In this presentaion concept of negotiable instrument, types of negotiable instrument, holder and holder in due course, endorsement , how endorsement is done, kinds of endorsement insturment obtain by unlawful means and dishonor is included.

1. Priyanka Jagtap

2. Features of a Negotiable
Instrument
 It is a written document by which certain rights are
created and or/ transferred to a certain person.
 It must be signed by the maker or the drawer as the
case may be.
 There must exist the unconditional order or promise to
pay.
 There must be a time mentioned for such payment.
 In particular cases, the drawee’s name should be
specifically mentioned.

3. Elements of Negotiability
Section 13 defines a negotiable instrument.
The definition does not bar the inclusion of other
documents which have the element of negotiability.
Freely transferable.
Can be transferred infinitum.

4. Negotiable InstrumentsAccording to sec. 13(a) of the Act, “ negotiable
Instrument means a promissory note, bill of exchange
or cheque payable either to order or to bearer, whether
the word “order” or “bearer” appear on the instrument
or not.
Thus, the term, negotiable instrument
means a written document which creates a right in
favour of some person and which is freely transferable.
Although the Act mentions these three instruments(
such as a promissory note, a bill of exchange and
cheque).

5. Characterstics Of A Negotiable
Instrument
 1. Transferability:
 It is easily transferable from person to person by mere
delivery or by endorsement and delivery. But all the
transferable instruments are not negotiable instruments,
but all negotiable instruments are transferable.
 2.Title:
 The transferee of a negotiable instrument is known as”
holder in due course’.
 3.Rights:
 The transferee of the negotiable instrument can sue in his
own name, in case of dishonour. A negotiable instrument
can be transferred any number of times till its maturity.

6. Cont:
 4. Presumptions:
 Certain presumptions apply to all negotiable instruments
e.g., a presumption that consideration has been paid under
it. It is not necessary to write in a promissory note the
words ‘for value received’ or similar expressions because the
payment of consideration is presumed.
 5.Prompt Payment:
 A negotiable instrument enables the holder to expect
prompt payment because a dishonour means the ruin of
the credit of all the persons who are parties to the
instrument.

7. Types Of Negotiable Instrument
As per sec. 13 others
 The Negotiable Instruments
Act states that a negotiable
instrument is a promissory
note, bill of exchange or
cheque payable either to
order or to bearer. Negotiable
Instruments recognized by
Statute are:
I. Promissory note
II. Bills of exchange
III. Cheques
 Negotiable instruments
recognized by usage or
custom are:
I. Hundis
II. Share warrants
III. Dividend warrants
IV. Bankers draft
V. Circular notes
VI. Railway receipts

8. Promissory note
 Sec. 4 of the Act defines, “A promissory note is an
instrument is an instrument in writing( not being a
currency note or bank note) containing an
unconditional undertaking, signed by the maker, to
pay a certain person, or to the bearer of the
instruments.”

9. www.aftemplates.com
Promissory Note
Amount: _________________________________
Place: _________________________________________
I Mr. ABC, make commitment to pay XYZ Company, the Sum of $ ________________________.
Repayment is to be made in the form of 200 equal payments at the interest rate of 7.2% of $
_____________ payable on the 1oth of each month, beginning 10/01/2011 until the total
amount of debt is paid.
IN WITNESS WHEREOF, I set my hand under seal this ____ [the day] of __________________
[month], 20___ and I acknowledge receipt of a completed copy of this instrument.
_____________________
Sign: [Signature of borrower]
________________________________
Name & Address: [Party name]
Notary Public - SEAL
My Commission Expire
______/______/______
Date: _________________________
Promissory Note Template
Promissory Note
Amount: _________________________________
Place: _________________________________________
I Mr. ABC, make commitment to pay XYZ Company, the Sum of $ ________________________.
Repayment is to be made in the form of 200 equal payments at the interest rate of 7.2% of $
_____________ payable on the 1oth of each month, beginning 10/01/2011 until the total
amount of debt is paid.
IN WITNESS WHEREOF, I set my hand under seal this ____ [the day] of __________________
[month], 20___ and I acknowledge receipt of a completed copy of this instrument.
_____________________
Sign: [Signature of borrower]
________________________________
Name & Address: [Party name]
Notary Public - SEAL
My Commission Expire
______/______/______
Date: _________________________
Promissory Note Template

10. Essentials of Promissory note
 1. It must be in writing:
A mere verbal promise to pay is not a promissory note. The method of writing( either ink or
pencil or printing, etc.) is unimportant, but it must be in any form that cannot be altered easily.
 2.It must certainly an express promise or clear understanding to pay:
There must be an express undertaking to pay. A mere acknowledgement is not enough.
 3. promise to pay must be unconditional:
A conditional undertaking destroys the negotiable character of an otherwise negotiable
instrument. Therefore, the promise to pay must not depend upon the happening of some
outside contingency or event. It must be payable absolutely.
 4. it should be singed by the maker
The person who promise to pay must sign the instrument even though it might have been
written by the promisor himself.
 5.The maker must be certain:
The note self must show clearly who is the person agreeing to undertake the liability to pay
the amount

