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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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