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Negotiable Instruments

Senior and mature man sitting on yacht looking at file together New Jersey Banking Law AttorneysArticle 3 of the Uniform Commercial Code (UCC), which has been adopted by every state with some modification, defines a negotiable instrument as an “unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order.” See also N.J.S.A. 12A:3-104. As our  New Jersey banking law attorney can explain, it is a document passed from one person to another (negotiation), who ultimately exchanges the document (instrument) for money.

Requirements for Negotiable Instruments

Negotiable instruments are commonly used in business transactions to secure and distribute loans or to finance the movement of goods.  To be a negotiable instrument, the instrument must be signed, in writing, and the:

  • Promise or order is unconditional.
  • Amount of money is fixed with or without interest charged.
  • Instrument is payable to bearer or to order.
  • Promise or order is payable on demand or at a definite time.
  • Promise or order must not state any other “undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money.

Categories of Negotiable Instruments

The two categories are:

  • Drafts: an order to pay money, such as check or money order
  • Notes: a promise to pay money, such as promissory notes associated with a loan

A New Jersey banking law attorney prefaces that although checks are a negotiable instrument, checks are generally covered by Article 4 (banking law) of the UCC rather than Article 3.

Contact Our New Jersey Banking Law Attorney

If you have questions about negotiable instruments, contact a knowledgeable New Jersey banking law attorney with Snellings Law LLC at (973) 265-6100.