1. Chapter 31: Kinds of Instruments, Parties and Negotiability

2. Definitions
An instrument or piece of commercial paper is a transferable, written, signed promise or order to pay a specified sum of money.
An instrument is negotiable when it contains the terms required by the UCC.
The term party may refer to a natural person or to an entity, such as a corporation, an unincorporated enterprise, a government, or a bank account.

3. Categories of Negotiable Instruments
(1) Promissory Notes
A certificate of deposit is classified as a promissory note.
(2) Drafts (which includes checks)
In addition to ordinary checks, there are also cashier’s checks and teller’s checks.
A bank money order is a check even though it bears the words money order.

4. Promissory Note PAYEE 19-- pay to ollars
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Promissory Note
$ 5, Chicago, Illinois March 1 ,20-- Six months after date I promise to pay to the order of Carlos Sandoval Five-Thousand and no/100 dollars Payable at Chicago National Bank with interest at 8.5% No. 43 Due Sept. 1, Mary Huntington Smyth
PAYEE
MAKER
19--
pay to
ollars
Smyth
Pay to the order of
Michael Ho
Carlos Sandoval
Payment guaranteed
INDORSEE
INDORSER (1st)
INDORSER (2nd)/
GUARANTOR 2

5. Promissory Note
March 31, 1998
Six months after date debtor undersigned hereby promise to pay to the order of Galactic Games, Inc, three thousand six hundred dollars with interest at the rate of 10.9%. This note is secured by the video arcade games purchased with its funds.
In the event of default, all sums due hereunder may be collected. Debtor agrees to pay all costs of collection including, but not limited to, attorney fees, costs of repossession, and costs of litigation.
John R. Haldehand
Video Arcade Inc.

6. Draft March 18, 1998 TO: Oriental Traders 1100 W. Clarendon
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Draft
March 18, 1998
TO: Oriental Traders
1100 W. Clarendon
Phoenix, AZ
Pay to the order of Silly Putty, Inc.
the sum of One thousand
and no/100 dollars
Accepted by:
_______________
DATE:
Joe Guilden
Silly Putty, Inc. 3

7. Parties to an Instrument
Maker: original party on a note; promises to pay amount specified.
Drawer: party who creates a draft.
Drawee: party to whom a draft is addressed (i.e. bank or credit union).
Payee: party named on the face of the instrument to receive payment.
Drawee becomes the acceptor when it accepts responsibility to pay.
Accomodation party: one whose name is added to an instrument to strengthen its collectability.
Guarantor: promises to pay instrument under certain circumstances.

8. Types of Instruments and Parties
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Types of Instruments and Parties
Notes
Maker (Borrower)
Payee
Certificates of
Deposit
Payee
Maker (Bank)
Draft
Payee (Seller or Seller’s Bank)
Drawee (Buyer)
Drawer (Seller)
Check
Payee
Drawee (Bank)
Drawer (Account Holder) 1

9. Negotiability Requirements
The instrument must:
be in writing,
be signed by the maker or the drawer, and
contain a promise or order:
of an unconditional character
to pay in money
a sum certain
on demand or at a definite time
to order or bearer.
A check may be negotiable without being payable to order or bearer.
If an instrument is not negotiable, it is governed by contract law.

10. Bearer vs. Order Paper BEARER ORDER NOT NEGOTIABLE “Pay to the bearer”
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Bearer vs. Order Paper
“Pay to the bearer”
“Pay to the order of John Jones or bearer”
“Pay to John Jones or bearer”
“Pay to cash”
“Pay to the order of cash”
BEARER
“Pay to the order of Thomasina Jones”
“Pay to John Jones, bearer”
“Pay to Thomasina Jones” (check)
ORDER
NOT NEGOTIABLE
“Pay to Thomasina Jones” (note) 4

11. Other Rules Ambiguous Language: Statute of Limitations
Words outrank figures
Handwriting supercedes typed or printed terms
Typewritten supercedes pre-printed terms.
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.