According to Section 13(i) “ a negotiable instrument
means a promissory note, bill of exchange or cheque
payable either on order or to bearer”.
An instrument may be negotiable either by
1. Statute : Promissory Notes , bills of exchange and
cheques are negotiable instruments under
Negotiable Instruments Act 1881 .
2. By Usage : Bank Notes , Bank Drafts , scripts,
treasury Bills etc
Transfer by Negotiation
Negotiation is a transfer of an instrument from
one person to another in such a manner as to
express title & to represent the transferee the
Passing of possession
With intention to pass title
Must be transferred in such a manner that the
transferee becomes holder thereof.
It is freely transferable
Right to sue
A negotiable instrument can be transferred any
number of times till its maturity
A negotiable instrument is subject to certain
Presumptions – certain presumptions as to
consideration, reasonable time etc., apply to all
Holder of Negotiable Instrument
A person is called a negotiable instrument if he
satisfied two conditions:
1. He must be entitled to the possession of the
instrument in his own name.
2. He must be entitled to receive or recover the
amount due on the instrument from the party
liable under the instrument.
Holder in Due Course
Holder in due course is a particular kind of holder,
he must satisfy the following conditions:
1. He obtained the instrument for valuable
2. He became holder of instrument before maturity.
3. He became the holder of instrument in good
faith i.e he had no course to believe that any
defect existed in the title of the person from he
derived his title.
Rights & Previlages of holder in due
Defects of instruments are eliminated.
Liability of prior parties to holder in due course.
Right in case inchaote stam instrument.
Right in case of conditional delivery of instrument.
In case of unlawful instruments.
Estoppel against denying original validity of
Estoppel against denying capacity of payee to
Protection to subsequent holder
Meaning of Endorsement
When a maker or holder writes the person‟s name on
the face or back of the instrument & puts his
signatures thereto for the purpose of negotiation, it is
Person who signs – endorser
To whom it is endorsed – endorsee.
A legal term that refers to the signing of a
document which allows for the legal transfer of a
negotiable from one party to another.
When an employer signs a check, they are endorsing
the transfer of money from the business accounts to
the account of the employee.
Essentials of valid endorsement
1. On the back or face of the instrument.
2. Must be made by maker or holder.
3. Must be properly signed by the endorser.
4. It must be for the entire negotiation instrument.
5. No specific form of words are necessary for
Kinds of endorsement
1. Blank or general endorsement – where endorsee simply
puts his signature on the back of the instrument without
writing name of the person in whose favor the
instrument is endorsed.
2. Special or full endorsement – An endorsement with the
direction to pay amount mentioned in the instrument to
a specified person or his order & the endorser writes his
signature under it.
3. Partial endorsement – When an endorser is
willing to transfer to an endorsee only a part of
the amount of the instrument. Such an
endorsement does not operate as a
negotiation of the instrument.
4. Restrictive endorsement – An endorsement
is said to be restrictive if it prohibits or restricts
the further negotiability of the instrument. The
holder of such an instrument can only receive
the payment but he cannot negotiate it further.
An instrument can be made restrictive only by
5. Conditional endorsement –
If the endorser of the instrument by express words in
the endorsement makes his liability dependent on the
happening of a specified event. Although such event
may never happen, such endorsement is termed as
It limit the liability of the endorser. E.G. – “ Pay A or
order on his marrying B”.
6. Sans Resourse Endorsement
If the endorser expressly excludes his own liability
on the negotiable instruemnt to the endorsee or
any subsequent holder in case of dishonour of
the endorsement. The endorsement may be
known as Sans Recourse endorsement.
Eg- Pay to A or order Sans Recourse endorsement
Effects of Endorsement
The property in instrument is transferred from
endorser to endorsee.
The endorsee gets right to negotiate the
The endorsee get the right to sue in his own
name to all other parties.