Business%20Law%20and%20the%20Regulation%20of%20Business%20Chapter%2024:%20Form%20and%20Content

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Business Law and the Regulation of Business
Chapter 24 Form and Content

• By
• Richard A. Mann
• Barry S. Roberts

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Topics Covered in this Chapter

• A. Negotiability
• B. Types of Negotiable Instruments
• C. Formal Requirements of Negotiable Instruments

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Negotiability

• Rule invests instruments with a high degree of
  marketability and commercial utility by
  conferring upon certain good faith transferees
  immunity from most defenses to the instrument.
• Formal Requirements negotiability is wholly a
  matter of form, and all the requirements for
  negotiability must be met within the four corners
  of the instrument.

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Types of Negotiable Instruments

• Orders to Pay
• Drafts involves three parties a drawer orders
  a drawee to pay a fixed amount of money to a
  payee.
• Checks a specialized form of draft that is
  drawn on a bank and payable on demand the drawer
  orders the drawee (bank) to pay the payee on
  demand (upon the request of the holder).
• Promises to Pay
• Notes a written promise by a maker (issuer) to
  pay a payee.
• Certificates of Deposit a specialized form of
  note that is given by a bank or thrift
  association.

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Draft
Two years from date pay to the order of Perry
Payee50,000 Fifty Thousand . . . Dollars
St. Louis, MissouriMay 1, 1996
To DEBRA DRAWEE50 Main St.Louisville, Kentucky
(Signed) Donald DrawerDONALD DRAWER
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Check
No.
Matthew Charles 123 Anystreet Rd. Anytown, NC
21234
12-28710
Feb.1
2000
Pay to the order of
Lilli-Marie Justin
500.00
Five Hundred and no/100
DOLLARS
?
Rams Trust andSavings BankChicago, Illinois
HARRIS BANK
Matthew Charles
071000281
1234567
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Note
10,000 Albany, N.Y. April 7, 1998 Six months
from date I promise to pay to the order of Pat
Payee ten thousand dollars (signed) Matthew
Maker
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Certificate of Deposit
NEGOTIABLE CERTIFICATE OF DEPOSITThe Mountain
BankMountain, N.Y. No. 13900 June 1,
1998 THIS CERTIFIES THAT THERE HAS BEEN DEPOSITED
with the undersigned the sum of
200,000.00 Two hundred thousand . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . .Dollars Payable to the order
of Pablo Payee on December 1, 2000, with
interest only to maturity at the rate of Seven
percent (7) per annum upon surrender of this
certificate properly indorsed. The Mountain
Bamk By (Signature) Malcolm Maker, Vice
President Authorized Signature
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Formal Requirements of Negotiable Instruments

• Writing any reduction to tangible form is
  sufficient.
• Signed any symbol executed or adopted by a
  party with the intention to validate a writing.
• Promise or Order to Pay
• Promise to Pay an undertaking to pay, which
  must be more than a mere acknowledgment or
  recognition of an existing debt.
• Order to Pay instruction to pay.
• Unconditional an absolute promise to pay that
  is not subject to any contingencies.

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Formal Requirements of Negotiable Instruments

• Reference to Other Agreements does not destroy
  negotiability unless the recital makes the
  instrument subject to or governed by the terms of
  another agreement.
• The Particular Fund Doctrine an order or
  promise to pay only out of a particular fund no
  longer is conditional and does not destroy
  negotiability.
• Money Legal tender authorized or adopted by a
  sovereign government as part of its currency.

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Formal Requirements of Negotiable Instruments

• Fixed Amount the holder must be assured of a
  determinable minimum principal payment although
  provisions in the instrument may increase the
  amount of recovery under certain circumstances.
• No Other Promise or Order a promise or order to
  do an act in addition to the payment of money
  destroys negotiability.
• Payable on Demand or at a Definite Time an
  instrument is demand paper if it must be paid
  upon request an instrument is time paper if it
  is payable at a definite time.

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Formal Requirements of Negotiable Instruments

• Payable to Order or to Bearer a negotiable
  instrument must contain words indicating that the
  maker or drawer intends that it pass into the
  hands of someone other than the payee.
• Payable to Order payable to the order of (or
  other words which mean the same) a named person
  or anyone designated by that person.
• Payable to Bearer payable to the holder of the
  instrument includes instruments payable
  (1)payable to bearer or the order of bearer,
  (2)that do not specify a payee, or (3)payable
  to cash or to order of cash.

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Order to Pay Draft or Check
issues draft or check to
orders
to pay
Payee
Drawee
Drawer
presents instrument
for payment
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Promise to Pay Promissory Note or Certificate of
Deposit
Issues note or C.D. to
promises to pay
Payee
Maker
presents instrument for payment