1. The Negotiable Instruments Act 1881

2. Negotiable Instrument According to Section 13(i) a negotiable instrument means a promissory note, bill of exchange or cheque payable either on order or to bearer. An instrument may be negotiable either by 1. Statute : Promissory Notes , bills of exchange and cheques are negotiable instruments under Negotiable Instruments Act 1881 . 2. By Usage : Bank Notes , Bank Drafts , scripts, treasury Bills etc

3. Transfer by Negotiation Negotiation is a transfer of an instrument from one person to another in such a manner as to express title & to represent the transferee the holder thereof. Passing of possession With intention to pass title Must be transferred in such a manner that the transferee becomes holder thereof.

4. Characteristics It is freely transferable Better title Right to sue A negotiable instrument can be transferred any number of times till its maturity A negotiable instrument is subject to certain presumptions Presumptions certain presumptions as to consideration, reasonable time etc., apply to all negotiable instruments.

5. Holder of Negotiable Instrument A person is called a negotiable instrument if he satisfied two conditions: 1. He must be entitled to the possession of the instrument in his own name. 2. He must be entitled to receive or recover the amount due on the instrument from the party liable under the instrument.

6. Holder in Due Course Holder in due course is a particular kind of holder, he must satisfy the following conditions: 1. He obtained the instrument for valuable consideration. 2. He became holder of instrument before maturity. 3. He became the holder of instrument in good faith i.e he had no course to believe that any defect existed in the title of the person from he derived his title.

7. Rights & Previlages of holder in due course Defects of instruments are eliminated. Liability of prior parties to holder in due course. Right in case inchaote stam instrument. Right in case of conditional delivery of instrument. In case of unlawful instruments. Estoppel against denying original validity of instruments. Estoppel against denying capacity of payee to endorse. Protection to subsequent holder

8. Meaning of Endorsement When a maker or holder writes the persons name on the face or back of the instrument & puts his signatures thereto for the purpose of negotiation, it is called endorsement. Person who signs endorser To whom it is endorsed endorsee. A legal term that refers to the signing of a document which allows for the legal transfer of a negotiable from one party to another. When an employer signs a check, they are endorsing the transfer of money from the business accounts to the account of the employee.

9. Essentials of valid endorsement 1. On the back or face of the instrument. 2. Must be made by maker or holder. 3. Must be properly signed by the endorser. 4. It must be for the entire negotiation instrument. 5. No specific form of words are necessary for endorsement.

10. Kinds of endorsement 1. Blank or general endorsement where endorsee simply puts his signature on the back of the instrument without writing name of the person in whose favor the instrument is endorsed. 2. Special or full endorsement An endorsement with the direction to pay amount mentioned in the instrument to a specified person or his order & the endorser writes his signature under it.

11. 3. Partial endorsement When an endorser is willing to transfer to an endorsee only a part of the amount of the instrument. Such an endorsement does not operate as a negotiation of the instrument. 4. Restrictive endorsement An endorsement is said to be restrictive if it prohibits or restricts the further negotiability of the instrument. The holder of such an instrument can only receive the payment but he cannot negotiate it further. An instrument can be made restrictive only by expressed words.

12. 5. Conditional endorsement If the endorser of the instrument by express words in the endorsement makes his liability dependent on the happening of a specified event. Although such event may never happen, such endorsement is termed as conditional endorsement. It limit the liability of the endorser. E.G. Pay A or order on his marrying B.

13. 6. Sans Resourse Endorsement If the endorser expressly excludes his own liability on the negotiable instruemnt to the endorsee or any subsequent holder in case of dishonour of the endorsement. The endorsement may be known as Sans Recourse endorsement. Eg- Pay to A or order Sans Recourse endorsement

14. Effects of Endorsement The property in instrument is transferred from endorser to endorsee. The endorsee gets right to negotiate the instrument further. The endorsee get the right to sue in his own name to all other parties.