Uniform Commercial Code: Negotiable Instruments and Commercial Paper

Introduction

The Uniform Commercial Code (UCC) is the general set of laws governing all United States transactions. Generally accepted legislation is vital because each participant can be convinced of the purity of the act. UCC’s allocated negotiable instruments include an order and a promise to pay money. Within the framework of the UCC definitions, any transaction can be brought under a single rule that guarantees its transparency.

Types of Instruments as Defined by the UCC

The UCC defines two types of negotiable instruments: an order to pay money and a promise to pay money. In the first case, the second party to the transaction receives a check on the payment made. When using the second instrument, a document on the promised receipt is obtained (Uniform Law Commission, n.d.).

Requirements of Negotiability

Specific negotiability requirements must be met for a promised document to become negotiable. The document must be unconditional, for a certain amount of money, paid to a specific person, and include the payment procedure (Uniform Law Commission, n.d.). If these requirements are met, the instrument becomes negotiable and can act as a guarantee for the performance of obligations.

Potential Liabilities in Dealing with Commercial Paper

One form of negotiable instrument is commercial paper, an unsecured debt instrument, usually used to finance short-term obligations. Commercial paper is usually a liability in the form of a certain amount, which must be paid on a specific day with an average maturity of 30 days (Forsythe & Davidson, 2020). Bills of exchange, drafts, checks, and certificates of deposit are forms of commercial paper (Forsythe & Davidson, 2020). The main advantage of commercial paper is that it is short-lived and does not require registration. At the same time, the limitation is the need for a good income for companies.

Conclusion

In conclusion, the transaction terms determine the form of financial liability registration to be used. All forms, however, can be categorized under two instruments: an order and a promise to pay. According to these standards, the document must be unconditional, for a specified sum of money, paid to a specific individual, and contain the payment process. One such tool that enables one to set financial obligations for a certain sum and time frame is commercial paper.

References

Forsythe, L. M., & Davidson, D. V. (2020). Business law: Principles and cases in the legal environment. NY, US: Wolters Kluwer.

Uniform Law Commission. (n.d.). Uniform Commercial Code. Web.