This document defines and explains negotiable instruments. It begins by stating that a negotiable instrument is a written document that entitles the holder to a sum of money and can be transferred through delivery or endorsement. It then lists the key characteristics of negotiable instruments, including being freely transferable and the holder having clear title. The document goes on to define the main types of negotiable instruments - promissory notes, bills of exchange, and cheques - and explains the essential components and parties involved in each.

2. W h a t is N e g o t ia b le
In s t r u m e n t s ?
 The term negotiable instruments means a written document
which entitles a person to a sum of money.
 A negotiable instruments is transferable by delivery or by
endorsement and delivery.
 The transfer entitles a person to the sum of money mentioned
therein.
 “Thus the negotiable instrument is a document which is
legally recognized by custom of trade or law, transferable by
delivery or by endorsement and delivery.”

3. Characteristics Of a Negotiable Instrument
 Freely transferable: The property in a negotiable instrument passes from one
person to another by a simple process, i.e., by mere delivery if it is payable to
bearer, and by endorsement and delivery if it is payable to order.
 Holder’s title free from all defects: The holder in due course (one who
acquires the instrument in good faith and for consideration) gets it free from all
defects.
 Recovery: One can sue upon the instrument in his own name.
 Payable to order or bearer: - It must be payable either to order or bearer
 Presumption as to Holder:- Every holder of negotiable instrument is presumed
to be holder in due course.
 Presumption as to considerations:- Every negotiable instrument is presumed to
have been made, drawn, accepted, endorsed , negotiated or transferred for
consideration.

4. Types of Negotiable Instruments
 Promissory note.
 Bill of exchange.
 Cheque.

5. Promissory note.
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.

6. Parties
 MAKER : The person who makes the promissory note and promises to
pay is called the Maker.
 PAYEE: The person to whom the payment is to be made is called the
Payee.
 HOLDER: The holder is either the payee or someone to whom he may
have indorsed (transfer) the note is known as Holder.
 ENDORSER: The person who indorses the note to another is called the
Endorser .
 ENDORSEE: The person to whose favor the note is endorsed is called
the Endorsee

7. Essentials Of The Promissory Notes
 It must be in writing.
 It must contain a promise or undertaking to
pay a definite sum of money.
 The promise to pay must be unconditional.
 It must be signed by the maker.
 The payee must be identified & must be
certain.
 The sum payable must be certain.

8. F o r m a t O f P r o m is s o r y
N o te
Rs. 10,000/- Delhi, February10,2012
Three months after date I promise to pay cyko on
order the sum of ten thousand rupees, for value received.
To,
Cyko Stamp
222, Ashok Vihar
Sd/-Ram
Delhi-110052

9. Bill Of Exchange
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 certain person to the bearer of the instrument.

10. Parties
 DRAWER: The person who makes the bill of exchange is called
drawer.
 DRAWEE: The person who is directed to pay is called drawee.
 PAYEE: The person to whom the payment is to be made is called
payee.
 ACCEPTOR: When the drawee accepts the bill is called acceptor.

11. a c t e r is t ic s o f t h e B ill o f E x c h
 The amount payable must be certain.
 The payment must be made in money.
 The bill payable may be either on demand or after a specified
period.
 The bill may be payable either to the bearer or to the order of
payee.

12. Format Of Bill Of Exchange
Rs. 500 Greater Noida,21 Feb.2009
Three months after the date pay to Ram or order the sum of Five Hundred
rupees , for value received.
To,
Cyko
235,Subhash marg
delhi-110006.
Stamp
In case of need with Accepted
Krishna
Canara Bank, Delhi Cyko Sd/-

13. Cheque
A cheque is a bill of exchange drawn on a specified banker
and expressed to be payable otherwise than on demand.
The maker of a bill of exchange or Cheque is called the
“Drawer"; the person thereby directed to pay is called the
"Drawee".

14. Parties
 DRAWER: The person who makes a cheque is called
Drawer.
 DRAWEE: The person who is directed to pay is called
Drawee.
 PAYEE: The person to whom the payment is to be made.

15. e n t ia l c h a r a c t e r is t ic s o f a C h
 In writing
 Express order to pay
 Definite and unconditional order
 Signed by drawer
 Order to pay certain amount
 Payable on demand

16. Forma t O f C he que
No.……..
Date………..2010
Pay…………………………………………………………or bearer
the sum of Rs…………………………………
Rs…………………
A/c No LF No Sd/-
PUNJAB NATIONAL BANK
Subzi Mandi,Delhi -110007
“5777100” 111013035”

17. C r o s s in g o f C h e q u e
A cheque is said to be crossed when it bears across its face
two parallel transverse lines which are usually drawn on
the left hand top corner of the Cheque.
Legally there are two kinds of crossing.
General crossing: The drawing up of two parallel lines
on the face of the check at the top left hand corner with or
without the words & Co not negotiable or Account payee
only is known as a General Crossing.
Special crossing: A check is deemed to be crossed
specially when it bears across its face the name of the
banker either with or without the words not negotiable.

18. Negotiation
An instrument is said to be negotiated:
 When a promissory note, BOE, cheque is transferred to any
person so as to constitute that person the holder of the
instrument
Transfer with an intention to transfer the title of the instrument.
 Negotiation by delivery
 Negotiation by endorsement and delivery

19. Presentment
Presentment for Acceptance (required only in
case of BOE)
Presentment for payment
Presentment made to the drawee.
Must be made before the date of maturity

20. Dishonor
A negotiable instrument is said to be dishonored by non-
payment when the maker, acceptor or drawee, as the case
maybe makes default in payment upon being duly required
to pay the same.
 Dishonor by non payment
 Dishonor by non acceptance

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