Know the Signature Requirements for Negotiable Instruments

Under negotiable instruments law, a negotiable instrument with a signature affixed to it from each involved party becomes active. At that point it may be turned in to the drawee, the bank issuing the check, in exchange for cash. The person cashing the check need not be the same person as the one who signed the check.

This is because the authentication provided by the signature of the payee is enough to validate the check under negotiable instruments law (assuming that the signature of the drawer is also on the check). In this case, the signature of the payee would be referred to as payable to the bearer.

A signature of another individual can be affixed to a negotiable instrument to become a party to that instrument. A negotiable instrument such as a check can be transferred over to a new party with the appropriate signature or signatures; this is referred to as a special endorsement.

Special endorsements involve both the signature of the payee and a short statement indicating the new party to whom the negotiable instrument is to be paid. The special endorsement will also require the signature of the new party to be completely payable, but once that additional signature is affixed to the negotiable instrument it acts as a blank endorsement again allowing for the check to be payable to the bearer under negotiable instruments law.

The final way in which signatures can affect the negotiable instrument is if they are made with a small statement that defines the manner in which the negotiable instrument can be used. For example, writing “for deposit only” on the back of a check along with a signature ensures that the check can only be used for deposits and cannot simply be cashed.

This is a restrictive endorsement under negotiable instruments law and helps to prevent the misuse of lost checks. Unfortunately, however, such a restrictive endorsement would not prevent an individual finding an endorsed check from depositing the check in his or her own account.

Regardless of exactly what kind of endorsement one may be planning on using with a given negotiable instrument, it is a good idea not to affix a signature to that negotiable instrument until the moment of use, as affixing a signature at any earlier time leaves open the potential for the instrument to be lost and misused by another party.

Know the Time Requirements for Negotiable Instruments!

Sometimes negotiable instruments actually only become payable after certain acts or events have occurred. However, this is not a specific time; it still fits the definition of specific time under commercial business law. As long as there is one specific, clearly defined point at which the negotiable instrument becomes payable, it can fall under the purview of negotiable instruments. If a given monetary contract does not have such a specifically defined time for the money to be made payable, then it cannot be a negotiable instrument.

Know the Writing Form of Negotiable Instruments

The writing form of negotiable instruments is fairly well defined under business law, specifically the Uniform Commercial Code. There are specific requirements that must be present for any given financial contract to be considered a negotiable instrument. Some negotiable instruments are uniformly considered and understood to be negotiable instruments, meaning that despite these elements' direct absence from the financial object, the terms of negotiable instruments still apply. If you need legal advice and assistance, contact business lawyers.

The first key element that must be included in any negotiable instruments writing is that the payment ordered in the writing must be made unconditional. In terms of writing form, then, this means that negotiable instruments cannot resemble some fuller, more specific forms of contracts under business law. For instance, if a given contract provided for the fact that payment might not be rendered if the products exchanged were found to be defective, while that might be perfectly legal under business law, such a contract would not fall under the domain of negotiable instruments.

In order for a writing to be considered a negotiable instrument, it must not have any conditions that might negate the requirement of payment. This is different, however, from having conditions that must be met prior to payment being made; in those cases, payment will still be made, but only when conditions are met.

The next key element of negotiable instruments in America is that they must involve a specific amount of money in the exchange. This does not necessarily mean that the negotiable instrument must have an exact amount of money filled in from the initial creation of the writing. It is possible that instead, the amount of money that must be paid is determined by a formula.

As an example, transactions involving interest can still be written into the form of a negotiable instrument because at any given point the exact sum of money being exchanged under the negotiable instrument's terms will be defined. But if the writing form does not contain some clearly defined determination for the amount of money exchanged, then it does not fall into the purview of negotiable instruments.

The third key element of the writing form for negotiable instruments is that the payment described by negotiable instruments must be payable either on demand or at a specified time. This means that loans written in the form of negotiable instruments must actually have a defined maturation date at which point the loan must be fully paid off. Either way, the loan cannot be indefinitely extended for the writing form to be considered a negotiable instrument under business law.

Fourth, negotiable instruments cannot involve any sort of provision that would require the promissory party or the ordering party to supply any other type of payment aside from the money mentioned in the writing. In other words, negotiable instruments cannot require the paying individual to offer up either a service or physical object as payment; they must instead provide for monetary payment only under business law.

