Negotiableinstruments

n . ~ n n

The following text provides an overview of some of the main concepts in the area of the

law concerned with negotiable instruments. These are connected with finance and payment.

1 Read the text and decide whether these statements are true or false.

1 The possession of a negotiable instrument can be freely transferred physically

or through signature.

2 An endorsement refers to a signature which serves to transfer ownership of

the instrument to another party.

3 The nemo dat rule is strictly applied to the use of negotiable instruments.

4 If an instrument is 'payable to the order of' a certain person, this means that

the holder of the instrument is entitled to payment.

S Negotiable instruments are used to obtain credit or to pay financial obligations.

the

A further explanation 'negotiability'

instrument, a promissory note. A

an unconditional promise and is the maker, to pay a

certain sum of money to or to the order of a named person or to the bearer of the document.

Payable 'to the order of' person and 'to

the bearer of' means

Therefore, if a promissory with the

underlying transaction, but who of no problems with the

instrument, that person become a bona-fide purchaser for value or holder in due course

(HDC).Specifically, the HOC takes good person

transferring the instrument to him did not hold title. a lawsuit between the HOC and the

maker, the HOC still gets paid because he is immune defences to payment.

Negotiable instruments serve two different functions transactions: a credit

function and a payment function. allows negotiable instruments to be used to

obtain credit now, to be repaid out of future income. Common examples include promissory

notes, certificates of deposit and debentures4.

1 (US) alsocommercial paper

2 (US) checks

3 (US) indorsement

4 (US) bond or secured debenture (both are secured debt instruments). A debenture in

the USA is a debt instrument which may be secured or unsecured, whereas in the UK,

a debenture is usually a secured debt instrument evidenced by a document under seal

(a deed) and protects the rights of the debenture holder.

A certificate of deposit is a bank's acknowledgment of a deposit and a promise to pay the

depositor to other person or that person's order. A debenture is the most

common by companies in the It is usually repayable at a

determined by the assets of the company, although sometimes it

is unsecured to as a naked debenture.

The of cash payments which

may are cheques and bills of

Exchange5.

party (the drawer),

of money on

for a bill of

Another of

Credit. A

5 (US) also drafts

e

2 Complete these sentences using terms from Reading 1.

1 A c of d is a record of a deposit with a fixed time period

and a fixed rate of interest.

2 A loan raised by a company which pays a fixed rate of interest and which is

secured on the assets of a company in the UK is called ad....................

3 A c is a negotiable bank instrument which is payable on demand

and which instructs a bank to pay the sum indicated to the party named on

the instrument from funds held on deposit.

4 A note which unconditionally promises in writing to pay a sum of money to a

party either on demand or at a time in the future is known as a p

n...

5 A b of e (most often referred to as ad . in the

USA) is a written order which directs one party to pay a certain sum of

money to a third party.

3 These parties are all involved in the use of negotiable instruments. Match

these parties (1-7) with their definitions (a-g).

1 bearer a party who signs a note, cheque or other negotiable instrument and who

promises to pay an obligation when due

b party who has acquired possession of a negotiable instrument through

proper negotiation for value, in good faith, and without notice of any

defences to it

c party who is in possession of a negotiable instrument payable to bearer

or endorsed in blank

d party who issues or signs a bill of exchange or draft as a party ordering

payment

2 drawer

3 drawee

4 endorsee

Unit12 Negotiable instruments

E

5 holder in due course

7 payee

e party to whom a cheque, draft or note is payable. The payee's name

follows the words: 'Pay to the order of'.

f party on whom a bill of exchange or draft is drawn, and thus who is

required to make payment

g party to whom a negotiable instrument is transferred by the act of

endorsement

6 maker

09 2. 0

The following text is an excerpt from a USpromissory note, which is a written promise to

repay a debt at a certain time through a series of payments or on demand. Generally, a

promissory note states the parties involved, the amount to be repaid and the terms of

repayment [when the payments are to be made and how much interest is charged).

Additionally, some promissory notes include a kind of 'acceleration clause', stating under

which circumstances the entire amount will become due.

Date: 2015-12-11; view: 1947