After each question type your answer followed by citing the page(s) in the text that support your answer. Use additional pages as needed. Each question, 1 – 5 is worth 2 pts.
1. What is a negotiable instrument? List and describe the types of negotiable instruments -
A negotiable instrument is a substitute for cash. It is also a written document containing the signature of the creator who makes an unconditional promise (Chapter 15, p. 291).
Here are some types of negotiable instruments:
a. Note – a promise by the maker of the note to pay the payee of the note (Chapter 15, p. 292).
b. Draft – a instrument validating an order by a drawer to a drawee to pay a payee (Chapter 15, p. 292).
c. Demand Instrument – allows the payee to demand payment (Chapter 15, p. 292).
d. Time instrument – allows payee to collect payment only at a specified time (Chapter 15, p. 292).
e. Certificate of deposit – document whereby a bank promises to pay a payee a certain amount at a certain time (Chapter 15, p. 292).
f. Check – orders a bank to pay a specified sum of money to the payee from the drawer’ account (Chapter 15, p. 292).
2. List the requirements for negotiability? Describe the “negotiation” of –
The six requirements are (Chapter 15, pp. 293-294):
1) Instrument is written
2) Signed by the creator
3) Instrument has an unconditional promise
4) Amount to be paid is a certain amount
5) Payment is either on demand or at a fixed date
6) Must contain the words of negotiability “to the order of” or words indicating that it is a bearer instrument
a. Order instruments – Requires delivery and an endorsement (Chapter 15, p. 298).
b. Bearer instruments – Requires only the delivery of the instrument to the holder by the payee (Chapter 15, p. 298).
3. List and describe the ways in which a negotiable instrument may be discharged –
i. Discharge through payment and tender of payment - all parties are discharged if full amount due is payed in full (Chapter 16, p. 335). ii. Discharge by cancellation or renunciation – cancelling an instrument discharges the obligation of a party who must pay the instrument. Renunciation occurs when a party agrees, in writing, not to sue the obliged party (Chapter 16, p. 336). iii. Discharge by reacquisition – occurs when a former holder of an instrument has the instrument transferred back to him or her by negotiation (Chapter 16, p. 336). iv. Discharge by impairment of recourse- the ability of a party to seek reimbursement (Chapter 16, p. 337).
v. Discharge by impairment of collateral – if a party posts collateral to ensure his performance of the instrument and the holder of the collateral impairs the value of the collateral (Chapter