Unit 12 - Negotiable Instruments

Word

Definition

Example

negotiable instruments

Written and transferable financial documents, such as promissory notes, certificates of deposit, and checks, that represent a promise to pay a specific amount of money to a specified party

Negotiable instruments, such as promissory notes and bills of exchange, play a crucial role in financial transactions

promissory notes

A written, unconditional promise to pay a specific sum of money to a designated party, often with a specified date for repayment

The company issued promissory notes to raise capital, promising to repay the specified amount with interest

certificates of deposit

A time deposit with a financial institution that typically offers a higher interest rate than regular savings accounts, with a fixed term

Investors prefer certificates of deposit for their safety and fixed interest rates offered by financial institutions

negotiable

Capable of being transferred from one person to another in a way that conveys ownership and the right to receive payment

The negotiable instrument can be transferred or assigned to another party, providing flexibility in financial dealings

endorsement

A signature or statement on a negotiable instrument, indicating the transfer of ownership or rights to another party

Proper endorsement is essential when transferring a negotiable instrument to another party for payment or collection

nemo dat rule

A legal principle stating that one cannot transfer more rights to another person than one possesses themselves; essentially, you can't give what you don't have

The nemo dat rule states that no one can transfer a better title to property than they possess, ensuring property rights

alienability

The quality or condition of being transferable or capable of being conveyed from one party to another, often referring to property or rights

The alienability of property refers to its ability to be legally transferred or conveyed to another party

maker

party who signs a note. cheque or other negotiable instrument and who promises to pay an obligation when due

The maker of the promissory note is legally obligated to repay the specified amount to the designated payee

to the order of

A phrase used in the endorsement of negotiable instruments, indicating that the instrument can only be transferred to a specific party or according to specific instructions

The check was made payable "to the order of" the company, requiring endorsement by the intended recipient for payment

to the bearer of

A phrase used in the endorsement of negotiable instruments, indicating that the instrument is payable to whomever possesses it, typically without the need for a specific payee's name

The bearer of the negotiable instrument can receive payment without the need for specific endorsement

bona-fide purchaser for value

A person or entity who acquires a negotiable instrument in good faith, without knowledge of any defects or claims, and in exchange for something of value, such as money or a valuable consideration

A bona-fide purchaser for value acquired the property in good faith, paying fair consideration without notice of any defects

holder in due course

party who has acquired possession of a negotiable instrument through proper negotiation for value, in good faith and without notice of any defences to it

A holder in due course possesses a negotiable instrument acquired in good faith, without knowledge of any defects

debentures

A type of long-term debt instrument issued by a company or government that acknowledges a specific sum of money owed, typically with a fixed interest rate and a maturity date

The company issued debentures to raise capital, offering investors fixed interest payments and eventual repayment

naked debenture

A debenture that is not secured by any collateral or asset, meaning it relies solely on the issuer's general creditworthiness and promise to repay

The naked debenture is unsecured by collateral, relying solely on the issuer's creditworthiness for repayment

bills of exchange

Written financial instruments that serve as a binding agreement for one party to pay a specific sum of money to another party at a future date, often used in trade and commerce

Bills of exchange are commonly used in international trade to facilitate payments between parties in different countries

drawer

party who issues or signs a bitt of exchange or draft as a party ordering payment

The drawer of the bill of exchange instructs the drawee to pay a specified sum to the payee upon presentation

drawee

party on whom a bill of exchange or draft is drawn, and thus who is required to make payment

The drawee, typically a financial institution, is responsible for honoring the payment instructions in the bill of exchange

payee

party to whom a cheque, draft or note is payable. The payee's name follows the words: "Pay to the order of"

The payee of the check received the funds as specified in the payment instrument, enabling them to use the funds accordingly

letter of credit

A financial instrument issued by a bank that guarantees payment to a seller upon the presentation of specified documents and under certain conditions

The letter of credit served as a financial guarantee, ensuring that payment would be made to the seller upon fulfillment of the contract

bearer

Party who is in possession of a negotiable instrument payable to bearer or endorsed in blank

A bearer instrument allows the holder to claim its value without specific endorsement, making it transferable by delivery

endorsee

Party to whom a negotiable instrument is transferred by the act of endorsement

The endorsee received the negotiable instrument from the original holder, acquiring the right to collect or transfer it

for value received

A legal phrase often used in contracts to indicate that something of value, such as consideration or payment, has been given in exchange for something else

The promissory note was endorsed "for value received," indicating that consideration was given for its transfer

the undersigned

The person or entity who signs a document or agreement, often indicating their acceptance or endorsement of its terms

The undersigned parties signed the contract, agreeing to its terms and conditions as specified in the agreement

on demand

Payment or performance that is required immediately upon request or without delay when demanded by the other party

The promissory note was payable "on demand," meaning that the holder could request payment at any time

to be in default of the terms of an agreement

To fail to fulfill or adhere to the conditions, obligations, or requirements outlined in a contract or agreement

Failure to make timely payments as per the loan agreement would put the borrower in default of the terms, leading to penalties

principle

The original amount of money borrowed or invested, excluding any interest or other charges

The principle amount of the loan represents the initial sum borrowed, excluding interest or additional fees

accrue

To accumulate or increase over time, typically referring to the gradual buildup of interest, earnings, or other benefits

Interest on the loan will accrue over time, increasing the total amount owed to the lender as the loan matures

maturity

The date on which a financial instrument, such as a loan or bond, becomes due and is scheduled for repayment

The loan's maturity date is the point at which the borrower must repay the principal and any accrued interest in full

outstanding

Referring to an unpaid amount, debt, or financial obligation that has not yet been settled or resolved

There are currently three outstanding invoices that require immediate attention and payment

interest

A fee charged for the use of borrowed money or the earnings generated by an investment or savings account

The loan carries an annual interest rate of 5%, which is calculated on the outstanding balance of the loan

installment

A scheduled and periodic payment made towards a debt, loan, or purchase, often divided into equal amounts over a set period

The borrower makes monthly installment payments to gradually reduce the outstanding balance of the loan