NEGOTIABLE

INSTRUMENTS
Defination
A Negotiable instrument is one the property
in which is acquired by anyone who takes in
bona fide and for value,notwithstanding any
defect of title in the person from whom he
took it – Justic willis

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NEGOTIABLE INSTRUMENTS
 What is negotiable?
 Negotiable means transferable.

 The negotiation that goes on refers to the transfer of the

instrument between two people, or from one bank to
another, or even from one country to another.
 What is an instrument?
 In the broadest sense, almost any agreed-upon medium of
exchange could be considered a negotiable instrument.
 In day-to-day banking, a negotiable instrument usually
refers to checks, drafts, bills of exchange, and some types
of promissory notes.

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CHARACTERISTICS OF
NEGOTIABLE INSTRUMENTS
 Freely transferable
 Title of holder free from all defects
 Recovery
 Presumption
• Consideration
• Date
• Time of acceptance
• Time of Transfer
• Order of indorsements
• Stamp
• Holder persimed to be a holder in due course
• Proof of protest

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 TYPES OF NEGOTIABLE
INSTRUMENTS

1. Negotiable by Statute :
Promissory notes, Bill of Exchange and
Cheques.
2. Negotiable by custome or usage:
Government Promissory notes ,Banker’s
Drafts and Pay Orders ,Hundis ,Delivery
orders and railway receipts for goods.

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PROMISSORY NOTES
A ‘promissory note’ is an instrument in writing (not being a bank
note or a currency note) containing an unconditional undertaking,
signed by the maker , to pay a certain sum of money only to, or to
order of, a certain person, or to bearer of the instrument (Sec.4).

The person who makes the promissory note and promises to pay is
called the maker.

The person to whom the payment is to be made is called the payee.

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Specimen of promissory notes

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Essential Elements of
Promissory notes
 Writing
 Promise to pay
 Definite and unconditional
 Signed by the maker
 Certain parties
 Certain sum of money
 Promise to pay money only
 Formalities

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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 (Sec 5 ).

Parties to a bill. There are three parties to a bill of exchange,

Drawer – The person who gives the order to pay or who makes the
bill is called the drawer.

Drawee – The person is directed to pay is called the drawee.

Payee – The person to whom the payment is to be made is called

the payee.

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Essential Elements
 It must be writing.
 It must contain an order to pay.
 The order must be unconditional.
 It requires three parties, i.e., drawer, the drawee and the payee.
 The parties must be certain.
 It must be signed by the drawer.
 It must contain an order to pay money.
 Formalities.

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CHEQUE
A cheque is a bill of exchange drawn upon a specified
banker and payable on demand (Sec.6).A cheque is
species of a bill of exchange; but it has the following two
additional qualification.
1 It is always drawn on a specified banker and
2 It is always payable on demand.

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Specimen of cheque

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Distinction between a bill of
exchange and a cheque

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Making a Cheque
 Marking at drawer’s instance
 Marking at holder instnace
 Marking at collecting banker’s instance
 Crossing of cheque.

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Type of crossing
 General crossing
 Special crossing
 Restrictive crossing

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