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Negotiable Instrument
a signed writing or record that contains an unconditioned promise or order to pay an exact amount, either on demand or at a specific future time. TERM 2
Drafts, Checks, Notes and CD's
DEFINITION 2 Four types of Negotiable instruments TERM 3
Draft
DEFINITION 3 an unconditional written order by one person to another person or to a bearer. TERM 4
Drawer; Drawee; Payee
DEFINITION 4 the person who signs or makes the order to pay.the person to whom the order to pay is madethe person to whom payment is ordered TERM 5
Drawer; Drawee; Payee
DEFINITION 5 The party creating the draft ,_____, orders another party, ____, to pay money usually to a third party ,_____.
Time draft; Sight Draft (or a demand draft)
payable at a definite future timepayable on sight that is, when it is presented to the drawee for payment. TERM 7
a stated time after sight.
DEFINITION 7 A draft can be both a time and a sight draft; such a draft is payable at TERM 8
Trade Acceptance
DEFINITION 8 a type of draft that is frequently used in the sale of goods; the seller of the goods is both the drawer and the payee. The buyer to whom credit is extended is the drawee. Essentially, the draft orders the buyer to pay a specified amount to the seller, usually at a stated time in the future. TERM 9
Banker's Acceptance
DEFINITION 9 When a draft orders the buyer's bank to pay; commonly used in international trade TERM 10
Check
DEFINITION 10 the most commonly used type of draft drawn on a bank and payable on demand.
Requirements for a instrument to be
negotiable
- Be in writing2. Be signed by the maker or the drawer.3. Be an unconditional promise or order to pay4. State a fixed amount of money5. Be payable on demand or at a definite time6. Be payable to order or to bearer, unless it is a check. TERM 17
Permanence and Portability
DEFINITION 17 Negotiable instruments must be evidenced by writing. The writing must be on material that lends itself to _____. TERM 18
The maker if it is a note or a CD and the
drawer if it is a draft or a check
DEFINITION 18 For an instrument to be negotiable, it must be signed by TERM 19
Express promise or order to
pay
DEFINITION 19 For an instrument to be negotiable, it must contain an TERM 20
CD
DEFINITION 20 No express promise is required in a ___ because the banks acknowledgment of the deposit and the other terms of the instrument clearly indicate a promise by the bank to repay the sum of money
Jointly "to A and B" or alternatively "to A or B"
An order may be addressed to one person or to more than one person, either TERM 22
Unconditional promises or orders
DEFINITION 22 Only instruments with ____ can be negotiable. TERM 23
Conditional (and not negotiable)
DEFINITION 23 A promise or order is____ If it states (1) an express conditions to payment, (2) that the promise or order is subject to or governed by another writing, (3) or that the rights or obligations with respect to the promise or order or stated in another writing. TERM 24
Fixed amount of money, with or without
interest or other charges described in the
promise or order
DEFINITION 24 Negotiable instruments must state with certainty a ____ , to be paid at the time the instrument is payable. TERM 25
Fixed amount
DEFINITION 25 Means that the amount must be ascertainable from the face of the instrument
Presentment
Means a demand made by or on behalf of a person entitled to enforce an instrument to either pay or accept the instrument; Occurs when a person brings the instrument to the appropriate party for payment or acceptance. TERM 32
payable at a definite time
DEFINITION 32 An instrument is ___ if it states that it is payable (1) on a specified date, (2) within a definite period of time, such as 30 days after being presented for payment, or (3) on a date or time readily ascertainable at the time the promise or order is issued. TERM 33
Acceleration clause
DEFINITION 33 Allows a payee or other holder of a time instrument to demand payment of the entire amount due, with interest, if a certain event occurs, such as a default in payment of an installment when due. TERM 34
Extension Clause
DEFINITION 34 The reverse of an acceleration clause which allows the date of maturity to be extended into the future TERM 35
freedom to transfer
DEFINITION 35 Because one of the functions of a negotiable instrument is to serve as a substitute for cash, ____ is essential.
Order instrument
In instrument that is payable (1) to the order of an identified person or (2) To an identified person or order. TERM 37
To whom the instrument is initially payable
DEFINITION 37 An identified person is the person ___ as determined by the intent of the maker or drawer. TERM 38
Bearer instrument
DEFINITION 38 An instrument that does not designate a specific payee; The maker or drawer agrees to pay anyone who presents the instrument for payment. TERM 39
Bearer
DEFINITION 39 Refers to a person in possession of an instrument that is payable to bearer or indorsed in blank (with a signature only). TERM 40
Bearer Instrument
DEFINITION 40 Any instrument containing terms such as "payable to the order of bearer", "payable to Simon Reed or bearer", "payable to bearer", "pay cash", or "pay to the order of cash" is a
