Instructions
1. Clarity is mandatory;
2. Your work shall include introduction, conclusion and reference;
3. Copying the work of others will be punishable;
Questions
1. Discuss the notions of negotiable instruments (hint: function, classification, type, definition etc. should be included)
2. Discuss the types of Commercial instruments including their distinct character.
3. Discuss the role of negotiable instruments in business transaction.
Title: Understanding Negotiable Instruments in Business Transactions
Introduction:
Negotiable instruments play a vital role in facilitating transactions in the business world. These instruments serve as a form of currency and offer a level of convenience and security in transactions. This article aims to discuss the notions of negotiable instruments, their classification, types, and their distinct character in commercial transactions.
1. Notions of Negotiable Instruments:
Negotiable instruments are written documents that function as a substitute for money in commercial transactions. They provide a promise or order to pay a certain amount of money, rendering them transferable from one party to another. The essential characteristics of negotiable instruments include:
a. Function: Negotiable instruments act as a medium of exchange, facilitating commerce and easing the burden of immediate cash payments. They allow for flexibility and convenient transfer of rights to monetary value.
b. Classification: Negotiable instruments can be classified as promissory notes, bills of exchange, or checks. Each category possesses specific features and characteristics that distinguish them from one another.
c. Types:
- Promissory Notes: These are unconditional written promises made by one party (known as the maker) to pay a specific amount of money to the payee on demand or at a predetermined future date.
- Bills of Exchange: These are written instruments that obligate one person (known as the drawer) to pay another person (known as the payee) a specific amount of money on a set date, typically after a specific period of time.
- Checks: Checks are orders issued by an account holder to their bank, instructing the bank to pay a specific amount of money to the payee mentioned on the check. They are primarily used for various payment purposes.
d. Definition: In legal terms, negotiable instruments are governed by the laws of negotiable instruments, commonly known as the Uniform Commercial Code (UCC) in the United States. These instruments should be in writing and must contain an unconditional promise or order to pay a specific sum of money.
2. Types of Commercial Instruments and their Distinct Character:
Commercial instruments are widely used in business transactions and can be categorized as follows:
a. Promissory Notes: These instruments primarily involve two parties - the issuer, who promises to pay the specified amount, and the payee, who receives the payment. Promissory notes are flexible, allowing customization of payment terms and facilitating credit transactions.
b. Bills of Exchange: Bills of exchange are typically used in international trade. They allow for convenient and secure payment arrangements between parties in different countries, settling debts promptly and reducing currency conversion risks.
c. Checks: Checks serve as a widely accepted method of payment in commercial transactions. They offer a secure and convenient way to transfer funds, with the ability to record transaction details.
d. Other Commercial Instruments: Other types of commercial instruments include letters of credit, banker's drafts, certificates of deposit, and money orders. These instruments possess distinct characteristics catering to specific business needs and requirements.
3. Role of Negotiable Instruments in Business Transactions:
Negotiable instruments play a pivotal role in facilitating business transactions by:
a. Providing Security: Negotiable instruments reduce the risk associated with carrying cash, providing a safer alternative for large payments during business transactions.
b. Facilitating Credit: Promissory notes and bills of exchange enable businesses to extend credit and provide flexibility in financial transactions, allowing for deferred payments and installment plans, which promotes business growth.
c. Streamlining Transactions: Negotiable instruments enhance the efficiency of transactions, enabling quick payments and reducing administrative burdens. They also provide a reliable audit trail for financial transactions, easing record-keeping requirements.
Conclusion:
Negotiable instruments play a crucial role in business transactions, acting as a convenient substitute for cash. Understanding their function, types, and distinct character is important for businesses to make informed financial decisions. By reducing risks, enabling credit facilities, and streamlining transactions, negotiable instruments contribute to the smooth functioning of the business world.
References:
- Cheeseman, H. R., & Goldman, A. (2018). Business Law (10th ed.). Pearson.
- Miller, R. L., & Jentz, G. A. (2009). Business law today: The essentials (9th ed.). Cengage Learning.
- Uniform Commercial Code (UCC) - Article 3: Negotiable Instruments. Retrieved from https://www.law.cornell.edu/ucc/3