LAHORE BUSINESS SCHOOL

Subject: Business Law

Assignment On: Negotiable Instruments

Submitted to: Miss Noor

Group members:
M. Usman Saleem ME01083-040
Muhammad imran ME01083-013
 NEGOTIABLE INSTRUMENTS

INTRODUCTION:

Exchange of goods & services is the basis of every business activity. Goods
are bought and sold for cash as well as on credit. All these transactions
require flow of cash either immediately or after certain time. It is difficult and
risky to make and receive payments in cash. Therefore businessmen use
certain documents. Some of these are discussed in detail in the following
pages.

MEANING:

Negotiable refers to ‘’Freely Transferable’’

Instrument refers to ‘’Written Document’’

‘’A written document which creates a right in favor of some person

and which is freely transferable’’

NEGOTIABLE INSTRUMENT ACT 1881

Definition:

A negotiable instrument means a promissory note, bill of exchange

or cheque payable either to order or bearer (Section 13(1))

CHARACTERISTICS
The essential characteristics of Negotiable Instruments are as follows:

 Freely transferable:
The Right of Ownership in these instruments can be transferred from
one person to another easily if the instrument is payable to bearer, the
property in negotiable instrument transfers to the transferee by delivery. If
instrument is payable to order, the property in negotiable instrument
transfers by endorsement and delivery.

 Rights of the Holder:

A holder of negotiable instrument has a right to recover the money
from the person liable on the instrument. The holder can recover amount
himself or transfer his rights to another person called transferee who can sue
the person liable in his own name in case or dishonor.

 Title of Holder in due course:

A person taking the negotiable instrument in good faith, without
negligence and for value becomes holder in due course. He gets the
instrument free from all defects a holder in due course gets a better title
even the title of the transferor might be defective.

 Promise OR Order:
It contains an unconditional promise or order to pay.

 Certain Amount:
In negotiable instruments, the promise or order is made for the
payment of certain amount.

 Presumptions:
Some presumptions of law apply to all negotiable instruments such as:

 Negotiable instrument for consideration

 Dated
 Reasonable time of acceptance
 Stamped
 Transfer before maturity

Examples of Negotiable Instruments

• Promissory Notes
• Bills of Exchange
 • Cheques
• Dividend Warrants
• Share warrants
• Bearer Debentures

Here we discussing only three main instruments

PROMISSORY NOTE
Definition:

‘’A promissory note is an instrument in writing (not being a bank

note or a currency note) containing an un conditional undertaking,
signed by the maker, to pay on demand or at a fixed or
determinable future time a certain sum of money only to, or to
order of, a certain person, or to the bearer of the instrument.’’
(Section 4)

SPECIMEN
A specimen of Pro note is given below:

PARTIES TO PRO NOTE:

Following two parties to pro note

Maker: the person who makes the promissory note or the person who
promises to pay is called maker.
Payee: the person with whom, the promise is made to pay is called payee

In the above specimen

Maker  Winning Edge Inc.

Payee  Charter State Bank

ESSENTIALS

Following are the Essentials of Promissory Note:

 In Writing:
A promissory note must be in writing. A verbal promise to pay
is not a promissory note. The writing may be on any paper. It may be printed
or typed.

 Promise to pay:
There must be a promise or undertaking to pay, a mere
acknowledgement of debt without a clear promise is not a promissory note.

Examples:
1. I am liable to pay Rs 500 to Mr. Imran
2. I have taken from Imran Rs 500 and I a accountable to him for the
same with interest.

The above instruments are not valid

 Unconditional promise:
It must contain unconditional promise to pay. The promise
must not depend upon happening of some uncertain event. It must be
absolute. If it contains a conditional promise, it is not a valid promissory
note.

Examples:
1. I promise to pay as soon as I can
 2. I promise to pay Rs 700 after my marriage with C

The above instruments are not valid

 Signed by maker:
It is necessary that maker must sign the promissory note.
When the maker is illiterate, his thumb impression is sufficient.

 Certain maker:
The instrument must indicate who is liable to pay. Where
there are more than on makers, they may be liable jointly and individually.
But alternative promisors are not allowed.

