Negotiable Instruments Assignment

8/16/2019 Negotiable Instruments Assignment

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DEFINITION OF A NEGOTIABLE INSTRUMENT

The law relating to negotiable instruments is contained in the Negotiable Instruments Act, 1881. It is anAct to define and amend the law relating to promissor notes, bills of echange and che/ues.

The Act does not affect the custom or local usage relating to an instrument in oriental language i.e., a

5undi.

The term 6negotiable instrument6 means a document transferable from one person to another. 5owever the Act has not defined the term. It merel sas that 6A .negotiable instrument6 means a promissor

note, bill of echange or che/ue paab1e either to order or to bearer. 1

A negotiable instrument ma be defined as 6an instrument, the. propert in which is ac/uired b anone

who ta)es it bona fide, and for value, notwithstaning an defect of title in the person from whom he too)

it, from which it follows that an instrument cannot be negotiable unless it is such and in such a state that

the true owner could transfer the contract or engagement contained therein b simple deliver of instrument6 &

According to this definition the following are the conditions of negotiabilit0

7i The instrument should be freel transferable. An instrument cannot be negotiable unless it is such and

in such state that the true owner could transfer b simple deliver or endorsement and deliver.

7ii The person who ta)es it for value and in good faith is not affected b the defect in the title of the

transferor.

7iii !uch a person can sue upon the instrument in his own name.

Negotiabilit involves two elements namel, transferabilit free from e/uities and transferabilit bdeliver or endorsement.%

(ut the Act recognises onl three tpes of instruments vi9., Promissor Note, a (ill of Echange and a-he/ue as negotiable instruments. 5owever, it does not mean that other instruments are not negotiable

instruments provided that the satisf the following conditions of negotiabilit0

1. The instrument should be freel transferable b the custom of trade. Transferabilit ma be b 7i

deliver or 7ii endorsement and deliver.

&. The person who obtains it in good faith and for consideration gets it free from all defects and can sueupon it in his own name.

%. The holder has the right to transfer. The negotiabilit continues till the maturit.

1 Section 13(1)

2 Willis- The Law of Negotiable Securities, Page 6

3 Mookerjee J. In Tailors Priya v. Gulab Chand, AIR 1965 Cl


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Effect of Negotiability

The general principle of law relating to transfer of propert is that no one can pass a better title than hehimself has 7nemodat /uad non:habet. The eceptions to this general rule arise b virtue of statute or b

a custom. A negotiable instrument is one such eception which is originall a creation of mercantile

custom.

Thus a bona fide transferee of negotiable instrument for consideration without notice of an defect of

title, ac/uires the instrument free on an defect, i.e., he ac/uires a better title than that of the transferor.

Importat C!aracteri"tic" of Negotiable I"tr#met"

;ollowing are the important characteristics of negotiable instruments0

1. The holder of the instrument is presumed to be the owner of the propert contained in it.

&. The are freel transferable.%. A holder in due course gets the instrument free from all defects of title of an previous holder.

+. The holder in due course is entitled to sue on the instrument in his own name.


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CLASSIFICATION OF NEGOTIABLE INSTRUMENTS

The negotiable instruments ma be classified as under0

71 Inland Instruments 7!ection 11

A promissor note, bill of echange or che/ue drawn or made in India, and made paable, or drawn

upon an person, resident in India shall be deemed to be an inland instrument. !ince a promissor noteis not drawn on an person, an inland promissor note is one which is made paable in India. !ub$ect to

this eception, an inland instrument is one which is either0

7i drawn and made paable in India, or

7ii drawn in India upon some persons resident therein, even though it is made paable in a foreign

countr.

7& ;oreign Instruments7!ection 1&

An instrument which is not an inland instrument, is deemed to be a foreign instrument. The essentials of

a foreign instrument include that0

7i it must be drawn outside India and made paable outside or inside India or

7ii it must be drawn in India and made paable outside India and drawn on a person resident outsideIndia.

7% >emand Instruments 7!ection 1*

A promissor note or a bill of echange in which no time for pament is specified

is an instrument paable on demand.

7+ Time Instruments (Section 21)

Time instruments are those which are paable at sometime in the future. Therefore, a promissor note or

a bill of echange paable after a fied period, or after sight, or on specified da, or on the happening of

an event which is certain to happen, is )nown as a time instrument. The epression 6after slight6 in a

promissor note means that the pament cannot be demanded on it unless it has been shown to the

ma)er. In the case of bill of echange, the epression 6after sight6 means after acceptance, or after noting for non:acceptance or after protest for non:acceptance.

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incompetent to contract, the holder ma treat the instrument, at his option, either as a bill of echange or

as a promissor note.

(ill drawn to or to the order of the drawee or b an agent on his principal, or b one branch of a ban)

on another or b the direction of a compan or their cashier are also ambiguous instruments. A

promissor note addressed to a third person ma be treated as a bill b such person b accepting it,while a bill not addressed to anone ma be treated as a note. (ut where the drawer and paee are the

same e.g., where A draws a bill paable to A@s order, it is not an ambiguous instrument and cannot be

treated as a promissor note. nce an instrument has been treated either as a bill or as a note, it cannot be treated differentl afterwards.

