Question

Write a summary on chapter “Negotiable Instruments” in your own words ONLYWrite a summary on chapter “Negotiable Instruments” in your own words ONLY. 700 Words

Answer 1

Negotiable Instruments

The term negotiation means the transfer of an instrument from one party  to another party and the transferee becomes the holder of the instrument.

A negotiable instrument is a signed document that promises to pay a specified sum of money to a specified person on future date or on demand. By nature these negotiable instruments are transferrable. Upon transfer of the instrument, the holder of the instrument gets a full legal title of the instrument. A negotiable instrument must be signed, by the maker of the instrument, ie, the person issuing the draft. This person is known as the drawer of the funds. Some of the common examples of negotiable instruments include cheques, bill of exchange, promissory notes, drafts, certificate of deposits.

Some of the important characteristics of Negotiable instruments are:

1. Ownership of the Property

Negotiable instruments not only gives the possession of the instrument but also gives the ownership of the property contained there in.

2. Title

The transferree of the negotiable instrument is called "holder in due course".

3. Rights

In case of dishonour of the instrument, the transferee of the negotiable instrument can take legal action in his own name.

4. Prompt Payment

A negotiable instrument makes the holder to anticipate prompt payment of the instrument.

5. Freely transferrable

Every negotiable instrument is freely transferrable from one person to another. example: share cerificate of a company.

6. Number of transfers are unlimited

A holder of a negotiable instrument can transfer or endorse the instrument to another person and that person to another and so on. This transfer can be done till the instrument reaches its maturity.

Importance of Negotiable Instruments

1. A Negotiable instrument makes the transfer of money easier.

2. It creates right and ownership of property.

3. Easy and fast transaction of money is possible.

4. While doing business, it gives a certainity that they will receive money for their goods without transferring actual cash(by way of giving cheque). This helps in developing the business.

5. By carrying a cheque , there is no requirement of carrying actual cash along which is a great personal safety while involving in trade related activities.

Examples of Negotiable Instruments

1.Cheques : A cheque is a bill of exchange drawn on a specified banker and payable only on demand . It gives orders to the bank to pay a specified sum of money to a person's account from a person who has issued the cheque.

2. Bill of Exchange : A bill of exchange is an unconditional order , signed by the maker, directing to pay a certain sum of money to a specified person only to or to his order or to the bearer of the bill.

3. Commercial Bill : A commercial bill is a short term , negotiable money market instrument which gives the liability to make a payment on a fixed date when goods are bought on credit. It is drawn by the seller or the drawer of the goods in place of the goods deleivered.

4, Certificate of Deposits : A certificate of Deposit is a short term negotiable money market instrument issued by a commercial bank, against the money deposited by a depositor for a stipulated time. Interest on CD's may be paid as it is accrued or it may get cumulated on CD.