© 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 24 The Function and Creation of Negotiable Instruments Chapter 24 The Function and Creation of Negotiable Instruments

© 2004 West Legal Studies in Business A Division of Thomson Learning 2 §1: Articles 3 and 4 of the UCC A “negotiable instrument” is a signed writing containing an unconditional promise to pay an exact sum of money. History of negotiable instruments began in England “bills of exchange” so that merchants were able to exchange money while keeping their money safe in the banks. Today, UCC Article 3. A “negotiable instrument” is a signed writing containing an unconditional promise to pay an exact sum of money. History of negotiable instruments began in England “bills of exchange” so that merchants were able to exchange money while keeping their money safe in the banks. Today, UCC Article 3.

© 2004 West Legal Studies in Business A Division of Thomson Learning 3 §2: The Function of Instruments To function as a substitute for money or credit device. In order for an instrument to operate practically, it has to be easily transferable. Laws of assignment did not allow for ease of transfer because the assignee was always subject to the defenses that could be used against the assignor. Article 3 provided that some defenses could not be used against certain assignees. To function as a substitute for money or credit device. In order for an instrument to operate practically, it has to be easily transferable. Laws of assignment did not allow for ease of transfer because the assignee was always subject to the defenses that could be used against the assignor. Article 3 provided that some defenses could not be used against certain assignees.

© 2004 West Legal Studies in Business A Division of Thomson Learning 4 §3: Types of Negotiable Instruments Drafts and checks are 3 party instruments: Drawer, Drawee and Payee.  Checks (cashier’s, teller’s and traveler’s) are drafts on a bank.  Trade acceptances seller is drawer and payee. Case 24.1: Flatiron Linen v. First American State Bank (2001). Drafts and checks are 3 party instruments: Drawer, Drawee and Payee.  Checks (cashier’s, teller’s and traveler’s) are drafts on a bank.  Trade acceptances seller is drawer and payee. Case 24.1: Flatiron Linen v. First American State Bank (2001).

© 2004 West Legal Studies in Business A Division of Thomson Learning 5 Promissory Notes are two party instruments:  Maker (Promisor) and  Bearer (Promisee). Certificates of deposit (CDs): two party instruments. Case 24.2: U.S. v. Durbin (1999). Promissory Notes are two party instruments:  Maker (Promisor) and  Bearer (Promisee). Certificates of deposit (CDs): two party instruments. Case 24.2: U.S. v. Durbin (1999). Types of Negotiable Instruments

© 2004 West Legal Studies in Business A Division of Thomson Learning 6 §4: Requirements for Negotiability Writing signed by the maker or the drawer. Unconditional promise or order to pay a fixed amount of money. Payable on demand or at a definite time.  Acceleration and Extension clauses. Be payable to order or to bearer, unless it is a check. Case 24.3: Barclay’s Bank v. Johnson (1998). Writing signed by the maker or the drawer. Unconditional promise or order to pay a fixed amount of money. Payable on demand or at a definite time.  Acceleration and Extension clauses. Be payable to order or to bearer, unless it is a check. Case 24.3: Barclay’s Bank v. Johnson (1998).

© 2004 West Legal Studies in Business A Division of Thomson Learning 7 §5: Factors Not Affecting Negotiability Omission of date. Postdating or antedating. No place for payment: address or Drawee or maker or, if none, place of business or, if none, residence. Omission of date. Postdating or antedating. No place for payment: address or Drawee or maker or, if none, place of business or, if none, residence.

© 2004 West Legal Studies in Business A Division of Thomson Learning 8 Handwritten over typewritten or printed. Words over numbers. With interest = judgment rate. Mention of collateral. Handwritten over typewritten or printed. Words over numbers. With interest = judgment rate. Mention of collateral. §5: Factors Not Affecting Negotiability

© 2004 West Legal Studies in Business A Division of Thomson Learning 9 Law on the Web NCCUSL on final drafts of new UCC Articles 3 and 4. NCCUSL on final drafts of new UCC Articles 3 and 4 The UCC at Cornell U. Legal Research Exercises on the Web. NCCUSL on final drafts of new UCC Articles 3 and 4. NCCUSL on final drafts of new UCC Articles 3 and 4 The UCC at Cornell U. Legal Research Exercises on the Web.