Negotiable Instruments Act 1881 Notes

Below given is the Negotiable Instruments Act 1881 Notes. This notes contains Features of Negotiable Instruments, Characteristics of negotiable Instruments, Meaning of Negotiation as per Negotiable Instruments Act etc. This easy language notes will help you to understand the negotiable instruments Act 1881 notes in a simpler way.


Negotiable Instruments Act-1881:


The laws relating to the negotiable instruments are contained in negotiable instruments act. This law is based on English common law. This Act is applicable to whole of India. This act came in to force in March 1st 1982. The latest amendment is made in the year 2002.

Negotiable instruments means the documents which can be transferred easily for money’s worth. Negotiable means transferable and instrument means documents. This act deals only with three types of negotiable instruments namely:

• Promissory note

• Bill of exchange

• Cheques

The Act does not deal with Currency.

Features of Negotiable Instrument:

i) The right of ownership contained in the instrument can be transferred from one person to another by:

1. Mere delivery (payable to bearer the person who holds becomes the owner)

2. Endorsement and delivery (payable to order mention the name of the person in the instrument)

ii) The transferee (to whom the instrument is transferred) taking the instrument in the good faith and for consideration gets a good title of the transferor (who transferred) is defective).

Characteristics of Negotiable Instrument:

1. Property

In general the right of property of the Negotiable Instrument is with the person who possesses the instrument. The person who holds the instrument is not only given with mere possession but also with right to property.

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2. Freely transferable:-

The property in Negotiable Instrument can be freely transferable from one person to another by mere delivery (bearer) or by endorsement & delivery (to order)

3. Title of Holder in Due Course Free From all Defects:-

A holder in due course (i.e. the person who becomes the possessor of negotiable instrument before maturity, for valuable consideration in good faith) gets the instrument free from all defects in the title.

4. Recovery

The holder in due course can sue upon a negotiable instrument in his own name for the recovery of the amount and he need not give notice of transfer to the party liable on the instrument to pay.

5. Presumptions:-

There are certain presumption which has to be made in case of negotiable instruments if not mentioned otherwise. Presumptions has to be made in relation to

 Consideration:  transferred for some consideration

 Date:  date mentioned in the instrument is considered as date of made

 Time of acceptance: it is presumed that it has been accepted within a reasonable time before maturity

 Stamp: when an instrument is lost it is presumed that it was duly stamped.


When a Negotiable Instrument is transferred from one person to another in a motive to make him as a holder then it is called as negotiable. To complete the negotiation it is essential that the negotiable instrument has to be delivered. The delivery must be voluntary. Sec 46 states that the negotiation ends with delivery.

Note : When it is transferred only for safe custody then it is not a negotiation.

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There are two types of negotiation

Negotiation by delivery: when the instrument passes along with ownership from one person to another it is called negotiation by delivery here the bearer of the instrument becomes the owner of the instrument (sec 47).

Negotiation by endorsement and delivery: when the transferor transfer the instrument along with the name to whom it is assigned in the face or back of the instrument it is called endorsement and delivery.

Kinds of negotiation

• Actual:-  Negotiable Instrument change hand physically

• Constructive:- Negotiable Instrument has been given to agent

• Conditional or special:- Negotiable Instrument can be delivered on condition for happening or non-happening of such event. The property in this case will not transfer even after delivery.

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