Page 86 - DMGT407Corporate and Business Laws

Unit 4: Law of Negotiable Instruments

Radhakrishan and Others, AIR 1991 Ker. 39, the Kerala High Court observed that the Notes
presumption as to existence of consideration for negotiable instruments is not irrebuttable.
When once the court finds that the defendant has executed the promissory note, then the
burden is on the defendant to prove that there is no consideration. True, the initial burden
rests on the plaintiff, who has to prove that the promissory note is executed by the defendant.
If there is an admission by the defendant, certainly there is no burden on the plaintiff to
prove the execution of the promissory note. Further, the court observed that where
execution is admitted or proved, a presumption is raised in favour of the consideration
having been passed and the burden to prove lack of consideration is then with the defendant.
2. As to date: Every negotiable instrument bears the date on which it is made or drawn.
3. As to acceptance: Every bill of exchange was accepted within a reasonable time after the
date mentioned therein and before the date of its maturity.
4. As to transfer: Every transfer of a negotiable instrument was made before the date of its
maturity in case of an instrument payable otherwise than on demand.

5. As to the order of endorsements: The endorsements appearing on it were made in the
order in which they appear thereon.
6. As to lost instruments: Where an instrument has been lost or destroyed, that it was duly
stamped and the stamp was duly cancelled.
7. As to holder-in-due course: The holder of the instrument is a holder in due course.
8. As to dishonour: If a suit is filed upon an instrument which has been dishonoured, the
court shall, on proof of the protest, presume the fact of dishonour unless it is disproved.

Capacity of Parties to the Negotiable Instrument

The capacity of a party to draw, accept, make or endorse a negotiable instrument is coextensive
with his capacity to enter into contract. Thus, s.11 of the Indian Contract Act, 1872, if negatively
interpreted prohibits minors, persons of unsound mind and persons forbidden under any other
Act like insolvency to make a valid contract. Thus, a person who is competent to contract “may
bind himself and be bound by the making, drawing, acceptance, endorsement, delivery and
negotiation of a promissory note, bill of exchange or cheque” (s.26).

Self Assessment

Fill in the blanks:

1. A …………………………is one who receives the instrument for value and without any
notice as to the defect in the title of the transferor.
2. ……………………..instrument is one which may be construed either as a promissory note
or as a bill of exchange.

4.2 Promissory Notes and Bills of Exchange

4.2.1 Definition of a Promissory Note

A promissory note is an instrument in writing (not being a bank or a currency note) containing
an unconditional undertaking, signed by the maker to pay a certain sum of money to, or to the
order of, a certain person or to the bearer of the instrument (s.4). The following are two
illustrations of promissory notes.

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