This document provides an overview of negotiable instruments including: - An introduction defining negotiable instruments and their origins. - Sections outlining key features such as writing/signature requirements, money denomination, negotiability, title, and presumptions. - Descriptions of the main types of negotiable instruments - promissory notes, bills of exchange, and cheques - and their essential elements. - Explanations of parties to negotiable instruments such as makers, drawers, payees, holders, and endorsers. - A conclusion that reiterates the main points covered.

1. 1 | P a g e
Table of Contents
1.1 Introduction of the Study ...............................................................................................................2
1.2 Background of the Study ...............................................................................................................2
1.3 Statement of Problems from Study .................................................................................................2
1.4 Methodology of the study ..............................................................................................................3
1.5 Objective of the Study...................................................................................................................3
1.6 Limitation of the study ..................................................................................................................3
2.1 Negotiable Instrument ...................................................................................................................4
2.2 Essential Features of Negotiable Instrument....................................................................................4
2.3 Characteristics of Negotiable Instrument.........................................................................................6
3.1 Essentials of a valid endorsement...................................................................................................7
3.2 Parties of a negotiable instrument...................................................................................................7
3.3 TYPES OF NEGOTIABLE INSTRUMENTS.................................................................................8
4.1 Promissory Notes..........................................................................................................................9
4.2 Bill of Exchange .........................................................................................................................10
4.3 Cheque.......................................................................................................................................11
OTHER NEGOTIABLE INSTRUMENTS.........................................................................................12
Conclusion.......................................................................................................................................13

2. 2 | P a g e
1.1 Introduction of the Study
A negotiable instrument is a document guaranteeing the payment of a specific amount of money,
either on demand, or at a set time, with the payer usually named on the document. More
specifically, it is a document contemplated by or consisting of a contract, which promises the
payment of money without condition, which may be paid either on demand or at a future date. The
term can have different meanings, depending on what law is being applied and what country it is
used in and what context it is used in.
1.2 Background of the Study
Common prototypes of bills of exchanges and promissory notes originated in China, where special
instruments called feitsyan were used to safely transfer money over long distances during the reign
of the Tang Dynasty in the 8th century.
In the mid-13th century, the Ilkhanid rulers of Persia printed the "cha" or "chap" which was used
as paper money for limited usage for transactions between the court and the merchants for about
three years before it collapsed. The collapse was caused by the court accepting the "cha" only at
progressive discount.
Later, such documents were used for money transfer by Middle Eastern merchants, who had used
the prototypes of bills of exchange – suftadja/softa from the 8th century to present. Such prototypes
came to be used later by the Iberian and Italian merchants in the 12th century. In Italy in the 13–
15th centuries, bills of exchange and promissory notes obtained their main features, while further
phases of their development have been associated with France (16–18th centuries, where the
endorsement had appeared) and Germany (19th century, formalization of Exchange Law)
1.3 Statement of Problems from Study
This report is a partial task of the course of “Legal Environment of Business’. This report is mainly
for searching the answers of the following questions:
a) What is Negotiable Instrument?
b) What is the Main Characteristics of Negotiable Instruments?
c) Who are the parties of Negotiable Instrument?
d) Essentials of valid Endorsement?
e) Different types of Negotiable Instrument?
Chapter: 01
Introduction

3. 3 | P a g e
1.4 Methodology of the study
Researcher usually start by gathering secondary data. We have collect some published information
from different sources. We have collect information from different article, journal and newspaper.
We also collect data from the related website.
We have less time to complete this report. That’s why did not conduct any survey or market
research. We tried to collect data from many secondary sources.
1.5 Objective of the Study
The primary objective of the study was to describe Negotiable Instrument and find out the features
& characteristics of Negotiable Instrument.
Specific objective of study is to fulfil the requirement of the course “Legal Environment of
Business”.
1.6 Limitation of the study
While making this report we had face so many problems. Those are as follows:
•There is very low speed internet in our area. That’s why we face interruption in collecting data.
•We are suffering very short time limitation. That’s why could not seat in group meeting more
than two or three days.
•Because of lack of huge information this study focused on only selected topic of Negotiable
Instrument. •Because of busy working period of officials we don’t gather vast information for this
study. In internet this sometimes not possible to collect correct information.

