Transcript Power Point Chapter 24

CHAPTER 24: NEGOTIABLE
INSTRUMENTS: SALES REMEDIES
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TOPICS COVERED CHAPTER 24:
FORM AND CONTENT
A. Negotiability.
B. Types of Negotiable
Instruments.
C. Formal Requirements of
Negotiable Instruments.
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NEGOTIABILITY
 Legal concept that makes written
instruments freely transferable and
readily accepted as a form of
payment in substitution of money.
 Assignment vs. Negotiation.
• Assignment: assignee steps into shoes
of assignor, acquires same rights, no
more. 
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NEGOTIABILITY
 Assignment vs. Negotiation.
• Negotiation: holder may acquire
additional rights than original person,
as a holder in due course, with few
available defenses.
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TYPES OF NEGOTIABLE
INSTRUMENTS
 Drafts – involves three parties:
drawer orders drawee to pay fixed
amount of money to payee. 
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DRAFT
Two years from date pay to the order of
Perry Payee
$50,000 Fifty Thousand . . . Dollars
To:
DEBRA DRAWEE
50 Main St.
Louisville, Kentucky
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St. Louis, Missouri
May 1, 2009
(Signed) Donald Drawer
DONALD DRAWER
TYPES OF NEGOTIABLE
INSTRUMENTS
 Checks.
• Specialized form of draft drawn on a
bank and payable on demand; the
drawer orders the drawee (bank) to pay
the payee on demand (upon request of
the holder).
• Substitute Check –legal equivalent of a
check, delivered in electronic form. 
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CHECK
No.
Feb.1
Matthew Charles
123 Anystreet Rd.
Anytown, NC 21234
Pay to the
order of
Lilli-Marie Justin
Five Hundred and no/100

HARRIS
BANK
2009
12-28
710
$500.00
DOLLARS
Rams Trust and
Savings Bank
Chicago, Illinois
|:071000281|:
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Matthew Charles
123|||456|||7|:
TYPES OF NEGOTIABLE
INSTRUMENTS
 Notes – a written promise by a maker
(issuer) to pay a payee a certain sum
of money, either on demand or at a
stated date.
 Certificates of Deposit – a specialized
form of note that is given by a bank
or thrift association.
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ORDER TO PAY: DRAFT OR CHECK
issues draft or check to
Drawer
orders
Drawee
to pay
Payee
presents instrument
for payment
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PROMISE TO PAY: PROMISSORY
NOTE OR CERTIFICATE OF DEPOSIT
Issues note or C.D. to
promises to pay
Maker
presents instrument for payment
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Payee
FORMAL REQUIREMENTS
OF NEGOTIABILITY
 Negotiability is wholly a matter of
form, and all the requirements for
negotiability must be met within the
four corners of the instrument.
• YIN V. SOCIETY NATIONAL BANK OF INDIANA
(1996).
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FORMAL REQUIREMENTS
OF NEGOTIABILITY
 To be Negotiable, the instrument
must:
• Be in writing – any reduction to tangible
form.
• Be Signed – any symbol executed or adopted
by a party with intention to validate a
writing. 
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FORMAL REQUIREMENTS
OF NEGOTIABILITY
 To be Negotiable, the instrument
must:
• Contain a Promise or Order to Pay –
undertaking (or instruction) to pay, which
must be more than a mere acknowledgment
or recognition of an existing debt.
• Be Unconditional – an absolute promise to
pay that is not subject to any
contingencies.
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FORMAL REQUIREMENTS
OF NEGOTIABILITY
 To be Negotiable, the instrument
must:
• Be for a Fixed Amount.
• Of Money.
• Payable on Demand or at a Definite
Time.
• NATIONSBANK OF VIRGINIA, N.A. V. BARNES
(1994). 
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FORMAL REQUIREMENTS
OF NEGOTIABILITY
 To be Negotiable, the instrument
must:
• Payable to Order or to Bearer – a
negotiable instrument must contain
words indicating that the maker or
drawer intends that it pass into the
hands of someone other than the
payee. 
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FORMAL REQUIREMENTS
OF NEGOTIABILITY
 To be Negotiable, the instrument
must:
• Payable to Order or to Bearer .
• COOPERATIVE CENTRALE RAIFFEISENBANK
B.A. V. BAILEY (1989).
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FORMAL REQUIREMENTS
OF NEGOTIABILITY
 Dating of the Instrument.
• Negotiability not affected by date.
 Incomplete Instruments.
• Not negotiable until completed.
 Ambiguous Instruments.
• UCC provides various mechanisms for
interpretations.
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