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Commercial Paper
University of Toledo School of Law
Campbell, Bruce A.

Commercial Paper

I. Negotiable Instruments

A. In General
● A negotiable instrument is (3-104):
1. a promise or an order to pay money;

2. that is written (not electronic or verbal);

3. for a fixed amount of money/principal;
–the instrument can include a variable rate of interest but the principal amount of the instrument must be fixed
–default rule #1: unless otherwise provided a negotiable instrument does not include interest
–default rule #2: unless otherwise provided, interest begins accruing the date the instrument was signed
–default rule #3: if there is not an interest rate in the note, the judgment rate of the jurisdiction will be used
–default rule #4: unless otherwise provided the interest is simple and not compound

4. unconditional—the promise or order to pay money must be unconditional;
–rule of construction: a promise or order is unconditional unless it states an express condition to payment
–ex: S sells BA to B
B writes and signs à I promise to pay $100,000 to the order of S if S conveys BA to me
/s/ B
Ruling: Since B’s promise to pay is conditioned upon S conveying BA, the promise is conditional and the note is therefore not a negotiable instrument
–there can be a reference to the consideration for the promise without the promise being considered conditional
–ex: B writes and signs à In consideration of his promise to convey BA, I promise to pay $100,000 to the order of S
/s/ B
Ruling: This is an unconditional promise to pay because the condition is implied but it is not express
if S does not convey BA to B, B has a good personal defense against S but not against an HIDC
–there can be no reference to another writing that determines whether or not the promise to pay is conditional
–ex: B writes and signs à Subject to the agreement betwe

demand or at a specified time or series of time; and
–ex: I promise to pay $100,000 to the order of S when I am financially able to do so.
/s/ B
Ruling: This is not a negotiable instrument because it is not payable at a definite time

–an instrument is payable on demand if a specific time is not stated
–acceleration clauses: can be included in promises or orders to pay
–the holder of the note can always extend the time of payment subject to the 6yr statute of limitations

7. not an indepth, complicated contract
–there cannot be too much in a negotiable instrument or it looks too much like a contract

● Other examples:
I promise to pay $100,000 to Sam. This is a negotiable instrument.
/s/ Tom