Negotiable Instruments Unit B Business Law Objective 6.01

2 Drafts oneanother third Draft - An order by one person to another person to pay money to the order of a third person Three parties to a draft: Drawer A. Drawer – Orders the money to be paid Drawee B. Drawee – One ordered to pay the money Payee C. Payee – One who is to receive the money accepted signedAcceptor - A drawee who has written “accepted” on the document and signed his/her name

3 Types of Drafts: Sight presented Sight Draft – A draft payable as soon as it is presented to drawee for payment Time timeperiod Time Draft – Not payable until the lapse of a particular time period stated on a draft TradeAcceptance paymentcredit Trade Acceptance – Used by a seller of goods to receive payment or to extend credit Checkbankon demand Check – Draft drawn on a bank and payable on demand, can be called a demand draft HonordueHonor – Pay when due DishonorRefusedueDishonor – Refuse to pay when due StopPaymentpay checkStop Payment – Instruction for bank not to pay check

4 Types of Checks Certified beforepayment Certified Check – A personal check that has been accepted by a bank before payment Cashier’sCheckon itself Cashier’s Check – A check the bank draws on itself MoneyOrderpostoffice bankexpresscompanytelegraph Money Order – Draft issued by a post office, bank, express company, or telegraph company for use in paying or transferring funds for the purchaser Traveler’sChecks financialinstitutionitself traveling Traveler’s Checks – Draft drawn by a well-known financial institution on itself or its agent, used when traveling Teller’s Check – Draft drawn by a bank on funds that it has on deposit at another bank

5Notes written paymoneyA written promise by one person to pay money to another person transferred difficultyAn advantage of using a note is that it can be transferred without much difficulty to other people EvidenceEvidence of a debt

6 Types of Notes: Demand payeedemandsDemand Note – Payable whenever the payee demands payment Timefuture datewrittenTime Note – Payable at a future date that is written on the face of the note Installment paymentsInstallment Note – Paid in a series of payments

7 Parties to a Draft Charles Paige Main Street Raleigh, NC /1034 _________July 16_____2006 Pay To the Order of _____Donnie Tatum_________________________$ _One hundred and 50/ DOLLARS State Credit Union For ________________ Charles Paige ______ DrawersAddress Payee CheckDate Drawer’sSignature Drawer’s Signature BankName Bank Name CheckNumber ABA #

8 Parties to a Note Maker Payee InterestRate $ Raleigh, NCMay 23, 2006 Three months AFTER DATE ______I_____ PROMISE TO PAY TO THE ORDER OF ___________Charles Paige_________________ Two thousand five hundred and no/ DOLLARS PAYABLE AT ___________his firm___________________________ VALUE RECEIVED WITH INTEREST AT ___10%___ PER ANNUM No. 319Due March 19, 2007Claudette Love FaceValue\ Face Value\Principal Time\Term DueDate Due Date FaceValue\ Face Value\Principal

9 Certificate of Deposit receipt interestduedate A written acknowledgment of the receipt of money and its promise to pay back the money, usually with interest on the due date. interestrate Has a higher interest rate than most savings accounts.

10 Negotiability Requirements UCCMust abide by UCC regulations writingMust be in writing Maker drawer signMaker (party agreeing to pay money to another person) or drawer (party that orders the drawee to pay money to the payee) has to sign amount moneytimepaymentThere must be a definite amount money and time of payment known to the order ofto bearerMust have words such as “ to the order of ” or “ to bearer ”.

11 Rules Regulating Checking Accounts 1.Stale 1.Stale Check 6 months a.Check that is more than 6 months old liability b.Bank may refuse without liability 2.Avoiding Negligence a.Drawer a.Drawer is responsible if negligent in writing check $ line b.Write figures close to $ sign and draw line through spaces not used Pay to Order ofline c.Write close to “ Pay to Order of ” and draw line through spaces not used d.Figureswritten d.Figures and written amount should agree last e.Sign name last Voidmistake f.Write “ Void ” on check if mistake is made and in check register

12 3.Bad Checks insufficientfunds a.Check issued against checking account with insufficient funds to cover it larceny b.States have statutes making it a larceny drawergood guilt c.Failure of drawer to make check good within certain period of time will serve as a presumption of guilt

13 4.Forged Check drawerauthority a.Check signed by someone other than drawer and without authority pays negligentbank b.If bank pays and drawer not negligent, bank bears loss 1discover report c.Drawer has 1 year to discover and report to bank unauthorized signature or alteration on face of check 3discover report endorsement d.Drawer has 3 years to discover and report to bank any unauthorized endorsement on check

14 5.Stop Payment rightcash a.Bank has no right to cash check liable b.Bank liable if check is cashed c.Oral14 c.Oral stop payment good for 14 days d.Written6 d.Written stop payment effective for 6 months e.Holder in due course death 10prior death f.Upon death, bank can cash checks for 10 days for those written prior to death

15 6.Balancing Checkbook assoonaspossible a.Should be done as soon as possible after receiving statement writing b.Balance after writing checks c.Subtract c.Subtract checks written from balance d.Adddeposits d.Add deposits to balance 7.Outstanding Check cleared a.Has not cleared the bank reconcile b.Must be known in order to reconcile statement statement checkbookregister c.Find by comparing the bank statement with the checkbook register

16 8.Reconciling a Checkbook records your a.Makes sure the bank’s records agree with your records outstanding b.Check for outstanding checks and deposits checksdepositsATM records c.Check the checks, deposits, ATM activity on the bank statement to make sure that your records are correct adjustments youbank d.Make adjustments to the bank statement and your records to ensure that you and the bank have the same amount of money statement received e.Reconcile every statement when received

17 Competitive Banking Act dayafter Funds from the following must be available on day after deposit USTreasuryStateLocal –Checks drawn on US Treasury, State, or Local Government Drafts –Bank Drafts Check –Cashier’s Check MoneyOrder –Postal Money Order 3 Funds from these must be available within 3 business days following deposit samedistrict –Checks drawn on banks within same district 7 Funds from checks drawn on banks in different districts must be available within 7 days

18 Electronic Funds Transfer computers electronic checkspaper EFT – Banking method in which computers and electronic technology are used as a substitute for checks and other paper forms of banking Electronic Funds Transfer Act Provides –AutomatedTellerMachines –Automated Teller Machines (ATM’S) –Pay-By-Phone –Pay-By-Phone Systems –DirectDepositWithdrawals –Direct Deposit or Withdrawals –Point-of-Sale –Point-of-Sale Transfers –AutomaticDeposits Payments –Automatic Deposits and Payments

19 Federal Laws Regulating EFT stopNo right to stop payment receiptMust receive a receipt each time you use ATM Periodic statement must be issued 60notify60 days from date a problem or error appears to notify bank 10investigateBanks have 10 days to investigate deposited 45Disputed funds, if returned, must be deposited to your account within 45 days cardloststolenMust notify bank it card is lost or stolen 502 –Will lose no more than $ 50 if reported in 2 days 500 more –If more than 2 days notification, you can lose $ 500 or more