Articles

Negotiable Instruments

March 6, 2020


(narrator) You’ve
probably wondered about all this talk
about drafts and notes. No, not those kinds
of drafts and notes. I’m talking about instruments. No, not those kind
of instruments. An instrument is
a legal document that defines rights and duties. Ah, there, those types
of drafts and notes. But you might know them
better as checks and IOUs. Drafts and notes
are what lawyers call negotiable instruments. So what’s a
negotiable instrument? It’s basically an
unconditional promise. We know, we know, you’ve
heard that before. But the negotiable
instrument promise really is
unconditional, at least according to a court of law. It unconditionally promises to
pay a certain amount of money on the spot or at
a later set time. The checks that we use
every day are drafts. It’s ordering a
payment to be made when presented which
is what is happening when you cash a check. A payment is being made to you. Notes– also called
promissory notes– are just that a promise to pay
later or over time. For example, when
you borrow money from a bank to buy
a house, the bank will ask you to sign a
promissory note in which you promise to pay the bank back
over a period of time, often as long as 30 years. These documents or instruments
are called negotiable because they can be
negotiated or traded from one person to
another, just like cash. In fact, cash in the
form of paper money is a special type of
negotiable instrument. And you might have noticed
that a dollar bill is sometimes called a banknote or
Federal Reserve Note. The most basic
requirement for a document to be a negotiable instrument is
that it must contain somewhere within it either the words
“pay to the order of” or some equivalent
obvious indication that payment is to
be made to someone. Then, there should be an
endorsement or signature. What follows the pay to the
order language which is also considered part
of the endorsement can change how the
negotiable instrument works. For example, if a
name of a person follows, pay to the
order of, it means the money must be paid
only to that person. This is called a
special endorsement. If pay to the order is
not followed by a name, it means it is a
blank endorsement. For example, a check
made out to no one means that anyone who has the check
can receive the payment. The same is true if you
make the check out to cash, unless, of course,
your name is Cash. But using a blank endorsement
could be risky though, because if you lose the
check, it means anyone– even a thief– can cash it. A restrictive endorsement
allows for the transfer of the document or the
money it represents for specific
purposes, like stating something is for deposit only. LegalYou can guide you
through the ins and outs of negotiable instruments
and any other legal matters. LegalYou– you can do this.

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6 Comments

  • Reply Arhum Tariq August 22, 2017 at 8:43 am

    Such a nice video! Loved it

  • Reply ramesh reddy November 12, 2017 at 8:19 am

    Want more videos of NI

  • Reply Pankaj Dawra January 14, 2019 at 7:47 am

    lovely ❤❤❤❤

  • Reply Nasir Hussain July 27, 2019 at 4:26 am

    Really? Nobody!!! 0:55 Just don't people. Take consent first 😛

  • Reply intekhab Alam October 22, 2019 at 4:58 pm

    Good video with proper explanation

  • Reply Aditya khurpe January 7, 2020 at 3:46 pm

    Lol

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