Negotiable Instruments and Secured Transactions
Negotiable Instruments and
Secured Transactions
What is a note and who are the parties to a note?
© 2011 HOCK international
91
A note is a written promise to pay money. Notes are different from drafts in that notes are a promise to pay.
If there is any doubt whether a document is a note or a draft, the holder of the document can decide what it is.
There are two parties involved in a note.
1) The Issuer (Maker) is the promisor. This is the party who is obligated to pay the note.
2) The Payee is the person to whom the note is owed.
The Payee will receive the money paid by the Issuer.
CPA Regulation
Negotiable Instruments and Secured Transactions
What is a draft and who are the parties to a draft?
© 2011 HOCK international
92
A draft is a written order to pay money. In a draft, one party orders another party to pay money to yet a third party. If there is any doubt whether a document is a note or a draft, the holder of the document can decide what it is.
There are three parties involved in a note:
1) The Drawer – The drawer writes and signs the note,
2) The Drawee (usually a bank) – The drawee is ordered by the drawer to pay the Payee, and
3) The Payee – The payee will receive the money from the drawee.
CPA Regulation
Negotiable Instruments and Secured Transactions
What are the common types of notes and drafts?
© 2011 HOCK international
93
The main types of notes are:
1) certificate of deposit (a bank promissory note);
2) time note (payable at a specific time in the future);
3) demand note (payable when it is presented to the issuer); and
4) installment note (the principal is payable over time). The main types of drafts are:
1) checks (written on a bank and payable on demand, requiring the drawee to be a bank);
2) cashier’s checks (a check that is drawn by a bank on itself);
3) trade acceptances (a seller of goods writes a