Business Law

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negotiable instrument

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a signed writing(record) that contains an unconditional promise or order to pay an exact sum of money on demand or at an exact future time to a specific person or order, or to bearer

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draft

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any instrument drawn on a drawee that orders the drawee to pay a certain sum of money, usually to a third party (the payee), on demand or at a definite future time

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drawer

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the party that initiates a draft (such as a check), thereby ordering the drawee to pay

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drawee

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the party that is ordered to pay a draft or check. With a check, a bank or a financial institution is always the drawee

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payee

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a person to whom an instrument is made payable

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acceptance

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in negotiable instruments law, the drawee's signed agreement to pay a draft when presented

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trade acceptance

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a draft that is drawn by a seller of goods ordering the buyer to pay a specified sum of money to the seller, usually at a stated time in the future. The buyer accepts the draft by signing the face of the draft, thus creating an enforceable obligation to pay the draft when it comes due. On a trade acceptance, the seller is both the drawer and the payee

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check

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a draft drawn by a drawer ordering the drawee bank or financial institution to pay a certain amount of money to the holder on demand

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promissory note

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a written promise made by one person (the maker) to pay a fixed amount of money to another person (the payee or a subsequent holder) on demand or on a specified date

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maker

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one who promises to pay a fixed amount of money to the holder of a promissory note or a certificate of deposit (CD)

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certificate of deposit (CD)

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a note of a bank in which the bank acknowledges a receipt of money from a party and promises to repay the money, with interest, to the party on a certain date

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negotiation

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the transfer of an instrument in such form that the transferee (the person to whom the instrument is transferred) becomes a holder

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holder

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any person in possession of an instrument drawn, issued, or indorsed to him or her, to his or her order, to bearer, or in blank

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order instrument

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a negotiable instrument that is payable "to the order of an identified person" or "to an identified person or order."

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indorsement

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a signature placed on an instrument for the purpose of tranferring one's ownership rights in the instrument

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bearer instrument

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any instrument that is not payable to a specific person, including instruments payable to the bearer or to "cash"

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holder in due course (HDC)

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a holder who acquires a negotiable instrument for value; in good faith; and without notice that the instrument is overdue, that is has been dishonered, that any person has a defense against it or a claim to it, or that the instrument contains unauthorized signatures, has been altered, or is so irregular or incomplete as to call into question its authenticity

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shelter principle

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the principle that the holder of a negotiable instrument who cannot qualify as a holder in due course (HDC), but who derives his or her title through an HDC, acquires the rights of an HDC

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acceptor

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a drawee that is legally obligated to pay an instrument when the instrument is presented later for payment

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presentment

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the act of presenting an instrument to the party liable on the instrument to collect payment. Presentment also occurs when a person presents an instrument to a drawee for a required acceptance

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imposter

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one who, by use of the mails, internet, telephone, or personal appearance, induces a maker or drawer to issue an instrument in the name of an impersonated payee. Indorsements by imposters are treated as authorized indorsements under Article 3 of the UCC.

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fictitious payee

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a payee on a negotiable instrument whom the maker or drawer does not intend to have an interest in the instrument. Indorsements by fictitious payees are treated as authorized indorsements under aritcle 3 of the UCC

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transfer warranty

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Implied warranties, made by any person who transfers an instrument for consideration to subsequent transferees and holder who take the instrument in good faith, that (1) the transferor is entitled to enforce the instrument; (2) all signatures are authentic and authorized; (3) the instrument has not been altered; (4) the instrument is not subject to a defense or claim of any party that can be assessed against the tranferor; and (5) the transferor has no knowledge of of any insolvency proceedings against the maker, the acceptor, or the drawer of the instrument

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presentment warranty

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implied warranties, made by any person who presents an instrument for payment or acceptance, that (1)the person obtaining payment or acceptance is entitled to enforce the instrument authorized to obtain payment or acceptance on behalf of a person who is entitled to enforce the instrument; (2) the instrument has not been altered; and (3) the person obtaining payment or acceptance has no knowledge that the signature of the drawer of the instrument is authorized

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universal defenses

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defenses that are valid against all holders of negotiable instrument, including holder in due course (HDC's) and holders with the rights of HDC's

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personal defenses

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defenses that can be used to avoid payment to an ordinary holder of a negotiable instrument but not a holder in due course (HDC) or a holder with the rights of an HDC