Explain the term Negotiable Instrument and what are the essentials and

characteristics of negotiable instrument

Negotiable Instruments :-
The word "Negotiable" means transferable by delivery and the word instruments means written
documents. It entitles a person to a certain sum of money. In simple words we can say it is a written
document which is transferable from one person to another by delivery.
According to contract act it is defined as , "A negotiable instrument means a promissory note, bill of
exchange or cheque payable by order or bearer."

Example :- Cheques, Bill of Exchange and Promissory Notes are the important examples of negotiable
instruments.
Characteristics 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 can not be verbal.
2. Unconditional :-
It is an unconditional instrument if any condition is attached then it can not 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.
Define the promissory note and discuss the essentials of promissory note or
Discuss the preconditions for the valid promissory note

Promissory Note :-
It is an unconditional written promise by one person to another in which the maker (Payer) promises to
pay on demand on any future date, a stated sum of money to the specified person or to the bearer of
the instrument.

1. Written :-
The promise to pay must be in writing. Oral promise will not be considered.
2. Maker's Signature :-
Promissory note must be signed by the maker or payer.
3. Unconditional :-
The promise to pay must be unconditional. If it contains a conditional promise, it is not a valid.
Example :- I promise to B one lac after the death of A.
4. Definite Sum of Money :-
The amount to be paid must be definite in terms of money, for example I promise to pay one thousand
two hundred and fifty paisa 1200/50 only.
5. Time Decision :-
The promissory note must be payable on demand or at a fixed determinable future date.
6. Payee To be Certain :-
The promissory note must be payable to the bearer or to specified person.
Example :- A promissory note payable to the principal of the college is regarded as payable to certain
person.

7. Parties Involved :-
There are two parties involved in the promissory note, the maker and the payee. The promissory note
may differ in maturity. Some promissory note mature after a long period, some after a year or month
and some are payable on demand. A promissory note can be divided into two categories :

1. Secured.

2. Unsecured.

8. Important Point :-

1. The promise to pay must be lawful.

2. The pro-note must be properly stamped.

3. The stamps must be cancelled.

4. The date must be mentioned.

5. The place must be stated where it is made.

Basic essential and Basic points of Bill of Exchange

A bill of exchange is an instrument in writing containing an unconditional order signed by the maker
directing a certain sum of money to a certain person or the bearer.

PARTIES INVOLVED IN THE BILL OF EXCHANGE

1. Drawer :-
The person who is giving the order in a bill about the payment is called drawer.

2. Drawee :-
Drawee is the person on whom the bill is drawn or whom the order is a addressed.

3. Payee :-
He is a person to whom the money is to be paid.

4. Holder :-
The holder of the bill of exchange or cheque means the payee.

REQUIREMENTS OF BILL OF EXCHANGE :-

Following are the main requirements of bill of exchange :

1. In Writing :-
A bill of exchange must be in writing. It can not be oral. But no any a particular language is prescribed by
the law.

2. An Order :-
A bill of exchange should be framed in such a manner that it may not be treated as a request. It should
be an order.

3. Unconditional :-
The order to pay must be unconditional. If the payment is conditional then it would be not a bill of
exchange.

4. Signature of the Maker :-

It must be signed by the maker. A bill is not valued unless it is signed by the drawer.

5. Nomination Of the Drawee :-

It is essential that the drawee should be named or indicated with reasonable certainty.

6. Time Period :-
The sum of money should be payable on demand at a fixed date or on some future date.

7. Payee Must be Certain :-

The payee should be indicated on the face of the bill of exchange if the bill is not payable to the bearer.

8. Certain Sum of Money :-

The bill must contain the direction for the payment and sum must be certain the explanation of rate of
interest.

9. Acceptance :-
It requires acceptance if it is not a sight bill.

DIFFERENT KINDS OF BILL OF EXCHANGE

Sight Bill of Exchange :-

A bill ordering payment on demand or at sight called sight bill.

Time Bill :-
A bill or ordering payment after a period of time specified on it is called time bill.

Documentary Bill :-
If the bill is fully supported by documents for payments is called documentary or secured bill.

Clean Bill :-
If no security is provided with the bill, it is called clean bill.

Inland Bill of Exchange :-

Inland bills are those which are drawn and payable within the country.

Foreign Bill of Exchange :-

Foreign bills are those which arise out of trade transactions between different parties in different
countries.

IMPORTANCE OF BILL OF EXCHANGE :-

Bill of exchange is very useful in the National and International trade. Bill of exchange facilities the
businessman and discourages funds. The businessman can easily purchase goods by promising to pay on
some future date. Before the maturity of the bill, he can arrange to sell the goods in the market and
made the payment. Foreign bill of exchange greatly helps in making international payments. A bill of
exchange is also considered as a very convenient method of investing liquid funds. The owner of the bill
can get it discounted at the bank whenever he is need of money for consumption or for commercial
purposes. The bank regards the discounting of bill very useful investment. Whenever the commercial
banks are in need of cash they get these bills re-discounted at the Central bank.

Define Cheque and discuss the essentials and kids of cheque

CHEQUE :-
A written order of a depositor upon a bank to pay the designated party or the bearer a specified sum of
money on demand. The person who draws the cheque is called drawer and the person whom the
payment is made called payee. The bank will be called drawee.

ESSENTIALS OF CHEQUE

1. In Writing :-
The cheque must be in writing. It can not be oral.

2. Unconditional :-
The order to pay must be unconditional.

3. Signature of the Drawer :-

It must be signed by the maker.

4. Certain Sum of Money :-

The amount in the cheque must be certain.
5. Payees Must be Certain :-
It must be payable to specified person.

6. Only Money :-
The payment should be of money only.

7. Payable On Demand :-
It must be payable on demand.

8. Upon a Bank :-
It is an order of a depositor on a bank.

DIFFERENT KINDS OF CHEQUE

1. Customer's Sight Draft :-

The cheque which is an order upon a commercial bank by its client who has already deposited money
with it is also called customers sight draft.

2. Certified Cheque :-
These cheques are used where the drawer of the cheque is not trust worthy. It is that cheque on which
the payment is guarantee to the payee by the drawee bank. When the cheque is presented to officer of
the bank he writes certified or accepted on the face of the cheque. The cheque is honored whenever it is
presented to the bank.

3. Cashier's Cheque or Treasure's Cheque :-

It is drawn upon a bank by its own officer for meeting the expenses of the banks.

4. Bank Money Orders or Registered Cheques :-

A person who wants to transfer a certain sum of money may use bank money order. The person has to
pay the amount of the money order plus a bank fee and receives the registered cheque from the bank.
He then signs the cheque, fill in the name of the person and then forward the cheque to the payee.

5. Traveler's Cheque :-
These cheques enables the tourists to meet the expenses of their trip. These are not only acceptable by
the issuing bank but also by the merchants and hotels inside and outside the country.
The procedure is simply to pay the bank amount of the order and the bank commission. The bank will
issue cheques on which the value is already printed. The guarantor has to sign all the cheques issued in
the presence of issuing banker.
6. Drafts :-
A draft is a cheque drawn by one bank upon another bank ordering to pay the payee. Bank drafts are
commonly used inside and outside the country for the transfer of money. It has also helped in financing
the foreign trade.

7. Crossed Cheque :-
A crossed cheque is paid only through the bank. The paying bank is to make payment strictly according
the instructions conveying by a crossing.