This document provides an overview of negotiable instruments including promissory notes, bills of exchange, and cheques. It defines each type of instrument, outlines their essential elements and characteristics, and compares their key differences. Some key points: - Negotiable instruments are documents used in commercial transactions that can be transferred through delivery or endorsement. They include promissory notes, bills of exchange, and cheques. - A promissory note contains an unconditional promise to pay a certain sum, a bill of exchange contains an unconditional order to pay, and a cheque is a bill of exchange drawn on a bank payable on demand. - To be negotiable, instruments must be in writing, signed,

1. Presentation
on Negotiable instruments
Legal environment of Business
Course code: EM 526
Name : ID
Tanzila Rahman 03-11-20-050
Bipul Biswas 03-10-19-063
S.K.M. Moklesur Rahman 03-10-19-072
Tahmida Jakia 03-11-20-037
Md. Arman 03-10-19-046

2. Negotiable Instruments
 Documents of certain type, used in commercial transactions and
monetary dealings, are called Negotiable Instruments.
 “Negotiable” means transferable by delivery
 “Instrument” means a written document by which a right is created in
favour of some persons.
 The term Negotiable Instrument, literally means “a document
transferable by delivery”.
 Thus a Negotiable Instrument is one which, “ the true owner could
transfer, the contract or engagement contained therein by simple
delivery of the instrument”.

3. Negotiable Instruments
 According to Banglapedia 'negotiable instrument' refers to
financial instruments that can be sold, paid or transferred by
mere endorsement.
 These are payable either to order or to a bearer by endorsement
in due course.
 Negotiable instruments got their formal identity and recognition
with the promulgation of the Negotiable Instruments Act, 1881.

4. Negotiable Instruments
An analysis of the definition by Judge Wills expressed the following
characteristics of a negotiable instruments:
 Property in the instrument passes from hand to hand by mere
delivery
 The holder in due course is not affected by defects in the title of
his transferor or of previous holders.
 The holder in due course can sue in his own name.
 The holder in due course is not affected by certain defenses which
might be available against previous holders, e.g., fraud to which he
is not a party.
 It passes from hand to hand like cash and can be conveniently
assigned in discharge of dents.

5. Promissory Note (Pro-Note or Hand Note)
Definition
“A promissory note is an instrument in writing (not being a bank
note or a currency note) containing an unconditional undertaking
signed by the maker, to pay a certain sum of money only to, or to
order of a certain person, or to the bearer of the instrument.”
 The person who makes the promise to pay is called the Maker.
He is the debtor and must sign the instrument.
 The person who will get the money (the creditor) is called payee.

6. Promissory Note (Pro-Note or Hand Note)
Essential Elements
 The instrument must be in writing
 The instrument must be signed by the maker of it
 The instrument must contain a promise to pay. The promise to
pay must be express. It cannot be implied or inferred. A mere
acknowledgement of indebtedness is not enough.
 The promise to pay must be unconditional. If the promise to pay
is coupled with a condition it is not a promissory note.
 The maker of the instrument must be certain and definite.
 A promissory note must be stamped according to the Stamp Act
of the country

7. Promissory Note (Pro-Note or Hand Note)
An instrument is valid as a promissory note if it is so drafted as to
satisfy the essential requirements of a promissory note.
Subject to this condition the parties may use any form
desired. Some typical forms are given below:
 “on demand IAB promise to pay CD or his order the sum of
Tk. 2000.00 for value received.
 IAB promise to pay CD Tk. 2000.00
 IA acknowledge myself to be indebted to B in Tk. 2000.00
and promise to pay the said amount on demand for value
received.
 At three months after date IA promise to pay B the sum of
Tk. 2000.00 only. Value received

8. Bill of Exchange
Definition
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.
 The maker of the bill of exchange is called the Drawer.
 The person who is directed to pay is called the Drawee.
 The person who will receive the money is called the Payee.
 When the payee has custody of the bill, he is called the Holder.
 It is the holder's duty to present the bill to the drawee for his acceptance.
The drawee signifies his acceptance by signing on the bill. After such
signature the drawee becomes the Acceptor.
 In a bill of exchange sometimes the name of another person is mentioned as
the person who will accept the bill if the original drawee does not accept it.
Such a person is called the Drawee in case of need.

9. Bill of Exchange
Essential Elements of Bill of Exchange:
A bill of exchange be valid must fulfill the following requirements:
 The instrument must be in writing.
 The instrument must be signed by the drawer
 The instrument must contain an order to pay, which is express and
unconditional.
 The drawer, drawee and the payee must be certain and definite
individuals.
 The amount of money to be paid must be certain.
 The money must be payable to a definite person or according to
his order.
 A bill of exchange must be properly stamped.
 The bill may be made payable on demand or after a definite period
of time.