Examples:
1. A note in the form ‘’ I promise to pay to Imran Rs. 500’’ and signed by
Ali and also Usman is not valid.
2. A note in form ‘’ I, X, promise to pay to Z Rs. 500 and signed by X or
also Y is a good note as against X only.

 Certain Payee:
The payee of a pro note must be a certain person. The
payee’s name can be indicated by his official designation. It may be payable
to two or more persons jointly or individually.

Examples:
1. A promissory note payable to the manager of the bank or the principal
of a college is regarded as payable to a certain person.
2. X signs a note as ‘’I promise to pay a sum of Rs. 500 to Y or Z’’ is a
valid note because payee is considered a certain person.

 Certain Sum:
It is necessary that the sum of money promised to be payable
must be certain and definite. If the amount to be paid is uncertain the
instrument will be not be a valid promissory note

Example:
A note in form ‘’I promise to pay the Rs. 500 and all fines according to rules;;
is not valid

 Pakistani Currency:
A promissory note containing a promise to pay a certain
amount in forghin currency is not a valid pro note. For a valid note, id must
contain a promise to pay a certain amount in Pakistani currency.
Example:
A note sign by A, ‘’I promise to pay the Rs.500 on 1st January next’’ is a valid
note.

 Other formalities:

Some other formalities are also necessary

 The place should be mentioned where it is made.

 The date should be mentioned on which it is made.
 The promise to pay must be for lawful consideration.
 It must be properly stamped under the stamp act.

IMPORTANT POINTS:

The following points regarding Pro note are important.

 A note payable ‘’only to a particular person’’ is valid even though it is not

a negotiable instrumentals it restricts its transferability.
 A pro note can not be originally made ‘’ payable to bearer’’ because Stat
bank of Pakistan prohibits the issue of such promissory note.
 It can be drawn payable to order originally
 On endorsement in blank it can become ‘’ payable to bearer ‘’
 A bank note or a currency note is note a pro note as it is money itself.
 BILLS OF EXCHANGE
Section 5 of negotiable instrument act 1881 defines a BILL OF EXCHANGE
as:

Definition:

“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 the order of, a certain
person or to the bearer of the instrument.”

SPECIMEN

Parties to Bill of exchange:

Following are the three parties to a bill of exchange.

1. Drawer:
The person who makes the bill is called the drawer or the creditor.
2. Drawee:
The person who is directed to pay is called the drawee or the debtor.
3. Payee:
The person to whom, the payment is to be made is called payee.
 ESSENTIALS

Following are the essentials of BILL OF EXCHANGE:

 In writing:
The bill of exchange must be in writing. A verbal order to pay cannot
be called bill of exchange. The law does not explain about writing. In
practice, the bill of exchange is written on stamped paper or on form. It is
written in link. It may be printed or typed.

Example:
A draws a bill on b as: “Pay Rs. 5000 to X or order”. It is a valid bill.

 Unconditional Order:
The language used in a bill should convey an order to pay must not
depend upon the happening of an event. It must be unconditional.

Examples
a. A draws a bill on B, as “Pay Rs. 5000 to C as early as possible. “It is not
a valid bill.
b. A draws a bill on B, as “Pay Rs. 5000 to C or order. “It is a valid bill as it
is unconditional.
c. A draws a bill on B, as “Mr. X please let the bearer have Rs. 500 and
obliged”. It is not a valid bill as it contains a request and not an order.

 Signed by Drawer:
It must be signed by the drawer. The signature may be in any part of
the instrument and not necessarily at the bottom. If the drawer is illiterate
his thumb impression is sufficient.

Example
A draws a billion B “Pay Rs. 1000 to X or order” but dose not sign
thereon. It is not a valid bill.

 Certain Drawee:
The drawee of a bill of exchange must be a certain person. The name
of the drawee of a bill of exchange must be mentioned in the bill. If the bill
dose not mentions the name of the drawee it is not a valid bill.

