7. What is “payable on demand” paper and “payable on time” paper?
A negotiable instrument must either be payable on demand or payment on time. An on-time instrument is payable at a specific time and date. The date must be able to be determined at the time the instrument is issued. It may be payable after an elapsed period of time that is readily ascertainable at the time the promise or order is issued, subject to rights of prepayment, acceleration, and extensions. If the instrument is not clear, but there is evidence of an intent to make it payable at a specific date and time, the note is not negotiable. An instrument is payable on demand if it states as much or it does not state any time of payment.
• Discussion: Why do you think it is important to distinguish an instrument as “payable on time” versus “payable on demand”? Do you think these attributes affect the value or liquidity of a negotiable instrument? Why or why not?
• Practice Question: Donovan receives a promissory note from Elvis. The note does not contain any date or time for payment. Is the note payable on time or demand?