Negotiable instruments

What is Negotiable Instruments?

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 and delivery.

The transfer entitles a person to the sum of money mentioned therein.

“Thus the negotiable instrument is a document which is legally recognized by custom of trade or law, transferable by delivery or by endorsement and delivery.”

Characteristics Of a Negotiable Instrument

Freely transferable: The property in a negotiable instrument passes from one person to another by a simple process, i.e., by mere delivery if it is payable to bearer, and by endorsement and delivery if it is payable to order.

Holder’s title free from all defects: The holder in due course (one who acquires the instrument in good faith and for consideration) gets it free from all defects.

Recovery: One can sue upon the instrument in his own name.

Payable to order or bearer: - It must be payable either to order or bearer

Presumption as to Holder:- Every holder of negotiable instrument is presumed to be holder in due course.

Presumption as to considerations:- Every negotiable instrument is presumed to have been made, drawn, accepted, endorsed , negotiated or transferred for consideration.

Types of Negotiable Instruments

Promissory note.

Bill of exchange.

Cheque.

Promissory note.

A promissory note is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.

Parties

MAKER : The person who makes the promissory note and promises to pay is called the Maker.

PAYEE: The person to whom the payment is to be made is called the Payee.

HOLDER: The holder is either the payee or someone to whom he may have indorsed (transfer) the note is known as Holder.

ENDORSER: The person who indorses the note to another is called the Endorser .

ENDORSEE: The person to whose favor the note is endorsed is called the Endorsee

It must be in writing.

It must contain a promise or undertaking to pay a definite sum of money.

The promise to pay must be unconditional.

It must be signed by the maker.

The payee must be identified & must be certain.

The sum payable must be certain.

Essentials Of The Promissory Notes

Format Of Promissory Note

Rs. 10,000/- Delhi, February10,2012

Three months after date I promise to pay cyko on

order the sum of ten thousand rupees, for value received.

To,

Cyko

222, Ashok Vihar

Delhi-110052

Stamp

Sd/-Ram

Bill Of Exchange

A bill of exchange 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 certain person to the bearer of the instrument.

Parties

DRAWER: The person who makes the bill of exchange is called drawer.

DRAWEE: The person who is directed to pay is called drawee.

PAYEE: The person to whom the payment is to be made is called payee.

ACCEPTOR: When the drawee accepts the bill is called acceptor.

Characteristics of the Bill of Exchange

The amount payable must be certain.

The payment must be made in money.

The bill payable may be either on demand or after a specified period.

The bill may be payable either to the bearer or to the order of payee.

Format Of Bill Of Exchange

Rs. 500 Greater Noida,21 Feb.2009

Three months after the date pay to Ram or order the sum of Five Hundred rupees , for value received.

To,

Cyko

235,Subhash marg

delhi-110006.

In case of need with Accepted

Canara Bank, Delhi Cyko Sd/-

Stamp

Krishna

A cheque is a bill of exchange drawn on a specified banker and expressed to be payable otherwise than on demand.

Cheque

The maker of a bill of exchange or Cheque is called the “Drawer"; the person thereby directed to pay is called the "Drawee".

Parties

DRAWER: The person who makes a cheque is called Drawer.

DRAWEE: The person who is directed to pay is called Drawee.

PAYEE: The person to whom the payment is to be made.

Essential characteristics of a Cheque

In writing

Express order to pay

Definite and unconditional order

Signed by drawer

Order to pay certain amount

Payable on demand

Format Of Cheque

No.…….. Date………..2010

Pay…………………………………………………………or bearer the sum of Rs…………………………………

Rs…………………

A/c No LF No Sd/-

PUNJAB NATIONAL BANK

Subzi Mandi,Delhi -110007

“5777100” 111013035”

Crossing of Cheque

A cheque is said to be crossed when it bears across its face two parallel transverse lines which are usually drawn on the left hand top corner of the Cheque.

Legally there are two kinds of crossing.

General crossing: The drawing up of two parallel lines on the face of the check at the top left hand corner with or without the words & Co not negotiable or Account payee only is known as a General Crossing.

Special crossing: A check is deemed to be crossed specially when it bears across its face the name of the banker either with or without the words not negotiable.

Negotiation

An instrument is said to be negotiated:

When a promissory note, BOE, cheque is transferred to any person so as to constitute that person the holder of the instrument

Transfer with an intention to transfer the title of the instrument.

Negotiation by deliveryNegotiation by endorsement and delivery

Presentment

Presentment for Acceptance (required only in case of BOE)

Presentment for payment

Presentment made to the drawee.

Must be made before the date of maturity

Dishonor

A negotiable instrument is said to be dishonored by non-payment when the maker, acceptor or drawee, as the case maybe makes default in payment upon being duly required to pay the same.

Dishonor by non payment Dishonor by non acceptance

THANK YOU