Example
X draws a bill as: “Pay Rs. 10000 to Y or order.” it dose not mentioned the
name of the drawee so it is not a valid bill.
  Certain Payee:
The payee of a bill must also be a certain person. The payee’s name
can be indicated by his official designation only. A bill may be made payable
to two or more payees jointly or it may be made payable in the alternative to
one of two or one or some of several payees. (section. 13(2))

Examples:
1. A draws bill as under
2. Pay Rs.500 to principal of LBS
3. Pay Rs 500 to X or Y
4. Pay Rs.500 to M and N

The above Bills are valid.

 Certain Sum:
It is also essential that the some payable must be certain and definite.
If the amount ordered to be paid is uncertain the instrument cannot be called
a valid bill of exchange.

Example:
M draws a bill on N as ‘’pay to X Rs.500 and all the other sums due to him’’ it
is not a valid bill
X draws a bill on N as ‘’pay to X Rs. 500 on 1st June 2001’’ it is a valid bill.

 Term of Currency:
It is necessary that the payment must be made in currency and not
any thing else. If the bill contains an order to pay money and some thing
addition to money it can not be a valid bill.
Example:
A draws a bill on B as ‘’ pay Rs.500 and delivered 100 bags of wheat to X’’ it
is not a valid bill

 Other formalities:
Other formalities like Date, Place, Attestation, Consideration etc. are
usually mentioned in the bill but they are not essential in law.

IMPORTANT POINTS:

 A bill of exchange directing to pay ‘’ only to a particular person’’ is

valid. But it is not negotiable instrument according to the definition
because its transferability is restricted.
 A bill can be originally drawn ‘’payable to bearer ‘’ but it must be
payable otherwise than on demand. (Say three months after date) in
other word a bill cannot be drawn ‘’ payable to bearer on demand.
  A bill drawn ‘’ payable on demand’’ must be made ‘’ payable or order’’

CHEQUE

Definition:
Section 6 of negotiable instrument act 1881 defines a cheque as:

‘’ cheque is a bill of exchange drawn on a specified bank and not

expressed to be payable otherwise than on demand’’

SPECIMEN

Parties to Cheque:

Following are the three parties to a bill of exchange.

1. Drawer:
The person who draws the cheque is called the drawer. The drawer of the
cheque is an account holder of the bank on which he draws the cheque.
2. Drawee:
The bank on which the cheque is drawn is known as drawee.
3. Payee:
The person to whom, the cheque is made payable is called payee.
In the above specimen

Drawer  Muhammad Ijaz, who signed the Cheque

Drawee  the Atlas Bank
Payee Ships & wheel Freight Co

ESSENTIALS

Following are essentials of a CHEQUE:

 In writing:
The cheque must be in writing. Cheques which are printed or made out
on a type writer are also valid. Banks discourage this practice because such
cheques can easily be altered. Customer should be encouraged to draw
cheques in ink. Cheques prepared in led pencils are returned as unpaid.

Examples:
1. A draws a cheque in following terms
2. Pay usman or bearer Rs. 500
3. Pay usman Rs 500

The above cheques are valid.

 Unconditional Order:
It must contain an order to pay unconditionally. If the bank is ordered
to pay upon the condition of payees assigning the receipt then the
instrument is a conditional order and thus not a cheque.

 Signed by Drawer:
A cheque will be valid only if it is signed by the account holder or by
some one who is authorized to sign on his behalf.

 Payable on demand:
A cheque is always drawn payable on demand. The demand should be
made within a reasonable time. In Pakistan the cheques must be presented
within six months from the date of issue.
Example:
Usman draws a cheque on 1st june 2003 as ‘’ pay Imran Rs.500’’ it is
valid till six months.

 Certain Sum:
The amount mentioned in the cheque should be certain. In practice,
banks return the chuque if the amount in word and figures differs

Example:
Usman draws a cheque as ‘’Pay N Rs. 500 and some amount according
to his need’’ is not a valid

 Payable to bearer or Order:

The drawer of a cheque can make it payable to the bearer or any
specified person.

