Negotiable instruments Definition---”a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.” 3 kinds of negotiable instruments:- 1.Promissory note 2.Bills of exchange 3.cheques

Characteristics of a negotiable instrument 1.Property-the processor of the negotiable instrument is presumed to be the owner of the property contained therein .a N.I does not merely gives possession of the instrument but right to property also. 2.Negotiablility – property in a N.I is freely transferable by from one person to another. 3.Good title-a holder in due course for value ,gets a good title even if the transferor had the defective title.

Right to sue in own name – where the N. I Right to sue in own name – where the N.I. is dishonored ,the transferee of that negotiable instrument has right to sue in his own name for the recovery of the amount. 5.Presumptions –there are certain presumptions which are applicable to all negotiable instrument.

Presumptions 1.Consideration –it shall be presumed that every negotiable instrument was made ,drawn, accepted , endorsed or consideration 2.Date –where a negotiable instrument is dated ,the presumption is that it has been made or drawn on such date, unless the contrary is proved 3.Time of acceptance-unless the contrary is proved ,every accepted bill of exchange is presumed to have been accepted within a reasonable time after its issue and before it’s maturity

4.Time of transfer-unless the contrary is presumed it shall be presumed that every transfer of a negotiable instrument was made before it’s maturity. 5.Order of endorsement- until the contrary is proved it shall be presumed that the endorsements appearing upon a negotiable were made in the order in which they appear thereon

6.stamp- until the contrary is proved it shall be presumed that a lost P.N.,B.O.E, cheque was duly stamped 7.Holder in due course- until the contrary is proved it shall be presumed that holder of a N.A .is the holder in due course.

Promissory note "Promissory note".- A "promissory note" is an instrument in writing (not being a bank-note or a currency-note) 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 the bearer of the instrument

Essentials of a promissory note -it must be in writing -the promise to pay must be express -the promise to pay must be unconditional -it must be signed by the maker -the maker must be ceratin -promise must be to pay a certain sum -the promise should be to pay money and money only. -other formalities

Bill of exchange "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

Essentials of a bill of exchange 1)It must be in writing 2)It must contain an unconditional order to pay 3)It must be signed by the drawer 4)There must be three parties to the instrument and the parties must be certain 5)The order must be to pay a certain sum of money 6)The instrument must contain an order to pay money and money only 7) it must comply with the formalities as regards to date,consideration,stamp,etc.

Difference 1)Parties –there re 3 parties to a bill of exchange, namely the ,the drawer, the drawee and the payee: while in a promissory note there are only 2 parties-maker and payee 2)Nature of payment-in a B.O.E there is an unconditional order to pay ,while in a P.N there is an unconditional promise to pay 3)Acceptance –a B.O.E requires an acceptance before it is presented for payment whereas a promisory note does not require any acceptance since it is signed by the person who is liable to pay.

4)Liablity –liability of a maker of P/N is primary an absolute whereas liability of a drawer of B.O.E is secondary and conditional 5)Notice of dishonor-in B.O.E notice is given to all the persons who are liable whereas in P/N notice of dishonor to the maker is not necessary 6)Nature of acceptance-a P/N can never be conditional but a B.O.E can be accepted conditionally

Cheque A cheque is the means by which a person who has funds in the hand of a bank withdraws the same or some part of it. A cheque must be addressed by one person to another. So ,a bank draft is not a cheque Crossing of cheques Cheques are of 2 types-open and crossed cheques

Open cheques-are those which are paid over the counter of the bank. Open cheques are liable to great risks in the course of circulation. they may be either lost or stolen and the finder or thief can get it encashed at the bank unless the drawer has in the meantime countermanded the payment With a view to avoiding such risks, and protect owner of cheque, a system of crossing was introduced. crossing is a direction to the banker not to pay the cheque across the counter but to pay a bank only.

CHEQUE CROSSED GENERALLY - Where a cheque bears across its face an addition of the words “and company” or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words “not negotiable”, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally. [section 123] CHEQUE CROSSED SPECIALLY - Where a cheque bears across its face an addition of the name of a banker,  either with or without the words “not negotiable”, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker. [section 124].

Different types of negotiable instruments 1)Inland instruments(sec11)-is one which is both drawn and payable in India or drawn in India on some person resident therein. thus, a bill drawn in Delhi upon a merchant resident in new York and payable in Calcutta is an inland instrument . 2)Foreign instrument- any instrument which is not an inland instrument is a foreign instrument. thus, a bill drawn outside India on any person resident outside India or a bill drawn in India on a person resident outside India is a foreign bill .eg. a bill drawn in India and payable in Tehran. A bill drawn in London and made payable in India

Ambiguous instrument-an instrument which in form is such that it may either be treated as bill of exchange or a promissory note is an ambiguous instrument. Accommodation bills-it is a bill which is drawn by one person and accepted by the other ,without consideration merely to enable the drawer to raise money on the bill by discounting it.

Fictitious bills (sec 42)when the name of the drawer or payee or both are fictitious the bill is called a fictitious bill. Bearer instrument-a negotiable instrument is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank. Eg.pay A or bearer

Order instrument-expressed to be payable to a particular person and doesnot contain words prohibiting transfer Eg. pay to B or order Pay to B

Parties to a Bill of Exchange There are three parties involved in a bill of exchange. They are- i. The Drawer – The person who makes the order for making payment ii. The Drawee – The person to whom the order to pay is made. He is generally a debtor of the drawer.. iii. The Payee – The person to whom the payment is to be made. The drawer can also draw a bill in his own name thereby he himself becomes the payee. Here the words in the bill would be Pay to us or order. In a bill where a time period is mentioned, just like the above specimen, is called a Time Bill. But a bill may be made payable on demand also. This is called a Demand Bill.

Parties to a Promissory Note There are primarily two parties involved in a promissory note. They are- i. The Maker or Drawer – the person who makes the note and promises to pay the amount stated therein. ii. The Payee – the person to whom the amount is payable. others, the parties involved may be – a. The Endorser – the person who endorses the note in favour of another person. b. The Endorsee – the person in whose favour the note is negotiated by endorsement.

Parties to a cheque 1.The drawer: he is the person who draws the cheque 2.The drawee: the banker on whom the cheque is drawn 3.Payee