Types of Negotiable Instruments Flashcards Preview

Commercial Paper > Types of Negotiable Instruments > Flashcards

Flashcards in Types of Negotiable Instruments Deck (19)
Loading flashcards...

What are the two types of negotiable instruments?

1) The promissory note;
2) The draft


What's an example of a promissory note?

"I promise to pay to the order of C. Diaz
/s/ J. Timberlake


What does a promissory note contain?

What is the promisor called?

The promisee?

An affirmative promise to pay - more than a mere IOU

The maker (the person who is promising to pay)

The payee


What is a draft?

A check (signed, dated)


What does a draft contain?

The party who gives the order to pay is called...

The party who is ordered to pay is called...

The party who receives payment is called...

An order to command payment (typically, by a bank)

2) The drawer

3) The drawee (the bank, generally)

4) The payee (the beneficiary of the order)


What do we call the person who signs either a promissory note or draft (check)?

The indorser


What is required to qualify as a negotiable instrument?


2) Payable to ORDER or BEARER
3) SIGNED by the maker/drawer (not someone else)
4) Reciting a SUM certain
5) Containing an UNCONDITIONAL promise (for promissory notes) or order (for drafts), and no additional promises or orders
6) PAYABLE on demand or at a definite time; and
7) PAYABLE in currency;


Must the signature take a specific form to constitute proper authentication?

Must the authentication be made by the drawer/maker?

No. Any authentication, found anywhere on the instrument, qualifies. Includes: initials/some defining mark/a nickname found in the margins.



Conditional promises are called what?

When an instrument states that it is "governed by" or "subject to" the terms of some other agreement it is...

Contracts. These are NOT negotiable instruments.

Non-negotiable. (Rationale: the holder of a negotiable instrument should not be required to examine another writing to determine rights with respect to payment).


Does merely referring to another writing, by itself, make the promise/order conditional?

What if the reference is to a statement of rights with respect to collateral, prepayment, or acceleration?


No. References to outside source about a tangential matter are ok.


Will an instrument be deemed conditional because it limits payment to a particular source or fund.

No. (E.G. "I promise to pay from the funds I realize from my next wheat crop.")


A "sum certain" means...

Does the following pass muster?

"$75K principal amount plus interest"

Are variable/indexed interest rates OK?

Some specifically ascertainable sum that can be calculated EITHER from what the writing says or by reference to an outside source.

Yes, even though the writing doesn't state how much interest. The judgment rate (set by state statute) will be applied.



To be negotiable, the sum certain must be payable in currency. What does currency mean?

Money (domestic or foreign)

Excludes goods


May a negotiable writing contain two or more promises?

No. Two is a crowd!


When is an instrument payable on demand?

What happens if the instrument is silent as to time of payment?

When it specifically states that it is payable "at sight" or "on demand" or "on presentation"

it is still negotiable and payable on demand


When is an instrument payable on its terms?

Are acceleration clauses permissible?

Is the following instrument negotiable?

"Payable when my first grandkid is born"

1. If, by its terms, it is payable "on or before" OR a fixed period after a certain date.

EX: "On or before Feb. 1, 2011
EX: "90 days after Feb. 1, 2011

2. Yes (EX: "On Feb. 1, but immediately payable if prior to that time the Redskins win the Super Bowl).

3. No.


What must a writing say to qualify as "payable to order"?

The word "order" or the word "assigns" in connection with the payee's name.

EX: Pay to the order of A. Garcia
EX: Pay to the assigns of A. Garcia.
EX: Pay to A. Garcia or his order.


If the instrument is not payable to order, then to be negotiable it must be payable to bearer.

What does it mean to be payable to bearer?

What satisfies this standard (examples)?

1. Payable to anyone who has the instrument.


Pay to bearer.

Pay to the order of bearer.

Pay to A. Garcia or bearer.

Pay to cash

Pay to the order of cash.


If the writing states, "Pay to A. Garcia," is it negotiable?


If not - just a contract (no "order," "bearer," or "assigns")