CHAPTER # 12

1-THE CONCEPT OF NEGOTIABILITYNegotiability 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 INSTRUMENTIt can be transferred by simple delivery or by

endorsementIt can be suedThe person to whom it is negotiated obtains a

good title to itThere is no need to give notice of transfer to

the person liable on the instrument.

2-ORIGIN OF BILLS OF EXCHANGEIt 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 BILLA 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;UnconditionalIn writingAddressedSigned by the drawerMay be payable on demand or at a fixed

future of time.

A BILL IS NOT INVALID BY REASONThat 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 BILLIt 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 BILLThe acceptor is or becomes the holder at or

after maturity in his own rightThe 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.

CHEQUESIs 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.

ORIGINSThe 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 CHEQUEThe drawerThe draweeThe payee

PARTS OF A CHEQUECheques generally contain:place of issuecheque numberdate of issuepayeeamount of currencysignature of the drawerrouting / account number in MICR format. fractional routing number (U.S. only) - also

known as the transit number

ALTERNATIVES TO CHEQUESWire transfer (local and international)European Payment OrderDirect debit (initiated by payee)Direct credit (initiated by payer), ACH in the USAOnline card paymentThird party online payment services (for example

PayPal)Postal payments (different names in different

countries)Cash (at the counter)POS payments (at the counter)

CROSSED CHEQUESA 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 NOTEA 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.