Negotiable Instrument

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CHAPTER 5

NEGOTIABLE INSUTRUMENTS ACT 1881

5.1 DEFINITION OF A NEGOTIABLE INSTRUMENT
[SECTION 13]
• The word 'negotiable' means transferable from one person to another, and the term 'instrument' means 'any written document by which a right is created in favour of some person.' Thus, the negotiable instrument is a document by which rights vested in a person can be transferred to another person in accordance with the provisions of the Negotiable Instruments Act, 1881. • The term 'negotiable instrument' has been defined as - A 'negotiable instrument' means a promissory note, bill of exchange or cheque payable either to order or to bearer." MAIN FEATURES OF A NEGOTIABLE INSTRUMENT

• An instrument may be negotiable either by
(1) Statute - Promissory notes, bills of exchange and cheques are negotiable instruments under the Negotiable Instruments Act, 1881; or (2) By usage - Bank notes, bank drafts, share warrants, bearer debentures, dividend warrants, scripts and treasury bills • An instrument is to be called 'negotiable' if it possesses the following characteristic features: 1) Freely transferable - Transferability may be by

a) delivery, or
b) by endorsement and delivery.
2) Holder's title free from defects: The holder (of the negotiable instrument) in due course acquires a good title not withstanding any defect in a previous holder's title. A holder in due course is one who receives the instrument for value and without any notice as to the defect in title of the transferor. 3) The Holder can sue in his own Name - Another characteristic feature of a negotiable instrument, is that its holder in due course, can sue on the instrument in his own name. 4) A negotiable instrument can be transferred infinitum, i.e., can be transferred any number of times till its maturity. 5) A negotiable instrument is subject to certain presumptions. Presumptions as to negotiable instruments [Sections 118-119] 1) As to Consideration - Every negotiable instrument is deemed to have been made, drawn, and accepted endorsed, negotiated or transferred for consideration. 2) As to date- Every negotiable instrument bear the date on which it is made or drawn. 3) As to Acceptance- Every bill of exchange was accepted within a reasonable time after the date mentioned therein and before the date of its maturity. 4) As to Transfer- Every transfer of a negotiable instrument was made before the date of its maturity in case of an instrument payable otherwise than on demand. 5) As to the order of Endorsements - The endorsements appearing on it were made in the order in which they appear thereon. 6) As to lost Instruments - Where an instrument has been lost or destroyed, that it was duly stamped and the stamp was duly cancelled. 7) As to holder-in-due course - The holder of the instrument is a holder in due course. 8) As to dishonour - If a suit is filed upon an instrument, which has been dishonoured, the Court shall, on proof of the protest, presume the fact of dishonour unless it is disproved.

5.2 PROMISSORY NOTE

[Section 4]

Definition

• 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 to, or to the order of, a certain person or to the bearer of the instrument

Examples of Promissory Notes

• “A” signs instruments in the following terms:
"I acknowledge myself to be indebted to 'B' in Rs. 1000, to be paid on demand, for value received." • Followings are Not Promissory Notes.
(i) "Mr. B, I.O.U. (I owe you) Rs. 1000."
(ii) "I promise to pay B Rs. 1500 on D's death, provided he leaves me enough to pay that sum," (iii) "I promise to pay B Rs. 500 seven days after my marriage with C."

Essentials or Characteristics of a Promissory Note

• From the definition, it is clear that a promissory note must have the following essential elements. (1) In...
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