also serves as a certificate of title to the goods,
which is ordinarily in the seller’s name.
Upon shipment, the seller draws a draft
against the buyer-drawee, who is required to
pay the draft. The seller’s bank is named as the
payee. The seller endorses the bill of lading to
the payee and attaches the bill to the draft. The
seller can either
NEGOTIATE these instruments to
the payee at a discount or use them as security
for a loan. Subsequently, the papers are
endorsed by the seller’s bank and delivered to
a correspondent bank in the community where
the buyer is located. The correspondent bank
seeks payment of the draft from the buyer and
when payment is made, the bank transfers
ownership of the goods from seller to buyer by
endorsing the bill of lading to the buyer. The
buyer can then obtain the goods from the
carrier upon presentation of the bill of lading,
which demonstrates his or her title to the
shipped goods.
A check is a specific kind of draft, which is
drawn on a bank and payable on demand to a
particular individual or to the bearer, in which
case it can be written payable to “cash.”
An individual who opens a checking account
is engaged in a contractual relationship with a
bank. The individual agrees to deposit money
therein, whereas the bank agrees that it is
indebted to the depositor for the amount in

ity of commercial paper. The instrument must
be in writing and signed by either its maker or
its drawer. In addition, it must be either an
unconditional promise, as in the case of a
promissory note, or an order to pay a specific
amount of money, such as a draft. It must be
payable either on demand or at a fixed time to
order or to bearer.
The requirement that the instrument must
be in writing can be met in various ways. The
paper can be printed, typed, engraved, or
written in longhand, either in ink, pencil,
or both. Ordinarily, specimens of commercial
paper can be obtained from banks or stationery
stores.
Similarly, there are a number of ways to
comply with the signature requirement. The
ILLUSTRATION BY GGS
CREATIVE RESOURCES.
REPRODUCED BY
PERMISSION OF GALE,
A PART OF CENGAGE
LEARNING.
Commercial Paper Outstanding, 2004 to 2007
663.9
142.4
730.7
167.1
816.7
162.7

18 COMMERCIAL PAPER
signature may legally be either handwritten,
typed, printed, or stamped by a machine.
Individuals who are unable to write their names
can sign with a simple mark, such as an X. Also
permissible are initials, a symbol, a business or
TRADE NAME, or an assumed name. The pledge or
order for payment must be unconditional to
insure certainty that the instrument will be paid,
since it is used in place of money and as a means
of obtaining credit.
When the paper includes an unconditional
promise or order, supplementary facts can be
mentioned that will not defeat its negotiability.
For example, the paper can indicate the
transaction was secured by a mortgage. It might
mention a specific account or fund out of which
payment is expected, although not required.
Ordinarily, such a collateral statement is made
for purposes of accounting and does not create
a conditional promise or order to pay. Payment
can, however, be limited to the total assets
of a partnership, unincorporated association,
or trust.
A promise to pay is conditional when it
indicates that it is either subject to or governed
by another agreement. When payment is
conditional, negotiability is terminated and the
instrument is not commercial paper. The holder
of the paper cannot rely upon the face of the

differ before or after default or before or after a
particular date.
The amount payable remains a fixed sum
even in the event that it is paid in installments
or reduced by agreement of payment prior to a
set time or increased following the date of
payment. In addition, the certainty of t he sum is
not affected by a provision for collection of
expenses and lawyer’s fees. The sum must be
payable in money, which is a medium of
exchange adopted by governments; otherwise,
the document is not considered commercial
paper.
An instrument must be payable either on
demand or at a set time in order to have
negotiability. Papers that are payable on demand
are payable upon presentation, such as checks.
When a note or a draft is payable on, or
prior to, a fixed date or for a set period
thereafter, it is considered to be negotiable at a
definite time. When an instrument is payable on
or before a certain date, payment is required no
later than the date indicated, although it can be
made prior to that date. Similarly, a paper made
payable at an established time after sight is
payable at a definite time. After sight means
that upon presentation of the instrument to the
maker by the holder, payment will occur after
the expiration of the time designated on the
note. The payee of a note due one week after

