1. Chapter 22 Creation of Negotiable Instruments

2. Negotiable Instruments
To qualify as a negotiable, the document must meet requirements established by Revised Article 3 of UCC
Functions of negotiable instruments
Substitute for money
Credit device
Record-keeping device
22-2
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

3. Types of Negotiable Instruments
Types of orders to pay
Draft
Check
Types of promises to pay
Promissory Note
Certificate of Deposit
22-3
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

4. Types of Negotiable Instruments
22-4
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

5. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Exhibit 22.1: Time Draft
22-5
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

6. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Exhibit 22.2: Check
22-6
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

7. Types of Negotiable Instruments
22-7
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

8. Exhibit 22.3: Promissory Note
22-8
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

9. Exhibit 22.4: Certificate of Deposit
22-9
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

10. Creating a Negotiable Instrument
A negotiable instrument must:
Be in writing
Be signed by the maker or drawer
Be an unconditional promise or order to pay
State a fixed amount of money
Not require any undertaking in addition to the payment of money
Be payable on demand or at a definite time
Be payable to order or to bearer
22-10
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

11. Creating a Negotiable Instrument
Writing
Permanency requirement: A requirement of negotiable instruments that says they must be in a permanent state, such as written on ordinary paper
Portability requirement: A requirement of negotiable instruments that says they must be able to be easily transported between areas
22-11
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

12. Creating a Negotiable Instrument
Signature requirement: States that a negotiable instrument must be signed by the drawer or maker
Any symbol adopted by a party with a present intent to authenticate a writing qualifies as his or her signature
If an agent is appointed, the representative’s signature binds the maker or drawer
22-12
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

13. Unconditional Promise or Order to Pay
Order to pay: A drawer’s unconditional order to a drawee to pay a payee
Promise to pay: A maker’s unconditional and affirmative undertaking to repay a debt to a payee
Promises to pay and orders to pay must be unconditional in order to be negotiable
22-13
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

14. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Fixed Amount of Money
Fixed amount requirement: Ensures the value of the instrument can be determined with certainty
Must be payable in money
Applies to variable interest loans
Must not require any undertaking in addition to the payment of money
22-14
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

15. Payable on Demand or at a Definite Time
Instruments payable on demand
Created by special language
Created by silence regarding payment due date
Checks
CDs and drafts may be demand instruments
Instruments payable at a definite time
Payable at definite time and date
22-15
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

16. Case 22.1: Negotiable Instrument
Las Vegas Sands, LLC, dba Venetian Resort Hotel Casino v. Nehme
632 F.3d 526, Web 2011 U.S. App. Lexis 492 (2011)
United States Court of Appeals for the Ninth Circuit
Issue
Is the Venetian’s casino marker signed by Nehme a negotiable instrument under the Nevada Uniform Commercial Code?
22-16
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

17. Payable on Demand or at a Definite Time
Prepayment clause: Permits the maker to pay the amount due prior to the date of the instrument
Acceleration clause: Allows the payee or holder to accelerate payment of the principal amount of the instrument, plus accrued interest, upon the occurrence of an event
22-17
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

18. Payable on Demand or at a Definite Time
Extension clause: A clause in an instrument that allows the date of maturity of the instrument to be extended to sometime in the future
22-18
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

19. Nonnegotiable Contract
Nonnegotiable contract: A promise or order to pay that does not meet the requirements of a negotiable instrument
Not subject to Article 3
Enforced under normal contract law
22-19
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

20. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.
22-20
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.