4. 4 | P a g e
2.1 Negotiable Instrument
A Negotiable Instrument is that document that includes a ‘promise to pay’ a certain amount of
money to the bearer of the document. It’s a mode of transferring a debt from one person to another.
Negotiable Instruments are always in written form.
Documents of a certain type which are used in commercial transactions and monetary dealings,
are known Negotiable instruments. “Negotiable” means transferable by delivery and “instrument”
means a written document by which a right is created in favor of some person. Thus, negotiable
instrument means a document which is transferable by delivery.
According to Section 13(i) of negotiable instrument Act, 1881 a negotiable instrument includes
and means a promissory note, bill of exchange or Cheque.
Examples of Negotiable instruments are- a Cheque, a promissory note, a bill of exchange.
2.2 Essential Features of Negotiable Instrument
Writing and Signature
Negotiable Instruments must be written and signed by the parties according to the rules relating to
Promissory Notes, Bills of Exchange and Cheque. Demand Drafts are also construe as Negotiable
Instruments in the limiting case as they have the same property as N.I. Instruments.
Chapter: 02
Negotiable Instrument, Characteristic and Features of Negotiable
Instrument

5. 5 | P a g e
Money
Negotiable instruments are payable by legal tender money of India. The liabilities of the parties of
Negotiable Instruments are fixed and determined in terms of legal tender money.
Negotiability
Negotiable Instruments can be transferred from one person to another by a simple process. In the
case of bearer instruments, delivery to the transferee is sufficient. In the case of order instruments
two things are required for a valid transfer: endorsement (i.e., signature of the holder) and delivery.
Any instrument may be made non-transferable by using suitable words, e.g., “pay to X only.
Title
The transferee of a negotiable instrument, when he fulfils certain conditions, is called the holder
in due course. The holder in due course gets a good title to the instrument even in cases where the
title of the transferred is defective.
Notice
It is not necessary to give notice of transfer of a negotiable instrument to the party liable to pay.
The transferee can sue in his own name.
Presumptions
Certain presumptions apply to all negotiable instruments. Example: It is presumed that there is
consideration. It is not necessary to write in a promissory note the words “for value received” or
similar expressions because the payment of consideration is presumed. The words are usually
included to create additional evidence of consideration.
Special Procedure
A special procedure is provided for suits on promissory notes and bills of exchange (The procedure
is prescribed in the Civil Procedure Code). A decree can be obtained much more quickly than it
can be in ordinary suits.
Popularity:
Negotiable instruments are popular in commercial transactions because of their easy negotiability
and quick remedies.
Evidence:
A document which fails to qualify as a negotiable instrument may nevertheless be used as evidence
of the fact of indebtedness.

6. 6 | P a g e
2.3 Characteristics of Negotiable Instrument
A negotiable instrument has the following characteristics.
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.
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 memo dat quod non habet does not apply to
negotiable instruments.
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.
Presumptions
Certain presumptions apply to all negotiable instruments e.g. a presumption that consideration has
been paid under it.
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.

