NEGOTIABLE PAPER

"It is one thing to possess, it is another to be in possession."

I. What is negotiable paper?

Negotiable paper is paper that may be transferred by indorsement and delivery or by mere delivery, without being subject to any set-off or defense that may exist against it.

2. What is non-negotiable paper?

Non-negotiable paper is paper that may be transferred by assignment, but the assignee takes only such title as the assignor had, and if defenses exist at the time of transfer, he takes the paper subject to such defenses.

3. What is negotiability?

Negotiability is that peculiar property possessed by certain forms of business paper whereby the transferee may take a better title than the transferrer had because, as a holder for value, in due course, before maturity, he takes it free from existing defenses.

4. What are the advantages of negotiable paper over nonnegotiable paper?

Negotiable paper is taken by a holder in due course (bona fide) free from defenses that may exist at the time of transfer and also free from subsequent defenses; the transferee is not required to make inquiries about the making of the paper, nor is he required to give notice that the paper has come into his possession. The one to whom non-negotiable paper is assigned takes only such title as the assignor had. He is subject to be met in the enforcement of his claim by whatever defenses existed against the paper at the time of transfer, and by such subsequent defenses as may arise before the debtor received notice of the assignment. The

assignee of non-negotiable paper should make inquiries about defenses to protect himself and should notify the debtor of the assignment to him to protect himself against subsequent defenses.

5. What are the requisites of negotiability?

(1) The instrument must be in writing.

(2) It must be signed by the maker or drawer.

(3) It must contain an unconditional promise or order to pay and it must be payable in money.

(4) It must be certain as to time and amount. (5) It must be payable to order or to bearer.

(6) The payee should be sufficiently designated and where the instrument is addressed to a drawee, he must be named or indicated therein.

It has been recently decided that the following: "On demand I promise to pay Helen Deyo three hundred dollars. C. E. Thompson" is not a negotiable note, and therefore does not import a consideration and one must be proven to sustain an action on it.

And so too, a written promise to pay within a specified time the bill of the promisee against a third person is not a promissory note and does not import a consideration.

6. What is meant by the term "writing?"

It includes printing. The instrument may be printed entirely, but it is better to write the signature. There is no specified material upon which the instrument must be written. A valid, negotiable instrument may be on wood, stone or marble.

7. How should the signature be affixed?

The signature should be written with ink, though a pencil signature is lawful. A business man should adopt a plain, characteristic signature, and it should be uniform. It does not matter upon what portion of the instrument the signature is, if it can be shown that the maker or drawer intended it as a signature.

8. What is the law regarding the use of initials for a signature?

It has been held that a party who signs an instrument by his initials is legally bound thereby. A valid indorsement may be by initials.

9. Name some negotiable instruments.

The most common forms of negotiable instruments are, promissory notes, bills of exchange, certificates of deposit and checks.

10. What is regarded as money?

Whatever may be used as a legal tender is money. See No. 206, page 37.

II. When is a bill drawn on a foreign country negotiable in this state?

If the bill be expressly payable in foreign money it is non-negotiable, but if not payable in any particular kind of money it is held to be negotiable for an equivalent amount of American money. There is then no uncertainty as to the amount. An instrument payable in current funds may be negotiable by statute.

12. When is there certainty as to time?

An instrument may be payable on demand, after demand, at sight, after sight, after date, on a given date, on or before a given date and still be certain as to time.

An instrument payable on or after the happening of some event may be negotiable if the event is certain to happen, though the time of happening may be uncertain. In case an instrument is payable upon a contingency, it is not negotiable.

13. What is the effect where no time of payment is fixed by the terms of the instrument?

It is, in the eye of the law, payable immediately.

14. When is there certainty as to sum?

The sum specified in the instrument is certain although it is to be paid with interest, or by installments, or by installments with a provision that upon default in payment of an installment or of interest the whole shall become due, or with exchange either at a fixed rate or at the current rate, or with cost of collection or an attorney's fee.

15. Upon what condition is an instrument payable in money or in goods negotiable?

When the option is in favor of the holder, the debtor being compelled to pay either money or goods.

16. Does the omission of a date affect the validity or negotiability of an instrument?

No; the instrument has no effect until delivered and the date of delivery will be considered the date upon which the instrument was made. The date written on an instrument is taken as the true date, unless proven otherwise.

17. Is it legal to antedate or postdate an instrument?

An instrument may be antedated or postdated unless this is done with fraudulent intent. The person to whom such instrument is delivered acquires the title thereto as of the date of delivery.

18. When may the date be inserted?

When an instrument payable after date is issued undated, or where the acceptance of an instrument payable after sight is undated, any holder may insert the true date and the instrument shall be payable accordingly.

19. When a mistake is made in the date of an instrument, can it be corrected?

Yes, it may be corrected, unless the instrument has passed into the hands of third parties whose rights would be affected by the correction..

20. If an instrument does not specify the value given, or that any value has been given therefor, can it be negotiable?

Yes, it may still be negotiable; the words "value received" simply imply consideration; they are not essential to the negotiability of any instrument. Statute law may require the nature of this consideration to be stated in certain cases.

21. What is the effect of a seal on the negotiability of an instrument?

In New York, a seal does not affect the negotiable character of an instrument. Formerly the rule was otherwise.

22. Is it necessary to specify the place where an instrument is drawn or where it is payable?

It is not; the instrument may be negotiable where this is not done.

23. How can a note be transferred when drawn payable to the order of the maker?

It must be indorsed before delivery; it is not now regarded as payable to bearer.

24. When may blanks in an instrument be filled?

When the instrument is wanting in any material particular the person in possession thereof is supposed to have authority to complete it by filling up the blanks.

25. When a signature is written on a blank paper and delivered by the signer to be converted into a negotiable instrument, what is the rule regarding filling the blanks?

The person to whom such paper is delivered has a prima facie authority to fill up the instrument. In order to be enforced by the original payee against any person who became a party to it before its completion, it must be filled up in accordance with the authority given and within a reasonable time. But if any such instrument after completion is negotiated to a holder in due course he may enforce it as if it had been filled up according to the authority given.

26. What are two requisites of authority to fill blanks in an instrument?

The instrument must be properly delivered and there must be either express or implied authority given to complete the instrument.

27. When an incomplete instrument has not been delivered, can it become a valid contract if completed and negotiated without authority?

It will not be a valid contract even in the hands of an innocent holder, as against any person whose signature was placed thereon before delivery.

28. When does an instrument take effect?

An instrument does not take effect until properly delivered and may be revoked before such delivery.

29. Where there is a discrepancy between the sum expressed in words and the sum expressed in figures, what is done?

The sum expressed in words is the sum payable. Where the words are ambiguous or uncertain, the amount may be