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@ The term Negotiable instrument literally means a
written document which creates a right in favour
of some person and which is freely transferable.
@
@ SEC.-13: Negotiable Instruments means
³Promissory note, bill of exchange or cheque,
payable either to ³order´ or ³bearer´ appear on the
instrument or not.´
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@ Yn instrument is payable to order if it is
expressed to be so payable or if it is
expressed to be payable to a particular
person and does not contain certain words,
prohibiting transfer or indicating an
intention that it shall not be transferable. (1)
pay to Y (2) pay to Y or order (3) pay to
order of Y.
   

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@ Yn instrument is payable to the bearer if it is
expressed to be so payable. In case the instrument
is originally payable to order, but it is endorsed in
blanks, the instrument will become payable to the
bearer.
@ (1) pay to Y or bearer. (2) pay to the bearer. Viz, a
cheque is payable to Y. Y indorses it merely
putting his signatures on the back of the
instrument and delivers it to C with the intention
of negotiating it. The instrument becomes bearer
in the hand of C.
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 The property in a N.I. is freely
transferable, either by endorsement and delivery
or by mere delivery.
ü
 The holder in due course is not in any
way affected by the defective title of the
transferor or any party.
ü    The holder in due course is entitled
to sue on the instruments in his own name. He
need not give any notice of transfer to the person
liable for payment.
ü   Negotiable Instrument is always
subject to certain presumptions. They will be
applicable unless contrary is proved.
 
 
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@ Sec-4 of the Yct defines a ³promissory

note´ as ³an instrument in writing (not
being a bank note, 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´
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o It is an instrument in writing
o It is a promise to pay. Y mere acknowledgement
of the debt will not suffice.
o The undertaking to pay is unconditional
o It should be signed by the maker
o The maker must be certain
o The payee must be certain
o Promise should be to pay money and money only
o Ymount should be certain
o Other formalities place, date etc.
o Promissory note must be properly stamped as
required by the Indian stamp Yct.
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@ ³Yn instrument in writing, containing an

unconditional order, signed by the maker,
directing a certain person, to pay a certain
sum of money, only to or to the order of
certain person or to the bearer of the
instrument´
   

Ë Inland and foreign

Ë Time and demand

Ë Trade and accommodation

 
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Y bill drawn and accepted for a ©


 
 

       
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Y bill drawn      

  but only to provide
financial help to some party is termed as an
³accommodation bill´. Yn accommodation
party stands in the position of surety for the
party accommodated. The purpose it to lend
his name to some other person.
   

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@ ³Y bill of exchange drawn on a specified

banker and not expressed to be payable
otherwise than on demand´. Thus all the
cheques are bill of exchanges but all bills
are not cheques.
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@ emand draft is usually drawn by a bank on
its another (bank) branch instructing the
latter to pay a specified sum of money to a
named payee or to his order. The essential
features of a bank draft are that: -

ü It is drawn by a banker upon another banker;

ü It can not be made payable to bearer;
ü Its payment can not ordinarily be stopped or
countermanded
ü It is always payable on demand.
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l Y promissory note or bill of

exchange in which no time for
payment is specified ( 
l Y cheque
l Y note or bill expressly payable on
³demand´ or ³at sight´

 
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l  r: - The maker of a bill is called a
drawer.
l  e: - The person directed to pay the
money by the drawer.
l Y r: - Yfter a drawee of a bill has signed
his assent on the bill, or if there are more parts
than one, upon one of the parts, and delivered
the same or given notice of such signing to the
holder or to some person on his behalf, he is
called acceptor.
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l  - The person named in the instrument,
to whom or whose order the money is directed to
be paid is called payee.
l |  - When the holder transfers or
indorses the instrument to any one else, the
holder becomes the indorser.
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l |   The person to whom the bill is

indorsed is called indorsee.

l Î   Y person who is legally entitled to the

possession of Negotiable Instrument. in his own
name to receive the amount thereof is called a
holder.
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l        When in the bill or
in any indorsement thereon the name of any person
is given in addition to the drawee to be resorted to in
the case of need, such person is called ³a drawee in
case of need´
l Y   Î: - In case the original
drawee refuses to accept the bill or to furnish better
security and any person who is not liable on the bill,
may accept it with the consent of the holder for the
honour of any party liable on bill. Such acceptor is
called ³acceptor for honour´.
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l à  -is the person who promises to pay the

amount stated in the note. He is a debtor.
l   - is the person to whom the amount of
note is payable. He is the creditor.
l Î  - He is either the payee or the person
to who the note might have been indorsed.
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l  : - is the person who draws the

cheque. He is the depositor of money in
the bank.
l   - it is the drawer¶s banker on
whom the cheque is drawn.
l   - is the person who is entitled to
receive the payment on cheque.