7. 7 | P a g e
3.1 Essentials of a valid endorsement
Following are the essentials of a valid endorsement:
1. It must be on the instrument. The endorsement may be on the back or the face of the instrument
and if no space is left on the instrument, it may be made on a separate paper attached to it called
along.
2. It must be an endorsement of the entire bill. A partial endorsement that is which purports to
transfer to the endorse a part only of the amount payable does not operate as a valid endorsement.
3. It must be made by the maker or holder of the instrument. A stranger cannot endorse it.
4. It may be made either by the endorser merely signing his name on the instrument or by any
words showing an intention to endorse or transfer the instrument to a specified person.
5. It must be signed by the endorser. It is not necessary to write the full name initial may be
sufficient. Thumb- impression should be attested.
6. It must be completed by delivery of the instrument. The delivery must be made by the endorser
himself or by somebody on his behalf with the intention of passing property therein.
3.2 Parties of a negotiable instrument
Meanings of maker/drawer, Drawee, payee, holder, holder in due course, endorser, endorsee,
endorsement, Drawee in the case of need, Acceptor for honor, who are parties to a negotiable
instrument is explained below.
1. Maker/drawer: the person who makes or executes the note promising to pay the amount stated
therein.
2. Drawee: The person directed to pay the money by the drawer. The Drawee is the paying bank
in case of Cheque.
3. Payee: Payee is the person whose name is written on the promissory note or bill of exchange or
Cheque. The payee is entitled to receive amount mentioned in the note or bill or Cheque.
4. Holder: Holder is either the payee or some other person to whom he may have endorsed the
promissory note or bill of exchange or Cheque. A person cannot be a holder unless he is the payee
or endorsee (endorsee) thereof.
5. Holder in due course: Holder in due course means any person who for consideration became the
possessor of a promissory note, bill of exchange or Cheque, if payable to bearer, or the payee or
Chapter: 03
Essentials ofValid Endorsement, Parties & types of Negotiable Instrument

8. 8 | P a g e
endorsee thereof, if payable to order, before the amount mentioned in it became payable, and
without having sufficient cause to believe that any defect existed in the title of the person from
whom he derived his title.”
6. Endorser: A signature of the owner (the holder of the instrument) would serve the legal rights
to transfer an instrument to another party. The holder of the instrument who transfers his right to
another party by endorsement is called endorser.
7. Endorsee: If the endorser adds a direction to pay the amount mentioned in the instrument to, or
to the order of, a specified person, the person so specified is called the “endorsee” of the
instrument.
8. Endorsement: If the endorser signs his name only, it is called endorsement in blank. If the
endorsement contains the instructions of endorser to pay the amount mentioned in the instrument
to, or to the order of, a specified person, the endorsement is called endorsement in full.
9. Drawee in the case of need: In addition to drawer’s name, the name of a person is given in the
bill or endorsement, to have resorted in case of need. Such person is called Drawee in case of need.
10. Acceptor for honor: In the event of refusal of acceptance of bill by the original drawer or in
cases of providing better security when demanded by notary public, with the consent of the holder
some other person who is originally not liable for payment of bill, may accept it for honor of any
party liable on the bill . Such acceptor is called ‘Acceptor for honor”.
3.3 TYPES OF NEGOTIABLE INSTRUMENTS
There are two types of Negotiable Instruments:
1. Instruments Negotiable by Statute
The Negotiable Instruments Act mentions orgy three kinds of negotiable instruments (Section 13).
These are:
• Promissory Notes
• Bills of Exchange
• Cheque:
2. Instruments Negotiable by Custom or Usage
There are certain other instruments which have occupied the character of negotiability as a result
of usage or custom of trade. For example:
• Exchequer bills.
• Bank notes,
• Share warrants,

9. 9 | P a g e
• Circular notes,
• Bearer debentures,
• Dividend warrants,
• Share certificates with blank transfer deeds, etc.
4.1 Promissory Notes
Section 4 of the Act defines a promissory note as an instrument in writing.
It contains an unconditional undertaking which is signed by the maker to pay of certain sum of
money to, to the order of certain person, or to the bearer of the instruments. The person, who makes
the promissory note, promises to pay and is called the maker. The person to whom the payment is
to be mode is called the payee.
Essential features
The following are the essential features of a Promissory note,:
1. The promise must be in writing.
2. The promise must be signed by the maker or payer.
Chapter: 04
Promissory notes, Bill of Exchange, Cheque