whether it is payable on demand or on a certain
date. A postdated check cannot be cashed prior
to the date appearing on its face, in spite of
the fact that a check is ordinarily payable on
demand. An instrument is not negotiable if it is
payable upon an occurrence of indefinite
timing, even when the event is certain to
happen, such as death.
The requirement that an instrument be
made payable either to order or to bearer is met
when the paper is made available to the bearer
or to an individual spe cifically designated or to
the order of that person, as in “X, or his order.”
An estate, trust, corporation, partnership, or
unincorporated association may be designated
as a payee of a commercial paper.
An instrument can be made payable to two
or more people, either together or in the
alternative. If the paper is made out to two
parties together, as in “to X and Y,” then both
payees must endorse it before payment will be
made. An instrument made out in the alterna-
tive, however, as in “To X or Y,” requires
endorsement by only one payee in order to be
paid.
Checks and drafts are ordinarily written on
printed forms, made payable both to order and
bearer. An empty space is left between the
words “pay to the order of” and “or bearer.”
When the name of the payee is inserted by the

An endorsement is the process of signing the
back of a paper, thereby imparting the rights
that the signer had in the paper to another
person. The number of times an instrument
may be endorsed is unlimited. There is no
requirement that the word “order” be embodied
in the endorsement. Four principal kinds of
endorsements exist: special, blank, restrictive,
and qualified.
An endorsement that clearly indicates the
individual to whom the instrument is payable is
a special endorsement.
A paper containing a
BLANK ENDORSEMENT is
one that has the signature of the payee but no
specific endorsee is designated. A check that is
made payable to the order of X is endorsed in
the blank when X signs it. Once endorsed, it
becomes bearer paper and is negotiable by
anyone who physically holds it. A blank
endorsement is changed into a special endorse-
ment if certain words are written above the
endorsee’s signature, such as “pay to the order
of Y.”
A qualified endorsement is one wherein
liability is disclaimed by the endorser through
inclusion of a phrase preceding his or her
signature. Ordinarily, an unqualified endorser ’s
liability may be either secondary, whereby the
endorser is bound to pay if the individual

prohibit further transfer of an in strument will
not succeed. If a check says “Pay X only,” it is
still completely negotiable upon its endorse-
ment by X.
Liability of Parties
An individual who signs an instrument is either
primarily or secondarily liable for payment.
Primary liability is extended to the person who
is expected to pay first, and the individual who
is legally responsible to pay upon the failure of
the first party to do so is secondarily liable.
The maker of a prom issory note is primarily
liable, since that person is the individual who
has originally promised to pay. He or she must
meet this obligation when payment becomes
due unless he or she has a valid defense or has
been discharged of the debt.
The drawer of a check or draft is secondarily
liable, since that individual does not make an
unconditional promise to pay the instrument.
He or she expects the bank to pay and promises
to pay the amount of the instrument only upon
notification of dishonor, a refusal by the drawee
to accept the paper when properly presented for
payment. This might occur, for example, if the
bank refuses to pay a check due to insufficient
funds in the drawer’s checking account or
because he or she has notified the drawee to
stop payment.
The drawee of a draft or check has primary

instrument. In the last two instances, the failure
of the employer to use reasonable care in
choosing and supervising employees makes the
employer personally responsible for all losses
that arise from his or her
NEGLIGENCE. Many
employers guard against such risks by taking
out
FIDELITY INSURANCE policies to cover losses
that might occur through employee misconduct.
Secondary Liability
Individuals who are secondarily liable on a
negotiable instrument are not obliged to pay
unless it has been presented for payment and
dishonored. The commercial paper must first
be given to the person who is primarily liable
for payment. In the event that the instrument
clearly notes the date of payment, the instru-
ment must be presented on the date indicated.
If payment is unjustifiably refused by the
individual who has primary liability, the secon-
dary party must be given notice of the dishonor
and the presentation of the instrument for
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
COMMERCIAL PAPER 21
payment must be made within a reasonable
period of time. What constitutes a REASONABLE
TIME
is contingent upon what type of instrument
is involved. If the paper is a check, the drawer

