Negotiable Instruments - Meaning, Features and Presumptions

Negotiable Instruments Act' 1881 Notes
Business Laws Notes B.Com 1st & 2nd Sem CBCS Pattern 

Negotiable Instruments Meaning

Negotiable Instruments are money/cash equivalents. These can be converted into liquid cash subject to certain conditions. They play an important role in the economy in settlement of debts and claims. The transactions involving the Negotiable Instruments in our country are regulated by law and the framework of the Statute which governs the transaction of these instruments is known as The Negotiable Instruments Act. This act was framed in our country in the year 1881 when the British ruled our country. Prior to 1881 the transactions governing Negotiable Instruments were regulated under the cover of Indian Contract Act 1872.

The term ‘negotiable’ means transferable and the word ‘document’ means ‘in writing’. Therefore, negotiable means a written promise or order to pay money which may be transferred from one person to another.

Section 13 of the Negotiable Instruments Act, 1881 states, “A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.” A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees.

Features or Essentials or Characteristics of Negotiable Instruments:

a)       Witting and Signature according to the rules: A Negotiable Instrument must be in writing and signed by the parties according to the rules relating to (a) promissory notes, (b) Bills of Exchange and (c) Cheques.

b)      Payable by Money: Negotiable Instruments are payable by the legal tender money of India. The Liabilities of the parties are governed in terms of such money only.

c)       Unconditional Promise: If the instrument is a promissory note, it must contain an unconditional promise to pay. If the instrument is a bill or cheque, it must be an unconditional order to pay money.

d)      Freely transferable: A negotiable instrument is transferable from one person to another by delivery or by endorsement and delivery.

e)      Acquisition of Property: Any person, who possesses a negotiable instruments, becomes its owner and entitled to the sum of money, mentioned on the face of the instrument. When it is payable to bearer, the property in its passes from one holder to another by mere delivery. If it is payable to order, the property passes by endorsement, i.e. by the signature of its holder on its back and its delivery.

f)        Acquisition of Good Title: The holder in due course, i.e. the transferee of a negotiable instrument in good faith and for value, acquires a good title to the instrument even if the title of the transferor is defective. Further his title will not be affected, by any defect in the title of the transferor.

g)       No Need of Giving Notice: There is no need of giving a notice of transfer of a negotiable instrument to the party liable to pay the money.

h)      Right of the Holder in Due Course: The holder in the due course remains unaffected by certain defenses, which might be available against previous holders, as for example, fraud, to which he is not a party.

i)        Certain Presumptions: Unless contrary proved certain presumptions are in the made case of all negotiable instruments. Consideration, date, signature of holder in due course, for example, is presumed in the case of all instruments. The presumptions from Special rules of Evidence under section 118 to 119.

Presumptions of Negotiable instruments note

Unless contrary proved certain presumptions are in the made case of all negotiable instruments. Consideration, date, signature of holder in due course, for example, is presumed in the case of all instruments. The presumptions from Special rules of Evidence under section 118 to 119. Sec. 118 and 119 deal with the following presumptions:

1. Consideration: It is presumed that every negotiable instrument was made or drawn, accepted, endorsed, negotiated or transferred for consideration. As such the holder need not prove consideration. However, this presumption would not arise if it is proved that the instrument was obtained from its owner by any offence, fraud, or for unlawful consideration.

2. Date: Every negotiable instrument is presumed to have been made on the date which it bears.

3. Time of acceptance: It is presumed that every accepted bill was accepted within a reasonable time and before its maturity.

4. Time of transfer: It is presumed that every transfer was made before maturity.

5. Order of endorsements: The endorsements are presumed to have been made in the same order in which they appear.

6. Stamp: In case an instrument is lost, it is presumed that it was duly stamped and the stamp was duly cancelled.

7. Every holder is a holder in due course: Every holder is presumed to be a holder in due course.

8. Dishonour of instrument: In case a suit is filed for dishonour of an instruments the Court, on the proof of protest presumes that the instrument was dishonoured.

It should be noted that where the promisor denies the execution of the promissory note taking the plea that he signed on a blank paper, then the burden is on the plaintiff to prove execution.

It should be noted further that presumption, as consideration, is not conclusive. If execution of promissory note is proved, then burden to prove lack of consideration is on the defendant.