Requirements of Negotiability Section 23.2. Understanding Business and Personal Law Requirements of Negotiability Section 23.2 Negotiable Instruments

Requirements of Negotiability Requirements of Negotiability Section 23.2Section 23.2

Understanding Business and Personal Law


Negotiable Instruments

What You’ll Learn

How to state the requirements of How to state the requirements of negotiability (p. 511)negotiability (p. 511)

How to describe the importance of dates How to describe the importance of dates on negotiable instruments (pp. 513-514)on negotiable instruments (pp. 513-514)




What You’ll Learn

How to identify the controlling words on How to identify the controlling words on negotiable instruments (p. 515)negotiable instruments (p. 515)




Why It’s Important

Recognizing the negotiability and controlling Recognizing the negotiability and controlling words of instruments will help you make words of instruments will help you make meaningful business and financial decisions.meaningful business and financial decisions.




Legal Terms

demand paper (p. 514)demand paper (p. 514)definite-time paper (p. 514)definite-time paper (p. 514)words of negotiability (p. 514)words of negotiability (p. 514)




Drafting Instruments Written InstrumentSignature of Maker or DrawerUnconditional Promise or OrderFixed Sum of MoneyPayable on Demand or at a Definite TimePayable to Order or BearerDates and Controlling Words

Section OutlineSection Outline




Pre-Learning Question Pre-Learning Question

What makes an instrument negotiable?




Drafting Instruments Drafting Instruments

To be negotiable, an instrument must To be negotiable, an instrument must satisfy specific criteria. It mustsatisfy specific criteria. It must

Explain the elements of negotiable Explain the elements of negotiable instruments.instruments.Bear the signature of the maker or Bear the signature of the maker or drawer.drawer.




Drafting Instruments Drafting Instruments

Be an unconditional promise or Be an unconditional promise or order to pay.order to pay.Be made out for a fixed amount of Be made out for a fixed amount of money.money.Be payable on demand or at a Be payable on demand or at a definite time.definite time.Be payable to order or to bearer.Be payable to order or to bearer.




23.223.2

Requirements of NegotiabilityRequirements of Negotiability




Written Instrument Written Instrument

The promise, or order, to pay must be The promise, or order, to pay must be in writing. in writing.

It can be printed, typed, handwritten in It can be printed, typed, handwritten in pen or pencil, or expressed by using pen or pencil, or expressed by using any other tangible form of writing.any other tangible form of writing.




Written Instrument Written Instrument

However, writing a negotiable However, writing a negotiable instrument in pencil could lead to instrument in pencil could lead to forgery, and the person who drew the forgery, and the person who drew the instrument would be responsible for instrument would be responsible for any loss caused by the negligent any loss caused by the negligent drawing.drawing.




Signature of Maker or Drawer Signature of Maker or Drawer

The maker must sign a note, and the The maker must sign a note, and the drawer must sign a draft.drawer must sign a draft.




Signature of Maker or Drawer Signature of Maker or Drawer

A signature may be any mark, such as A signature may be any mark, such as one’s initials, that is placed on the one’s initials, that is placed on the instrument with the intention of serving instrument with the intention of serving as a signature.as a signature.




Unconditional Promise or Order Unconditional Promise or Order

The promise in the note, or the order The promise in the note, or the order in the draft, must be unconditional. in the draft, must be unconditional.

If either is qualified in any way, the If either is qualified in any way, the instrument is not negotiable.instrument is not negotiable.




Unconditional Promise or Order Unconditional Promise or Order

Statements requiring that certain Statements requiring that certain things be done or that specific events things be done or that specific events take place make the instrument a take place make the instrument a simple contract rather than a simple contract rather than a negotiable instrument.negotiable instrument.




Fixed Sum of Money Fixed Sum of Money

A negotiable instrument must be A negotiable instrument must be payable in a fixed sum of money.payable in a fixed sum of money.




Payable on Demand Payable on Demand or at a Definite Time or at a Definite Time

Negotiable instruments must be Negotiable instruments must be payable on demand or at a definite payable on demand or at a definite time. This requirement makes it time. This requirement makes it possible to determine when the debtor possible to determine when the debtor or promisor can be compelled to pay.or promisor can be compelled to pay.




An instrument is payable on demand An instrument is payable on demand when it so states, or when it is when it so states, or when it is payable “on sight” or “on payable “on sight” or “on presentation.” presentation.”

These instruments are called These instruments are called demand demand paperpaper..

Demand Paper Demand Paper




Definite-Time Paper Definite-Time Paper

An instrument is called An instrument is called definite-time definite-time paperpaper when it is payable on or before when it is payable on or before a stated date or if the instrument is a stated date or if the instrument is payable “one year after date” or “thirty payable “one year after date” or “thirty days after sight.”days after sight.”




Payable to Order or Bearer Payable to Order or Bearer

Negotiable instruments, except for Negotiable instruments, except for checks, must be payable to order or to checks, must be payable to order or to bearer. The words bearer. The words to the order ofto the order of and and to bearerto bearer are called are called words of words of negotiabilitynegotiability..




On her birthday, Janice received a note from her great-grandmother that read, “Upon her graduation from college, I will pay Janice a sum of not less than $10,000.” Why is this not a negotiable instrument?




ANSWERANSWER

No definite time, no words of negotiability, not unconditional, and no fixed sum of money.




Dates and Controlling Words Dates and Controlling Words

The omission of the date does not The omission of the date does not affect the negotiability of an affect the negotiability of an instrument. When the date is omitted, instrument. When the date is omitted, the date on which the instrument is the date on which the instrument is received is considered to be date of received is considered to be date of issue.issue.




Dates and Controlling Words Dates and Controlling Words

Handwritten terms control typed and Handwritten terms control typed and printed terms. printed terms. Typed terms control printed terms.Typed terms control printed terms.Words control figures, except when Words control figures, except when the words are unclear.the words are unclear.




Reviewing What You Learned

1. What are the six requirements of negotiability?

Section 23.2 Assessment





Must (1) be in writing, (2) have the signature of the maker or drawer, (3) be an unconditional promise or order to pay,


Answer





(4) be made out for a fixed amount of money, (5) be payable on demand or at a defined time, and (6) be payable to order or bearer.


Answer





2. Explain why it is important to have a date on a negotiable instrument.






A date is important if the instrument is a definite-time paper, and it is payable on or before a stated date. This makes it possible to determine when the debtor or promisor can be compelled to pay.


Answer





3. When do words control figures, and what is the exception?






Words always control figures except when the words are unclear.


Answer





Critical Thinking ActivityNegotiable Instruments Why do you think a person who writes a negotiable instrument in pencil would be responsible for any loss caused by negligence? Explain your answer.





Critical Thinking Activity AnswerNegotiable Instruments Answers will vary but could state that a person who uses a pencil to draw a negotiable instrument should recognize that using a pencil could easily lead to forgery.





Legal Skills in ActionRequirements of Negotiability You are a clerk for a negotiable instrument attorney. It is important that you remember the six requirements of negotiability.





Legal Skills in ActionRequirements of Negotiability In groups of four or five, write a skit, rap song, poem, or silly story that will help you remember the requirements. Present your creative work to the entire class.





Legal Skills in Action AnswerRequirements of Negotiability Skits, rap songs, poems, or silly stories will vary.

Requirements of Negotiability Requirements of Negotiability End of Section 23.2End of Section 23.2

Documents

Requirements of Negotiability Section 23.2. Understanding Business and Personal Law Requirements of Negotiability Section 23.2 Negotiable Instruments