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    Flowrencia Manalu
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    22 views7 pages

    Chapter 3 Negotiable Instruments

    Uploaded by

    Flowrencia Manalu

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 7
    6. When 72 ert writen Ue. tha en ie me Da and do nd Negotiable Instruments Many words and expression inthe lw er nota dial £0 vodetand ar thoy oo, Nese ee food example of thi. The word “hegatable” sly wens andor the onitry coun of inca Scant Tosrument” refers to thse ples of paper sch eens pomisy nots that ae ted Inthe bases nese Mons. Ths, “negate instrament are monly thee tek, romiory nts and il of Bechange (cine) tet ene racial every ey inthe ordmy ons sf oe bene ‘relations " Dasiness of our society would Sow down toa suas pace. Infact just coulda be deve ne ‘ny. Instead, we had to create some kind of substitte ioe 2 money that would be transferable from portant perton and ‘would have the same value ar money. Checks, drafts, and Dromisory notes (negotiable jastrumen's)eame nto Use to ‘eet this need, Today they play an important role in oor ‘vast credit systern which governs the business transsetion: of mot of usin our every day lve, Th the preceding chapter we discussed Contacts Tt in portant to remember tht all negotiable Instruments are com: tracts, Moreover, since they must be in wating, they are always toriten contact, {TYPES OF NEGOTIABLE INSTRUMENTS Before roceeding futher witha discusion of nogtiale tostroments, fe ortant that we know what they Took li The tree mort commonly wed in busines sets are the onlay bank check he promieory nee, ad tho Bal of change. Lats take look at each of them fo sharpen sur understadiogo thet form. Foxm af Check ‘and Bikers Book Store i called the payee. Me, Smith owed Rikers BookStore $400, According, be gave Tikes Book Store t check for the amount, dram on the Los Angeles ‘Trust Gompany in Los Angeles, California, where Mr, Sesith tara bank acount Ts affect, the che fea onder by Mr. Shit tothe bank wo pay Mikes Book Store (ort ts order) the sum of $400 and to deduct that much from the amount which he has in th bank. The check i, peraps the simplest {orm ofall negotiable fastens, ands the one which i mort fequentyvsed. Form of Promissory Noto a Fae, Kal cael tool Bio — ps EEE esac. | A es eo eee ‘here cre caytain legal names given to the pessoni who ze involved in the ure of negotiable instruments. In the check Mlustrated above, David E Smith ie clled the drawer, 2 ‘Let us suppote Mr. Dixon owes Mr. Parker the same amount of money. Mr. Dison deosn't have that much in his checking account at the Chiage National Bank, Te is quite sure that he will ave it within thirty days. Accordingly, he iives Mr. Parker a promissory note forthe amount, payable In thirty days. The note will resemble the one pictured shove, I thit note Mr. Dixon is called the maker, and Me. Parker the payee. Mr. Dixun simply says to Mr. Parker that he will pay him, of hi order, the amount he owes him on or before the time that thirty days from the signing of the note have expired, 4 ‘A third common type of negotiable instrument isthe Bll of Brchango or drafe Let us soppore thet Me Dison owes Me, Parker’ the. $400 Indicated above, bot Mes Robert shop, who lives in Amsterdam, New York, ower. Dizoa the same amount. Accordingly Mr. Dizon draw Bill of Exchange and tendr ito Me. Bishop, ordering hin to ps the amotine of $400 to Me Parker ‘Phun Me Dixon's debt to Me Parker and Mr. Bishop's debt to Mr. Dison are pad st the same time, In this Bl of Exchange Mr, Dison is Called the dower, Mr. Perker isthe payee and Me. Bishop [r the drowoe, After Mtr Bishop accepts the Bil of Ie change be te lz celled the acoepton. THE NECESSARY ELEMENTS OF A NEGOTIABLE INSTRUMENT All negotiable intraments must contain cetsin essential clements in order for them to be negotiable, that is, accept able as a substitute for money. The following are necessary laments of negtiable instruments: 1. Negotiable words must be those recognizable in the Jaw, On all negotiable checks and promissory notes you will find the money is to be paid "to the order of” the payee (Ms; 2 $$$ —— Parker), “or order” oF “or bearer" Without these words the instruments would not he negotiable besause, 1f they were ‘ot there no ono but Me, Parker cou present tv foe Pay