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CHAPTER 21
ESSENTIALS OF NEGOTIABILITY
Answers to Learning Objectives
1. The seven requirements for negotiability include: a signed writing, an order or promise to pay, an
unconditional order or promise, a sum certain in money, payable on demand or at a definite time,
payable to order or bearer, and the payee and drawee designated with reasonable certainty.
Lesson Outline
1. There are seven definite requirements with which an instrument must comply in order to be
negotiable. A negotiable instrument must:
a. Be in writing and signed by the party executing it.
b. Contain either an order or promise to pay.
2. A negotiable instrument must be written, but the writing need not be in any particular form.
3. A draft, such as a trade acceptance or a check, must contain an order to pay. A promissory note
must contain a promise to pay.
4. The order or the promise to pay must be absolute and unconditional.
5. The instrument must call for the payment of a fixed amount of money. It need not be American
money, but it must be some national medium of exchange.
6. The instrument meets the test of negotiability as to time if it is payable on demand (as in a demand
note) or at sight (as in a sight draft), or when no time is specified (as in a check).
Chapter 21 Essentials of Negotiability
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12. Although it is advisable for a negotiable instrument to stipulate the place where it is drawn and
where it is payable, neither stipulation is essential for its negotiability.
Comments on Cases
(p. 249) The court pointed out that the note provided for multiple advances and the firm was entitled to
additional credit to the maximum amount of the note once payments were applied to the
outstanding balance. Since the note was for $50,000 and the firm had only received $13,000, it
was not for a fixed amount of money. Diversified Financial Systems, Inc. v. Hill, Heard,
O’Neal, Gilstrap & Goetz, P.C., 99 S.W.3d 349 (Tex. App.)
(p. 252) The court stated that although the check was postdated, it was still a negotiable instrument and
the teller had made a mistake in failing to deposit it. Bennett v. Broderick, 858 N.E.2d 1044
(Ind. App.)
Answers to Questions
(Page 253)
1. The law does not require that a writing be in any particular form in order to be negotiable. It may
be written with pen and ink or with pencil; it may be typed or printed; or it may be partly printed
and partly typed or handwritten.
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6. An instrument need not be payable in American money in order to be negotiable; however, it must
be payable in some national medium of exchange that is legal tender at the place payment is to be
made.
7. [Answers will vary.] Provisions in an instrument that do not destroy negotiability even though they
would change the amount to be paid include a provision for the payment of interest, exchange
charges, cost of collection, 10 percent attorney’s fee if place in the hands of an attorney for
collection, and installment payments.
Answers to Case Problems
(Page 253)
1. No. The court held that because Lois did not sign the note and no agent of hers signed it on her
behalf, she had no liability on it. Arnold v. Palmer, 686 S.E.2d 725 (W.V.)
4. No. The court stated that the check was of current date when it was delivered and immediately
negotiable. It did not need to have any date to be negotiable. State v. Wallace, 138 P.3d 599 (Utah
App.)
5. No. The court pointed out that an instrument was payable on demand if it stated that it was, or if no
time for repayment was specified. Since the instrument in this case stated “when you can” was
when payment was due, this conditional term of repayment destroyed negotiability. Smith v.
Vaughn, 882 N.E.2d 941 (Ohio App.)
6. No. The signature and misspelling of Villafuerte’s names indicated he had not cashed the check.