commercial paper that is negotiable upon delivery by any party (or that does not designate a specific party by whom it is negotiable). Such commercial paper is said to be PAYABLE TO BEARER. The most popular domestic bearer instruments are government securities (eg, treasury bills; municipal bonds; etc.). Foreign stocks & bond are normally in bearer form. A major disadvantage of bearer instruments is that they offer little protection in the event of theft or loss.
EXAMPLE:
a thief steals several notes that are payable to bearer and sells them to John – who does not know they are stolen. Because the notes are bearer paper, John can demand payment (according to the terms of the notes). The fact that they are stolen has no effect on his ability to collect, because John is the bearer. In other words, the notes are payable to whoever has possession (ie, the bearer).
see negotiable instrument.
compare order paper.
