View Full Version : Q. What is negotiable instrument explain its special characteristics. (1995)(1998)

08-28-2012, 07:18 PM
1. Introduction:
The law relating to negotiable instrument is embodied in the negotiable instruments act 1881. it deals with the promissory notice, bills of exchange and cheques. the negotiable instruments act came into force of the first day of March 1884. it extends to the whole of Pakistan but it does not affect the provision of Sec 24 and 35 of the state. bank of Pakistan act 1956 and accordingly every negotiable instrument shall be governed by the provisions of this act.
2. Meaning:
The word negotiable means transferable by delivery and instrument means a written document, so it means a document which can be transferred from one person to another making the receiver of that document entitled to receive that same amount of value which is contained.
3. Definition:
According to Sec 13 (1) of the negotiable instrument act "A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or bearer.
4. Types of negotiable instrument:
According to Sec (13) of negotiable instrument act 1881, a negotiable instrument includes.
(a) A bill of exchange.
(b) A promissory note or.
(c) A cheque.
Above three types of negotiable instrument are mentioned in the said section. however of instrument satrelies to be treated as negotiable instrument.
(i) If it is in such a form which entitles the holder to sue in his own name.
(ii) If it is transferable.
5. Examples:
(i) Bill of exchange.
(ii) Promissory notice.
(iii) Cheques.
(iv) Divident warrants.
(v) Share warrants.
(vi) Bearer debentures.
(vii) Bank drafts.
(viii) Railway receipts.
6. Documents which are not considered negotiable instruments:
Following documents are not considered negotiable instruments:
(i) Money orders.
(ii) Postal orders.
(iii) Deposit receipts.
(iv) Share certificate.
(v) Bill of lading.
(vi) Fixed deposit.
(vii) Dock warrant.
7. Conditions:
(i) The instrument should be freely transferable.
(ii) The person who obtains it in good faith and for gets it free from all defects and is entitled to sue upon.
8. Characteristics of a negotiable instrument:
I. Written:
Negotiable instrument is in writing.
II. Transferable:
Negotiable instrument is transferable from one person to another. the right of ownership is transferred from one person to another person.
III. Rights of the holder:
Negotiable instrument gives the rights to the creditor to recover something from debtor. the creditor can recover himself or he can transfer his right to another person.
IV. Unconditional promise:
Negotiable instrument contains an unconditional promise or order to pay.
V. Certain amount:
In the negotiable instrument, the promise or order is made for payment of certain amount. the sum payable may be certain notwithstanding that it includes further interest or it is payable at a indicated rate of exchange.
VI. Payable in money:
Negotiable instrument is always payable in money.
VII. Discharge of debt:
It can be conveniently in the discharge of debts.
VIII. Transferee can sue in his name:
The transferee of the negotiable instrument can sue the debtor in his own name incase of dishoner.
IX. Title:
A holder in due course of negotiable instrument is free from all defects. the term holder in due course means the bonafied transferee for values of a negotiable instrument who takes it in good faith and before majority. the title of holder in due course is not in any way affected by defective title of the transferor or any party.
X. Presumptions:
Certain legal presumptions are applicable to all the negotiable instrument. the presumptions are regarding consideration, time, date, stamp and holder in due course.
9: Parties to negotiable instrument:
Following are the parties to the negotiable instrument.
(i) Drawer
(ii) Endorser
10. Conclusion:
To conclude I can say that, the negotiable instrument means a document in writing which creates a right in favour of some person and it is freely transferable by one person to another. the negotiable instrument act expressly recognizes only three instrument viz., a promissory note, will of exchange and a cheque but it does not exclude any other instrument to be included there in provided that such instrument satisfies the characteristics of negotiability.