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Banking & Finance(new improved Latest edition)

Prof. Waseem Subhani

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NegotiableInstruments

Prof. Waseem Subhani [IBA],University of the Punjab

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1

It means transfer from one person to

another. The onsi!eration is essentia" for

transferabi"ity.

 Negotiable

It means a #ritten !oument by #hih

ri$ht is reate! in favour of some person. .

 Instrument 

 Defining Negotiable Instrument 

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%Prof. Waseem Subhani [IBA], University of the Punjab

&ree"y Transferab"e

Tit"e &ree of a"" 'efets

(ntit"e! to )eeive *oney

)eovery

Unon!itiona"

Characteristics of Negotiable Instrument 

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Freely Transferable

 The ownership of negotiable instrumentis transferable by delivery if it ispayable to bearer, otherwise ownershippasses from endorsement and delivery.

Title Free of all Defects

 The holder in due course of such

instrument is free of all kinds of defectsin the act of the transfer.

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Entitled to Receive Money

 The holder of the negotiable instrument is

entitled to receive money mentioned on it.Recovery

 The holder in due course of negotiableinstruments can sue defaulting parties, inhis own name without giving any intimationto the drawers of his becoming holder.

Unconditional

 The NI must be unconditional. Theinstrument should not state any otherundertaking or instructions by the personpromising to do any act in addition to thepayment of money.

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+Prof. Waseem Subhani [IBA], University of the Punjab

  So ne$otiab"e instrument are

bi""s of ehan$e, promissory

note, he-ue an! these !oumentsare a""e! ne$otiab"e instruments

 just beause the e$otiab"e

Instruments At !efines them soan! further they are/0ont!2

 Negotiable Instrument – cont’d 

Conclusion

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3Prof. Waseem Subhani [IBA], University of the Punjab

free"y transferab"e. o#nership passes on #ith !e"ivery or #ith

en!orsement an! !e"ivery.

ho"!er in !ue ourse is entit"e! to reeive

payment. an! ho"!er in !ue ourse an sue in his

o#n name to a"" onerne! parties.

Conclusion – cont’d 

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5

romissory Note

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4Prof. Waseem Subhani [IBA], University of the Punjab

'efinition/

  5A promissory note is an instrument in

#ritin$ 0not bein$ a ban6 note or urreny

note2 ontainin$ an unon!itiona" un!erta6in$,

si$ne! by the ma6er, to pay a ertain sum of

money on"y to or to the or!er of a ertainperson or to the bearer of the instruments.7

 Promissory Note

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8

0i2 *a6er/ 9'ebtor:

0ii2 Payee/ 9;re!itor:

 Parties to a Promissory Note

0i2 the prinipa" amount,

0ii2the interest rate if any,

0iii2 the maturity !ate

Terms of a Promissory Note:

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<Prof. Waseem Subhani [IBA], University of the Punjab

In Writin$;"ear Promise'efinite Promise

Si$nature of *a6er;ertain *a6er;ertain Payee;ertain Amount

Promise to Pay *oney0ont!2

 Essentials of a Promissory Note

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In !riting

 The PN must be in proper writing. Averbal agreement or promise to pay anyamount can not be treated as PN.

"lear romise

 The note must contain clearly a promiseto pay. The word promise must be used init.

De#nite romise

 The promise to pay must be denite andunconditional. In case any condition orterms are attached to the promise then itwill not a valid PN.

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$ignature of Maker

 The maker of note must signs it. If themaker does not sign it then it will not bea valid PN.

"ertain Maker

 The must be certain and denite person. There must a clear statement that who isthe maker or payer.

"ertain ayeeike maker the payee must be certainand denite person. PN must clearlystats that who is the promissory or

payee.

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"ertain %mount

 The amount to be paid must be in awritten in a denite way. If there is anelement of estimation than this will notbe a valid PN.

romise to ay Money

In PN there must be a promise to pay

money only. If a person writes a PN inthe following way, !I promise to pay you"s. #$$$ and one car% then this is not avalid PN.

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=Prof. Waseem Subhani [IBA], University of the Punjab

 Miscellaneous:Legal matters that are essential for other legal

documents also apply to the promissory note

such as it shall be:

  properly and clearly written,  date should be mentioned,  amount should be stated in both words and

figures and  it should be properly stamped.

 Essentials of a Promissory Note – cont’d 

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1>

'efinition/

  “A bill of exchange is a document in writing

containing an unconditional order, signed by themaker, directing a certain person for paying a

certain sum of money only to or to the order of a

certain person, or to the bearer of instrument. 

 Bill of Echange

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!" Dra#er:

The person who makes the bill is called

rawer of the bill.

$" Dra#ee:The person on whom the bill is drawn is called

the drawee.

%" Payee:

The person to whom payment is made is called payee.

 Parties to a Bill of Echange

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1%

!. "t must be in writing and properly worded.

#. "t contains an order to pay.$. The order to pay must be unconditional.

%. "t must be signed by the drawer.

5. The drawee must be a certain and definite person.

&. The payee must be a certain and definite person.'. The amount payable should be stated clearly.

(. The order is to pay money only. )*ot any other

commodity or any asset+

. "t must fulfil other legal re-uirements such as

mentioning of date, signature, stamp etc.

 Essentials of Bill of Echange

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1+

  If the !ra#ee refuses to aept the bi"" then

the bi"" of ehan$e has no va"ue. &or the

purpose of aeptane it is ompu"sory that the

!ra#ee puts his si$nature on the fae of the bi""an! #rite the #or! 5A;;(PT('7.

