Negotiable Instrument123

7/29/2019 Negotiable Instrument123

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NEGOTIABLE INSTRUMENT

It means a written document which creates a

right infavour of some persons and which isfreely transferable.

According to sec.13 of the negotiableinstrument act , a negotiable instrumentmeans a promissory note, a bill of exchange

or cheque, payable either in order to bearerwhether the words order or bearerappears on the instrument or not.


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CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT

Negotiability

Title

Recovery

Presumption


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PRESUMPTIONS AS TO A

NEGOTIABLE INSTRUMENT

That every N.I was drawn, accepted & endorsed,made or transferred for consideration

That the date it bears is the date on which it wasmade

That it was accepted within a reasonable timeafter being made & before maturity

That every transaction was made before maturity

The endorsement were made in the same order inwhich they appear

That the lost instrument was duly signed &stamped

Every holder of a N.I is a holder in due courseunless it is proved that the holder has taken itfrom the true owner either without his free

consent or without consideration


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PROMISSORY NOTE

Section 4 of the Act defines apromissory note as an instrumentin writing (not being a bank note orcurrency note) containing anunconditional undertaking, signedby the maker , to pay a certain sum

of money only to or to the order of,certain person, or to the bearerinstrument.


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Essential characteristics of promissory

note

It is an instrument in writing. It is a promise to pay. The undertaking to pay is unconditional.

It should signed by the maker. The maker must be certain. The payee must be certain. The promise should be to pay money and

money only. Amount should be certain. Other formalities.


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Specimen of a promissory note When promise is made to pay the money on demand

Rs 5,000Bangalore

march 15, 2011

On demand, I promise to pay shri suresh ororder a sum of Rupees five thousand, valuereceived.

To

Shri Suresh

B-20 green park

Bangalore.

stamp

Sd/-Ramesh


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When promise is made to pay after the expiry of a fixed time.

Rs 5000,Bangalore

March

15, 2011

Three months after date, I promise to pay

Shri Suresh or order a sum of Rupees Fivethousand, value received.

To

Shri Suresh

B-20 Green park

Bangalore.

stamp

Sd/-Ramesh


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BILLS OF EXCHANGE

Section 5 of the Negotiableinstrument Act defines a Bills of Exchangeas, an instrument in writing containingan unconditional order, signed by the

maker, directing a certain person to pay acertain sum of money only to, or to theorder of a certain person or to the bearerof the instrument.

A bill of exchange, therefore is a

written acknowledgement of debt, writtenby the creditor and accepted by thedebtor.


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Essential characteristics of Bills of

Exchange

It must be in writing.

It must be signed by the drawer.

The drawer, drawee and payee must becertain.

The sum payable must also be certain.

It should be properly stamped.

It must contain and express order to paymoney and money alone.

The order must be uncoditional.


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Examples of promissory note

1. I promise to pay B or order Rs. 500

2. I Acknowledge myself to be indebted toB in Rs. 1,000 to be paid on demand,for value received.

Examples of Bills of Exchange1. Please pay Rs. 500 to the order of A.

2. Mr. A will oblige Mr.C by paying to the

order of P.


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Specimen of bill of exchange

A bill where payment its to be made on demand.

Rs. 1,000Bangalore

March15, 2011

On demand pay to Sri Hari mohan or order a sum ofRupees One thousand only, Value received:

To

Sri Krishna

A-31Model Town

Bangalore-10.

StampSd/-

Vishnu


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A bill where payment is to be made on the expiry of a specified

period of time.

Rs. 1,000 Bangalore

March 15, 2011.

Three months after date pay shri Harimohan or order

a sum of Rupees one thousand only,Value received.

To

Sri Krishna

A-31 Model townBangalore-9.

Stamp

Sd/-Vishnu


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DIFFERENCE BETWEEN BILLS OF EXCHANGE AND A

PROMISSSORY NOTE

1.Number of parties: There are 3 parties incase of a BOE drawer, drawee andpayee.

in case of PN there are only twoparties- maker and payee.

2.Promise and order: PN contains a promiseand an undertaking and not an order topay.

A BOE must at imply that the drawehas a right to ask the drawee to pay,though however polietely it may beworded.


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3. Acceptance: Bill payable after sight requires acceptance ofthe drawee before it is presented for payment while a PNdoes not.

4. Maker Position: In a PN maker stands in an immediate

relationship with a payee, whereas in a BOE the maker(drawer) stands in immediate relationship with the acceptorand not the payee.

5. Formalities in the case of Dishonour: Notice to prior parties: In the case of dishonour of a bill

either by non-acceptance or non payment, notice ofdishonour must be given by the holder to all prior parties.while in case of a dishonour of PN no notice is necessary

to the maker. Protest: Foreign bills must be protested for dishonour if

such protest is necessary according to the law of the palce

where they are drawn.No protest is necessary in the case of PN whether inlandor foreign.

6. Copies: Foreign bills are drawn in sets, normally 3 copies areprepared, while only one copy of a foreign PN is prepared.


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Classification of Bills

1. Inland Bills and foreign bills

2. Time and Demand Bill

3. Trade and Accomodation Bill

Inland Bill. A bill is termed as inland bill if

It is drawn in India on a person residingwhether payable in or outside India Or

It is drawn in India on a personresiding outside India but payable inIndia.


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Foreign Bill

A bill which is not an inland bill is a foreign bill.

A bill drawn in India and made payable in India.

A bill drawn outside India and made payable inIndia.

A bill drawn outside India on any person residingoutside India.

A bill drawn outside India on a person residing inIndia.

A bill drawn outside India and made payableoutside India.

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