According to law, a holder may either be an
ordinary holder or a
HOLDER IN DUE COURSE, who
has preemptive rights to payment. An ordinary
holder becomes a holder in due course upon
taking an instrument subject to the reasonable
belief that it will be paid and that there are no
legal reasons why payment will not occur.
In more technical terms, to be a holder in
due course, the party must take the paper for
value, in
GOOD FAITH, and absent the notice that
it is overdue, has been dishonored, or is subject
to an adverse claim. Such notice of prob lems
affecting the validity of the instrument exists if
the party either is specifically informed about
something or otherwise has reason to believe in
the existence of a problem.
A holder takes a paper for value when the
holder has imparted something of value, such as
property or services, in exchange for the value
of the paper, as evidenced by its terms. In such a
case, the individual becomes the holder for
value.
If a paper is used in satisfaction of or as
security for the repayment of a debt, even
though the debt might not be due when the
paper is taken, the instrument is taken for value.
In addition, value is given when one commer-
cial paper is traded for another.

individual who accepts a check that is more
than 30 days old is assumed to be doing so with
the knowledge that it is overdue.
An instrument that has been dishonored
ordinarily has that fact indicated on its face. For
example, a check might be stamped “insufficient
funds,”“account closed,” or “payment stopped.”
An individual who accepts such a document
possessing knowledge of its dishonor cannot be
a holder in due course. A person cannot be a
holder in due course if he or she takes an
instrument subject to his or her knowledge that
a claim exists against it, such as when it has been
stolen or transferred as a result of
FRAUD.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
22 COMMERCIAL PAPER
Defenses
A holder of a negotiable instrument who has
been refused payment when payment was due
has a
CAUSE OF ACTION against the party or parties
liable for payment. Ordinarily, when an indi-
vidual is sued on a negotiable paper, he or she
will try to defend his or her right to refuse
payment. Certain defenses, known as real defenses,
are valid against ordinary holders as well as
holders in due course, whereas personal defenses
are only valid against ordinary holders.
Normally, any defense that can be asserted

is not legally bound to honor its terms since he
or she had not freely entered into the transac-
tion. Certain types of duress, such as a threat to
report a wrongdoing to the police or to bring a
civil lawsuit, are not valid against a holder in
due course, although they can be used as valid
personal defenses against an ordinary holder.
Certain jurisdictions deem a paper that has
been negotiated to pay a usurious loan or
gambling debt null and void. An individual can
legally avoid payment to the holder in due
course of such an instrument based on the
illegal nature of the debt it was meant to pay.
Two basic types of fraud exist: fraud in the
essence and fraud in the inducement. Fraud in the
essence occurs when an individual is inten-
tionally lied to about the nature of the
instrument or its terms. It is a defense that is
valid again st both an ordinary holder and a
holder in due course. Fraud in the inducement
takes place when the party signing the paper is
cognizant of its nature and term s but is misled
into believing that the reasons for its creation
have been satisfied when in actuality they have
not. For example, an individual might be
induced to issue a check for a certain amount
to a mechanic who claims to have repaired a
car. If the individual subsequently discovers that
the car was not repaired, fraud may be used as a
personal defense against the mechanic who has

ous holder, he or she is entitled to receive
payment according to the original terms of the
instrument prior to its alteration. None of
the parties responsible for payment can use the
alteration as a defense against a holder in due
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
COMMERCIAL PAPER 23
course, but it may be used against an ordinary
holder.
Discharge from Liability
The most common way to be discharged from
liability on a commercial paper is through
payment. The intentional
CANCELLATION OF AN
INSTRUMENT
by the holder by either marking the
instrument paid or by destroying it discharges
all liability.
The holder may also discharge an individual
from liability for payment through renunciation.
This can be accomplished when a document is
signed and delivered by the holder or when a
paper is relinquished to the party who is being
discharged. A stop-payment order put on a
check by its drawer has the effect of discharging
the bank from liability for refusing to honor the
check when presented for payment. It cannot,
however, discharge the drawer from liability in
cases where the drawer was contractually or
otherwise obligated to pay the payee.

