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Unit 4: Law of Negotiable Instruments




               Instruments payable to a specified person or to the order of a specified person can be  Notes
               negotiated only by endorsement and delivery.

               Crossing is a unique feature associated with cheques affecting to a certain extent the
               obligation of the paying banker and also its negotiable character.
               A cheque may have what is known as ‘not negotiable’ crossing.

               A person who takes such a cheque shall not have and shall not be capable of giving a better
               title to the cheque than that which the person, from whom he took it in the first instance, had.

          4.12 Keywords

          Ambiguous Instrument: It is an instrument which may be construed either as a promissory note
          or as a bill of exchange.
          Bill of Exchange: It is a written order by the drawer to the drawee to pay money to the payee.
          Cheque: It is a is a negotiable instrument instructing a financial institution to pay a specific
          amount of a specific currency from a specified demand account held in the maker/depositor’s
          name with that institution.
          Crossing: Crossing on cheque is a direction to the paying banker by the drawer that payment
          should not be across the counter.
          Endorsement: It is the mode of negotiating a negotiable instrument.
          Holder: A holder is a person who is entitled in his own name to the possession of a negotiable
          instrument and to receive or recover the amount due thereon from the parties thereto.
          Instrument: It means any written document by which a right is created in favour of some person.
          Negotiable Instrument: It is a specialized type of contract for the payment of money that is
          unconditional and capable of transfer by negotiation.
          Negotiation: The transfer of an instrument by one party to another so as to constitute the
          transferee a holder thereof is called ‘negotiation’.

          4.13 Review Questions

          1.   Are the following instruments duly signed by A promissory notes?
               (a)  “I am liable to X to a sum of ` 1000 which is to the paid in installments for rent”
               (b)  “I acknowledge myself to be indebted to X by ` 500 to be paid on demand for value
                    received”.
               (c)  “I promise to pay ` 5000 and give a Maruti Car to P.”
          2.   “The capacity of a party to draw, accept, make or endorse a negotiable instrument is co-
               extensive with his capacity to enter into a contract”. Comment.
          3.   “I promise to pay P or bearer a sum of ` 5000 less charge involved in documentation of
               accounts”- signed M. Consider the validity of the following document as a promissory
               note. Justify.

          4.   ‘A cheque is a bill of exchange drawn on a banker’. Comment.
          5.   P gives a cheque to L on 2 April & L goes to the bank on 25 June. By that time, the bank has
               gone into liquidation. L demands payment of the cheques from P. Would he succeed?
               Justify.



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