What is a Negotiable Instrument? Explain its Characteristics. What is Promissory note and distinguish it from a cheque? What is a cheque?

Who can Cross a cheque? Explain ways and means of crossing a cheque? Definition Negotiable instrument is a document which entitles a person to a sum of money and which is transferable from one person to another by mere delivery or by endorsement and delivery. The word negotiable means transferable from one person to another in return for consideration and instrument means a written document by which a right is created in favour of some person A Negotiable instrument is a piece of paper which entitles a person to a sum of money and which is transferable from person to person by mere delivery or endorsement and delivery. It is an instrument which is transferable (by customs of trade) by delivery, like cash, and is also capable of being sued upon by the person holding for the time being. The property of such an instrument passes to the bona fide transferee for value. With the growth of the Economy, Negotiable Instruments have given the new dimensions to the commercial and corporate world. Now people prefer to carry a small piece of paper known as Cheque rather than carrying the currency worth the value of the Cheque. Characteristics of Negotiable Instruments 1. Easy negotiability. A negotiable instrument may be transferred by endorsement and delivery if it is an instrument payable to order, and by mere delivery, if it is a bearer instrument. 2. Transferee can sue in his own name without giving notice to the debtor. 3. Better title to a bona fide transferee for value. The Transferee, who takes the instrument bona fide and for valuable consideration obtains a good title despite any defects in the title of the transferor. To this extent, it is an exception to the general rule that no one gives a better title than he himself has. 4. Presumptions: a). Consideration. It is presumed by law that every negotiable instrument is made or drawn for consideration. Hence consideration with free consent is a necessary element. b). Date. c). Time of acceptance. d). Time of transfer. e). Order of endorsements. f). Stamp. g).Holder presumed to be a holder in due course. h).Proof of protest. As Per Section 13 of the N I Act - A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer. Explanation (i).- A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable. Explanation (ii).- A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank. Explanation (iii).- Where a promissory note, bill of exchange or cheque, either originally or by endorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.] 1

3[(2) A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or -some of several payees.] Certain other instruments such as documents of title to goods, govt. promissory notes, hundies etc. have acquired the character of negotiability and these are known as quasinegotiable instruments. These Negotiable instruments have generally been accepted by custom or usage. Any other instruments if satisfies the conditions of transferability by delivery or endorsement and is capable of being sued upon by the person holding it in his own name, may also be included as negotiable instrument. The definition simply mentions the names of Negotiable Instruments and does not explain their nature in the act. Section 4-Promissory note A "promissory note" is an instrument in writing (not being a bank-note or a currencynote) 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. Illustrations A signs instrument in the following terms (a) "I promise to pay B or order Rs. 500." (b) " I acknowledge myself to be indebted to B in Rs. 1,000 to be paid on demand, for value received." 3. ESSENTIALS OF A VALID PROMISSORY NOTE 1. It must be in writing. 2. It must contain an undertaking to pay. 3. The undertaking to pay must be unconditional. 4. It must be signed by the maker. 5. The maker of the note must be certain. 6. The sum payable must be certain. 7. The promise should be to pay money, and money only. 8. The payee must be certain. 4. SPECIMENS OF PROMISSORY NOTES Bombay, 10 th January, 1998 Rs. 5,000/ON DEMAND I Promise to pay WILLIM JONES THE SUM OF FIVE THOUSAND RUPEES. Sd/- Henery Brown Bombay, 10 th January, 1998 ON DEMAND I Promise to pay MOHAN LALVANI the sum of Rs. 5,000/- (RUPEES FIVE THOUSAND ONLY) FOR VALUE RECEIVED.. Sd/SATISH GANDHI Bombay, 10 th January, 1998 As Per 5 of the Act -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, a certain person or to the bearer of the instrument. A Bill of Exchange is (1) an instrument in writing, (2) containing an unconditional order, (3) signed by the maker, (4) directing a certain person, (5) to pay a certain sum of money only-. (i) to a certain person, or (ii) to the order of a certain person, or (iii) to the bearer of the instrument. The maker of a Bill of Exchange is called the drawer, and the person thereby directed to pay is called the drawee.

(S. 7) A bill of exchange is also sometimes called a draft. When it is drawn by a bank on its own branch, it is called a bank draft. BILL OF EXCHANGE ESSENTIAL REQUISITIES The following are the eight essential requirements of valid Bill of Exchange: 1. It must be in writing. 2. It must contain an order to pay. 3. The order contained in the bill should be unconditional. 4. It must be signed by the drawer,. 5. The drawee must be certain. 6. The payee must be certain. 7. The sum payable must be certain. 8. It must contain an order to pay money. SPECIMENS OF BILL OF EXCHANGE Bombay, 20 th January, 1998 Rs. 5000/Sixty Days after date pay to John Smith, or order, the sum of Rupees Five thousand only for value received. Sd/- RAM GHELACHAND To Paul Jacobson, 40, Mahatma Gandhi Road, Bombay 400 023. To Paul Jacobson, 40, Mahatma Gandhi Road, Bombay 400 023. SPECIMENS OF ACCEPTANCE OF A BILL OF EXCHANGE Bombay, 20 th January, 1988 Rs. 5000/ON Demand Pay to William Smith, the sum of Rupees five thousand only for value received. Sd/- RAM GHELACHAND To Paul Jacobson, 40, Mahatama Gandhi Road, Bombay 400 023. CHEQUE ( as per Section 6 ) Definition A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Hence 1. A cheque is a bill of exchange drawn on specified banker and 2. Not expressed to be payable otherwise: than on demand S. 6. 3. The mode of payment is special. 4.This bill of exchange must be drawn on a banker, 5. And the payment must be expressed to be made on demand. 6.Thus, all cheques are bills of exchange, but all bills are not cheques. 9. CROSSED CHEQUES (Ss. 123-130) where a cheque bears across its face an addition of the words and company, (or any abbreviation thereof) between two parallel transverse lines, or of two parallel transverse lines simply (either with or without the words not negotiable, that addition is deemed to be a crossing), and the cheque is deemed to be crossed generally : S. 123. When a cheque is not crossed, it is called an open cheque. Crossing of Cheque Who can cross ? Accepted : S/d- Paul Jacobson Bombay,

As per Sec 125, a drawer at the time of issue, a holder (general to special or not negotiable crossing) and a banker who receives the cheque for collection (special crossing), can cross the instruments. Types of crossing General crossing, Special crossing ,Account payee crossing, Cancellation of crossing. 11. PAYEE (Ss. 7) The person named in the instrument, to whom or to whose order the money is, by the instrument directed to be paid, is called the payee. 16. DIFFERENCE BETWEEN BILL OF EXCHANGE & PROMISSORY NOTE Promissory Note 1. There are only two parties: promissory and promisee. 2. It contains a promise to pay. 3. The liability of the maker is primary and absolute. 4. Presentment for payment and notice of dishonour are not required. 5. A promissory note cannot be made conditional. 6. Drawer of a promissory note stands in immediate relation with the payee. 7. Promissory notes cannot be drawn is sets. 8. A promissory note cannot be made payable to bearer. 9 Promissory notes need not be protested for dishonour. Cheques 1. There are there parties: drawer, drawee and payee. -2. It contains an order to pay. 3. The liability of the drawer is secondary and conditional. 4. Presentment for payment and notice of dishonour are required. 5. A bill of exchange can be accepted conditionally. 6. Drawer of a bill of exchange stands in immediate relation with the acceptor. 7. Bills can be drawn in sets. 8. A bilief exchange can be made payable to bearer, provided it is not made payable on demand. 9. Foreign bills must be protested for, dishonour if so required by the law of the country of their