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Business Law 2 Chapter 22

Negotiable Instrument
a special form of contract that satisfies the requirements established by article 3 of the UCC
7 Requirements for Negotiable Instrument:
(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
Four types of negotiable instruments:
(1) checks
(2) drafts
(3) Certificates of Deposit
(4) Promissory Notes
Purpose of Negotiable Instruments:
(1) substitute for money
(2) act as credit devices
(3) act as record-keeping devices
Promissory Note
a two-party negotiable instrument that is an unconditional written promise by one party to pay money to another party.
Certificate of Deposit
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.
Line of Credit
an amount of credit that is extended to a borrower
Prepayment Clause
a clause in an instrument that permits the maker to pay the amount due prior to the date of the instrument
Acceleration Clause
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
Extension Clause
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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