1. Negotiable Instruments Unit B Business Law Objective 6.01

2. 2 Drafts Draft - An order by one person to another person to pay money to the order of a third person Three parties to a draft: A. Drawer – Orders the money to be paid B. Drawee – One ordered to pay the money C. Payee – One who is to receive the money Acceptor - A drawee who has written “accepted” on the document and signed his/her name

3. 3 Types of Drafts: Sight Draft – A draft payable as soon as it is presented to drawee for payment Time Draft – Not payable until the lapse of a particular time period stated on a draft Trade Acceptance – Used by a seller of goods to receive payment or to extend credit Check – Draft drawn on a bank and payable on demand, can be called a demand draft Honor – Pay when due Dishonor – Refuse to pay when due Stop Payment – Instruction for bank not to pay check

4. 4 Types of Checks Certified Check – A personal check that has been accepted by a bank before payment Cashier’s Check – A check the bank draws on itself Money Order – Draft issued by a post office, bank, express company, or telegraph company for use in paying or transferring funds for the purchaser Traveler’s Checks – Draft drawn by a well-known financial institution on itself or its agent, used when traveling Teller’s Check – Draft drawn by a bank on funds that it has on deposit at another bank

5. 5Notes A written promise by one person to pay money to another person An advantage of using a note is that it can be transferred without much difficulty to other people Evidence of a debt

6. 6 Types of Notes: Demand Note – Payable whenever the payee demands payment Time Note – Payable at a future date that is written on the face of the note Installment Note – Paid in a series of payments

7. 7 Parties to a Draft Charles Paige319 619 Main Street Raleigh, NC 276012-131/1034 _________July 16_____2006 Pay To the Order of _____Donnie Tatum_________________________$100.50 _One hundred and 50/100 -------------------------------------DOLLARS State Credit Union For ________________ Charles Paige ______ Drawers Address Payee Check Date Drawer’s Signature Bank Name Check Number ABA #

8. 8 Parties to a Note Maker Payee Interest Rate $ 700.00 Raleigh, NCMay 23, 2006 Three months AFTER DATE ______I_____ PROMISE TO PAY TO THE ORDER OF ___________Charles Paige_________________ Two thousand five hundred and no/100 - - - - - - - - - - - - -DOLLARS PAYABLE AT ___________his firm___________________________ VALUE RECEIVED WITH INTEREST AT ___10%___ PER ANNUM No. 319Due March 19, 2007Claudette Love Face Value\ Principal Time\Term Due Date Face Value\ Principal

9. 9 Certificate of Deposit A written acknowledgment of the receipt of money and its promise to pay back the money, usually with interest on the due date. Has a higher interest rate than most savings accounts.

10. 10 Negotiability Requirements Must abide by UCC regulations Must be in writing Maker (party agreeing to pay money to another person) or drawer (party that orders the drawee to pay money to the payee) has to sign There must be a definite amount money and time of payment known Must have words such as “to the order of” or “to bearer”.

11. 11 Rules Regulating Checking Accounts 1.Stale Check a.Check that is more than 6 months old b.Bank may refuse without liability 2.Avoiding Negligence a.Drawer is responsible if negligent in writing check b.Write figures close to $ sign and draw line through spaces not used c.Write close to “Pay to Order of” and draw line through spaces not used d.Figures and written amount should agree e.Sign name last f.Write “Void” on check if mistake is made and in check register

12. 12 3.Bad Checks a.Check issued against checking account with insufficient funds to cover it b.States have statutes making it a larceny c.Failure of drawer to make check good within certain period of time will serve as a presumption of guilt

13. 13 4.Forged Check a.Check signed by someone other than drawer and without authority b.If bank pays and drawer not negligent, bank bears loss c.Drawer has 1 year to discover and report to bank unauthorized signature or alteration on face of check d.Drawer has 3 years to discover and report to bank any unauthorized endorsement on check

14. 14 5.Stop Payment a.Bank has no right to cash check b.Bank liable if check is cashed c.Oral stop payment good for 14 days d.Written stop payment effective for 6 months e.Holder in due course f.Upon death, bank can cash checks for 10 days for those written prior to death

15. 15 6.Balancing Checkbook a.Should be done as soon as possible after receiving statement b.Balance after writing checks c.Subtract checks written from balance d.Add deposits to balance 7.Outstanding Check a.Has not cleared the bank b.Must be known in order to reconcile statement c.Find by comparing the bank statement with the checkbook register

16. 16 8.Reconciling a Checkbook a.Makes sure the bank’s records agree with your records b.Check for outstanding checks and deposits c.Check the checks, deposits, ATM activity on the bank statement to make sure that your records are correct d.Make adjustments to the bank statement and your records to ensure that you and the bank have the same amount of money e.Reconcile every statement when received

17. 17 Competitive Banking Act Funds from the following must be available on day after deposit –Checks drawn on US Treasury, State, or Local Government –Bank Drafts –Cashier’s Check –Postal Money Order Funds from these must be available within 3 business days following deposit –Checks drawn on banks within same district Funds from checks drawn on banks in different districts must be available within 7 days

18. 18 Electronic Funds Transfer EFT – Banking method in which computers and electronic technology are used as a substitute for checks and other paper forms of banking Electronic Funds Transfer Act Provides –Automated Teller Machines (ATM’S) –Pay-By-Phone Systems –Direct Deposit or Withdrawals –Point-of-Sale Transfers –Automatic Deposits and Payments

19. 19 Federal Laws Regulating EFT No right to stop payment Must receive a receipt each time you use ATM Periodic statement must be issued 60 days from date a problem or error appears to notify bank Banks have 10 days to investigate Disputed funds, if returned, must be deposited to your account within 45 days Must notify bank it card is lost or stolen –Will lose no more than $50 if reported in 2 days –If more than 2 days notification, you can lose $500 or more