NEGOTIABLE INSTRUMENTS Negotiable Transferable by delivery Written document

NEGOTIABLE INSTRUMENTS

• Negotiable- Transferable by delivery. • Written document which create a right in favor of some person and which is freely transferable. or • It is a written promise or order to pay money which may be transferred from one person to another. • NI are money/cash equivalents. • Play an important role in the economy in settlement of debts and claims.

• Payee is the person whose name is written on the promissory note or bill of exchange or cheque.

• In course of transfer of a promissory note by payee, the parties involved may be Endorser and Endorsee. a) The Endorser- Endorser is the person who endorses the note in favour of another person b) The Endorsee- If the endorser adds a direction to pay the amount mentioned in the instrument to, the person so specified is called the ‘endorsee’ of the instrument.

• A bill of exchange is a written acknowledgement of debt, written by the creditor and accepted by the debtor. • It is called a draft before its acceptance.

Example : • ‘A’ sold goods to ‘B’ on credit for Rs. 20, 000 for three months. If agreed so, ‘A’ can draw for a bill of exchange upon ‘B’ for Rs. 20, 000 payable after 3 months. Before it is accepted by ‘B’ it will be called a draft. It will become a bill of exchange only when ‘B’ writes the word “accepted” on it and puts his signature to communicate the acceptance.