NEGOTIABLE INSTRUMENTS LAW

What is Negotiable Instrument?

The term negotiable instruments means a written
document which entitles a person to a sum of money.
A negotiable instruments is transferable by delivery or
by endorsement and delivery.
The transfer entitles a person to the sum of money
mentioned therein.
Thus the negotiable instrument is a document which
is legally recognized by custom of trade or law,
transferable by delivery or by endorsement and
delivery.
Characteristics of a Negotiable Instrument
Freely transferable: The property in a negotiable
instrument passes from one person to another by a
simple process, i.e., by mere delivery if it is payable to
bearer, and by endorsement and delivery if it is
payable to order.
Holders title free from all defects: The holder in
due course (one who acquires the instrument in good
faith and for consideration) gets it free from all
defects.
Recovery: One can sue upon the instrument in his
own name.
Payable to order or bearer: - It must be payable
either to order or bearer
Presumption as to Holder:- Every holder of
negotiable instrument is presumed to be holder in due
course.
Presumption as to considerations:- Every
negotiable instrument is presumed to have been
made, drawn, accepted, endorsed , negotiated or
transferred for consideration.
Types of Negotiable Instruments

Promissory Note (PN)

Bill of Exchange (BE)
Cheque (Check)
Promissory Note.
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 the
order of a certain person or to the bearer of the
instrument.
Parties
MAKER : The person who makes the promissory note
and promises to pay is called the Maker.
PAYEE: The person to whom the payment is to be
made is called the Payee.
HOLDER: The holder is either the payee or someone
to whom he may have indorsed (transfer) the note is
known as Holder.
ENDORSER: The person who indorses the note to
another is called the Endorser .
ENDORSEE: The person to whose favor the note is
endorsed is called the Endorsee
Essentials of the Promissory Note
It must be in writing.
It must contain a promise or undertaking to pay a
definite sum of money.
The promise to pay must be unconditional.
It must be signed by the maker.
The payee must be identified & must be certain.
The sum payable must be certain.
Bill of Exchange
A bill of exchange is 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, or to the order of certain person to
the bearer of the instrument.
Parties
DRAWER: The person who makes the bill of exchange
is called drawer.
DRAWEE: The person who is directed to pay is called
drawee.
PAYEE: The person to whom the payment is to be
made is called payee.
ACCEPTOR: When the drawee accepts the bill is called
acceptor.
Characteristics of the Bill of Exchange
The amount payable must be certain.
The payment must be made in money.
The bill payable may be either on demand or after a
specified period.
The bill may be payable either to the bearer or to the
order of payee.
Cheque
A cheque is a bill of exchange drawn on a specified
banker and expressed to be payable otherwise than on
demand.
The maker of a bill of exchange or Cheque is called the
Drawer"; the person thereby directed to pay is called
the "Drawee".
Parties
DRAWER: The person who makes a cheque is called
Drawer.
DRAWEE: The person who is directed to pay is called
Drawee.

PAYEE: The person to whom the payment is to be

made.
Essential Characteristics of a Cheque
In writing
Express order to pay
Definite and unconditional order
Signed by drawer
Order to pay certain amount
Payable on demand
Crossing of Cheque
A CHEQUE is said to be crossed when it bears across
its face two parallel transverse lines which are usually
drawn on the left hand top corner of the Cheque.
Legally there are two kinds of crossing.
General Crossing: The drawing up of two parallel
lines on the face of the check at the top left hand
corner with or without the words & Co not negotiable
or Account payee only is known as a General Crossing.
Special Crossing: A check is deemed to be crossed
specially when it bears across its face the name of the
banker either with or without the words not negotiable.
Negotiation
An instrument is said to be negotiated:
When a promissory note, BE, cheque is transferred to
any person so as to constitute that person the holder
of the instrument
Transfer with an intention to transfer the title of the
instrument.
Negotiation by delivery
Negotiation by endorsement and delivery
Presentment

Presentment for Acceptance (required only in case of

bill of exchange)
Presentment for payment
Presentment made to the drawee.
Must be made before the date of maturity
Dishonor

A negotiable instrument is said to be dishonored by

non-payment when the maker, acceptor or drawee, as
the case maybe makes default in payment upon being
duly required to pay the same.
Dishonor by non payment
Dishonor by non acceptance