NEGOTIABLE INSTRUMENT ACT,1881

WHAT IS NEGOTIABLE INSTRUMENT -A negotiable instrument is a document, a written order, with the payer named on it – it guarantees the payment of a specified amount of money, either immediately (on demand) or at a future date. A negotiable instrument promises the payment without condition. The document may be used and interpreted in slightly different ways, depending on what country it is used in and what law is being applied, as well as its context.


TYPES OF NEGOTIABLE INSTRUMENTS;

Cheques, promissory notes and bills of exchange

Promissory Note: involves two parties, the payee (receives the note/money) and the maker of the note. The maker promises to pay a specific amount of money to the payee.



Bill of Exchange: involves three parties: 1. The drawer of the bill – they draft the bill. 2. The drawee – the party who is called on to make the payment. 3. The payee – the party to whom payment is to be made.

Cheque: – this is an example of a bill of exchange, where the party writing the check is the drawer, the person to whom the check is made out to is the payee, and the drawer is the bank.

ESSENTIAL CHARACTERISTICS OF NEGOTIABLE INSTRUMENT-

For a negotiable instrument to be valid it must meet four requirements:
It must be a written document signed by the drawee or maker.
It must contain an unconditional promise or order to pay a specified amount of money, and no other promise.
It must be payable either on demand or at a specified time.
It must be payable either to the bearer or to order.

DISHONOUR  OF NEGOTIABLE INSTRUMENT

-Dishonour of negotiable instrument means loss of honour or respect for the instrument in question on the part of the maker, drawee, or acceptor, as the case may be, which eventually results in non-realization of payment due on the instrument.

 DISCHARGE OF NEGOTIABLE INSTRUMENT-

How is a party to a negotiable instrument discharged?

A party to a negotiable instrument can be discharged in any of the following ways.

By cancellation of name of party to the instrument.

by release of any party to the instruments

by payments

by allowing drawee more than 48 hours to accept

by delay in presenting a cheque for payment

by payment in due course of a cheque (payable to order)

by taking qualified acceptance

by non-presentment for acceptance of a bill of exchange

by operation of law

by material alteration

TRANSFER OF NEGOTIABLE INSTRUMENT-

A instrument may be transferred by the following modes-

1. By assignment -Assignment implies the transfer of rights, by a person to another, for the purpose of receiving the payment.

2. By operation of law

 
3. By negotiation,- which may be completed by indorsement completed by delivery or by mere delivery . According to Section 14 of Negotiable Instrument Act 1881 "When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute the person the holder thereof, the instrument is said to be negotiated. Example  A, the holder of a negotiable instrument payable to bearer, delivers it to B’s agent to keep for B. The instrument has been negotiated.

Negotiation may take place (i) by delivery (ii) by endorsement and delivery.




 Dishonour and discharge of negotiable instruments