Negotiable instruments, types of negotiable instruments and all about it

1. Negotiable InstrumentsNegotiable Instruments
PRESENTED BY,
JITHIN V ABRAHAM

2. Negotiable InstrumentsNegotiable Instruments
• The term negotiable instruments means a written
document which entitles a person to a sum of
money.
• A negotiable instruments is transferable by delivery
or by endorsement and delivery.
• The transfer entitles a person to the sum of money
mentioned therein.
• “Thus the negotiable instrument is a document
which is legally recognized by custom of trade
or law, transferable by delivery or by delivery
and endorsement”.

3. Types of negotiable instrumentsTypes of negotiable instruments
We have three main negotiable
instruments.
1. Promissory note
2. Bill of Exchange
3. Cheque

4. What is Negotiation..What is Negotiation..
When a Promissory note, Bill of exchange or
check is transferred to any person, to make
that person the owner of the negotiable
instruments, then the instrument is said to be
negotiated.

5. Promissory notePromissory note
• A Promissory note is the simplest and
earliest kind of credit instrument.
• “It is an unconditional written promise
by one person to another in which the
maker (payer) promise to pay on
demand or at a fixed or determinable
date in the future, a stated sum of
money to or to the order of a specified
person or the bearer of the instrument”.

6. Feature of the Promissory noteFeature of the Promissory note
The following are the essential features of a
Promissory note,
1. The promise to pay must be in writing.
2. The promise to pay must be signed by the maker or payer.
3. The promise to pay must be unconditional.
An instrument containing a promise to pay a sum after
deducting necessary expenses or imposing any other
condition is not a promissory note.
I promise to pay asad or order $500 is promissory
note.
I promise to pay asad $500 seven days after yasir
arrival to Kabul.

7. Feature of the Promissory noteFeature of the Promissory note
4. The amount to be paid must be definite in terms of
money.
5. The Promissory note must be payable on demand or at a
fixed or determinable future date.
6. The Promissory note must be payable to a definite
person. The Payee must be certain.
7. It must bear stamp at the rate prescribed by law of a
country.
8. There are two parties in a promissory note.
(i) Maker
(ii) Payee

8. Specimen of a Promissory NoteSpecimen of a Promissory Note
$5,000 Kabul
Stamp May 10, 2008
Sixty days after for value
received, I promise to pay, Akram khan or order
the sum of Dollar 5,000 only.
Akram Khan
Shehre new Rafiq Ahmad
Kabul Signature

9. Bill of ExchangeBill of Exchange
• A bill of exchange is playing an
important part in the commercial life
of the country. The need for it arises
where the buyer of goods needs a
period of credit before paying it.
• It is drawn by the creditors and is
accepted by debtor.

10. Bill of ExchangeBill of Exchange
According to Muller, A bill of exchange is
an unconditional order in writing
addressed by one person to another,
signed by the person giving it, requiring
the person to whom it is addressed to pay
on demand or at a fixed or determinable
future time, a sum certain in money to or
to the order of a certain person or to
bearer.

11. Features of the Bill of ExchangeFeatures of the Bill of Exchange
The main characteristics or features of a
bill of exchange are as follow:
• A Bill of Exchange must be in writing.
•It must contain in order to pay.
•The order to pay must be unconditional. If it is subject to
the happening of some events, it will not be a bill of
exchange.
•It must be signed by the drawer and properly stamped.

12. Features of the Bill of ExchangeFeatures of the Bill of Exchange
• The parties to the bill, the drawer, the drawee, and
payee must be certain and definite individuals.
• The amount payable must be certain.
• The payment must be made in money.
• The bill payable may be either on demand or after a
specified period.
• The bill may be payable either to the bearer or to the
order of payee.

13. Parties to the Bill of ExchangeParties to the Bill of Exchange
According to the definition there are
three parties involved to a bill of
exchange.
– Drawer
– Drawee
– Payee

14. Parties to the Bill of ExchangeParties to the Bill of Exchange
(i) Drawer:
The drawer is the person who draws
the bill. He is the person who orders to pay a
certain sum of money (In the specimen of the
bill Hamid is drawer of the bill)
(ii) Drawee:
He is the person on whom the bill is
drawn. He is the person who is ordered to
make payment of the bill (In the specimen of
bill Rashid Ahmad is the drawee of bill).

15. Parties to the Bill of ExchangeParties to the Bill of Exchange
(iii) Payee:
He is the person to whom
money is directed to be paid. He gets the
payments of the bill. (In the specimen of
bill Kabul is the Payee of bill).

16. Specimen of a Bill of ExchangeSpecimen of a Bill of Exchange
• $8,000 Kabul
May 17, 2008
Stamp
Two months after date pay to Mr Kamal or
his order the sum of Dollar 8,000 only, for
value received.
To
Rashid Ahmad
Jalal Abad Hamid Zafar
Afghanistan Signature

17. CHEQUECHEQUE
• A check may be defined as written order of a
depositor upon a bank to pay to or to the
order of a designated party or to the bearer,
a specified sum of money on demand.
• The person who draws the check is called
drawer, the bank on which the check is
drawn is called drawee, and the person to
whom payment is to be made is called Payee.

18. Features of the ChequeFeatures of the Cheque
The main characteristics or features of a
Check are as follow:
– It is an order of the customer without condition.
– It is drawn upon a certain bank in writing.
– The bank has always to pay it on demand.
– It is payable to a certain person or to his nominee
or to the bearer of the instrument.

19. Types of Cheque…Types of Cheque…
We have two types of checks;
– Open Check
– Crossed check

20. Open ChequeOpen Cheque
Open Cheque:
Open checks are those checks which are
paid across the counter of the bank.
Open checks are of two types
– Bearer check
– Order check

21. Types of Open checkTypes of Open check
Bearer check:
–If a drawer orders the bank to pay a stated sum of money to the
bearer, it is called a bearer check.
–Any person who lawfully possesses a bearer check is entitled to
receive payment of that check.
Order check:
–If the check is to the order of a person in whose favor the check
is drawn, it is called order check.
–The order check is paid by the bank only when the bank is
satisfied about the identity of the payee.

22. Crossed ChequeCrossed Cheque
• If a check is crossed by drawing two
parallel lines across the face of the
check, with or with out the words & Co
or A/c payee only, it is called a Crossed
check.
• The crossed check cannot be paid on the
counter of the drawee bank. It will be
deposited in the account of a person in
whose order or favor it is drawn.

23. Kinds of CrossingKinds of Crossing
Legally there are two kinds of crossing;
•General crossing
•Special crossing

24. Kinds of CrossingKinds of Crossing
General crossing:
•The drawing up of two parallel lines on the
face of the check at the top left hand corner
with or without the words & Co not negotiable
or Account payee only is known as a General
Crossing.
•The effect of general crossing is that the
crossed check cannot be paid at the counter of
the bank.
•Its payment can only be deposited into the

25. Kinds of CrossingKinds of Crossing
Special crossing:
•A check is deemed to be crossed
specially when it bears across its face the
name of the banker either with or
without the words not negotiable.
•In case of special crossing the payment
can only be made to the bank named
therein the check.

26. Objectives of CrossingObjectives of Crossing
The check is crossed to achieve the
following objectives;
– It prevent the payment of the check to a wrongful
holder
– It ensure safe payment to the concerned receiver
– It facilitate in tracing the recipient of the payment
if the check is wrongfully crossed
– Further it is a guard against any cheating or theft.

27. THANK YOU