Tag: meaning and characteristics of negotiable instruments

Questions Related to meaning and characteristics of negotiable instruments

Characteristics of Negotiable Instruments
Which of the following can be considered as characteristic/s of negotiable instruments?
A. The holder in due course is entitled to sue on the instrument in his own name.
B. The instrument is transferable till maturity and in case of cheques, till it becomes stale.
Select the correct answer from the options given below-

meaning and characteristics of negotiable instruments the negotiable instruments act, 1881 commerce

  1. A only

  2. B only

  3. Both A & B

  4. None of above

Show answer
Correct Option: C
Explanation:
Important characteristics of Negotiable Instruments are:
  • Negotiable instrument does not simply give ownership of the instrument but right to property as well. The property in negotiable instrument can be moved without any formality. In the case of bearer instrument, the possessions pass by meager delivery to the transferee. In case of order instrument, endorsement & delivery are necessary for transfer of property.
  • The transferee of negotiable instrument is called ‘holder in due course.’ A genuine transferee for value is not affected by any flaw of title on the part of transferor or of any of the previous holders of instrument.
  • The transferee of negotiable instrument can take legal action in his own name, in case of dishonour. A negotiable instrument can be reassigned any number of times till it is attains maturity. The holder of instrument need not give notice of transfer to the party legally responsible on the instrument to pay.
  • Certain presumptions are applicable to all negotiable instruments. It is not essential to write in promissory note the words ‘for value received’ or alike expressions for the reason that the payment of consideration is acknowledged. The words are typically included to generate additional substantiation of consideration.
  • A negotiable instrument facilitates the holder to anticipate prompt payment because dishonour refers to the ruin of credit of all persons who are parties to the instrument.

Classification of Negotiable Instruments
A promissory note, bill of exchange or cheque is payable to bearer when -. 

meaning and characteristics of negotiable instruments the negotiable instruments act, 1881 commerce

  1. it is expressed to be payable to a particular person

  2. it is expressed to be further transferable

  3. the only or last endorsement on the instrument is an endorsement in blank

  4. if the holder obtains it in due course

Show answer
Correct Option: C
Explanation:

As per section 13 of the Negotiable Instruments Act, 1881, a “negotiable instrument” means a promissory note, bill of exchange or cheque payable either to order or to bearer. Also, the explanation (ii) of the section provides for that a promissory note, bill of exchange or cheque is payble to bearer which is expressed to be so payable or on which the only or last indorsement is an indorsement in blank.

The letter of credit includes all of the following documents except ___________.

meaning and characteristics of negotiable instruments the negotiable instruments act, 1881 commerce

  1. a commercial invoice

  2. a transport document

  3. a certificate of origin

  4. a certificate of investment

Show answer
Correct Option: D
Explanation:

A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. 

To receive payment, an exporter or shipper must present the documents required by the LC. Typically the letter of credit will request an original bills of lading as the use of a title document such as this is critical to the functioning of the Letter of Credit. However, the list and form of documents is open to negotiation and might contain requirements to present documents issued by a neutral third-party evidencing the quality of the goods shipped, or their place of origin or place. Typical types of documents in such contracts might include:

  • Financial Documents such as bill of exchange or co-accepted draft
  • Commercial Documents such as invoice. 
  • Shipping Documents
  • License, embassy legalization, origin certificate, 
  • Insurance Documents

Classification of Negotiable Instruments
A promissory note, bill of exchange or cheque drawn or made in ______ and made payable, or drawn upon any person, resident in India shall be deemed to be an inland instrument.

meaning and characteristics of negotiable instruments the negotiable instruments act, 1881 commerce

  1. India

  2. Outside India

  3. Undivided India

  4. None of the above

Show answer
Correct Option: A
Explanation:
According to Section 11 inland instrument means a promissory note bill of exchange, or cheque drawn or Made in India and made payable in or drawn up on any person resident in India shall be Deemed to be and inland instrument. Since a promissory note is not drawn on any person in India an inland promissory note before is one which is both Made in India and also made payable in India.