10. 10 | P a g e
3. The promise must be unconditional.
4. The amount to be paid must be definite in terms of money.
5. It must be payable on demand or at a fixed or determinable future date.
6. It must be payable to a definite person. The Payee must be certain.
7. Promissory note must bear stamp at the rate prescribed by law of a country.
Parties to Promissory notes
To a promissory note, there are two parties viz. ‘Maker’ and the ‘Payee’.
(i) Maker or Drawer:
The maker is the person who makes and signs the note. He agrees to pay a certain amount on the
date of maturity.
(ii) Payee or Drawee:
The person in whose favour the promissory note is drawn is called payee. He is also known as
drawee or promisee. Usually, the drawee is also the payee. In the above case, the payee is the
person to whom the amount due on promissory note is payable.
4.2 Bill of Exchange
It is an instrument in writing. Further, it contains an unconditional order signed by the maker,
directing a certain person to pay
• A certain sum of money only to, or
• To the order or
• Certain person to the bearer of the instrument.
Essentials

11. 11 | P a g e
• 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 or payee.
Example
• Please let the bearer have Rs. 15000 and oblige.
• We hereby authorize you to pay on our account to the order of X, Rs 65000.
4.3 Cheque
A cheque is a bill of exchange drawn on a specified banker. It is expressed to be payable otherwise
than on demand.
Essentials
• In writing
• Express order to pay
• Definite and unconditional order
• Signed by drawer
• Order to pay certain amount
• Payable on demand
Parties
Drawer: The maker of a bill of exchange.
Drawee: The person directed to pay the money by the drawer.

12. 12 | P a g e
Payee: To whom or to whose order the money ore directed to be paid by the instruments. The
person named in the instrument only.
OTHER NEGOTIABLE INSTRUMENTS
Bill in sets
Foreign bills are generally drawn in set of 3 each. To avoid miscarriage during transit, they are
drawn in different parts and each part is transmitted separately and all these parts, as a whole
constitute a complete bill.
Accommodation Bill
They are drawn, accepted and subsequently discounted from a bank for accommodating a friendly.
They are not real bills and hence, do not represent acknowledgement of an actual debt.
Example: A in order to financially help X, writes a bills on a mutual friend X who accepts the bill,
Y then gets the bill discounted from a bank. He pays the required amount on maturity to X
(acceptor) who in turn makes payment to the bank. Thus in an accommodation bill it is the payee
who is the principal debtor and the drawer and accept or act as a surety for him.
Ambiguous Instruments (Section 17)
An instrument, which in form is such that it may either be treated by the holder as a bill or as a
note, is an ambiguous instrument. Bill drawn to. to the order of the drawee, by an agent on his
principal, by one branch of a bank on another, by the direction of a company, their cashier are also
ambiguous instruments.
Example: where P draws a bill payable to P’s order, it is not an ambiguous instrument and cannot
be treated as a promissory note.
Inchoate Stamped Instrument (Sec 20)
When one person gives to another such a document, the other person is prima facie entitled to
complete the document and make it into a proper negotiable instrument up to the value mentioned
in the instrument, or up to the value covered by the stamp affixed on it.
The person signing the instrument is liable on it to any holder in due course.
Inland and foreign Bills
A bill which is
• drawn or made in India and also made payable in India or
• drawn or made in India upon any person resident in India, although it may be made payable
in a foreign country, is deemed to be an inland bill.
Example: A bill of exchange drawn in Bombay and made payable in Mumbai, although the drawee
may be residing outside India. Or a bill of exchange drawn in Raipur on a person resident in
Mumbai, although it may be made payable outside India.

13. 13 | P a g e
A bill which is not an inland bill, is deemed to be a foreign bill.
Example: A bill of exchange drawn in India, on a person residing outside India and made payable
outside India.
Conclusion
In our report we are trying to give available Knowledge about Negotiable instruments. Negotiable
Instrument means a transferable, signed document that promises to pay the bearer a sum of money
at a future date or demand.