Business Law: Creation of Negotiable Instruments

These flashcards cover key concepts regarding negotiable instruments as per the provided lecture notes.

What is a negotiable instrument?

A special form of contract that satisfies the requirements established by Article 3 of the UCC, important for conducting business and individual affairs.

What are the requirements for a document to qualify as a negotiable instrument?

It must be in writing, signed by the maker or drawer, contain an unconditional promise or order to pay a fixed amount of money, be payable on demand or at a definite time, and be payable to order or bearer.

What is a draft in terms of negotiable instruments?

A three-party instrument that is an unconditional written order by one party to pay money to a third party.

What are the three parties involved in a draft?

1. Drawer: Person who issues the draft, 2. Drawee: Person who must pay the draft, 3. Payee: Person to whom the draft is made payable.

What is a time draft?

A draft that is payable at a designated date, such as 'pay on January 1, 2022'.

What is a sight draft?

A draft that is payable on demand, characterized by phrases like 'on demand pay' or 'at sight pay'.

Define a trade acceptance.

A sight draft that arises when credit is extended by the seller to the buyer with the sale of goods.

What is a check in the context of negotiable instruments?

A distinct form of draft drawn on a financial institution, payable on demand with three parties: drawer, drawee, and payee.

What is a promissory note?

A two-party negotiable instrument that is an unconditional written promise by one party to pay money to another party.

What is a certificate of deposit?

Type of note created when a depositor deposits money at a financial institution in exchange for the institution’s promise to pay back the deposit amount plus agreed-on interest.

What is meant by 'payable to order'?

An instrument is an order instrument if it is payable to the order of an identified person.

What does 'payable to bearer' mean?

A bearer instrument is payable to anyone in physical possession of the instrument who presents it for payment.

What is a prepayment clause?

A clause that allows the maker to pay the amount due prior to the due date of the instrument.

What is an acceleration clause?

Allows the payee or holder to accelerate payment of the principal amount of the instrument upon the occurrence of a specified event.

What distinguishes a nonnegotiable contract from a negotiable instrument?

A nonnegotiable contract fails to meet the requirements of a negotiable instrument and is not subject to UCC Article 3.