Psychology Chapter 20 Homework Prepare blank check and note forms with sample or for

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PART FIVE

NEGOTIABLE INSTRUMENTS

Teaching Suggestions

1. Prepare blank check and note forms with sample or for classroom use only written on them. Have

each student fill out several of each and indicate whether they would be negotiable or non–

Group Projects

1. After dividing the class into two groups, ask one group to be bank customers and the other to be

2. Have groups of students research the various types of EFT’s and report to the class why the types

were developed and how widespread their use is.

CHAPTER 20

NATURE OF NEGOTIABLE INSTRUMENTS

Answers to Learning Objectives

1. Negotiable instruments are transferred by indorsement and delivery or simply by delivery.

Lesson Outline

1. A negotiable instrument is a written instrument drawn in a special form which can be transferred

from person to person as a substitute for money or as an instrument of credit.

Chapter 20 Nature of Negotiable Instruments

4. Negotiation is the act of transferring ownership of a negotiable instrument to another party.

a. Through negotiation, the holder may acquire rights superior to those of the original holder.

6. The potential parties to negotiable instruments are as follows:

a. The payee⎯the one to whom a negotiable instrument is made payable

b. The drawer⎯the one who executes a draft

c. The drawee⎯the one ordered to pay the draft

7. When a nonnegotiable contract is transferred by assignment, the assignee receives only the rights of

the assignor and no more. When an instrument is transferred by negotiation, the party who receives

the instrument in good faith and for value may have rights that are superior to the rights of the

Comments on Cases

(p. 238) The court stated that while Deutsche showed that Indy had endorsed the note in blank so it had

become bearer paper, it had not shown that Deutsche had actual possession of the note which

was required to prove it was the holder. In re Miller, 666 F.3d 1255 (10th Cir.)

Answers to Questions

(Page 243)

1. A negotiable instrument is a writing drawn in a special form that can be transferred from person to

person as a substitute for money or as an instrument of credit.

4. Order paper may be paid only to the person to whom it is made payable on its face or the person to

whom it has been properly indorsed. Bearer paper may be paid to any person in possession of the

paper.

5. If a promissory note is a demand instrument, the holder may demand payment or sue for payment at

any time and for any reason.

Answers to Case Problems

(Page 244)

1. No. The court stated that the EFTA applied to electronic fund transfers and not to credit

transactions. The transactions Sanford complained about were credit transactions. Sanford v.

MemberWorks, Inc., 625 F.3d 550 (9th Cir.)

4. Yes. The court stated that by notifying him that he might be charged a fee and then asking if he

accepted the fee and wanted to continue, the bank had notified him that he would be charged a fee

for the electronic transaction. Clemmer v. Key Bank Nat. Ass’n, 539 F.3d 349 (6th Cir.)

5. The note was bearer paper. An instrument is bearer paper if it is payable to any other

indication that does not purport to designate a specific payee. It clearly does not designate a

specific payee and it would make no sense if an instrument payable to “cash” were bearer