David P.

Twomey - Boston College

Marianne M. Jennings - Arizona State University
Twomey-Jennings,
Andersons
Business
LawMay
andnot
the
Environment,
21st Ed. in whole or in part, except for use as permitted in a license distributed with a
2011 Cengage Learning.
All Rights
Reserved.
beLegal
copied,
scanned, or duplicated,
certain
product
or service
or otherwise
onnot
a be
password-protected
website
for classroom
use.for use as
2011 Cengage
Learning.
All Rights
Reserved. May
copied, scanned, or duplicated,
in whole
or in part, except
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Chapter 28
Kinds of Instruments, Parties,
and Negotiability

Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Types Of Negotiable Instruments And

Parties
1. Definition
2. Kinds Of Instruments
3. Parties To Instruments

Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Types of Negotiable Instruments

and Parties
1. Definition. Unconditional promise or order to
pay a fixed amount of money.

[LO.1]

2. Kinds of Instruments.
(A) Promissory Notes.
(B) Certificates of Deposit.
(C) Drafts.
(D)Checks.

Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Types of Negotiable Instruments

and Parties
3. Parties to Instruments. Party may be a

natural person or to an entity, such as a

corporation, an unincorporated enterprise, a
government, or a bank account. [LO.2]

(A) Maker: original party on a note;

promises to pay amount specified.
(B) Drawer: party who creates a draft.
(C) Drawee: party to whom a draft is
addressed (i.e. bank or credit union).
(D) Payee: party named on the face of the
instrument to receive payment.

Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Types of Negotiable Instruments

and Parties
3. Parties to Instruments. (Continued).
(E) Acceptor: drawee accepts liability
to pay.
(F) Secondary Obligor
(Accommodation Party): one whose
name is added to an instrument to
strengthen its collectability.

Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Types of Instruments
and Parties
Maker (Borrower)

Notes

Payee
Certificates
of
Deposit

Maker (Bank)
Payee
Drawer (Seller)
Drawee (Buyer)

Draft

Payee (Seller or Sellers Bank)

Drawer (Account Holder)
Check
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Drawee (Bank)
Payee

B. Negotiability

4. Definition Of Negotiability
5. Requirements Of Negotiability
6. Factors Not Affecting Negotiability
7. Ambiguous Language
8. Statute Of Limitations

Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Negotiability
4. Definition of Negotiability.
5. Requirements of Negotiability. [LO.3]
(A) A record (writing).
(B) Authenticated (signed) by the maker
or the drawer.
Agent,
Absence of Representative Capacity or
Identification of Principal.

Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Negotiability
5. Requirements for Negotiability (continued):
(C) Promise or Order to Pay.
(D) Unconditional Promise or Order.
Major Products case: Post-It note is separate
from instrument.

(E) Payment in money.

(F) Sum certain.

Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10

B. Negotiability
5. Requirements for Negotiability. (continued).
(G) Time of Payment.
(1) Demand.
(2) Definite Time.
Smith v. Vaughn: When you can is not
payable on demand.

(1) Missing Date.

(2) Effect of Date on Demand Instrument.

Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

11

B. Negotiability
5. Requirements for Negotiability (continued).
(H) Words of Negotiability: Payable to
Order or Bearer. If only to John Jones
it is not negotiable.
Sirius v. Erickson case: note was
nonnegotiable and governed by contract law
because it was made payable to only one
person and did not contain order language.

(1) Order Paper.

(2) Bearer Paper.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12

Negotiable vs. Nonnegotiable Paper

Pay to the bearer
Pay to the order of John Jones or bearer
Pay to John Jones or bearer

Negotiable

Pay to cash
Pay to the order of cash
Pay to the order of Thomasina Jones
Pay to John Jones, bearer

Negotiable

Pay to Thomasina Jones (check)

Pay to Thomasina Jones (note)
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

NOT
NEGOTIABLE
13

B. Negotiability
6. Factors not Affecting Negotiability. Omitting
date of execution or post-dating has no
effect. Nor does provision relating to
collateral.

7. Ambiguous Language.

Words outrank figures.

Handwriting supercedes typed or printed
terms.
Typewritten supercedes pre-printed
terms.

Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

14

B. Negotiability
8. Statute of Limitations

The UCC sets a three-year statute of

limitations on most actions involving
negotiable instruments.
The statute is six years for suits on
certificates of deposit and accepted
drafts.

Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

15