Negotiable Instrument 1881

1. BRIG( R) MUHAMMAD SALEEM,SI(M)

2.  Negotiable Instrument Act 1881
 Promissory Note
 Bill of Exchange , Cheque
 Foreign Instrument
 Instrument Payable By Demand
 Parties to Note
 Negotiation
Section 3-14,26-56

3.  According to Section 13(i) “ a negotiable
instrument means a promissory note, bill of
exchange or cheque payable either on order or to
bearer”.
 An instrument may be negotiable either by
1. Statute : Promissory Notes , bills of exchange and
cheques are negotiable instruments under
Negotiable Instruments Act 1881 .
2. By Usage : Bank Notes , Bank Drafts , scripts,
treasury Bills etc

4.  Section 4 defines it as, “ A promissory note is an
instrument in writing containing an unconditional
undertaking, signed by the maker, to pay a certain
sum of money only to or to the order of a certain
person or to the bearer of the instrument”.
 The person who makes the promissory note is
called the maker.
 The person to whom payment is to be made is
called the payee. e.g. –
 I promise to pay B or order rs. 500
 I promise to pay B Rs.500 on D’ death, provided D
leaves me enough to pay that sum

5.  It must be in writing
 It must contain express promise to pay :- ‘I am liable to pay’
 The promise to pay must be unconditional
 It must be signed by maker
 The maker must be certain- It must describe the name &
designation of the maker, sum of money
 There are 2 parties involved i.e. maker and the payee
 The payee must be certain- It is essential that it must contain
a promise to pay some person ascertained by name or
designation.
 The sum payable must be certain
 The payment must be in legal money
 A currency note is not a promissory note

6.  Section 5, is defined as “A bill of exchange is an
instrument in writing containing an unconditional order,
signed by the maker, directing a certain person to pay a
certain sum of money only to or to the order of a certain
person or to the bearer of the instrument”.
 Parties to bill of exchange :
 Drawer – The person who makes/orders to pay bill of
exchange.
 Drawee – The person who is directed to pay on bill. On
acceptance he becomes acceptor.
 Payee – The person to whom the payment is to be
made.
 Drawer & Payee can be the same person.
 X sells goods worth Rs. 2000 to Y & allow him 3 months
time to pay the price. X then draws a bill on Y “ Three
months after date, pay to my order the sum of Rs. 2000
for value received”. X is drawer . Y is Drawee.

7.  It must be in writing
 It must contain an order to pay and a promise or
request
 The order must be unconditional
 There must be 3 parties i.e. : drawer, drawee, and
payee
 The parties must be certain
 It must be signed by the drawer
 Number, date and place are not essential

8.  Section 6, defines it as “ A cheque is a bill of
exchange drawn on a specified banker & not
expressed to be payable otherwise than on
demand”.
 It is always drawn on a bank
 It is payable to bearer on demand
 Parties To Cheque:
1. Drawer – who makes the cheque
2. Payee – to whom payment is to be made
3. Drawee – Bank .

9.  Crossing of a cheque is a unique feature associated
with a cheque affecting to a certain level the
responsibility of the paying Banker and also its
negotiable Character.
 Crossing of a Cheque is a direction to a particular
Banker by the Drawer that Payment should not be
made across the Counter. The payment on the
crossed Cheque can be collected only through a
Banker.
 Crossing of the Cheque is affected by drawing two
parallel Transverse lines .
 The Cheque that is not crossed is an open Cheque.

10.  There are two types of cheque:
1. Open cheque – those which can be en cashed
across the counter of the bank. Liable to great risk
if stolen or lost. Finder can get payment from
bank.
2. Crossed cheque – which bears two transverse lines
with or without the words “ & co.”

11. 1. General Crossing:- which bears across its face the
words “ & co.” or the words “not negotiable”. For
general crossing two transverse lines on the face
of cheque are essential. The paying banker shall
pay only to a banker. There are two sloping
parallel lines, marked across its face
 The cheque bears an short form "& Co. "between
the two parallel lines
 The cheque bears the words "A/c. Payee" between
the two parallel lines.
 The cheque bears the words "Not Negotiable"
between the two parallel lines.

13. 2. Special or Restrictive Crossing :- When a particular
bank's name is written in between the two parallel lines
the cheque is said to be specially crossed. Where a
cheque bears across its face an addition the name of
banker either with or without the words “ not
negotiable”. It contains:
 The name of the banker across the face of cheque.
 With the words “ not negotiable”
 In addition to the word bank, the words "A/c. Payee
Only", "Not Negotiable" may also be written. The
payment of such cheque is not made unless the bank
named in crossing is presenting the cheque. The effect
of special crossing is that the bank makes payment only
to the banker whose name is written in the crossing.
Specially crossed cheques are more safe than a
generally crossed cheques.

