Types of Negotiable Instruments

Question 1

Types of negotiable instruments

Answer 1

Promissory Note

Draft (typically a check)

Question 2

To qualify as a negotiable instrument, must:

Answer 2

W-Writing
O- Payable to order or bearer
S- Signed by maker or drawer
S- there is a Sum Certain
U- Unconditional promise & no additional promises
P- Payable on demand or at a definite time
P- Payable in currency

Question 3

Promissory Note

Answer 3

Contains affirmation to pay, and not just a mere IOU

Two parties:

• Promisor is called the maker
• Promisee is called the payee

Question 4

The draft

Answer 4

Contains an order or command

Three parties:

• Drawer gives the order
• Drawee is ordered to do the paying
• Payee is the beneficiary of the order

Question 5

Indorser

Answer 5

Signs on the back of the promissory note or check

Question 6

Authentication

Answer 6

not a formal standard, could be initials some defining mark, or a nickname found in the margins or anywhere else on the paper.

Question 7

Unconditional

Answer 7

Mere reference to other writings OK

Not unconditional:

• express condition
• “governed by” or “subject to”
• limiting payment to a particular source

Question 8

Sum certain

Answer 8

Must be able to calculate how much is to paid. either from what the writing says or reference to outside source.

-“plus interest” OK because even if rate is not stated it will be judgment rate determined by court.

Question 9

Acceleration clauses and negotiability

Answer 9

Do not destroy negotiability

Question 10

Payable to order or to bearer

Answer 10

Order: Must use the word “order” or “assigns” in connection with the payee’s name

Bearer: must include “bearer” or use term of art “cash” or “order of cash”