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NEGOTIABLE + INSTRUMENTS
Negotiable means something legally transferable from one person to another for a consideration. Instrument means a written document by which some legal rights are created in favour of some person
PROMISORY NOTE
Promissory note is an instrument in writing 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. Sec.4
Rs.1,00,000/Panvel, 1st August 2009 STAMP Three months hereafter, I promise to pay a sum of Rs.50,000/Rupees fifty thousands only to Shri Ramanlal Vadilal Shah or order, for value received. To Ramanlal Vadilal Shah, Prop: Ramanlal Sweets, Sector 29, Vashi, Navi Mumbai. Sd/Keshav Kanti Patel
ESSENTIALS OF A P/N
In Writing Undertaking/Promise to pay Definite and unconditional Signed by the maker Certainty of the maker and payee. Certainty of amount, money only. Formalities like number, date, place, consideration, Stamp etc. Never payable to bearer on demand.
BILL OF EXCHANGE
A Bill of Exchange is an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person, to a pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument Sec.5 Three parties The drawer, drawee(acceptor), and the payee.
BILL OF EXCHANGE
Rs.1,00,000/Panvel, 1 August 2009
st
STAMP Three months hereafter, pay a sum of Rs.50,000/- (Rupees fifty thousands only) to, or to the order of Shri Bharat Sajjan Sheth, or to the bearer of the instrument , for value received.
To Ramanlal Vadilal Shah, Prop: Ramanlal Sweets, Sector 29, Vashi, Navi Mumbai. Sd/Keshav Kanti Patel Accepted Sd/Bharat Sajjan Sheth
CHEQUE
A Cheque is a Bill of Exchange drawn upon a specified banker and payable on demand Sec.6 It is always drawn on (drawee is) a bank It is always payable on demand Separate acceptance is not necessary In the case of Draft, both the drawer and drawee are banks.
CHEQUE
Drawn on bank only No Acceptance needed Payable on demand No days of grace available. Delay in presentation does not exonerate the drawer Cheque can be crossed can be countermanded (Stop payment) Noting /Protesting not necessary
CROSSING OF CHEQUE
General crossing Two parallel lines or with word & Co. etc. Special crossing Not negotiable Clearable through a the bank named. (Title of transferee not any better than transferor Restrictive crossing A/c payee only or A/c payee - Bank of India Bank of India A/c. Nambudiri
iv) v) vi)
PARTIES OF INSTRUMENTS
Drawer is the maker of instrument. Drawee is the person on whom it is drawn. In the case of B/E drawee is the acceptor. Payee is the person to whom amount is payable. Drawer can be payee. Endorser is the one who endorses Endorsee is the one to whom it is endorsed Drawee in case of need.
HOLDER-IN-DUE-COURSE
Holder of an instrument means a person legally entitled to possess and receive in his own name Holder-in-due-course is a holder having: a) he is named/possesses it for value received i.e. for good consideration. b) he is holder before maturity; c) became holder in good faith (i.e. Having no reasonable cause to doubt its title)
All earlier parties are liable to him; He is protected even from an earlier defect of no-consideration Protected even from an earlier conditional delivery. Instruments are cleansed from all defects. Protected from an earlier obtainment by unlawful means or for unlawful consideration. Presumption is that every holder is holder-indue course, unless otherwise proved.
PRIVILEGES OF HOLDER-IN-DUE-COURSE
PRESENTMENT
Presentment for acceptance (B/E) Presentment for sight (P/N) Presentment for payment
No acceptance needed for Promissory Note. If the P/N payable at a certain period after sight, it should be presented for sight.
DISHONOUR NOTICE
If the drawee/acceptor fails to make payment on presentment, it is called dishonour. In case of dishonour, the payee should give notice to endorser/drawer(i.e. earlier party) written or not, but clear and unambiguous, within reasonable time (by the next day)and manner.
DISHONOUR OF CHEQUE
When a cheque is dishonoured for insufficiency of funds, the drawer is punishable with imprisonment up to two years or with a fine up to twice the amount of the cheque or both, if the following eight conditions are satisfied: i) Dishonoured for insufficiency of funds; ii) payment is for a legal liability; iii) payee is a holder-in-due-course;
DISHONOUR OF CHEQUE.
iv) presented within its validity of time; v) the payee should have given a notice demanding payment within 30 days of information of dishonour; vi) the drawer fails to pay within 15 days of such notice; vii) the payee should have made a complain within one month of cause of action.
DISHONOUR OF CHEQUE.
The holder of the cheque is presumed to be holder-in-due-course, unless otherwise proved. The drawer has no defense that he had no reason to believe that the funds are insufficient. In case of a company or firm or AOP, all the responsible persons are jointly and severally liable alongwith the company/firm/AOP unless otherwise proved.
DISCHARGE OF PARTIES
i) By Payment; ii) By Cancellation or Release (Holder
cancels/reseases the name of one party from instrument) ;
iii) If drawee is allowed more than 48 hours to accept; iv) Non-presentment of cheque; v) When cheque is paid in due course, when endorsed;
DISCHARGE OF PARTIES.
vi) Sans-recourse endorsements; vii) By operation of law : a) By order of insolvency b)By merger into judgment debt c)By lapse of time viii)By material alteration ix) By payment of altered instrument.
MATERIAL ALTERATION
Alters the character or identity of instrument; Changes the rights and liabilities of any of the parties; Alters the operation of the instrument.
Eg: the date, the sum payable, time of payment, place of payment, addition of place of payment, the rate of interest If the alteration is with consent of all concerned, then it is not rendered defective.