What are common types of commercial paper?

When examining the attributes of commercial paper, it is important to differentiate between the most common types of instrument. The types of commercial instrument include Notes and Drafts. Each of which is discussed below. 

What is a Commercial Note? 

This is a promise to pay money. It involves two parties. The maker of the note makes an unconditional promise to pay the payee. The payee is the personal entitled to payment of the note. This is normally the holder of the notes. The payment may be due at a date certain or on payable on demand.

Note: Most notes, such as a promissory note, have some form of the word note in the name. Bank notes are called certificates of deposit (CD). The UCC generally lists CDs as a completely separate type of instrument from a note because they are the subject of numerous special rules.

Example: Amy creates a document in which she promises to pay the holder of the note $500. She gives the note to Brenda as payment for a contract to purchase goods. Brenda is now the holder of this note (commercial paper). Because no dates is stated on the note, it is payable on demand. That is, Brenda or some other holder can present the note to Amy at any time and ask for payment. If the note states that it will be paid on October 1, 2017, it is payable on time or at this stated date.

What is a Commercial Draft?

This is an order directing someone else to pay money. It involves three parties. The drawer is the maker of the draft. The drawee is the party ordered to make payment to the payee or holder of the draft. A draft can involve a drawee who is an individual or business.

Note: A check is the most common form of draft. In the case of a check, the drawee is a bank. The UCC generally lists a check as a completely separate type of instrument from a draft because checks are the subject of numerous special rules. Nonetheless, a check functions similarly to any form of draft.

Example: Charlie owes Doug money. Doug creates a document indicating that Charlie is ordered to pay the owed money to Evan. The document (a draft) states that Evan can present the draft to Charlie at any time for payment. This is a draft payable on demand.

Either of these types of types of instrument can be a negotiable instrument if they meet specific requirements.

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?