11. Cont:
 6. The payee must be certain:
 The instrument must point out with certainty the person to whom the promise
has been made.
 7. The promise should be to pay money and money only:
 Money means the legal tender money and not old and rare coins
 8. The amount should be certain:
 One of the most important characteristics of a promissory note is certainly-not
only regarding the person to whom or by whom payment is to be made but also
regarding the amount.
 There is a promise to pay certain amount with interest at a specified rate.
 the amount is to be paid at an indicated rate of exchange
 9. Other Formalities:
The other formalities regarding number, place, date, consideration etc. though
usually found given in the promissory notes but are not essential in law

12. Types of Promissory Note
Personal Promissory Notes:
These are used to document a personal loan from a friend or
family member. Although many people tend to avoid legal
writings when dealing with trusted acquaintances, the use of a
promissory note actually demonstrates good faith and effort on
behalf of the borrower.
Commercial:
Promissory notes are almost always a requirement when dealing
with commercial lenders such as a bank. Most commercial
promissory notes are similar to personal notes, although they
can be stricter. If the borrower defaults, the commercial lender is
usually entitled to immediate repayment on the balance. Further
default can result in a lien being placed on the borrower’s
property in order to obtain payments

13. Cont:
Real Estate:
These are similar to commercial notes with respects to the
default consequences. In this case, the lien would be placed
on the home; if a mortgage is involved, the information will
become public record and can affect the borrowers credit
and/or purchasing abilities in future transactions
Investments:
In a business setting, promissory notes are sometimes
exchanged in order to raise capital. The note functions
much like currency, as it has legal value and can be
traded. Promissory notes for investments often involve
statements dealing with returns of investment for a certain
time period

14. Bills of exchange
 Section 5 of the Act defines, “ A bills of exchange is an
instrument in writing 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.”
A bill of exchange, therefore, is a
written acknowledgement of the debt, written by the
creditor and accepted by the debtor. There are usually
three parties to a bill of exchange drawer, acceptor or
drawee and payee. Drawer himself may be the payee.

15. Mechanics of bill financing
sale of goods
drawing of bill & acceptance
submitting release
of bill of bill
Finalization
Of accounts
Making
payment of bills
Seller/
drawer
Buyer/
drwaee
Banker

16. Essential conditions of a bills of
exchange
 It must be in writing.
 It must be signed by the drawer.
 The drawer, drwaee & payee must be certain.
 The sum payable must also be certain.
 It should be properly stamped.
 It must contain an express order to pay money and
money only.
 Number , date , place are not essential.

17. Types of bills of exchange
Inland
bills Foreign bills

18. Inland & Foreign bills
 Inland bill:
 It is drawn in India on a person residing in India, whether
payable in or outside India, or
 It is drawn in India on person residing outside India but
payable in India.
 The following are the inland bills:
 A bill is drawn by a merchant in Delhi on a merchant in
Chennai. It is payable in Mumbai the bill is an inland bill.
 A bill is drawn by a Delhi merchant on a person in London
but is made payable in India. This is an inland bill.

19. Foreign bill
 A bill drawn outside India & made payable in India.
 A bill drawn outside India on any person residing
outside India.
 A bill drawn in India on a person residing outside
India and made payable outside India.

20. Distinction between promissory
note & Bill of Exchange
Number of parties There are two parties-
The maker(debtor),& the
payee( creditor).
There are three parties-
Drawer, drawee & payee:
Although any two out of the
three may be filled by one
and the same person.
Payment to the maker A promissory note cannot be
made payable the maker
himself.
Bill of exchange to the
drawer and payee or drawee
and payee may be the same
person.
Conditional instrument it cannot be made
conditionally.
A bill also cannot be drawn
conditionally.
Nature of liability The liability of maker is
primary & absolute.
The liability of a maker of a
bill of exchange is secondary
and conditional.
Maker The maker of a promissory
note is in a position of a
debtor who promises to pay
the sum specified in it.
The maker of a bill of
exchange is in a position of a
creditor who orders to pay
the sum specified in it.

21. Cheques
 Section 6 of the Act defines, “ A cheque is a bills of
exchange drawn on a specified banker and not expressed to
be payable otherwise than on demand.” A cheque
is bill of exchange with two more qualifications ,namely,
 it is always drawn on a specified banker, and
 It is always payable on demand.
Consequently all cheque are bill of exchange, but all bills
are not cheque. A cheque must satisfy all the
requirements of a bill of exchange; i.e; must be signed
by the drawer, and must contain an unconditional order
on a specified banker to pay certain sum of money to or
to the order of a certain person or to the bearer of the
cheque. It does not require acceptance.

22. Basis of
difference
Bills of exchange cheques
Person / firm A bill of exchange usually
drawn on some person or
firm.
A cheque is always drawn on
bank.
Acceptance It is essential that a bill of
exchange must be accepted
before its payment can be
claimed.
A cheque does not require
any such acceptance.
Payable on demand The B.O.E may be drawn
payable on demand.
A cheque can only be drawn
payable on demand.
Grace of days Three days are allowed in
case of B.O.E.
In case cheque no grace of
days are allowed.
Notice of dishonour It is necessary in B.O.E. No such notice is required.
Crossing No crossing of bills of
exchange
A cheque may be crossed.
Stamp It must be properly stamped. No stamp is required.

