Tuesday, 1 April 2014

NEGOTIABLE INSTRUMENTS

1) PROMISSORY NOTE.

2) BILL OF EXCHANGE.

3) Cheque.

4) Certificate of Deposit.
5) Commercial Paper.

6) Treasury Bills.

7) Bank Draft.

1) PROMISSORY NOTE

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

There are two types of Promissory Notes (PN):

a) Demand Promissory Note- Payable immediately on demand.

b) Usance Promissory Note- Payable after a pre decided definite period.

Promissory Notes are usually used in Bank Loans.

maker- who promises to pay- in the case of Bank Loans it is Borrower.

payee- to whom it is payable- in the case of Bank Loans it is the Bank.

2) BILL OF EXCHANGE

An instrument containing an unconditional order, signed by the maker(drawer), directing a certain person(drawee) to pay a certain sum of money to a certain person(payee) or to the bearer of the instrument. For example: Cheque.

Drawer- The maker of the Bill of Exchange.
Drawee- The person who is directed to pay.
Payee- The person who will receive the payment.

3) Cheque

A cheque is a negotiable instrument in writing containing an unconditional order, addressed to a banker(drawee), signed by the person(drawer) who has deposited money with the banker, requiring him to pay on demand a certain sum of money to a certain person(payee) or to the bearer of the instrument.

TYPE OF CHEQUE'S

a) Bearer Cheque.
b) Order Cheque.
c) Uncrossed/Open Cheque.
d) Crossed Cheque.
e) Anti-Dated Cheque.
f) Post-Dated Cheque.
g) Stale Cheque.

BEARER CHEQUE
  • When the word "or bearer" appearing on the phase of the cheque are not cancelled, the cheque is called a bearer cheque.
  • The Bearer Cheque is payable to the person specified therein or to anyone else who present it in the bank for payment.
  • Such Cheque's are risky.
 ORDER CHEQUE
  • When the word "or bearer" appearing on the phase of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque it becomes an Order Cheque.
  • Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed.
UNCROSSED/OPEN CHEQUE

When a cheque is not crossed it is known as an Open Cheque.

CROSSED CHEQUE
  • Crossing of Cheque means drawing two parallel lines on the face of the cheque (at the top left corner) with or without "& Co" or "Account Payee" or "Not Negotiable".
  • Such Cheque's cannot be en-cashed at the cash counter of a bank but it can only be credited to the payee's account.
ANTI-DATED CHEQUE
  • If a cheque bears a date earlier than the date on which it is presented to the bank, it is called an anti-dated cheque.
  • Such Cheque's are valid upto 3 months from the date of the Cheque.
POST-DATED CHEQUE
  • If a cheque bears a date which is yet to come then it is known as post-dated cheque.
  • A post dated cheque cannot be honored earlier than the date on the cheque.
STALE CHEQUE
  • If a cheque is presented for payment after 3 month from the date of cheque it is called Stale Cheque.
  • A Stale Cheque is not honored by the Bank.

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