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Chapter 14 Notes, Test 3

by: Arriann Henry

Chapter 14 Notes, Test 3 BL 3223

Marketplace > Mississippi State University > BL 3223 > Chapter 14 Notes Test 3
Arriann Henry

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Chapter 14 Notes, Test 3
Law of Commercial Transactions
Cecilia Cook
Class Notes
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This 3 page Class Notes was uploaded by Arriann Henry on Monday October 10, 2016. The Class Notes belongs to BL 3223 at Mississippi State University taught by Cecilia Cook in Fall 2016. Since its upload, it has received 3 views.


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Date Created: 10/10/16
Unit Three Chapter 14 – The Function and Creation of Negotiable Instruments (NI)  Negotiable Instruments(NI) = Commercial paper  Article 3 of UCC- source of law for NI  NI serve as a substitute for cash, that is their purpose  MAIN REASON-Assure that payment and collection are made  NI- signed writing, including electronic records that contains an unconditional promise or order to pay an exact amount of money (sum certain) either on demand or at a specified time  Most common NI is a check***  4 NI Instruments 1. Checks 2. Drafts 3. Promissory Notes 4. Certificates of Deposit (COD)  These can either be a demand instrument (payable on demand, “sight instrument”) or a time instrument (payable at a specified time or date)  These are either orders to pay or promises to pay 1. Orders to Pay- checks & drafts  Checks are third party instruments  Drawer- customer  Drawee- party that is ordered to pay  Payee- Party entitled to receive payment *CHECKS ARE ALWAYS DEMAND INSTRUMENTS/ PAYABLE AS SOON AS IT IS SIGNED 2. Promise to Pay-Promissory Notes- two party instrument  Maker- makes the instrument  Payee- Party entitled to receive payment 3. Certificate of Deposit (COD)- Time deposit  Bank creates the actual certificate,  Time Deposit- ALWAYS a Time Instrument  You can’t withdraw money without penalty Exceptions to Early Withdrawal: 1) Death, 2) Severe Disability  6 Requirements for Negotiability: 1. Be in writing (includes electronic records, e-checks – difficult to determing with oral) o Has to have permanence, and has to be portable-transferable 2. Signed by maker/drawer o Authenticated ( name, initials, stamp, electronic signature)- verify that genuine instrument you have issued, o UCC DOES NOT REQUIRE TO BE SIGNED IN BOTTOM RIGHT HAND CORNER**** 3. Contains an unconditional promise or order to pay o If it is conditional it is not negotiable; most common-“I’ll pay you when I get paid” 4. Fixed amount for money- Sum Certain o Must know how much instrument has to be paid for, negotiability isn’t affected by an interest rate; it has to be payable in currency ( not US currency typically/ accepted medium of exchange) NO GOLD, COMMADITIES 5. Payable on Demand- Specified Time o Definite & Demand o If a time period date HAS to be on instrument= Promissory Note o 2 Clauses that do not affect negotiability of instrument 1. Acceleration Clause- allows person entitled to be paid upon occurrence on event that party may demand payment on entire instrument Ex- $10,000 in interest over 4 months  If you miss a payment and there is an acceleration clause the entire payment is due 2. Extension Clause- as creditor, extension clause allows deadline to be extended- doesn’t affect negotiability  3 Specified Dates we can look at: o A calendar date o Time period-after presenting, asking for payment (ex. 10 days after presentment) o Date that is ascertainable in the future from the time of issue (ex 30 days from issue) 6. Containing Words of negotiability  Words we are looking for = “payable to order” or “payable to bearer”  PTO is made out to a specific person, someone’s name will be on them  2 things to transfer an order instrument: 1) endorse 2) deliver  Bearer instrument- made out to bearer- not made out to specified person- payable to whoever possess it 6 factors that may affect negotiability: 1. Date – Not required; instrument will be negotiable unless we need date to determine value of instrument 2. Dating of Check- Antedating (before date it is actually written) & Postdating (date it after the date that check is written) check  Ex- Dating a check later than usual to avoid late charges; writes check for work but dated it for the date of next paycheck so it will not go through to Oct 15- person in possession is under no obligation to hold check; can take it to that bank that day 3. Handwritten Provisions have Precedents over Type-Written Provisions- If you alter a written document with handwritten provisions, the handwritten provisions always take precedence. 4. Words always precede numbers on a check 5. Write the terms with interest- negotiable; going to look at the judgement rate (if only has the words “with interest”) of interest **doesn’t affect negotiability 6. If “nonnegotiable” is on the instrument, does not affect negotiability on anything except a check


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