Bài giảng Business Law - Chapter 31: Negotiable Instruments

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin7Negotiable InstrumentsNegotiation and Holder in Due CourseLiability of PartiesChecks and Electronic TransfersCommercial PaperPARTNegotiable InstrumentsPAETRHC31We at Chrysler borrow money the old-fashioned way. We pay it back.Lee Iacocca, Chairman and CEO of Chrysler Corporation, quoted in the New York Times (1983)Learning ObjectivesExplain advantages of commercial paper and the requirements to qualify as a negotiable instrumentIdentify different types of negotiable instruments and the key featuresApply UCC rules for situations when the terms of an instrument are ambiguous or inherently conflictingCommercial paper refers to checks, promissory notes, & certificates of depositBasically a contract for payment of moneyCommercial paper may be negotiable:Transferred from party to party and accepted as a money substitute payable immediately (check) or as credit (promissory note)OverviewUCC Article 3 (Negotiable Instruments) and Article 4 (Bank Deposits and Collections) cover commercial paperOther negotiable documents (documents of title, investment securities) covered by other sectionsTwo basic types of negotiable instruments: Promises to pay money Orders to pay moneyThe Uniform Commercial CodePromissory notes and certificates of deposit issued by banks are promises to pay moneyPromissory note: two-party instrument in which the maker promises unconditionally in writing to pay the payee, a person specified by the payee, or the bearer of the note, a fixed amount of money (with or without interest) either on demand or at a specified, future time [3–104]Promises to Pay MoneyA certificate of deposit is an instrument containing (1) an acknowledgment by a bank that it has received a deposit of money and (2) a promise by the bank to repay the sum of money [3–104(j)]Generally in electronic formPromises to Pay MoneyA draft is an order (not a promise) by one person to a second person to pay money to a third person [3–104(e)] Specifically, the drawer orders the drawee to pay a certain sum of money to the payee, to a person specified by the payee, or to the bearer of the instrumentDrawer and drawee may be the same bank (cashier’s check) or drawer bank on second bank (teller’s check)Orders to Pay MoneyPurpose of negotiability is to decrease risk of transfer (assignment of commercial paper contract) so the instrument will be accepted as a substitute for moneyThus, (1) the contract for payment of money must meet requirements for negotiability, and (2) the person who acquires instrument must qualify as a holder in due courseNegotiabilityA holder in due course has good title to the instrument, paid value for it, acquired it in good faith, and had no notice of certain claims or defenses against paymentInstrument bears no evidence of forgery or triggers concerns about authenticityA holder in due course takes instrument free of all defenses and claims except those that concern its validityA Holder in Due CourseFor an instrument to be negotiable, it must be in writing, signed by the maker, containing an unconditional promise or order to pay a fixed amount of money, payable to order or to bearer, payable on demand at a definite time, lack any other instruction by the maker (three exceptions) [3–103; 3–104]Requirements For NegotiabilityThe instrument must must contain an unconditional promise or order to pay (e.g., “pay to the order of”) Conditional phrases destroy the negotiability, though reference to another document about collateral, prepayment, or acceleration does not destroy negotiabilityUnconditional Promise or OrderA promise or order is payable on demand if (1) it states it is payable on “demand” or “sight” or (2) does not state a specific time for payment [3–108(a)]A promise or order is payable at a definite time if payable at fixed date(s) or at time(s) readily ascertainable at the time the promise or order is issued [3–108(b)]The typical promissory notePayable on Demand or At a Definite TimeAn instrument is payable to order (order paper) if payable to (1) order of identified person or (2) an identified person or that person’s order [3–109(b)] Requires indorsement for negotiation An instrument payable to bearer or to cash (bearer paper) may be negotiated or transferred by delivery of possession without indorsement [3– 201(b)]Payable to Order or BearerInstrument remains negotiable if words: Give, maintain, protect collateral as securityConfess judgment or dispose of collateralWaive benefit of law protecting obligorIf terms conflict or an ambiguous term exists, general rules of interpretation apply: Typewritten over printed, handwritten over printed/typewritten, words control numbers Special or Ambiguous TermsThought QuestionsDo you use negotiable instruments? How do you do your banking?