NEGOTIABLE INSTRUMENTS

Topics: Negotiable instrument, Promissory note, Money Pages: 9 (468 words) Published: March 14, 2015
NEGOTIABLE
INSTRUMENTS

NEGOTIABLE INSTRUMENT


According to Section 13 (a) of the Act,
“Negotiable instrument means a
promissory note, bill of exchange or
cheque payable either to order or to
bearer, whether the word “order” or “
bearer” appear on the instrument or
not.”





A negotiable instrument is a
document guaranteeing the payment of
a specific amount of money, either on
demand, or at a set time, with the payer
named on the document.
Examples of negotiable instruments
include promissory notes, bills of
exchange, and cheques.

PROMISSORY NOTE




 A promissory note may be a negotiable instrument
if it is an unconditional promise in writing made by
one person to another, signed by the maker,
engaging to pay on demand to the payee, or at
fixed or determinable future time, certain in
money, to order or to bearer.
 The law applicable to the specific instrument will
determine whether it is a negotiable instrument or
a non-negotiable instrument. Bank note is
frequently referred to as a promissory note, a
promissory note made by a bank and payable to
bearer on demand.



According to the section 4 of the INDIAN
NEGOTIABLE ACT 1881, "a Promissory
Note is an writing (not being a bank note
or currency note), 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 the bearer of the instrument."

CHEQUE


Section 6 of the Act defines “A cheque is a
bill of exchange drawn on a specified banker,
and not expressed to be payable otherwise
than on demand”.



A cheque is bill of exchange with two more
qualifications, namely,
(i) it is always drawn on a specified banker,
and
(ii) it is always payable on demand.



Consequently, all cheque are bill of
exchange, but all bills are not cheque. A
cheque must satisfy all the requirements
of a bill of exchange; that is, it must be
signed by the drawer, and must contain
an 17 unconditional order on a specified
banker to pay a certain sum of money to
or to the order of a certain person or to
the bearer of the cheque. It does not
require acceptance.

BILL OF EXCHANGE


A bill of exchange or "draft" is a written order by
the drawer to the drawee to pay money to the payee. A
common type of bill of exchange is
the cheque (check in American English), defined as a
bill of exchange drawn on a banker and payable on
demand.



These are used primarily in international trade, and are
written orders by one person to his bank to pay the
bearer a specific sum on a specific date. Prior to the
advent of paper currency, bills of exchange were a
common means of exchange. They are not used as
often today.

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