Transfer of Negotiable Instruments Terms

· allonge—A separate piece of paper attached to the instrument on which the indorsement is written.

· assignee—The party to whom the right has been transferred.

· assignment—The transfer of contractual rights by the obligee to another party.

· assignor—The party who transfers the right.

· bearer paper—Bearer paper is negotiated by delivery: indorsement is not necessary.

· blank indorsement—An indorsement that does not specify a particular indorsee. It creates bearer paper.

· certificate of deposit (CD)—A two-party negotiable instrument that is a special form of note created when a depositor deposits money at a financial institution in exchange for the institution’s promise to pay back the amount of the deposit plus and agreed-upon rate of interest upon the expiration of a set time period agreed upon by the parties.

· check—An order by the drawer to the drawee bank to pay a specified sum of money from the drawer’s checking accounting to the named payee (or holder).

· collateral—Security against repayment of the note that lenders sometimes require; can be a car, a house, or other property.

· demand instrument—An instrument payable on demand.

· demand note—A note payable on demand.

· draft—A three-party instrument that is an unconditional written order by one party that orders the second party to pay money to a third party.

· drawee of a check—The financial institution where the drawer has his or her account.

· drawee of a draft—The party who must pay the money stated in the draft. Also called the acceptor of a draft.

· drawer of a check—The checking account holder and writer of the check.

· drawer of a draft—The party who writes the order for a draft.

· drawer’s negligence—The drawer is liable if his or her negligence led to his or her forged signature or the alteration of a check. The payor bank is not liable in such circumstances.

· fictitious payee rule—A rule that says a drawer or maker is liable on a forged or unauthorized indorsement of a fictitious payee.

· fixed amount—A requirement of a negotiable instrument that ensures that the value of the instrument can be determined with certainty.

· fixed amount of money—A negotiable instrument must contain a promise or order to pay a fixed amount of money.

· forged indorsement—The forged signature of a payee or holder on a negotiable instrument.

· holder—A person who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or his order, or to bearer, or in blank.

· imposter—A person who impersonates a payee and induces a maker or drawer to issue an instrument in the payee’s name and to give it to the imposter.

· imposter rule—A rule that says if an imposter forges the indorsement of the named payee, the drawer or maker is liable on the instrument and bears the loss.

· indorsee—The person to whom negotiable instrument is indorsed.

· indorsement for deposit or collection—An indorsement that makes the indorsee the indorser’s collecting agent (e.g. for deposit only)

· indorsement—The signature (and other directions) written by or on behalf of the holder somewhere on the instrument.

· indorser—The person who indorses a negotiable instrument.

· instrument—Term that means negotiable instrument.

· maker of a CD—The bank (borrower).

· maker of a note—The party who makes the promise to pay (borrower).

· money—A “medium of exchange authorized or adopted by a domestic or foreign government.”

· negotiable instrument—A special form of contract that satisfies the requirements established by Article 3 of the UCC. Also called commercial paper.

· negotiation—Transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes a holder.

· nonnegotiable contract—Fails to meet the requirements of a negotiable instrument and, therefore, is not subject to the provisions of UCC Article 3.

· nonrestrictive indorsement—An indorsement that has no instructions or conditions attached to the payment of the funds.

· order paper—Order paper is negotiated by (1) delivery and (2) indorsement.

· order to pay—A drawer’s unconditional order to a drawee to pay a payee.

· payable on demand or at a definite time requirement—A negotiable instrument must be payable either on demand or at a definite time.

· payee of a CD—The depositor (lender).

· payee of a check—The party to whom the check is written.

· payee of a draft—The party who receives the money from a draft.

· payee of a note—The party to whom the promise to pay is made (lender).

· permanency requirement—A requirement of negotiable instruments that says they must be in 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.

· promise to pay—A maker’s (borrower’s) unconditional and affirmative undertaking to repay a debt to a payee (lender).

· promissory note—A two-party negotiable instrument that is an unconditional written promise by one party to pay money to another party.

· restrictive indorsement—An indorsement that contains some sort of instruction from the indorser.

· sight draft—A draft payable on sight. Also called a demand draft.

· signature requirement—A negotiable instrument must be signed by the drawer or maker. Any symbol executed or adopted by a party with a present intent to authenticate a writing qualifies as his or her signature.

· special indorsement—An indorsement that contains the signature of the indorser and specifies the person (indorsee) to whom the indorser intends the instrument to be payable. Creates order paper.

· time draft—A draft payable at a designated future date.

· time instrument—An instrument payable (1) at a fixed date, (2) on or before a stated date, (3) at a fixed period after sight, or (4) at a time readily ascertainable when the promise or order is issued.

· time note—A note payable at a specific time.

· trade acceptance—A sight draft that arises when credit is extended (by a seller to a buyer) with the sale of goods. The seller is both the drawer and the payee, and the buyer is the drawee.

· unconditional—Promises to pay and orders to pay must be unconditional in order for them to be negotiable.

· unconditional promise or order to pay requirement—A negotiable instrument must contain either an unconditional promise to pay (note or CD) or an unconditional order to pay (draft or check).

· unqualified indorsement—An indorsement whereby the indorser promises to pay the holder or any subsequent indorser the amount of the instrument if the maker, drawer, or acceptor defaults on it.

· unqualified indorser—An indorser who signs an unqualified indorsement to an instrument.