Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. and the Legal Environment, 10 th edition by Richard A. Mann & Barry S. Roberts Essentials of Business Law and the Legal Environment, 10 th edition by Richard A. Mann & Barry S. Roberts

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Topics Covered Chapter 24: Form and Content A. Negotiability B. Types of Negotiable Instruments C. Formal Requirements of Negotiable Instruments

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Negotiability n Rule – invests instruments with a high degree of marketability and commercial utility by conferring upon certain good faith transferees immunity from most defenses to the instrument. n Formal Requirements – negotiability is wholly a matter of form, and all the requirements for negotiability must be met within the four corners of the instrument.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Types of Negotiable Instruments n Orders to Pay –Drafts – involves three parties: drawer orders drawee to pay fixed amount of money to payee. –Checks – a specialized form of draft that is 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 – also called an “image replacement document” is the legal equivalent of a check, delivered in electronic form.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Types of Negotiable Instruments n Promises to Pay –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.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Draft Two years from date pay to the order of Perry Payee $50,000 Fifty Thousand... Dollars St. Louis, Missouri May 1, 2009 (Signed) Donald Drawer DONALD DRAWER To:DEBRA DRAWEE 50 Main St. Louisville, Kentucky

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Check HARRIS BANK  Rams Trust and Savings Bank Chicago, Illinois Pay to the order of No Feb Lilli-Marie Justin $ Five Hundred and no /100 DOLLARS Matthew Charles |: |:123|||456|||7|: Matthew Charles 123 Anystreet Rd. Anytown, NC 21234

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Note $10,000Albany, N.Y.April 7, 2009 Six months from date I promise to pay to the order of Pat Payee ten thousand dollars. (signed) Matthew Maker

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Certificate of Deposit NEGOTIABLE CERTIFICATE OF DEPOSIT The Mountain Bank Mountain, N.Y. No June 1, 2009 THIS CERTIFIES THAT THERE HAS BEEN DEPOSITED with the undersigned the sum of $200, Two hundred thousand Dollars Payable to the order of Pablo Payee on December 1, 2009, with interest only to maturity at the rate of Seven percent (7%) per annum upon surrender of this certificate properly indorsed. The Mountain Bank By (Signature) Malcolm Maker, Vice President Authorized Signature

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Formal Requirements of Negotiable Instruments n Writing – any reduction to tangible form. n Signed – any symbol executed or adopted by a party with intention to validate a writing. n Promise or Order to Pay –Promise to Pay – an undertaking to pay, which must be more than a mere acknowledgment or recognition of an existing debt. –Order to Pay – instruction to pay. n Unconditional – an absolute promise to pay that is not subject to any contingencies.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Formal Requirements of Negotiable Instruments n Reference to Other Agreements – does not destroy negotiability unless the recital makes the instrument subject to or governed by the terms of another agreement. n The Particular Fund Doctrine – an order or promise to pay only out of a particular fund no longer is conditional and does not destroy negotiability. n Money – Legal tender authorized or adopted by a sovereign government as part of its currency.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Formal Requirements of Negotiable Instruments n Fixed Amount – the holder must be assured of a determinable minimum principal payment although provisions in the instrument may increase the amount of recovery under certain circumstances. n No Other Promise or Order – a promise or order to do an act in addition to the payment of money destroys negotiability. n Payable on Demand or at a Definite Time – an instrument is demand paper if it must be paid upon request; an instrument is time paper if it is payable at a definite time.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Formal Requirements of Negotiable Instruments n 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. –Payable to Order – payable to the “order of” (or other words which mean the same) a named person or anyone designated by that person. –Payable to Bearer – payable to the holder of the instrument; includes instruments payable (1)­payable to bearer or the order of bearer, (2)­ that do not specify a payee, or (3)­payable to “cash” or to order of “cash.”

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Order to Pay: Draft or Check Drawer issues draft or check to Drawee ordersto pay Payee presents instrument for payment

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Promise to Pay: Promissory Note or Certificate of Deposit Maker Payee Issues note or C.D. to promises to pay presents instrument for payment