1. Section 23.2

2. What You’ll Learn
How to state the requirements of negotiability (p. 511)
How to describe the importance of dates on negotiable instruments (pp )

3. What You’ll Learn
How to identify the controlling words on negotiable instruments (p. 515)

4. Why It’s Important
Recognizing the negotiability and controlling words of instruments will help you make meaningful business and financial decisions.

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

6. 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

7. Pre-Learning Question
What makes an instrument negotiable?

8. 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.

9. 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.

10. Requirements of Negotiability
23.2
Requirements of Negotiability

11. 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.

12. 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.

13. Signature of Maker or Drawer
The maker must sign a note, and the drawer must sign a draft.

14. 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.

15. 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.

16. 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.

17. Fixed Sum of Money
A negotiable instrument must be payable in a fixed sum of money.

18. 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.

19. 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.

20. 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.”

21. 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.

22. 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?

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

24. 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.

25. 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.

26. Reviewing What You Learned
Section Assessment
Reviewing What You Learned
What are the six requirements of negotiability?

27. Reviewing What You Learned Answer
Section 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,

28. Reviewing What You Learned Answer
Section 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.

29. Reviewing What You Learned
Section Assessment
Reviewing What You Learned
Explain why it is important to have a date on a negotiable instrument.

30. Reviewing What You Learned Answer
Section 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.

31. Reviewing What You Learned
Section Assessment
Reviewing What You Learned
When do words control figures, and what is the exception?

32. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
Words always control figures except when the words are unclear.

33. Critical Thinking Activity Negotiable Instruments
Section 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.

34. Critical Thinking Activity Answer Negotiable Instruments
Section 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.

35. Legal Skills in Action Requirements of Negotiability
Section 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.

36. Legal Skills in Action Requirements of Negotiability
Section 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.

37. Legal Skills in Action Answer
Section Assessment
Legal Skills in Action Answer
Requirements of Negotiability
Skits, rap songs, poems, or silly stories will vary.

38. End of Section 23.2