The Negotiable Instruments

IT is a written order to pay a fixed sum of money on demand or at a certain time.

 A negotiable instrument can be easily transferred from one person to another. Once the instrument is transferred, the holder gets a full legal title to the instrument.

Features of Negotiable Instruments:

  • A written instrument with signature: A negotiable instrument is a written document and is recognized as complete and valid only when it is duly signed.
  • Negotiable Instrument made or drawn for consideration: It is assumed by the law that every negotiable instrument is made or drawn for consideration.
  • Transfer/negotiation by endorsement/ delivery

Promissory Note:

Basic Elements of a Promissory Note:

  • Must be in writing.
  • Agree to pay: The instrument must contain an express promise to pay.
  • Definite and unconditional: The promisee to pay must be definite and unconditional. If it is uncertain or conditional, the instrument is void.
  • Signature by the maker: The instrument must be signed by the maker, otherwise, it is incomplete and of no effect.
  • Various parties: The instrument must point out who the maker is and who the payee is.
  • Promise to pay money only: The payment must be in the legal tender currency of India.

For Example:

State, giving reasons, whether the following instruments are valid promissory notes:

  1. A promises to pay M, by a promissory note, a sum of ` 5,000, fifteen days after the death of B.
  2. A promises to pay M, by a promissory note, ` 5000 and all other sums, which shall be due.

Solution:-

In the first case, the payment is to be made 15 days after the death of B. Therefore the instrument is valid.

In the second case- the sum paid is not certain. 

Hence the Promissory Note is not valid.

Bill of Exchange:

The Valid acceptance of a Bill of Exchange:

  • Acceptance must be written.
  • Acceptance must be signed: A minor signature would be adequate for the purpose. 
  • Acceptance must be completed by delivery
  • Acceptance may be either general or qualified 

Cheque:

A “cheque” is a BOE (bill of exchange) drawn by the specified banker and not meant to be payable unless on-demand.

A Cheque shall be signed by the drawer and must include an unconditional order on a specified banker to pay a certain sum of money to or to the bearer of the instrument.

Maturity of a Negotiable Instrument:

The date on which the instrument falls due for payment. A negotiable instrument is allowed to 3 days of grace.

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