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Acceleration clause
A clause in an instrument that allows the payee or holder to accelerate payment of the principal
amount of the instrument, plus accrued interest, upon the occurrence of an event
Acceptor of a draft
The drawee is called the acceptor of a draft because his or her obligation changes from having to
pay the drawer to having to pay the payee.
Article 3
A model code that establishes rules for the creation of, transfer of, enforcement of, and liability on negotiable
instruments
Bearer
The person in possession of the instrument is called the bearer
Bearer instrument
A bearer instrument is payable to anyone in physical possession of the instrument who presents it
for payment when it is due
Bearer paper
- Bearer paper is negotiated by delivery: indorsement is not necessary
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 an 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.
Collateral note
Notes that are secured by personal property are called collateral notes
Conditional
- A promise or an order that is conditional on another promise or event is not negotiable because the risk of
the other promise or event not occurring would fall on the person who held the instrument.
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 draf
- The party who writes the order for a draft
Extension clause
A clause in an instrument that allows the date of maturity of the instrument to be extended to
sometime in the future.
Fixed amount of money
A negotiable instrument must contain a promise or order to pay a fixed amount of money
Fixed amount requirement
The fixed amount requirement ensures that the value of the instrument can be determined
with certainty
Holder in due course
Holder in due course (HDC) takes the instrument free of many defenses that can be asserted
against the original payee
Installment note
When notes are payable in installments, they are called installment notes.
Jumbo CD
CDs of $100,000 or more are usually called jumbo CDs.
Law Merchant
The merchants developed rules governing their use, which were enforced by local private merchant
courts, and became part of what was called the Law Merchant.
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.”
Mortgage note
Notes that are secured by real estate are called mortgage notes.
Negotiable instrument
- A special form of contract that satisfies the requirements established by Article 3 of the UCC.
Also called commercial paper.
Negotiation
The term negotiation is usually used to describe the transfer of negotiable instruments to subsequent
transferees.
Nonnegotiable contract
- Fails to meet the requirements of a negotiable instrument and, therefore, is not subject to the
provisions of UCC Article 3.
Order instrument
- An instrument is an order instrument if it is payable (1) to the order of an identified person or (2) to
an identified person or order [UCC 3-109(b)].
Order to pay
A drawer’s unconditional order to a drawee to pay a payee.
Payable at a definite time requirement
A negotiable instrument must be payable either on demand or at a definite time
Payable in foreign currency
- The UCC expressly provides that an instrument may state that it is payable in foreign
currency [UCC 3-107]
Payable in money
UCC 3-104(a) provides that the fixed amount of a negotiable instrument must be payable in money
Payable on demand
A requirement that a negotiable instrument be payable either on demand or at a definite time.
Payable to bearer
The UCC requires that negotiable instruments be either payable to order or payable to bearer [UCC
3-104(a)(1)].
Payable to order
The UCC requires that negotiable instruments be either payable to order or payable to bearer [UCC
3-104(a)(1)].
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.
Prepayment clause
A clause in an instrument that permits the maker to pay the amount due prior to the date of the
instrument.
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
Record-keeping device
Negotiable instruments often serve as record-keeping devices.
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