Negotiable Instruments



Negotiable instruments include drafts, promissory notes, checks, and certificates of deposit, all of which can be alternatives to cash. Businesses accept negotiable instruments as a substitute for money or as a means of offering short-term credit to make transactions easier. Consumers and merchants alike are accustomed to convenient alternatives to cash-only transactions. The Uniform Commercial Code (UCC) was adopted by states, with modifications, and state statutes govern negotiable instruments. The UCC defines negotiable instruments as unconditional writings that promise or order to pay a fixed amount of money when certain conditions are met. Negotiable instruments are payable either on demand or on a certain date.

At A Glance

  • A negotiable instrument is an unconditional form of writing that promises the payment of a set amount of money. A negotiable instrument requires six essential elements: it must be in writing, be signed by the maker or drawer, contain an unconditional promise to pay, have a fixed amount of money, be paid on demand or at a definite time, and be made payable to order or to bearer.
  • Endorsements can take the following forms: blank, special, restrictive, and qualified. Individuals and businesses choose different types of endorsements for convenience, to improve security, or to control risk.
  • There are personal and universal defenses to liability for negotiable instruments. These include deception, forgery, and bankruptcy.