Social & Legal Issues
Negotiable Instruments
Social & Legal Issues
Definition
Every document which entitles a person to a
y and which is transferable byy
sum of money
delivery or by endorsement and delivery, is
entitled to be called a negotiable instrument.
instrument
Social & Legal Issues
Characteristics of a Negotiable
g
Instrument
A negotiable instrument must be in writing
maker
A 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 one
person to another.
On the transfer of a negotiable instrument , the transferee who
receives it in good faith and for value,
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
affected
ff t d by
b any defect
d f t in
i the
th title
titl off the
th transferee
t
f
or any other
th
prior party.
Social & Legal Issues
P
Presumptions
i
About
Ab
Negotiable
N
i bl Instrument
I
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
Social & Legal Issues
Kinds of Negotiable Instrument
Negotiable by Statute:
Promissiory Note:
Cheque
Bill of Exchange
Negotiable by custom or usage
Social & Legal Issues
P
Promissory
i
Note
N
Acc to Section 4 of negotiable Instruments Act:
y note is an instrument in writing
g
A ppromissory
containing an unconditional undertaking signed by
the maker to ppay
y a certain sum of money
y onlyy to,
or to the order of a certain person, or to bearer of
the instrument
Social & Legal Issues
Parties to a Promissory Note
Maker
Payee
Social & Legal Issues
E
Essentials
i l off a Valid
V lid promissory
i
Note
N
IIt must bbe iin writing
ii
It must contain an express promise to pay
The promise to pay may be unconditional
p y in terms of money
y onlyy
The ppromise is to pay
The promise to pay a definite amount of money only
It must contain certain parties
It must be signed by the maker
Intention to make a promissory note and its delivery
Other formalities
Social & Legal Issues
Bill of Exchange
Section 5 of Negotiable Instruments Act;
A
A bill of exchange is an instrument in writing
containing an unconditional order, signed by
the maker,
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.
Social & Legal Issues
P ti to
Parties
t a Bill off Exchange
E h
There are 3 main parties to a bill of exchange:
Drawer
Drawee
Payee
Social & Legal Issues
E
Essentials
i l off a Valid
V lid Bill off Exchange
E h
It mustt be
b in
i writing
iti
It must contain an express order to pay
Th order
The
d to
t pay may be
b unconditional
diti l
The order is to pay in terms of money only
It contains
t i an order
d to
t pay a definite
d fi it amountt off
money only.
It must contain certain parties
It must be signed by the drawer
Intention to make a bill of exchange and its delivery
Other formalities
Social & Legal Issues
Points of Distinction between Bill and
Promissory Note
Number of parties
Order and Promise
Nature of
Relationship
Acceptance
Nature
N t
off Liability
Li bilit
Immediate Relation
Notice to prior
parties
Sets
Protest
Conditional Acceptance
Acceptor for Honour
Payable to the maker
himself
Social & Legal Issues
Cheque
Ch
Section
i 6 off Negotiable
i bl Instruments Acts:
A cheque
q is a bill of exchange
g draw on a
specified banker and not expresses to be
payable
p
y
otherwise than on demand and it
includes the electronic image of a truncated
ccheque
eque andd a cheque
c eque in electronic
e ec o c form.
o .
Crossing of Cheque
Bouncing
B
i off Cheque
Ch
Offences by companies
Social & Legal Issues
Essentials of a Valid Cheque
It must have all the essentials of a bill of
g .
exchange
It must be drawn on a specified banker
It
I must bbe payable
bl on demand
d
d
Social & Legal Issues
Points of Distinction between
bet een Cheque
Cheq e and
Bill of Exchange
Drawee
Payable on Demand
Payable to the
bearer on Demand
Acceptance
Days of Grace
Supposition
Crossing
C
i
Discounting
Failure to present
Primary Liability
Statutory Protection
Noting and Protesting
Sets
S
Stamping
i
Countermanding
Circulation
Social & Legal Issues
Negotiations
When a promissory note, bill of exchange or
q is transferred to any
y persons,
p
, so as to
cheque
constitute that person the holder thereof, the
instrument is said to be negotiated
negotiated
Social & Legal Issues
Parties to Negotiable
g
Instruments
Drawer
Drawee
Acceptor
Payee
Endorser
Holder
Holder in Due course
Endorsee in the case of
Need
Acceptor for Honour
Social & Legal Issues
Endorsement
When the maker or holder of a negotiable
g the same,, otherwise than such
instrument signs
a maker, for the purpose of negotiation, on the
back or face thereof or on the slip pf paper
annexed thereto, or so signs for the same
purpose a stamped
t
d paper intended
i t d d to
t be
b
completed as a negotiable instrument, he is
said to endorse the same; and is called the
endorser.
Social & Legal Issues
T pes of Endorsement
Types
Blank or General
Endorsement
Full or special
Endorsement
Restrictive Endorsement
Partial Endorsement
Conditional or Qualified
Endorsement
Sans Recourse
Endorsement
Sans Frais
Faculalative
Endorsement
