Financial Instruments: Checks, Drafts and Promissory Notes PDF

As to acceptability 1.unlimited acceptability -- from one hand to another hand without question as their source 2.Limited acceptability -- acceptance depend on the credit standing of the issuer As to form 1. Order to pay -- order of a person to second person to pay third person certain amou...

As to acceptability 1.unlimited acceptability -- from one hand to another hand without question as their source 2.Limited acceptability -- acceptance depend on the credit standing of the issuer As to form 1. Order to pay -- order of a person to second person to pay third person certain amount of money 2. Promises to pay -- promise of one person to pay another a certain amount of sum at determinable future time [Parties involved in an order to pay] 1. Drawer -- gives order 2. Drawee -- ordered to give payments 3. Payee - receives the payment [Classes of order to pay] a. Check -- to pay a certain amount of money to a third party, this subject for payment Kinds of checks: [Order or bearer check] - Bearer cheque -- payable to the person without any restriction or conditions - Order cheque -- endorse the check by signing in the bank before it can be cashed - Crossed check -- cannot be presented to the bank for cash payment but deposited in his bank - Certified check -- certified by the bank, the word certified is stamped - Manager's check -- signed by the cashier/manager payable to the person - Post-dated check -- showing a future date, not be presented for payment before the date bears - Stale check -- 6months old check - Traveler's check -- payable anywhere in the world - Counter check -- withdraw all his money from his account whose check booklet has been exhaust - Bouncing check -- check has no sufficient funds [Other classification of checks ] - **Bank "on us" checks** -- particular bank branch ONLY - **Local clearing check** -- banks locality ONLY - **Regional clearing checks** -- banks in provinces ONLY - **Manilla clearing checks** -- branches in manila ONLY - **Money order** -- either bank order or postal money order 1. **Bank money order** -- a bank to another bank to pay specified payee 2. **Postal money order** -one post office to another post office to pay specified payee 3. **Bank draft** -- order of bank to another bank to pay a third person definite sum of money 4. **Commercial draft** -- drawn by a seller on the buyer or another business firm to pay certain sum of money to bearer 5. **Demand draft** -- draft which is payable at sight 6. **Time draft** -- order to pay sets a definite determinable future time for payment c. **Acceptance** - **Trade acceptance** -- order of a seller on the buyer to pay a certain sum of money - **Banker's acceptance** -- order to pay is presented to a bank for its acceptance [Promises to pay ] **Parties involved in promises to pay:** a. **Maker --** promising to pay b. **Payee** -- to receive payment Classes of promises to pay: a. **Open** **book** **account** -- verbal promise of the debtor b. **Promisorry** **note** -- signed by the maker to pay on demand Kinds of promisorry notes: - **Single-name promisorry note** -- only the name of the maker - **Collateral/secured promisorry note** -- described on its face or one a separate document - **Commercial letter of credit** -- a written promise on the part of the bank to honor drafts Parties to a commercial letter of credit: - **Buyer or importer** -- buyer of merchandise who will initiate the letter of credit - **Seller of exporter** -- receive the letter of credit - **Opening bank** - notify the beneficiary that the letter of credit has been opened - **Negotiating bank** -- to pay the letter of credit Types of commercial letter of credit a. As to transmission - Circular -- Opening bank issues a letter addressed generally to persons or corporations - Specially advised -- opening bank notifies the beneficiary through notifying bank b. As to duration - Revocable -- bank has a right to cancel without prior notice - Irrevocable -- greater protection since the importer cannot cancel the order c. As to obligation of the negotiating bank - Confirmed - the exporter enjoys the protection of 2 banks - Unconfirmed -- it acts only as the advising or paying agent for the issuing of the bank