Commercial paper plays an important role in our life for borrowing money. Historically speaking, commercial paper is relatively new development. In early human history, people lived on whatever they could hunt, grow, or make for themselves. Imagine what your life would be if you had to subsist only on what you could make yourself. Certainly, many law professors would starve – their torts are inedible. Over time, people improved their standard of living by bartering for goods and services they could not make themselves. But traders needed a method for keeping account of who owned how much to whom. The first currencies – gold or silver, whether in bullion or coins – had two disadvantage: they were easy to steal and heavy to carry. Paper currency solved the weight problem, but was even easier to filch than gold. As a result, money had to be kept in a safe place, and banks developed to meet that need. However, money in a vault is not very useful unless it can readily to spent. Society needed a system for transferring paper fund easily. Commercial paper is that system.
Commercial paper is a contract to pay money. It is used as
• A substitute of money
• A loan of money
Exchange of goods and services is the basis of every business activity. Goods are bought and sold for cash as well as on credit. All these transactions require flow of cash either immediately or after a certain time. In modern business, large number of transactions involving huge sums of money takes place every day. It is quite inconvenient as well as risky for either party to make and receive payments in cash. Therefore, it is a common practice for businessmen to make use of certain documents as means of making payment. Some of these documents are called negotiable instruments.
Meaning of Negotiable Instruments
The concept of negotiability is one of the most important features of commercial paper. A negotiable instrument is a written document, signed by the maker or drawer,...