Negotiable Instrument Act 1881

Negotiable Instruments

The word Negotiable means transferable by delivery and the word Instrument means a written document by which a right is created in favour of some person. Thus it literally means written document transferable by delivery

Characteristics of Negotiable Instrument

Freely transferable Better title Right to sue Presumptions Not necessary to prove the validity of the claim Credit of the Party treated as equal to cash

Promissory Note

A promissory note is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money only to the bearer of the instrument

Essentials of Promissory Note

It must be in writing It must contain a promise to pay The promise to pay must be unconditional It must be signed by the maker The sum payable must be certain Promise to pay must be money only It must contain certain parties Other formalities Sl. No, Date, Place, Consideration

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 the bearer of the instrument There must be three parties to the bill of exchange namely Drawer, Drawee and Payee Drawer Maker of the Instrument Drawee Person directed to make payment Payee Person entitled for payment

Essentials of Bill of Exchange

It should be in writing It should be an order to pay to a certain person It should contain an unconditional order The drawer, drawee and payee must be certain It should be signed by the drawer The sum payable should be certain Order to pay money only It should be properly stamped Other formalities

Cheque

A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable other wise on demand

Features of a cheque

A cheque is always drawn on a specified banker A cheque is always payable on demand Drawee in case of a cheque is always a banker

Crossing

Ordinary Special

HOLDER

Any person entitled in his own have to the possession there of and to receive or recover the amount due from the passes thereto

HOLDER IN DUE COURSE

Holder in due course means any person who for consideration because the possessor of a promissory note , bill of exchange or cheque , if payable to bearer or the payee or the endorse there of

LIABILITY

He must be holder He must have obtained the instrument for valuable consideration. He must have become the holder of the instrument before maturity. He must have obtained the instrument in good faith He must take the instrument complete &regular on the face of it .

Transfer of Negotiable Instruments

Transfer by Negotiation

Negotiation by delivery Negotiation by Endorsement and delivery Kinds of delivery

Actual Constructive Conditional

Transfer by Assignment

Endorsement

The act of the holder of a note, bill, cheque, or other negotiable instrument, of assigning said instrument by signing the back of the instrument, with or without conditions.

Essentials of valid Endorsement

It must be on the instrument itself It must be signed by the endorser for the purpose of negotiation It may be made by the endorser either by merely signing his name in addition to his signature . It must be completed by the delivery of the instrument

Kinds of Endorsement

Blank or General Endorsement Full or Special Endorsement Restrictive (Not Negotiable) Partial Endorsement Conditional Endorsement

Dishonour of a Negotiable Instrument

A bill may be dishonoured by non acceptance or by non payment A Promissory note and a cheque are dishonoured for non payment only When a negotiable instrument is dishonoured then the holder of the instrument must give notice to all the prior parties to make them liable for dishonour When he fails then he forfeits his rights

Dishonour by Non-Acceptance

A bill of exchange is dishonoured in any one of the following ways : If the drawee does not accept the bill within 48 hours from the time of presentation though it is duly presented for acceptance If there are several drawees and all of them do not accept When presentment for acceptance is excused and the bill is not accepted

Contd.
When

the drawee is a factious person and the bill is not accepted When the drawers is incompetent to a contract . When the drawee gives a qualified (conditional) acceptance.

Dishonour by Non-payment

A promissory note / bill of exchange / cheque is said to be dishonoured by drawer makes default in payment which has to be duly made

Notice of Dishonour

When the instrument is dishonoured then holder of the instrument must give proper notice to the prior parties to make them liable otherwise he forfeits his rights

Notice by whom

By holder or any prior party Chain method of giving notice of dishonour Notice by principal or agent

Notice to whom

Notice to all parties whom the holder seeks to make liable Notice to party or his agent or to legal representative or assignee

Form of Notice

The notice of dishonour may be oral or written It may be in any form but it must be clearly indicate the instrument is dishonoured It must be given within a reasonable time

Discharge of a Negotiable Instruments

By payment in due course By party primarily liable becoming holder By express waiver By cancellation By discharge as a simple contract

Discharge of a party or parties

By payment By cancellation By release By allowing drawee more than 48 hours By non presentment of a cheque Cheque payable to order Draft drawn by one branch on another

Contd

Parties not concerning discharged by qualified acceptance By operation of law

Merger Lapse of time Insolvency

Material alteration

Contd.

Discharge by payment of altered instrument . The matters can be altered by

Due date The sum payable The Place of payment The time of payment Addition to place of The take of