A negotiable instrument, such as a promissory note or check, is a written promise or order to pay someone money. When you sign a promissory note, you're telling the bearer that you promise to pay the value of the note, with any applicable interest. Signing a check orders your bank to pay out the amount you've written down.
What Makes It Negotiable
Checks and notes are negotiable because they can be transferred to new holders and stay valid. Your bank, for instance, can transfer your mortgage promissory note to another bank and you still have to pay it. To be negotiable, an instrument must involve a fixed amount of money -- charging interest is okay -- due either at a given date or on demand. The right to the money is unconditional and the instrument doesn't call for any non-monetary promises or orders.
Promise to Pay
A promise to pay involves two parties: the maker and the payee. The maker is the one committing to pay the note and the payee is the one entitled to the money. If the payee transfers the note to a new holder, then the holder and the maker become the two parties. A promise doesn't have to be negotiable. Simply saying on a promissory note that it's non-negotiable makes it so.
Order to Pay
An order to pay involves three people. When you write a check, you're the drawer of the check. The person you write it to is the payee, and your bank is the drawee. An order to pay is always negotiable, no matter what you write on it. The Uniform Commercial Code says that if a check doesn't identify the payee, then it's payable to the bearer, whoever that may be.
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