CHAPTER # 12

1-THE CONCEPT OF NEGOTIABILITY

Negotiability is a term used in relation to instruments

used to transfer money such as cheques and other bills of exchange, promissory notes, dividend, warrants, bearer bond and treasury bills, all of which are known as negotiable instruments.

FEATURES OF NEGOTIABLE INSTRUMENT

It can be transferred by simple delivery or by

endorsement It can be sued The person to whom it is negotiated obtains a good title to it There is no need to give notice of transfer to the person liable on the instrument.

2-ORIGIN OF BILLS OF EXCHANGE

It originated as a simple way for giving someone a

period of credit and time to re-sell the goods before paying and at the same time providing a document as evidence of debt. Internationally the Bill of London has always been regarded as a sound means of payment.

3- DEFINITION OF A BILL
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.

A BILL MUST BE;

Unconditional
In writing Addressed Signed by the drawer May be payable on demand or at a fixed future of time.

A BILL IS NOT INVALID BY REASON

That it is not dated;
That it does not specify the value given, or that any

value has been given therefore; That it does not specify the place where it is drawn or the place where it is payable.

ACCEPTANCE OF A BILL
It has to be accepted by the drawee before he is legally

liable on the bill. His acceptance must be written on the bill and signed by him as his assent to the order of the drawer. Cheques and promissory notes do not require acceptance

ENDORSEMENT OF A BILL
The term endorsement means the signature of the

payee or of an indorsee on the back of a bill, cheque or promissory note.

DISCHARGE OF A BILL
The acceptor is or becomes the holder at or after

maturity in his own right The holder unconditionally renounces any right against the acceptor in writing or by delivering up the bill to the acceptor The holder intentionally cancels the bill by indicating this on it It is an accommodation bill, when it is paid in due course by the party accommodated.

CHEQUES
Is a negotiable instrument instructing a financial

institution to pay a specific amount of a specific currency from a specified demand account held in the maker/depositor's name with that institution. Both the maker and payee may be natural persons or legal entities.

ORIGINS
The cheque had its origins in the ancient banking

system, in which bankers would issue orders at the request of their customers, to pay money to identified payees. Such an order was referred to as a bill of exchange. The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency (e.g. gold) to purchase goods and services. A draft is a bill of exchange which is not payable on demand of the payee.

PARTIES OF CHEQUE
The drawer The drawee The payee

PARTS OF A CHEQUE

Cheques generally contain: place of issue cheque number date of issue payee amount of currency signature of the drawer routing / account number in MICR format. fractional routing number (U.S. only) - also known as the transit number

ALTERNATIVES TO CHEQUES
Wire transfer (local and international)
European Payment Order Direct debit (initiated by payee) Direct credit (initiated by payer), ACH in the USA Online card payment Third party online payment services (for example PayPal) Postal payments (different names in different countries)

Cash (at the counter)

POS payments (at the counter)

CROSSED CHEQUES
A crossed cheque can be sent for collection only through the bank. there are two types of crossing.
crossing "A/c Payee only" means only the beneficiary got to present it only through his account for collection crossing "& Co" means the cheque can be presented for collection even from a third party account directly also if the beneficiary endorsing the concurrance on the reverse of the cheque.

PROMISSORY NOTE
A promissory note, referred to as a note payable in

accounting, or commonly as just a "note", is a contract where one party (the maker or issuer) makes an unconditional promise in writing to pay a sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. They differ from IOUs in that they contain a specific promise to pay, rather than simply acknowledging that a debt exists.