Business Law 2 Chapter 22

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Negotiable Instrument
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a special form of contract that satisfies the requirements established by article 3 of the UCC
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7 Requirements for Negotiable Instrument:
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(1) Must be in writing (2) Be signed by the maker or drawer (3) Be an unconditional promise or order to pay (4) State a fixed amount of money (5) Not require any undertaking in addition to the payment of money (6) Be payable on demand or at a definite time (7) Be payable to order or to bearer
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Four types of negotiable instruments:
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(1) checks (2) drafts (3) Certificates of Deposit (4) Promissory Notes
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Purpose of Negotiable Instruments:
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(1) substitute for money (2) act as credit devices (3) act as record-keeping devices
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Promissory Note
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a two-party negotiable instrument that is an unconditional written promise by one party to pay money to another party.
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Certificate of Deposit
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a two-party negotiable instrument that is a special form of not created when a depositor deposits money at a financial institution in exchange for the institution’s promise to pay back the amount of the deposit plus an agreed-on rate of interest on the expiration of a set time period agreed on by the parties.
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Line of Credit
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an amount of credit that is extended to a borrower
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Prepayment Clause
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a clause in an instrument that permits the maker to pay the amount due prior to the date of the instrument
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Acceleration Clause
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a clause in an instrument that allows the payee or holder to accelerate payment of the principal amount of the instrument, plus accrued interest, on the occurrence of an event
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Extension Clause
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a clause in an instrument that allows the date of maturity of the instrument to be extended to sometime in the future

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