Negotiable Instruments

BY Awaise
Maryam
Hamza
Zeeshan

This Photo by Unknown author is licensed under CC B

 Introduction

THE LAW RELATING TO THE WORD NEGOTIABLE MEANS

NEGOTIABLE INSTRUMENTS IS "TRANSFERABLE BY DELIVERY" AND
CONTAINED IN THE INSTRUMENT MEANS "A WRITTEN
DOCUMENT BY WHICH A RIGHT IS
NEGOTIABLE INSTRUMENTS
CREATED IN FAVOR OF SOME
ACT. 188 PERSON OR PERSONS.
Difference between negotiable and
non negotiable

•Negotiable: When something is negotiable, it means that its

terms or conditions are open to discussion, modification, or
bargaining.

•Non Negotiable: When something is non-negotiable, it means

that its terms or conditions are fixed and cannot be changed or
altered.
 -In Writing

-Fixed Amount
Characteri
stics -payable at definite time

-Transferability
Promissory
note
“It is an instrument in writing, that contains
an unconditional undertaking signed by
the maker, to pay a certain amount only
to or to the order of a certain person or
the bearer of the instrument.”

Example: you lend your friend $1,000 and

he agrees to repay you by December 1.
Parties of Promissory Note
1- The Maker or Drawer:
The person who makes the
note and promises to pay the
amount stated therein. ln the
above specimen, ABC is the
maker or drawer.

2- The Payee: the person to

whom the amount is
payable. In the above
specimen it is XYZ.
Essentials of Promissory Note
1. It must be in writing.
A signs the instrument in a way; “I promise to pay back B Rs 500.”
2. Must have a promise or undertaking to pay.
“Mr. B, I owe you Rs 500.”
“I acknowledge myself to be indebted to B in Rs 500, to be paid on
demand.”
3. The promise to pay must be unconditional
“I promise to pay back Rs 500 after my marriage with
C.”
“I promise to pay back Rs 500 to Mr B.”
4. It must be signed by the maker
5. Maker of the note must be certain person
6. The payee must also be certain
7. The sum payable must be certain
“I promise to pay B Rs 500 and all other sums which
shall be due to him.”
Bill of Exchange

"A bill of exchange is an

Example: Mr. X purchases goods
instrument in writing containing an
from Mr. Y for Rs 1000/-. Mr. Y
unconditional order, signed by the
buys goods from Mr. S for Rs.
maker, directing a certain person to
1000/-. Then Mr. Y may order Mr.
pay a certain sum of money only
X to pay Rs. 1000/- Mr. S which
to, or to the order of, a certain
will be nothing but a bill of
person or to the bearer of the
exchange.
instrument.“
Parties to a bill of exchange

The drawer is
The drawee is the party that
the party to issues a bill of
which the order exchange – the
to pay is sent - 'creditor‘
'the debtor'.

The beneficiary or
payee is the party to
which the bill of
exchange is payable
Essentials of Bill of Exchange

1- It must be in writing and must contain an order to pay.

2- A mere request to pay on account, will not amount to an order
•“Please let the bearer have 100 pounds and oblige” – This is not a
Bills of Exchange since it is a request, not an order.
•“We hereby authorize you to make a payment on our account to the
order of Mr.X, $200” – This is again not an order hence not a Bills
of Exchange.
3- The order to pay must be unconditional
4- Must be signed by the drawer
Essentials of Bill of Exchange

• 4- The drawer, drawee, and payee must be

certain. A bill can not be drawn on two or more
drawees but may be made payable in
the alternative to one of two or more payees
• 5- The sum payable must be certain
• 6- The bill must contain an order to pay money
only
• 7- It must comply with the formalities as
regards date, consideration, stamps, etc.
•A cheque is a negotiable instrument used to
make payments.
•Parties involved in a cheque transaction
•Maker/Drawer
•Drawee
•Payee
•Endorser
•Endorsee
•Holder
 Transfer of Negotiable
Instruments

By Delivery
1. Transfer through physical delivery
2. No endorsement required
3. Transferee becomes the new holder

By endorsement

4. Transfer through endorsement on the back of the instrument

5. Blank endorsement: Transforms the instrument into a bearer
instrument
6. Special/restrictive endorsement: Specifies the endorsee
Transfer by Assignment

1. Applicable to non-negotiable
instruments or instruments not intended
for further negotiation
2. Transfer of rights and interests through
a written agreement or assignment
document
3. No physical delivery or endorsement
required
4. Assignee becomes the new holder, but
instrument does not become negotiable
Holder

A holder is someone who possesses a promissory note, bill

of exchange, or a check and has the right to collect the
money form people who owe it..

To be a holder, you need both physical possession of the

document and the legal entitlement to recover the money in
your own name.

This Photo by Unknown author is licensed unde

Example

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holder in due course

• A holder in due course is someone who

receives a negotiable instrument, such as a
promissory note or a check, in good faith and
for value, while the payment on that
instrument is still owed.
•

EXAMPLE
 • Difference Between Holder And Holder In Due
Basis Holder Holder in due

Possession May or may not Always

Consideration Not necessary Consideration is necessary

Right to sue Doesn’t have a right to sue Has complete right to sue
prior parties the prior parties

Maturity of the instrument A person can become a A person can become a

holder either before or holder in due course only
after the maturity of the before the maturity of the
instrument instrument.
Discharge means release from obligation

By Payment

By express waiver

By cancellation
• DISHONOUR OF NEGOTIBLE INSTRUMENT
• A negotiable instrument is said to be dishonored
when the payment is not made on the due date of
instrument by the payer