Text a Parties to Commercial Paper

We have already seen that notes have two original parties - the maker and the payee - while drafts and checks have three - the drawer, the drawee and the payee.

But after an instrument is issued, additional parties can become involved.

The acceptor

Frequently, after a draft is issued, it is presented by the payee (or a subsequent holder) to the drawee (the person to whom the order is addressed) for that person's acceptance. The drawee who "accepts" the draft is called the acceptor; an acceptance occurs when the drawee signs his or her name somewhere on the face of the instrument.

Indorsers

Often the payee of a note or draft transfers it to a third party soon after acquiring it instead of presenting it to the primary party for payment. When such a transfer occurs, the payee-transferor almost always "indorses" the instrument by signing his or her name on the back of it before delivering it to the third party; by doing so the payee becomes an indorser. For example, if P., the payee, receives a check from D. , P. can indorse it to a third party,

Z in payment of a debt that P. owes to Z (or for any other reason). In this case Z is the indorsee. The indorsee is the person who receives an indorsed document. But Z can also indorse the instrument to another party, in which case Z also becomes an indorser.

The bearer

From both a legal and a practical stand-point the term bearer is of a limited significance. A bearer is any person who has physical possession of an instrument that legally qualifies as a bearer instrument. For example, if a note is expressly made "payable to bearer or is simply payable to "cash" whoever possesses it the bearer.

Holders

The term holder is broader and of greater legal significance than the term bearer. A holder is a person who possesses a negotiable instrument which is either payable to the bearer or payable to such a person as the payee or indorsee.

Maker: Party who creates and originally signs a promissory note. Example: Mary sings and issues a negotiable promissory note promising to pay $ 100 to Ellie. Mary is a maker.

Drawer: Party who creates and originally signs a draft (including a bill of exchange or check). Example; Dave signs his check ordering his bank to pay $100 to Paul. Dave is a drawer.

Drawee : Party ordered by a drawer to pay a draft or check. Example: Dave issues his check ordering his bank, ABC Bank, to pay $100 to Paul. ABC Bank is a drawer.

Payee: Party originally named on the face of an instrument as the party to receive payment. Example: Dave issues his check ordering ABC Bank to pay $ 100 to Paul. Paul is a payee.

Acceptor : Drawee who, in writing on a draft, agrees to pay the draft. Example: Dave issues his check ordering ABC Bank to pay $100 to Paul, and ABC Bank in writing on the check agrees to pay. ABC Bank is an acceptor.

Indorser : Party who signs the back of a negotiable instrument. Example: Dave issues his check payable to the order of Paul, and Paul signs the back of the check. Paul is an indorser.

Indorsee: Party to whom an indorsed instrument is made payable. Example: Paul indorses a check stating "Pay to Irene." Irene is an indorsee.

Bearer: Party in physical possession of an instrument that is payable to bearer or cash.

Holder: Party to whom paper is issued, or to whom paper is subsequently negotiated.

Holder in due course : Holder who takes an instruments for value, in good faith, and without notice that it is overdue or dishonored, or that there are defenses against or claims to it.

Holder through a holder in due course : Party who becomes a holder of an instrument at any time after it has been held by a holder in due course.

Accommodation party : Party who voluntarily signs an instrument to strengthen the instrument. 1990 UCC : Indorsement by one not owning an instrument is called an anomalous indorsement.

Guarantor: Party guarantees payment or collection of paper. Payment guaranteed: guarantor agrees to pay when paper is due without requiring a holder to first seek payment from others. Collection guaranteed: guarantor agrees to pay if a holder first tries and fails to collect from a maker or acceptor.