Negotiable Instruments and it’s characteristics

Negotiable instrument act enacted on 9th December 1881, by Imperial Legislative Council is an act to define the law relating to negotiableinstruments.

Some imp dates and their significance for the act:

          Negotiable Instrument Act (1881)

            (Citation: ACT No. 26 of 1881)

1866 – The act was originally drafted.

1867- “Introduced in the council and was referred to a select committee.”

1877-“ the bill was revised by a select committee, after the lapse due to criticism by local governments , high courts and chamber of commerce.”

1880-“ By the order of secretary of state the bill was referred to new law commission as in spite of everything happened in the past bill could not reach the final stage.” The bill was redrafted.

1881- Thus after being prepared for 4 times, it was introduced in the council.

1882-  Commenced on 1 March 1882.

Characteristics of Negotiable Instruments :

  • These are freely transferable in nature. for example; property is a negotiable instrument and it is readily transferable by a simple process of delivery..
  • Presumed to have been

1. made

2. accepted

3. endorsed

4. drawn

5. negotiated

6. transferred for consideration

  • They are easy for recovery

Independent Title: “The general principle as regards the transfer of property, that is, no

“One can give a better title than he himself has, is not applicable in case of negotiable

instruments.  If  the  transferor  had  obtained  a  negotiable  instrument  by  exercising fraud, but the transferee obtains that negotiable instrument in good-faith (bona-fide)

for  value,  then  the  transferee  shall  enjoy  a  good  title  as  regards  that  negotiable

instrument.  Thus,  the  title  of  the  transferee  as regards  a  negotiable  instrument  is independent of the title of

the transferor.”

“The holder who acquires the instruments hold title free from all defects.”

“Every holder of instrument is presumed to be holder in due course.”

 Presumptions as to negotiable instruments: “Sections 118 and 119 of the Negotiable Instrument Act lay down certain presumptions which the court presumes in regard to negotiable instruments. In other words these presumptions need not be proved as they are presumed to exist in every negotiable instrument”. Until the contrary is proved the following presumptions shall be made in case of all negotiable instruments:

 1. Consideration: “It shall be presumed that every negotiable instrument was made drawn, accepted or endorsed for consideration. It is presumed that, consideration is present in every negotiable instrument until the contrary is presumed. The presumption of consideration, 6 however may be rebutted by proof that the instrument had been obtained from, its lawful owner by means of fraud or undue influence.”

 2.Date: “Where a negotiable instrument is dated, the presumption is that it has been made or drawn on such date, unless the contrary is proved.”

3. Time of acceptance: “Unless the contrary is proved, every accepted bill of exchange is presumed to have been accepted within a reasonable time after its issue and before its maturity. This presumption only applies when the acceptance is not dated; if the acceptance bears a date, it will prima facie be taken as evidence of the date on which it was made.”

 4. Time of transfer: “Unless the contrary is presumed it shall be presumed that every transfer of a negotiable instrument was made before its maturity.”

 5. Order of endorsement: “Until the contrary is proved it shall be presumed that the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon.”

 6. Stamp: “Unless the contrary is proved, it shall be presumed that a lost promissory note, bill of exchange or cheque was duly stamped. “

7. “Holder in due course: Until the contrary is proved, it shall be presumed that the holder of a negotiable instrument is the holder in due course. Every holder of a negotiable instrument is presumed to have paid consideration for it and to have taken it in good faith. But if the instrument was obtained from its lawful owner by means of an offence or fraud, the holder has to prove that he is a holder in due course.”

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