OTHER NEGOTIABLE INSTRUMENTS

 OTHER NEGOTIABLE INSTRUMENTS

1. Inland Instrument(Section 11) 

A promissory note, bill of exchange or cheque drawn or made in India, and made payable in, or drawn upon any person resident in India, shall be deemed to be an inland instrument. An inland instrument, therefore, may be, either:

(i) made or drawn in India and also made payable in India; or, 

(ii) drawn in India on a person resident in India, although it is stated to be payable in a foreign country.

Examples of inland instruments are:

1. A promissory note made in Delhi and payable in Bombay. 

2. A bill of exchange drawn in Delhi and made payable in Bombay (It may have been drawn on some person resident abroad, e.g., London).

3. A bill of exchange drawn in Delhi on a person resident in Bombay (although it is stated to be payable in London)

(2) Foreign Instrument (Section 12)

Any instrument which is not so drawn, made or made payable that it may be called an inland instrument, shall be deemed to be a foreign instrument. Thus, a foreign instrument is one which is not an inland instrument.

Examples of foreign instruments are:

1. A promissory note made in India, but made payable in England.

2. A promissory note made in England, but payable in India.

3. A bill of exchange drawn in India and payable in England.

4. A bill of exchange drawn in England and made payable in India. 5. A bill of exchange drawn in England and payable in Paris, although it may have been indorsed in India. 

 (3) Instruments payable on demand

When a negotiable instrument is expressed to be payable on demand, it is due for payment immediately after its issue. U/s 21 The expression "at sight" and "on presentment" also mean on demand. In a promissory note and a bill of exchange it may be mentioned whether the same is payable on demand or otherwise, but in the case of cheque nothing of that sort is to be mentioned because a cheque is always payable on demand. A post dated cheque is also payable on demand. Such a cheque is deemed to be issued on the date which it bears, although the same may have been delivered earlier than that date. The payment of such a cheque can therefore, be demanded at any time from th: date mentioned on the cheque.

The following instruments are payable on demand :

(i) Instruments where no time is specified (U/S 19)

(ii) Instruments payable at sight (U/S 21) 

(iii) Instruments payable on presentment (U/S 21)

Since the instruments payable on demand (or at sight or on presentment) are meant for immediate payment no question of their maturity arises. They are due for payment from the date of their issue.

(4) Instruments payable otherwise than on demand 

A promissory note or a bill of exchange can be payable otherwise than on demand but not a cheque.

A promissory note or a bill of exchange can be expressed to be payable otherwise than on demand and not a cheque Examples of such instruments are -

(i) When it is made on one date but is expressed to be payable on some other future date. For example, a bill of exchange drawn on 1st January could be expressed to be payable on 1st April.

(ii) When the payment is to be made at certain period after date, for example, a bill of exchange drawn on 1st January could be expressed to be payable "Two months after date". It means that the drawer wants the payment of such a bill to be made two months after the date of its issue.

(iii) U/S 21 When the payment is to be made at certain period after sight. The expression "after sight" in a promissory note means after presentment for sight, and, in a bill of exchange it means after acceptance. Thus, if a promissory note payable "Two months after sight" is issued on 1st January and is presented for sight on 10th January, it is expressed to be payable two months after 10th January.

(iv) When a promissory note or bill of exchange is expressed to be payable after the lapse of a certain period after the happening of a certain event, it is payable when the specified period elapses after the happening of the specified event. 

(5) Time Instruments

A bill of exchange or a promissory note payable : 

(i) Payable after a fixed period; or

(ii) Payable after sight; or

(iii) Payable on a specified day: or 

(iv) Payable on the happening of an event which is certain to happen

-is called as a time instrument.

• Payable after sight means : 

(a) for a bill of exchange means after acceptance.

(b) for a promissory note means after presentiment for sight.

(6) Accommodation Bills  

When a bill is drawn, accepted, or indorsed for consideration, it is called a "genuine trade bill". When it is drawn, accepted or indorsed without any consideration, it is called an accommodation bill'. 

Example. A is in need of 1,000. He approaches his friend B for borrowing the amount. B is not in a position to lend, but he suggests that A might draw a bill on him which he would accept. If the credit of A is good, he would get the bill discounted with his banker. On the due date. A would pay 1,000 to B who would meet the bill. This bill is an accommodation bill.

In this case, B is the 'accommodating party', or 'accommodation party', and A is the accommodated party, The accommodating party signs the 'accommodation bill's as drawer, acceptor, or indorser without other person. He is liable on the bill to the holder, it is immaterial whether, when such holder took the bill, he knew such party to accommodating party or not.

