Business Law Chapter 22

Front 1

Draft

Back 1

A three party instrument that is an unconditional written order by one party that orders a second party to pay money to a third party.

Front 2

for a drawee to be liable on a draft what must happen?

Back 2

To be liable, the drawee must accept the drawer's written order to pay it.

Front 3

How is acceptance of a draft typically shown?

Back 3

By writting accepted on the face of the draft along with the drawee's signature and the date.

Front 4

drawer

Back 4

a written order by one party

Front 5

drawee

Back 5

drawee second party

Front 6

Example of a draft

Back 6

Mary owes Hector 1000. Hector wants Mary to pay money to cindy. Hector writs out a draft that orders Mary to pay the 1000 to cindy. Mary agrees to change of obligation, writes "accepted on the draft" and signs.

Front 7

Time draft

Back 7

A draft payable at a future date

Front 8

Sight draft

Back 8

a draft payable on sight. Also called a demand draft.

Front 9

Trade acceptance

Back 9

A sight draft that arises when credit is extended (by a seller to a buyer) with the sale of goods. The seller is both the drawer and the payee and the buyer is the drawee.

Front 10

check

Back 10

a distinct form of draft. Unique because it is drawn on a financial institution (the drawee) and is payable on demand. In otherwords a check is an order to pay.

Front 11

What conditions are necessary for a negotiable instrument

Back 11

1. Be in writing
2. Be signed by maker or drawer
3. Be unconditional promise or order to pay
4. State a fixed amount of money
5. Be payable on demand or at a def. time
6. Be payable to order or to bearer.

Front 12

Where must the requirements for negotiable instruments appear?

Back 12

They must appear on the face of the instrument.

Front 13

Writing requirement

Back 13

Must be in writing and permanent and portable.

Front 14

What does the permanency requirement require

Back 14

A requirement of negotiable instruments that says they must be in a permanent state, such as written on ordinary paper. If written on tissue paper fails permanancy and is not negotiable instrument.

Front 15

Signature requirement

Back 15

A requirement which states that a negotiable instrument must be signed by the drawer or maker. Any party with a present intent to authenticate a writing qualifies as his or her signature.

Front 16

Who can put the signature on a negotiable instrument?

Back 16

Can be placed by maker or drawer or an authorized agent.

Front 17

How does the UCC define signature?

Back 17

The UCC broadly defines signature as any symbol executed or adopted by a party with a present intent to authenticate a writing.

Front 18

Unconditional promise or order to pay requirement

Back 18

A requirement that says a negotiable instrument must containe either an unconditional promise to pay (note or CD) or an unconditional order to pay (Check or draft).

Front 19

What is an order?

Back 19

An order is a direction for the drawee to pay and must be more than an authorization or a request to pay. The language of the order must be precise and contain the word pay. The words pay to the order of are commonly used.

Front 20

What is a promise to pay

Back 20

A maker's (borrower's) unconditional and affirmative undertaking to repay a debt to a payee (lender)

Front 21

what is an implied promise to pay?

Back 21

An implied promise to pay is not negotiable but an expressly stated promise to pay is neogitable.

Front 22

What happens if a promise is conditional on an event?

Back 22

A conditional promise is not a negotiable instrument and is therefore subject to normal contract law. This is not negotiable because the risk of the other promise or event not occurring would fall on the person who held the instrument.

Front 23

What makes a promise conditional

Back 23

1. An express condition to payment
2. The promise or order is subject to or governed by another writing
3. The rights or obligations with respect to the promise or order are stated in another writing.

Front 24

Does a promise remain unconditional even if it refers to a different writing for a description of rights to collatteral, prepayment, or acceleration?

Back 24

YES

Front 25

Can a promise or order stipulate that payment is limited to a particular fund or source, and still remain unconditional?

Back 25

YES.

Front 26

Fixed amount of money requirement

Back 26

A requirement that a negotiable instrument that ensures that the value of the instrument can be determined with certainty.

Front 27

Where does the principal amount of the instrument have to appear?

Back 27

The principal amount is required to appear on the face of the instrument.

Front 28

Do negotiable instruments have interest?

Back 28

They do not have to be payable with interest but if it is the amount of interest being charged may be expressed as either a fixed or variable rate.

Front 29

What affect does a variable interest rate have on a negotiable instrument?

Back 29

Variable interest rate loans can still be negotiable instruments. UCC says Interest may be stated in an instrument as a fixed or variable amount of money or it may be expressed as a fixed or vairable rate

Front 30

to be a negotiiable instrument cannot

Back 30

State any undertanking by the person promising or ordering payment to do any act in the addition to paying money.

Front 31

If a note required the maker to pay a stated amount of money AND perform some type of service would it be negotiable or nonnegotiable?

Back 31

Nonnegotiable

Front 32

Payable on demand or at a definite time requirement

Back 32

A requirement that a negotiable instrument be payable either on demand or at a definite time.

Front 33

An instrument is payable at a definite time if it is payable:

Back 33

1. At a fixed date
2. On or before a stated date.
3. At a fixed period after sight
4. At a time readily ascertainable when the promise or order is issued.

Front 34

If an instrument is payable upon an uncertain act or event

Back 34

The instrument is not negotiable

Front 35

Prepayment clause

Back 35

permits payer to pay amount due before due date

Front 36

Acceleration clause

Back 36

allows payee or holder to accelerate payment of the principal amount of an instrument, plus accrued interest, upon the occurrence of an event.

Front 37

extension clause

Back 37

Allows the date of maturity of an instrument to be extended to some time in the future.