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Negotiable Instruments Act 1881

Not defined by NI Act. But sec 13 says A negotiable instruments means a promissory note, bill of exchange or cheque payable either to order or bearer Negotiable :- transferable by delivery Instrument :- A written document by which a right is created in favor of some person

Characteristics of a Negotiable Instrument


1)Freely transferable 2)Title of holder free from all defects 3) Recovery 4) Presumptions Kinds of Negotiable Instruments a) Promissory note b) Bill of Exchange c) Cheque

Promissory Note
A Promissory Note is an instrument in writing, containing an unconditional undertaking signed by the maker, to pay certain sum of money only to or to the order of certain person or to the bearer of the instrument (sec 4)

Maker:The person who makes the promissory note and promises to pay is called Maker

Payee :The person to whom the payment is to be made is called the Payee

Essentials of Promissory Note


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2)
3) 4)

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6) 7)

8)

Writing Promise to pay Definite and unconditional Signed by the maker Certain parties Certain sum of money Promise to pay money only Formalities like date, place, consideration etc are usually found although they are not essential

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 (sec 5) There are 3 Parties to a bill of exchange 1)Drawer 2) Drawee 3) Payee

Essential Elements of Bill of Exchange


1) It must be in writing 2) It must contain an order to pay 3) The order must be unconditional 4) It requires three parties drawer, drawee, payee 5) It must be signed by the drawer 6) The sum payable must be certain 7) It must contain an order to pay money only

Distinction between Bill of Exchange and Promissory Note


1) Promissory Note:- Two Parties Bill of Exchange :- Three Parties 2) Promissory Note:- Promise to pay Bill of Exchange :- Unconditional order to pay 3) Maker of note :- Debtor Drawer of Bill :- Creditor directs drawee to pay

4) Maker of the Note :- Originator of Note Bill of Exchange :- Accepted by some other person to pay 5) Maker of Note:- Primarily liable to pay Drawer of Bill:- Secondary 6) Promissory Note:- does not require acceptance Bill of Exchange :- needs acceptance

Cheque
A cheque is a bill of exchange drawn upon a specified banker and payable on demand A cheque is a species of B.E but it has the following two additional conditions 1) It is always drawn on specified banker 2) It is always payable on demand

All cheques are bills of exchange but all bill of exchange are not cheques. Crossing of Cheque 1) General Crossing Where a cheque is crossed generally , the drawee banker must not pay it unless it is by a banker

2) Special Crossing The payment can be obtained only through a particular banker, whose name appears between the lines 3) Restrictive Crossing In this type of crossing the words A/c Payee are added to the general or special crossing

Parties to Negotiable Instruments


I) Parties to a bill of exchange :1) Drawer 2) Drawee 3) Acceptor 4) Payee 5) Holder 6) Indorser 7)Indorsee 8) Drawee in ease of need 9) Accept for Honour

II) Parties to a Promissory Note 1) Maker 2) Payee 3) Holder 4) Indorser 5) Indorsee

III) Parties to a cheque 1) Drawer 2) Drawee 3) Payee 4) Holder 5) Indorser 6) Indorsee

IV) Holder :The Holder of promissory note, bill of exchange or cheque means:any person entitled in his own name a) to the possession of the instrument b) to receive the amount c) to recover the amount Due there on from the parties there to

where the note, bill or cheque is lost or destroyed , its holder is the person entitled at the time such loss or destruction

Holder in due Course


Any person is holder in due course if he fulfils the following conditions:1) That for Valuable , consideration he became a) The possessor of the negotiable instrument payable to bearer b) The payee or Indorsee there of ,if payable to order

2) That he become the holder of the instrument before its maturity 3) That he become the holder of the instrument in good faith i.e. without sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.