Introduction of Negotiable Instruments
A negotiable instrument dated  31st August, 2019, is made payable 3 months after date. The instrument is at maturity on ______.

meaning and characteristics of negotiable instruments the negotiable instruments act, 1881 commerce

  1. 30th August, 2019

  2. 3rd December, 2019

  3. 1st December, 2019

  4. 31st December, 2019

Show answer
Correct Option: B
Explanation:

Maturity means the date on which a bill of exchange falls due for payment. The date of maturity is to be calculated in respect of bills which are payable after a specified time. In arriving at the maturity date three days, known as days of grace, must be added to the date on which the period of credit expires instrument is payable. Here, the cheque is payable after three mgonths and addin the three days grace which makes the maturity date to be 31st August 2019 + 3 months + 3 days i.e. 3rd December, 2019.

Introduction of Negotiable Instruments
If the day of maturity falls on a public holiday, the instrument is payable on the -.

meaning and characteristics of negotiable instruments the negotiable instruments act, 1881 commerce

  1. Preceding business day

  2. Next business day

  3. Next Monday

  4. Following day

Show answer
Correct Option: A
Explanation:

If the day of maturity falls on a public holiday, the instrument is payable on the next preceding business day. he expression “Public Holiday” includes Sundays and any other day declared by the Central Government, by notification in the Official Gazette, to be a public holiday. 

Classification of Negotiable Instruments
In the case of bill of exchange, the expression "after sight" means -.

meaning and characteristics of negotiable instruments the negotiable instruments act, 1881 commerce

  1. After acceptance

  2. After noting for non-acceptance

  3. After acceptance, or after noting for non-acceptance or after protest for non-acceptance

  4. None of the above

Show answer
Correct Option: C
Explanation:

In a promissory note or bill of exchange the expressions "at sight" and "on presentment" means on demand. The expression "after sight" means, in a promissory note, after presentment for sight, and, in a bill of exchange after acceptance, or noting for non-acceptance, or protest for non-acceptance.In both the situations the payment cannot be demanded unless it is presented before the banker.

Classification of Negotiable Instruments
A promissory note or a bill of exchange payable after a fixed period, or after sight, or on specific day, or on the happening of an event which is certain to happen, is known as a/an -

meaning and characteristics of negotiable instruments the negotiable instruments act, 1881 commerce

  1. Time instrument

  2. Demand instrument

  3. Foreign instrument

  4. Inland instrument

Show answer
Correct Option: A
Explanation:

The types of Negotiable instruments are largely determined based upon the scope of definition given to negotiable instruments and specification of the instruments legally recognized as negotiable in that country’s law. A time instrument is payable at a definite future time and the event is certain to happen. For instance, an instrument payable 3 months after date is payable 3 months after the date written on its face. 

Classification of Negotiable Instruments
A promissory note, bill of exchange or cheque drawn or made in India, and made payable, or drawn upon any person, ______ shall be deemed to be an inland instrument.

meaning and characteristics of negotiable instruments the negotiable instruments act, 1881 commerce

  1. Resident in India

  2. Not ordinary resident in India

  3. Non-resident in India

  4. Resident outside India

Show answer
Correct Option: A
Explanation:
According to Section 11 inland instrument means a promissory note bill of exchange, or cheque drawn or Made in India and made payable in or drawn up on any person resident in India shall be Deemed to be and inland instrument. Since a promissory note is not drawn on any person in India an inland promissory note before is one which is both Made in India and also made payable in India.

Classification of Negotiable Instruments
An instrument, which in form is such that it may either be treated by the holder as a bill or as a note, is an -.

meaning and characteristics of negotiable instruments the negotiable instruments act, 1881 commerce

  1. Inchoate instrument

  2. Order instrument

  3. Incomplete instrument

  4.  Ambiguous instrument

Show answer
Correct Option: D
Explanation:

Ambiguous Instruments is defined in Section 17 of Negotiable instruments Act, 1881. Ambiguous Instrument is an instrument, which in form is such that it may either be treated by holder as a note or as a bill.