Contract of negotiable instruments

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Contract of negotiable instruments

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Contract of negotiable instruments

  1. 1. The Function and Creation of Negotiable Instruments
  2. 2. §1: Articles 3 and 4 of the UCC <ul><li>A “negotiable instrument” is a signed writing containing an unconditional promise to pay an exact sum of money. </li></ul><ul><li>History of negotiable instruments began in England “bills of exchange” so that merchants were able to exchange money while keeping their money safe in the banks. </li></ul><ul><li>Today, UCC Article 3. </li></ul>
  3. 3. §2: The Function of Instruments <ul><li>To function as a substitute for money or credit device. </li></ul><ul><li>In order for an instrument to operate practically, it has to be easily transferable. </li></ul><ul><li>Laws of assignment did not allow for ease of transfer because the assignee was always subject to the defenses that could be used against the assignor. </li></ul><ul><li>Article 3 provided that some defenses could not be used against certain assignees. </li></ul>
  4. 4. §3: Types of Negotiable Instruments <ul><li>Drafts and checks are 3 party instruments: Drawer, Drawee and Payee. </li></ul><ul><ul><li>Checks (cashier’s, teller’s and traveler’s) are drafts on a bank. </li></ul></ul><ul><ul><li>Trade acceptances seller is drawer and payee. </li></ul></ul><ul><li>Case 24.1: Flatiron Linen v. First American State Bank (2001). </li></ul>
  5. 5. <ul><li>Promissory Notes are two party instruments: </li></ul><ul><ul><li>Maker (Promisor) and </li></ul></ul><ul><ul><li>Bearer (Promisee). </li></ul></ul><ul><li>Certificates of deposit (CDs): two party instruments. </li></ul><ul><li>Case 24.2: U.S. v. Durbin (1999). </li></ul>Types of Negotiable Instruments
  6. 6. §4: Requirements for Negotiability <ul><li>Writing signed by the maker or the drawer. </li></ul><ul><li>Unconditional promise or order to pay a fixed amount of money. </li></ul><ul><li>Payable on demand or at a definite time. </li></ul><ul><ul><li>Acceleration and Extension clauses. </li></ul></ul><ul><li>Be payable to order or to bearer, unless it is a check. </li></ul><ul><li>Case 24.3: Barclay’s Bank v. Johnson (1998). </li></ul>
  7. 7. §5: Factors Not Affecting Negotiability <ul><li>Omission of date. </li></ul><ul><li>Postdating or antedating. </li></ul><ul><li>No place for payment: address or Drawee or maker or, if none, place of business or, if none, residence. </li></ul>
  8. 8. <ul><li>Handwritten over typewritten or printed. </li></ul><ul><li>Words over numbers. </li></ul><ul><li>With interest = judgment rate. </li></ul><ul><li>Mention of collateral. </li></ul>§5: Factors Not Affecting Negotiability

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