Busi_Law_Ch14.ppt

7/27/2019 Busi_Law_Ch14.ppt

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Business LawChapter 14: Negotiable

Instruments, Securities andSecured Transactions



What Are Negotiable

Instruments?• What we today call “negotiable

instruments” were once known under

the more general category of“commercial paper.”



• Negotiable Instrument: An

unconditional promise or order to pay a

fixed amount of money, with or withoutinterest.



• Examples of negotiable instruments

include drafts and notes.



Drafts

• Drafts are negotiable instruments that

order payment to be made.



Notes

• Notes are instruments that promise

payment in the future.



Cash versus Negotiable

Instruments• Currency is designed to be anonymous

and to pass freely from person to

person.• Negotiable instruments, on the other

hand, can be converted into cash at

some point.



• Negotiable instruments are both more

secure and more easily regulated than

the use of cash.



Negotiable Instruments Are

Governed By The UCC• The Uniform Commercial Code also

governs negotiable instruments under

Article 3.



What Makes a Document

Negotiable?• UCC§3-104 explains that a document

becomes negotiable when it contains an

unconditional promise to pay moneyand is payable to a bearer or payable

on demand.



Organization of Article 3

• Article 3 is divided into subparts that

deal with a broad spectrum of

negotiable instruments.



Part 1, Article 3

• Article 3 only applies to instruments that

are payable to the bearer or to order at

the time that they are issued.



Identifying Parties to be Paid

• Article 3 provides that the means for

identifying the party to be paid must

come from the language of thedocument and the intent of the signor.



Holder in Due Course

• The Holder in Due Course Rule grants

complete and legal title to an instrument

even when there are outstanding claimsagainst it.

• It protects buyers who act in good faith.



Warranties

• Article 3 provides specific warranties

including:

• That the signatures on the instrumentare authentic and authorized

• That the instrument has not been

altered



• That the person who transferred the

instrument has no knowledge of an

insolvency proceeding concerning thetransaction



Accord and Satisfaction

• Article 3-311 provides that when an

instrument contains a conspicuous

statement that the instrument wastendered as payment in full, the debt is

discharged and no further actions are

warranted.



Negotiable Instruments and

Securities• Securities and negotiable instruments

are sometimes confused with one

another.• A security is a share or ownership

interest in a company.

• A negotiable instrument promisespayment; a security is evidence of

company ownership.



What Qualifies as a Security?

• A security is defined as a share in a

corporation or an obligation by an

issuing company.



Securities and Federal Law

• Securities law is controlled not only by

state law, through the Uniform

Commercial Code, but also throughvarious federal statutes.



Federal Laws that Apply to

Securities• The first of a series of federal legislative

initiatives aimed at the securities field

was the Securities Act of 1933.• The Securities Act was quickly followed

by the Securities Exchange Act of 1934

which authorized the creation of theSecurities and Exchange Commission.



The Securities and Exchange

Commission• The Securities and Exchange

Commission (SEC) has been a potent

force in the securities field since itsinception.

• It polices stock exchanges, brokers,

investment advisors, financialinstitutions and publicly-traded

companies.





Viewing Registration

Information• The SEC maintains all of this

information in a public-access database

called EDGAR. This database can beaccessed directly from the SEC’s web

page at <http://www.sec.gov>



Securities and State Law

(The UCC)• Article 8 of the Uniform Commercial

Code governs securities.



Provisions of Article 8

of the UCC• Other features in Article 8 include a

provision making the Statute of Frauds

inapplicable to securities agreements.• The Article is comprehensive in its

coverage of securities and should

always be referred to whenever asecurities question arises.



Stock

• Stock represents ownership interest in

companies.



Common Stock

• Common stock is the stock that a

company issues in order to raise capital.

• This stock is sold on stock exchangesaround the world.



Preferred Stock

• Preferred stock is a class of stock that

entitles the person who possesses it

with priority when it comes to payingdividends.





Care and Maintenance of the

Collateral• Other rules enforced under Article 9

include the requirement to care for the

collateral.• Article 9-207 requires the party in

possession of collateral to use

reasonable care in its custody andpreservation.





UCC Financing Statements

• Article 9 also provides that proof of a

secured transaction in property must be

filed in order to substantiate the claim.• These documents are often referred to

as “UCC Financing Statements” and

can often be located in the localcourthouse.

Date post:	14-Apr-2018
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