PRINCIPLES OF BUSINESS

LAW-NEGOTIABLE
INSTRUMENT

CONCEPTS OF NEGOTIABILITY
Class of documents used in commercial and
financial transactions.
Used in both domestic and international trade.
All negotiable instruments are choses in
action. It mean the action is incorporeal
property which comprises rights which may be
transferred from one person to another.
Form of transfer of property from one person
to another in a document evidencing a
contractual obligation to pay money.

Characteristics of N.I

Instruments and the rights contained in it

which are transferred by mere delivery or
where it is payable to order by indorsement
plus delivery.
Holder who is in possession of the instruments
can sue in his own name.
Debtor need not given notice of this transfer.
Example: not inform bank to draw cheque.
The transferee who has received it in good
faith and for value gets a superior title and is
therefore unaffected by previous defects.

Types of Negotiable
Instruments
Bills of Exchange
Cheques
Promissory notes
Bankers draft
Bank notes
Treasury bills
Share warrants
Dividens warrants
Debentures
Travellers chequee

BILLS OF EXCHANGE

Written promise that the person who takes

the bill will be paid the amount stated in the
bill when
presents
Writeshe
the order
to pay it at the proper place
and time.

CHEQUES
Defined in section 73 of the Bills of Exchange Act
1949 as a bill of exchange drawn on a banker
payable on demand.
Banker will pay the sum of money specified on it.
payable on demand does not mean the cash it
immediately. It means it bears or within a
reasonable time after that date payment will be
made. Usually within six month otherwise the
cheque will be stale and not honoured by bank.
How about Post Dated Cheques?

PROMISSORY NOTES

Section 88 (1) of the Bills of Exchange Act

1949
defines
promissory
notes
as
unconditional promise in writing made by
one person to another signed by the maker,
engaging to pay, on demand or at a fixed or
determinable future time, a sum certain in
money, to or to the order of a specified
person or bearer.
(In short it is a document which contains a
promise by the maker that he will pay a
certain sum of money)

BANKERS CHEQUES
It usually in the form of demand drafts and
cashier orders are issued by bank to
customer of good standing on request and
against payment by the customer which is
usually effected by debiting the customers
account.
It may be issued by a branch addressed to
its head office or another branch of the
same bank.

BANK NOTES
Bankers draft payable to the bearer. It is a
promissory note issued by a banker as
payable to the bearer on demand.
In other words, a bank note is simply a
particular form of bankers draft.

TREASURY BILLS
Issued by the government to raise short
term loans.
Usually bills with a term of ninety-two days

SHARE WARRANTS and

DIVIDEND WARRANTS
SHARE WARRANTS-Company issue a
warrant stating that the bearer is entitled to
the shares specified in the warrant.
DIVIDENS WARRANTS-Documents issued by
a company directing its banker or a bank to
pay to a named shareholder a specified sum
of money, being the shares of the declared
dividend to which he is entitled. Usually it
takes form of a cheque or bankers draft, in
other cases it specified to be not
negotiable

DEBENTURES
Documents given as acknowledgement of
indebtedness.
Most common debentures are those issued
by a corporation acknowledging a long term
loan to the corporation.

TRAVELLERS CHEQUE
Special form of a bankers draft which
enables the holder to draw cash on it.
Order made by the customer, addressed to
the bank and requiring it to pay to himself
or his order the sum of money specified.

NATURE OF BILLS OF EXCHANGE

Section 3(1) Bills of Exchange Act 1949

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 specified
person or to bearer

CHARACTERISTIC
1.
2.
3.
4.
5.

6.
7.
8.
9.
10.

An unconditional order
In writing
Addressed by one person to another
Signed by person giving it
Requiring the person to whom it is addressed to
pay in the future
certain sum of money
To the order of specified person
Supported by consideration
Capacity to contract by bill of exchange
Date of bill

Question
State the characteristic of a bill of exchange
What is meant by the word negotiations in
the context of the Law of Banking. Illustrate
with example of negotiable instruments