NAME: UNEEB WASEEM

REG NO. : 2143243

ASSIGNMENT NO. 02
COMMERCIAL BANKING
SUBMITTED TO: MAÁM NEHA ZAIB

FEATURES OF NEGOTIABLE INSTRUMENT

The term ‘negotiable’ means transferable and the word ‘document’ means ‘in writing’. Therefore, negotiable means a
written promise or order to pay money which may be transferred from one person to another.

 A negotiable instrument must contain the following:

1. An unconditional promise or order to pay

2. A specified amount of money, though interest can be included

3. A specified date for payment, whether “on demand,” or a certain date

4. Payment must be payable to the person or entity in possession of the instrument

5. There can be no requirement for the person promising to pay to perform any act other than paying the money

Negotiable Instrument vs. Contract

While a negotiable instrument seems similar to a contract, it is different in that it simply conveys the value part of the
agreement. The contract itself is outlines the obligations of the parties, and may give one party the right to hold the
instrument. A negotiable instrument contains no promise to perform any duties under a contract, and makes no
consequence if the payer defaults, as would a contract. A negotiable instrument merely gives the holder (1) the
authority to demand payment, and (2) the right to be paid.

TYPES OF NEGOTIABLE INSTRUMENT

Promissory Notes as Negotiable Instrument

The promissory note is a signed document of written promise to pay a stated sum to a specified person or the bearer at
a specified date or on demand. The promissory note is an instrument in writing containing an unconditional rule signed
by one party to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the
instrument.

Thus a promissory note contains a promise by the debtor to the creditor to pay a certain sum of money after a certain
date. The debtor is the maker of the instrument.

Bill of exchange as Negotiable Instrument

The bill of exchange contains an order from the creditor to the debtor to pay a certain person after a certain period.

The person who draws it is called drawer (creditor) and the person on whom it is drawn is called drawee (debtor) or
acceptor.

The person to whom the amount is payable is called payee.

Cheques as a Negotiable Instrument

A" cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on
demand”. Always drawn on specified bank, Always payable on demand, Unconditional order, Certain sum of money

FEATURES OF NEGOTIABLE INSTRUMENTS

Following are the important characteristics of negotiable instruments:

1. In Writing :

It is the basic condition of the negotiable instrument that it is always in writing. It cannot be verbal.

2. Unconditional :-

It is an unconditional instrument if any condition is attached then it cannot be called negotiable instrument.

3. Transferable :-

It can easily transferable from one person to another. In these instruments right of ownership passes either by delivery
or by endorsement.

4. Payable On Demand :-

The amount of the instrument is payable on demand or at any predetermination future time.

5. Payable In Money :-

The amount must be written on the instrument and it is always payable in terms of money.

6. Payable To The Bearer :-

The amount written on it is payable to the bearer or to a specified person.

7. Payment of Debt :-

It can be very easily used for the payment of debt. It is very simple and convenient method of payment.

8. Right of Recovery :-

A cheque or Note gives the right to the creditor to recover the written amount from the debtor. He can recover this
amount by himself or he can transfer this right to another.

9. Better Title :-

If there is a defect in the title of the previous holder it does not affect the holder in due course. So it is abetter little
than others.

10. Exception of General Law:-

In case of transfer of property the general concept of law is that "No body can transfer a better title than that of his
own."

But in case of instrument this law does not apply. A negotiable instrument even got in good faith from thief is better
title.

11. Specified Amount :-

It is also a characteristic of negotiable instrument that specified and definite amount is written on the instrument.