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Negotiable instruments

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Negotiable: transferable from one person to another person. Instrument: written document which create rights in favour of some person
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Characteristic of negotiable instrument

Freely transferable Title of the holder free from all defects Recovery Presumptions Consideration Date

a) b) c)

Time of acceptance 9/20/12

Types of negotiable instrument

Instruments by statute Promissory notes Bill of exchange Cheques Instruments by customs Government promissory notes Bankers draft Pay orders

a) b) c) )

a) b)

c) 9/20/12

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

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Essentials of a promissory note

Writing Promise to pay Definite Unconditional Signed by maker Certain parties Certain sum of money Promise to pay money only

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Specimen of promissory note

Rs.2,000 Delhi, February 10,2012 Three month after date I promise to pay Mr. A the sum of two thousand rupees, for value received. to Mr.A add
Stamp Signed by Mr. B

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

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Parties to a bill

Drawer : the person who gives the order to pay or who makes the bill is called the drawer. Drawee : the person who is directed to pay Acceptor : when the drawee accepts the bill

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Essential elements

Writing Order to pay money Money Must be duly stamped Unconditional order Three parties Signed by the drawer Certain money

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Specimen of a bill of exchange

Rs.500 mumbai, jan.10, 2012 Three month after date pay to Ram or order the sum of five hundred rupees, for value received. To Sam Add

accepted sam

signed Stamp krishna

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Difference between promissory note and bill of exchange Promissory note Bill of exchange
Two parties-the maker and the payee Three parties-the drawer,drawee and the acceptor Contains an unconditional promise Contains an unconditional order to to pay pay Maker of a note is a debtor Liability of a maker is primary and absolute It cannot be payable to the maker A note requires no acceptance The drawer of a bill is a creditor Liability of the drawer is secondary and conditional The drawer and payee may be one and the same person It must be accepted by the drawee before it is presented for the payment

Maker stands in immediate relation The drawer of a bill stands in with payee immediate relation with the acceptor not payee 9/20/12

Cheque
A cheque is a bill of exchange drawing upon a specific banker and payable on demand. It is a type of B.O.E but it has two additional qualification. 1) It is always drawn on specified banker 2) It is always payable on demand Note: All the cheques are B.O.E but all 9/20/12 B.O.E are not cheques.

Features

In writing Contains an unconditional order to pay Drawn on specific banker Certain sum of money Payee must be definite Amount should be written both in words and numbers
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Difference between cheques and B.O.E

CHEQUES It must be drawn only on banker Amount payable on demand It is not entitled for days of grace A cheque may be crossed Notice of dishonor is not required B.O.E It can be drawn on any person including banker May be payable or after some specific date It is entitle for three days of grace Crossing of bill of exchange is not possible Notice of dishonor is required to hold the party liable

Cheque does not require any stamp It requires

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Crossing of the cheques

When a cheque bears across its face two parallel transverse lines, the cheque is said to be crossed.

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Kinds of crossing

General crossing Special crossing Restricted crossing

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Negotiation
When an instrument is transferred by one party to another so as to the making transfer, the holder thereof the instrument is said to be negotiation .

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Methods of transfer

Negotiation by delivery By endorsement and delivery

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Meaning of endorsement
Writing the name of the person on instrument( on face or on the back of NI) or on a slip of paper ( allonge) is called as endorsement. Or it means signature of the holder made with the object of transferring the document
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Essentials of endorsement

It must be on the complete instrument It must be signed by the endorser It must be complete in all aspects Where there are more than two endorsements, each endorsement should be in order . Name and other details should be clear and correct. 9/20/12

Types of endorsements

Blank and general endorsement Full or special endorsement Restrictive endorsement Conditional endorsement Sans recourse endorsement

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Discharge of negotiable instrument

A negotiable instrument is said to be discharged when it completely useless. When no action has been left.

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Discharge of the instrument

On payment By express waiver By cancellation By a simple contract ( old contractnew contract) Insolvency of party primarily liable

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Discharge of one or more parties

By cancellation By release By payment Non presentment of cheques

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