Credit Instruments And Kinds of Credit Instruments

DEFINITION: Credit instruments are those devices which are used in business for credit transactions.

KINDS OF CREDIT INSTRUMENTS

NEGOTIABLE CREDIT INSTRUMENTS
: Willis defines negotiable instruments as, “it is the one the property in which is acquired by every person who takes it bona fide and for value, not with standing any defect of title in the person from whom he took it”. In Pakistan Negotiable Instruments Act, 1881 is enforced.

NON NEGOTIABLE CREDIT INSTRUMENTS: An Instrument carrying “not negotiable” is only transferred as ordinary chattels.

FORMS OF CREDIT INSTRUMENTS

CHEQUE It is a credit instrument, which is used to withdraw the deposited money from the bank, Whenever account holder want to withdraw his deposited money from the bank , he issues a cheque on the bank. It is an order given by the account holder to the bank.

“Cheque is a credit instrument that is used to withdraw (deposited) money from the bank”.

BILL OF EXCHANGE A bill of exchange is a credit instrument. Basically it is an unconditional written order of creditor (maker) for a debtor to pay either to him or to his order or to the holder an amount written on the bill. According to negotiable instrument act 1882
“Bill of exchange is a credit instrument in writing containing an unconditional order, signed by the maker directing a certain person to pay on demand or at a fixed or determinable future time, a certain sum in money to pay him or to his order or to the holder of the instrument.”

PROMISSORY NOTE Promissory note is a credit instrument, which is used in business commonly; it is a written promise to pay a sum of money to the holder.  In detail Promissory not is an unconditional promise by the borrower to return the borrowed money on a specified date to the lender. When it is drawn and signed by the borrower, it is handed over to lender as security. The bill of exchange Act 1882 defines promissory note as  “It is a written promise made by one person to another person to pay a certain amount of money on demand at the determinate date”

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