23. Crossing of cheques
 It is a direction given by the customer to the banker
that payment should not be made across the counter.
 Crossing is effected by drawing two parallel transverse
lines with or without particular abbreviations.
 A cheque that is not crossed is an open cheque.
 It serves as a measure of safety against theft or loss of
cheques in transit.

24. Types of crossing
Types of
crossing
SpecialGeneral

25. Types of crossing
 General Special
Addition of two parallel drawing of two parallel
transverse lines. Is not always
necessary.
Between the lines, the words addition of the
“Not Negotiable”, “A/c Payee” specific name of the
, “& Co.” may or may not be Banker on the face of
Written. Cheque.

26. Negotiation , Endorsement
 The transfer of a negotiable instrument by one party to
another so as to make the transferee the holder
thereof, is called negotiation.
 Endorse: if you endorse someone or something, you
say publicly that you support or approve of them.

27. Holder
 According to sec. 8, Holder of a negotiable instrument
is the person:
 Who is entitled in his own name to the possession of
the instrument, and
 Who has the right to receive, or recover the amount
due thereon from the parties thereto.
 In case the instrument( note, bill or cheque) is lost or
destroyed, the person who has entitled in his own
name to the possession of it or to receive or recover the
amount due on it from the parties thereto is the holder
of the instrument. [sec.8].

28. Who can be a Holder?
 Payee- the payee is usually the original holder of an instrument.
He remains holder till he endorses the instrument.
 Endorsee –the person to whom an instrument is endorsed
becomes holder of in place of the endorser. An instrument, when
endorsed and delivered, the endorsee becomes the holder.
 Bearer – in the case of a bearer instrument, the person to whom
the instrument is delivered becomes the holder. But every bearer
of an instrument cannot become the holder.
 a thief or a finder of a bearer instrument or a servant
possessing an instrument on behalf of his employer cannot
become holder.
 Legal representative or heir- a legal representative or heir of a
deceased person can become holder by operation of law even
though he is not the payee or the bearer or the endorsee of the
instrument.

29. Holder In due course
 Holder in due course is a person who came into possession
of the instrument on payment of consideration and
without knowledge of the fact that the erstwhile owner had
a defective title.
 The holder in due course has a better title than the holder.
There fore, according to sec. 9 of the Negotiable Instrument
Act, holder in due course mans any person who for
consideration became the possessor of a promissory note,
bill of exchange or cheque if payable to bearer, or the payee
or endorsee thereof, if payable to order before the amount
mentioned in it became payable, and without having
sufficient cause to believe that any defect existed in the title
of the person from whom he derived his title.[sec. 9].

30. Privileges of a Holder in Due course
 He can sue every prior party to the negotiable
instrument if the instrument is not duly satisfied.
 When the holder endorses such instrument further,
the new owner has a good title unless he is party to
fraud.
 The burden of proving his title does not lie upon the
holder in due course.

31. How Endorsement is done?
 The maker or holder signs either on the back or the
face of the instrument for the purpose of the
negotiation.
 Endorsement can also be done on a slip of paper
annexed( attached) to the negotiable instrument.

32. Kinds of endorsement
 Blank
 Full
 Restrictive
 partial

33. Instruments obtain by unlawful
means
 Lost instruments:
 The holder of a lost instrument should give notice of the
loss to all the parties through public advertisement.
 The finder of the lost instrument is not entitled to sue
thereon in his own name.
 The true owner can recover the instrument from the finder
if it is with him but he has parted with the instrument and
has received payment thereon and cannot return the
instrument to the owner, he must compensate the owner.
 An acceptor, maker or drawee who makes payment in due
course of a lost instrument gets a valid discharge for it.

34. Stolen instrument
 The thief does not get any title to the instrument, but
if the instrument is payable to the bearer and it is
negotiated to a holder in due course; he will get a good
title to it not only against the thief but also against any
party prior to him.
 good title :ownership of real property which is totally
free of claims against it and therefore can be sold,
transferred, or put up as security (placing a mortgage
or deed of trust on the property). Copyright © 1981-
2005 by Gerald N. Hill and Kathleen T. Hill. All Right
reserved.

35. Instruments obtain by fraud
 Valid contracts must be brought about by the free
consent of the parties competent to contract.
Therefore, the person guilty of fraud not only gets no
valid title to the thing obtained but also liable to
damages.
 Forged instruments:
 Forged instruments in the eyes of law have no
existence whatsoever. There is a complete absence of
title from the very beginning and a forged signature is
altogether inoperative.

36. Dishonor & discharge of negotiable
instrument
 Dishonor can be done by two ways-
 By non- acceptance
 By non- payment
 Notice of dishonor is mandatory
 Noting of dishonor is also necessary

37. Thank You