Negotiable Instruments

• It means a promissory note , bill of exchange or a cheque payable either to order or bearer. (Sec 13) • Section 31 of the RBI Act: 1. Promissory Note can’t be issued as “payable to bearer” 2. Bill of Exchange can’t be issued as “payable to bearer on demand”

Characteristics of Negotiable instruments
• Easy negotiability • Transferee can sue in his own name without giving notice to the debtor • Better title to a bonafide transferee for value • Presumptions: -For consideration -Must bear date of formation -Transfer is made before maturity -Endorsements appearing were made in the order in which they appear

Promissory Note
• It 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 Essential Conditions: -Must be in writing -Must contain a promise or undertaking to pay -The promise to pay must be unconditional -Must be signed by the maker -The maker must be certain person

Contd..
-The payee must be certain -The sum payable must be certain -The amount must be in legal tender money -Other formalities

Bill of Exchange
• 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.

Some important terms
• • • • • • Accommodation bill Time and demand instruments Inchoate instruments Escrow Maturity of instrument Payment of interest

Crossing of Cheques
• General crossing • Special crossing Endorsement -Blank -Special

Payment in due course
• Must be in accordance with the proper tenor of the instrument • Must be made in good faith & without negligence • Must be made to a person who is in the possession of the instrument • Must be made in money only

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