Dr.

Fady Tawakol
Outline
 Negotiable Instruments- Uses and Types
- Promissory Notes and Certificates of Deposit:
Promises to Pay.
- Drafts and Checks: Orders to Pay.

 Requirements for Negotiability

 Added Language and Omission Not Affecting

Negotiability
Negotiable Instruments- Uses and
Types
 A Negotiable Instrument is a signed writing that
orders or promises payment of a fixed amount of
money with or without interest. It can be used either
as a substitute for money or as a credit device.
 When a person pay a bill by check, the check
substitutes for money.
 When a person buys a used automobile and gives the
dealer a promissory note agreeing to pay for the car in
ninety days, the note is a credit device.
Negotiable Instruments- Uses and
Types Cont.
 There are four types of Negotiable Instruments: drafts,
checks, notes and certificates of deposit.
 Drafts and checks constitutes orders to pay, while
promissory notes and certificates of deposit involve
promises to pay.
 Negotiable Instruments can either be classified as
demand instruments or time instruments.
 A demand instrument is payable on demand, payable
immediately after it is issued and thereafter for a
reasonable period of time. Checks are demand
instruments because they are payable on demand.
 A time instrument is payable at a future date.
Promissory Notes and Certificates
of Deposit: Promises to Pay.
Promissory Notes

• Is a written promise by one party, the maker, to pay a

certain amount of money to another party, usually the
payee(two parties are involved).
• The money may be payable either on demand or at a
specified time.
• A promissory note is used to obtain goods and services
on credit or to borrow money.
Promissory Notes and Certificates
of Deposit: Promises to Pay.
Certificates of Deposit (CD)

 Certificate of deposit bank’s promise to repay an

amount left on deposit for a certain time.

 A certificate of deposit is a note of the bank

Drafts and Checks: Orders to Pay.
Draft
 A draft generally involves three parties, it is a written
order by one party, the drawer, to a second party, the
drawee, to pay a sum of money to a third party, the
payee on demand or at a definite future time.
Suppose that X owes Y 100,000LE and Z owes X
100,000LE and X is transferring her right to receive
100,000 LE from Z to Y. X could send a draft to Y, who
would then present it for payment to Z.
Drafts and Checks: Orders to Pay.
Check
 The most common form of negotiable instrument, is a
specialized type of draft drawn on a bank and payable
on demand.

 The drawee is always a bank, the drawer is the

depositor. The payee is the person to whom the check
is made.
 Types of negotiable instruments
TYPE OF INSTRUMENT DISTINGUISHING TRAITS PARTIES
TWO PARTIES
PROMISORY A written promise by one party( Maker- the party who promises to pay.
NOTE maker) to pay money to another Payee- the party to whom the promise
party (payee or bearer) is made.

CERTIFICATE OF A note (special promise) issued Maker- the party who promises to pay.
DEPOSIT (CD) by a bank to a depositor Payee- the party to whom the promise
acknowledging that money was is made.
placed on deposit.
THREE PARTIES
DRAFT A written order by one party to Drawer- the party who initiates and
another to pay a third party signs the order to pay.
(bearer) Drawee- the party who is ordered to
pay.
Payee- the party to whom the drawee is
ordered to pay.
ORIDARY CHECK A draft drawn on a bank and Drawer- the party who initiates and
payable on demand signs the order to pay. (depositor)
Drawee- the party who is ordered to
pay.(bank)
Payee- the party to whom the check is
made payable.
Outline
 Negotiable Instruments- Uses and Types
- Promissory Notes and Certificates of Deposit:
Promises to Pay.
- Drafts and Checks: Orders to Pay.

 Requirements for Negotiability

 Added Language and Omission Not Affecting

Negotiability
Requirements for Negotiability
1- Written Form.
2- Signature.
3- Unconditional promise or order to pay:
The promise or order must be payable without an conditions
attached. Otherwise, the instrument is nonnegotiable
4- Fixed amount of Money.
5- Payable on Demand or at a Definite Time.
6- Payable to Order or Bearer.
Payable to Bearer: words directing an instrument to be paid to
person holding it.
Payable to Order: words directing an instrument to be paid to
named payee or to whomever payee orders the paper to be paid
Requirements for Negotiability
cont.
7- Contain No Understanding or Instruction Beyond the
Promise or Order to Pay:
If the instrument contains and order or promise to do anything else
in addition to or in lieu of the payment of money, it will be
nonnegotiable. For example, a promise to pay 10,000 LE and a set
of chef’s knives would not be negotiable.

8- Designate a drawee ( in case of a draft) with

Reasonable Certainty.
Outline
 Negotiable Instruments- Uses and Types
- Promissory Notes and Certificates of Deposit:
Promises to Pay.
- Drafts and Checks: Orders to Pay.

 Requirements for Negotiability

 Added Language and Omission Not Affecting

Negotiability
Added Language and Omission
Not Affecting Negotiability
 Certain language that is added, such as the place where the
instrument is payable and the words Value received, has no
effect on negotiability.
 Certain information that is lacking, such as the date of issue
of the instrument, the place of payment and the sum of
figures, likewise has no effect on the negotiability.
 Negotiability is also not affected because it designates a
particular kind of currency or money in which payment is to
be made.
 If a party adds handwritten or typewritten language that is
inconsistent with the preprinted language on the instrument
(note or draft), the hand writing takes precedence over both.
Typewritten language takes precedence over preprinted