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Chapter 22Creation of Negotiable Instruments

Negotiable Instruments

To qualify as a negotiable, the document must meet requirements established by Revised Article 3 of UCC

Functions of negotiable instruments Substitute for money Credit device Record-keeping device

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Types of Negotiable Instruments

Types of orders to pay Draft Check

Types of promises to pay Promissory Note Certificate of Deposit

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Types of Negotiable Instruments

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Exhibit 22.1: Time Draft

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Exhibit 22.2: Check

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Types of Negotiable Instruments

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Exhibit 22.3: Promissory Note

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Exhibit 22.4: Certificateof Deposit

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Creating a Negotiable Instrument

A negotiable instrument must: Be in writing Be signed by the maker or drawer Be an unconditional promise or order to pay State a fixed amount of money Not require any undertaking in addition to the

payment of money Be payable on demand or at a definite time Be payable to order or to bearer

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Creating a Negotiable Instrument

Writing

Permanency requirement: A requirement of negotiable instruments that says they must be in a permanent state, such as written on ordinary paper

Portability requirement: A requirement of negotiable instruments that says they must be able to be easily transported between areas

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Creating a Negotiable Instrument

Signature requirement: States that a negotiable instrument must be signed by the drawer or maker

Any symbol adopted by a party with a present intent to authenticate a writing qualifies as his or her signature

If an agent is appointed, the representative’s signature binds the maker or drawer

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Unconditional Promise or Order to Pay

Order to pay: A drawer’s unconditional order to a drawee to pay a payee

Promise to pay: A maker’s unconditional and affirmative undertaking to repay a debt to a payee

Promises to pay and orders to pay must be unconditional in order to be negotiable

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Fixed Amount of Money

Fixed amount requirement: Ensures the value of the instrument can be determined with certainty

Must be payable in money Applies to variable interest loans Must not require any undertaking in addition to the

payment of money

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Payable on Demand or at a Definite Time

Instruments payable on demand Created by special language Created by silence regarding payment due date

Checks CDs and drafts may be demand instruments

Instruments payable at a definite time Payable at definite time and date

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Case 22.1: Negotiable Instrument

Case Las Vegas Sands, LLC, dba Venetian Resort Hotel

Casino v. Nehme 632 F.3d 526, Web 2011 U.S. App. Lexis 492 (2011) United States Court of Appeals for the Ninth Circuit

Issue Is the Venetian’s casino marker signed by Nehme

a negotiable instrument under the Nevada Uniform Commercial Code?

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Payable on Demand or at a Definite Time

Prepayment clause: Permits the maker to pay the amount due prior to the date of the instrument

Acceleration clause: Allows the payee or holder to accelerate payment of the principal amount of the instrument, plus accrued interest, upon the occurrence of an event

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Payable on Demand or at a Definite Time

Extension clause: A clause in an instrument that allows the date of maturity of the instrument to be extended to sometime in the future

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Nonnegotiable Contract

Nonnegotiable contract: A promise or order to pay that does not meet the requirements of a negotiable instrument

Not subject to Article 3 Enforced under normal contract law

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