188 MODULE 25 COMMERCIAL PAPER

EXAMPLE:

June 5,2002
On June 5,2003, pay to the order of Bob Smith $1,000
plus 10% annual interest from June 5, 2002.
To: ABC Corporation
(Signed) Sue Van Deventer

The above is a draft in whieh Sue Van Deventer is the drawer, ABC Corporation is the
drawee, and Bob Smith is the payee

(a) A check

1] Is a special type of draft that is payable on demand (unless postdated) and drawee
must be a bank

a] Definition of bank includes savings and loan associations, credit unions, and trust
companies

2] One writing check is drawer (and customer of drawee bank)

b. A note (also called a promissory note)
(1) Unlike a draft or check, is a two-party instrument
(a) One party is called the maker-this party promises to pay a specified sum of money to an-
other party called the payee

EXAMPLE:
 July 10,2002
I promise to pay to the order of Beeky Hoger $5,000
plus 10% annual interest on July 10, 2003:
(Signed) Bill Jones

The above is a note in whieh Bill Jones is the maker and Beeky Hoger is the payee.
(2) May be payable on demand or at a definite time
(a) Certificate of deposit (CD)
1] Is an acknowledgment by a financial institution of receipt of money and promise to re-
pay it

a] Most CDs are commercial paper so that they can be easily transferred
2] Is actually a special type of note in which financial institution is the maker

C. Requirements of Neg?tiability
1. All of the following requirements must be on face of instrument for it to be a negotiable instrument
(be
sure to know these)

2. To be negotiable, the instrument must

a. Be written
a. Be signed by maker or drawer'
b. Contain an unconditional promise or order to pay
b. State a fixed amount in money
c. Be payable on demand or at a definite time
d. Be payable to order or to bearer, unless it is a check
3. Details of requirements of negotiability
a. Must be in writing
(1) Satisfied by printing, typing, handwriting or any other reduction to physical form that is rela-
tively permanent and portable

b. Must be signed by maker (of a note or CD) or drawer (of a draft or

check)
(1) Signature includes any symbol used with intent to authenticate instrument