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Negotiable Instruments

Every document which entitles a


person to a sum of money and which is
transferable by delivery or by
endorsement and delivery, is entitled
to be called a negotiable instrument.

A negotiable instrument must be in writing


A negotiable instrument must be signed by its maker.
A negotiable instrument must contain an unconditional
promise or order to pay some money.
A negotiable instrument must contain a certain amount
of money only.
A negotiable instrument must be freely transferable
from one person to another.
On the transfer of a negotiable instrument , the
transferee who receives it in good faith and for value,
has the right to recover the amount mentioned in the
instrument in his own name. Such a person is known as
holder in due course. His rights are not affected by any
defect in the title of the transferee or any other prior
party.

Consideration
Date
Time of acceptance
Order of endorsement
Stamp
Holder in due course
Fact of dishonour
The above facts are presumed unless and until
contrary is proved. In other words these
presumptions are rebuttable by evidence

Negotiable by Statute:
Promissiory Note:
Cheque
Bill of Exchange

Negotiable by custom or usage

Acc to Section 4 of negotiable Instruments


Act:
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, or to the
order of a certain person, or to bearer of
the instrument

Maker
Payee

It must be in writing
It must contain an express promise to pay
The promise to pay may be unconditional
The promise is to pay in terms of money only
The promise to pay a definite amount of money
only
It must contain certain parties
It must be signed by the maker
Intention to make a promissory note and its
delivery
Other formalities

Section 5 of Negotiable Instruments


Act;
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 to the bearer of the
instrument.

There are 3 main parties to a bill of


exchange:
Drawer
Drawee
Payee

It must be in writing
It must contain an express order to pay
The order to pay may be unconditional
The order is to pay in terms of money only
It contains an order to pay a definite amount
of money only.
It must contain certain parties
It must be signed by the drawer
Intention to make a bill of exchange and its
delivery
Other formalities

Number of parties
Order and Promise
Nature of
Relationship
Acceptance
Nature of Liability
Immediate Action
Notice to prior
parties

Sets
Protest
Conditional Acceptance
Acceptor for Honour
Payable to the maker
himself

Section 6 of Negotiable Instruments Acts:


A cheque is a bill of exchange draw on a
specified banker and not expresses to be
payable otherwise than on demand and it
includes the electronic image of a
truncated cheque and a cheque in
electronic form.
Crossing of Cheque
Bouncing of Cheque
Offences by companies

It must have all the essentials of a bill


of exchange .
It must be drawn on a specified banker
It must be payable on demand

Drawee
Payable on
Demand
Payable to the
bearer on Demand
Acceptance
Days of Grace
Supposition
Crossing
Discounting

Failure to present
Primary Liability
Statutory
Protection
Noting and
Presenting
Sets
Stamping
Countermanding
Circulation

When a promissory note, bill of


exchange or cheque is transferred to
any persons, so as to constitute that
person the holder thereof, the
instrument is said to be negotiated

Drawer
Drawee
Acceptor
Payee
Endorser

Holder
Holder in Due course
Endorsee in the case
of Need
Acceptor for Honour

When the maker or holder of a negotiable


instrument signs the same, otherwise than
such a maker, for the purpose of
negotiation, on the back or face thereof or
on the slip pf paper annexed thereto, or so
signs for the same purpose a stamped
paper intended to be completed as a
negotiable instrument, he is said to
endorse the same; and is called the
endorser.

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