Examples:
‘’Pay Usman Rs.500’’ Valid
‘’Pay Usman or bearer Rs.500’’ Valid

TYPES OF CHEQUE

It may be divided in the following two types:

1. Open Cheque:
An open cheque is payable at the counter of the bank on the
presentation of the cheque. It need not be presented through a bank
account. It has two kinds.

a) Bearer cheque: in a bearer cheque the paying bank need not check
the authenticity of the holder of the cheque. There is great risk
involved. If the cheque goes into wrong hands, he may get the
payment from the bank unless its payment has already been stopped.

b) Order Cheque: it is also payable at the counter of the bank. It is paid

by the bank after being satisfied about the true identity of the holder of
the cheque.

2. Crossed Cheque:
It is not payable at the counter. Its payment is made only through the
collecting bank of a customer. The collecting bank credits the proceeds
 of the cheque to the account of the payee. The crossing provides
protection to the holder of account.
CROSSING OF CHEQUE

Meaning:
A cheque is said to be crossed when two parallel transverse lines are
drawn on the left corner of the cheque.

Purpose:
The purpose of crossing is to give a direction to the bank not to pay the
cheque across the counter but to pay it only to a bank.

TYPES OF CROSSING

There are two types of crossing

1. General crossing: where a cheque bears across its face an addition

of the words ‘’and company’’ or any abbreviation therof, between the
two parallel lines, or of two parallel transverse lines simply, either with
or without the words ‘’not negotiable’’ that addition shall deemed a
crossing, and the cheque shall be deemed to be crossing generally.
(section 123)

2. Special Crossing: where a cheque bears across its face an addition of

the name of a bank ether with or without the words ‘’not negotiable’’
that an addition shall be deemed a crossing, and the cheque shall be
deemed to be crossed specially and to be crossed that bank. Thus,
where a cheque is crossed specially the bank on whom it is drawn shall
not pay it otherwise than to the bank to whom it is crossed or his agent
for collection. The special crossing can be made as follows. (section
124)
 DIFFERENTIATION

DIFFERENCE BETWEEN BILL OF EXCHANGE & PROMISSORY NOTE

BILL OF PROMISSORY
EXCHANGE NOTE
1. Number of Parties: 1. Number of parties:
In a bill of exchange there are three In a promissory note there are two
parties i.e. the drawer, the drawee parties i.e. the maker and the payee.
and the payee.
2. Nature of instrument:
2. Nature of instrument: A promissory note contains an
A bill contains an unconditional order unconditional promise to pay.
to pay. 3. Maker and payee:
In a promissory note the maker and
3. Maker and payee: the payee are different person.
In a bill of exchange the drawer and
the payee may be the same person. 4. Maker:
A promissory note is written by the
4. Maker: debtor.
The creditor writes a bill of change.
5. Acceptance:
5. Acceptance: A pro note needs no acceptance as it
A bill of exchange must be is written and signed by the person
acceptance by the drawee before it is who is liable to pay.
presented for payment. 6. Nature of liability:
Liability of maker of a promissory
6. Nature of Liability: note is primary and unconditional.
Liability of a drawer is secondary and
conditional. The drawer is liable only
when the acceptor does not honor 7. Copies:
the bill. A promissory note cannot be drawn
in set.
7. Copies:
A foreign bill must be drawn in sets. 8. Payable to bearer:
A promissory note cannot be
 8. Payable to bearer: originally made payable to bearer
A bill of exchange can be drawn because only the Govt. can issue
payable to bearer. bearer promissory note.
9. Notice of dishonor:
9. Notice of dishonor: If the promissory note is dishonor, no
If the bill is dishonor the holder must notice is necessary to the maker.
give a notice of dishonor to all the
related parties. 10. Makers position:
The maker of the promissory note
10. Makers position: stands in immediate relation with
The drawer of a bill stands in and payee.
immediate position or relation with
the acceptor not with payee.
DIFFERENCE BETWEEN CHEQUE & BILL OF EXCHANGE

