Business law essay questions
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Chapter15.pptCHAPTER 15
NEGOTIABLE
INSTRUMENTS
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
QUOTES OF THE DAY
“A negotiable bill or note is a courier without luggage.”
John B. Gibson,
Overton v. Tyler, 1846
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
COMMERCIAL PAPER
- Commercial paper is a contract to pay money.
- It can be:
- A Substitute for Money
- A Loan of Money
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
TYPES OF NEGOTIABLE INSTRUMENTS
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- Note (also called a promissory note) is a promise to pay money.
- Draft is an order directing someone else to pay money for you (e.g., checks).
- Drawer: issues a draft
- Drawee: pays a draft
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NEGOTIABILITY
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
To work as a substitute for money, commercial paper must be freely transferable in the marketplace. In other words, it must be negotiable.
The possessor of non-negotiable commercial paper has the same rights—no more, no less—as the person who made the original contract.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
REQUIREMENTS FOR NEGOTIABILITY
- The Instrument Must:
- Be in Writing.
- Be Signed by the Maker or Drawer.
- Contain an Unconditional Promise or Order to Pay.
- State a Definite Amount of Money.
- Be Payable on Demand or at a Definite Time.
- Be Payable to Order or to Bearer.
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
INTERPRETATION OF AMBIGUITIES
- When terms contradict, three rules apply:
- Words take precedence over numbers.
- Handwritten terms prevail over typewritten terms.
- Typed terms prevail over printed terms.
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
NEGOTIATION
- Negotiation means that an instrument has been transferred to the holder by someone other than the issuer.
- To be negotiated, order paper must first be indorsed and then delivered to the transferee.
- Bearer paper must simply be delivered to the transferee; no indorsement is required.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
INDORSEMENT
- An indorsement is the signature of the payee.
- If a check has not been indorsed, the check cannot be negotiated.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
HOLDER IN DUE COURSE
- A holder in due course has an automatic right to receive payment for a negotiable instrument (unless issuer can claim one of a few “real” defenses).
- Requirements for Holder in Due Course
- Under §3-302 of the UCC, a holder in due course is a holder who have given value for the instrument, in good faith, without notice of outstanding claims or other defects.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
NOTICE OF OUTSTANDING CLAIMS OR OTHER DEFECTS
- The instrument is overdue
- The instrument is dishonored
- The instrument is altered, forged, or incomplete
- The holder has notice of certain claims or disputes
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
DEFENSES AGAINST A HOLDER IN DUE COURSE
- An issuer of a negotiable instrument is not required to pay in certain situations involving:
- Forgery
- Bankruptcy
- Minority
- Alteration Duress
- Mental Incapacity
- Illegality
- Fraud in the Execution
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
CONSUMER EXCEPTION
- A consumer credit contract is one in which the seller is also the lender.
- In such cases, the Federal Trade Commission requires a specifically-worded notice to be included on the contract, making it non-negotiable.
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Commercial paper provides essential grease to the wheels of commerce. It is worth remembering, however, that the terms of the UCC are precise and that failure to comply with these exacting provisions can lead to unfortunate consequences.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
