Negotiable Instruments

Negotiable Instrument means a written document which creates a right in favour some
person and which is freely transferable

Is one in which the property is acquired by any one who takes it bonafide and for value
notwithstanding any defects of title in the person from whom he took it (Justice Willis )

Sec 13 of the Negotiable Instruments Act A Negotiable instrument means promissory

Note ,Bill of exchange or cheque payable to order or to bearer , whether the words
Order or bearer appear on the instrument or not
Essential Characteristics

1. Negotiability Freely transferable

In case of Order instruments it is transferable either by endorsement or delivery

In case of bearer instrument ,it is transferable by delivery

2. Title :-The Holder in due course is not in any way affected by the defective title of the
transferor or any party. (Holder in due course means a holder of an instrument who has
accepted a Negotiable Instrument for value, in good faith and before maturity

3 . Recovery :-The holder in due course is entitled ot sue on the instrument in his own
name

4. A Negotiable instrument is always subject to certain presumptions.

Presumptions as to Negotiable Instruments Sec 118-119

Every NI id drawn, accepted and endorsed for consideration

The date it bears is the date on which it was made

Accepted within the reasonable time

Every transaction made before maturity

Endorsement is made in the same order as they appear

Every holder is a holder in due course unless it is proved that the holder has taken it from
the true owner either without his free consent or without consideration

4. A Negotiable instrument is always subject to certain presumptions.

Types of Negotiable Instruments

Promissory note Sec 4

An instrument in writing

Containing

AN UNCONDITIONAL UNDERTAKING

Signed by the maker

To pay a certain sum of money only

To the order of,

or to the bearer of the instrument .

Bank Note and Currency Note are not Promissory notes

The person who makes the promise is Promisor

The person to whom the promise is made is Promisee

Bill of Exchange --Sec 5

An instrument In writing

Containing an unconditional

ORDER

signed by the maker ,

directing a certain person

To pay a certain sum of money only

To the order of some person

Or to the bearer of the instrument

A Bill of exchange is written acknowledgement of the debt, written by the creditor and
accepted by the debtor

There are three parties

Drawer - Drawee ---Payee

Drawer who makes the order

Drawee To whom the order is made

Payee

To whom the money is to be paid

Cheque Sec 6

It is a Bill of exchange , drawn on a specified Banker

In a cheque , Drawee is always the Bank

Essential characteristics of Promissory Note

In writing

Promise to pay

Unconditional undertaking

Signed by Promisor

Promisor must be certain

Promisee must be certain

To pay money only

Legal formalities

\
Charasteristics f Bill of Exchange

In writing

Signed by drawer

The drawer, drawee and Payee must be certain

The sum must be certain

Express order to pay money only

Types of Bill of Exchange

Inland and Foreign Bill

Bills in sets

Trade and Accommodation Bill

Foreign Bill : A Bill which is not a Inland Bill is a foreign Bill

A Bill drawn in India on a person residing outside India and made payable outside India

A Bill drawn out side India and made payable in India

A Bill drawn outside India on any person residing outside India

A Bill drawn outside India on a person residing in India

A Bill drawn outside India and made payable outside India

Bills in sets :- The practice of drawing bills in parts is called Bills in sets

A Bill of exchange may be drawn in parts , each part being numbered and containing a
provision that it shall continue payable only so long as the other remain unpaid. All parts
make one bill and the entire bill is extinguished , when payment is made on one part -Sec
132

Sec 11and 12
Sec 132-133

Trade and Accommodation Bill

A bill drawn and accepted for a genuine trade transaction is termed as Trade Bill

A Bill drawn and accepted not for a genuine trade transaction but only to provide
financial help to some part y is called Accommodation Bill

Charateristics of Cheque

A cheque is always payable on demand

Drawn on specified banker only

Partial payment is not allowed

Can be crossed

No necessity of stamp

A Demand Draft issued by a bank is also termed as Bankers cheque

No days of grace for the payment of cheque

Cheques can be countermanded

Ambiguous Instrument-- Characteristics

Faulty drafting

Due to faulty drafting may treat the instrument as Bill of exchange or Promissory Note

If the holder elects to treat as Bill of exchange or promissory note, he cannot change
later.

Drawee is fictitous person

If the person is imcompetent to contract

An instrument which is incomplete in some respects is called Inchoate Instrument