T E A M
R R R R R R R R
A A A A A A A A
KESH. K VI KUNDURU JESWARI JATHA NJINI JASHEKAR KESH JESH
NEGOITABLE INSTRUMENT S
1 Overview 2 Issue on negotiable instrument 3 Endorsement 4 Acceptance 5 Guarantee 6 Payment 7 Dishonor and right of recourse 8 Protection of lost-instrument holders 9 Statute of limitations
1 Overview
1.1 Concept
Means of payment Constitute independent contract embodying a payment obligation and distinct from that of other contracts or transactions by virtue of which such instruments are issued
Parties to bill of exchange
A Drawer B Payee Endorser C Endorsee Endorser D Endorsee Bearer
P Drawee Secondary debtor Primary debtor
E Guarantor
Right-holder
THE UNIFORM COMMERCIAL CODE
General contents of the UCC -Articles 3, 4 & 4A are of specific concerns for bank operations
REGULATORY FRAME WORK
Dual Banking (State, and Federal charters) Federal Reserve Bank Federal Insurance (FDIC) Charter Grantor & Supervisor State Banking Depts OCC (National Banks) OTS (Thrifts) NCUA (Credit Unions) FFIEC & NACHA Rules (Regulatory and industry standards organizations) Laws versus Regulations
Legal Authority & Rules
United States Code, Title 12 (Banks and Banking): The USC is a consolidation and codification by subject matter of the general and permanent laws of the United States. (Title 12 is specific to banking) Code of Federal Regulations The CFR contains regulations issued by executive branch and agencies of the Federal govt. State Banking Laws: Each state has a set of laws or banking code that applies in the state. Especially for State Chartered banks & CUs, but can apply to others. Clearinghouse & Other organizations: Membership in an organization may have other rules that must be followed, such as NACHA, PULSE, VISA & M/C.
Defenses Reasons for Nonpayment
Absolute or Real: Available against all types of parties Types/Examples Essential Fraud Lack of Title Bankruptcy Forgery Incapacity Illegality (mixed) Alteration (mixed) Personal Defenses: Not available against Holdersin-due course Types/Examples Simple Fraud Lack of delivery Lack of consideration Undue influence Discharge before maturity Claims or equities of ownership
1.2.2 Comparison
Comparison among bill of exchange, promissory note and cheque
Promissory note Self payment
Bill of exchange Nature Entrusted payment
Cheque Entrusted payment
Basic parties
Payers qualification
Drawer, drawee, payee
No restriction
Drawer & payee
Drawer Drawer On demand
Drawer, drawee, payee
Banks No On demand
Primary debtor Acceptor Maturity Acceptance On demand Determinable future time
Parties to promissory note
A Drawer B Payee Endorser C Endorsee Endorser D Endorsee Bearer
E Guarantor
Right-holder
Primary debtor
Secondary debtor
Parties to cheque
A Drawer
B Payee Endorser
C Endorsee Endorser
D Endorsee Bearer
P (Banks) Drawee Right-holder Secondary debtor
Negotiable instrument relations in bill of exchange and cheque
A Drawer
B Payee Endorser
C Endorsee Endorser
D Endorsee Bearer
Negotiable instrument relation
P Drawee Non-negotiable instrument relation
Negotiable instrument relations in promissory note
A Drawer
B Payee Endorser
C Endorsee Endorser
D Endorsee Bearer
Negotiable instrument relation Non-negotiable instrument relation
8 Protection of lost-instrument holders
If lost before payment is due, lost-instrument holder may
notify drawee to suspend payment.
Within 3 days of giving the notice for suspension of
payment or after the loss of the instrument, lostinstrument holder may apply to court for publication of public notice for assertion of claims
Holder other than the lost-instrument holder comes
forward to claim the rights during the foregoing withholding period, the litigation method shall be utilized
9 Statute of limitations
Statute of limitations
Limitation period Bearers rights against drawer & acceptor 2 years Sight draft and promissory note Cheques bearer against drawer 2 years 6 months Running from Maturity date Issuance date Issuance date
Bearers recourse against predecessor
Right of re-recourse against predecessors
6 months
3 months
Date of rejection
Payment date or date being sued