Business Law Chapter 25

Front 1

Promissory note

Back 1

A written promise to pay money

Front 2

Maker

Back 2

The issuer of a promissory note

Front 3

Payee

Back 3

Someone who is owed money under the terms of an instrument.

Front 4

Payable on Demand

Back 4

The maker must pay whenever he is asked

Front 5

Certificate of Deposit

Back 5

A note that is made by a bank. AKA CD

Front 6

Draft

Back 6

The drawer of this instrument orders someone else to pay money.

Front 7

Check

Back 7

The most common form of a draft, it is an order telling a bank to pay money.

Front 8

Drawer

Back 8

The person who issues a draft

Front 9

Drawee

Back 9

The one ordered by the drawer to pay money to the payee

Front 10

Issuer

Back 10

The maker of a promissory note or the drawer of a draft.

Front 11

Cashiers Check

Back 11

A check that is drawn by a bank on itself

Front 12

Accept

Back 12

To sign a draft

Front 13

Trade acceptance

Back 13

A draft drawn by a seller of goods on the buyer and payable to the seller or some third party

Front 14

Slight Draft

Back 14

Payable on demand

Front 15

Time draft

Back 15

Payable in the future

Front 16

Order paper

Back 16

An instrument that includes the words "pay to the order of" or their equivalent.

Front 17

Bearer paper

Back 17

A note is bearer paper if it is made out to "bearer" or it is not made out to any specific person. It can be redeemed by any holder in due course.

Front 18

Judgement rate

Back 18

The interest rate that courts use on court ordered judgments

Front 19

Indorsement

Back 19

The signature of the payee

Front 20

Holder in due course

Back 20

Someone who has given value for an instrument, in good faith, without notice of outstanding claims or other defects.

Front 21

Holder

Back 21

For order paper, anyone in possession of the instrument if it is payable to or indorsed to her. For bearer paper, anyone in possession.

Front 22

Value

Back 22

The holder has already done something in exchange for the instrument.

Front 23

Claim in recoupment

Back 23

The issuer subtracts any other claims he has against the initial payee from the amount he owes on the instrument.

Front 24

Consumer credit contract

Back 24

A contract in which a consumer borrows money from a lender to purchase goods and services from a seller who is affiliated with the lender.

Front 25

Commercial Paper

Back 25

Commercial paper is a contract to pay money. It can be used either as a substitute for money or as a loan of money.

Front 26

The fundamental rule of commercial paper: The possessor of a piece of commercial paper has an unconditional right to be paid, so long as:

Back 26

The paper is negotiable
It has been negotiated to the possessor
The possessor is a holder in due course, and
The issuer cannot claim any of the few "Real" defenses.

Front 27

Negotiability:

Back 27

The possessor of non-negotiable commercial paper has the same rights-no more, no less-as the person who made the original contract. The possessor of negotiable commercial paper has more rights than the person who made the original contract.

Front 28

Requirements for negotiability: To be negotiable, an instrument must:

Back 28

Be in writing
Be signed by the maker or drawer,
Contain an unconditional promise or order to pay
State a definite amount of money
Be payable on demand or at a definite time
Be payable to order or to bearer

Front 29

Ambiguity: When the terms in a negotiable instrument contradict each other, three rules apply:

Back 29

Words take precedence over numbers
Handwritten terms prevail over typed and printed terms
Typed terms win over printed terms

Front 30

Negotiation

Back 30

To be negotiated, order paper must first be indorsed and then delivered to the transferee. Bearer paper must simply be delivered to the transferee, no indorsement is required.

Front 31

Holder in due course

Back 31

A holder in due course is a holder who has given value for the instrument, in good faith, without notice of outstanding claims or other defects.

Front 32

Real Defenses: These real defenses are valid against both a holder and a holder in due course:

Back 32

Forgery
Bankruptcy
Minority
Alteration
Duress, Mental incapacity, or illegality
Fraud in the execution

Front 33

Personal defenses:These personal defenses are valid against any holder except a holder in due course:

Back 33

Breach of contract
Lack of consideration
Prior payment
Unathorized completion
Fraud in the inducement
Non Delivery

Front 34

A claim in recoupment

Back 34

A claim in recoupment cannot be used against a holder in due course

Front 35

Consumer credit contracts:

Back 35

The FTC requires all promissory notes in consumer credit contracts to contain language preventing any subsequent holder from being a holder in due course.