 &cce'tance of Bill of Echange

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?ption of 'isount

;re!it &"eibi"ity

(ase of Business

Promotin$ &orei$n Tra!e

'oumentation

 &d(antages of Bill of Echange

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'tion of Discount

"redit Fle(ibility

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1@

Aommo!ation Bi""s

;"ean Bi""

'oumentary Bi""&ititious Bi""

Bi"" in Sets

Ty'es of Bill of Echange

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14

  When it is !u"y presente! for aeptane an!

suh aeptane as presribe! by the At is

refuse! or annot be obtaine!.

  When on presentation, aeptane is euse!an! the bi"" is not aepte!, the ho"!er is entit"e!

to have an un-ua"ifie! aeptane an! if he !oes

not $et suh an aeptane, he may treat the bi""

as !ishonore! by nonaeptane an! animme!iate ri$ht of reourse a$ainst the !ra#er

or en!orsers arues to the ho"!er an! no

presentment for payment is neessary.

 Dishonor of Bill of Exchange

 Dishonor by Non-Acceptance:

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18

otin$/   When a bi"" is !ishonore! by nonaeptane

or by nonpayment, it is sometimes neessary to

obtain forma" proof that it has been !u"y

presente! an! !ishonore!. The first step to this

en! is 6no#n as notin$ the bi"" an! the seon!

step is 6no#n as protestin$ it.

 Dishonor by Non-Acceptance – cont’d 

The notary pub"i notes the/

0a2 'ate of !ishonour

0b2 )easons for !ishonour, if any, an!

02 ?ther re"evant fats.

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1<

  5A he-ue is a bi"" of ehan$e !ra#n on a

speifie! ban6er an! not epresse! to be payab"e

other#ise then on !eman!.7

Che)ue

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1=

!" Dra#er:e is the person #ho !ra#s or #rites the

he-ue.

$" Dra#ee:The ban6 on #hih he-ue is !ra#n is a""e!

!ra#ee.

%" Payee:

The person #ho is entit"e! to reeive paymenton a he-ue is a""e! payee.

 Parties to a Che)ue

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%>

1. ?pen ;he-ue

%. ;rosse! ;he-ues

+. Bearer ;he-ue

3. ?r!er ;he-ue@. B"an6 ;he-ue

4. Post!ate! ;he-ue

8. *uti"ate! ;he-ue

<. Sta"e ;he-ue=. Anti 'ate! ;he-ue

Ty'es of Che)ue

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%1

*eneral Crossing "n general crossing two parallel transerse lines are

drawn on che-ue and

!. These may be left blank or

#. The words “/ 0o.1 , “*ot negotiable1 or

any abbreiation can be written in between

these lines.

Crossing of the Che)ue

Ty'es of Crossing 

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%%

 +'ecial Crossing:

*eanin$s/

Un!er speia" rossin$ the name of a partiu"ar

ban6 is mentione! on the he-ue either #ith or#ithout the #or!s 5ot e$otiab"e7.

 +'ecial Crossing 

(ffets/

In ase of speia" rossin$ the payin$ ban6 sha""

ma6e payment on"y to the ban6 #hose name is

#ritten on he-ue.

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%+

  5The #ritin$ of a persons name either on the

ba6 or on the fae of instrument fo""o#e! by ones

si$nature for the purpose of ne$otiation is a""e!

en!orsement7.

 Endorsement 

 Endorser:The person #ho ma!e the en!orsement, by

#ritin$ an! si$nin$, is a""e! en!orser.

 Endorsee:

The person to #hom en!orsement is ma!e is

a""e! en!orsee.

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%3

 ,a- Blan. or *eneral Endorsement:

The b"an6 or $enera" en!orsement is the type of

en!orsement in #hih the ho"!er on"y puts his

si$nature an! !e"iver it to the en!orsee.

 /ind of Endorsement 

 ,b- 0ull Endorsement:

The he-ue ontains not on"y the si$nature of

the ho"!er C en!orser but a"so speifies theen!orsee. &or eamp"e

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%@

 ,c- Conditional Endorsement:

;ontains an or!er to pay on"y #hen a "ai! !o#n

on!ition by the en!orser is fu"fi""e!.

 /ind of Endorsement – cont’d 

 ,d- +ans 1ecourse Endorsement:

In this type of en!orsement, the en!orser refusesto aept any "iabi"ity on the instrument to any

subse-uent party in ase of !ishonor.

,e- 0acultati(e Endorsement:In suh en!orsement the en!orser refers to the

#aiver of some ri$ht at the time of en!orsement.

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 It must be on the ba6 or fae of the instrument

or on etra s"ip of paper a""e! 5a""on$e7annee! thereto.

It must be ma!e by the ma6er or ho"!er of a

ne$otiab"e instrument payab"e to or!er.

It must be si$ne! by the payee or the en!orsee. It must be ma!e #ith the intention of

transferrin$ the instrument to a thir! person so

as to entit"e the transferee the ri$ht to reover the

money !ue un!er it. It must be omp"ete! by !e"ivery of the

instrument #ith the intention of passin$ the

property in the instrument.

 Essentials of a (alid Endorsement 

%4

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 A ban6 !raft is an or!er $iven by one branh of

the ban6 to another branh of the same ban6 to

pay a sum of money to a ertain person name!

therein, on !eman!.

 Ban. Draft 

%8

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1. o stamp is nee!e!.

%. It has uni-ue seria" number.

+. It is stampe! by a responsib"e ban6 offier on

beha"f of the ban6.3. It is payab"e on !eman!.

@. The amount payab"e an! the person to #hom it is

payab"e, both are speifie! "ear"y in !raft.

4. It is an unon!itiona" or!er for payment.

0eatures of Ban. Draft 

%<

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