7=Inchoate or Incomplete Instrument 7!ection &B

Chen one person signs and delivers to another a paper stamped in accordance with the law relating to

negotiable instruments, and either wholl blan) or having written thereon an incomplete negotiable

instrument, he thereb givs prima facie authorit to the holder thereof to ma)e or complete, as the casema be,upon it a negotiable instrument, for an amount specified therein, and not eceeding the amount,

covered b the stamp. !uch an instrument is called an inchoate instrument. The person so signing shall be liable upon such instrument, in the capacit in which he signs the same, to an holder in due coursefor such amount. provided that no person other than a holder in due course shall recover from the person

delivering the instrument anthing in ecess of the amount intended b him to be paid thereon.

The authorit to fill up a blan) or incomplete instrument ma be eercised b an 6holder6 and not onl

the first holder to whom the instrument was delivered. The person signing and delivering the paper is

liable both to a 6holder6 and a 6holder:in:due:course6. (ut there is a difference in their respective rights.

A 6holder6 can recover onl what the person signing and delivering the paper agreed to pa under theinstrument, while a 6holder:in: due:course6 can recover the whole amount made paable b the

instrument provided that it is covered b the stamp, even though the amount authorised was smaller.


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$INDS OF NEGOTIABLE INSTRUMENTS

The Act recognises onl three )inds of negotiable instruments under !ection 1% but it does not ecludean other negotiable instrument provided the instrument entitles a person to a sum of mone and is

transferable b deliver. Instruments written in oriental languages i.e. hundis are also negotiable

instruments. These instruments are discussed below0

%i& 'romi""ory Note"

A 6promissor note6 is an instrument in writing 7not being a ban) note or a currenc note containing anunconditional underta)ing, signed b the ma)er to pa a certain sum of mone to, or to the order of, a

certain person, or onl to bearer of the instrument.+

Parties to a Promissory Note:

A promissor note has the following parties0

7a The ma)er0 the person who ma)es or eecutes the note promising to pa the amount stated therein.

7b The paee0 one to whom the note is paable.

7c The holder0 is either the paee or some other person to whom he ma have endorsed the note.

7d The endorser.

7e The endorsee.

Essentials of a Promissory Note:

To be a promissor note. an instrument must possess the following essentials0

7a It must be in writing. An oral promise to pa will not do.

7b It must contain an epress promise or clear underta)ing to pa. A promise to pa cannot be inferred.

A mere ac)nowledgement of debt is not sufficient. If A writes to ( 6I owe ou 7I..D. 's.


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7e The ma)er must be a certain person, i.e., the note must show clearl who is the person engaging

himself to pa.

7f The paee must be certain. The promissor note must contain a promise to pa to some person or

persons ascertained b name or designation or to their order.

7g The sum paable must be certain and the amount must. not be capable of contingent additions or subtractions. If A promises to pa 's. 1BB and all other sums which shall become due to him, the

instrument is not a promissor note.

7h Pament must be in legal mone of the countr. Thus, a promise to pa 's.


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the endorser.

7g The endorsee0 is the person to whom the bill is endorsed.

7h >rawee in case of need0 (esides the above parties, another person called the 6drawee in case of

need6, ma be introduced at the option of the drawer. The name of such a person ma be inserted either

b the drawer or b an endorser in order that resort ma be had to him in case of need, i.e., when the bill is dishonoured b either non:acceptance or non:pament.

7i Acceptor for honour0 ;urther, an person ma voluntaril become a part to a bill as acceptor. A

person, who on the refusal b the original drawee to accept the bill or to furnish better securit, when

demanded b the notar, accept the bill supra protest in order to safeguard the honour of the drawer or

an endorser, is called the acceptor for honour.

Essentials of a Bill of Exchange:

71 It must be in writing.

7& It must contain an unconditional order to pa mone onl and not merel a re/uest

7% It must be signed b the drawer.

7+ The parties must be certain.

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7f ;oreign bill must be protested for dishonour but no such protest is necessar in the case of a note.

7g Chen a bill is dishonoured, due notice of dishonour is to be given b the holder to the drawer and theintermediate endorsee, but no such notice need to be given in the case of a note.

7h A bill can be drawn paable to bearer provided it is not paable on demand. A promissor note

cannot be made paable to bearer, even if it is made paable otherwise than on demand.

%iii& C!e*#e"

!ection = of the Act provides that a che/ue is a bill of echange drawn on a specified ban)er, and not

epressed to be paable otherwise than on demand. !impl stated, a che/ue is a bill of echange drawn

on a ban) paable alwas on demand. Thus, a che/ue is a bill of echange with two additional/ualifications, namel0 7i it is alwas drawn on a ban)er, and 7ii it is alwas paable on demand. A

che/ue being a species of a bill of echange, must satisf all the re/uirements of a bill it does not,

however, re/uire acceptance.

Note0 ( virtue of !ection %1 of the 'eserve (an) of India Act, no bill of echange or hundi can be

made paable to bearer on demand and no promissor note or a ban) draft can be made paable to bearer at all, whether on demand or after a specified time. nl a che/ue can be paable to bearer on

demand.

