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Not defined by NI Act. But sec 13 says A negotiable instruments means a promissory note, bill of exchange or cheque payable either to order or bearer Negotiable :- transferable by delivery Instrument :- A written document by which a right is created in favor of some person
Promissory Note
A Promissory Note is an instrument in writing, containing an unconditional undertaking signed by the maker, to pay certain sum of money only to or to the order of certain person or to the bearer of the instrument (sec 4)
Maker:The person who makes the promissory note and promises to pay is called Maker
Payee :The person to whom the payment is to be made is called the Payee
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Writing Promise to pay Definite and unconditional Signed by the maker Certain parties Certain sum of money Promise to pay money only Formalities like date, place, consideration etc are usually found although they are not essential
Bill of Exchange
A bill of exchange is an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument (sec 5) There are 3 Parties to a bill of exchange 1)Drawer 2) Drawee 3) Payee
4) Maker of the Note :- Originator of Note Bill of Exchange :- Accepted by some other person to pay 5) Maker of Note:- Primarily liable to pay Drawer of Bill:- Secondary 6) Promissory Note:- does not require acceptance Bill of Exchange :- needs acceptance
Cheque
A cheque is a bill of exchange drawn upon a specified banker and payable on demand A cheque is a species of B.E but it has the following two additional conditions 1) It is always drawn on specified banker 2) It is always payable on demand
All cheques are bills of exchange but all bill of exchange are not cheques. Crossing of Cheque 1) General Crossing Where a cheque is crossed generally , the drawee banker must not pay it unless it is by a banker
2) Special Crossing The payment can be obtained only through a particular banker, whose name appears between the lines 3) Restrictive Crossing In this type of crossing the words A/c Payee are added to the general or special crossing
IV) Holder :The Holder of promissory note, bill of exchange or cheque means:any person entitled in his own name a) to the possession of the instrument b) to receive the amount c) to recover the amount Due there on from the parties there to
where the note, bill or cheque is lost or destroyed , its holder is the person entitled at the time such loss or destruction
2) That he become the holder of the instrument before its maturity 3) That he become the holder of the instrument in good faith i.e. without sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.