ASSIGNMENT

CORPORATE LAW

TOPIC

Negotiable Instruments Act, 1881.

Name: Muhammad Ahmad

Roll No. BL5F18M40

LLB 5 Years Session 2018-23

Teacher:

Last Date of Submission: January 31, 2021

 CONTENT

Introduction of Negotiable Instruments Act, 1881.

Definition

Classes of Negotiable Instruments

 Promissory note
 Bill of Exchange
 Check

Characteristics of Negotiable Instruments

Presumption about Negotiable Instruments

Types of Negotiable Instruments

Promissory Note

 Definition
 Parties to Promissory Note
 Liability of maker
 Characteristics of Promissory Note
 Negotiation/Endorsement
 Presentment

Bill of exchange

 Parties
 Characteristics
 Negotiation

Cheque

 Cross cheque
Modes of Negotiation

Notice of dishonor

Noting/protest

Reasonable time

Interest

Conclusion
Introduction of Negotiable Instruments Act, 1881:

This Act may be called the Negotiable Instruments Act, 1881. An Act to define and amend the
law relating to Promissory Notes, Bills of Exchange and Cheques. It extends to the whole of
Pakistan, but nothing herein contained affects [the provisions of Sections 24 and 35 of the State
Bank of Pakistan Act, 1956]; and it shall come into force on the first day of March, 1882. Every
negotiable instrument shall be governed by the provisions of this Act, and no usage or custom at
variance with any such provision shall apply to any such instrument.

Definition:

A negotiable instrument means a promissory note, bill of exchange or cheque payable either, to
order or to bearer.

Explanation

A promissory note, bill of exchange or cheque is payable to order which is expressed to be so

payable or which is expressed to be payable to a particular person, and does not contain words
prohibiting, transfer or indicating an intention that it shall not be transferable.

Classes of Negotiable Instruments:

 Promissory note

A promissory note is in an instrument in writing (not being a bank-note or a currency note)

containing an unconditional undertaking signed by the maker, to pay on demand or at a fixed or
determinable future time] 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

A bill of exchange is an instrument in writing containing an unconditional order, signed by the

maker, directing a certain person to pay on demand or at a fixed or determinable future time] a
certain sum of money only to, or to the order of, a certain person or to the bearer of the
instrument
  Cheque

A cheque is a bill of exchange drawn on a specified banker and not expressed payable otherwise
than on demand.

Characteristics of Negotiable Instruments\

 Property
The possessor of negotiable instrument is acknowledged to be the owner of property contained
therein. Negotiable instrument does not simply give ownership of the instrument but right to
property as well. The property in negotiable instrument can be moved without any formality. In
the case of bearer instrument, the possessions pass by meager delivery to the transferee. In case
of order instrument, endorsement & delivery are necessary for transfer of property.
 Title
The transferee of negotiable instrument is called ‘holder in due course.’ A genuine transferee for
value is not affected by any flaw of title on the part of transferor or of any of the previous holders
of instrument.
 Rights
The transferee of negotiable instrument can take legal action in his own name, in case of
dishonor. A negotiable instrument can be reassigned any number of times till it is attains
maturity. The holder of instrument need not give notice of transfer to the party legally
responsible on the instrument to pay.
 Presumptions
Certain presumptions are applicable to all negotiable instruments i.e., a presumption that
deliberation has been paid under it. It is not essential to write in promissory note the words ‘for
value received’ or alike expressions for the reason that the payment of consideration is
acknowledged. The words are typically included to generate additional substantiation of
consideration.
 Prompt payment
A negotiable instrument facilitates the holder to anticipate prompt payment because dishonor
refers to the ruin of credit of all persons who are parties to the instrument.
Presumption about Negotiable Instruments:

Of consideration (b) as to date (c) as to time of acceptance (d) as to time of transfer (e) as to
order of endorsements (f) as to stamp; (g) that holder is a holder in due course.

Until the contrary is proved, the following presumptions shall be made

(a) That every negotiable instrument was made or drawn of consideration, and that every such
instrument, when it has been accepted, endorsed negotiated or transferred, was accepted,
endorsed negotiated or transferred for consideration.

(b) That every negotiable instrument bearing a date was made or drawn on such date.

(c) That every accepted bill of exchange was accepted within a reasonable time after its date and
before its maturity.

(d) Every transfer of a negotiable instrument was made before its maturity; that endorsements
appearing upon a negotiable.

(e) That endorsements appearing upon a negotiable instrument were made in the order in which
they appear thereon.

(f) That a lost promissory note, bill of exchange or cheque was duly stamped.

(g) that the holder of a negotiable instrument is a holder in due course, provided that, where the
instrument has been obtained from its lawful owner or from any person in lawful custody
thereof, by means of an offence of fraud, or has been obtained from the maker or acceptor
thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that
the holder is a holder in due course lies upon him.

Promissory Note:

 Definition

A promissory note is in an instrument in writing (not being a bank-note or a currency note)

containing an unconditional undertaking signed by the maker, to pay on demand or at a fixed or
determinable future time] a certain sum of money only to, or to the order of a certain person, or
to the bearer of the instrument.

 Parties to Promissory Note

Every person capable of contracting according to the law to which he is subject, may bind
himself and be bound by the making, drawing, acceptance, endorsement, delivery and
negotiation of a promissory note, bill of exchange or cheque.

Minor: Where such an instrument is made, drawn or negotiated by a minor, the making, drawing
or negotiating entitles the holder to receive payment of such instrument and to enforce it against
any party thereto other than the minor.

Drawer: The one who makes the promise to another, to pay the debt is the drawer of the
instrument. He/She is the debtor or borrower.

