MODULE 25 COMMERCIAL PAPER 189

(a) Rubber stamp, initials, letterhead satisfy signing requirement .

(b) Assumed name or trade name operates as that party's signature
(c) Signature may be anywhere on face of instrument
c. Must contain an unconditional promise or order to pay
(1) If payment depends upon (is subject to) another agreement or event, then it is conditional and
therefore destroys negotiability
EXAMPLE: An instrument that is otherwise negotiable states that it is subject to a particular contract. This
condition destroys the negotiability of this instrument. .
EXAMPLE: An instrument states: "I, lanice Jones, promise to pay to the order of Richard Riley, $1,000 if
the stereo delivered to me is not defective." This instrument is not negotiable whether the stereo is defective
or not because it contains a conditional promise.

(a) However, the following are permitted and do not destroy negotiability
1] Instrument may state its purpose
EXAMPLE: On a check, the drawer writes "for purchase of textbooks. "
2] Instrument may refer to or state that it arises from another agreement
3] Instniment is permitted to show that it is secured by a mortgage or by collateral
4] Instrument is permitted to contain promise to provide extra collateral
5] Instrument is permitted to limit payment out of particular fund
(2) An IOU is not a promise or order to pay but an acknowledgement of debt, thus, an IOU is not
negotiable

d. Must state a fixed amount in money--called sum certain under former law
(1) Amount of principal but not interest must be determinable from instrument without need to re-
fer to other sources

(a) Stated interest rates are allowed because amount-can be calculated

EXAMPLE: A negotiable note states that $1,000 is due one year from October 1,2001 at 14% interest.
EXAMPLE: A note states that $1,000 is payable on demand and bears interest at 14%. This also is
negotiable beca~se once payment is demanded, the amount of interest can be calculated.

,1] Variable interest rates are allowed and do not now destroy negotiability even if for-
mula for interest rate or amount requires reference to information outside of negotia-

ble instrument
EXAMPLE: Thefollowing do not destroy negotiability in an otherwise negotiable instrument:

Interest rates tied to some published key interest rate, consumer index market rate, etc.
2] If interest rate based on legal rate or judgment rate (fixed by statute), then negotiabil-
ity not destroyed

(b) Stated different rates of interest before and after default or specified dates are allowed
(c) Stated discounts or additions if instrument paid before or after payment dates do not de-
stroy negotiability

(d) Clauses allowing collection costs and attorney's fees upon default are allowed because
they reduce the risk of holding instruments and promote transferability
(e) Must be payable only in money
1] Option to be payable in money or something else destroys negotiability because of
possibility that payment will not be in money

EXAMPLE: A note is payable in $1,000 or its equivalent in gold. This note is not negotiable.
2] Foreign currency is acceptable even though reference to exchange rates may be
needed due to international trade realities

e. Must be payable on demand or at a definite time

(1) On demand includes
(a) Payable on sight
(b) Payable on presentation
(c) No time for payment stated