1. Negotiable Instruments Act 1881
SUBMITTED TO:- Miss Falak khanna
SUBMITTED BY :- Veerta Verma (2337) Sunanda (2289) B.Com ‘B’ 2nd sem.

2. Promissory Note
It is an unconditional written promise by one person to another in which the maker (Payer) promises to pay on demand on any future date, a stated sum of money to the specified person or to the bearer of the instrument.

3. 1. Written :-The promise to pay must be in writing
1. Written :-The promise to pay must be in writing. Oral promise will not be considered.2. Maker's Signature :-Promissory note must be signed by the maker or payer.3. Unconditional :-The promise to pay must be unconditional. If it contains a conditional promise, it is not a valid.

4. 4. Definite Sum of Money :-The amount to be paid must be definite in terms of money, for example I promise to pay one thousand two hundred and fifty paisa 1200/50 only.
5. Time Decision :-The promissory note must be payable on demand or at a fixed determinable future date.

5. 6. Payee To be Certain :-The promissory note must be payable to the bearer or to specified person.Example :- A promissory note payable to the principal of the college is regarded as payable to certain person.
7. Parties Involved :-There are two parties involved in the promissory note, the maker and the payee. The promissory note may differ in maturity.

6. Some promissory note mature after a long period, some after a year or month and some are payable on demand. A promissory note can be divided into two categories :
1. Secured.
2. Unsecured.

7. 8. Important Point :-
1. The promise to pay must be lawful.
2. The pro-note must be properly stamped
.3. The stamps must be cancelled.
4. The date must be mentioned.
5. The place must be stated where it is made.

8. Bill of Exchange
A three-party negotiable instrument in which the first party, the drawer, presents an order for the payment of a sum certain on a second party, the drawee, for payment to a third party, the payee, on demand or at a fixed future date.A bill of exchange is distinguishable from a promissory note, since it does not contain a promise and the drawer does not expressly pledge to pay it. It is similar to a note, however, since it is payable either on demand or at a specific time.

9. Parties to a Bill of ExchangeThere are three parties to a bill of exchange:Drawer is the maker of the bill of exchange. A seller/creditor who is entitled to receive money from the debtor can draw a bill of exchange upon the buyer/debtor. The drawer after writing the bill of exchange has to sign it as maker of the bill of exchange.

10. Drawee is the person upon whom the bill of exchange is drawn
Drawee is the person upon whom the bill of exchange is drawn. Drawee is the purchaser or debtor of the goods upon whom the bill of exchange is drawn.Payee is the person to whom the payment is to be made. The drawer of the bill himself will be the payee if he keeps the bill with him till the date of its payment.

11. The payee may change in the following situations:In case the drawer has got the bill discounted, the person who has discounted the bill will become the payee;In case the bill is endorsed in favour of a creditor of the drawer, the creditor will become the payee.Normally, the drawer and the payee is the same person. Similarly, the drawee and the acceptor is the person.

12. For example, Mamta sold goods worth Rs
For example, Mamta sold goods worth Rs.10,000 to Jyoti and drew a bill of exchange upon her for the same amount payable after three months. Here, Mamta is the drawer of the bill and Jyoti is the drawee. If the bill is retained by Mamta for three months and the amount of Rs. 10,000 is received by her on the due date then Mamta will be the payee.

13. If Mamta gives away this bill to her creditor Ruchi, then Ruchi will be the payee. If Mamta gets this bill discounted from the bank then the bankers will become the payee.
In the above mentioned bill of exchange, Mamta is the drawer and Jyoti is the drawee. Since Jyoti has accepted the bill, she is the acceptor. Suppose in place of Jyoti the bill is accepted by Ashok then Ashok will become the acceptor.

14. Cheque
A cheque is a bill of exchange in which one party (Drawee) is a Bank. So a Drawer (account Holder) draws the Cheque on the (Drawee bank) in the name of a Payee.The Drawer has to write the amount in both in figures and words.If different values are written in Figures and words, the value of words can be paid as per section 18 NI act.

15. This means that if a person writes a check with the following :Figures : Rs. 5000Words: Rupees Five Lakh OnlyThis means that amount of Five lakhs is to be paid.
If the amount is written in words only and NOT in figure than NO payment will be made because it would be Inchoate. This means that a person writes a check with the following:Figures: _________ (Left Blank)Words: Rupees Five Lakh OnlyNo payment would be made (Section 20 NI Act)

16. NEGOTIABLE INSTRUMENT
TA document that contains a guarantee or promise to pay a specific amount of money to a person or entity in possession of the instrument, whether on a specified date or on demand, is known as a “negotiable instrument.” A negotiable instrument features the name of the person who is to make payment. Examples include checks, banknotes, and promissory notes.Transferable from one person to another in return for something of equal value.Able to be transferred from one person to another by delivery, with or without signature or endorsement, so that ownership or title passes to the transferee.

