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Chapter 11
Commercial Paper
Carlo will pay to Bruno $1000 at 7% interest
On Jan 1, 1425
Jack Bruno & Carlo Mohamad Heng
(UK) (Italy) (Turkey) (China)
Profit ($40) Buys glasses Rugs Silk
Profit
There are two types of negotiable instruments frequently used 　　　　in business, they are:
- Promise to Pay Instrument
- Order to Pay Instrument
Sells for $1040
Returns
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Promise to Pay Instrument
It is a written promise to pay a stated amount of money by one party to another party.
It involves two parties, the Maker and the Payee
The Maker is the person or legal entity that creates (makes) and signs the instrument promising to pay on his/her own account.
The Payee is the person or legal entity to whom the promise to pay is made. The payee also called the holder of the note. (If the note is transferred by one Payee to a third party transferee, the transferee becomes the new Payee and holder.)
There are two kinds of Promise to pay instruments in common use:
Promissory notes, and
Certificates of deposit
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Promissory Notes
Promissory Notes: The Maker promises to pay a specified amount of money to the Payee. The promise to pay can be made in exchange for credit received by the Maker, or as a way of paying an existing debt or other contractual obligation owed by the Maker to the Payee.
(A valid promissory note must meet the 6 legal requirements for negotiable instruments.)
The Maker of a promissory note obligates himself to be liable to pay on the instrument.
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5. Certificates of deposit
Certificates of deposit: (C.D) is a written promise given by a bank to repay a person who deposits a sum of money in the bank for the bank's use for a specified period of time. The person who deposits the money in the bank is called the depositor.
In return to the bank use the deposited money, the bank promises to pay the depositor or bearer a higher rate of interest given to the bearer on the due date.
Certificates of deposits as a way to invest their money for profit in a conservative way that is not so much risk as some other kinds of investment.
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Order to pay instrument: It is a written order to one party to pay a specified amount of money by one party to another party. Such as: drafts; bank checks; Orders of Transfer and Traveler's Checks.
It must meet the same 6 legal requirements to be valid negotiable instruments.
It involves three parties are:
The Drawer is the person or legal entity who creates the instrument and orders the payment of the money.
The Drawee is the person or legal entity who is ordered by the Drawer to pay the money to the payee, (often a bank).
The Payee is the person or legal entity to whom the money is payable. When the instrument is delivered to the Payee, the Payee is the first Holder.
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N.U.M.
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In other forms of Order to pay instruments, one party takes the role of both Drawer and Payee. ( Bill of Exchange, often used in foreign trade.)
In the bill of exchange,the drawer & payee is the seller who orders the buyer (as drawee) to pay.
It must be accepted by the drawee who is ordered to pay before the drawee is liable for payment, because these types (the Bills of Exchange) are not created by the person or legal entity who is obligated to pay the money due.
The drawee "accepts" by signing the face of the instrument. It means the drawee's promise that it will pay the specified amount of money when payment becomes due.
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Prepared by Leng kimhok