10. Differences between a promissory note and a bill of
exchange
 Number of parties: In a promissory note there are two parties-the
maker and the payee. In a bill of exchange there are three parties-
the drawer, drawee and the payee.
 Promise and order: In a promissory note there is a promise to pay.
In bill of exchange there is an order to pay.
 Acceptance: A promissory note is signed by the person liable to
pay; therefore, no acceptance is necessary. A bill of exchange
except in certain cases , requires to be accepted by the drawee
before it is binding upon him.
 Liability: The maker of promissory note is primarily liable on the
instrument. The drawee of a bill is liable only when the drawee
does not accept the instrument or pay the money due.

11. Differences between a bill of
exchange and a cheque
Bill of exchange Cheque
• Payable on demand, or at a fixed
or determinable future date
• Payable on demand
• Drawn on anyone • Drawn on a financial institution
• Can’t be crossed
(always negotiable)
• Can be crossed
• Continuing security • Presented for payment within a
reasonable time
•Obligation from acceptance of bill • Ongoing relationship
•Substantial trading transactions • Day-to-day transactions

12. Comparison among bill of exchange, promissory note and
cheque
Bill of exchange
Promissory
note
Cheque
Nature Entrusted payment Self payment
Entrusted
payment
Basic parties Drawer, drawee, payee
Drawer &
payee
Drawer, drawee,
payee
Payer’s
qualification
No restriction Drawer Banks
Primary debtor Acceptor Drawer No
Maturity
On demand
Determinable future time
On demand On demand
Acceptance √ ╳ ╳

13. Requirements for negotiable
instruments :
 Be in writing
 Be signed by the maker or drawer
 Be an unconditional promise or order to pay
 State a fixed amount of money
 Not require any undertaking in addition to the payment of
money
 Be payable on demand or at a definite time
 Be payable to order or to bearer

14. Factors That Do Not Affect
Negotiability
 Undated checks.
 Pre or Post-Dating Checks.
 Handwritten Terms.
Outweigh typed or printed terms.
 Words outweigh Figures.
 “With Interest.”
 Check says “Nonnegotiable.”

15. Methods of Negotiation
 Negotiable instruments may be negotiated in two
ways:
By endorsement and delivery; or
By delivery only.
 There are various types of endorsement:
Special endorsement;
Conditional endorsement;
Qualified endorsement; and
Anomalous endorsement.

16. Indorsement
 The signature (and other directions) written by or on behalf
of the holder somewhere on the instrument.
 The signature may:
 Appear alone
 Name an individual to whom the instrument is to be paid, or
 Be accompanied by other words
 Indorsement is a signature, with or without words
or statements.
 Indorser: person who transfers instrument by
signing it and delivering to another person.

17. Indorsements
 Blank Indorsements.
 Special
Indorsements.
 Qualified
Indorsements.

18. Restrictive Indorsements
 Conditional Indorsements.
 Indorsements for Deposit and Collection.

19. Restrictive Indorsements
 Trust (Agency) Indorsements.

20. Miscellaneous Indorsement
Problems
 Misspelled Names. Indorsement should be
identical to the name on the instrument.
 Alternative or Joint Payees. Only one of the
payees needs to indorse.
 Suspension of the Drawer’s Obligation.

21. Holder
Holder
According to section 8 the ‘ holder of a promissory note , bill of exchange
or cheque means any person entitled in his own name to the possession
thereof and to receive or recover the amount due thereon from the
parties thereto”
A person is called the holder of a negotiable instrument if the following conditions
are satisfied:
 He must be entitled to the possession of the instrument in his own name and
under a legal title. Actual possession of the instrument is not essential; the
holder must have the legal right to possess the instrument in his own name. For
example, a thief, or a finder on the road although may be having the possession
of the instrument, cannot be called its holder because he does not acquire the
legal title thereto and hence is not entitled in his own name to the possession
thereof.
 He must be entitled to receive or recover the amount from the parties concerned
in his own name.

22. Holder in Due course
Holder in due course:
A person becomes a holder in due course of a negotiable instrument if
the following conditions are satisfied:
 He must be entitled to the possession of the instrument in his own name and
under a legal title and to recover the amount thereof from the parties liable
thereto.
 The negotiable instrument must be regular and complete in all respects.
Alterations, if any, must be confirmed by the drawee through his signature.
Holder of an incomplete document cannot be its holder in due course.
 The instrument must have been obtained for valuable consideration, i.e., by
paying its full value. A banker, who receives a cheque as a gift, will not be called
holder in due course without consideration. The consideration must be legal and
adequate. For example, if a cheque is given in respect of a debt incurred in
gambling, the consideration for the cheque is unlawful. If the value of the of the
consideration falls short of the amount of the instrument, the person will be
deemed as holder in due course to the extent of the value of consideration.

