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NEGOTIABLE INSTRUMENTS
QUESTION BANK.
Q.1. Define ‘negotiable instrument’, sate different types of negotiable instruments.
Q.2.Define ‘negotiable instrument’. Write essential ingredients of negotiable instrument.
Q.3. Write a detailed note on various kinds of negotiable instruments.
SHORT NOTES.
- Promissory note.
2, Difference between bill of exchange and cheque. Nov. 07.
SYNOPSIS.
- DEFINITION OF NEGOTIABLE INSTRUMENTS (S. 13).
- ESSENTIAL INGREDIENTS OF NEGOTIABLE INSTRUMENTS.
(1) Free transferability-
(2) Clear Title-
(3) Sue for recovery:-
(4) As to contents:-
(5) Presumption as to negotiable instrument:-
(a) Consideration-
(b) Date:-
(c) Stamp:-
(d) Holder in due course:-
III. KINDS OF NEGOTIABLE INSTRUMENT:-
(A) Negotiable Instruments under the Act:-
(a) Promissory Note (S. 4):-
(b) Bill of Exchange (S. 5):-
(c) Cheque (S. 6).
(B) Negotiable instruments by custom or usage:-
- DEFINITION OF NEGOTIABLE INSTRUMENTS (S. 13):-
- 13 of the Negotiable Instrument Act, 1881, provides that negotiable instruments include a ‘Promissory Note[1], Bill of Exchange[2], and Cheque, whether payable to bearer or order’.
Thus, the definition covers only three types of instruments: a Promissory Note, a Bill of Exchange, and a Cheque. However, though the section speaks of only three kinds of instruments, it does not mean that there can not be any other negotiable instrument than these three. Every document that entitles a person to a sum of money and is transferable by delivery is entitled to be a negotiable instrument[3]. Thus, documents such as dividend warrants, share warrants, railway receipts, and motor receipts are held to be negotiable instruments by trade usage or by the provisions of the Companies Act.
However, documents such as share certificates, bills of lading, deposit receipts, money orders, and postal orders are not considered negotiable instruments. This is because they do not give a better title to the transferee, which is one of the essential ingredients of a negotiable instrument.
II. ESSENTIAL INGREDIENTS OF NEGOTIABLE INSTRUMENTS.
The following are the main characteristics of the negotiable instrument-
(1) Free transferability-
The property in a negotiable instrument passes from one person to another merely by delivery of its possession, in case of the instrument being payable to the bearer. However, in the negotiable instrument, the property passes by endorsement and delivery if it is payable to order.
(2) Clear Title-
The general principle as to transfer of property is that ‘no one can transfer a better title than he himself has’ (Nemo dat quod- habet). However, a negotiable instrument constitutes an exception to this principle. Therefore, a person who takes a negotiable instrument in good faith and for value becomes the true owner even though he takes it from someone with a defective title, such as a thief or finding.
(3) Sue for recovery:-
On default in payment, a person in possession of a negotiable instrument can sue in his own name for recovery of its amount.
(4) As to contents:-
The negotiable instrument should contain the following:-
(a) It should be in writing.
(b) It should be signed by the drawer (maker).
(c) There must be a promise to pay.
(d) Such an order to pay must be unconditional.
(e) It must call for payment of money and money only.
(f) The sum of payment should be specific.
(5) Presumption as to negotiable instrument:-
There are certain presumptions as to negotiable instruments unless the contrary is proved. It means unless and until cogent evidence to rebut these presumptions is brought, they are presumed as true. They are-
(a) Consideration-
Every negotiable instrument is presumed to have been made for consideration. However, the defendant may object to consideration and prove the contrary. The burden of proving ‘no consideration’ lies with the defendant. Whenever presumption is drawn in favour of one party, the burden of proving the contrary lies with the other party. The person having presumption in his favour need not prove that fact.
(b) Date:-
The negotiable instrument bearing a specific date is presumed to have been made on that date.
(c) Stamp:-
The stamp on the instrument is presumed to be proper and authorised.
(d) Holder in due course[4]:-
Every holder of a negotiable instrument is presumed to be a holder in due course.
However, these presumptions are no longer valid in cases of instruments obtained by fraud, illegal consideration, threat, etc.
III. KINDS OF NEGOTIABLE INSTRUMENTS:-
(A) Negotiable Instruments under the Act:-
Negotiable Instrument Act 1881 provides for three types of negotiable instruments, viz-
(a) Promissory Note (S. 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.
Illustrations
A signed instrument in the following terms;
(i) I promise to pay B or order Rs 500.
(ii) I acknowledge myself to be indebted to B in Rs 1000, to be paid on demand, for value received.
(iii) Mr. B.I.O.U. Rs 1,000.
(iv) I promise to pay B Rs. 500 and all other sums that are due to him.
(v) I promise to pay B Rs 500, first deducing there is any money which he may owe to me.
(vi) I promise to pay B Rs 500 seven days after my marriage with C.
(vii) I promise to pay B Rs 500 on D’s death, provided D leaves me enough to pay that sum.
(viii) I promise to pay B Rs 500 and to deliver my black horse to him on 1st January next.
The instruments respectively marked (i) and (ii) are promissory notes. The instruments respectively marked (iii) to (viii) are not Promissory Notes.
(b) Bill of Exchange (S. 5):-
A ‘Bill of Exchange’ is-
(i) an instrument in writing,
(ii) containing an unconditional order,
(iii) signed by the maker,
(iv) directing a certain person,
(v) to pay a certain sum of money only-
(a) to a certain person or
(b) to the order of a certain person or
(c) to the bearer of the instrument.
(c) Cheque (S. 6):-
A Cheque is a bill of exchange drawn on a specified banker and not expressed as payable otherwise than on demand.
(B) Negotiable instruments by custom or usage:-
Negotiable Instrument Act 1881 is based on the law of Merchants in England and therefore recognises only three types of negotiable instruments (above mentioned). However, to suit Indian circumstances, the Act saves certain instruments used as local usage in oriental languages.
Thus, the following are held as negotiable instruments-
(i) hundi
(ii) bankers draft and pay orders,
(iii) delivery orders,
(iv) railway receipts,
(v) share warrants,
(vi) bearer debentures,
(vii) share certificate with blank transfer deed, etc.
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[1] वचन चिठ्ठी [वचन पत्र]
[2] हुंडी किंवा विनिमय पत्र. [हुंडी या विनिमय बिल।]
[3] प्रत्येक दस्ताऐवज की जो धारण करणारास विषिष्ठ रक्कम मिळविण्याचा अधिकार देतो व ज्याचे फक्त ताबा दिल्याने हस्तांतरण होते त्यास परक्राम्य लेख किंवा चलनक्षम दस्ताऐवज म्हणतात.
[प्रत्येक दस्तावेज़ जो धारक को एक विशिष्ट राशि प्राप्त करने का अधिकार देता है और जो मात्र कब्जे से हस्तांतरणीय है, एक परक्राम्य लिखत या परक्राम्य लिखत कहलाता है।]
[4] योग्य मार्गाने असलेला धारक [सही राह से बना धारक]