“Negotiable instrument

act 1881”
MEANING:-

A negotiable instrument is a written document

which entitles a person to a sum of money which is
transferable from one person to another by mere
delivery or endorsement .
ESSENTIAL FEATURES :-
1. Freely transferable
2. Title of holder free from all defects
3. Recovery
4. Presumptions
• Considerations
• Date
• Time of acceptance
• Time of transfer
• Order of endorsements
• stamp
• Holder presumed to be a holder in due course
• Proof of protest
Types of negotiable instruments
Negotiable Negotiable by customs or
by statute usage

Promissory Exchequ
notes er bills
Bills of
Share
exchang
warrants
e
Dividend
cheques
warrants

Share certificates with

blank transfer deeds
TYPES OF NEGOTIABLE
INSTRUMENTS
 PROMISSORY NOTE
DEFINITION:- (SEC.4)
A Promissory Note is an
instrument in writing
containing an unconditional
undertaking , signed by the
maker, to pay a certain sum of
money only to, or to order of a
certain person, or to the bearer
of the instrument.
 PARTIES IN PROMISSORY NOTE
THERE ARE TWO PARTIES IN PROMISSORY NOTE
THAT ARE:
• MAKER

• PAYEE
Specimen
 ESSENTIAL ELEMENTS
1) WRITING
2) PROMISE TO PAY
3) DEFINITE & UNCONDITIONAL
4) SIGNED BY THE MAKER
5) CERTAIN SUM OF MONEY
6) PROMISE TO PAY MONEY ONLY
7) BANK NOTE OR CURRENCY NOTE IS NOT A PROMISSARY NOTE
8) CERTAIN PARTIES
9) FORMALITIES LIKE DATE,PLACE,CONSIDERATION ETC.
10) IT MAY BE PAYABLE ON DEMAND OR AFTER A DEFINITE PERIOD OF
TIME
11) IT CANNOT BE MADE PAYABLE TO BEARER ON DEMAND
 BILL OF EXCHANGE
According to (Sec.5)
A BILL OF EXCHANGE IS AN
NSTRUMENT IN WRITING
CONTAINIG 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,ACERTAIN PERSON OR
TO THE BEARER OF THE
INSTURMENT.
 PARTIES TO BILL OF EXCHANGE
THERE ARE THREE PARTIES TO BILL OF EXCHANGE
THAT ARE :
1) DRAWER

2) DRAWEE

3) PAYEE
SPECIMEN OF BILL OF EXCHANGE
 ESSENTIAL ELEMENTS
1) IT MUST BE A WRITTEN DOCUMENT
2) IT MUST CONTAIN AN ORDER TO PAY
3) THE ORDER MUST BE UNCONDITIONAL
4) IT REQUIRE THREE PARTIES,I:E DRAWER,DRAWEE&PAYEE
5) THE PARTIES MUST BE CERTAIN
6) IT MUST BE SIGNED BY THE DRAWER
7) THE SUM PAYABLE MUST BE CERTAIN
8) IT MUST CONTAIN AN ORDER TO PAY MONEY
9) THE FORMALITIES RELATING TO
DATE,PLACE,CONSIDERATION ,NO.
 DIFFERENCE BETWEEN
PROMISSORY NOTE BILL OF EXCHANGE

1. TWO PARTIES 1. THREE PARTIES

2. UNCONDITIONAL PROMISE 2. UNCONDITIONAL ORDER
3. DEBTOR 3. CREDITOR
4. LIABILITY IS PRIMARY AND 4. LIABILITY IS SECONDRY AND
ABSOLUTE CONDITIONAL
5. PAYABLE TO MAKER HIMSELF 5. DRAWER AND PAYEE MAY BE ONE
AND SAME PERSON
6. IMMEDIATE RELATION WITH THE
PAYEE 6. IMMEDIATE RELATION WITH THE
ACCEPTOR NOT THE PAYEE
7. REQUIRES NO ACCEPTANCE
7. REQUIRES ACCEPTANCE BY
DRAWEE BEFORE IT IS PRESENTED
FOR PAYMENT
 CHEQUE
 A Cheque is a document or
instrument that orders a payment
of money from a bank account .
 KEY TERMS
1. DRAWER
2. DRAWEE
3. PAYEE
4. AMOUNT
 DISTINCTION BETWEEN
BILL OF EXCHANGE CHEQUE