15.  The important usefulness of a crossing cheque is that it
cannot be covered at the counter but can be collected
only by a bank from the drawee bank.
 Crossing provides a protection and safeguard to the
owner of the cheque as by securing payment through a
banker it can be easily detected to whose use the
money is received. Where the cheque is crossed the
paying banker shall not pay it except to a banker.
 In case of not negotiable crossing the person holding
such a cheque gets no better title than that of his
transfer and cannot suggest a better title to his own
transferee. In case of 'account payee' only crossing, a
direction is given to the collecting banker to collect
cheque and to place the amount to the credit of the
payee only.
 A special crossing makes the cheque more safe than a

16. 1. The drawer of a Cheque
2. Holder of the Cheque
3. The Banker in whose favor the cheque has been
crossed specially

17. Promissory Note Bill of Exchange
1. It contains a promise to
pay.
2. It is presented for
payment without any
previous acceptance by
the maker.
3. It cannot be made
payable to the maker
himself. The maker and
the payee cannot be the
same person.
4. In the case of a
promissory note there are
only two parties, the
maker and the payee.
5. A promissory note can
never be conditional.
6. In case of dishonour no
1. It contains an order to pay.
2. It is required to be accepted
either by the drawee or by
some one else on his behalf,
before it can be presented
for payment.
3. The drawer and payee or the
drawee and the payee may
be the same person.
4. There are three parties,
drawer, drawee and payee.
5. A bill of exchange cannot be
drawn conditionally, but it
can be accepted
conditionally with the
consent of the holder.
6. A notice of dishonour must
be given in case of
dishonour of a Bills of

18. Cheque Bill of exchange
1. Drawee: Cheque can be
drawn only on a banker.
2. Time of payment: A cheque
is payable on demand.
3. Grace period: Cheque is
payable on demand and no
grace period is allowed.
4. Notice of dishonour: Notice
of dishonour is not
necessary.
5. Acceptance: A cheque is not
required to be presented for
acceptance. It needs to be
presented only for payment.
6. Crossing: A cheque may be
crossed.
7. Validity period: A cheque is
usually valid for a period of
six months.
1. The drawee may be any
person.
2. A bill may be drawn payable
on demand or on expiry of
certain period after date or
sight.
3. While calculating maturity
three day’s grace is allowed.
4. A notice of dishonour is
required.
5. Bills require presentment for
acceptance and it is better to
present them for acceptance
even when it is not essential
to do so.
6. A bill of exchange cannot be
crossed.
7. A bill may be drawn for any
period.

19.  A promissory note, bill of exchange or cheque
drawn or made in Pakistan and made payable in, or
drawn upon any person resident in Pakistan, shall
be deemed to be an inland instrument
 Any such instrument not so drawn, made or made
payable shall be deemed to be foreign instrument
Section -11, 12

20.  A promissory note or bill of exchange is payable on
demand :-
1. Where it is expressed to be so or to be payable on
sight or on presentment, or
2. Where no time for payment is specified on it, or
3. Where the note or bill accepted or endorsed after
it is overdue, as regards the person accepting or
endorsing it
Section- 19

21.  Promissory Note
1. Maker
2. Payee
 Bill of Exchange
1. Drawer
2. Drawee
3. Payee
 Cheque
1. Drawer
2. Drawee- Always Bank
3. Payee
Section 26- 30

22.  Negotiation is a transfer of an instrument
from one person to another in such a
manner as to express title & to represent
the transferee the holder thereof.
 Passing of possession
 With intention to pass title
 Must be transferred in such a manner that
the transferee becomes holder thereof.

23. 1. Negotiation by delivery
2. Negotiation by endorsement & delivery
3. Property is transferred to the endorsee
4. Endorsee get right to negotiate the instrument,
sue on instrument.

24.  It is freely transferable
 Better title
 Right to sue
 A negotiable instrument can be transferred any
number of times till its maturity
 A negotiable instrument is subject to certain
presumptions
 Presumptions – certain presumptions as to
consideration, reasonable time etc., apply to all
negotiable instruments.

25. 1. Consideration : Every negotiable instrument is
deemed to have been drawn and accepted ,
endorsed, negotiated, or transferred for
consideration
2. Date : Every negotiable instrument must bear the
date on which it is made or drawn
3. Acceptance : Every Bill of exchange was accepted
within a reasonable time after the date mentioned
therein and before the date of its maturity
4. Transfer : Every transfer should be made before
the expiry

27.  When a maker or holder writes the person’s name
on the face or back of the instrument & puts his
signatures thereto for the purpose of negotiation,
it is called ‘endorsement’.
 Person who signs – endorser
 To whom it is endorsed – endorsee.
 A legal term that refers to the signing of a
document which allows for the legal transfer of a
negotiable from one party to another.
 When an employer signs a check, they are
endorsing the transfer of money from the business
accounts to the account of the employee.

28. 1. On the back or face of the instrument.
2. Must be made by maker or holder.
3. Must be properly signed by the endorser.
4. It must be for the entire negotiation instrument.
5. No specific form of words are necessary for
endorsement.

29. 1. Blank or general endorsement – where endorsee
simply puts his signature on the back of the
instrument without writing name of the person in
whose favor the instrument is endorsed.
2. Special or full endorsement – An endorsement with
the direction to pay amount mentioned in the
instrument to a specified person or his order & the
endorser writes his signature under it.
3. Partial endorsement – When an endorser is willing
to transfer to an endorsee only a part of the
amount of the instrument. Such an endorsement
does not operate as a negotiation of the
instrument.

30.  The instrument is therefore payable to the bearer
 Restrictive endorsement – An endorsement is said
to be restrictive if it prohibits or restricts the
further negotiability of the instrument. The holder
of such an instrument can only receive the payment
but he cannot negotiate it further. An instrument
can be made restrictive only by expressed words.
 Conditional endorsement – It limit the liability of
the endorser. E.G. – “ Pay A or order on his
marrying B”.

31.  The property in instrument is transferred
from endorser to endorsee.
 The endorsee gets right to negotiate the
instrument further.
 The endorsee get the right to sue in his own
name to all other parties.