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
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.
State, giving reasons, whether the following instruments are valid promissory notes:
- A promises to pay M, by a promissory note, a sum of ` 5,000, fifteen days after the death of B.
- A promises to pay M, by a promissory note, ` 5000 and all other sums, which shall be due.
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
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.