Negotiable Instrument

Topics: Negotiable instrument, Cheque, Promissory note Pages: 20 (7322 words) Published: January 7, 2013
Negotiable Instruments are money/cash equivalents.  These can be converted into liquid cash subject to certain conditions.  They play an important role in the economy in settlement of debts and claims. The transactions involving the Negotiable Instruments in our country are regulated by law and the framework of the Statute which governs the transaction of these instruments is known as The Negotiable Instruments Act.  This act was framed in our country in the year 1881 when the British ruled our country. Prior to 1881 the transactions governing Negotiable Instruments were regulated under the cover of Indian Contract Act 1872.  This act has been amended as many as 23 times to meet the needs of the time. The last amendment was made in 2002.  Preamble

It became a statutory necessity to enact law governing Promissory Notes, Bills of Exchange and cheques. What is a Negotiable Instrument
Section 13:- " A Negotiable instrument means a promissory note, bill of exchange or cheque either to order or bearer." This definition does not say anything about the characteristics of a negotiable instrument but it mentions about instruments, which can be legally called as a negotiable instrument. It fortunately, however does not prohibit any other instrument which satisfies the features of negotiability from being designated as negotiable instruments. Justice K.C.Wills  defines negotiable instrument as "ONE THE PROPERTY IN WHICH IS ACQUIRED BY ANY ONE WHO TAKES IT BONAFIED FOR VALUE, NOT WITHSTANDING ANY DEFECT OF TITLE IN THE PERSON FROM WHOM HE TOOK IT". Transferability

A Negotiable instrument as a document of title to money is transferable either by the application of the law or by the custom of the trade concerned. Special feature of N.I
The special feature of such an instrument is the privilege it confers to the person who receives it bonafide and for value, to possess good title thereto, even if the transferor has no title or had defective title to the instrument. Distinctive features of Negotiable Instruments

- Easily transferable from one person to another
- Confers absolute and good title on the transferee
- The holder of a Negotiable Instrument (P.N./B.E./Cheque) is called as the holder in due course and possesses the right to sue upon the instrument in his own name. Types of Negotiable Instruments

• Negotiable instruments by Statue are of three types, cheques, bills of exchange and promissory note. • Negotiable instruments by custom or usage :- Some other instruments have acquired the character of negotiability by the the custom or usage of trade. Section 137 of Transfer of Property Act 1882 also recognizes that an instrument may be negotiable by Law or Custom.  Thus in India Govt. Promissory notes, Shah Jog Hundis, Delivery Orders, Railway Receipts, Bill of Lading etc. have been held negotiable by usage or custom. These can be said as quasi statutory Negotiable Instruments. Exceptions

Sometimes the Drawer and Holder can take away the negotiability of an instrument by expression such as "Not Negotiable", Pay to "A" only. Here "A" (the holder) cannot transfer a better title to the transferee.    Promissory Note

Section 4: "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." Bill of Exchange

Section 5: "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." According to Section 7, the maker/creator of the instrument is known as 'Drawer'. The person to whom payment may be made is known as "Payee". The person who is directed to pay the amount is known as Drawee.  He accepts to pay the amount mentioned...
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