NEGOTIABLE INSTRUMENTS

What is Negotiation?
When a Promissory note, Bill of exchange or cheque is transferred to any person, to make that person the owner of the negotiable instruments, then the instrument is said to be negotiated.

What is Negotiable Instrument?

The term negotiable instruments means a written document which entitles a person to a sum of money. A negotiable instruments is transferable by delivery or by endorsement. The transfer entitles a person to the sum of money mentioned there in. Thus the negotiable instrument is a document which is legally recognized by custom of trade or law, transferable by delivery and endorsement.
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How many negotiable instruments we have?

We have three negotiable instruments. 1. Promissory note 2. Bill of Exchange 3. Cheque

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1. Promissory note
A Promissory note is the simplest and earliest kind of credit instrument. It is an unconditional written promise by one person to another in which the maker (payer) promise to pay on demand or to the order of a specified person.

Essential features of the Promissory note

The following are the essential features of a Promissory note: 1. The promise to pay must be in writing. 2. The promise to pay must be signed by the maker or payer. 3. The promise to pay must be unconditional. 4. The amount to be paid must be definite in terms of money. 5. The Promissory note must be payable on demand. 6. The Promissory note must be payable to a definite person. The Payee must be certain. 7. It must bear stamp at the rate prescribed by law of a country.
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Specimen of a Promissory Note

2. Bill of Exchange
A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand. It is drawn by the creditors and is accepted by debtor.

Features of a Bill of Exchange

The main characteristics or features of a bill of exchange are as follow: 1. A Bill of Exchange must be in writing. 2. It must contain in order to pay. 3. The order to pay must be unconditional. 4. It must be signed by the drawer.

Features of a Bill of Exchange

The parties to the bill, the drawer, the drawee, and payee must be certain and definite individuals. 6. The amount payable must be certain. 7. The payment must be made in money. 8. The bill payable may be either on demand or after a specified period.
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Specimen of a Bill of Exchange

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3. CHEQUE
A cheque may be defined as written order of a depositor upon a bank to pay to a designated party or to the bearer, a specified sum of money on demand. The person who draws the cheque is called Drawer, The bank on which the cheque is drawn is called Drawee, and The person to whom payment is to be made is called Payee.

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Features or Characteristics of a Cheque

The main characteristics or features of a Cheque are as follows: 1. It is an order of the customer without condition. 2. It is drawn upon a certain bank in writing. 3. The bank has always to pay it on demand. 4. It is payable to a certain person.

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Specimen of a Cheque

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