Negotiable Instruments

Negotiable Instrument means a written document which creates a right in favour some person and which is freely transferable Is one in which the property is acquired by any one who takes it bonafide and for value notwithstanding any defects of title in the person from whom he took it (Justice Willis ) Sec 13 of the Negotiable Instruments Act A Negotiable instrument means promissory Note ,Bill of exchange or cheque payable to order or to bearer , whether the words Order or bearer appear on the instrument or not Essential Characteristics 1. Negotiability Freely transferable In case of Order instruments it is transferable either by endorsement or delivery In case of bearer instrument ,it is transferable by delivery 2. Title :-The Holder in due course is not in any way affected by the defective title of the transferor or any party. (Holder in due course means a holder of an instrument who has accepted a Negotiable Instrument for value, in good faith and before maturity 3 . Recovery :-The holder in due course is entitled ot sue on the instrument in his own name 4. A Negotiable instrument is always subject to certain presumptions.

Presumptions as to Negotiable Instruments Sec 118-119 Every NI id drawn, accepted and endorsed for consideration The date it bears is the date on which it was made Accepted within the reasonable time Every transaction made before maturity Endorsement is made in the same order as they appear Every holder is a holder in due course unless it is proved that the holder has taken it from the true owner either without his free consent or without consideration 4. A Negotiable instrument is always subject to certain presumptions.

Types of Negotiable Instruments Promissory note Sec 4 An instrument in writing Containing AN UNCONDITIONAL UNDERTAKING Signed by the maker To pay a certain sum of money only To the order of, or to the bearer of the instrument . Bank Note and Currency Note are not Promissory notes The person who makes the promise is Promisor The person to whom the promise is made is Promisee Bill of Exchange --Sec 5 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 order of some person Or to the bearer of the instrument

A Bill of exchange is written acknowledgement of the debt, written by the creditor and accepted by the debtor There are three parties Drawer - Drawee ---Payee Drawer who makes the order Drawee To whom the order is made Payee To whom the money is to be paid

Cheque Sec 6

It is a Bill of exchange , drawn on a specified Banker In a cheque , Drawee is always the Bank

Essential characteristics of Promissory Note In writing Promise to pay Unconditional undertaking Signed by Promisor Promisor must be certain Promisee must be certain To pay money only Legal formalities

\Charasteristics f Bill of Exchange In writing Signed by drawer The drawer, drawee and Payee must be certain The sum must be certain Express order to pay money only

Types of Bill of Exchange Inland and Foreign Bill Sec 11and 12 Bills in sets Sec 132-133 Trade and Accommodation Bill

Foreign Bill : A Bill which is not a Inland Bill is a foreign Bill A Bill drawn in India on a person residing outside India and made payable outside India A Bill drawn out side India and made payable in India A Bill drawn outside India on any person residing outside India A Bill drawn outside India on a person residing in India A Bill drawn outside India and made payable outside India Bills in sets :- The practice of drawing bills in parts is called Bills in sets A Bill of exchange may be drawn in parts , each part being numbered and containing a provision that it shall continue payable only so long as the other remain unpaid. All parts make one bill and the entire bill is extinguished , when payment is made on one part -Sec 132

Trade and Accommodation Bill A bill drawn and accepted for a genuine trade transaction is termed as Trade Bill A Bill drawn and accepted not for a genuine trade transaction but only to provide financial help to some part y is called Accommodation Bill

Charateristics of Cheque

A cheque is always payable on demand Drawn on specified banker only Partial payment is not allowed Can be crossed No necessity of stamp A Demand Draft issued by a bank is also termed as Bankers cheque No days of grace for the payment of cheque Cheques can be countermanded

Ambiguous Instrument-- Characteristics Faulty drafting Due to faulty drafting may treat the instrument as Bill of exchange or Promissory Note If the holder elects to treat as Bill of exchange or promissory note, he cannot change later. Drawee is fictitous person If the person is imcompetent to contract An instrument which is incomplete in some respects is called Inchoate Instrument