23.  Prerequisites for being holder in due course
A person who claims to be holder in due course’ is required to prove:
 That he is a holder:
 That he is a holder for consideration:
 Acquisition before maturity:
 That he has no knowledge of defective title.
 Right of a holder:
The holder of a negotiable instrument enjoys the following rights:
 An endorsement in blank may be converted by him into an endorsement in full.
 He is entitled to cross a cheque either generally or specially with the words “ Not
negotiable”.
 He can negotiate a cheque to a third person, if such negotiation is not prohibited by the
direction given in the cheque.
 He can claim payment of the instrument and can sue in his own name on the instrument.
 A duplicate copy of a lost cheque may be obtained by a holder.

24. Difference between holder and
holder in due course
1. Meaning: Holder means any person entitled in his own name to the possession of the
negotiable instrument and to recover or receive the amount due thereon from the parties
thereto. A holder in due course on the other hand, means a holder who takes the
instrument in good faith for consideration before it is overdue and without any notice of
defect in the title of the person who transferred it to him.
2. Consideration: A person who claims to be a holder in due course must show that he
acquired the instrument for consideration. However consideration may not pass from a
holder of the instrument.
3. Title : Holder of negotiable instrument does not acquire a better title than that of the person
from whom he acquired the instrument. Thus a holder does not acquire a good title if the
title of any of the prior parties is defective. But a holder in due course gets a good title even
though there was a defect in the title of any prior parties to the instrument.
4. Liability: A holder in due course can sue all prior parties to a negotiable instrument until the
instrument is duly satisfied. Whereas a holder of the instrument can enforce it against the
person who has signed it and also against the transferor from whom he obtained it.
5. Maturity:A person will be a holder in due course only if he acquires the instrument before
the amount mentioned in it become payable. But a holder may acquire the instrument even
after it has become due for payment.

25. Cheque
Types of Cheque
Open cheque: A cheque is called ‘Open’ when it is possible to get cash over
the counter at the bank. The holder of an open cheque can do the following:
 Receive its payment over the counter at the bank,
 Deposit the cheque in his own account
 Pass it to some one else by signing on the back of a cheque.
Crossed cheque: Since open cheque is subject to risk of theft, it is dangerous to
issue such cheques. This risk can be avoided by issuing another types of
cheque called ‘Crossed cheque’.
Bearer cheque: A cheque which is payable to any person who presents it for
payment at the bank counter is called ‘Bearer cheque’. A bearer cheque can
be transferred by mere delivery and requires no endorsement.

26. Cheque
Types of Cheque (Cont’d)
Order cheque: An order cheque is one which is payable to a particular person. In
such a cheque the word ‘bearer’ may be cut out or cancelled and the word
‘order’ may be written. The payee can transfer an order cheque to someone
else by signing his or her name on the back of it.
Ante-dated cheques:- Cheque in which the drawer mentions the date earlier to
the date of presenting if for payment.
Stale Cheque:- A cheque which is issued today must be presented before at
bank for payment within a stipulated period. After expiry of that period, no
payment will be made and it is then called ‘stale cheque’. Find out from your
nearest bank about the validity period of a cheque.
Post-dated Cheque:- Cheque on which drawer mentions a date which is
subsequent to the date on which it is presented, is called post-dated cheque

27. Crossing cheque
Crossing of Cheque:
A cheque is said to be crossed when two parallel transverse lines are
drawn across the face of the cheque, with or without words like ‘& Co’,
or ‘not negotiable’ inserted between them.
General Crossing: Where a cheque bears across its face an addition of
the words’ and company’ or any abbreviation thereof, between two
parallel transverse lines, or two parallel transverse line simply, either
with or without the words ‘not negotiable’ that addition shall be
deemed a crossing, and the cheque shall be deemed to be crossed
generally.

28. Crossing cheque
 Crossing of Cheque (Cont’d)
Special Crossing: “ where a cheque bears across its face an addition of
the name of banker, either with or without the without the words ‘not
negotiable’ that addition shall be deemed a crossing and the cheque
shall be deemed to be crossed specially and to be crossed specially
and to be crossed to that banker.”[ Section 124]
Persons who can Cross a Cheque: Crossing is an instruction or a direction to
the paying banker. Obviously, the drawer of a cheque is competent to cross it
generally or specially. Section 125, however, permits the following persons
also to cross the cheque:
 The holder of a cheque may cross it generally or specially, if; it is uncrossed
or may cross it specially if it is crossed generally or may add the words 'not
negotiable' in case of both types of .crossing.
 The banker to whom the cheque is crossed specially may again cross it
especially to another banker, his agent, for collection. This is called
Double Special Crossing.

