Negotiable instruments come into existence because of the need for something readily acceptable and transferable as money in trade and commerce. For an instrument to be negotiable the statutory requirements for negotiability must be met. These requirements are, 1) It must be signed by the maker or drawer； 2) It must contain a promise or order,

i. e., the language used should clearly establish that it is a promise or order even though no such words appear on the face of the instrument (A mere acknowledgment of debt in writing is an IOU and not a negotiable instrument)i 3) The promise or order must be unconditional，i. e. , it should not be controlled by the terms of some other agreement) It must be a promise to pay in money (Instruments payable in chattels are not negotiable) \ 5) Sum should be certain, that is, the value of the instrument at any time during the term of the paper can be definitely determined> 6) It must be payable on demand or at a definite time,

i. e. , the time for payment must be certain i 7) It must be payable to order or bearer. The words “order” and “bearer” are the magic words of negotiability. They express the maker or drawer’s intention to make the instrument negotiable. If an instrument does not contain these words, it may be a valid and enforceable contract but it is non-negotiable and does not fall under Article 3 of the UCC.

Often, an instrument sets forth the consideration for which the instrument was given. For example, an instrument may contain words such as “for value received” or “in payment for services renderedBut the omission of these words does not impair the negotiability of the instrument. Nor does an omission of a statement of the place where the instrument is drawn or payable.

The date of the instrument is presumed correct. If an instrument does not have a date, its negotiability is not affected. Any fraud or illegality connected with the date of theinstrument does not affect its negotiability but merely gives a defense.

If an instrument is made payable to the order of somebody who is specified with reasonable certainty, it is an order paper payable to the designated person.2 If an instrument is made payable to bearer, it is a bearer paper. Bearer papers are payable to whoever bears it and therefore can be negotiated by delivery without indorsement. Negotiation of order papers, on the other hand, requires both indorsement and delivery.

Order papers become bearer papers when they are indorsed in blank—when the indorsement consists only of the indorser’s name signed on the instrument. When the indorser wants to specify the person to whose order the paper is payable, he includes the words “pay to the order of (the specified indorsee)” in the indorsement and such an indorsement is called a special indorsement.3 When he wants to impose some restriction on the use of the instrument, he may include the restriction or condition in the indorsement and the indorsement is called a restrictive indorsement.

If a paper is indorsed specially after a blank indorsement, it reverts to its status as an order paper, and an indorsement is required for further negotiation.

Basically，there are two types of negotiable instruments，namely, the promissory note and the draft. A note is a two-party instrument. It is a promise of the maker to pay to the order of the payee or to bearer at some time in the future. A draft is a three-party instrument. It is an order of the drawer to a third party (drawee-payor) for him to pay to the order of the payee or to bearer. A draft presupposes a debtor-creditor relationship between the drawer and the drawee. It is an order of the creditor (drawer) to the debtor (drawee) for the latter to pay to the payee.

A certificate of deposit (CD) is a promissory note made by a bank. It is the bankas written acknowledgment of money on deposit which the bank promises to repay with interest to the order of the depositor at a specified time.

The check is the most common type of commercial paper. It is a demand draft drawn on the bank by which the drawer orders his bank to pay to the payee. A check drawn by a bank upon itself is a cashier's check.

Answer the following questions : 1. What are the most common types of negotiable instruments? 2. What is the difference between a promissory note and an IOU on the face of the instrument? What different legal consequences will result from this difference? 3. What are the differences between a note and a draft? 4. If you sign your name on the back of a check that is drawn to you, what legal consequence will follow? 5. What if you have lost a check made payable to bearer? 6. Is a promissory note a demand paper? Why or why not? 7. If you want to make a written promise to pay money but you don,t want to make the paper negotiable, what will you do? 8. If you have a check which has a blank indorsement, and you want to send it by ordinary mail to your friend Sam Adams, what is the proper thing to do? 9. What is a certificate of deposit? Is it negotiable? 10. What is a cashier's check? Is it negotiaable? Is it a bearer paper?