Case Study - Federal Deposit Insurance Corp - Essay Example

For example, Toyland the owner of a departmental store in Houston, contracts with Pantaloon, a manufacturer of children toys in New York, for $15,000 worth toys. In the absence of negotiable instruments, Toyland would have to remit or take across the country the said amount which is risky and inconvenient. If the money is stolen in transit, it will create additional botheration for the company besides the financial loss. Check facilitates transfer of the funds through the designated bank. The transaction through the check is convenient to both the parties.

Some types of negotiable instruments are promissory notes, certificates of deposit, drafts and checks. The legal requirements for an instrument to be negotiable: That it should be in writing and signed by the issuer and it should contain an unconditional promise to pay a fixed amount of money, as per terms and conditions described in the promise or order. It may be with or without interest. It is a bearer instrument or payable to order, either on demand or at prescribed future date. It should “not state any other undertaking or instruction by the person promising or ordering to do any act in addition to the payment of money.

However, it may contain (a) an undertaking or promise relative to collateral to secure payment, (b) an authorization for confession of judgment, or (c) a waiver of benefit of any law intended for the advantage or protection of an obligor.” (p.780) A holder in course of a negotiable instrument has special rights. “Normally, the transferee of an instrument—like the assignee of a contract—gets only those rights in the instruments that are held by the person from whom he got the instrument.

But a holder in due course can get better rights. A holder in due course takes a negotiable instrument free of all personal defenses, claims to the instrument, and claims in recoupment either of the obligor or of a third party.” (p.797)The advantage