List four requirements of a negotiable instrument?

Answer 1

Negociable Insturment" is defined in Uniform Commercial Code § 3-104 as follows:

(a) Except as provided in subsections (c) and (d), "negotiable instrument" means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) is payable on demand or at a definite time; and

(3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.

(b) "Instrument" means a negotiable instrument.

(c) An order that meets all of the requirements of subsection (a), except paragraph (1), and otherwise falls within the definition of "check" in subsection (f) is a negotiable instrument and a check.

(d) A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this Article.

(e) An instrument is a "note" if it is a promise and is a "draft" if it is an order. If an instrument falls within the definition of both "note" and "draft," a person entitled to enforce the instrument may treat it as either.

(f) "Check" means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank or (ii) a cashier's check or teller's check. An instrument may be a check even though it is described on its face by another term, such as "money order."

(g) "Cashier's check" means a draft with respect to which the drawer and drawee are the same bank or branches of the same bank.

(h) "Teller's check" means a draft drawn by a bank (i) on another bank, or (ii) payable at or through a bank.

(i) "Traveler's check" means an instrument that (i) is payable on demand, (ii) is drawn on or payable at or through a bank, (iii) is designated by the term "traveler's check" or by a substantially similar term, and (iv) requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument.

(j) "Certificate of deposit" means an instrument containing an acknowledgment by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money. A certificate of deposit is a note of the bank

Answer 2

Punishment

Punishment for accused if proved guilty under section 138 N.I. Act:

1. Imprisonment of up to 2 years

2. Penalty of up to twice the amount of the bounced cheque.

Beside the punishments, the court can grant compensation to the complainant under section 357 of the Code of Criminal Procedure, 1973 and no limit has been provided for the amount of compensation.

By the 2002 amendment the term of imprisonment has been increased to two years.

Compoundable Offence

By an amendment introduced in 2002, under Section 147, an offence related to the dishonour of a cheque and every other offence punishable under the Negotiable Instruments Act, 1881 can be privately settled.

Offence under 138 by Company

If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. A person shall not be liable if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence26. Where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution27. Where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.28 Notice served on company but not MD and director who are parties in complaint , is valid notice U/S 13829

Answer 3

A negotiable instrument has the following characteristics.

1.Property

The possessor of the negotiable instrument is presumed to be the owner of the property contained therein. A negotiable instrument does not merely give possession of the instrument but right to property also. The property in a negotiable instrument can be transferred without any formality. In the case of a bearer instrument, the property passed by mere delivery to the transferee. In the case of an order instrument, endorsement and delivery are required for the transfer of property.

2. Title

The transferee of a negotiable instrument is known as holder in due course.' A bonafide transferee for value is not affected by any defect of title on the part of the transferor or of any of the previous holders of the instrument. This is the main distinction between a negotiable instrument and other subjects of ordinary transfer. The general rule of nemo dat quod non habet does not apply to negotiable instruments.

3. Rights

The transferee of the negotiable instrument can sue in his own name, in case of dishonor.

A negotiable instrument can be transferred any number of times till it is at maturity. The holder of the instrument need not give notice of transfer to the party liable on the instrument to pay.

4. Presumptions

Certain presumptions apply to all negotiable instruments e.g. a presumption that consideration has been paid under it.

5. Prompt Payment

A negotiable instrument enables the holder to expect prompt payment because a dishonor means the ruin of the credit of all persons who are parties to the instrument.

Answer 4

Negotiable Instruments:

A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. According to the Negotiable Instruments Act, 1881 in India there are just three types of negotiable instruments i.e., promissory note, bill of exchange and cheque.

More specifically, it is a document contemplated by a contract, which (1) warrants the payment of money, the promise of or order for conveyance of which is unconditional; (2) specifies or describes the payee, who is designated on and memorialized by the instrument; and (3) is capable of change through transfer by valid negotiation of the instrument.

As payment of money is promised subsequently, the instrument itself can be used by the holder in due course as a store of value; although, instruments can be transferred for amounts in contractual exchange that are less than the instrument's face value (known as "discounting"). Under United States law, Article 3 of the Uniform Commercial Code as enacted in the applicable State law governs the use of negotiable instruments, except banknotes ("Federal Reserve Notes", aka "paper dollars").

