NEGOTIABLE INSTRUMENT ACT 1881

• An Act to define and amend the law relating to Promissory

Notes, Bills of Exchange and Cheques.
• Commencement of this act was done on first day of March
1882.
• This Act may be called the Negotiable Instruments Act,
1881
MEANING OF NEGOTIABLE INSTRUMENT

• The word "negotiable instrument" means a document which

is transferable from one person to another.
• this means that person taking an instrument ‘bona fide’ and
‘for value', known as a holder in due course gets title.
• It declares that to be negotiable they must be made payable
in the from of PAYBLE TO ORDER or PAYBLE TO BEARER.
Payable to order : A note, Bill, or cheque is payable to order
which is expressed to be “payable to person or to his order”

For example:
• Pay A
• Pay A or order
• Pay to the order of A
Payable to bearer: ‘payable to bearer’ means ‘pay any person
who bears it.’
For example:
• Bearer check
• Pay A, B or bearer
CHARACTERISTICS OF NEGOTIABLE
INSTRUMENT
• Writing and signature
• Money
• Freely transferable
• Title of Holder free from all Defects
• Notice
• Presumptions
• special procedure
• Popularity
• Evidence
TYPE OF NEGOTIABLE INSTRUMENT
• Instrument negotiable by statue: The negotiable
Instrument act mentions only three kind of Negotiable
instrument (section 13).
• These are:
1. Bills of exchange.
2. Promissory notes .
3. Cheques.
PARTIES OF NEGOTIABLE INSTRUMENT

• Every negotiable instrument have many parties, it may

depend on the nature of instrument.
• The following may me the parties which are incompetent
to incur a lability for negotiable instrument as its drawer,
maker, acceptor, etc.
HOLDER
• The person is said to be holder of negotiable instrument
who is legally entitled to posses the instrument, in his
name and get its payment on due date or on demand, as a
case may be.
• Thus , the holder means the bearer of the bearer
instrument and endorsee or payee of the order
instrument, he must be de jure and not to be de facto
holder.
HOLDER IN DUE
• Section 9 of the act Defines holder in due course as a
person who:
1. For valuable consideration
2. Becomes the possessor of a negotiable instrument
payable to bearer or the endorse or payee there of
3. Before the amount mentioned in the document becomes
payable, and
Without having sufficient cause to believe that any defect
exist in title of the person from whom he derives his title.
NEGOTIATION
• One of the essential characteristics of a negotiable
instrument is that it is freely transferable from one person
to another. This transfer may take place ether by
negotiation or by assignment.
• The transfer of instrument by one party to another so the
constitute the transferee a holder is called ‘negotiation’.
• When a negotiable instrument is transferred, the rights of
transferee might be higher than the transferor
ENDORSEMENT

• Negotiation by endorsement is the written order on the

instrument by its rightful holder to make the payment to
another person
• According to section 15, when the maker or holder of a
negotiable instrument signs the same, otherwise than
such maker, for there of or on a slip of paper annexed
there to or sign so on stamped paper is called as an
“Endorsee”.
TYPE OF ENDORSEMENT

1. Blank or General Endorsement

2. Full or special Endorsement
3. Partial Endorsement
4. Restrictive Endorsement
5. Conditional Endorsement
DISHONOR
• Dishonor means failure to honor a negotiable instrument.
This may be by non-acceptance, when a bill of argument is
accessible for receipt and this is declined or cannot be
obtained or by non-payment, when the bill is presented for
payment and payment is refused or cannot be obtained
• A negotiable instrument can be dishonored by :
1. Dishonour by non-acceptance
2. Dishonour by non-payment
CONSEQUENCES OF DISHONOR
• When the negotiable tool is violated; the holder must give
a sign of dishonor to all the earlier parties to make them
accountable. A negotiable instrument can be violated any
by nonacceptance or by non-payment.
• He becomes to file a suit for recovery of amount due to
lability
• He may also have the instrument noted and protested
before a notary public.
NOTING OF DISHONOR

• It is a convenient mode of authenticating the fact that a

bill or note has been dishonored. When a note or a bill has
been dishonored by non-acceptance or non-payment, the
holder causes such dishonor to be noted by a Notary
Public.
• a minute is prepared containing the date of dishonor,
reason for such dishonor, etc. which is attached to the
instrument; and the facts are noted on the instrument.
PROTEST OF DISHONOR

• When an instrument is dishonored, the holder may cause

the fact not only to be noted, but also to be certified by a
Notary Public that the bill has been dishonored. Such a
certificate is referred to as a protest.
• If the creditor or an acceptor of a bill is shaken by insolvency
or otherwise before the date of maturity of the bill, the
holder may cause such a fact also to be noted and certified.
Such a certificate is called a protest for better security. The
contents of a protest are given in Section 101 of the Act.