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@ The ownership of can be transferred in

two ways.

l By Negotiation

l By Yssignment.
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@ Transfer of an instrument from one person

to another so as to constitute that person the
holder of an instrument (sec-14)
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@ The term assignment means transfer of

ownership in an article by means of a
written and registered document, under
provisions of Transfer of Property Yct. The
assignee will get the rights of a holder but
not a holder in due course.
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   |  #$#
  
Voluntary transfer of Indorsement & delivery to
possession of an instrument means writing a person name
with the intention of at the back of the instrument.
transferring the ownership.
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o eneral or blank
o Special or full
o Partial
o Restrictive
o Conditional
l Sans recourse
l Facultative
l Sans frais
l Liability ependent upon a Contingency
 #$"% ! &  % '
Y
When the instrument is physically handed over to the
person

elivery to agent or some other person who hold the
instrument on behalf of a person to whom it was to be
actually delivered

Whom the instrument is delivered with some condition
attached the negotiation is not valid till the condition
is fulfill

 


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w Y regular endorsement implies signatures of the N.I.
himself or his duly authorized agent on its face or
back for the purpose of negotiation
w The payee must sign his name in the exact spelling as
appearing on the face of the N.I.
w Endorsement in pencil or by a rubber stamp are
usually not accepted.
w Endorsement need not contain complimentary
prefixes or suffixes.
w Endorsement does not contain any particular form of
word also be mentioned.

 


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w In case married women, the name of husband must also
be mentioned.
w Yn illiterate man can make a valid indorsement by his
left hand thumb impression in the present of certain
other person who witnesses him.
w Indorsement by a stranger to a N.I. shall not be valid.
He is known as a ³Backer´.
w Yn express promise in writing to indorse is not an
indorsement.
w Indorsement must be completed by the delivery of the
instrument.
 ÷" ! ÷&()
Y Cheque may be classified as
l Yn open cheque which can be presented for
payment by the holder at the counter of the
drawer¶s bank
l Y crossed cheque, which can be paid only
through a collecting banker.
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@Y cheque is said to be crossed when two

transverse parallel lines with or without any
words are drawn across its face crossing is a
direction to the paying banker to pay the
money generally to the banker or a
particular banker as the case may be not to
the holder at the counter.
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@ Crossing affords security & protection to the true

owner. Cheques are crossed in order to avoid loses
arising from open cheques falling into the hands of
wrong persons.
@ Crossing of cheques does not affect its
negotiability. Crossed cheques are negotiable by
delivery in case they are payable to bearer by
indorsement & delivery where they are payable to
order. If holder of a crossed cheque who has no
a/c in any bank, can obtain payment by indorsing
it in favour of some person who has got an a/c in
the bank.
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Parallel lines with or
without words
If not negotiable words are
written transferee will not
get a better title than that of
transferor. If transferors title
is defective title of the
holder will also be defective
even though he is a holder
in due course.
%  
 
Where a cheque bearer a Crossing cheque or the
cross its face in a addition words ³a/c payee´
of the name of the banker
with or without the words
³not negotiable´
When the cheque has been irection to the collecting
specially crossed the banker banker that proceeds are to
upon whom it has been proceeds only to the a/c to
drawn will make the payee.
payment only to the banker
in whose favour it has been
crossed.
 ÷&" ! +"
 
o By payment
o By cancellation (Sec-82)
o By release
o By default of the holder
o By material alteration e.g. completion of an
inchoate instrument conversion of blank
indorement in to indorsement in full, qualified
acceptance, crossing of cheque etc. (sec.- 87, 88,
89)
o By bill being in the acceptor¶s hand (Sec-90)




@ By non-acceptance By non-payment
Notice of dishonor should be given by a
holder or some party thereto who remains
liable on the instrument & should be given
to the principal debtors & to all (Sec-98)
other parties to whom the holder wants to
make liable.
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@ Noting: - Sec-99 it is an authentic & official proof
presentment & dishonour of a N.I. It is a memorandum of
militia recorded by notary public upon the dishonoured
instrument. Noting is not compulsory.
@ Protesting (Sec-100): - Protest is a formal certificate of
dishonour issued by a notary public. Foreign bill of exchange
must be protested for dishonour, when such protest is
required by law of the place where they are drawn. (Sec.-
104).
Sec-108 Ycceptance for honour: - ³When a bill of exchange has been
noted or protested for non-acceptance or better security, any person
not being a party already liable thereon may with the consent of a
holder by writing on the bill accept the same for the honour of any
party thereto.
 #'# !  'U"
@ It is the prime duty of the bank to honour the
cheques when may a bank refuses to honour the
customer¶s cheque
Ë When the balance to the credit of customer is
insufficient to meet the cheque.
Ë When the money deposited by the customer can not be
with drawn on demand e.g. FOR
Ë When cheque has not been properly drawn
Ë When the cheque is state
Ë When the cheque is presented at the branch other than
one where the a/c is.
Ë Y/c is in joint names: - cheque not signed by all
persons.
 
 
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Ë Customer has stopped the payment
Ë When the banker is served with the prohibitory order by court
or garnishee.
Ë Notice of customers death, insolvency or lunacy
Ë Customer has informed the bank about loss of cheque
Ë efect in the title of the person presenting cheque.
Ë Funds are not properly applicable to the payment of a cheque.
E.g. personal cheques cannot be paid out of trust a/c.
Ë When customer does has a/c.
Ë When the cheque is postdated & printed for payment under it
estimable date.