1. MADE BY ANY PERSON 1. ALWAYS DRAWN BY

,INCLUDING A BANKER BANKER
2. IT MAY NOT BE CHEQUE 2. IT MAY BE BILLS OF
3. IT IS ACCEPTED BEFORE EXCHANGE
THE DRAWEE CAN BE 3. IT DOES NOT REQUIRE
CALLED UPON TO MAKE ACCEPTANCE
PAYMENT 4. IT IS ALWAYS PAYABLE ON
4. IT MAY BE PAYABLE AFTER DEMAND ON A SPECIFIC
THE MATURITY DATE. DATE
SPECIMEN OF CHEQUE
 CROSSING OF A CHEQUE

Crossing: (sec 123 to 131A)

Purpose of crossing:
Cheque can be crossed by two types:
- General crossing
- Special Crossing
- Restrictive Crossing
PRESENTMENT AND PAYMENT OF CHEQUE

 According to sec 84 cheque must be presented to

bank upon which it is drawn
 Cheque must be presented within its validity period.
 The drawee (bank) must have sufficient funds of
drawer to make the payment
 An obligation of the banker to honor the payment of
cheque.
 HOLDER (SEC 8)
The "holder" of a promissory note, bill of exchange or
cheque means any person entitled in his own name
to the possession thereof and to receive or recover
the amount due thereon from the parties thereto.

Where the note, bill or cheque is lost or destroyed, its

holder is the person so entitled at the time of such
loss or destruction.
 HOLDER IN DUE COURSE (SEC 9)
 Holder in due course means any person who for consideration
became the possessor of a promissory note, bill of exchange, or
cheque, before the amount mentioned in it became payable, and
without having sufficient cause to believe that any defect existed
in the person from whom he derived his title.
 A person is a holder in due course when he proves that
i. Get with Consideration
ii. Possesses the instrument
iii. Get before maturity
iv. Get in good faith
v. Received complete and regular on the face of it.
PRIVILEGES OF HOLDER IN DUE COURSE

1. Holder in due course can file a suit in his own name

against the parties liable to pay. He is deemed prima
facie to be a holder in due course.
2. Every prior party to the instrument is liable to a
holder in due course until the instrument is duly
satisfied.
3. The other parties liable to pay cannot plead that the
delivery of the instrument was conditional or for a
specific purpose only.
4. Even if the negotiable instrument is made without
consideration, if it gets into the hands of the
holder in due course, he can recover the means of
a forged endorsement.
5. The person liable cannot plead against the holder
in due course that the instrument had been lost or
was obtained by means of an offence or fraud or
for considerations.
 NEGOTIATION

 Transfer by Negotiation
-negotiation by delivery
-negotiation by endorsement &delivery

 Transfer by Assignment
 ENDORSEMENT
“Literal meaning of the term endorsement is writing on
an instrument.”

Endorser - The person who signs on the back or on the

face of the instrument or on the slip is an endorser.
Endorsee - The person to whom the instrument is
endorsed is called the endorsee.
 KINDS OF ENDORSEMENT
1. Blank or General endorsement
2. Full or Special endorsement
3. Restrictive endorsement
4. Partial endorsement
5. Conditional endorsement
DISHONOUR OF NEGOTIABLE INSTRUMENT

 Negotiable instruments, Promissory notes

and Cheques may be dishonored by non
payment.

 Bills of exchange may be dishonored by non

payment or by non-acceptance as they
require acceptance from drawer.
 NOTING AND PROTEST
When a promissory note or bill of exchange is
dishonored, the holder can, after giving due notice of
dishonor, sue any or all parties liable thereon.

“Noting” means the recording of the fact of dishonor

by a Notary Public upon the instrument, or upon a
paper attached thereto or partly upon each, within a
reasonable time after dishonor(SEC.99, para 1)
Continues……

when a promissory note or bill of exchange has been

dishonored by non-acceptance or non-payment, the
holder may, within a reasonable time, cause such
dishonor to be noted and certified by a notary public.
Such certificate is called “Protest” . (Sec. 100, para 1)
 OU 
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