COMMERCIAL PAPER. A general name for checks, drafts, notes, bills of lading, bills of exchange, warehouse receipts, treasury warrants, orders for delivery of goods, certifi cates of stocks and bonds and sometimes loosely applied also to contracts and agree ments. The term is intended to cover all that class of documents which are used commer cially in place of money, and is therefore some times restricted to checks, drafts and notes.
A check is an order on a bank, trust. company or broker connected with a cleanng house, calling for the payment of a specified amount of cash, from the funds of the maker on deposit, made to the order of some one named, or to ((Cash') or (Bearer.)) It is frequently numbered, and written on a printed form blank, which may be on paper with a printed tint to prevent erasures. It is usually .fiLled in with ink, and often the figures are also punched out of the paper or embossed so as to prevent alteration. It is good, how ever, if written in lead pencil, on any sort of paper. Its payment depends on the bank official's recognition of the signature, or his knowledge of and confidence in the party pre senting the check for payment. Business houses seldom cash their thecks, but deposit them as received, and draw their own checks for the payment of their bills. The chec.k after payment is punched or canceled and eventually returned to the signer or ma.ker, who thus secures a receipt which is positive evidence of the payment of the sum named, as the party receiving a check has to put his name on the back before it will be cashed or credited to his account. A check is payable whether dated or not, but if dated ahead is not payable until the date stated. To give a check dated ahead is sometimes necessary for a conditional transaction, but it is an improper proceeding unless the cash is in the bank. When a bank is asked to certify a check, it will do so, if the funds are there to the credit of the maker, and it then becomes primarily liable, and the sum no longer remains to the credit of the signer of the check. Checks are usually printed in quantities in blank and bound in books with stubs, on which may be kept a record of the transactions. Banks have to pay all the checks they handle or make themselves liable for them; but they turn the checks over daily to a clearing house, which figures out the balances due to or receivable from each bank, and settles only the balances in cash. This system relieves each bank of the immense detail of collecting each individual check.
Drafts.— A draft is very similar in form to a checic, but it is an order from one bank to another bank to pay a sum stated to the party in whose favor it is made. A small merchant in a small town, who is not known, desiring to send a payment to a large city house and secure immediate shipment of the goods he orders, gets from his local bank a draft on a city bank, and uses this instead of his own check. The city merchant receiving such draft can cash it at once, knows that it is good, and has no hesitation in shipping the goods. A sight draft is an order drawn by a party to whom money is due, for the payment of money another party at a bank named, and sent through the bank for collection. If the party to whom it is addressed through the bank pays it, it is said to be accepted.
Bills of Lading, etc.— A bill of lading or a warehouse receipt is a rec.eipt from a trans portation company or warehouse showing that the goods specified have been delivered to them. Such bills are often commercially important, being frequently used as a basis for borrowing money. Wholesale merchants sometimes handle goods vastly in excess of their capital, but through borrowing on such receipts secure funds for transacting a large business.
Notes.— A promissory note is a promise to pay a specified sum on demand or at a future date. (See PROMISSORY Now). The signer of a note, draft or check is the drawer or maker. The one to whom payment is to be rnade is the payee. One who signs on the back is an en dorser, and he thus guarantees the payment. To hold an endorser liable for the non-payment of a check or note, he must receive prompt notice. There may be several endorsers. A release by the holder of a note to one endorser releases all other endorsers.
Money Orders, etc.—In the United States these are issued at nearly all post-offices by the postmaster for amounts up to $100, on payment of a fee of 3 cents for $2.50 or less and up to 30 cents. They are payable at the post-office named or can be banked for collection; for $100.
Express orders are also issued by express com panies for moderate amounts and are payable at any office of the company, or can be banked like ordinary checks.
Certificates of stocks and bonds that have recognized value may be deposited with banks as collateral security for loans. See NEGO TIABLE PAPER; BANKS AND BANKING (Article 17).