Negotiable instrument Question 1: Collect a sample of a Promissory Note and describe its features.

Also describe its usage and the involvement of the parties concerned. Promissory note is a written, dated and signed two-party instrument containing an unconditional promise by the maker to pay a definite sum of money to a payee on demand or at a specified future date. After collecting a promissory note I can explain the broadly the feature and usage of this.

(A) Features of a Promissory Note

The promissory note must be in writing- Mere verbal promises or oral undertaking does

not constitute a promissory note. The intention of the maker of the note should be signified by writing in clear words on the instrument itself that he undertakes to pay a particular sum of money to the payee or order or to the bearer

It must contain an express promise or clear undertaking to pay- The promise to pay

must be expressed. It cannot be implied or inferred. A mere acknowledgment of indebtness is not enough.

The promise to pay must be definite and unconditional- The promise to pay contained

in the note must be unconditional. If the promise to pay is coupled with a condition, it is not a promissory note.

The maker of the pro-note must be certain- The instrument should show on the fact of it

as to who exactly is liable to pay. The name of the maker should be written clearly and ascertainable on seeing the document.

It should be signed by the maker- Unless the maker signs the instrument, it is incomplete

and of no legal effect. Therefore, the person who promises to pay must sign the instrument even though it might have been written by the promisor himself.

. The seller is not compelled to accept a promissory note. • The payee must be certain. But it cannot be made payable either to bearer or to the maker himself.• • The amount must be certain. The advantage of promissory notes to a business man is that he can use them to pay his own debts or to get money from a note broker or at a bank. If he is not able to pay in cash.000 worth of merchandise. i.. etc. He may indorse this and give it to B and pay for his own debt in this way. the instrument itself specifies the rate of interest payable on the amount mentioned it. bonds. The written promise is better than a verbal one because it is easier to prove in court. legal tender money. he may give B his promissory note. just as it is to a bank when the man wishes to get money from it. This is but a promise to pay B either on demand or at some fixed or determinable future time. foreign exchange.e.The promissory note should contain a promise to certain or not vague. or does not wish to do so.It is unusual to mention in it the rated of interest per annum. it cannot be sued upon till ostensible date.The amount undertaken to be paid must be definite or The promise should be to pay money. and dishonor of a note is more feared by the business man than mere slowness in payment of an open account. • It should be dated.The promissory note may be payable on demand or after a certain definite period The rate of interest. interest must be paid at the rate from the date of the instrument. The promise cannot be extended to payments in the form of goods. pay money and money only. it must not be capable of contingent additions or subtractions. That is. Suppose A buys from B $1. If post-dated.The date of a promissory note is not material unless the amount is made payable at particular time after date. It also sets a specific date for payment. the absence of date does not invalidate the pro-note and the date of execution can be independently proved. It may be ante-dated or post-dated. When of time.The money must be payable to a definite person or according to his order. Even then. shares. • • Demand. The business reputation of the buyer is of much importance to a man in deciding whether he will accept a promissory note from him or not. Uses of Promissory Notes It is used for the definite sum of money either on demand or at a specified or ascertainable future date. Or he may himself have a promissory note issued by C. However to calculate the interest or fixing the date of maturity or lm\imitation period the date is essential. The payee must be ascertained by name or by designation.

Features of Bill of Exchange: A bill of exchange is an instrument in writing. defined as a bill of exchange drawn on a banker and payable on demand. and so on indefinitely. A bill of exchange is essentially an order made by one person to another to pay money to a third person. He becomes an acceptor when he indicates his willingness to pay the bill. The parties need not all be distinct persons. Describe its features. A bill of exchange requires in its inception three parties—the drawer. He gives the order to pay money to the third party. the drawer may draw on himself payable to his own order. The "holder in due course" may claim the amount of the bill against the drawee and all previous endorsers. the drawee. and the payee. and are written orders by one person to his bank to pay the bearer a specific sum on a specific date. bills of exchange were a common means of exchange. Unsigned document will not be legally valid. • It contains an unconditional order. A bill of exchange may be endorsed by the payee in favour of a third party. Usage and responsibilities of 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.Question 2: Collect two samples of Bill of Exchange. usage and the responsibilities of the parties concerned. The party in whose favor the bill is drawn or is payable is called the payee. Prior to the advent of paper currency. The party upon whom the bill is drawn is called the drawee. Bills of exchange are used primarily in international trade. • The sum payable must be specific. • The money must be payable to a definite person or to his order or to the bearer. • The order must be to pay money and money only. There is no condition attached to it. regardless of any counterclaims that may . who may in turn endorse it to a fourth. They are not used as often today. A common type of bill of exchange is the cheque (check in American English). Thus. • It must be signed by the maker or drawer. The person who draws the bill is called the drawer. He is the person to whom the bill is addressed and who is ordered to pay.

and the cheque shall be deemed to be crossed generally. In this type of crossing the collecting banker is supposed to credit the amount of the cheque to the account of the payee only. The collecting banker must act like a blood hound and make proper enquiries as to the title of the last endorsee from the original payee named in the cheque before collecting an 'Account Payee' cheque in his account. and to be crossed to that banker.have disabled the previous payee or endorser from doing writing over their A/C payee's only. There are some following different kinds of crossing cheque in where we are discussing the implementation of the cheques.This is called special crossed cheque. . the transferee of such a crossed cheque cannot get a better title than that of the transferor (cannot become a holder in due course) and cannot convey a better title to his own transferee. though the instrument remains transferable. Cheque crossed specially Where a cheque bears across its face an addition of the name of a banker. • General Crossing • Special Crossing • Account Payee or Restrictive Crossing • 'Not Negotiable' Crossing Cheque crossed generally Where a cheque bears across its face an addition of the words 'and company' or any abbreviation thereof. The cheque remains transferable but the liability of the collecting banker is enhanced in case he credits the proceeds of the cheque so crossed to any person other than the payee and the endorsement in favour of the last payee is proved forged. Not Negotiable Crossing The words 'Not Negotiable' can be added to General as well as Special crossing and a crossing with these words is known as Not Negotiable crossing. The effect of such a crossing is that it removes the most important characteristic of a negotiable instrument i. that addition shall be deemed a crossing.e. between two parallel transverse lines. either with or without the words 'Not Negotiable'. and the cheque shall be deemed to be crossed specially. This is what is meant by saying that a bill is negotiable. or of two parallel transverse lines simply. Account Payee or Restrictive Crossing This crossing can be made in both general and special crossing by adding the words Account Payee. Question 3: Elucidate the implications of different kinds of crossing of cheque. either with or without the words 'Not Negotiable'. that addition shall be deemed a crossing. The same can be done by place slanted parallel line in the top most left corner of the cheque .

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