has sufficient funds to make payment

Checks are _____ because they are payable on demand.

Demand Instruments

When the check is ____, the bank immediately charges the account of the drawer with the amount of the check and transfers those funds to its own certified check account.

Certified

Cashier’s Check

A check drawn on the funds of the bank and signed by a responsible bank official

an individual can purchase a ____ from a bank by paying the face amount of the check together with a service fee for the bank issuing the check.

The drawer does not need to have a checking account at the bank, and – once the check has been issued – it cannot be canceled.

cashier’s check

Drawer

Executes the check

Drawee

Person, Company, or Financial Institution that’s ordered to pay the check

Payee

Party to whom a negotiable instrument is made payable

Electronic Fund Transfers (EFTs) -

transfers of money within the same financial institution or across multiple institutions – via computer-based systems, without bank staff.

Electronic Fund Transfer Act (EFTA)

Federal Law that regulates these systems and provides for the rights, liabilities, and responsibilities of users of EFT systems

ATM

automated teller machine

POS transfers

use online terminals at locations (like a funeral home) that allow a customer to transfer funds using their credit/debit cards to pay for goods or services.

Using EFT

direct deposits, customers can authorize a bank to allow another party –  such as an employer or the government – to make direct deposits into their account.

Negotiable instruments

or commercial paper – is a writing drawn in a special form which can be transferred from person to person as a substitute for money or as an instrument of credit.

Negotiable Instrument =

Commercial Paper

Promissory Notes

Promises to Pay

Orders to Pay

Checks

Note

A promise to pay money, a loan

Negotiation

Act of transferring ownership of a negotiable instrument to another party.  Involves a transfer to the extent the person to whom ownership is transferred becomes a holder of the instrument

Endorsement

Signature of a holder on the back of a negotiable instrument

Endorser

Signs their name on the back of a check

Endorsee

Holder of an endorsed negotiable instrument

Alteration

An unauthorized change to an important Element in a Negotiable Instrument or Contract that affects the rights of the parties.

Duress

Removing one’s free will and obtaining consent by means of a threat

However, if someone signs an instrument under immediate threat of force or violence, that would be considered ____.

extreme duress