29.  Liability of the Paying Banker on Crossed Cheques
According to the section 126 “ Where a cheque is crossed generally, the
banker on whom it is drawn shall not pay it otherwise than to a banker
and where and where a cheque is crossed specially, the banker on
whom it is drawn shall not pay it otherwise than to the banker to whom it
is crossed or his agent for collection.”
"Any banker paying a cheque crossed generally, otherwise than to a
banker, or a cheque crossed specially, otherwise than to the banker to
whom the same is crossed, or his agent for collection being a banker,
shall be liable to the true owner of the cheque for any loss he may
sustain owing to the cheque having been so paid."

30. Acceptance
 Acceptance: only applies to bill of exchange.
 Presentation: precondition for acceptance by drawee,
except for sight draft
 Payer should decide whether to accept such draft within
three days from the receipt of it.
 If accepted, indicate the date of acceptance and such
express words as "acceptance" on the face of the draft,
and affix the signature or seal on it.
 Draft payable at a fixed date after sight: date of
payment must be indicated on it.

31. Dishonor
Occurrence and certificate of dishonor
Occurrence Certificate
Upon maturity Non-payment Certificate of refusal
Prior to maturity Non-acceptance Certificate of refusal
Bankruptcy order
Administrative
decision
Drawee or acceptor’s death
or disappearance
Drawee or acceptor’s
bankruptcy
Drawee or acceptor’s closure

32. Notice of dishonor
 Bearer shall inform the previous parties:
 within 3 days from receipt of certificate of dishonor or
rejection of acceptance
• Upon receipt of such notice by the predecessor, he
shall
 inform his next immediate predecessor within 3
days.
• Notice: contain major written items of the instrument
and
 explanation for rejection
•

33. Protection of lost-instrument
holders
 If lost before payment is due, lost-instrument holder may
notify drawee to suspend payment.
 Within 3 days of giving the notice for suspension of payment
or after the loss of the instrument, lost-instrument holder
may apply to court for publication of public notice for
assertion of claims
 Holder other than the lost-instrument holder comes forward
to claim the rights during the foregoing withholding period,
the litigation method shall be utilized

34. Liability of drawer :
“The drawer of a bill of exchange or cheque is bound in case of
dishonour by the drawee or acceptor thereof, to compensate to the
holder, provided due notice of dishonour has been given to, or received
by, the drawer as hereinafter provided.”
(a) a bill of exchange may be dishonoured by non-acceptance
(b) a bill of exchange may be dishonoured by non-payment
Liability of drawee of a cheque:
“The drawee of a cheque having sufficient funds of the drawer in his
hands properly applicable to the payment of such cheque when duly
required to do so, and in default of such payment, must compensate the
drawer for any loss or damage caused by such default”.
Liabilities of Parties to Negotiable Instruments

35. Liability of drawer :
The drawer may be punished with imprisonment for a term up to one year or with
fine up to thrice the amount of the cheque or with both because of insufficiency of
funds was deemed as an offence .
To Provide for such punishment, provided the following conditions are fulfilled:
1.The cheque should be presented to the paying banker in time
2.The dishonor of the cheque should be on account of insufficiency of funds only if
either the amount of money standing to the credit of the account of is insufficient
or that the amount of cheque exceeds the amount arranged to be paid from that
account by an agreement with the bank.
3.The payee or holder in due course should give notice in writing to the drawer
demanding payment, within 15 days of his receiving information of dishonor.
4.If the drawer fails to make payment to the drawee within 15 days of the receipt
of the notice.
5.The complaint can be made only by the payee or holder in due course.
Liabilities of Parties to Negotiable Instruments

36. Liability of Maker and Acceptor:
“In the absence of a contract to the contrary, the maker of a
promissory note and the acceptor before maturity of a bill of
exchange are bound to pay the amount thereof at maturity
according to the apparent tenor of the note or acceptance
respectively, and the acceptor of a bill of exchange at or after
maturity is bound to pay the amount thereof to the holder on
demand”.
Effect of forged Endorsement on acceptor’s liability
An acceptor of a bill already endorsed is not relieved from
liability by reason that such endorsement is forged, if he knew
or had reason to believe that the Endorsement was forged
when he accepted the bill .
Liabilities of Parties to Negotiable Instruments

37. Liabilities of Parties to Negotiable Instruments
Liability of acceptor of a bill drawn in a fictitious name
An acceptor of a bill of exchange drawn in a fictitious name and payable to
the drawer’s order is not relieved from liability to any holder in due course
claiming under an Endorsement by the same hand as the drawer’s signature,
and purporting to be made by the drawer. (Section 42 )
Liability of endorser
The endorser of an instrument by endorsing and delivering the instrument,
before maturity, undertakes the responsibility that –
1. That on the due presentment it shall be accepted, (if a bill), and paid; and
2. That if it is dishonoured by the drawee, acceptor or maker, he will
indemnify the holder or subsequent endorsers who are compelled to pay,
provided due notice of dishonour is received by him.

38. Thank You All
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