The final key characteristic of negotiable instruments is that they must be payable at the time at which they are written. This means that the writing form for negotiable instruments requires that there be a clearly defined payee in any such transaction and the negotiable instrument must be payable to that party

A Quick Guide to Bearer Instruments

A bearer instrument is an instrument payable to the bearer. Bearer instruments are, in general, more dangerous than order instruments, which are those negotiable instruments which are made out as payable to a specific individual or party. If one loses a bearer instrument, then someone else who finds that instrument would be able to use it regardless of the fact that he or she would not have been the intended party.

Order instruments can, in effect, become bearer instruments if they are endorsed without further specification. An endorsement on an order instrument would make it payable to the bearer of the instrument who could then take it to the drawee to cash it in without needing to be exactly the person mentioned on the instrument. This further demonstrates the possible danger of bearer instruments.

Sometimes, however, bearer instruments are necessary, depending on the situation. There may be times when a person needs to make a payment, but does not know exactly to whom the payment is being made. In such a case, a bearer instrument would be appropriate.

Thus, bearer instruments exist primarily to allow for a greater flexibility of payment options, though any would-be users of bearer instruments should understand the risks involved.

Defining the Value of Negotiable Instruments

The primary permutation allowed in terms of adjusting the value of negotiable instruments comes from the fact that negotiable instruments can actually have interest attached to them. This interest is not considered to make the negotiable instrument's value variable. Not all negotiable instruments need have interest, but loans, which can be represented as negotiable instruments, often do have interest involved in some fashion.

The reason that the interest does not invalidate the contract as a negotiable instrument is that the original value of negotiable instruments with interest is still set within the terms of the negotiable instruments. Furthermore, the formula for determining the interest rate will be similarly set, and therefore, at any given point in time any party should be able to quickly and easily determine the amount of money for which the negotiable instruments are valued under business law.

The fact that negotiable instruments require a definition of the amount of money to be exchanged is fundamental to the role of negotiable instruments as being methods for exchanging money enforced and protected by business law. If the negotiable instruments were not required by business law to have a set amount of money to them, then they would not be definite or concrete enough to successfully enforce.

The origins of most modern day forms of negotiable instruments likely play another important role in explaining why negotiable instruments must have established monetary amounts under business law. Negotiable instruments in general began as a means of keeping track of debt.

In order to provide some semblance of fairness, then, negotiable instruments would have to involve set sums of money with set interest rates; otherwise, the debts could be easily exaggerated when it came time to collect.

Negotiable instruments today still cover some forms of loan, but many of the uses are much more focused on orders to pay instead of promises to pay like debts or loans. Nonetheless, the importance of having a set amount of money to be exchanged remains, as enforced by business law. If you need legal advice and assistance, contact business lawyers.

Understanding Pay to Order or Bearer Negotiable Instruments

The obvious danger of a pay to bearer negotiable instrument is that the bearer will not be the intended payee of the negotiable instrument.

A pay to bearer negotiable instrument might take such a form because the negotiable instrument specifically says so, or because the negotiable instrument does not feature any instructions as to whom the payee should be, or even because the negotiable instrument says that it is payable to cash. Any of these circumstances would define a negotiable instrument as a pay to bearer instrument.

Such pay to bearer instruments likely facilitate a greater ease of payment, but they also are much more likely to be misused or lost, as simply losing the physical documentation of the negotiable instrument would be enough to lose the payee all the money of the negotiable instrument.

Pay to order, on the other hand, is made out specifically to a clear person or party. A pay to order negotiable instrument is very much unlike a pay to bearer negotiable instrument in that a pay to order instrument is non-functional until endorsed. Because a pay to order instrument can only be paid to the person cited on the instrument itself, it must be officially endorsed by that person in order to become payable.

A pay to order check or other instrument which is endorsed can, however, functionally become a pay to bearer instrument. Once the endorsement of the party mentioned on the instrument is added to the instrument, if no other instructions were added with the endorsement then it can be used by whomsoever comes to hold that instrument. This is why it is often dangerous to endorse a check immediately and why it makes a great deal more sense to attempt to endorse the check only when actually using it.

Other options include mentioning instructions on the check, such that even if endorsed and lost, the check will at least be limited in its use. Pay to order checks can also remain pay to order if they are endorsed over to another party, with that party then becoming the new order to whom the check will be paid. The newly endorsed party will also have to add his or her endorsement to the check in order to make it active again.