MANGMT 3540 1st Edition Lecture 18 Outline of Last Lecture I. Equitable vs. Legal RemediesII. Types of Equitable RemediesIII. Election of RemediesOutline of Current Lecture IV. Commercial PaperV. Two Types of Negotiable InstrumentsVI. Six Requirements for negotiabilityVII. Negotiation – Legal TransferVIII. IndorsementCurrent LectureI. Commercial Paper (gives special rights to the holder)A. Commercial paper refers to a class of documents, typically negotiable instruments, which can be freely transferred in commerce and give special rights to those who hold themII. Two Types of Negotiable InstrumentsA. Order Paperi. Contains an order by one person for another to payii. Ordinarily 3 parties involvedThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.1. Drawer- person signing order paper (person giving an order to draw from an account with another person)2. Drawee- person or entity ordered to pay3. Payee- (name optional)- person who is originally to be paidiii. Draft- order issued by drawer for a drawee to pay- generic order paperiv. Check- draft payable on demand in which bank is drawerB. Promise Paperi. Contains a promise by one party to pay anotherii. Ordinarily 2 parties involved1. Maker – person who makes the promise to repay2. Payee- person whom promise is madeiii. Promissory note – promise by maker to pay a sum of money to payee at a future time- generic promise paper1. E.g. For value received, maker promises to pay Gwen Johnson the sum of Five million dollars payable one year from date with 9% interest.iv. Certificate of deposit- note of bank acknowledging deposit and promising to pay at future time with interest C. Holder i. Person in possession of properly negotiated negotiable instrument- properly transferred from one owner to another. One can “hold” a check,a promissory note, or a mortgageIII. Six Requirements for negotiabilityA. An instrument in writingB. Signed by maker or drawerC. Containing unconditional, un-equivocal promise or order to payi. Acknowledgement of debt not enoughii. “IOU” is not negotiable – need a promise or orderiii. If conditional on any performance, non-negotiable1. Example: I promise to pay X if X delivers goods- conditionaliv. I may or may not pay - equivocalD. A sum certain in moneyi. Must be able to ascertain from the face (text) of the instrument the minimum amount dueii. Okay to state interest variable with a public interest rate like the prime rateiii. Penalties or attorney’s fees in the event of default are OKiv. Money only, not commodities such as gold, silver, grain, cattleE. Payment due on demand or at definite timei. On demand: whenever the holder demands payment ii. Definite time1. State time or date when due2. Stated paid after stated date OKiii. An acceleration clause does not destroy negotiabilityiv. Postdating does not affect negotiability (may be ignored by subsequent holders)F. Payable to order or beareri. Words of negotiableii. Order instruments- pay to the order of name payeeiii. Bearer instrument- pay “bearer” or pay cash1. To order of bearer or cashIV. Negotiation – Legal TransferA. First deliveryi. Delivery from original maker or drawer to payee or intended recipient is sufficient to negotiate the instrument and transfer legal title. The transferee becomes the holder.B. After first deliveryi. Bearer instrument: physical delivery alone negotiates the instrumentii. Order instrument: physical delivery and a necessary indorsement by transferor negotiates the instrumentC. Transferor:i. Could be payeeii. Could be indorsee- person to whom previously indorsedV. IndorsementA. Definition: signature of transferor of a negotiable instrument, usually on the backB. Partiesi. Transferor- indorserii. Transferee (recipient) -