A Quick Guide to Bearer Instruments

A Quick Guide to Bearer Instruments

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.




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