Management 3540 chapter 24 and 25
Terms
undefined, object
copy deck
- Most common commercial paper
- Checks
- Order paper
- contains an order by one person for another to pay
- 3 parties involved in an order paper
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Drawer- person signing order paper
Drawee- Person ordered to pay
Payee- named person who is originally to be paid - Draft
- order issued by drawer for a drawee to pay
- Check
- Draft payable onn demand in which a bank is drawee
- Promise paper
- contains a promise by one party to pay another
- 2 parties involved in promise paper
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Maker- person who promises to pay
Payee- person to whom the promise is made - Promissory note
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Type of promise paper
Promise by maker to pay a sum of money to payee at a future time - Certificate of deposit
- Note of bank acknowledging deposit and promising to pay at future time with interest
- Holder
- person in possesion of properly negotiated negotiable instrument- properly transferred from one owner to another.
- 6 requirements for negotiability
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1. Must be an instrument in writing
2. Must be signed by maker or drawer
3. Must contain uncoditional, un-equivocal promise or order to pay
4. Must contain a sum certain in money
5. Payment must be due on demand or at definite time
6. Must be payable to order or bearer - first delivery
- delivery from orginal maker or drawer to payee is sufficient to negotiate the instrument and transfer legal title. The transferee beccomes the holder.
- After first delivery
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bearer instrument: physical delivery alone still negotiates the instrument
Order instrument: physical delivery and a necessary endorsement by transferor negotiates the instrument - Transferor
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could be payee
could be indorsee- person to whom previously indorsed. - Indorsement
- signature of a transferor, usually on the back of an instrument
- Parties in an indorsement
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transferor- indorser
transferee (recipient)- indorsee - Indorsement required
- Indorsement is required for transfer if instrument is payable to a named payee or indorsee
- Indorsement not required
- If payable to bearer or indorsed in bank, indorsement not required, but transferee may request that transferor sign it. Physical delivery negotiates a bearer instrument
- Multiple payees- alternative payees
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Pay A or B
Either may indorse to negotiate - Multiple payees- joint payees
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Pay A and B
Both must indorse to negotiate - indorser liability
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Indorsers are typically secondarily liable on the instrument, that is if drawer or payee doesn't pay.
If you simply indorse, you are liable - Blank indorsement
- Holder signs name only- paper becomes bearer instrument: delivery alone enough to negotiate.
- Special endorsement
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Payable to specific (named) person (indorsee)
Can convert bearer instrument to order instrument by special indorsement - Qualified indorsement
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Indorser signs words "without recourse"
Indorser not liable if instrument not paid. - Restrictive indorsements
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Restricts rights of indorsee
Examples:
conditional indorsement (pay x if x delivers goods)
"For deposit only"- bank must be collection agent
Trust indorsement- "to John IN TRUST for Phillip" - Forged indorsement
- Person who received tthe instrument from the forger bears the loss if the forger does not pay.
- Holder in due course
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A holder who takes:
-For value (pay $ or provide services)
-In good faith
Honestly believes instrument is ordinary
Inadequate consideration destroys good faith
-Without notice of defenses
that instument overdue, illegal, altered, time past or demand already made - Common law transferee
- A common law transferee took no right defense greater than the transferor had
- a holder in due course is free of...
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-Breach of contract or warranty
-Fraud in the inducement
-Failure of consideration - Holder in due course defenses
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- Fraud in the execution
- Duress
- Incapacity, Illegality
- forgery or alteration
- Discharge in bankruptcy