Lec 9 Negotiable Instrument Act [Compatibility Mode]

Social & Legal Issues

Negotiable Instruments


DefinitionDefinition

• Every document which entitles a person to a sum of money and which is transferable by y ydelivery or by endorsement and delivery, is entitled to be called a negotiable instrumententitled to be called a negotiable instrument.


Characteristics of a Negotiable Instrumentg• A negotiable instrument must be in writing• A negotiable instrument must be signed by its makerA negotiable instrument must be signed by its maker.• A negotiable instrument must contain an unconditional

promise or order to pay some money.• A negotiable instrument must contain a certain amount of

money only.• A negotiable instrument must be freely transferable from oneA negotiable instrument must be freely transferable from one

person to another.• On the transfer of a negotiable instrument , the transferee who

receives it in good faith and for value has the right to recoverreceives it in good faith and for value, has the right to recover the amount mentioned in the instrument in his own name. Such a person is known as holder in due course. His rights are not ff t d b d f t i th titl f th t f thaffected by any defect in the title of the transferee or any other

prior party.


P i Ab N i bl IPresumptions About Negotiable Instrument

• Consideration• Date• Time of acceptance• Order of endorsement• Stamp• Holder in due course• Fact of dishonour• The above facts are presumed unless and until contrary is

proved. In other words these presumptions are rebuttable by evidence


Kinds of Negotiable Instrument

• Negotiable by Statute:Promissiory Note: ChequeBill of Exchange

• Negotiable by custom or usage


P i NPromissory Note

Acc to Section 4 of negotiable Instruments Act:“A promissory note is an instrument in writing p y g

containing an unconditional undertaking signed by the maker to pay a certain sum of money only to, p y y yor to the order of a certain person, or to bearer of the instrument”


Parties to a Promissory Note

• Maker• PayeePayee


E i l f V lid i NEssentials of a Valid promissory Note

I b i i i• It must be in writing• It must contain an express promise to pay• The promise to pay may be unconditional• The promise is to pay in terms of money onlyp p y y y• The promise to pay a definite amount of money only• It must contain certain partiesIt must contain certain parties• It must be signed by the maker• Intention to make a promissory note and its delivery• Intention to make a promissory note and its delivery• Other formalities


Bill of Exchange• Section 5 of Negotiable Instruments Act;• “A bill of exchange is an instrument in writingA bill of exchange is an instrument in writing

containing an unconditional order, signed by the maker directing a certain person to pay athe maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person to the bearer of the instrument.”


P ti t Bill f E hParties to a Bill of Exchange

• There are 3 main parties to a bill of exchange:• DrawerDrawer• Drawee• Payee


E i l f V lid Bill f E hEssentials of a Valid Bill of Exchange

It t b i iti• It must be in writing• It must contain an express order to pay

Th d t b diti l• The order to pay may be unconditional• The order is to pay in terms of money only

It t i d t d fi it t f• It contains an order to pay a definite amount of money only.

• It must contain certain parties• It must contain certain parties• It must be signed by the drawer• Intention to make a bill of exchange and its delivery• Intention to make a bill of exchange and its delivery• Other formalities

Social & Legal IssuesPoints of Distinction between Bill and

Promissory Note

• Number of parties• Order and Promise

• Sets• Protest

• Nature of Relationship

• Conditional Acceptance• Acceptor for HonourRelationship

• AcceptanceN t f Li bilit

• Payable to the maker himself

• Nature of Liability• Immediate Relation• Notice to prior

parties


ChCheque

i f i bl• Section 6 of Negotiable Instruments Acts:• “ A cheque is a bill of exchange draw on a q g

specified banker and not expresses to be payable otherwise than on demand and it p yincludes the electronic image of a truncated cheque and a cheque in electronic form.”c eque d c eque e ec o c o .

• Crossing of ChequeB i f Ch• Bouncing of Cheque

• Offences by companies


Essentials of a Valid Cheque

• It must have all the essentials of a bill of exchange .g

• It must be drawn on a specified bankerI b bl d d• It must be payable on demand


Points of Distinction bet een Cheq e andPoints of Distinction between Cheque and Bill of Exchange

• Drawee• Payable on Demand

• Failure to present• Primary LiabilityPayable on Demand

• Payable to the bearer on Demand

Primary Liability• Statutory Protection• Noting and Protestingbearer on Demand

• Acceptance• Days of Grace

• Noting and Protesting• Sets

S i• Days of Grace• Supposition

C i

• Stamping• Countermanding

• Crossing• Discounting

• Circulation


Negotiations• “When a promissory note, bill of exchange or

cheque is transferred to any persons, so as to q y p ,constitute that person the holder thereof, the instrument is said to be negotiated”instrument is said to be negotiated


Parties to Negotiable Instrumentsg

• Drawer • Drawee

• Holder• Holder in Due course

• Acceptor• Payee

• Endorsee in the case of Need• Payee

• Endorser

Need• Acceptor for Honour


EndorsementEndorsement

• “When the maker or holder of a negotiable instrument signs the same, otherwise than such g ,a maker, for the purpose of negotiation, on the back or face thereof or on the slip pf paperback or face thereof or on the slip pf paper annexed thereto, or so signs for the same

t d i t d d t bpurpose a stamped paper intended to be completed as a negotiable instrument, he is said to endorse the same; and is called the endorser.


T pes of EndorsementTypes of Endorsement

• Blank or General Endorsement

• Conditional or Qualified Endorsement

• Full or special Endorsement

• Sans Recourse Endorsement

• Restrictive Endorsement• Partial Endorsement

• Sans Frais• Faculalative• Partial Endorsement • Faculalative

Endorsement

Documents

Lec 9 Negotiable Instrument Act [Compatibility Mode]