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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 .

• A negotiable instrument must contain a certain amount of money only. value has the right to recover the amount mentioned in the instrument in his own name. • A negotiable instrument must contain an unconditional promise or order to pay some money. 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. the transferee who receives it in good faith and for value.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. • On the transfer of a negotiable instrument . Such a person is known as holder in due course. . • A negotiable instrument must be freely transferable from one person to another.

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 • ¾ ¾ ¾ Negotiable by Statute: Promissiory Note: Cheque Bill of Exchange • Negotiable by custom or usage .

or to the order of a certain person. or to bearer of the instrument” .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.

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 .

signed by the maker. or to the order of a certain person to the bearer of the instrument. maker directing a certain person to pay a certain sum of money only to. • “A A bill of exchange is an instrument in writing containing an unconditional order.Social & Legal Issues Bill of Exchange • Section 5 of Negotiable Instruments Act.” .

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 .

” o . • Crossing of Cheque • Bouncing B i off Cheque Ch • Offences by companies .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.

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 .

p .Social & Legal Issues Negotiations • “When a promissory note. the instrument is said to be negotiated negotiated” . bill of exchange or q is transferred to any y persons. so as to cheque constitute that person the holder thereof.

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 .

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. . for the purpose of negotiation. on the back or face thereof or on the slip pf paper annexed thereto. he is said to endorse the same.. otherwise than such instrument signs a maker.Social & Legal Issues Endorsement • “When the maker or holder of a negotiable g 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 .