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NEGOTIABLE INSTRUMETNS
Submitted By
BHANU PRAKASH SHARMA G 158906
SINDHUJA PULI - 158935
INTRODUCTION:
The term negotiable instrument means written document transferable by delivery.
According to sec. 13(1) of the Act defines a negotiable instrument thus A negotiable
instrument means a promissory note, bill of exchange and cheque payable either to order or
to bearer.
According to Justice Willis defines a negotiable instrument as A negotiable instrument is
one, the property in which is acquired by anyone who takes it bona fide, and for value not
withstanding any defect of title in the person from whom he took it.
According to Thomas, A negotiable instrument is that document, which is, by a legally
recognized custom of trade or law, transferable by delivery or endorsement and delivery in
such circumstances that:
(A) The holder of it for the time being may sue on it in his own name, and
(B) The property in it passes free from equities, to a bona fide transferee for value not
withstanding any defects in the title of the transferor.
CHARACTERISTICS OF NEGOTIABLE INSTRUMENT:
1. Free transferability or easy negotiability:
A person who takes negotiable instrument bona-fide and for value gets the
instrument free from all defects in the title. The holder in due course is not affected by
defective title of the transferor or of any other party.
3. Transferee can sue in his own name without giving notice to the debtor:
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The creditor can either recover this amount himself or can transfer his right
to another person
4. Presumptions:
Certain presumptions apply to all negotiable instruments:
Section 118 and 119 lay down the following presumptions:
(a) For consideration: that every negotiable instrument, was made, drawn, accepted,
endorsed or transferred for consideration.
(b) As to date: that every negotiable instrument bearing a date was made or drawn on such
date.
(c) As to time of acceptance: that every bill of exchange was accepted within a reasonable
time
(d) As to transfer: that every transfer of a negotiable instrument was made before its
maturity
(e) As to time of endorsements: that the endorsements appearing upon a negotiable
instrument were made in the order in which they appear thereon.
(f) As to stamps: that a lost promissory-note, bill of exchange or cheque was duly stamped.
(g) As to a holder in due course: that every holder of a negotiable instrument is holder in
due course (this presumption would not arise where it is proved that the holder has obtained
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the instrument from its lawful owner, or from any person in lawful custody thereof, by means
of an offence, fraud or for unlawful consideration and in such a case the holder has to prove
that he is a holder in due course
(h) As to dishonor: that the instrument was dishonored, in case a suit upon a dishonored
instrument is filed with the court and the fact of protest is proved.
PROMISORY NOTE:
According to sec 4, A promissory note is an instrument in the writing (not being a banknote
or 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 to the bearer of the
instrument.
The person who makes the promise to pay is called the MAKER. He is the debtor and must
sign the instrument. The person who will get the money is called PAYEE.
ESSENTIALS OF PROMISORY NOTES:
1.
It must be in writing:
A promissory note has to be in writing. An oral promise to pay does not become a promissory
note. The writing may be on any paper or book.
Illustrations: A signs the instruments in the following terms:
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The above instruments are not promissory notes as there is no undertaking or promise to pay.
There is only an acknowledgement of indebtedness.
The promise to pay must not depend upon the happening of some uncertain
event, i.e., a contingency or the fulfillment of a condition
The above instruments are not valid promissory notes as the payment is made
depending upon the happening of an uncertain event which may never happen and as
a result the sum may never become payable
4. It must be signed by the maker:
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The instrument must itself indicate with certainty who is the person or are the
persons engaging himself or themselves to pay
Alternative promisors are not permitted in law because of the general rule that
where liability lies no ambiguity must lie
Like the maker the payee of a pro note must also be certain on the face of the
instrument
A pro note mad payable to the maker himself is a nullity, the reason being the
same person is both the promisor and the promise
For a valid pro note it is also essential that the sum of money promised to be
payable must be certain and definite
I promise to pay B Rs. 500 and all other sums which shall be due to him
I promise to pay B Rs. 500, first deducting thereout any money which he may
owe me
The above instruments are invalid as promissory notes because the exact amount to be
paid by A is not certain
BILLS OF EXCHANGE
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Bill Of Exchange
1.Parties:
2. Nature of payments:
It contains an unconditional
promise to pay.
It contains an unconditional
order to pay.
3. Payee:
4. Acceptance:
It requires no acceptance as it
is signed by the person who is
liable to pay.
5. Liability:
6. Notice:
When a pro-note is
dishonored, it is not necessary
to give notice of dishonor to
the maker.
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Promissory Note
Bill Of Exchange
7. Payable to bearer:
8. Protest:
9. Sets:
CHEQUE
According to Sec 6, A cheque is a bill of exchange, drawn on a specified banker and not
expressed to be payable otherwise than on demand.
ESSENTIAL features of a cheque: A cheque is a Bill of exchange
It contains an unconditional order to pay a certain sum of money only
A drawee is always a bank
It must be signed by the drawer
The order must be to pay money only
A cheque involves three parties viz., drawer, drawee and payee
A cheque is always payable on demand and it cannot be made payable after a fixed
period of time.
Acceptance of the cheque by the bank is not required
Difference between cheque and bill exchange:
Points
1. Drawer
Cheque
Bill of Exchange
It is always by a Bank
3. Acceptance
Doesnot require an
acceptance
Requires acceptance of
drawee
4. Stamp
RequiresStamp
5. Grace of days
6. Crossing
It can be crossed
It cant be crossed
7. Notice of Dishonor
It is not required
It is usually required
8. Form
CROSSING OF CHEQUES:
The cheques are of two types:
1. Open cheque: payment of a cheque is made at the counter of the banker on its
presentation. The open cheque is liable to a great risk in the course of circulation .since
an open cheque is payable to the bearer, it involves a risk of payment to any person, if it
lost. In order to avoid such risk and to protest the interest of the genuine holder, the
system of crossing the cheques was introduced.
2. Crossed cheque: Payment is obtained only through a banker. That is, the payee or the
holder, having an account in the bank, has to deposit the crossed cheque for collection,
and draw the money when the cheque is collected and the proceeds are credited to his
account. It is only with a view to avoiding ay such risk of fraud that businesses men
introduced the device of crossing.
Thus, crossing of a cheque may be defined as, direction to the drawee banker to pay the
money on a crossed cheque through a banker, so that the party getting the payment of crossed
cheque may be easily traceable.
TYPES OF CROSSING:
There are two types of crossing:
GENERAL CROSSING :
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References:
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