LAW OF NEGOTIABLE INSTRUMENT

BY S/LT GHAZALI PN PNO : 7904 CLASS: 2008( B ) TO MR. SHAHJAHAN

SCHEME OF PRESENTATION
Introduction Definition of Negotiable Instrument Characteristics of Negotiable Instrument Examples of Negotiable Instrument Promissory note and its essentials Bill of exchange and its essentials Distinction between pro-note and bill

INTRODUCTION
The law related to negotiable instrument is contained in the Negotiable Instrument Act, 1881 It deals with promissory notes, bills of exchange and cheques It came into force on 1st march1882

DEFINITION
The word negotiable means transferable by delivery And the word instrument means a written document Thus the term negotiable instrument means a written document transferable by delivery According to section 13 NI act, a negotiable instrument means a promissory note , bill of exchange or cheque payable either to order or bearer

CHARACTERISTICS OF NEGOTIABLE INSTRUMENT

The essential characteristics of negotiable instruments are as follows Easy transferability Rights of the holder Better title of transferee presumptions

EXAMPLES OF NEGOTIABLE INSTRUMENT

The following are the examples of negotiable instruments Bills of exchange Promissory notes Cheques Dividend warrants Share warrants Bearer debentures Govt. circular notes Banks drafts

PROMISSORY NOTE
According to section 4, promissory note is an instrument in writing (not being a bank 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 , certain person or to the bearer of the instrument

PARTIES
There are two parties to promissory note Maker : the person who makes the promissory note and promises to pay is called the maker.(i.e. debtor) Payee : the person to whom payment is to be made is called payee (i.e. creditor)

SPECIMEN OF PRO-NOTE

ESSENTIALS OF PROMISSORY NOTE

It must be in writing It must contain a promise to pay The promise to pay must be unconditional It must be signed by the maker The maker must be a certain person The payee must be certain The sum payable must be certain The sum payable must be in Pakistani currency Other formalities

BILL OF EXCHANGE
Section 5 of the act defines bill of exchange as follows A bill of exchange is an instrument in writing contains 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
There two parties to a bill of exchange Drawer : the person who makes the bill is called the drawer

Drawee : the person who is directed to pay is called the drawee

Payee : the person to whom the payment is to be made is called the payee

SPECIMEN OF BILL OF EXCHANGE

ESSENTIALS OF BILL OF EXCHANGE

It must be in writing It must contain an unconditional order to pay It must be signed by the drawer The drawee must be a certain person The payee must be a certain person The sum payable must be certain The sum payable must be in Pakistani currency It must also comply other formalities

DISTINCTION
PROMISSORY NOTE There are two parties (maker & payee) Maker can not be the payee i.e. the same person can not be the both There is promise to make the payment The liability of a pro-note is primary BILL OF EXCHANGE In bill there are three parties (drawer, drawee & the payee Drawer and payee can be the same i.e. when bill is drawn pay to me or my order There is an order for making the payment The liability is secondary and conditional i.e. the drawer is liable only when the acceptor does not honor the bill The drawer of accepted bills stand in an immediate relation with the acceptor and not the payee A bill can be so drawn provided it is not drawn payable to bearer on demand

The maker of promissory note stands in immediate relation with the payee A pro-note can not be drawn payable to bearer