Students get through the TN Board 12th Commerce Important Questions Chapter 22 The Negotiable Instruments Act, 1881 which is useful for their exam preparation.

TN State Board 12th Commerce Important Questions Chapter 22 The Negotiable Instruments Act, 1881

Very short answer questions

Question 1.
List the characteristics of a Negotiable instrument.
Answer:

  1. Transferability
  2. Title of the holder free from all defects
  3. Rights of the transferee to sue

Question 2.
Define assignability.
Answer:

  1. Assignability refers to the transferability of personal properties and rights from one person to another as a gift or sale or as security.
  2. In short, transferability of ownership of any goods other than negotiable instruments is called assignability.

TN Board 12th Commerce Important Questions Chapter 22 The Negotiable Instruments Act, 1881

Question 3.
Explain Promissory note.
Answer:
According to section 4 of the Negotiable instrument Act, “a promissory note is an instrument in writing (not being a banknote or a currency note) containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of, a certain person or to the bearer of the instrument”.

Question 4.
Define the term Negotiable instrument.
Answer:
A Negotiable instrument is a document that entitles a person to a certain sum of money and which is transferable from one person to another by mere delivery or by endorsement and delivery.

Question 5.
Mention the types of cheques (crossing)?
Answer:
The crossing is of two types:
General crossing and special crossing.

Question 6.
State the few presumptions to negotiable instruments.
Answer:

  1. A negotiable instrument is presumed to have been accepted.
  2. Every negotiable instrument bearing a date is presumed to have been made or drawn on such a date.
  3. It is presumed to have been accepted within a reasonable time after the date and before its maturity.
  4. The transfer of a negotiable instrument is presumed to have been made before maturity.

TN Board 12th Commerce Important Questions Chapter 22 The Negotiable Instruments Act, 1881

Question 7.
State the features of a cheque.
Answer:

  1. Instrument in writings
  2. Unconditional orders
  3. Drawn on a specified banker only
  4. A certain sum of money only
  5. Payee to be certain
  6. Signed by the drawer
  7. Payable always on demand.

Question 8.
State any two differences between cheques and promissory notes.
Answer:
Cheque:

  1. A cheque contains an order to pay money.
  2. There are three parties in the cheque drawer, drawee, and payee.

Promissory Note:

  1. A promissory note contains an undertaking to pay money.
  2. In a promissory note there are only two parties the maker and the payee.

TN Board 12th Commerce Important Questions Chapter 22 The Negotiable Instruments Act, 1881

Short answer questions

Question 1.
Difference between a cheque and promissory note.
Answer:

Basic of Difference Cheque Promissory Note
Nature of order A cheque contains an order to pay money. A promissory note contains an undertaking to pay money.
Number of parties There are three parties in a cheque – drawer, drawee and payee. In a promissory note there are only two parties – the maker and the payee.
Creator of the instrument The drawer of a cheque is a creditor. The maker of a note is a debtor.
Identity of the parties to instrument The drawer and the drawee can be one and same person. This cannot be so in a promissory note.
Payableness A cheque is always payable on demand. A promissory note on the other hand is payable either on demand or after a specified period.
Crossing A cheque can be crossed. A pronote cannot be crossed.
Stamping A cheque need not be stamped. A promissory note has to be sufficiently stamped.
Discounting A cheque cannot be discounted. A promissory note can be discounted with a banker.
Grace period No days of grace are allowed for payment of a cheque. Three days of grace are allowed for calculating the due date of promissory note.
Bearer A cheque is payable to order or to bearer. A promissory note cannot be made payable to bearer.

TN Board 12th Commerce Important Questions Chapter 22 The Negotiable Instruments Act, 1881

Question 2.
What are the characteristics of a promissory note?
Answer:

  1. A promissory note must be in writing.
  2. It must contain a promise or undertaking to pay a mere acknowledgment of indebtedness will not make it a promissory note.
  3. The promise to pay must be unconditional.
  4. It must be signed by the maker.
  5. The maker of the note must be a certain person.
  6. The payee must be certain.
  7. A promissory note originally made payable to the bearer is illegal.
  8. A banknote or a currency note is not a promissory note.
  9. A promissory note must be sufficiently stamped.

Question 3.
Explain the significance of the general crossing cheque.
Answer:

  1. A Crossed cheque should not be paid across the counter.
  2. Even if the payee of a crossed cheque is well-known the paying banker is directed to make payment only through another bank.
  3. If the payee does not have a bank account, he can collect it only through someone who is having a bank account.
  4. As a result, even if a crossed cheque has been stolen and collected for the party not entitled to it, the person for whom it has been collected can be easily traced.
  5. Crossing ensures safety and prevents payment into the wrong hands.

Question 4.
Expand the explain about MICR.
Answer:
MICR: Magnetic Ink Character Recognition.