iment When we add the words "tothe order of or “or ote cr "or bearer” after Mr. Parkers name, we make ie posible {ox anyone to whom Mr. Patker may transfor the check or rote (0 accept ther: In lieu of mosey. With these words {3ed, the instruments posers the same value to anyone who accep tem in good faith. A person who sesopts negotiable instnments in is way tn the busivess world i called. « Neeru” “Fecheps ve should stop for a moment at this point and la more about solder in dye course Tit one ofthe common torms in the law that we need to understand bout negotiable fastrumont “The holder in duo course” the lst person to come into postesson ofthe negotiable instrument. el the person iio resents it for payorent. The benefits of nogottabity all bo. Eng othe holder in do course. Hle possesses al the benefits of Regotabilty because he took the instrament tn "good faut for a valtable consideration, believing that ie was free of any defects, and that he would receive payment. If the Holder fn due course were not fully protected hy the lave in this way, he would naturally refuse to socept checks and promisory notes ara substitute for money. {For empl in th promiory note tated above, Me ker the payes. TE he held the note for thity days, he Could collec the $450 from Mr. Dixon, Dut wo mass keep in ‘mind tht promissory notes ean be used ax money. So the tour of & business traneaction Me. Parker passes the note fn to Mr. Bishop before the thirty days have expired, Mi Bishop accept tat its face value of $400. Now, we sty the rote as bean negotiated; that i,t whs passed on to another perton who waa not a party to the original contract. The Eriginel contract, you remember, was between Mr, Dixon and Mr. Park» Mr, Bishop has become a holler in due cours, provided cartain conditions are present inthe situation when he accepted the note from Mr. Peer. In other words Me Bishop i legally a holder in due course, the following end tions must be present: The note is complete and regular pon it fee. Tt ‘must posses ll the elements of nogotisbilty. Bb, He (Mr. Bishop) must have become the holder of the note hofore the period of the thisty days hae expired. ‘He most have taken the nate in good faith and for value. That she must believe that thre i nothing wrong withthe note, and he must have accepted it for $400 worth of value 4. At the te he received it feom Me. Parker, he was ‘unaware of any defects in the noto or of any do- enscr gaint. 2. uncondsnal promise cannot have any: attached conditions amples A promlsory note whic cared di word- tng, “I promi to pay Henry Johnson ox bare $100 0 com on het Man Far ist icky Duty doe 2 negoibity ofthe Hote. The promie fo pay smut be blots, and can haverno condos attached that might nt be fled. 3. The amount which s payable must be a defiite som of money. ‘Beample: A proms o pay “to Mr. Mayne or bearer {$500 and any ote sams of rdney that ee dye a that time” {Enot negotiable forthe reson that doe not make definite and certain the amount of money tobe paid. ‘A promise to pay “to Mr. Houghton or bearer Example $100 or the equivalent In wheat” is not negotiable forthe zeason that negotisbe instruments deal only with the pay ment of money ar 4. Tinsof payment mus be specified, on demand or on 4 daa which sre to come If the note tates tha Ie ay thie" days ator dato its megoiable Decne eter thospectfe date on which it sto be paid If estates that its payahle “on demand” or "at sight" or “on presentation. itis Sho ngtaba Eventhough itstates that its payable “one {year after my death" ft s negotiable becase te event of Aen ie sure to happen, and its date can determined, & ‘ote which promises to pay am of money “ton days af ‘my dughtet+ marrige" eno nota for the ronan that the event may never take placo. '. The instrument must be in writing and signed hy the maker or drawer. The instrument may be printed, typewri: ten or written by hand. If handwritten, 1¢ need not be with pen and ink. Pencil, erayon, chalk—even a lipstick will do. ‘The sigeature of the maker or drawer cannot be printed or typewritten. Te must be handwritten, although his mark or Inals are acceptable. Tho signatire may be anywhere on the paper, not necessarily atthe bottoms, “m eco of paper. 