Negotiable Instruments—Kinds and Definitions.—Any formal or informal written promise to pay possessing these essentials is a negotiable instrument. Examples are: promissory notes—notes receivable and notes payable—drafts, checks, money orders and, with certain restrictions, warehouse receipts.
A promissory note may be defined as an unconditional promise to pay a specified sum of money at a certain time. It usually has a form similar to the following:
Form 16. Promissory Note
The Draft.—A draft is a written order by one party on a second party to pay to a third party the amount of money named. To be negotiable, it must be so drawn as to meet the requirements of negotiability named above. A draft may have a form similar to the following:
Form 17. A Draft
It will be noticed that there are three parties to a draft—the drawer, the drawee, and the payee. The drawer is the person who draws the draft and whose signature appears at the lower right-hand corner of the draft. The drawee is the person on whom the draft is drawn, George S. Perkins, above. He is sometimes called the payer. The payee is the person who is to receive the payment ordered, James Stanley Jackson & Co.
To understand the use of the draft as an instrument of business, suppose the following relations exist between the three parties named above:
1. George S. Perkins bought goods from Bert V. Robbins on account for $175.