ANSWER THE FOLLOWING QUESTIONS

1. Distinguish negotiable instruments from non-negotiable instrument. (3 POINTS)

Negotiable instrument

This is a document guaranteeing the payment of a specific amount of money. This could be

“on demand” (i.e. anytime) or at a set time. Examples are banknotes, cheques, demand
drafts, bills of exchanges and some forms of promissory notes.

Non-negotiable instrument

This is an unconditional promise in writing made by one person to another. It is signed by

the maker engaging (agreeing) to pay the payee (the beneficiary) either on demand
(anytime) or at a fixed or determinable future time. Most promissory notes are non-
negotiable (hence the term ‘promissory’: a promise).

2. Define negotiation. (3 POINTS)

The term negotiation refers to a strategic discussion that resolves an issue in a way
that both parties find acceptable. In a negotiation, each party tries to persuade the
other to agree with their point of view. Negotiations involve some give and take, which
means one party will always come out on top of the negotiation. The other, though,
must concede—even if that concession is nominal.

By negotiating, all involved parties try to avoid arguing but agree to reach some form of
compromise. Negotiating parties vary and can include buyers and sellers, an employer
and prospective employee, or governments of two or more countries.

3. Define indorsement (3 POINTS)

“Indorsement” means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or
accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument,
(ii) restricting payment of the instrument, or (iii) incurring indorser’s liability on the instrument, but
regardless of the intent of the signer, a signature and its accompanying words are an indorsement unless
the accompanying words, terms of the instrument, place of the signature, or other circumstances
unambiguously indicate that the signature was made for a purpose other than indorsement. For the
purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is
a part of the instrument.
4. Who are the parties in a bill of exchange? Distinguish one from the other. (3
POINTS)

There are 3 parties involved in a payment by bill of exchange: the drawer is the party
that issues a bill of exchange – the 'creditor'; the beneficiary or payee is the party to
which the bill of exchange is payable; the drawee is the party to which the order to
pay is sent - 'the debtor'.

5. Distinguish bill of exchange from promissory note (4 POINTS)

A promissory note is a specific form of a bill of exchange with the essential

difference being that a promissory note is a promise by the maker to pay whereas an
'ordinary' bill of exchange is an order to someone else to pay.

6. Who are the partied in a promissory note? Distinguish one from the other (4
POINTS)

Two parties are involved in the promissory note. They are: Drawer/Maker: Drawer is
the debtor who promises to pay the amount to lender or creditor. Payee: Payee is the
creditor who is been promised by the borrower or debtor about the pending payment.