Quiz 28: Kinds of Instruments, Parties, and Negotiability
(a) The given instrument is negotiable on the day the paper is written, but not just on the due date. Hence, the given statement is False. (b) The payment is in "Cash". It would mean that anyone who holds the note can receive the payment. Hence, it is a bearer note. Hence, the given statement is True. (c) A draft requires a third party, such as bank. However, there are only two parties in this note, the bearer, and the payer. Hence, the given statement is False. (d) The source that secures the note does not make the note non-negotiable. Hence, the given statement is False.
Refer to the case Pelican Plumbing Supply v J.O.H Construction (653 So2d 699) to answer the question as below: Case Issue: The issue is whether the credit application signed by the defendant's company executive is a negotiable instrument, and whether the executive is personally liable for payment on it to the plaintiff. Trial court held for the executive, plaintiff appealed the decision. Relevant Terms, Laws, and Cases: UCC 3-104 - defines what provisions for something to be a negotiable instrument. It must be signed by the maker, payable to bearer or to order with a certain sum, at a definite time, and has no conditional statements on how and when payments will be made. Opinion: Higher court affirmed the decision. First the court noted that, the credit application was not a negotiable instrument , there was a lack of definite time, and wasn't payable to order or bearer. Hence, the credit application fell under contract law, and the court looked at whether the executive was liable under surety-ship, a third party guarantor to pay in a contract. The court argued in order for there to be surety-ship, it must be expressed and in writing, however, the court found no evidence of this intent; the executive is not personally liable.
(a) Drafts have three parties, a drawer, drawee, and payee. The parties in this instrument are the drawer, the drawee (a bank), and the payee. Hence, the given statement is true. (b) Checks are payable on demand. That is when a check is written, it can be deposited regardless of date written on the check. However, the given paper is payable on a later date so it is not a check. (c) For a trade acceptance, there should be a transfer of goods between parties. However, there is no transfer of goods in the given case. Hence, it is not a trade acceptance. Hence, the given statement is False. (d) Promissory note will have only two parties, payer and payee. Hence, the given statement is False.