Financial Fraud Can Involve Negotiable Instruments

Cases of financial fraud in Pennsylvania can often involve documents known as negotiable instruments. According to the FBI’s most recent “Financial Crimes Report to the Public,” which covers the period from October 2009 to September 2011, the agency has been involved in a number of financial institution fraud cases, which can include investigations into counterfeit negotiable instruments as well as check kiting, check fraud and mortgage fraud. Those who are being investigated for such offenses may want to educate themselves on the legal definition of these types of documents.

The Cornell University’s Legal Information Institute explains that negotiable instruments are, under the definition of the Uniform Commercial Code, writings that deal with the promise or order to pay a set amount of money. These writings are a common part of business and personal finance transactions.

According to the LII, the defining characteristic of negotiable instruments is the suspension of the rule of derivative title. In general, this rule prevents the transfer of property rights if those rights are greater than those held by the transferor. This rule applies in most legal situations as a protective measure. Because it is suspended for negotiable instruments, UCC Article 3 protects the parties involved in these transactions through the provision of warranties.

Negotiable instruments fall under two general categories: notes and drafts. Promises to make a payment are called notes. These can include certificates of deposits. Orders to make a payment are called drafts. Perhaps the most commonly known example of a draft is a personal or business check.

Negotiable instruments are a common part of financial transactions, but it is important to note that not all financial documents fall under this category. Fund transfers and investment securities, for example, are not considered negotiable instruments.