  1. MICR code is a character-recognition technology used mainly by the banking industry to ease processing and clearance of cheques and other documents.
  2. It is found at the bottom of the cheque.
  3. It includes bank code, bank account number, cheque number, cheque amount, and a control indicator.
  4. The MICR code helps the banker to ensure the legitimacy or originality of paper documents.
  5. The special ink used in the MICR code is sensitive to magnetic fields.
  6. It prevents the crime of printing counterfeit cheques or documents using technology.
  7. The magnetic ink will help discover fake documents.

TN Board 12th Commerce Important Questions Chapter 22 The Negotiable Instruments Act, 1881

Long answer questions

Question 1.
Explain the types of negotiable instruments.
Answer:

  1. Bearer instrument: Promissory note, bill of exchange, or cheque is payable to bearer is called bearer instrument subject to fulfillment of either of the two conditions.
    (a) It must be expressed to be payable.
    (b) The only or last endorsement should be a blank endorsement.
  2. Inland instrument: Promissory note, bill of exchange, or cheque is an inland instrument subject to the following conditions:
    (a) It must be drawn in India.
    (b) It must be payable in India.
    (c) It must be drawn upon any person resident in India.
  3. Order instrument: Promissory note, bill of exchange, or cheque is payable to order is called order instrument.
  4. Foreign instrument: An instrument that is not an inland instrument is called a foreign instrument.
    (a) Bill drawn outside India.
    (b) Bill payable outside India.
    (c) Bill drawn upon foreign citizens.
  5. Ambiguous instrument: An ambiguous instrument means an instrument that can be considered either as a promissory note or bill of exchange.
  6. Inchoate instrument: It means an incomplete instrument in some respect.
  7. Time instrument: It is defined as an instrument that is payable sometime in the future.
  8. Accommodation instrument: Bill which is drawn, accepted without consideration.
  9. Clean bill: It means the bill to which no document of title to the goods is attached.

Multiple-choice questions

1. A Negotiable instrument means:
(a) Bill of exchange
(b) A promissory note
(c) Both (a) and (b)
(d) None
Answer:
(c) Both (a) and (b)

TN Board 12th Commerce Important Questions Chapter 22 The Negotiable Instruments Act, 1881

2. A person taking the instrument in good:
(a) Value
(b) Faith
(c) Price
(d) Cost
Answer:
(b) Faith

3. It refers to the transferability of personal properties and rights from one person to another as gift or sale:
(a) Assignability
(b) Negotiability
(c) Bill of exchange
(d) Promissory note
Answer:
(a) Assignability

4. It contains an unconditional undertaking to pay money is known as:
(a) Bill of exchange
(b) Cheque
(c) Promissory note
(d) All the above
Answer:
(c) Promissory note

5. Mow many parties in a bill of exchange?
(a) Two parties
(b) Three parties
(c) Four parties
(d) None
Answer:
(a) Two parties

6. It contains unconditional orders to pay money is known as:
(a) Promissory note
(b) Cheque
(c) Bill of exchange
(d) Negotiability
Answer:
(c) Bill of exchange

TN Board 12th Commerce Important Questions Chapter 22 The Negotiable Instruments Act, 1881

7. A bill of exchange is documented in:
(a) Writing
(b) Oral
(c) Word
(d) Condition
Answer:
(a) Writing

8. ……….. must be an instrument in writing.
(a) A cheque
(b) A bill
(c) A promissory note
(d) All the above
Answer:
(d) All the above

9. The cheque is always drawn on a specified:
(a) Banker
(b) Customer
(c) Parties
(d) All the above
Answer:
(a) Banker

10. It contains an order to pay money is known as:
(a) Promissory note
(b) Bill
(c) Cheque
(d) Document
Answer:
(c) Cheque

11. A cheque or bill must indicate that he is signing in it by using such word:
(a) On behalf of
(b) For
(c) Per pro
(d) All the above
Answer:
(d) All the above

TN Board 12th Commerce Important Questions Chapter 22 The Negotiable Instruments Act, 1881

12. The word “Negotiable” means:
(a) The value
(b) To pay money
(c) Notice
(d) Transferable
Answer:
(d) Transferable

13. A written document by which a right is created in favor of certain person is known as:
(a) Instrument
(b) Assumption
(c) Security
(d) Party
Answer:
(a) Instrument

14. A bill can be drawn and payable in any:
(a) Value
(b) Currency
(c) Payment
(d) Discharged
Answer:
(b) Currency

TN Board 12th Commerce Important Questions Chapter 22 The Negotiable Instruments Act, 1881

15. ………. is not necessary for a cheque.
(a) Notice
(b) Discount
(c) Stamp
(d) Currency
Answer:
(a) Notice