Negotiable Instrument Act
What is negotiable instrument?
It means a
- Promissory Note
- Bill of exchange
- Cheque
Payable either to order to or bearer.
Order= by name
Bearer=whoever holds it.
Essentials of negotiable instruments:
1. Payable to order or bearer
2. Easy transferability (transfer through delivery if the instrument is bearer, if it is order
then by endorsement and delivery)
3. Title of holder in due course
4. Transferee can sue in his own name.
5. Presumptions
Presumptions: (Rules of evidence)
1. Consideration
2. Date
3. Time of acceptance (Every bill of exchange was accepted within a reasonable time
after its date and before its maturity)
4. Time of transfer (every transfer of a negotiable instrument was made before its
maturity)
5. Order of endorsement (The endorsement appearing upon a negotiable instrument
were made in order in which they appear
6. Stamp: A lost negotiable instrument was properly stamped.
7. Holder in due course: (A holder of negotiable instrument is a holder in due course
but this presumption would not arise where it is proved that the holder has obtained
the instrument from its lawful owner by means of an offense)
Special rule of evidence:
8. Presumption on proof of protest: In a suit upon an instrument which has been
dishonored, the court shall, on proof of the protest presume the fact, of dishonor,
unless and until such fact is disapproved.
9. Estoppels against denying original validity of instrument: No maker of a promissory
note, and no drawer of a bill of exchange or cheque, and no acceptor of a bill of
exchange for the honor of the drawer shall in a suit thereon by a holder in due
course, be permitted to, deny the validity of the instrument as originally made or
drawn.
10. Estoppel against denying capacity of payee to endorse: No maker of a promissory
note and no acceptor of a bill of exchange payable to order shall, in a suit thereto by
a holder in due course be permitted to deny the payee capacity to the date of the bill
to endorse the same.
11. Estoppel against denying signature or capacity of prior party: No endorser of a
negotiable instrument shall in a suit thereon by a subsequent holder, be permitted
to deny the signature or capacity to contract of any prior party to the instrument.
Holder in due course:
Conditions to be:
1. Holder
2. Holder for valuable consideration
3. Before maturity
4. Complete and regular (Duty of every person to examine its form and contents)
5. Holder in good faith (without any negligence on his part and in good faith without
having any reason to believe that any defect existed in the title of the transferor)
Types of Instruments:
Order Instrument (whose name is expressed or endorsed on the instrument)
Bearer Instrument (whoever presents the instrument)
Demand Instrument (instrument in which no time for payment is mentioned)
Time instrument (An instrument paid after a time or on a specified date)
Endorsement:
When the maker or holder of a negotiable instrument signs the same, otherwise than as
such maker, for the purpose of negotiation on the back or face or on a slip of paper annexed
to it thereto, or so signs for the same purpose a stamped paper intended to be completed
as negotiable instrument, he is said endorse the same and is called the endorser.
Essentials of a valid endorsement:
1. It must be on the instrument itself, if no space is left on the back of the
endorsement, further endorsements are signed on a slip of paper attached to the
instrument called allonge.
2. It must be signed by the endorser for the purpose of negotiation.
3. No form of words necessary for an endorsement.
4. It must be completed by the delivery of the instrument. The delivery of the
instrument must be with the passing of property in it.
5. Negotiation by endorsement must be of the entire instrument. Endorsements
cannot be done partially to different people.
Types of endorsements:
1. Blank or general endorsement:
If the endorsers sign his name only and does not specify the name of the endorsee,
the endorsement is said to be blank. The effect of a blank endorsement is to convert
the order instrument into a bearer instrument which may be transferred by delivery.
2. Endorsement in full or special endorsement:
If the endorser, in addition to his signature, also adds a direction to pay the amount
mentioned in the instrument to or to the order of a specified person the
endorsement is said to be full.
Negotiation:
When a promissory note, bill of exchange or cheque is transferred free from defects to any
person, to constitute that person the holder of it, the instrument is said to be negotiated.
Modes of negotiation:
Negotiation by mere delivery
Negotiation by endorsement and delivery.
Promisory Note:
A promisory note is an instrument in wrting (not being a bank note or a currency note)
containing an unconditional undertaking, signed by the maker, to pay on demand or at a
fixed or determinable future time a certain sum of money only, or to the order of a certain
person, or to the bearer of the instrument.
Parties to a promissory note:
Maker and payee
Essentials:
1. In writing
2. Promise to pay
3. Definite and unconditional
4. Signed by maker
5. Certain parties
6. Sum payable must be certain
7. Sum payable must be legal tender.
Bill of exchange:
It is an instrument in writing containing an unconditional offer, signed by the maker,
directing a certain person to pay on a demand or at a fixed or determinable future time a
certain sum of money only, to or to the order of, or to bearer of the instrument.
Parties:
Drawer + Drawee + payee
Essentials:
1. In writing
2. Order to pay
3. Definite and unconditional
4. Signed by drawer and drawee
5. Certain parties
6. Sum payable must be certain
7. Sum payable must be legal tender
Cheque
Is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise
than on demand.
Parties:
Drawer + Drawee + Payee
Essentials:
1. Writing
2. Order to pay
3. Definite and unconditional
4. Signed by drawer
5. Certain parties
6. Sum payable must be certain
7. Sum payable must be legal tender
8. Always drawn upon specified tender
9. Always payable of demand.
