Lesson 15: Types of Negotiable Instruments

This lesson is part of Article 3: Negotiable Instruments from the Uniform Commercial Code (UCC). It covers the fundamental types of negotiable instruments recognized by the UCC, providing insights that are crucial for law students and lawyers.

Note: For more foundational information, consider reviewing Overview of the Uniform Commercial Code and History and Purpose of the UCC.

Categories of Negotiable Instruments

Negotiable instruments are categorized primarily into two types:

  • Drafts
  • Notes

Drafts

A draft involves three parties: the drawer, the drawee, and the payee.

mermaid graph TB A["Drawer"] B["Drawee"] C["Payee"] A -- "Orders payment to" --> B B -- "Pays" --> C

Examples of drafts include:

Notes

A note involves two parties: the maker and the payee.

mermaid graph TD A["Maker"] B["Payee"] A -- "Promises to pay" --> B

Examples of notes include:

Essential Elements of Negotiable Instruments

For an instrument to be negotiable, it must satisfy the following requirements:

  • Be in writing
  • Be signed by the maker or drawer
  • Contain an unconditional promise or order to pay a fixed amount of money
  • Be payable on demand or at a definite time
  • Be payable to order or to bearer
\[ \text{Negotiable Instrument} = \text{Written} + \text{Signed} + \text{Unconditional Promise or Order} + \text{Fixed Amount} + \text{Payable on Demand or Definite Time} + \text{Payable to Order or Bearer} \]

Sample Promissory Note (HTML)


    Promissory Note
    Date: [Insert Date]
    For value received, the undersigned, [Maker's Name], promises to pay to the order of [Payee's Name] the sum of $[Amount], with interest at the rate of [Interest Rate]% per annum.
    Payment shall be made on or before [Due Date].
    Signed: ____________________

Real-World Applications

Negotiable instruments play a critical role in commercial transactions, providing a reliable method for payment and credit extension.

For further reading on related topics, explore:

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