CHEQUE BILL OF EXCHANGE

1. Drawee: 1. Drawee:
A cheque is always drawn on a bank. A bill of exchange can be drawn on
any person including a bank.
2. Payable on demand: 2. Payable on demand:
A cheque is always payable on A bill of exchange may be drawn
demand. payable on demand or at a certain
future time.
3. Payable to bearer on 3. Payable to bearer on
demand: demand:
A cheque payable to bearer is void A bill of exchange payable to bearer
. is Void.
4. Printed form:
It must be drawn in printed form 4. Printed form:
issued by the particular bank. A bill of exchange can be drawn on
any paper and there is no printed
5. Acceptance: form.
A cheque does not require
acceptance of the drawee. 5. Acceptance:
A bill of exchange must be accepted
6. Stamp: by the drawee before it is presented
A cheque must not be requiring any for payment.
stamp.
7. Crossing: 6. Stamp:
A cheque can be crossed. A bill of exchange must be stamped.
7. Crossing:
8. Discounting: A bill of exchange cannot be crossed.
A cheque can be discounted from any
bank. 8. Discounting:
9. Copies: A bill of exchange can be discounted.
A cheque cannot be drawn in sets. 9. Copies:
 A foreign bill of exchange is drawn in
10. Purpose: sets.
The main purpose of cheque is to
minimize the use of metallic money. 10. Purpose:
The bill of exchange is drawn for the
11. Cancellation: purpose of receiving and giving
Payment of cheque can be cancelled credit.
by the notice of customer.
12. Noting or protest: 11. Cancellation:
There is no system of noting and The payment of bill cannot be
protesting in the case of cheque. cancelled.

13. Grace days: 12. Noting or protest:

Cheque is always payable on demand There is system of noting and
so there is no question of allowing protesting in case of dishonor of a
grace days. bill.

13. Grace days:

A grace period of 3 days is allowed in
the case of bill of exchange.

DIFFERENCE BETWEEN CHEQUE & PROMISSORY NOTE

CHEQUE PROMISSORY NOTE

1. Maker: 1. Maker:
Maker of a cheque i.e. the drawer is a Maker of promissory note is a person
person who has an account in a bank. who owes some money to another
person.
2. Number of parties:
There are three parties to a cheque 2. Number of parties:
namely drawer, drawee and the There are two parties to promissory
payee. note namely maker and payee.

3. Order or promise: 3. Order or promise:

A cheque contains an order to pay. A promissory note contains a promise
to pay.
4. Payable on demand:
A cheque is always payable on4. Payable on demand:
demand. A promissory note may be payable on
demand or it maybe payable at a
fixed or determinable future time.
5. Payable to bearer: 5. Payable to bearer:
A cheque may be drawn payable to A promissory note cannot be
bearer. originally made payable to bearer
because only the Govt. can issue
such note.
 6. Grace days: 6. Grace days:
A cheque is always payable on While calculating maturity date of a
demand therefore, no grace days are promissory note that is not payable
allowed to the drawee for its on demand three grace days are
payment. allowed.

7. Stamp: 7. Stamp:
No revenue stamp is required on the A revenue stamp according to the
cheque. value of the promissory note must be
affixed.
8. Printed: 8. Printed:
A cheque is always written on the A promissory note can be made on
printed form. any paper.

9. Stopping the payment: 9. Stopping the payment:

The drawer can stop the payment of The maker of the promissory note
a cheque after its issue. cannot stop the payment after its
issue.
10. Crossing:
A cheque can be crossed. 10. Crossing:
A promissory note cannot be crossed.