Drawee: The one, in whose favors the note is drawn is the drawee. He/She is the creditor who
provides goods on credit or lender, who lends money.

Payee: The one, to whom payment is to be made is the payee of the negotiable instrument.

Liability of maker:

In the absence of a contract to the contrary, the maker of a promissory note, by making it, the
acceptor before maturity of exchange by accepting it, engages that he will pay it according to the
tenor of the note or his acceptance respectively and in default of such payment, such maker is
bound to compensate any party to the note or bill or any loss or damage sustained by him and
caused by such default.

Characteristics of Promissory Note:

It is a written document.

There must be a clear and unconditional promise to pay a certain sum to a specified person or on-
demand.
It must be drawn and duly signed by the maker.

It must be properly stamped.

It specifies the name of the maker and payee

The amount to be paid must be certain, given in both figures and words.

Payment is to be made in the country’s legal currency.

Endorsement:

When the maker or holder of a negotiable instrument signs the same, otherwise than as such
maker, for the purpose of negotiable, on the back or face thereof or on a slip of paper annexed
thereto, or so signs for the same purpose a stamped paper intended to be completed as a
negotiable instrument, he is said to endorse the same, and is called the "endorser".

Presentment:

A presentment is a written accusation of crime prepared and returned by a grand jury from their
own knowledge or observation, without any bill of indictment laid before them.

Bill of exchange:

Bill of exchange is an instrument in writing containing an unconditional order, signed by the

maker, directing a certain person to pay on demand or at a fixed or determinable future time] a
certain sum of money only to, or to the order of, a certain person or to the bearer of the
instrument.

 Parties

The drawer is the party that issues a bill of exchange, the creditor.
The beneficiary or payee is the party to which the bill of exchange is payable.
The drawee is the party to which the order to pay is sent, the debtor.

 Characteristics
A bill of exchange needs to be in writing.

It should essentially include an order to pay.

It is required for the order to pay to be unrestricted. If it is, in any case, subject to the occurrence
of some events, it will not be considered as a bill of exchange.

It is required to be duly signed and stamped by the drawer.

The parties to the bill (the drawer, the drawee, and the payee) should be certain and definite
individuals.

There should be a definite amount to be paid.

The payment needs to be paid in cash than in kind.

The bill can be either on demand or after a specific time period.

The bill can be payable either to the bearer as well as to the order of payee.

Cheque:

Cheque refers to a negotiable instrument that contains an unconditional order to the bank to pay a
certain sum mentioned in the instrument, from the drawer’s account, to the person to whom it is
issued, or to the order of the specified person or the bearer.

 Cross cheque

You might have observed, two transverse parallel lines at the top left corner of some cheque,
which may or may not have the words – & Co., A/c payee or Non-Negotiable. Such cheques are
regarded as crossed cheque. The amount on such cheque is credited to the account of the payee.

Negotiation:

When a promissory note, bill of exchange or cheque is transferred to any person, so as to

constitute that person the holder thereof, the instrument is said to be negotiable.
Modes of Negotiation:

Negotiation may be effected in the following two ways: 1. Negotiation delivery (Sec. 47): by
Where a promissory note or a bill of exchange or a cheque is payable to a bearer, it may be
negotiated by delivery thereof. It does not require the signature of the transferor and the
transferee becomes the holder thereof by near possession. Example: A, the holder of a negotiable
instrument payable to bearer, delivers it to B’s agent to keep it for B. The instrument has been
negotiated. 2.Negotiation by endorsement and delivery (Sec. 48): A promissory note, a cheque or
a bill of exchange payable to order can be negotiated only be endorsement and delivery. Unless
the holder signs his endorsement on the instrument and delivers it, the transferee does not
become a holder. If there are more payees than one, all must endorse it.

Notice of dishonor:

When a promissory note, bill or exchange of cheque is dishonored by non-acceptance or non-

payment, the holder thereof; or some party thereto who remains liable thereon, must give notice
that the instrument has been so dishonored to all other parties to whom the holder seeks to make
severally liable thereon, and to some one of several parties whom he seeks to make jointly

Noting/protest:

When a promissory note or bill of exchange has been dishonored by non-acceptance or non-
payment, the holder may cause such dishonor to be noted by a notary public upon the instrument,
or upon a paper attached thereto, or partly upon each.

Such note must be made within a reasonable time after dishonor, and must specify the date of
dishonor, the reason, if any, assigned for such dishonor, or, if the instrument has not been
expressly dishonored, the reason why the holder treats it as dishonored, and the notary charges.
Reasonable time:

In determining what is a reasonable time for presentment for acceptance or payment, for giving
notice of dishonor and for noting, regard shall be had to the nature of the instrument and the
usual course of dealing with respect to similar instruments; and, in calculating such time, public
holidays shall be excluded.
Interest:

When no rate of interest is specified in the instrument, interest on the amount due thereon shall,
1[notwithstanding any agreement relating to interest between any parties to the instrument], be
calculated at the rate of 2[eighteen per centum] per annum, from the date at which the same
ought to have been paid by the party charged, until tender or realization of the amount due
thereon, or until such date after the institution of a suit to recover such amount as the Court
directs.

Explanation

When the party charged is the endorser of an instrument dishonored by non-payment, he is liable
to pay interest only from the time that he receives notice of the dishonor.

Conclusion:

Negotiable instrument Act, 1881 deals with all the provisions of the instruments which are a
crucial part of the modern-day commercial transactions due to development in the banking,
trading and other commercial sectors. The act provides for liabilities and duties of both the
drawer and drawee.