After studying this chapter you will be able to understand: What are the main negotiable instruments are? Cheque, types of cheques, bearer cheque, anted – dated cheque, stale cheque, mutilated cheque, post-dated cheque, parties to a negotiable instruments,...
Revise Lecture 23 • What are the main negotiable instruments are? Negotiable Instrument • The main negotiable instruments are;\ Promissory notes Bill of exchange Cheques • CHEQUES Cheques • • A cheque is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specific demand account held in the maker /depositor’s name with that institution Actually a cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified Cheques • The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency to purchase goods and services Cheques • Cheques generally contain; Place of issue Cheque number Date of issue Payee Amount of currency Cheques Signature of the drawer Routing / account number Fractional routing number A cheque is generally valid indefinitely or for six months after the date of issue unless otherwise indicated, this varies depending on where the cheque is drawn Cheques • Features of a Cheque Cheques Features of a Cheque • Some important features of a cheque are given below; A cheque must be in writing and duly signed by the drawer It contains an unconditional order It is issued on a specified banker only Cheques Ante – dated Cheque • • This is a cheque in which the drawer mentions the date earlier to the date of presenting it for payment For example, a cheque issued on May 20, 2007 may bear a date May 5, 2007 Cheques • Stale Cheque Cheques Stale Cheque • • • A cheque which is issued today must be presented at bank for payment within a stipulated period After expiry of that period, no payment will be made and it is then called a stale cheque Find out from your nearest bank the validity period of a cheque Cheques • Mutilated Cheque Cheques Mutilated Cheque • • • In case a cheque is torn into two or more pieces and presented for payment, such a cheque is called mutilated cheque The bank will not make payment against such a cheque without getting confirmation of the drawer The bank may make payment against such a cheque if its is torn at the corners Cheques • Post-dated Cheque Cheques Post-dated cheque • • • This is a cheque on which the drawer mentions a date which is subsequent to the date on which it is presented For example, if a cheque presented on May 8, 2007 bears a date of May 25, 2007, it is a post-dated cheque The bank will make payment only on or after May 25, 2007 • Parties to a Negotiable Instruments Negotiable Instrument • The important parties to negotiable instruments are; Promissory note: Maker Payee Endorser Endorsee Negotiable Instrument Bill of Exchange: Drawer Drawee or acceptor Endorser Endorsee Negotiable Instrument Valid Acceptance: • The essential requirements of a valid acceptance are that it; Must be written Must be signed Must be completed by delivery Negotiable Instrument • Holder in Due Course Negotiable Instrument Holder in Due Course Holder in due course means any person who for consideration becomes the possessor of a promissory note, bill of exchange or cheque payable to bearer or the payee or endorser thereof if payable to order, before the amount mentioned therein becomes payable and without sufficient cause to believe that any defect existed in the title of the person from whom he Negotiable Instrument Holder in Due Course The definition specifies that: The holder has to possess the instrument in due course and before the date of maturity The consideration must be legal and adequate There should be sufficient cause to believe that he possessed the instrument Negotiable Instrument Holder in Due Course The holder should not become the holder in due course even if he received the instrument without any suspicion or knowledge about such defects Notice of any defect in the title subsequent to the date of acquisition should not affect the rights of the holder in due course ... clearly mentioned both in figures and words The payee is always certain It is always payable on demand 7.The cheque must bear a date, otherwise it is invalid and shall not be honoured by the bank... cancelled and the word ‘order’ may be written The payee can transfer an order cheque to someone else by signing his or her name on the back of it • Anted – dated Cheque Cheques Ante – dated Cheque... writing and duly signed by the drawer It contains an unconditional order It is issued on a specified banker only Cheques Features of a Cheque The amount specified is to be always certain and must