When do we have a NEGOTIABLE INSTRUMENT as opposed to a mere contract?

Question 1

What is a negotiable instrument?

Answer 1

A writing calling for the payment of money

Question 2

What are the two types of Negotiable Instruments?

Answer 2

(1) The Promissory Note

(2) The Draft

Question 3

Promissory Note

• what is it?
• what do we call the promisor?
• what do we call the promisee?

Answer 3

• an affirmative promise to pay [Ex- I promise to pay to the order of Cameron Diaz fifty thousand dollars, signed Justin Timberlake]
• promisor (JT) = maker
• promisee (cameron) = payee

Question 4

Draft

• what is it?
• who gives it?
• who pays it?
• who is the beneficiary?

Answer 4

• an order or command [Ex- a check! says “pay to the order of ____”]
• the DRAWER gives the order
• the DRAWEE is ordered to do the paying (usually the bank)
• the PAYEE is the beneficiary of the order

Question 5

Indorser

Answer 5

the person that signs on the back of the promissory note or check (draft)

Question 6

How to tell whether the writing is a negotiable instrument (governed by Article 3 of the UCC) OR just a contract (governed by K law):

HINT: WOSSUPP

Answer 6

• WRITING
• payable to ORDER OR to bearer
• SIGNED by the maker (promissory note) or the drawer (draft)
• reciting a certain SUM
• containing an UNCONDITIONAL promise or order, and no additional promises or orders
• PAYABLE on demand or at a definite time; and
• PAYABLE in currency

Question 7

Signing requirement

Answer 7

Signed by

• maker if its a promissory note
• drawer if its is a draft

ANY authentication found anywhere on the instrument qualifies!! [authentication could be initials, some defining mark, or a nickname, found in the margins or anywhere else on the paper. This is not a formal standard]

Question 8

If the promise or order is conditional

Answer 8

YOU HAVE A CONTRACT, NOT A NEGOTIABLE INSTRUMENT

EXAMPLES OF CONDITIONS = CONTRACT
- “I promise to pay if the Mets win
the World Series.”
- If the instrument endeavors to be “GOVERNED BY” or “SUBJECT TO” the terms of some other agreement or states that rights or obligations with respect to the promise or order are contained in another writing, it is non-negotiable.
- merely referring to another writing does not of itself make the promise or order conditional. Outside references w/ respect to tangential matters are OK.
- The instrument will be deemed conditional if it limits payment to a particular source or fund

Question 9

What does it mean when it is said that a negotiable instrument must recite a certain SUM?

Answer 9

• must state a sum certain or fixed amount, meaning a specifically ascertainable sum
• AKA you must be able to calculate how much is to be paid, either from what the writing says OR reference to an outside source.

ex- $75,000 + interest is okay b/c when the instrument states that it is payable w/ interest, but doesnt state the interest rate, a statutory rate will be applied.

Question 10

What does it mean when it is said that a negotiable instrument must be payable in currency?

Answer 10

MONEY (including foreign currency)

NOT GOODS

Question 11

“Instrument must be payable on demand or at a definite time”

Answer 11

ON DEMAND:
- an instrument is payable on demand when it specifically states that is is payable “on demand” or “at sight” or “on presentation”

IF THE INSTRUMENT IS SILENT AS TO THE TIME OF PAYMENT, IT IS STILL NEGOTIABLE AND PAYABLE ON DEMAND.

DEFINITE TIME:

• an instrument is payable @ a definite time if, by its terms, it is payable on or before a stated date OR at a fixed period after a stated date.
• EX = on or before 2/1/12; 90 days after 2/1/12;
• Acceleration clauses are permissible and do not destroy negotiability
• EX = payable on 2/1/10, but this becomes immediately due and payable if prior to that the Giants win the big game.
• BUT “payable when my first grandchild is born” is non-negotiable b/c this future even is not linked to a date certain

Question 12

Payable to Order

Answer 12

To be negotiable, the note or draft must use the word “ORDER” or the word “ASSIGNS” IN CONNECTION W/ THE PAYEE’S NAME

• pay to the order of andy garcia
• pay to the assigns of andy garcia
• pay to andy garcia or his order

Question 13

Payable to Bearer

Answer 13

If the instrument is not payable to order, then to be negotiable it must be payable to bearer, MEANING THAT IT IS PAYABLE TO ANYONE WHO HAS IT

• Pay to bearer
• Pay to the order of bearer
• pay to andy garcia or bearer
• pay to cash

Question 14

Is it okay if the writing states: “Pay to Andy Garcia”

Answer 14

NOOOOO!!!

no negotiable –> just a contract!

does not contain the magic words “order” “assigns” “bearer” or “to cash”