Negotiable Instruments

Section

13

Definition

A negotiable instrument means a promissory note, a bill of exchange, or a cheque payble either to the order or the bearer.

Types

Promissory note

Bill of Exchange

Cheque

Promissory Note

It is a negotiable instrument in writing which contains an unconditional promise by one person to pay a certain sum of money to a specified person.

Bill of exchange

Contains an unconditional order directing a certain person to pay a sum of money to pay the bearer of instrument or to a specified person.

Cheque

Directs the banker to pay a certain sum of money to the specified person or the bearer of instrument.

Characteristics

Freely transferable

Transfer infinitum

Free of all titles

Sueable in transferees name in case of dishonour

Freely Transferablw

There’s no need for any legal liabilities. An instrument payable by bearer is transfered by mere delivery, and the holder becomes the new owner.

Transfer infinitium

Can be tranferred unlimited times.

Title

The owner, who earned the instrument with some consideration, is free from all defects.

Sueable

A holder in due time can earn the full amount on the instrument in case of dishonor.

Presumptions

Consideration

Date

Time of Acceptance

Time of Transfer

Endorsement

Stamp

Holder

Consideeration Section 118 119

Every instrument was made or endorsed for a consideration. It is presumed so.

Date

The date on which it is drawn.

Time of Acceptance

It is presumed it was accepted within the reasonable time after it was drawn and before it’s maturity.

Time of Transfer

‘‘

Endorsement

All endorsements appearing on it were made in the order they appear.

Stamp

Lost instrument was duly stamped and the stamp was cancelled.

Holder

of the instrument is the holder in due course.

He must prove that there was consideration, and he became the holder before it’s due date.

Essentials

In writing

Unconditional

Payment in Money (Cash)

Certain Sum

Payable (demand or time)

Payable to Specific Person

Negotiability

Transferability

Title free of all defects

Recovery of Amount in case of dishonour

In writing

Cannot be verbal

Unconditional

No conditions attached to it

Payble

The amount is payable to the name written on the instrument or to the bearer of the instrument.

Either on demand, or in due time.

Money

Only cash payments

Certain Sum

No reasonable price, must be specific only

Specific person

In case of order or bearer, anyone who holds it at the time of payment is given the payment

Negotiability

The right of instrument is freely transferable by mere delivery.

In case of bearer, only delivery.

In case of order, by endorsement as well.

Transferability

Instrument can be transferred a number of times before its maturity.

Title

free of all defects in case of Goodwill

Recovery

in transferees name in case of dishonour

Parties to Promissory notes

Parties Involved: Two (The Maker who promises to pay, and the Payee who receives the money).

Others: Holder, Endorser, Endorsee

Parties to Bill of Exchange

Parties Involved: Three (The Drawer who creates the bill, the Drawee who is ordered to pay, and the Payee who gets the money).

Other: Holder, Endorser, Endorsee.

Parties to Cheque

Drawee is always a Bank: A cheque is always drawn on a specified banker.

Other: Drawer, Payee.