Our commercial litigation lawyer often explains the meaning of negotiable instruments to clients. “Negotiable instruments” generally refers to checks, money order or promissory notes that involve a promise to pay. The federal Uniform Commercial Code in Article 3 calls it a document transferred from one person to another or negotiated, which is then later exchanged for money. The UCC outlines the conditions of negotiable instruments in great detail.
People and businesses often use negotiable instruments in their transactions as part of the loan or financing process. A negotiable instrument is written and then signed and includes an unconditional promise with a fixed amount of money, which may or may not include interest. The instrument is made out to the bearer and is payable on demand or under the enclosed terms. Our business attorney in New Jersey can provide you with further details on requirements for negotiable instruments.
Types of Negotiable Instruments
The two types of negotiable instruments are
- drafts, such as money orders or checks and
- notes, or promises to pay, including promissory notes.
Our commercial litigation lawyer notes that checks are usually included under banking law or Article 4 of the UCC. Banks generally need to honor checks unless the bearer, or the person’s name on the check, is acting fraudulently. The difference between these two can be difficult to determine. However, checks usually involve three parties:
- the check writer,
- the payee and
- the financial institution.
A note only involves two parties, the payer and the payee.
Incomplete Negotiable Instruments
If a negotiable instrument is missing a critical piece of information, the information can be added, with the agreement of the signer, to complete the document. In some cases, the missing information is assumed by default, such as the date, which would be the date the negotiable instrument is presented. If the check does not have a name, the bank will pay it to the bearer.
Call Our Commercial Litigation Lawyer
If you have further questions about negotiable instruments, contact our business attorney in New Jersey from Snellings Law LLC at (973) 265-6100.