The Negotiable Instruments Act, 1881

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Questions:

Multiple Choice Question

7 x 1 = 7

The number of parties to a bill of exchange is

(a)

(b)

(c)

(d)

The cheque is to be signed by the

(a)

drawee

(b)

banker

(c)

drawer

(d)

none of these

Document of title to the goods exclude ______________

(a)

Lorry receipt

(b)

Railway receipt

(c)

Airway bill

(d)

Invoice

A cheque will become stale after _______ months of its date:

(a)

(b)

(c)

(d)

When crossing restrict further negotiation

(a)

Not negotiable crossing

(b)

General Crossing

(c)

A\c payee crossing

(d)

Special crossing

Section 6 of Negotiable Instruments Act 1881 deals with _______.

(a)

Promissory Note

(b)

Bills of exchange

(c)

Cheque

(d)

None of the above

Negotiable Instrument Act was passed in the year _________.

(a)

1981

(b)

1881

(c)

1994

(d)

1818

Generic 2

4 x 2 = 8

Define Endorsement

List three characteristics of a Promissory Note.

10.

Define Bill of Exchange.

11.

What is meant by Negotiable Instrument?

Generic 3

5 x 3 = 15

12.

what do you mean by significance of special crossing?

13.

Draw the two different types of crossing.

14.

What are the characteristics of a bill of exchange?

15.

Distinguish between Negotiability and Assignability.

16.

Explain the nature of a Negotiable Instrument.

Generic 5

2 x 5 = 10

17.

Explain the different kinds of endorsements.

18.

Distinguish a cheque and a bill of exchange.(any 5)

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Answers Key:

Multiple Choice Question

7 x 1 = 7

(d)
3

(d)
Invoice

(a)
3

(a)
Not negotiable crossing

(b)
1881

Generic 2

4 x 2 = 8

When the maker or holder of a negotiable instrument signs the name, otherwise that as such maker for the purpose of negotiation, on the back or face thereof, or on a slip of paper annexed there to or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to endorse the same and is called the endorsee.

Characteristics of a promissory note:
(i) A promissory note must be in writing.
(ii) The promise to pay must be unconditional.
(iii) It must be signed by the maker.

10.

According to section 5 of the Negotiable Instruments Act, "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''.

11.

(i) The word "Negotiable" means transferable from one person to another in return for consideration.
(ii) The word 'Instrument' means a written document by which a right is created in favour of certain person.
(iii) A negotiable instrument is a document which entitles a person to a certain sum of money and which is transferable from one person to another by mere delivery or by endorsement and delivery.

Generic 3

5 x 3 = 15

12.

(i) Here the paying banker should make payment only to the particular banker named as a part of special crossing or to his agent for collection.
(ii) Thus special crossing is safer than general crossing.

13.

Crossing is of two types: General crossing and special crossing
General Crossing:
1. It is according to section 123 of the Negotiable Instruments Act, 1881.
2. "Where a cheque bears across its face with 'and company" or any abbreviation between two parallel transverse lines with or without the words 'not negotiable, the cheque shall be deemed to be crossed generally':
Special Crossing:
1. It is according to section 124 of the Negotiable Instruments Act, 1881.
2. "Where a cheque bears across its face an addition of the name of a banker with or without the words 'not negotiable, the cheque shall be deemed to be crossed specially and to be crossed to the bankers".

14.

Characteristics of a bill of exchange
(i) A bill of exchange is a document in writing.
(ii) The document must contain an order to pay.
(iii) The order must be unconditional.
(iv) The instrument must be signed by the person who draws it.
(v) The name of the person on whom the bill is drawn must be specified in the bill itself.
(vi) The amount that isrequired to be paid must also be specified in the bill.

15.

SI.No	Basis of Difference	Negotiability	Assignability
1.	Legal ownership	It passes to the transferee by mere endorsement in the case of a bearer instrument and by endorsement and delivert in the case of an order instrument.	An assignment can be made by observing certain formalities. For instance, an instrument is to be made in writing, duly stamped and igned by the transferor or his agent.
2.	Notice	Notice is not necessary for the holder of negotiable instrument to claim the payment from the debtor.	In case of actionable claim, notice of the assignment by the transferee regarding the transfer of debt to the debtor is necessary.
3.	Nature of title	Holder of negotiable instrument in due course gets a better title than even the transferor.	The transferee's title to the instrument is subject to the defects of the transferor's title.
4.	Consideration	Consideration is presumed	The assignee has to prove the consideration for the transfer.

16.

(i) The word 'Negotiable' means transferable from one person to another in return for consideration
(ii) The word 'Instrument' means a written document by which a right is created in favour of certain person.
(iii) A negotiable instrument is a document which entitles a person to a certain . sum of money and which is transferable from one person to another by mere delivery or by endorsement and delivery.
(iv) The law relating to negotiable instruments is dealt in the Negotiable Instruments Act 1881.
(v) This Act speaks about promissory note, bills of exchange and cheques.

Generic 5

2 x 5 = 10

17.

1. Endorsement in blank or general Endorsement : When the endorser puts his mere signature on the back of an instrument without mentioning the name of the endorse. (Receiver)
2. Endorsement in full or special Endorsement : In addition to his signature, specifies the person to whom or to whose order the instrument is payable.
3. Conditional or qualified Endorsement : Endorser makes his liability dependent upon the happening of an event which may or may not happen.
4. Restrictive Endorsement : When an endorsement restricts or prohibits further Negotiability of the Instrument.
5. Sans recourse Endorsement : Ordinarily the endorser becomes liable to subsequent parties in the event of dishonour of the instrument.
If he makes it clear that the subsequent holders should not look to him for payment in case it is dishonoured.
6. Facultative Endorsement : To make an endorser liable on the instrument, notice of dishonour must be given to him. But if the endorser waives this right by a writing "Notice of dishonour waived" at the time of endorsing
7. Partial Endorsement : Where the endorsement seeks to transfer only a part of the amount payable under the instrument.

18.

SI.No	Basis of Difference	Cheque	Bill of Exchange
1.	Drawn	A cheque can be drawn only on a particular banker.	A bill of exchange can be drawn on any person including a banker
2.	Payability	It is payable on demand only.	It is payable on demand or on the expiry of a certain period.
3.	Validity	A cheque drawn payable to bearer on \|demand is perfectly valid.	A bill made payable to bearer on demand is void by virtue of section 31 of the RBI Act.
4.	Acceptance	A cheque does not require any acceptance.	In case of time bill, acceptance by the drawee is necessary before he can be made liable on it.
5.	Grace Period	No days of grace are allowed in the case of a cheque for the simple reason that is always payableon demand.	Three days of grace are allowed while calculating the maturity date in the case of time bill.
6.	Notice	Notice is not necessary for a cheque.	When a bill is dishonoured, notice of dishonour is necessary.