negotiable instruments act 123

7/28/2019 Negotiable Instruments Act 123

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Negotiable Instruments Act,1881

MEANING AND DEFINITION OF NEGOTIABLE

INSTRUMENT

The word Negotiable means transferable from one person to

another in return of consideration and instrument means awritten document by which a right is created in favour of

some person. Thus, a negotiable instrument is a document

which entitle of person to a sum of money and which is

transferable from one person to another by mere delivery orby endorsement and delivery.


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The term negotiable as such is not defined in the Negotiable

Instrument Act, 1881.Section 13, however, provides that a

negotiable instrument means a promissory note, bill of

exchange or cheque payable either to order or to bearer.


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FEATURES / CHARACTRERISTICS OF NEGOTIABLEINSTRUMENT

1. Freely Transferable : The property in an negotiableinstrument passes from one person to another by delivery, if

the instrument is payable to bearer; and by endorsementand delivery, if it is payable to order.

2. Title of holder free from all defects : A person taking aninstrument bona fide and for value gets the instrument free

from all defects in the title of the transferor. He is not in anyway affected by any defect in the title of the transferor or ofany prior party.

3. Presumptions : It is presumed by law that every negotiableinstrument is made or drawn for a consideration. But it is not

an irrebuttable presumption.It must be rebutted by proofthat the instrument has been obtained from its lawful ownerby means of fraud, undue influence or for unlawful

consideration. The onus of proof is on the person whochallenges the existence of consideration.


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4. Recovery : A person taking an instrument bona fide and for

value can sue upon an negotiable instrument in his own name

for the recovery of amount.


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Types of negotiable instruments

Instruments negotiable by statute: The Negotiable

Instruments Act, 1881 mentions only three kinds ofnegotiable instruments. They are, Promissory Note, Bill of

Exchange and cheque. These instruments are negotiable by

statue.

Instruments negotiable by custom or usage: There are

certain other instruments , which have acquired the

character of negotiability by the usage or custom of trade. In

India, Government Promissory note, Bankers Draft and pay

order, Hundis, Delivery orders and railway receipts for the

goods have been held to be negotiable by usage or custom.


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Promissory note

A promissory note is an instrument in writing containing

unconditional undertaking signed by the maker, to pay acertain sum of money only to, or to order of, a certain person,

or to the bearer of instrument.

The person who makes the promissory note and promises top

pay is called the maker. The person to whom the payment isto be made is called the payee.

For an instrument to become a promissory note, it must have

the following essential elements:-

1. The instrument must be in writing.2. The instrument must contain an express promise to pay. A

mere acknowledgement of indebteness is not sufficient.

3. The promise to pay must be definite and unconditional.


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4. The instrument must be signed by the maker, otherwise it is

incomplete and has no effect.

5. The instrument must point with certainly as to who the maker

is and who the payee is. Where the maker and the payeecannot be identified with certainty from the instrument itself

the instrument, even if it contains an unconditional to pay, is

not a promissory note.

6. The sum payable must be certain and must not be capable ofcontingent additions or subtractions.


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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, or to the order of, a

certain person or to the bearer of the instrument.

The person who gives the order to pay or who makes the bill is

called the drawer. The person who is directed to pay is called the

drawee. The person to whom the payment is to be made is called

the payee.


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For an instrument to become a bill of exchange, it must have the

following essential elements:

1. It must be in writing

2. It must contain an unconditional order to pay

3. It requires three parties i.e. drawer drawee and the payee.4. The parties must be certain.

5. It must be signed by the drawer

6. The sum payable be certain.


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negotiable instruments act 123

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