1. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2. Click your mouse anywhere on the screen when you are ready to advance the text within each slide. After the starburst appears behind the blue triangles, the slide is completely shown. You may click one of the blue triangles to move to the next slide or the previous slide.

3. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. “A negotiable bill or note is a courier without luggage.” John B. Gibson, Overton v. Tyler, 1846

4. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Commercial paper is a contract to pay money.  It can be: A Substitute for Money A Loan of Money

5. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  The possessor of a piece of commercial paper has an unconditional right to be paid, as long as: 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 limited number of “real” defenses.

6. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Note (also called a promisory note) is a promise to pay money. Certificate of Deposit (CD) is a note made by a bank.  Draft is an order directing someone else to pay money for you (e.g., checks). Cashier’s check -- a draft drawn by a bank on its own account. Traveler’s check -- a draft issued by and paid by the same company (such as American Express)

7. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  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.

8. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  The Instrument Must: 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.

9. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Trade acceptance -- draft drawn by a seller of goods on the buyer and payable to the sell or some third party  Sight draft -- payable on demand  Time draft -- payable at some particular time in the future  Order paper -- payable to the named person or anyone designated by that named person  Bearer paper -- payable to anyone in possession of the paper

10. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  When terms contradict, three rules apply: Words take precedence over numbers. Handwritten terms prevail over typewritten terms. Typed terms prevail over printed terms.  When the interest rate is not specified, a court will apply the same rate used with court-ordered judgments.

11. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  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.

12. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Order paper must be indorsed; bearer paper does not require indorsement.  An indorsement is the signature of the payee. Blank Indorsement -- does not designate a new payee; becomes bearer paper. Special Indorsement -- does designate a new payee; only that person may cash the check. Restrictive Indorsement -- limits the check to one particular use (such as deposit into a particular account).

13. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  A holder in due course has an automatic right to receive payment for a negotiable instrument (unless issuer can claim one of a few “real” defenses).  Requirements for Holder in Due Course Under §3-302 of the UCC, a holder in due course is a holder who have given value for the instrument, in good faith, without notice of outstanding claims or other defects.

14. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  The instrument is overdue  The instrument is dishonored  The instrument is altered, forged, or incomplete  The holder has notice of certain claims or disputes

15. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Under the shelter rule, the transferor of an instrument passes on all of his rights.  When a holder in due course transfers an instrument, the recipient acquires all the same rights even if she is made a holder in due course herself.

16. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Real and personal defenses are valid against an ordinary holder; only real defenses can be used against a holder in due course.  Real Defenses Include: Forgery, Bankruptcy, Minority, Alteration, Duress, Mental Incapacity, Illegality, and Fraud in the Execution.  Personal Defenses Include Breach of Contract, Lack of Consideration, Prior Payment, Unauthorized Completion, Fraud in the Inducement, and Non-Delivery. (Claims in Recoupment have a similar impact as a defense.)

17. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  A consumer credit contract is one in which the seller is also the lender.  In such cases, the Federal Trade Commission requires a specifically-worded notice to be included on the contract, making it non-negotiable.

18. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.