Section 23.2
Requirements of Negotiability
Section 23.2 Requirements of Negotiability
What You’ll Learn
How to state the requirements of
negotiability (p. 511)
How to describe the importance of dates
on negotiable instruments (pp. 513-514)
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
What You’ll Learn
How to identify the controlling words on
negotiable instruments (p. 515)
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Why It’s Important
Recognizing the negotiability and controlling
words of instruments will help you make
meaningful business and financial decisions.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Legal Terms
demand paper (p. 514)
definite-time paper (p. 514)
words of negotiability (p. 514)
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section Outline
Drafting Instruments
Written Instrument
Signature of Maker or Drawer
Unconditional Promise or Order
Fixed Sum of Money
Payable on Demand or at a Definite Time
Payable to Order or Bearer
Dates and Controlling Words
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Pre-Learning Question
What makes an instrument
negotiable?
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Drafting Instruments
To be negotiable, an instrument must
satisfy specific criteria. It must
Explain the elements of negotiable
instruments.
Bear the signature of the maker or
drawer.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Drafting Instruments
Be an unconditional promise or
order to pay.
Be made out for a fixed amount of
money.
Be payable on demand or at a
definite time.
Be payable to order or to bearer.
Understanding Business and Personal Law
Negotiable Instruments
23.2 23.2 Requirements of Negotiability
Section
Requirements of Negotiability
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Written Instrument
The promise, or order, to pay must be
in writing.
It can be printed, typed, handwritten in
pen or pencil, or expressed by using
any other tangible form of writing.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Written Instrument
However, writing a negotiable
instrument in pencil could lead to
forgery, and the person who drew the
instrument would be responsible for
any loss caused by the negligent
drawing.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Signature of Maker or Drawer
The maker must sign a note, and the
drawer must sign a draft.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Signature of Maker or Drawer
A signature may be any mark, such as
one’s initials, that is placed on the
instrument with the intention of serving
as a signature.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Unconditional Promise or Order
The promise in the note, or the order
in the draft, must be unconditional.
If either is qualified in any way, the
instrument is not negotiable.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Unconditional Promise or Order
Statements requiring that certain
things be done or that specific events
take place make the instrument a
simple contract rather than a
negotiable instrument.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Fixed Sum of Money
A negotiable instrument must be
payable in a fixed sum of money.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Payable on Demand
or at a Definite Time
Negotiable instruments must be
payable on demand or at a definite
time. This requirement makes it
possible to determine when the debtor
or promisor can be compelled to pay.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Demand Paper
An instrument is payable on demand
when it so states, or when it is
payable “on sight” or “on
presentation.”
These instruments are called demand
paper.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Definite-Time Paper
An instrument is called definite-time
paper when it is payable on or before
a stated date or if the instrument is
payable “one year after date” or “thirty
days after sight.”
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Payable to Order or Bearer
Negotiable instruments, except for
checks, must be payable to order or to
bearer. The words to the order of and
to bearer are called words of
negotiability.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
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?
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
ANSWER
No definite time, no words of
negotiability, not unconditional, and no
fixed sum of money.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Dates and Controlling Words
The omission of the date does not
affect the negotiability of an
instrument. When the date is omitted,
the date on which the instrument is
received is considered to be date of
issue.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Dates and Controlling Words
Handwritten terms control typed and
printed terms.
Typed terms control printed terms.
Words control figures, except when
the words are unclear.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Reviewing What You Learned
1. What are the six requirements of
negotiability?
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Reviewing What You Learned
Answer
Must (1) be in writing, (2) have the
signature of the maker or drawer, (3) be an
unconditional promise or order to pay,
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Reviewing What You Learned
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.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Reviewing What You Learned
2. Explain why it is important to have a
date on a negotiable instrument.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Reviewing What You Learned
Answer
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.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Reviewing What You Learned
3. When do words control figures, and
what is the exception?
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Reviewing What You Learned
Answer
Words always control figures except when
the words are unclear.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Critical Thinking Activity
Negotiable 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.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Critical Thinking Activity Answer
Negotiable 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.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Legal Skills in Action
Requirements of Negotiability
You are a clerk for a negotiable instrument
attorney. It is important that you remember
the six requirements of negotiability.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Legal Skills in Action
Requirements 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.
Understanding Business and Personal Law
Negotiable Instruments
Section 23.2 Requirements of Negotiability
Section 23.2 Assessment
Legal Skills in Action Answer
Requirements of Negotiability
Skits, rap songs, poems, or silly stories will
vary.
Understanding Business and Personal Law
Negotiable Instruments
End of Section 23.2
Requirements of Negotiability