Weber, Charles M. 1982. Commercial Paper in a Nutshell.
3d ed. West Group.
CROSS REFERENCES
Bonds; Documentary Evidence.
COMMERCIAL SPEECH
See FIRST AMENDMENT; FREEDOM OF SPEECH.
COMMINGLING
Combining things into one body.
The term commingling is most often applied
to funds or assets. When a
FIDUCIARY, a person
entrusted with the management of funds other
than his or her own in trust, mixes trust money
with that of others, the fiduciary is commingling
funds and thereby breaching his or her fiduciary
duty.
A member of a corporation’s board of
directors commingles funds when he or she
mixes personal funds with the funds of the
corporation. An attorney who commingles his
or her money with money belonging to a client
is violating the ethics of the legal profession.
COMMISSION ON CIVIL RIGHTS
The federal COMMISSION ON CIVIL RIGHTS evaluates
CIVIL RIGHTS laws and policies of the U.S.
government, follows legal developments regard-
ing discrimination, in vestigates allegations that
U.S. citizens are being denied their civil rights,
and evaluates equal opportunity programs. It
collects and monitors information on discrimi-

party. Members serve for three or six years. Four
members of the commission are appointed by
the president, two by the president pro tempore
of the Senate, and two by the Speaker of the
House of Representatives. The president desig-
nates a chairperson and vice chairperson from
among the commission’smembers.
From the beginning, the Commission on
Civil Rights has interjected itself in controversy.
It has investigated activities ranging from dis-
crimination to hate crimes. Because appoint-
ments to the commission are political, its tone
often swings from the right to the left, depend-
ing on who is president. During the 1980s, it
issued opinions that were so conservative some
congressional Democrats wanted to shut it
down. In contrast, during the 1990s, under the
leadership of its outspoken chairwoman, Mary
Frances Berry, it tilted toward the left.
One of the commission’s most controversial
actions was its investigation into the 2000
presidential election in Florida. After a six-month
investigation, the commission issued a report
claiming that Florida’s conduct of this election
was marked by “injustice, ineptitude and
inefficiency.” The report claimed that minority
voters were disenfranchised through unequal
access to voting equipment and overzealous
efforts to purge state voter lists of felons and
other ineligible voters. The commission recom-

are political has meant that the appointment
process to the commission itself has become
political at times. For example, in 1993 Repub-
licans refused to confirm a Democratic appoin-
tee for the chair of the commission. In 2002, a
Republican appointee to the commission had to
go to court before he could take his seat on the
commission.
Nevertheless, the commission has remained
in existence for more than 50 years, and has
made valuable contributions to America’scivil
rights debate in that period. Its web site, www.
usccr.gov, gives important information on how
to enforce federal civil rights laws, and different
state civil rights organizations. As long as it
exists, the commission will probably stir up
controversy, but ideally it will continue to
educate and enlighten about civil rights issues.
The commission had a relatively low profile
during most of the 2000s. In 2005 and 2006, the
commission released a series of reports about
such issues as the Justice Department’s record
with regard to enforcement of voting rights and
the funding of civil rights enforcement initiatives.
FURTHER READINGS
Carlson, Peter. 2002. “Uncivil Fights; The Commissioners
Have a Job to Do. But First, They Have to Agree to
Meet.” Washington Post (October 30).
U.S. Commission on Civil Rights. 2005. Funding Federal
Civil Rights Enforcement: The President’s 2006 Request

