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Negotiable Instrument – How is Payee Identified

9. How is a payee identified on the negotiable instrument?

A negotiable instrument is payable to the holder of the instrument. A holder may either be an individual named in the instrument (order paper) or an individual in possession of the instrument (bearer paper). An instrument that names a payee may name or identify the payee in any number of methods, including by name, identifying number, office, or account number. As a general rule, an instrument is payable to the person intended by the issuer, whether or not that person’s correct name appears on the instrument. If the payee is identified only by account number, the instrument is payable to the owner of that account. If the payee is identified by account number and name, the instrument is payable to the named person whether or not that person owns the account. If the instrument is payable to “either Identified Person or Identified Person” (this may use the word “alternatively” or some derivative thereof), it may be negotiated or enforced by any or all of the named individuals. If the instrument is made out collectively to two or more individuals (“not alternatively”), it is payable to all of them and must be enforced by all individuals together. That is, all individuals must indorse the instrument for transfer or present it for payment. If it is ambiguous as to whether the paper is payable in the alternative, it is assumed to be payable alternatively.

•    Discussion: How do you feel about the rules for identifying a payee? Why do you think these requirements are in place? Does the fact that bearer paper does not identify a specific individual as payee affect your opinion? Should a negotiable instrument be able to identify a payee by methods other than name? Why or why not?

•    Practice Question: Ethan creates a promissory not and identifies the payee as “George or order”. He then transfers the instrument to George Smith. Is this first name sufficient as an identifiable payee to make the instrument negotiable?

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