26 terms

Chapter 23 Creating a Negotiable Instrument

Business Law
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Bearer paper
An instrument payable "to bearer." Any holder in due course can demand payment.
Cashier's check
A check that is drawn by a bank on itself.
Certificate of deposit
An instrument issued by a bank which promises to repay a deposit, with interest, on a specified date.
Check
An instrument in which the drawer orders the drawee bank to pay money to the payee.
Claim in recoupment
An issuer subtracts (i.e., "sets off") any other claims he has against the initial payee from the amount he owes on an instrument.
Commercial paper
Instruments such as checks and promissory notes that contain a promise to pay money. Commercial paper includes both negotiable and non-negotiable instruments.
Consumer credit contract
A contract in which a consumer borrows money from a lender to purchase goods and services from a seller who is affiliated with the lender.
Draft
The drawer of this instrument orders someone else to pay money. Checks are the most common form of draft. The drawer of a check orders a bank to pay money.
Drawee
The person who pays a draft. In the case of a check, the bank is the drawee.
Drawer
The person who issues a draft.
Holder in due course (HDC)
Someone who has given value for an instrument, in good faith, without notice of outstanding claims or other defenses.
Indorsement
The signature of a payee.
Issuer
The maker of a promissory note or the drawer of a draft.
Judgment rate
The interest rate that courts use on court-ordered judgments.
Maker
The issuer of a promissory note.
Negotiable instrument
A type of commercial paper that is freely transferable.
Negotiation
The transfer of an instrument. To be negotiated, order paper must be indorsed and then delivered to the transferee. For bearer paper, no indorsement is required—it must simply be delivered to the transferee.
Note
An unconditional, written promise that the maker of the instrument will pay a specific amount of money on demand or at a definite time. When issued by a corporation, a note refers to short-term debt, typically payable within five years.
Order paper
An instrument that includes the words "pay to the order of" or their equivalent.
Payable on demand
The holder of an instrument is entitled to be paid whenever she asks.
Payee
Someone who is owed money under the terms of an instrument.
Promissory note
The maker of the instrument promises to pay a specific amount of money.
Sight draft
Payable on demand.
Time draft
Payable in the future
Payable in the future
A draft drawn by a seller of goods on the buyer and payable to the seller or some third party.
Value
The holder has already done something in exchange for the instrument.