Attempts have been made to provide an
organized system of uniform legislation
throughout the states. The
COMMISSIONERS ON
UNIFORM LAWS
, properly known as the National
Conference of Commissioners on Uniform
States Laws and also referred to as the Uniform
Law Commissioners, was established in 1890 to
draft uniform and model laws on subjects where
uniformity is desirable. The organization con-
sists of more than 300 lawyers, judges, and law
professors, each selected by the state govern-
ments. The acts approved by the organization
do not become “law” in the states until they are
adopted by legislatures of those states, and the
Commissioners on Uniform Laws work with
the legislatures to promote such enactments.
The organization has been most instrumen-
tal in persuading the states to adopt commercial
laws approved by the commissioners, most
notably the
UNIFORM COMMERCIAL CODE (UCC).
It has also drafted a number of laws relating in
such areas as
CHILD CUSTODY, business organiza-
tions, and consumer law. The commissioners
often work in conjunction with such organ iza-
tions as the
AMERICAN BAR ASSOCIATION and the

developmental disabilities, and drug or alcohol
addiction. In addition, most state commitment
statutes set forth specific criteria or standards
that link these conditions to justifications for
involuntary commitment.
Most jurisdictions have at least one criterion
that is based on a person’s posing a danger to
himself or herself, or others. Some states require
that other criteria which are closely related to
dangerousness be met, such as the presence of a
grave disability or an inability to provide for
one’s basic human needs or that some medical
or psychological treatment is essential to the
person’s welfare. Since the 1980s, some states
have moved significantly away from a strict
dangerousness standard for involuntary com-
mitment. In Arizona, for example, a person who
is “persistently or acutely disabled” because of
mental illness may be subject to commitment
(Ariz. Rev. Stat. Ann. § 36-540 (A) [1995]), and
in Delaware, an individual who cannot make
“responsible decisions” about inpatient care
and treatment may be committed (Del. Code
Ann. tit. 16, § 5001 [1995]). An even broader
standard has been enacted in Iowa, where the
law provides that a person may be committed if
he or she is likely to inflict serious emotional
injury on family or others who “lack reasonable
opportunity” to avoid contact with that person
(Iowa Code Ann. § 229.1 [West 1995] ).

that a “mere finding” of mental illness “cannot
justify a state’s locking a person up against his
will and keeping him indefinitely in simple
custodial confinement.” Although the Court
appeared to establish the right of a nondanger-
ous individual not to be involuntarily commit-
ted, it left unresolved the issue of whether a
mentally ill person has a constitutional right to
treatment.
In a later decision, Zinermon v. Burch, 494
U.S. 113, 110 S. Ct. 975, 108 L. Ed. 2d 100
(1990), the Court further addressed dangerous-
ness as a justification for civil commitment.
It stated that involuntary commitment proce-
dures “guard against the confinement of a person
who, though mentally ill, is harmless and can live
safely outside an institution.” Confinement of
such a person would be unconstitutional, the
Court held.
The involuntary commitment of individuals
who previously have been convicted of a crime
has presented an entirely new set of constitu-
tional considerations. The most significant issue
has concerned whether a prisoner, following
completion of her or his sentence, may be
committed to a psychiatric facility without
receiving the same due process protections
afforded to other individuals who are subjected
to civil commitment.
The high court addressed the issue in Jones v.

Supreme Court in Kansas v. Hendricks,521
U.S. 346, 117 S. Ct. 2072, 138 L. Ed. 2d 501 (1997).
In that case, the Court reviewed the constitution-
ality of the Kansas Sexually Violent Predator Act
(Kan. Stat. §§ 59-29a01 et seq.), which estab-
lishes procedures for the civil commitment of
persons who, due to a mental abnormality or
Kenneth Donaldson,
respondent in
O’Connor v.
Donaldson, displays
the Supreme Court’s
opinion, which said
that a state cannot
hold a non-dangerous
individual against his
will if the person is
capable of “surviving
safely” on his own or
with the help of
friends or family.
AP IMAGES
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3
RD E DITION
COMMITMENT 27