Question

J&W’s Fabrication Shop (J&W) sells fabricated parts to General Motors Corporation. General Motors normally pays on a net 30 day basis (within 30 days of the delivery date). But when the economic slowdown occurred, GM started paying net 120 days. Based on the last shipment from two weeks ago, GM owes J&W 320 thousand dollars.   J&W’s cash flow is thin and they need to borrow money to meet payroll for ninety days. Regina has been approached by J&W who has offered to sell to Regina, for 250 thousand dollars cash, their written agreement with GM. The agreement reads in pertinent part that, “GM will pay to J&W all amounts owed pursuant to a GM purchase order within 90 days of the date of receipt of the goods”. It is signed and dated by an authorized GM agent.

Regina has come to your law office with a copy of the agreement and wants to understand the risks associated with this deal.

1. State the elements of negotiability and answer this question,..Is the agreement between J&W and GM a negotiable instrument? Explain why or why not. (10 pts.)

Answer 1

There are eight elements for negotiable elements, they are:

1. it must be in writing: the documents must in writing form and it should be transferable with permanency.

2. it should be signed by the drawer: signature and authentication on writing.

3. it must be definite one: the payment must be paid with a promise.

4. it should be unconditional: The payment should not be conditional and it should be promised for an occurrence of an event.

5.its a promise to pay some certain: it is a promissory note to pay some certain amount of money within a given period of time.

6. it should be paid in terms of money: the agreement should be specifically mentioned to be paid in terms of money or the approved currency.

7. it should be paid on time: so the payment should have time boundary, or the payment must be done on a given/mention time period.

8. it should be payable to the bearer: the order instrument must be in the name of the payee with a given certainty.

A negotiable instrument is a document that assures the payment of a specific amount within a given period of time by the mentioned payee.

Now, in this case, Regina is the third party who is going to give money to J&W and collect it from GM within 90 days of delivery. this is a negotiable instrument. where the GM has certified to pay the money. Now on the basis of that Regina is going to give money to J&W an amount of $250 thousand on behalf of $320 thousand. now the money paid by Regina is on the spot whereas getting money from GM after 90 days so if GM will pay it on time then Regina is not having any fear but if it is not paying on time then it is a risk for Regina to collect it as the document is negotiable and there is no enforcement.