DIFFERENCE AMONG PROMISSORY NOTE, BILL OF EXCHANGE

AND CHEQUE

PROMISSORY NOTE BILL OF EXCHANGE CHEQUE

1. Maker: 1. Maker: 1. Maker:
A promissory note is A bill of exchange is A cheque is written by
written by the debtor written by, the creditor the person who has an
i.e. the person who is i.e. the person who has account in the bank.
liable to pay. right to demand the
payment. 2. Number of
2. Number of 2. Number of parties:
parties: parties: There are three parties
In the promissory note In a bill of exchange to a cheque namely
there are to parties i.e. there are three parties drawer, drawee and the
the maker and the i.e. the drawer, the payee.
payee. drawee and payee.
3. Maker and 3. Maker and
3. Maker and payee: payee:
payee: In a bill of exchange the In a cheque also the
In the promissory note drawer and the payee drawer and the payee
the maker and the i.e. may be the same maybe the same
payee are different person. person.
persons.
4. Drawee: 4. Drawee:
4. Drawee: Drawee of a bill of Drawee of a cheque is
There is no drawee of a exchange may be always a bank.
promissory note. anyone including bank.
5. Promise or 5. Promise or
5. Promise or order: order:
order: A bill of exchange A cheque is also
A promissory note contains an contains an
contains an unconditional order to unconditional order to
unconditional promise pay. pay.
to pay.
6. Acceptance:
6. Acceptance: A bill of exchange must 6. Acceptance:
A promissory note be accepted by the A cheque dose not
needs no acceptance as drawee before it is require acceptance of
it is written and signed presented for payment. the drawee before its
by the person who is payment.
liable to pay. 7. Nature of
liability:
7. Nature of A bill of exchange to the 7. Nature of
liability: payee or the holder is liability:
Liability of maker of secondary and Liability of the drawer of
promissory note to the conditional. a cheque to the payee
payee or the holder is or the holder is primary.
primary and
unconditional. 8. Pay able to
bearer: 8. Pay able to
8. Pay able to A bill of exchange can bearer:
bearer: be drawn payable to A cheque is always
A promissory note bearer but not on payable on demand it
cannot be originally demand. can also be made
made payable to bearer. payable to bearer and
9. Payable on on demand.
9. Payable on demand: 9. Payable on
demand: A bill of exchange may demand:
A promissory note be made payable on A cheque is always
maybe made payable demand or at a fixed or drawn payable on
on demand or at a determinable future demand.
affixed or determinable time.
future time.
10. Copies:
10. Copies: A foreign bill of 10. Copies:
A promissory note can exchange must be A cheque cannot be
not be drawn in sets. drawn in sets drawn in sets.
 11. Grace 11. Grace 11. Grace
days: days: days:
Three garce days are Three grace days are A cheque is always
allowed to maker while also allowed to the payable on demand.
calculating maturity drawee/accepter of a
date of a promissory bill of exchange
note payable otherwise payable otherwise
than on demand. than on demand
12. Stamp: 12. Stamp:
12. Stamp: A revenue stamp No revenue stamp is
A revenue stamp according to the bill of affixed on the cheque.
according to value of exchange is affixed
the promissory note is
affixed. 13. Stopping 13. Stopping
payment: payment:
13. Stopping The drawer of a bill The drawer of acheque
payment: of exchange cannot can stop the payment
The maker of a stop the payment of after its issue.
promissory note cannot the bill after its
stop the payment after acceptance by the
its issue. drawee.
14. Crossing:
14. Crossing: A cheque can be
A bill of exchange crossed.
14. Crossing: cannot be crossed.
A promissory not cannot
be crossed. 15. Printed : 15. Printed :
A bill of exchange can A cheque is always
15. Printed : be drawn on any paper. drawn on the printed
A promissory note can performa issue the
be made on any paper. bank..

CLASSIFICATION OF NEGOTIABLE INSTRUMENTS

1. Inland instrument
A note, bill or cheque drawn or made in Pakistan payable in, or drawn
upon any person resident in Pakistan shall be deemed to be an inland
instrument. (sec. 11)
 2. Foreign instrument
Any such instrument not so drawn, made , or made payable shall be
deemed to be a foreign instrument. It means an instrument which is not an
inland instrument is deemed to a foreign instrument (sec.12)

3. Bearer instrument
A negotiable instrument is payable to bearer which is expressed to be
so payable or on which the only or last endorsement is an endorsement in
blank. When an instrument is payable to bearer, the holder of it is entitled to
receive the payment. (Section 13)

4. Order instrument
A note, bill, or cheque is payable to order which is expressed to be so
payable or which is expressed to be payable to a particular person and dose
not contain words, prohibiting transfer or indicating an intention that it shall
not be transferable (Section 13(1))

5. Ambiguous instrument
An instrument which cannot be clearly identified either as promissory
note or as a bill of exchange is an ambiguous instrument. It is a faulty
instrument. Its holder may treat it as a bill of exchange or promissory note,

For example
When in a bill the drawer and the drawee are the same persons. Sec.
17)