Negotiable instrument is an instrument that may be negotiated ; specifically, in law, an instrument transferable by assignment, indorsement or delivery. There are but three forms of negotiable instruments in common use, viz : Check, bill of exchange (draft) and promissory note. An instrument to be negotiable must contain an unconditional promise or order to pay a certain sum in money; must be payable on demand or at a fixed or determinable future time; must be payable to order or to bearer; and when the instrument is addressed to a drawee he must be named or indicated therein with a reasonable certainty. An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument is not affected by a provision which authorizes the sale of collateral securities in case of failure to pay at maturity or authorizes a confession of judgment if not paid at maturity or waives the benefit of any law intended for the advantage or protection of the obligor (the one upon whom the obligation to pay rests) or gives the holder the privilege of requiring something to be done in lieu of payment of money. The validity and negotiable character of an instrument are not affected by the fact that it is not dated or does not specify the value given or that any value has been given or does not specify the place where drawn or where payable or bears a seal or designates a particular kind of current money in which payment is to be made. The maker or drawer or the payee or drawee (the one who is to pay) and the acceptor may be the same person and if that person indorses the instrument and puts it in circulation it becomes a negotiable instrument.

Special Features/Characteristics of Negotiable Instruments:

The negotiable instruments have some special characteristics which distinguish them from other kinds of instruments. Anybody dealing with Negotiable Instruments needs to know of these special features so as to protect his interests. Main characteristics of such instruments are:-

(a) These instruments are easily transferable from person to person and the ownership of the property is passed on by

(i) mere delivery in case of bearer instruments;

(ii) endorsement and delivery in case of order instruments.

(b) These instruments confer absolute and good title on the transferee, who takes it in good faith, for value and without notice of the fact that the transferor had defective title thereto. This is one of the most important characteristics of the Negotiable Instruments

The significance of this characteristics can be best judged from following example. A person who takes a negotiable instrument (say a cheque) from another person, who had stolen it from somebody else, will have absolute and undisputable title to the instrument, provided he receives he same for value (i.e. after paying its full value) and in good faith without knowing that the transferor was not the true owner of the instrument. Such a person is called 'holder in due course' and his interest in the instrument is well protected by the law.

(c) Another legal right of great significance is the right of the "holder in due course" to sue upon the instrument in his own name. This means, he can recover the amount of the instrument from the party liable to pay thereon.

In addition to above special features, the Negotiable Instruments Act under Section 118 and 119, certain presumptions are taken for granted, unless contrary is proved. Some of such presumptions are :-

(i) Every negotiable instrument was made or drawn, accepted, endorsed, negotiated or transferred for consideration.

(ii) Every negotiable instrument bearing a date was made or drawn on such date.

(iii) Every accepted Bill of Exchange was accepted within a reasonable time after the date mentioned therein, but before the date of its maturity.

(iv) Every transfer of a negotiable instrument was made before the date of maturity (in case of instrument payable otherwise than on demand).

(v) The endorsements appearing upon an instrument were made in the order in which they appear on the instrument.

(vi) The lost negotiable instrument was duly stamped.

(vii) A holder of a negotiable instrument is a holder in due course. However, under certain conditions like fraud or unlawful consideration, the burden of proving that the holder is a holder in due course may lie upon him.

(i)Bill of Exchange (BOE)

Bills of exchange are financial documents that require the individual or business that is addressed in the document to pay a specified amount of money on a date that is cited within the text of the document. Considered to be a negotiable instrument, the date for the demand to pay generally ranges from the current date to a date within the next six calendar months.A bill of exchange will also require the authorized signature of the debtor in order to be considered legal and binding. As an unconditional order to pay a fixed sum of money to a creditor, the bill of exchange can take on many different forms. One of the most common examples of the bill of exchange is the common bank check. A check specifies who is to receive the funds, with the order to pay the face value of the check to the order of the creditor. The exact amount of the payment is specified. The date specified on the check is often the issue date for the check, but may also be the date that the bank is to honor the payment. This process is referred to as post dating a check, since the creditor will physically receive the check at some time before it will be honored.

(ii) Promisory Note

A promissory note, referred to as a note payable in accounting, or commonly as just a "note", is a negotiable instrument, wherein one party (the maker or issuer) makes an unconditional promise in writing to pay a sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. They differ from IOUs in that they contain a specific promise to pay, rather than simply acknowledging that a debt exists. In common speech, other terms, such as "loan," "loan agreement," and "loan contract" may be used interchangeably with "promissory note" but these terms do not have the same legal meaning. Whereas a promissory note is evidence of a loan, it is not the loan contract.