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Negotiable Instrument
Practical Law Glossary Item 9-385-4119 (Approx. 2 pages)
Glossary
Negotiable Instrument
An instrument that is legally able to be transferred by endorsement or delivery. The term typically is used in connection with drafts, checks, certificates of deposit, and promissory notes. A negotiable instrument is a type of instrument under § 9-102(a)(47) of the Uniform Commercial Code (UCC).
For a writing to be a negotiable instrument under § 3-104 of the UCC, it must satisfy all of the following:
- Be signed by the maker or drawer.
- Contain an unconditional promise (promissory notes) or order (checks) to pay a sum certain in money without any other promise, order, obligation, or power given by the maker or drawer except as authorized by UCC Article 3.
- Be payable on demand or at a definite time.
- Be payable to order or to bearer.
An instrument will not be unconditional (or negotiable) if it states that it is subject to or governed by another agreement (UCC § 3-105(2)(a)). Promissory notes issued under syndicated loan agreements often state the notes are subject to the terms of the loan agreement, which makes them non-negotiable instruments.