A negotiable instrument is a document evidencing an obligation which is transferable by mere delivery and endorsement. Such delivery, operating to transfer all legal rights to the obligation evidenced, free from defects in the transferor's title. It is also a document possessing certain qualities and entitling the holder to a specified sum of money.
Characteristics of negotiable
The title passes by delivery.
The holder can sue in his name.
No notice is necessary to the drptor or other obligee
A transferee can obtain a good title even though tje transferor had no title, provided the instrument was in a negotiable state and the transferee took it in good faith.
The instrument must be recognised as a negotiable instrument by law.
Types of negotiable instruments
Bill of exchange
Bank notes debenture
Cheques
Promissory notes
Dividend warrant
Share warrant
Bearer bond
Treasury bills
Although dock warrant, bill of lading, share certificates, postal or money order are similar in some ways to the negotiable instruments.
Bill of exchange
The bill of exchange act defines a bill of exchange to be:"An unconditional order in writing, addresed 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 ordet of a specified person or to bearer."
Features of bill of exchange
It must be in writing.
The order must be unconditional.
It must be signed by the drawer.
It must order payment of a sum certain in money.
Parties to a bill
The parties to a bill are the people who are liable on it.
Drawer:This is the person who makes out the bill, signs and issues it, i.e., the creditor to whom money is owing
Drawer: This is the person to whom the bill is drawn and who after acceptance is called, an acceptor.
Payee:This is a person to whom the money is paid. The payee of the bill is the party to be paid the amiunt or sum stated on the bill. In addition, there are other parties who receive their power from the payee. These are:
Indorsee:This is the person to whom the order bill is indorsed.
Bearer:This is the person in possession of a bill which is payable to the bearer.
Holder:This refers to the payee or indorsee who is in possession of an order bill or a bearer bill.
Holder for value:This is the holdet who has given or who is deemed to have given value. He is the holder of a bill for which value is given at any time.
Holder in due course: This is a holder who has taken a bill:
On the face of it
Before it was overdue
Without notice of previous dishonour by non-payment
In good faith
For value
Without notice of any defect at the time of negotiation
Endorser: This is a person named on a bill to whom the money was to be paid and who has transfered the bill by writing his name on the book and delivering it to a transferee.
Kind of bills
Inland bills: This is a bill which is or purports to be
drawn and payable within a country
drawn within the country upon the same person resident therein.
Foreign bill: This is a bill used for making a payment arising out of foreign trade. It is similar to an inland bill and is drawn in a set of three. Bills are accompanied with shipping documents, e.g bill of lading, invoice, certificate of origin and consular invoice. The bill is then a documentary bill.
Advantage of bill
A bill reduces the risk of carrying large amount of money.
It is transferable from one person to another.
It is a legal document which the creditors can sue the debtor on defaults.
It fixes the date of payment.
Foreign bills enable the exporter to obtain cash soon after the goods are dispatched.
It enables the buyer to defet payment until the goods are received or even later.
Differences between cheque and bill.
In cheque, drawer is a deptor, while in bill a drawer is a creditor.
Cheque can be crossed and paid into account. While a bill can be drawn on a person.
Cheque is not drawn on a person but bank. While a bill is drawn on a person.
The drawer of a cheque id under a duty to his banker to exercise reasonable care when drawing a cheque. While the drawer of a bill owes no such duty.
Similarities between cheque and bill of exchange.
Both are:
Orders
Unconditional
Evidenced in writing
Addressed by one person to another
Written by drawer
Time of payment is specified.
Promissory notes
A promissory note is defined as, "An unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at fixed detrminable future date, a sum certain in money or to the order of a specified person to bearer".
Parties to a promissory note
Maker: This refers to the party who writes out the note, i.e., the debtor.
Payee: This refers to the person to whom the money is payable, i.e., the creditor.
Kinds of promissory notes
Inland note: An inland note is one which is or on the face of it purports to be both made and payable within a country; any other note is a foreign note.
Features of promissory note
It is a promise to pay somebody
It must be in writing.
The maker must sign it.
It must be an unconditional promise.
It can be transferred by endorsing it.
Differences between a bill of exchange and prommisory note.
Bill of exchange is an order to pay. While promissory note is a promise to pay.
Bill requires acceptance. While acceptance in promissory note is not necessary.
Bill of exchange is drawn by the creditor. While promissory note is drawn by the debtor.
Bills are drawn in set. While promissory notes are made singly.
Foreign bill when dishonoured can be protested. While foreign notes need not be protested.
Terminologies used in negotiable instruments.
Endorsement
Dishonoured bill
Noting
Discounting bill
Allonge
Notary public
Noting charges
Protest
House bill
Overdue bill
