TYPES OF NEGOTIABLE INSTRUMENTS AND CHEQUES

WHAT IS NEGOTIABLE INSTRUMENTS AND TYPES OF CHEQUES ?

According to section 13(1)of the negotiable instrument s Act 1881 ,"A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer"

Negotiable instrument

A negotiable instrument is a chose -in action with the characteristics of negotiability attached to it .Thus a negotiable instrument is one which when transferred by delivery or by endorsement and delivery passes to the transferee a good title to payment irrespective of the title of the transfer or provided the transferee is a Bona fide holder for value, without notice of any defect in the title of the transferee,

TYPES OF NEGOTIABLE INSTRUMENTS

*Promissory note

*Bill of exchange

*Cheques

PROMISSORY NOTE

A promissory note is defined by section 4 of the negotiable instrument act, promissory note is written promise made by one person to pay a certain sum of money due to another person or any other legal holder of the document.

This means that when a person gives return promise to another person named in the bill to pay a certain sum of money unconditionally, the document is called promissory note however bank notes and currency notes are excluded from the definition of a promissory note because both of them are treated as money

negotiable instrument

BILL OF EXCHANGE

A bill of exchange is defined by section 5 of the negotiable instrument act,

a bill of exchange as an instrument in writing containing an unconditional order, signed by the maker directing a certain person to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument,

A bill of exchange is called a draft till the acceptance is given by the debtor.there are three parties to a bill of exchange namely drawer, drawee and payee.  The maker of the bill is called the drawer,the person who is ordered to pay is called the drawee and the person to whom or to whose order the money is directed to be paid is called the payee ,in some cases drawer and payee maybe one person.

CHEQUES

cheque is a very common form of negotiable instrument. if you have a saving bank account on your current account in bank, you can issue a cheque in your own name or in favour of others, thereby directing the bank to pay the specified amount to the person named in the check,

Therefore a cheque may be regarded as a bill of exchange. The only difference is that the bank is always the drawee in case of cheque.

Actually a check is an order by the account holder of the blank directing his banker to pay on demand the specified amount to or to the order of the person named  therein or to the bearer.

different types of cheques

DIFFERENT TYPES OF CHEQUES

*Open cheque

A cheque is called open when it is possible to get cash over the counter at the bank, the holder of an open cheque can receive its payment over the counter at the bank and deposit the cheque in his own account and passes it to someone else by signing on the back of the cheque,

*Crossed cheque

Since open cheque is subject to risk of theft, it is dangerous to issues such cheques. This risk can be avoided by issuing another type of cheque called crossed cheque. The payment of such cheque is not made over the counter at the bank it is only credited to the bank account of the payee. A cheque can be crossed by drawing two transverse parallel lines across the cheque.with or without the writing 'account payee'  or' not negotiable'.

*Bearer cheque

A cheque which is payable to any person who presents it for payment at the bank counter is called bearer cheque. A bearer cheque can be transferred mere delivery and require no endorsement

*Order cheque

An order cheque is one which is payable to a particular person. in such a cheque the word 'bearer' may be caught out or cancelled and the word 'order' may be written. The payee can transfer and order cheque to someone else by signing his or her name in the back of it,

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