1 merely lors ie character a2 9 "negotiable [patent the person who necepts i tn the course of bus zest doer 0 without the protestion which the law gives to imi theinstroment were negotiable that i, possessed ofall the elements which are diseustd above. The obligation con tained inthe note stl valid and it may be teansfered fom ne person to another, provided exch person is aware ofthe frets surrounding the original transaction and is willing (0 take the risk involve. DEFINSES-PERSONAL AND REAL Leto be specie, The promisory note pleted on page 24, made out by Mr. Dison to Me, Parker is negotiable, as 2 ile It contains all the elements that are needed to make it s. Any person who accepts this note in the normal course ot Dasiness is protected against what the law cals personal de fenses. Let us illustrate what is meant by a personal defen Mr. Discn gave Mr. Parker the note forfour hundred dol worth of cor. When the com is delivered to Mr. Dixon, proved to be of inferior quality and was not worth $400. By {his time, a Me. Watson lis become a holder ofthe note ia due course, He has accepted it in some busines transaction for value recalved. He knows nothing about the fat thatthe ‘corn, which Mr. Parker sold to Mr, Dixon, wae not worth tha $400. Accordingly, the note becomes duc, nnd Mr. Watson presents & to Mr. Dixon for payment. Mr. Dison refuses to ‘Bay, stating that the com which he got from Mr Parker in the original transaction was not worth what he pald for i. ‘This is called a personal defense. It simply means that Mr. Dison i sotting npn defense ngenst having to pay tho $400, ‘Az wo explained enrlior, the law says he will have fo pay the ‘nate. Me. Watson was ¢ older in due cours, since he took ‘he note for value received {nthe course of his busines tivities; bo was unaware that the corn, which formed the basis for the original transaction between Mr. Parker and Me. Dixon, was of inferior qualty. Me. Watson can make ‘Mr Dixon pay him the anfount of the note since the law pro- tect him fom any personal defenser the maker of the note may have. ‘The most common personal defenses the law recognizes are these 4. Lack of consideration. (We disused this top in the chapter on Conteacts.) ‘2 Fraud. (This wae the kind of defense Mr, Dixon tiled to use when he insisted the corn he got from Mr. Parker was inferior.) ‘3. Duress. (We also discussed this toplo under Contracts.) There is another kind of defense against which a holder in 9 due course s not protected. This type of defense is called @ al defense ‘Lotus consider the possibilty that Mr. Watson, the holder Jn due cours, presented the note for $400 to Mr. Dixon for payment: Mr. Dizon refused payment, saying that he never Eigned the note and that hie signature had boen forged. Ife fan prove this to be a fact, he will not have to pay the note Forgery ison ofthe real defanses in negotiable instruments and even the holder n due course has no protection against “The most common real defenses the law recognizes are there if 1. Forgery. 2 Incompeteney of the maker, (Thats, thatthe maker warineme «minor, et.) 4: legally. (Tat the original transection was not valid ‘under the law.) "s. Material alteration. (If Mr. Dizon could prove that the nate he signed was for only $40 and that somebody had Added another cipher and raised it t0 $400, he could use this alteration at. real defense and he would not have to pay the ‘400. {THE UNIFORM NEGOTIABLE INSTRUMENTS LAW. Fortunately, there fs now a law which governs the oper Won of negotiable instrsments in most of the states of the nation. Tis ealled The Uniform Negotiable Instruments Law. {Te was passed in order to make the aw which applies to nego: Liable instruments the same throughout the country and to protect the holder in due course. Before it was pasted, the maker of a promistory note could simply say that hte no Ionger owed the money, when the note was presented to him for payment. Naturally, under these conditions, few people ‘were willing to accept'a note or check as a substitute for 20 ‘money forthe reson tha thay might not beable to elles it when was presented to the drawer or maker for payment Ee tt ene tf owe cea sro might be pened ops ns prot Tider itdo sone gles peal des Tas ‘a mais pre Te Uo Naa Tas mauler : "Nn To Roane Ale! Hee amet 1 Neate Iter eh gl nae fo hess, rity nots i Ethan ta we of Sea reteset 1 hloeota rumen encore 4 Ti tie pron os pte iments devel bane Wat nde pny Sdnaton

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