6. Different in figures and words

If the amount under taken or order to be paid is stated differently in
figures and in words, the amount stated in words shall be the amount
undertaken or ordered to be paid provided that if the words are ambiguous
or uncertain, the amount may be ascertained by referring to the figures. (Sec
.18)

7. Instrument pay able on demand:

A note or bill payable on demand (a) where t is expressed to be so or
to be pay able at sight or on presentment or (b) where no time for payment
is specified init or (c) where the note or bill accepted or indorsed after it is
over due, as regards the person accepting or indorsing it the expressions, ;
at sight’ and presentment means on demand.

8. Inchoate instrument:
It is an incomplete instrument. A person signs and delivers to another,
a blank or in complete stamped instrument and authorizes the other person
to convert it into negotiable instrument by filling the blanks. When the
instrument is filled –up the signer becomes liable on the instrument. The
signer is liable to the amount specified therein but not exceeding the amount
covered by the stamp. But no person other than a holder in due course shall
recover from the person delivering the instrument anything in excess of the
amount intended to be paid by him. (Sec. 20)

9. Time instrument:
A time instrument means the instrument in which time for payment is
mentioned. A note or bill is a time instrument when it expressed to be
payable (a) after a specified period (b) on a specific day (c) after sight (d) on
the happing of event which is certain to happen.
The expression after sight means (a) in a note , after presentment for sight
(b) in a bill, after acceptance or noting for non-acceptance or protest for non-
acceptance . a cheque cannot be a time instrument because the cheque is
always payable on demand (sec.21)

10. Fictitious bill:

A fictitious bill is a bill in which the name of the drawer or the payee or
both is fictitious. When both the drawer and payee of the bill are fictitious
persons, the acceptor is liable to holder in due course if the holder in due
course can show that the signature of the supposed drawer and that of the
first endorser (payee) are in the same handwriting. (sec. 42)

11. Accommodation bill:

An accommodation bill means a bill which is drawn and accepted
without consideration. The accommodated party cannot, after he has paid
the amount of the bill, recover the amount from any party who became a
party to the bill for his accommodation. The holder in due course may
recover the amount of such bill from any prior party. The party
accommodation is called the accommodation party. The party
accommodated is called the accommodated party. (Sec. 43)

12. Undated bill:

When the date of a bill is not mentioned and where the date of the
acceptance of a bill, payable at a fix period after sight to omitted, any holder
may insert the true date of issue or acceptance as the case may be and such
insertation is valid. The instrument can not be considered invalid merely
because it is undated.

13. Bank Draft:

It is an order issued by one bank to another bank or to its branch to
pay a specified some of money to a specified person or his order. It is a
negotiable instrument like a cheque. Its payment cannot be stopped. It is
also known as demand draft
 14. Bills in sets:
Bill of exchange drawn in parts is called bills in sets. Some provisions
relating to bills in sets are (a. each part must be numbered b) each part must
contain a provision that it shall continue to be payable only so long as the
other parts remain unpaid. C) Each part must contain reference to other
parts. D) Each part must be signed and delivered by drawer. e) all the parts
of the whole set need not be accepted. F) when a person accepts r endorses
deferent part of the bill in favor of different persons, he and the subsequent
endorsers of each part are liable on such parts as a it where a separate bill.
(Section 132)

15. Documentary bill:

When documents relation to the goods represented by the bill e.g. bill
of lading and railway receipt, are attached to a bill. The bill is called a
documentary bill.

16. Clean bill:

When no document of title relating to the goods and other documents
are attached to the bill it is called a clean bill

17. Trade Bill:

A bill may be trade bill or accommodation bill. When a bill is drawn,
accepted, or endorsed for consideration, t is called a trade bill.

MATURITY OF NEGOTIABLE INSTRUMENTS

Maturity means the date on which the payment of instrument falls due. The
instrument payable on demand becomes payable immediately. The cheque
is always payable on demand so there is no question of its maturity. An
instrument which is not payable on demand becomes mature on the third
day after the day on which is expressed to be payable. These 3 days are
called ‘’ Days of Grace’’

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