Professional Documents
Culture Documents
Priya Abraham
Faculty, Dept of Management Studies
VCMCS
Introduction
Definition “Negotiable instrument”
Negotiable means transferable
Instrument means a written document
A negotiable instrument is a document which
entitles a person to a sum of money and which
is transferable from one person to another by
mere delivery or by indorsement and delivery.
It is a method of transferring a debt from one
person to another.
Characteristics
Freely transferable
Title of holder free from all defects
A person who is holding negotiated instrument he is free from a defect
in the title of the transferor
Ex: S sells certain goods to B. B gives a promissory note to S for the
price. He refuses to pay the promissory note, claiming that the goods
are not according to order. If S sues B on the note, B’s defence is
good. But if he negotiates the note to H, a holder in due course, B’s
defence will be of no avail.
Recovery
A holder of the negotiable instrument can sue for recovery of the
amount.
Presumptions
Negotiable instrument is for consideration
Dated
Reasonable Time of acceptance
Before the maturity it should transferred
Stamp when there is a dishonour
Types of negotiable instrument
Negotiable by statue
- Promissory note
-Bill of exchange
-Cheque
Negotiable by custom or usage
-Share warrants
-Dividend warrants
-Share certificates
Promissory note
It is an instrument in writing containing an unconditional undertaking,
signed by the maker,to pay a certain sum of money only to, or to order of, a
certain person, or to the bearer of the instrument.
The person who makes the promissory note and promises to pay is called
maker
The person to whom the payment is to be made is called the payee.
Essential elements
-Writing
-Promise to pay
-Definite and unconditional
-Signed by the maker
-Point out the Certain parties
-Payment of certain sum of money
-Promise to pay money only
-Formalities like date, number, place, consideration everything should be
there
-it may be payable on demand or after a definite period of time
Bill of Exchange
It is an instrument in writing containing an unconditional
order,signed by the maker,directing a certain person to pay a certain
sum of money only to, or to the order of a certain person or to the
bearer of the instrument.
The person who makes the bill is called drawer
The person who is directed to pay is called drawee
The person to whom the payment is made is called payee
Essential element
-Must be in writing
-Must contain an order to pay
-The order must be unconditional
-It requires three persons involvement
-The parties must be certain
-Signed by the drawer
-Sum payable must be certain
-It should be an order to pay
-All the formalities like date, time, place etc., should be there
Distinction between a Note and the Bill of
exchange
Note – two parties involved BOE-Three parties involves
Note-Unconditional promise to pay BOE-Unconditional order to
pay
Note-Maker is a debtor BOE-maker is a creditor
Note-Maker is the acceptor BOE-Maker is not a acceptor
Note-Liability of the maker is Primary BOE-Liability of the drawee is
secondary
Note-Requires no acceptance BOE-Requires acceptance of the
drawee
Note-Cannot drawn as payable to bearer BOE-Drawn as payable to the
bearer
Note-Dishonor may not informed to all BOE-Dishonour informed to
all
Cheque
A cheque is a bill of exchange drawn upon a specified
banker and payable on demand.
It is the electronic form means it contains the exact mirror
image of the proper cheque, and is generated, written and
signed in a secure system ensuring the minimum safety
standards with the use of digital signature and asymmetric
crypto system .
Types
-Open cheque
A cheque which is payable in cash across the counter of a
bank
-Crossed cheque
It is the one on which two parallel transverse lines with or
without the words &Co are drawn.
Types of crossing
General crossing