Since credit instruments are the means of making payments, they must possess certain characteristics which enable them to pass freely from hand to hand. In the United States, these features are summarized in the Negotiable Instruments Law as requiring that a credit instrument

"1. Must be in writing and signed by the maker or drawer;

2. Must contain an unconditional promise or order to pay a certain sum in money;

3. Must be payable on demand or at a fixed or determinable future time;

4. Must be payable to the order of a specified person or to bearer: and,

5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty."

Thus the essential conditions of negotiability relate to the general nature, parties, and payment of the instrument.

Although a credit instrument is in the nature of a contract, it must always be in written form. An oral obligation to pay money would not be a tangible evidence of the debt and so could not be transferred from one party to another.

Further, the instrument must be specific in its reference to all parties. The maker must affix his name to the instrument, otherwise he cannot be held liable for an obligation which he has not signed. The signature must be a true one, since the holder of a forged instrument has no claim against a party whose name has been thus misused. Although the instrument must indicate a payee, this does not necessarily mean that the name of the individual payee shall be specified. An instrument reading, "Pay ten dollars to John Smith," is nonnegotiable in form, while, on the other hand, "Pay to bearer" is negotiable, since any holder for value may claim payment. The instrument may be addressed to a definite payee or his order as, "Pay to the order of John Smith." Forms which are payable to bearer or to order are negotiable, for they indicate an intention on the part of the maker or drawer to become generally liable not only to the person named, but to unknown persons into whose hands it may pass, while in the case of an instrument not payable to order or bearer the maker or drawer contemplates liability only to the payee specified.

A negotiable instrument must also definitely determine the manner of payment. All credit instruments contain either an order to pay, as in the case of check, or a promise, as in the note. This order or promise to pay must be absolute and in no way conditional. For example, a note in which the maker agrees to pay one hundred dollars "out of the next dividends of the United Textile Corporation" would be nonnegotiable, for its payment is contingent on the action of directors who may or may not declare dividends. Because a negotiable instrument performs a function similar to that of money, the promise or order must be payable in money and in an amount that is certain. An order to pay 100 shares of United States Steel would not be considered a negotiable instrument. Although these securities are readily sold on the market and easily converted into cash, still they possess a value which is continually fluctuating, and so is not certain in amount. Payment must, therefore, be made in legal-tender money, which means United States currency. If so specified in the instrument, payment may be effected in another currency, such as the German mark, even though the value of this unit in terms of the dollar varies from day to day.

There must be no uncertainty as to the time of payment. If payable at sight, the obligation becomes due upon presentation, but if at future time, this date must be fully determinable. " Sixty days after death," "on or before July 1, 1921," are both determinable periods of time, and in fact "six months after my death" also is an ascertainable date, for it follows after an event which is inevitably bound to happen. However, a promise to pay money "when A is twenty-one years old" is nonnegotiable, for A may never attain this age.