Negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time with the

payer named on the negotiable instrument.More specifically, it is a document contemplated by a contract, which warrants the payment of money without condition which may be paid on demand or at a future date. Examples of negotiable instruments include promissory notes, bills of exchange, bank notes and cheques. Although, some banknotes are not legal negotiable instruments such as current Federal Reserve Notes. Although passing for negotiable instruments most FRN's in circulation today are no longer legal negotiable instruments since the promise to pay or pay to the bearer on demand was taken off the notes near 1963. They no longer promise to pay dollars but claim to be dollars themselves.See: As payment of money is promised subsequently, the instrument itself can be used by the holder in due course as a store of value. The instrument can be transferred to a third party and it is the holder of the instrument who will ultimately get paid by the payer on the instrument. Transfers can happen at less than the face value of the instrument and this is known as discounting, this may happen for example if there is doubt about the payer's ability to pay. Due to the nature of the negotiable instrument as store of value, most countries passed laws specifically related to negotiable instruments.
History
Common prototypes of bills of exchanges and promissory notes originated in China. Here, in the 8th century during the reign of the Tang Dynasty they used special instruments called feitsyan for the safe transfer of money over long distances.[1] Later such document for money transfer used by Arab merchants, who had used the prototypes of bills of exchange suftadja and hawala in 1013th centuries, then such prototypes had used by Italian merchants in the 12th century. In Italy in the 1315th centuries, bills of exchange and promissory notes obtain their main features, while further phases of their development have been associated with France (1618th centuries, where the endorsement had appeared) and Germany (19th century, formalization of Exchange Law). In England (and later in the U.S.), exchange law was different from continental Europe because of different legal systems.[citation needed][2]

The modern emphasis on negotiability may also be traced to Lord Mansfield.[3] Germanic Lombards documents may also have some elements of negotiability.[4]

Negotiable instruments distinguished from other types of contracts

A negotiable instrument can serve to convey value constituting at least part of the performance of a contract, albeit perhaps not obvious in contract formation, in terms inherent in and arising from the requisite offer and acceptance and conveyance of consideration. The underlying contract contemplates the right to hold the instrument as, and to negotiate the instrument to, a holder in due course, the payment on which is at least part of the performance of the contract to which the negotiable instrument is linked. The instrument, memorializing (1) the power to demand payment; and, (2) the right to be paid, can move, for example, in the instance of a 'bearer instrument', wherein the possession of the document itself attributes and ascribes the right to payment. Certain exceptions exist, such as instances of loss or theft of the instrument, wherein the possessor of the note may be a holder, but not necessarily a holder in due course. Negotiation requires a valid endorsement of the negotiable instrument. The consideration constituted by a negotiable instrument is cognizable as the value given up to acquire it (benefit) and the consequent loss of value (detriment) to the prior holder; thus, no separate consideration is required to support an accompanying contract assignment. The instrument itself is understood as memorializing the right for, and power to demand, payment, and an obligation for payment evidenced by the instrument itself with possession as a holder in due course being the touchstone for the right to, and power to demand, payment. In some instances, the negotiable instrument can serve as the writing memorializing a contract, thus satisfying any applicable Statute of Frauds as to that contract.

A cheque with Thomas Jefferson as payee and payor from 1809

A cheque from 1905

A cheque from 1933

A cheque sample from Canada 2006 A cheque (or check in American English) is a document[nb 1] that orders a payment of money from a bank account. The person writing the cheque, the drawer, usually has a current account (most English speaking countries)[which?] or chequing/checking account (US; also, occasionally, Canada) where their money was previously deposited. The drawer writes the various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay that person or company the amount of money stated. Cheques are a type of bill of exchange and were developed as a way to make payments without the need to carry large amounts of money. While paper money evolved from promissory notes, another form of negotiable instrument, similar to cheques in that they were originally a written order to pay the given amount to whoever had it in their possession (the "bearer"). Technically, a cheque is a negotiable instrument[nb 2] instructing a financial institution to pay a specific amount of a specific currency from a specified transactional account held in the drawer's name with that institution. Both the drawer and payee may be natural persons or legal entities. Specifically, cheques are order instruments, and are not in general payable simply to the bearer (as bearer instruments are) but must be paid to the payee. In some countries, such as the US, the payee may endorse the cheque, allowing them to specify a third party to whom it should be paid. Although forms of cheques have been in use since ancient times and at least since the 9th century, it was during the 20th century that cheques became a highly popular non-cash method for making payments and the usage of cheques peaked. By the second half of the 20th century, as cheque processing became automated, billions of cheques were issued annually; these volumes peaked in or around the early 1990s.[1] Since then cheque usage has fallen, being partly replaced by electronic payment systems. In an increasing number of countries cheques have either become a marginal payment system or have been completely phased out.

1. 2. 3. 4. 5.

Bill

of

exch.

as

payment

medium with due date Bill of exch. as short term credit for customer Bill of exch. as flexible financing medium: Vendor can discount bill of exchange before due date dependent on financial requirements. The bill of exchange is usually created by the Accounts Payable/Accounts Receivable department of a company. Bills of exchange are handled as Special G/L transactions in the SAP System and a Special G/L indicator is updated in the respective bill of exchange line items, via which the special account determination is determined. Types of BOE:

1. Promissory note The customer is the creator of the bill of exchange and at the same time the drawee of the bill of exchange. He sends the bill of exchange to his business partner. 2. Paper BOE, BOE payment request The vendor sends a bill of exchange to his business partner to be signed. The customer sends it back on a certain date. The vendor can request that the bill be sent back-> Draft paper bill. 3. Bank bill of exchange here exists a general agreement between business partners. The vendor creates a bill of exchange, enters the customer as beneficiary and sends this bill of exchange directly to the bank- bank bill of exchange. Bank Draft A banker's draft (also called a bank cheque, certified cheque in Canada or, in the US, a cashier's check) is a cheque (or check) where the funds are taken directly from the financial institution rather than the individual drawer's account. A normal cheque represents an instruction to transfer a sum of money from the drawer's account to the payee's account. When the payee deposits the cheque into their account, the cheque is verified as genuine (or 'cleared', a process typically

taking several days) and the transfer is performed (usually via a clearing house or similar system). Any individual or company operating a current account (or checking account) has authority to draw cheques against the funds stored in that account. However, it is impossible to predict when the cheque will be deposited after it is drawn. Because the funds represented by a cheque are not transferred until the cheque is deposited and cleared, it is possible the drawer's account may not have sufficient funds to honour the cheque when the transfer finally occurs. This dishonoured or 'bounced' cheque is now worthless and the payee receives no money, which is why cheques are less secure than cash. By contrast, when an individual requests a banker's draft they must immediately transfer the amount of the draft (plus any applicable fees and charges) from their own account to the bank's account. (An individual without an account at the issuing bank may request a banker's draft and pay for it in cash, subject to applicable anti-money laundering law and the bank's issuing policies.) Because the funds of a banker's draft have already been transferred they are proven to be available; unless the draft is a forgery or stolen, or the bank issuing the draft goes out of business before the draft is deposited and cleared, the draft will be honoured. Like other types of cheques, a draft must still be cleared and so it will take several days for the funds to become available in the payee's account.[1] In the United Kingdom the use of bankers' drafts is being phased out.[citation needed] With the advent of new technology such as debit cards, internet banking and Faster Payments the method of a guaranteed paper cheque is now regarded as slower and less secure for both the issuing bank and the customer.[citation needed]