Writing Requirements of Negotiable Instruments

by Fraser Sherman Google

A negotiable instrument is a written promise to pay an individual a stated amount of money. The documents are negotiable because the money goes to whoever holds the note, regardless of who originally received it original debt. In your business, you may accept or issue negotiable instruments such as promissory notes, checks, drafts and certificates of deposit. The written text of the instrument must conform to the rules of the Uniform Commercial Code.


A negotiable instrument is either payable on demand, or payable at a specific time stated in the instrument. The person or business issuing the instrument cannot make payment contingent on any other conditions, instructions or requirements. The Uniform Commercial Code makes an exception for writing committing the issuer to provide collateral, guaranteeing the holder's right to seize collateral, or waiving the benefit of any laws that might protect the issuer. If the writing states that the instrument is nonnegotiable, laws for negotiable instruments no longer apply.


If the instrument has contradictory terms written on it, typed terms trump printed terms and handwriting trumps both. Words, whether written, printed or typed, win out over numerals. You can treat an incomplete instrument as if the writer had finished it, providing the terms are clear enough; otherwise, you'll need to have the writer complete it. If anyone claims that someone other than the signer added words or numbers to complete an unfinished instrument, the burden of proof is on the person making the claim.


The UCC classifies changing the text of the instrument or completing an unfinished instrument without the maker's consent as an illegal alteration. If the alterations affects the obligations of one of the parties to the note, such as the amount she owes, then the change legally discharges her obligation. If, however, someone is able to alter the instrument because of the issuer's negligence -- someone failed to exercise "ordinary care," in the code's words -- the alteration doesn't excuse the issuer from honoring the instrument.


If the writing identifies a specific payee, that payee will have to indorse the instrument to make it negotiable. To indorse the instrument, the payee signs it; signing the back of the check is one form of indorsement. The payee may indorse the instrument to make it payable to a specific person, or leave it open, so that anyone may use it without further indorsements. If the payee wishes to add a signature for a reason other than indorsement, she should include words stating the purpose of the signature.

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