The above described instruments - bills of exchange, promissory notes and checks - are in commercial life for all practical purposes all of the kinds of negotiable paper. There are, however, types of each kind serving special purposes, and going by special names, but being nevertheless essentially either bills of exchange, promissory notes or checks, and not being negotiable unless complying with the rules governing the requirements of those instruments. Below are described some of these special forms.
A certificate of deposit is an instrument issued by a bank reciting a deposit of a certain sum of money, payable to order on demand or at a fixed time. It is negotiable, if drawn properly, being a form of promissory note.5
Example 6. Certificate of deposit.
No. 1008. Chicago, July 1, 1920.
James A. Jones has deposited in the 16th National Bank of Chicago, Illinois, Five Hundred Dollars, payable to the order of himself upon the return of this Certificate properly indorsed. Interest 3 per cent. per annum.
Not subject to check.
5. Kushner v. Abbott, 156 la. 598.
Bonds issued by private corporations and by municipalities are, as customarily drawn, negotiable promissory notes.
Bonds of municipalities and of corporations are in form and effect promissory notes, secured in the case of municipalities by the taxing power, and secured in the case of corporations by a mortgage or trust deed upon specified assets of the debtor.
Bonds are in form "registered" or "coupon" bonds. A registered bond is one transferable only upon the books of the company, interest being payable to the registered holder.
Coupon bonds are payable to bearer and the interest payments are evidenced by coupons which are themselves payable to bearer and negotiable.
Example 7. Form of Trade Acceptance.6
A trade acceptance is a form of bill of exchange, and complies with the definition of an accepted bill of exchange, but it is drawn upon and accepted by a buyer of goods for the purchase price thereof and so states upon its face. Its object is to provide the buyer immediately with an instrument of credit which he may use if he wishes funds at once by discounting the same at his bank or by using it as he may use any other negotiable paper. The trade acceptance practice is designed to replace the discount system which has been generally prevalent throughout the country.
In case the trade acceptance is used the procedure is about as follows: The seller of merchandise sends with the invoice a draft upon the buyer, payable in thirty, sixty or ninety days. The buyer writes his acceptance thereupon and returns it to the seller, who may hold it and put it through his bank for collection when due, or may discount it at his bank for cash, or may sell it in the open market, or may use it instead of currency. A buyer of the acceptance or a lender thereupon would be in the same superior position of any holder in due course of commercial paper in that he would be subject to no defense the buyer might later raise about the goods, and would be subject to no set-offs between buyer and seller. The trade acceptance is known as "two name" paper, that is, when used by the seller of goods for credit or discount, it bears the buyer's liability as drawer and the seller's liability as acceptor.
A bank draft is a bill of ex-change payable on demand drawn by one bank upon another to the order of a person named therein, or to bearer. It is negotiable.
A bank draft is a form of a bill of exchange, and is negotiable.