NEGOTIABLE

INSTRUMENTS ACT,
1881
• Negotiable Instrument is a piece of paper which entitles a
person to receive a sum of money from another person
and which is transferable from person to person by mere;
delivery or by endorsement and delivery.

• A Negotiable Instrument is a 'method of transferring a

debt from one person to another.

• Sec. 13 of the Negotiable Instruments Act defines

negotiable instrument as a promissory note, a bill of
exchange or a cheque payable either to order or to ,
bearer; Any other instrument which satisfies the conditions
of negotiability is also a negotiable instrument.
• CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS;
• 1. A negotiable instrument is a deed relating to payment of
money.
• 2. It can be transferred freely from one person to ‘'another just
like 'cash. The transfer may be by delivery or by endorsement
and delivery.
• 3. The transferee can sue the person from whom the amount is
to be got in his own name. E.g.: ‘A’ gives a negotiable
instrument to ‘B’ to get Rs. 1,000/from ‘C’. ‘B’ can sue ‘C’, if fails
to pay the amount.
• 4. It is a conventional method of payment of money and is
followed in all commercial transactions.
• 5. In case of a defective negotiable instrument, only an innocent
purchaser for value gets a good title from the defective title
holder. Thus it is an exception to the maxim ‘Nemo dat quad
non habet’. (No one , can pass a better title than what he
himself has)
• 6.The holder in due course can sue upon a negotiable
instrument in his own name for recovery of the amount.
• 7.The holder of the instrument can get payment even
before the time fixed for the payment. Thus the instrument
is treated as cash.
• 8. The negotiable instrument has got special rules of '
evidence and hence it can be easily proved.
 SPECIAL RULES OF EVIDENCE OR PRESUMPTIONS
OF NEGOTIABLE INSTRUMENTS: (Sec. 118)
There are certain rules of evidence or presumptions
applicable to all negotiable instruments.
They are:
1. Every instrument is supported by money consideration.
The date in the instrument is the date of execution.
2. The acceptance is made within a reasonable time. For
example, in the case of a cheque, it is six months.
3. Every transfer or endorsement has been made before
the date of maturity.
4. The lost or destroyed instrument is presumed to be duly
signed and stamped.
5. The holder of the instrument presumed. to be; (a lost
instrument) the holder in due course.
• 6. If the instrument is protested for dishonor, then it is
deemed to be dishonored.
• 7.When a promissory note or bill of exchange has been
dishonored, the holder may, within a reasonable time, cause
such dishonor to be noted and certified by a notary public.
Such certificate is called ‘protest’.
• 8. Endorsement are presumed to be made in the order in
which it is found in the instrument.
• All the above presumptions are rebutable by contra
evidence adduced by the other party.
• However, the burden of proof lies on the person who
challenges any of the presumptions.
• The presumptions would not be considered in case of
instruments obtained by committing offence, fraud or
unlawful consideration. .
• TYPES OF NEGOTIABLE INSTRUMENTS:
• Negotiable Instruments may be either:
• 1. Negotiable by Statute:
The Statute mentions only three kinds of Negotiable
Instruments They are
(a) Promissory note (b) Bill of exchange and (c) Cheques
2. Negotiable by custom or usage:
Following the methods used in England, the Transfer of
Property Act recognizes instruments by law or custom.
E.g- Government promissory notes, banker’s drafts: pay
orders, hundis, delivery orders and railway receipts for
goods, etc.
• DOCTRINE OF NEGOTIABILITY: (Sec. 14)
• Negotiability means the transfer of a negotiable instrument to any
person to constitute him as holder of the instrument. It has the
following rules: .
• The ownership of negotiable instrument can be transferable by
mere delivery, accompanied or in the case of an instrument
payable to order, by endorsement.
• No instrument of transfer no notice of transfer is required to be
given to the party/parties liable on the instrument.
• It must be given in good faith and for value without notice of any
defect in the title of the transferor. an indefeasible title against all
comers.
• The title passes freely not withstanding claims and counter claims
between previous parties of which the transferee has no notice.
• The possessor of the instrument is deemed to be the true owner
and he is capable of enforcing any claims. He is under no duty to
prove his title. '
• MEANING OF DELIVERY:
• Delivery is defined as a transfer of possession from one
person to another person and it is essential for the
negotiation of a negotiable instrument.
• According to Sec. 46 of the Negotiable instruments Act,
delivery can be of two types:
• 1.Actual delivery
• 2. Constructive delivery
• 1. Actual delivery: Actual delivery takes place by actual
change of possession of the instrument from one person
to another.
• The instrument must be handed over physically to whom
it is actually intended to be delivered or to his authorized
agent.
• 2. Constructive delivery:
• Constructive delivery means that the instrument is not
delivered or handed over in person to whom it is
constructive delivery means that the person to whom it
is so intended to be delivered .
• Due to commission of some act by the transferor or
transferee, as per law, the delivery of the instrument is
deemed completed and possession of the instrument is
deemed to have been transferred.
• Thus by such delivery, the possession in the eyes of law
is transferred from the transferor to the transferee.
• MODE OF TRANSFER:
• According to Sec. 13, a Negotiable Instruments‘ may be
payable to:
• I. bearer,. or ii. specified person or .order While a bearer
cheque passes by simple delivery order cheque passes
by endorsement and delivery.
• Transfer by negotiation is the only mode of transfer
recognized by the Act. An instrument is considered to be
negotiated from one person to another when the
transferee is constituted the holder. The holder of the
instrument is entitled in his own name to the possession
of the instrument and has the right to recover the amount
specified in the negotiable instrument from the parties
who have to paid;
• UNIVERSITY QUESTIONS FOR REVIEW:
• 1. Define a Negotiable Instrument. Distinguish a
promissory note from a bill of exchange?
• 2. What is a Negotiable Instrument? Explain its
essentials?
• 3. What are the ‘special rule of evidence’ of Negotiable
Instruments?
• 4. Define Negotiable Instrument. Explain the presumption
of law relating to it.
• 5. What is meant by Negotiable Instruments? Explain the
presumptions in favour of Negotiable Instruments?