The rules regarding accommodation bills are as follows: 

1. The accommodated party cannot, after he has paid the amount of the bill, recover the amount from any person who became a party to the bill or his accommodation.

Example. A bill is drawn and accepted for the accommodation of B, the payee, 8 indorses the bill to C. the bill is dishonored and B pays the amount of the bill. B cannot sue the drawer or the acceptor to recover the amount. 

2. An accommodation bill can even be negotiated after maturity provided the person to whom it is negotiated takes it in good faith and for consideration (Sec. 59) 

3. Non-presentment of an accommodation bill to the acceptor for payment does not discharge the drawer.

4. When an accommodation bill is dishonored, failure to give notice of dishonour does not discharge the prior parties form the liability (See 98) 

(7) Fictitious bills (Section 42) 

When the name of the drawer or payee or both are fictitious, the bill is called a fictitious bill. The word 'fictitious' means (i) a non-existing person, and (ii) pretended person, Lea person other than the actual person intended by the parties, Where a bill is drawn in the name of a fictitious person, and payable to the drawer's order, the acceptor is liable to pay to the order of the person who signed it as drawer. Therefore, the endoresee can recover the amount as against the acceptor provided he is in a position to show that the signature of the supposed drawer of the bill and the first endorsement on it are in the handwriting of the same person. case of fictitious instruments, only a holder in due course can recover the money as against the acceptor. In

(8) Ambiguous instrument (Section 17)

 When an instrument owing to its faulty drafting may be interpreted either as a promissory note or a bill of exchange, it is called an ambiguous instrument. Its holder has to elect once for all whether he wants to treat it as a promissory note or a bill of exchange [Sec. 17]. Once he does so, he must abide by his election.

If the amount undertaken or ordered to be paid is stated differently in figures and words, the amount stated in words is the amount undertaken or ordered to be paid (Sec. 18). 

(10) Inchoate instrument (Section. 20) 

An inchoate instrument is an incomplete instrument in some respect. When a person sings and delivers to another a blank or incomplete stamped paper, he authorizes the other person to make or complete upon it a negotiable instrument for any amount not exceeding the amount covered by the stamp. The person so signing is liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount.

The principal behind an inchoate instrument is essentially one of estoppel. It enables persons to lend their mercantile credit to others by signing their names on a blank instrument which may subsequently be filled up as a negotiable instrument. By such signature they bind themselves as drawers, acceptors or indorsers (Sec. 20).

The following points should be noted in connection with an inchoate instrument : 

(1) The liability of the person who signs and delivers an inchoate stamped instrument arises only when the blanks are filled in and the instrument is completed.

(2) To make the signer liable on a n inchoate instrument, it is necessary that the instrument should be delivered to the transferee.

(3) If an inchoate instrument is completed and negotiated to a holder in due course, he can claim payment of the full amount covered by the stamp even though the authority has been exceeded., and even though the signer might have given secret instructions to the holder that it should be filled in for a smaller amount.

(11) Escrow 

When a negotiable instrument is delivered conditionally or for a special purpose as a collateral security or for safe custody only, and not for the purpose of transferring absolutely property therein, it is called an escrow.

The liability to pay in case of an escrow does not arise if the conditions agreed upon are not fulfilled or the purpose for which the instrument was delivered is not satisfied.

(12) Documentary and clean Bill 

When documents of title to the goods and other documents, e.g.. invoice, marine insurance policy, etc., are annexed to a bill, the bill is called a documentary bill. Such documents are delivered to the buyer only on acceptance or payment of the bill. When no documents relating to the goods represented by the bill are attached to it, it is called a clean bill.

(13) Bills in sets

A bill of exchange is sometimes drawn in parts, especially when it has to be sent from one country to another. This is known as drawing a bill 'in a set'. The object of drawing a bill in a set is (a) to avoid undue delay and unnecessary inconvenience which may arise due to the loss or miscarriage of the bill during the transit, and (b) to ensure the safe transmission of at least one part of the bill to the drawee and its acceptance by him as early as possible.

Rules regarding bills in sets (Secs. 132 and 133).

- A bill of exchange may be drawn in parts (two, three or four). All the parts together make a set and the whole set constitutes only one well.

- Each part of the bill in a set must be numbered and must contain a provision that it shall continue to be payable only so long as the other parts remain unpaid.

- The entire bill is extinguished when payment is made on one of the parts.

- The drawer must sign each part of the bill deliver all the parts. But the stamp is affixed on one part only and only one part of the whole set needs to be accepted.