A negotiable instrument is a specialized type of "contract" for the payment of money that is unconditional and capable of transfer by negotiation. Common examples include cheques, banknotes (paper money), and commercial paper.Differences from a contract
A negotiable instrument is not a contract, as contract formation requires an offer, acceptance, and consideration, none of which is an element of a negotiable instrument. Unlike ordinary contract documents, the right to the performance of a negotiable instrument is linked to the possession of the document itself (with certain exceptions such as loss or theft).The rights of the payee (or holder in due course) are better than those provided by ordinary contracts as follows:
A negotiable instrument is not a contract, as contract formation requires an offer, acceptance, and consideration, none of which is an element of a negotiable instrument. Unlike ordinary contract documents, the right to the performance of a negotiable instrument is linked to the possession of the document itself (with certain exceptions such as loss or theft).The rights of the payee (or holder in due course) are better than those provided by ordinary contracts as follows:
-The rights to payment are not subject to set-off, and do not rely on the validity of the underlying contract giving rise to the debt (for example if a cheque was drawn for payment for goods delivered but defective, the drawer is still liable on the cheque)
-No notice needs to be given to any prior party liable on the instrument for transfer of the rights under the instrument by negotiation
-Transfer free of equities—the holder in due course can hold better title than the party he obtains it from
Negotiation enables the transferee to become the party to the contract, and to enforce the contract in his own name. Negotiation can be effected by endorsement and delivery (order instruments), or by delivery alone (bearer instruments). in addition, it includes the rule of a derivative title which does not allow a property owner to transfer rights in a piece of property greater than his own.
-No notice needs to be given to any prior party liable on the instrument for transfer of the rights under the instrument by negotiation
-Transfer free of equities—the holder in due course can hold better title than the party he obtains it from
Negotiation enables the transferee to become the party to the contract, and to enforce the contract in his own name. Negotiation can be effected by endorsement and delivery (order instruments), or by delivery alone (bearer instruments). in addition, it includes the rule of a derivative title which does not allow a property owner to transfer rights in a piece of property greater than his own.
Classes
Promissory notes and bills of exchange are two primary types of negotiable instruments.
1.Promissory note
A promissory note is a written promise by the maker to pay money to the payee. Bank note is frequently transferred as a promissory note, a promissory note made by a bank and payable to bearer on demand. A maker of a promissory note promises to unconditionally pay the payee (beneficiary) a specific amount on a specified date.
A promissory note is an unconditional promise to pay a specific amount to bearer or to the order of a named person, on demand or on a specified date.
2.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. A common type of bill of exchange is the cheque (check in American English), defined as a bill of exchange drawn on a banker and payable on demand. Bills of exchange are used primarily in international trade, and are written orders by one person to his bank to pay the bearer a specific sum on a specific date. Prior to the advent of paper currency, bills of exchange were a common means of exchange. They are not used as often today.
Promissory notes and bills of exchange are two primary types of negotiable instruments.
1.Promissory note
A promissory note is a written promise by the maker to pay money to the payee. Bank note is frequently transferred as a promissory note, a promissory note made by a bank and payable to bearer on demand. A maker of a promissory note promises to unconditionally pay the payee (beneficiary) a specific amount on a specified date.
A promissory note is an unconditional promise to pay a specific amount to bearer or to the order of a named person, on demand or on a specified date.
2.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. A common type of bill of exchange is the cheque (check in American English), defined as a bill of exchange drawn on a banker and payable on demand. Bills of exchange are used primarily in international trade, and are written orders by one person to his bank to pay the bearer a specific sum on a specific date. Prior to the advent of paper currency, bills of exchange were a common means of exchange. They are not used as often today.
Usage
While bearer instruments are rarely created as such, a holder of commercial paper with the holder designated as payee can change the instrument to a bearer instrument by an indorsement. The proper holder simply signs the back of the instrument and the instrument becomes bearer paper.
Alternately, an individual or company may write a check payable to "Cash" or "Bearer" and create a bearer instrument. Great care should be taken with the security of the instrument, as it is legally almost as good as cash. Though in recent years, third party checks are not being honored by most banks unless the original payee has signed a notarized document stating such.
While bearer instruments are rarely created as such, a holder of commercial paper with the holder designated as payee can change the instrument to a bearer instrument by an indorsement. The proper holder simply signs the back of the instrument and the instrument becomes bearer paper.
Alternately, an individual or company may write a check payable to "Cash" or "Bearer" and create a bearer instrument. Great care should be taken with the security of the instrument, as it is legally almost as good as cash. Though in recent years, third party checks are not being honored by most banks unless the original payee has signed a notarized document stating such.
No comments:
Post a Comment