1. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning Chapter 28 Negotiable Instruments Twomey Jennings Anderson’s Business Law and the Legal Environment, Comprehensive 20e Anderson’s Business Law and the Legal Environment, Standard 20e Business Law: Principles for Today’s Commercial Environment 2e

2. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 2 Definitions An instrument or piece of commercial paper is a transferable, written, signed promise or order to pay a specified sum of money. –An instrument is negotiable when it contains the terms required by the UCC.

3. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 3 Definitions The term party may refer to a natural person or to an entity, such as a corporation, an unincorporated enterprise, a government, or a bank account.

4. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 4 Types of Negotiable Instruments and Parties (1) Promissory Notes. (2) Certificates of deposit is a promise to pay by a bank. (3) Drafts (which includes checks) –In addition to ordinary checks, there are also cashier’s checks and teller’s checks. –A bank money order is a check even though it bears the words money order.

5. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 5 Promissory Note March 31, 2004 Six months after date debtor undersigned hereby promise to pay to the order of Galactic Games, Inc, three thousand six hundred dollars with interest at the rate of 10.9%. This note is secured by the video arcade games purchased with its funds. In the event of default, all sums due hereunder may be collected. Debtor agrees to pay all costs of collection including, but not limited to, attorney fees, costs of repossession, and costs of litigation. John R. Haldehand Video Arcade Inc. March 31, 2004 Six months after date debtor undersigned hereby promise to pay to the order of Galactic Games, Inc, three thousand six hundred dollars with interest at the rate of 10.9%. This note is secured by the video arcade games purchased with its funds. In the event of default, all sums due hereunder may be collected. Debtor agrees to pay all costs of collection including, but not limited to, attorney fees, costs of repossession, and costs of litigation. John R. Haldehand Video Arcade Inc.

6. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 6 Draft March 18, 1998 TO:Oriental Traders 1100 W. Clarendon Phoenix, AZ TO:Oriental Traders 1100 W. Clarendon Phoenix, AZ Pay to the order of Silly Putty, Inc. the sum of One thousand and no/100 dollars Pay to the order of Silly Putty, Inc. the sum of One thousand and no/100 dollars Accepted by: _______________ DATE: Accepted by: _______________ DATE: Joe Guilden Silly Putty, Inc. Joe Guilden Silly Putty, Inc.

7. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 7 Maker: original party on a note; promises to pay amount specified. Drawer: party who creates a draft. Drawee: party to whom a draft is addressed (i.e. bank or credit union). Payee: party named on the face of the instrument to receive payment. Parties to Instruments

8. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 8 Drawee becomes the acceptor when it accepts responsibility to pay. Accommodation party: one whose name is added to an instrument to strengthen its collectability. Guarantor: promises to pay instrument under certain circumstances. Parties to Instruments

9. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 9 Notes Maker (Borrower) Payee Certificates of Deposit Payee Maker (Bank) Draft Payee (Seller or Seller’s Bank) Drawee (Buyer) Drawer (Seller) Check Payee Drawee (Bank) Drawer (Account Holder) Types of Instruments and Parties

10. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 10 The instrument must have: –A record (writing), –Authenticated (signed) by the maker or the drawer, Agent, Absence of Representative Capacity or Identification of Principal. Requirements of Negotiability

11. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 11 Instrument must (continued): –contain a promise or order: of an unconditional nature, to pay in money, a sum certain, on demand or at a definite time, to order or bearer. Requirements of Negotiability

12. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 12 A check may be negotiable without being payable to order or bearer. If an instrument is not negotiable, it is governed by contract law. Requirements of Negotiability

13. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 13 “Pay to the bearer” “Pay to the order of John Jones or bearer” “Pay to John Jones or bearer” “Pay to cash” “Pay to the order of cash” “Pay to the order of Thomasina Jones” “Pay to John Jones, bearer” “Pay to Thomasina Jones” (check) “Pay to Thomasina Jones” (note) BEARER ORDER NOT NEGOTIABLE Bearer vs. Order Paper

14. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 14 Ambiguous Language: –Words outrank figures. –Handwriting supercedes typed or printed terms. –Typewritten supercedes pre- printed terms. Factors not Affecting Negotiability

15. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 15 Statute of Limitations –The UCC sets a three-year statute of limitations on most actions involving negotiable instruments. –The statute is six years for suits on certificates of deposit and accepted drafts. Factors not Affecting Negotiability