Negotiable Instruments 26 May 04.ppt

Negotiable Instruments 26 May 04.ppt - Negotiable...

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Negotiable Instruments The term negotiable means ‘transferable by delivery’ and the word instrument means ‘a written document by which a right is created in favour of some person’. Thus, the term “negotiable instrument” literally means ‘ a written document transferable by delivery.’ “A negotiable instrument is an instrument which entitles a person holding it to a sum of money and which is transferable from person to person by mere delivery like cash. The transferee become entitled to the money and also to the right to further transfer it.”
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Requirements of Negotiability of a Negotiable Instrument : 1. It must be in writing, which includes typing, printing, engraving 2. It must be signed by the maker or drawer. 3. There must be unconditional promise or order to pay. If the instrument is a promissory note, it must contain an unconditional promise to pay. If the instrument is a bill or cheque, it must contain an unconditional order or command to pay money. If the promise or order is conditional the instrument is non-negotiable. 4. The instrument must call for payment of a certain sum of money only, and nothing else.
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5. It must be payable at a time which is certain and definite to arrive. If it is payable “When Convenient” the instrument is not negotiable. 6. In case of a bill or cheque, the drawee must be named or described with reasonable certainty. 7. The instrument must be, such or in such a state that it can be transferred like cash by simple delivery. This is possible when it is payable to bearer. If it is payable to order, it becomes negotiable and makes the transferee its owner only when it is properly indorsed before it is delivered.
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Promissory Note Sec. 4 “a promissory note is an instrument in writing (not being a bank note or a 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 to the bearer of the instrument.” Essential Elements It must be in writing It must contain an express promise or clear undertaking to pay The Promise to pay must be unconditional The maker must sign the Promissory Note The maker must be a certain person The Payee must be certain The sum payable must be certain A bank not or a currency note is not a Promissory note within the meaning of the section
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Bill of Exchange “A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker directing a certain person ot pay a certain sum of money only to or to the order of, a certain person or to the bearer of the instrument.” Parties to a Bill of Exchange: There 3 parties to a bill of exchange, i.e., the Drawer, the drawee and the Payee.
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  • Fall '10
  • AMES
  • Cheque, Promissory note, Negotiable instrument, payee

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