Quiz 24: The Function and Creation of Negotiable Instruments

Business

Payable on Demand: In the case of Reger Development, LLC v. National City Bank , 592 F.3d 759 (2010) the District Court dismissed the breach of contract claim filed by Reger. The Court of Appeals affirmed. Where it is generally held that good faith is implied into every contract absent express disavowal, the duty to act in good faith does not apply to lenders seeking payment on demand notes. Good faith does not apply to demand instruments whose nature permits call at any time with or without reason.

Negotiable Instruments: It is a document consisting of unconditional promise and guaranteeing of payment of a certain amount of money on demand or predetermined date or time. Examples of some of the negotiable instruments are as follows: Promissory note Bills of exchange and Demand draft The requirements of the negotiable instrument are as follows: 1. Be in written format. 2. Be signed by the maker. 3. Be an unconditional promise to order to pay. 4. State a fixed amount of money for payment. 5. Payable on demand or at a definite time. 6. Payable to order or to bearer. In this case, of Mr. W and Mr. R, the instrument is non-negotiable because it does not meet the necessary elements of the negotiability. In specific to the case the note does not meet the following requirements is as follows: 1. The note is not signed, nor does it entitle the name of the maker. 2. The note is conditional upon the sale of a horse. 3. The note does not state a fixed amount of money (interest is not specified, nor an method for calculation) 4. The note is not payable at a definite time or on demand. Therefore, it is not a negotiable instrument, as the paper does not satisfy the requirements of the negotiable instruments.

Payment of the Line: In the case of Reger Development, LLC v. National City Bank , 592 F.3d 759 (2010) the District Court dismissed the breach of contract claim filed by Reger. The Court of Appeals affirmed. If National City had demanded payment of the line instead of indicating that there was a possibility it might do so in the future, then that would have imposed a unilateral change on the agreement and could not call the line of credit unless Reger was in default. Because Reger was not in default, National City would not have been able to call the line of credit according to the terms of their agreement.

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