Unconditional Promise to Pay - Commercial Paper
What is an Unconditional Promise to Pay?
Written by Jason Gordon
Updated at April 6th, 2023
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When does commercial paper contain an unconditional promise to pay?
Any condition placed on the payment makes the instrument non-negotiable. A condition is any requirement that a circumstance come to fruition or that the holder undertake any additional actions in order to receive payment upon presentation of the instrument.
Example: I create a note that says, I promise to pay to bearer or order the amount of $5,000. This amount will become payable if the NASDAQ drops below 4500 points. This would be a condition to payment and would destroy the notes negotiability.
Next Article: Negotiable Instruments - Pay on Demand or Pay on Time Back to: COMMERCIAL PAPER
Discussion Question
Why do you think the requirement that an instrument be free of conditions in its promise to pay the holder a stated sum of money? Should it matter the nature or extent of the condition? Why or why not?
Practice Question
Thomas and Carter are involved in a business deal. Carter sells Thomas a piece of equipment in exchange for a promissory note. In the note, Thomas agrees to pay Carter $25,000. He wants to add a clause stating that the note is invalid if the equipment malfunctions within the 1st year of operation. Does this clause affect negotiability and why?
Related Topics
- Commercial Paper (Intro)
- What is Commercial Paper?
- Negotiable Instrument
- What are the common types of commercial paper?
- Promissory Note
- Cashier's Check
- Convenience Check
- Certified Check
- Substitute Check
- Bill of Exchange
- Bank Draft Definition
- Sight Draft Definition
- Bankers Acceptance
- Who is a Holder of a negotiable instrument?
- Commercial Paper Funding Program
- What is Negotiability and why is it important?
- What is required for commercial paper to be negotiable?
- Sum Certain (Contracts)
- Inflation Adjustment Clause
- When does commercial paper contain an Unconditional promise to pay?
- Backup Line of Credit
- What is Payable on Demand or Payable on Time?
- What is Order Paper and Bearer Paper?
- Bearer Form
- How is a payee identified on the negotiable instrument?
- What rules does the court apply in determining negotiability?
- How is commercial paper negotiated to a holder?
- What is Transfer of a negotiable instrument?
- What is Indorsement of a negotiable instrument?
- What are the various types of indorsement?
- Bank Endorsement
- Blank Endorsement
- Accommodation Endorsement
- How does a holder receive payment on a negotiable instrument?
- Who is potentially liable on (or obligated to pay) a negotiable instrument?
- When is an individual liable for a representative signing a negotiable instrument?
- What rules apply if a holder loses a negotiable instrument?
- When is payment of a negotiable instrument overdue?
- What effect does a negotiable instrument have on the underlying obligation?
- What is a holder in due course?
- What are the requirements for a holder to become a holder in due course?
- Receive an instrument for value?
- Receive an instrument in good faith?
- Receive an instrument without notice of a valid defense?
- How does discharge of the Underlying Obligation affect a holder in due course?
- What is the Shelter Rule?
- Can you limit a transferee from becoming a holder in due course?
- Personal Defenses?
- Real Defenses?
- What is a Claim in Recoupment?
- What are the rights of a holder in due course if the instrument involves a consumer transaction?
- What happens if a negotiable instrument is Forged?
- What happens if a negotiable instrument is Stolen?
- Guaranty or Guarantee
- Letter of Guarantee
- Personal Guarantee
-
What is the role of a Guarantor or Surety of a negotiable instrument?
-
Surety
- Cosign
- Accommodation Paper Definition
- Secondary Liability
- Avalize Definition
- What is an Accord & Satisfaction?
- What is primary and secondary liability on an instrument?
- What is Drawer or Maker Liability for a negotiable instrument?
- What is Transferor Warranty of a negotiable instrument?
- What is Indorser Warranty of a negotiable instrument?
- What is Presentment Warranty of a negotiable instrument?
- What is a warrantors liability for a dishonored note or draft?
- What is the time limitation for warranty of a negotiable instrument?
- When are the warranties of a negotiable instrument discharged?