Parties to a cheque

The following are the parties to a che/ue0

7a The drawer0 The person who draws the che/ue.

7b The drawee0 The ban)er of the drawer on whom the che/ue is drawn.

7c, 7d, 7e and 7f The paee, holder, endorser and endorsee0 same as in the case of a bill.

Essentials of a Cheque

71It is alwas drawn on a ban)er.

7& It is alwas paable on demand.

7% It does not re/uire acceptance. There is, however, a custom among ban)s to mar) che/ues as goodfor purposes of clearance.

7+ A che/ue can be drawn on ban) where the drawer has an account.

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Distinction between Cheques and Bills of Exchange

As a general rule, the provisions applicable to bills paable on demand appl to che/ues, et there are

few points of distinction between the two, namel0

7a A che/ue is a bill of echange and alwas drawn on a ban)er, while a bill ma be drawn on anone,

including ban)er.

7b A che/ue can onl be drawn paable on demand, a bill ma be drawn paable on demand, or on the

epir of a specified@ period after sight or date.

7c A bill paable after sight must be accepted before pament can be demanded, a che/ue does not

re/uire acceptance and is intended for immediate pament.

7d A grace of % das is allowed in the case of time bills, while no grace is given. in the case of a che/ue,

for pament.

7e The drawer of a bill is discharged, if it is not presented for pament, but the drawer of a che/ue is

discharged onl if he suffers an damage b dela in presentment for pament.

7f Notice of the dishonour of a bill is necessar, but not in the case of a che/ue.

7g The che/ue being a revocable mandate, the authorit ma be revo)ed b countermanding pament,

and is determined b notice of the customer@s death or insolvenc. This is not so in the case of bilt

7h A che/ue ma be crossed, but not a bill

A che/ue is a bill of echange drawn on a specified ban)er and alwas paable on demand. A che/ue is

alwas drawn on a particular ban)er and is alwas paable on demand. -onse/uentl, all che/ues are

bills of echange but all bills are not che/ues.

'aymet i +#e Co#r"e 7!ection 1B

An person liable to ma)e pament under a negotiable instrument, must ma)e the pament of theamount due thereunder in due course in order to obtain a valid discharge against the holder.

A pament in due course means a pament in accordance with the apparent tenor of the instrument, ingood faith and without negligence to an person in possession thereof. .

A pament will be a pament in due course if0

7a it is in accordance with the apparent tenor of the instrument, i.e. according to what appears on theface of the instrument to be the intention of the parties

7b it is made in good faith and without negligence, and under circumstances which do not afford a

ground for believing that the person to whom it is made is not entitled to receive the amount

7c it is made to the person in possession of the instrument who is entitled as holder to receive pament


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7d pament is made under circumstances which do not afford a reasonable ground believing that he is

not entitled to receive pament of the amount mentioned in the instrument and

7e pament is made in mone and mone onl.

Dnder !ections 1B and 1&8, a paing ban)er ma)ing pament in due course is protected.


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"AFIA FIGGIA I!GAFIA, NEC >EG5I

Negotiable Instrument Act, 1881

Assignment

NEGOTIABLE INSTRUMENTS( DEFINITION,

C-ARACTERSTICS AND S'ECIFIED $INDS

S#bmitte+ to( S#bmitte+ by(

Prof. !. H. Amani Nanc !hamim

;acult of Gaw (.A. GG( 75

"amia Fillia Islamia


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TABLE OF CONTENT

I. Ac)nowledgement

II. Introduction

III. >efinition of a negotiable instrument

IJ. -lassification of negotiable instruments

J. #inds of negotiable instruments

JI. (ibliograph

AC$NO.LEDGEMENT


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;irstl, I than) Almight for all the blessings without which this assignment would not be

possible.

I wish to epress m heartfelt than)s to all those who have helped me in ma)ing this

pro$ect. I ta)e this opportunit to epress m profound gratitude and deep regards to mteacher, Prof. !. H. Amani, for his eemplar guidance, monitoring and constant

encouragement throughout the course of this pro$ect. The blessing, help and guidance

given b her time to time shall carr me a long wa in the $ourne of life on which I am

about to embar).

I also ta)e this opportunit to epress a deep sense of gratitude to the staff of "amia

Fillia Islamia, New >elhi, for their cordial support, valuable information and guidance,

which helped me in completing this tas) through various stages. I am obliged for the

valuable information provided b them in their respective fields. I am grateful for their cooperation during the period of m assignment.

Gastl, I than) m parents, brother, sisters and friends for their constant encouragement

without which this assignment would not be possible.

Nacy S!amim

BIBLIOGRA'-/

1. -lass Notes


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&. "itendra >abas, Negotiable Instruments Act !""! , "ain (oo) Agenc, &nd edition, &B1%.

%. (are Act of Negotiable Instruments Act, 1881

.EBLIOGRA'-/

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httpKKwww.academia.edu

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httpKKwww.ssrn.com

https0KKindian)anoon.org

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Negotiable Instruments Assignment

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