Commercial Paper Fall 2010 curtis

Commercial Paper Fall 2010 curtis - COMMERCIAL PAPER Curtis...

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COMMERCIAL PAPER Curtis Fall 2010 PUBLIC POLICY BEHIND COMMERCIAL LAW A. Promotes free flow of commerce by recognizing neg. instr. as substitutes for cash B. Promotes personal safety by encouraging use of system as an alternative to storing money elsewhere to avoid burglary, robbery, checks stolen from mailbox, etc. C. Promotes fast, convenient, and price-competitive financial services DEFINITIONS; CHECK COLLECTION PROCESS A. Definitions 1. Depository/Depositary bank: Bank of first deposit of a negotiated instrument ; Payee’s bank 2. Payor bank – bank on which negotiated instrument is drawn 3. Collecting bank – intermediary bank usually used when there’s significant distance bw. depository and payor bank 4. Drawer/Maker/Issuer – party that issues negotiated instrument possible to have multiple) 5. Drawee – payor bank 6. Payee – beneficiary of payment order (possible to have multiple) B. Check Collection 1. Maker/Drawer issues the check: liability attaches. a. Maker is not liable to pay the negotiated instrument unless her authorized signature appears on it 2. Gives to Payee: first endorser 3. Payee deposits check at depository bank / collecting bank ( either the payee’s bank or the bank of fist deposit ) 4. Depository Bank credits payee’s account 5. Depository bank goes to Payor bank or Drawer a. There may be an intermediary bank that helps small bank make presentment to Drawer. b. If depository bank and payor bank are within same state, there may be Direct Presentment in which case no collecting is bank needed. TYPES OF NEGOTIABLE INSTRUMENTS A. Note 1. Instrument whereby maker (borrower) promises to pay money to payee (lender) 2. Interest isn’t required, can have principal only note, but very unlikely B. Certificate of deposit (CD) 1. Instrument whereby bank promises to repay money deposited by payee 2. Interest isn’t required, but very likely C. Draft 1. Instrument whereby drawer (maker) orders drawee (usually a bank) to pay money to payee a. Time drafts: Payable at specified future date. b. Sight drafts: Payable at sight, immediately at presentment or at time seen. 2. Not commonly used except by insurance companies and some gov’t agencies. D. Check: 1. Instrument whereby drawer (maker) orders drawee (always a bank) to pay money to payee., payable on demand INDORSEMENTS A. Signature on an instrument, other than the maker’s signature, made for the purpose of negotiating the instrument 1. Blank risky. Once indorsed, anyone can indorse and cash. a. Signature of the indorser b. NO words specifying a new payee 2. Special a. Signature of the indorser b. Words specifying a new payee
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c. Ex. Include “Pay to the order of USC” under signature 3. Restrictive a. Signature of the indorser b. Words designed to limit payment or use of the instrument c. Ex. Include “For deposit only”
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4. Qualified a. Signature of the indorser b. Words designed to negate payee liability c. Without recourse” precedes signature d. Most banks won’t accept this. If check is returned unpaid, bank has no right against payee, only
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Commercial Paper Fall 2010 curtis - COMMERCIAL PAPER Curtis...

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