NEGOTIABLE INSTRUMENT
Introduction The negotiable instruments Act was passed in 1881. It aims to legalise the system under which negotiable instruments pass from hand to hand.
History of Negotiable Instruments
Trend of issuing of negotiable instruments is derived from famous Lambardy Merchants and Goldsmiths who used to tender receipt against deposit which as such was used as a medium of exchange.
Meaning and Definition (section 13) A Negotiable Instrument means a promissory note (section 4), bill of exchange (bill of exchange) or cheque (section 6) payable either to order or to bearer. It must be freely transferable either by delivery (when it is payable to the bearer of the document under section 47) or by endorsement and delivery (when the document is payable to order under Section 48). The transferee taking the instrument in good faith and for consideration gets a good title to the same even if the title of the transferor is defective. The party holding the instrument should be entitled to maintain a suit thereon in case the instrument gets dishonored while in his custody.
Kinds of Negotiable Instruments 1. Promissory Note 2. Bill of Exchange 3. Cheque
Quasi-Negotiable Instrument
Documents which are not money securities but look similar to negotiable instruments such as Bill of Lading are referred to as Quasi-Negotiable Instruments. Such document do not confer a good title over the holder in case it has been transferred under defective title.
Characteristics of Negotiable Instruments Writing and Signed by Its Maker Unconditional Fixed Sum of Money Transferable Absolute And Good Title Right to Recovery
Presumptions about Negotiable Instruments Consideration Date Time of Acceptance Time of Transfer Order of Endorsements Stamp Holder and Holder in Due Course (Section 8 and 9)
Defective Title in Negotiable Instruments (section 9) Title of holder of negotiable instruments is defective and he is not entitled to receive any amount on the negotiable instrument fir reasons an mentioned in section 58: Negotiable instrument obtained by fraud Holder is person who is not entitled to receive the amount person is a finder of instrument lost by another
Promissory Note An unconditional promise in writing made by one person (maker) to another person( payee) Signed by the maker Stamped Promise to pay On demand or at a fixed or determinable future time A sum certain in money Pay in terms of legal tender money only To, or to the order of, a specified person or to the bearer. The parties i.e. the maker and the payee must be certain.
Bill of Exchange An order in writing directing a person to pay a sum of money to a specified person. Duly signed by its drawer Accepted by its drawee Properly stamped Express order to pay Definite sum of money Definite and unconditional order Parties to a bill must be certain
Cheque A bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand issued on a specified banker only The amount specified is always certain, and must be clearly mentioned The payee is always certain. Must bear a date
Parties to Bill of Exchange (section 7)
Drawer/writer/maker Every person capable to contract under section 11 of the Contract Act, 1872. Under section 30 of the Negotiable Instruments Act, 1881, Drawer agrees that Bill of Exchange shall be accepted on presentment and in case of dishonor he shall be liable to compensate to the payee/endorser. Drawee/bank Payee/endorsee/acceptor Payee is a person who accepts the bill
Other Instruments Ambiguous Instrument (Section 17) Inchoate stamped Instrument (Section 20)