Chapter 4 - Constitutional Authority to Regulate Business s4

BLTS-8e Appendix F: Sample Answers for End-of-Chapter Hypothetical Questions with Sample Answer Chapter 19: Negotiability and Transferability

19.2 Hypothetical Question with Sample Answer

Muriel Evans writes the following note on the back of an envelope: “I, Muriel Evans, promise to pay Karen Marvin or bearer $100 on demand.” Is this a negotiable instrument? Discuss fully.

Sample Answer:

For an instrument to be negotiable, it must meet the following requirements: (a) Be in writing. (b) Be signed by the maker or the drawer. (c) Be an unconditional promise or order to pay. (d) State a fixed amount of money. (e) Be payable on demand or at a definite time. (f) Be payable to order or to bearer, unless it is a check.

The instrument in this case meets the writing requirement in that it is handwritten and on something with a degree of permanence that is transferable. The instrument meets the requirement of being signed by the maker, as Muriel Evans’s signature (her name in her handwriting) appears in the body of the instrument. The instrument’s payment is not conditional and contains Muriel Evans’s definite promise to pay. In addition, the sum of $100 is both a fixed amount and payable in money (U.S. currency). Because the instrument is payable on demand and to bearer (Karen Marvin or any holder), the instrument is negotiable.