17. The instrument itself is a document that contains the specifics of what is promised to be paid. In other words, whoever possesses the instrument will be paid the specified amount of money on the agreed upon date, whether that is immediately, or some time in the future. A negotiable instrument may be transferred to a third party, holding the same value to the new holder. An everyday example of a negotiable instrument is a bank check, which is given to a payee (person to be paid), who then takes it to his bank to be cashed or deposited into his account.

18. Uniform Commercial Code GovernanceArticles 3 and 4 of the U. S
Uniform Commercial Code GovernanceArticles 3 and 4 of the U.S. Uniform Commercial Code govern how negotiable instruments may be issued and transferred. Article 3 also specifies what conditions must be met in order for a written document to be considered a negotiable instrument. A negotiable instrument must contain the following:An unconditional promise or order to payA specified amount of money, though interest can be included

19. A specified date for payment, whether “on demand,” or a certain datePayment must be payable to the person or entity in possession of the instrumentThere can be no requirement for the person promising to pay to perform any act other than paying the moneyNegotiable Instrument vs. ContractWhile a negotiable instrument seems similar to a contract, it is different in that it simply conveys the value part of the agreement.

20. The contract itself is outlines the obligations of the parties, and may give one party the right to hold the instrument. A negotiable instrument contains no promise to perform any duties under a contract, and makes no consequence if the payer defaults, as would a contract. A negotiable instrument merely gives the holder (1) the authority to demand payment, and (2) the right to be paid.

21. While many instruments must contain an endorsement, usually in the form of a signature, by both parties involved in the transaction, this is not a requirement for the document to be considered a negotiable instrument. If such an instrument is lost or stolen, it may be deemed void. The most commonly used types of negotiable instruments include promissory notes, and bills of exchange.

22. Promissory Note
A promissory note is an unconditional promise to pay put into writing by a person or entity and signed by the borrower or person making the promise. Promissory notes are often created between a borrower and a lender in which the borrower promises to pay the lender a specific amount of money by the specified date. A promissory note, similar to a contract, contains all of the details pertaining to the transaction such as the amount borrowed, late fees, interest rates, and so forth, and should contain the term “promissory note” within the body. In terms of enforceability, a promissory notes lies somewhere between an informal IOU and a formal loan contract.

23. Bills of Exchange
Another commonly used type of negotiable instrument is the bill of exchange. A bill of exchange is a financial document that states an individual or business will pay a certain amount on a specific date. The date may range from the date it is signed, to within six months into the future.

24. . Endorsement
The person whose name is listed on the front of a check or other negotiable instrument, the “payee,” must endorse the document in order to transfer the instrument, in exchange for the actual face value. This endorsement is done by placing his signature on the back of the check. For example, if John receives a check for payment, he places his signature on the back, transferring it to the bank in exchange for cash.

25. In some circumstances, more than one person may be listed as payee on the check. How such a check may be endorsed depends on how the names are written. If the check is made payable to “John AND Sally Smith,” both John and Sally must endorse the check. If the check is made payable to “John OR Sally Smith,” only one signature is required. In the event the check is made out to two individuals without specifying “and” or “or,” it is likely the bank will require both signatures.

26. The person who signs endorses a negotiable instrument, does so for the purpose of obtaining payment by giving up their rights to the instrument itself. According to Article 3 of the UCC, there are five types of endorsement:
Blank Endorsement – The most common, and least restrictive, type of endorsement, a blank endorsement features the signature of the payee exactly how it appears on the front of the check.Special Endorsement –

27. A special endorsement allows the payee to assign the instrument to another person by writing on the back, “Pay to the order of,” specifying to whom it is to be transferred, then signing the document. This is also known as a “third party check.” Third party checks are rarely honored unless the original payee is present. Conditional Endorsement – A conditional endorsement specifies certain conditions that must be met before the check can be negotiated. For example, Mary has written a check to contractor Bob for the installation of a new dishwasher.

28. Bob hires Frank to do the job, endorsing the back of Mary’s check as “Payable to Frank Williams upon completion of dishwasher installation,” then signs his name. Frank can only cash or deposit the check after he has finished the job for which he was hired.Restrictive Endorsement – Restrictive endorsement limits negotiability of the check. A common restrictive endorsement is the phrase “for deposit only,” which specifies that the check may only be deposited into the specified account. This prevents another person from endorsing and further negotiating the check in the case of theft.

29. Qualified Endorsement – Qualified endorsement limits the responsibility of the holder of the instrument. For example, the payee may write “without recourse” before signing the check, signifying he has no responsibility if the check bounces for any reason. Check cashers will not normally accept items with a qualified endorsement.Related Legal Terms and IssuesAuthority – The right or power to make decisions, give orders, or to control something or someone.Contract – An agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit.

30. Debtor – A person who is in debt, or under a financial obligation to another.Default – Failure to fulfill an obligation, or to appear in a court of law when summoned.Obligation – A promise or contract that is legally binding; the act of binding or obliging oneself, as in a contract.Performance – The act of doing what is required by a contract.Promissory – Containing, implying, or having the nature of a promise.