Ch. 12: The Function and Creation of Negotiable Instruments – No. 1
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
A negotiable instrument
Ch. 12: The Function and Creation of Negotiable Instruments – No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
TYPES OF NEGOTIABLE INSTRUMENTS
Draft: An unconditional order (including a check) by which
the party creating the draft (the drawer) orders another party
(the drawee), typically a bank, to pay money to a third party
(the payee).
bound itself is an acceptor.
Trade Acceptance: A draft drawn by a seller of goods
ordering the buyer to pay a specified sum of money to
the seller, usually at a specified future time. The buyer
Certificate of Deposit: A note by which a bank or similar
financial institution acknowledges receiving money from a
party and promises to repay the money, plus interest, to the
party or the party’s designee, on a certain date.
Ch. 12: The Function and Creation of Negotiable Instruments – No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
NEGOTIABILITY: WRITING & SIGNATURE
Written Form: A negotiable instrument must be written on
material that
(1) lends itself to permanence and
(2) is portable.
Signature: Any symbol
Who must sign?
(a) The maker, or her authorized agent, must sign the
instrument if it is a note or a certificate of deposit.
(b) The drawer, or his authorized agent, must sign the
instrument if it is a draft or a check.
Ch. 12: The Function and Creation of Negotiable Instruments – No. 4
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
NEGOTIABILITY: UNCONDITIONALITY
Promise or Order: A negotiable instrument must contain an
express order or promise to pay.
Except in the case of a certificate of deposit, merely
acknowledging a debt is not sufficient without evidence
(2) that the promise or order is subject to or governed by
another writing, or
(3) that the rights or obligations with respect to the promise
or order are stated in another writing.
Ch. 12: The Function and Creation of Negotiable Instruments – No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
NEGOTIABILITY: FIXED AMOUNT
Fixed Amount: An amount (including interest, if any)
ascertainable from the face of the instrument – with or
without reference to some outside source of information
Ch. 12: The Function and Creation of Negotiable Instruments – No. 6
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
NEGOTIABILITY: TIME FOR PAYMENT
accept the instrument.
If no time for payment is specified, a negotiable
instrument is presumed to be payable on demand.
other holder of a time instrument to demand payment
of the entire amount or balance due, with interest, if a
certain event occurs, such as failure to pay an
installment when due.
Ch. 12: The Function and Creation of Negotiable Instruments – No. 7
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
NEGOTIABILITY: PAYMENT TO WHOM
Order Instrument: A negotiable instrument that is payable
“to the order of” an identified payee (e.g., “Pay to the Order
of Joan Ebert”) or “to” an identified person “or order” (e.g.,
Any instrument payable to the following is a bearer
instrument:
(1) “Payable to the order of bearer”;
(2) “Payable to Jane Smith or bearer”;
FACTORS NOT AFFECTING NEGOTIABILITY
The fact that an instrument is undated does not affect its
negotiability, unless the date of the instrument is necessary to
even conflicting terms need not affect negotiability.
Handwritten terms take precedence over typewritten
terms, and typewritten terms take precedence over
printed terms.
interest rate on the instrument.
Notations that an instrument is “nonnegotiable” or “not
governed by Article 3” do not affect the negotiability of a
check but may make other instruments nonnegotiable.
Ch. 12: The Function and Creation of Negotiable Instruments – No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
TYPES OF NEGOTIABLE INSTRUMENTS
Draft: An unconditional order (including a check) by which
the party creating the draft (the drawer) orders another party
(the drawee), typically a bank, to pay money to a third party
(the payee).
bound itself is an acceptor.
Trade Acceptance: A draft drawn by a seller of goods
ordering the buyer to pay a specified sum of money to
the seller, usually at a specified future time. The buyer
Certificate of Deposit: A note by which a bank or similar
financial institution acknowledges receiving money from a
party and promises to repay the money, plus interest, to the
party or the party’s designee, on a certain date.
Ch. 12: The Function and Creation of Negotiable Instruments – No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
NEGOTIABILITY: WRITING & SIGNATURE
Written Form: A negotiable instrument must be written on
material that
(1) lends itself to permanence and
(2) is portable.
Signature: Any symbol
Who must sign?
(a) The maker, or her authorized agent, must sign the
instrument if it is a note or a certificate of deposit.
(b) The drawer, or his authorized agent, must sign the
instrument if it is a draft or a check.
Ch. 12: The Function and Creation of Negotiable Instruments – No. 4
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
NEGOTIABILITY: UNCONDITIONALITY
Promise or Order: A negotiable instrument must contain an
express order or promise to pay.
Except in the case of a certificate of deposit, merely
acknowledging a debt is not sufficient without evidence
(2) that the promise or order is subject to or governed by
another writing, or
(3) that the rights or obligations with respect to the promise
or order are stated in another writing.
Ch. 12: The Function and Creation of Negotiable Instruments – No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
NEGOTIABILITY: FIXED AMOUNT
Fixed Amount: An amount (including interest, if any)
ascertainable from the face of the instrument – with or
without reference to some outside source of information
Ch. 12: The Function and Creation of Negotiable Instruments – No. 6
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
NEGOTIABILITY: TIME FOR PAYMENT
accept the instrument.
If no time for payment is specified, a negotiable
instrument is presumed to be payable on demand.
other holder of a time instrument to demand payment
of the entire amount or balance due, with interest, if a
certain event occurs, such as failure to pay an
installment when due.
Ch. 12: The Function and Creation of Negotiable Instruments – No. 7
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
NEGOTIABILITY: PAYMENT TO WHOM
Order Instrument: A negotiable instrument that is payable
“to the order of” an identified payee (e.g., “Pay to the Order
of Joan Ebert”) or “to” an identified person “or order” (e.g.,
Any instrument payable to the following is a bearer
instrument:
(1) “Payable to the order of bearer”;
(2) “Payable to Jane Smith or bearer”;
FACTORS NOT AFFECTING NEGOTIABILITY
The fact that an instrument is undated does not affect its
negotiability, unless the date of the instrument is necessary to
even conflicting terms need not affect negotiability.
Handwritten terms take precedence over typewritten
terms, and typewritten terms take precedence over
printed terms.
interest rate on the instrument.
Notations that an instrument is “nonnegotiable” or “not
governed by Article 3” do not affect the negotiability of a
check but may make other instruments nonnegotiable.