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THE NEGOTIABLE INSTRUMENT ACT 1881

The term Negotiable Instrument consists of two parts viz; Negotiable and Instrument.
The Word negotiable means transferable by delivery and The word instrument mean written documents by which a right is created in favour of some person.

Negotiable Instrument Payable to Order Negotiable instrument Payable to Bearer.

Essential Characteristics Feature of a Negotiable Instrument


1. Payable to order or bearer: - It must be payable either to order or bearer 2. Freely Transferable:- A instrument payable to order is negotiable by endorsement and delivery and an instrument payable to bearer is negotiable by mere delivery 3. Presumption as to Holder:- Every holder of negotiable instrument is presumed to be holder in due course (Section 118)

4. Title of holder in due course:- A holder in due course ( i.e. the person who become the possessor of negotiable instrument before maturity, for valuable consideration and in good faith) get the instrument free from all defects in the title of transferor 5. Presumption as to considerations:- Every negotiable instrument is presumed to have been made, drawn, accepted, endorsed , negotiated or transferred for consideration.

Promissory Note

Promissory Note
A promissory note is an instrument (not being a bank note or a currency note ) in writing 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.
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The requirements of promissory note are as follows:


It must be in writing The promise to pay must be unconditional The amount promised must be a certain and a definite sum of money The instrument must be signed by the maker The person to whom the promise is made must be a definite person
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Bill of Exchange
sec(5) It is an instrument in writing containing an unconditional order, signed by the maker directing a certain person to pay certain sum of money only to or to the order by of a certain person or the bearer of the instrument.

The requirements of Bill of Exchange are as follows


It must be in writing The bill of exchange must be in writing. There must be money to the payee. This order must be unconditional The drawee must sign the instrument. The drawer, the drawee (acceptor) and the payee the necessary parties to a bill The sum must be certain
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Difference between PN and Bill of exchange


No. of parties Promise/order Nature of liability Payable to bearer Notice of dishonour

Definition of Cheque
A cheque is a bill of exchange which is
Drawn upon a specified banker And payable on demand

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Parties of cheque
Drawer: The person who draws the cheque called drawer. Banker: The bank on which the cheque is drawn called drawee Payee: The person in which favour the cheque is called payee. The payee may be third party or drawn himself.
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Essential characteristics of a Cheque


In writing Express order to pay Definite and unconditional order Signed by drawer Order to pay certain amount Order to pay money only Drawn upon a specified banker Payable on demand
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Difference between cheque and bill of exchange

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Crossing of Cheque
A cheque is said to be crossed when it bears across its face two parallel transverse lines which are usually drawn on the left hand top corner of the Cheque

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Types of crossing
General Crossing--// /&co/-left top corner Special Crossing--/canara bank/ /not negotiablycanara bank/ /account payee canara bank/ Account payee Crossing(Restrictive crossing)

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Bouncing or Dishonor of Cheque


A cheque is said to be bounced or dishonoured by non-payment when the drawee of the cheque makes default in payment upon being duly required to pay the same.(3 times) legal action

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Cases in which a banker must refuse to honour a customers cheque


Stop payment Death Insolvency Insanity Defect in title

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Loss of cheque Material alteration Different signature Notice of closure Irregular endorsement

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Cases in which banker may refuse to honour a customers cheque


Insufficient funds Funds not applicable Presentment at different branch Presentment after banking loans Stale cheque(older cheque) Post dated cheque Undated cheque
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HOLDER AND HOLDER IN DUE COURSE


Drawer ------ Payee---- Y-- Z--- A holder Holder in due course Holder: A person is called holder of negotiable instrument if he satisfies the following conditions: He must be entitled to th e possession of the instrument in his own name
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He must be entitled to receive/ recover the amount due on the instrument from partie s liable under instrument. Holder in due course: He must be a holder He must have become payee for consideration He must have obtained the instrument before its maturity He must have obtained the instrument in good faith.
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Diference holder and holder in due course

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ENDORSEMENT

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Endorsement
Sec 15 of NI ACT,1881,defines the endorsement as follows: When the maker or holder of a negotiable instrument signs the same, otherwise than such maker for the purpose of negotiation, on the bank 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 24 endorsee

PARTIES
Endorsor: The person who endorses the instrument is called endorsor Endorsee: The person who favour of the instrument is called endorsor Kinds of Endorsement: General Endorsement/blank Endorsement: Just signing Special Endorsement/full Endorsement: pay to special person
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Restrictive endorsement: No payee only

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Protection to paying banker and collecting banker


A paying banker is one who makes the payment of cheque on behalf of his customer. Essential conditions for Protection to paying banker: Cheques payable to order Cheques orginally payable to bearer
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Cheques crossed generally Cheques crossed specially Protection to collecting banker A collecting banker is one who receives the payment of crossed cheque on behalf of his customer. if collecting banker has acted in good faith if collecting banker has acted without negligence
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if collecting banker has received the payment only for cheque.

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