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2. LLB


Reference books : As suggested by the University of Pune in their syllabus.

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a) Introduction:

The word "Negotiable" means transferable by delivery and the word instruments means written documents. It entitles a person to a certain sum of money. It is a written document which is transferable from one person to another by delivery. The Negotiable Instruments Act, 1881 deals with the law relating to negotiable instruments in India.

b) Definition:

Section 13 of the Negotiable Instruments Act states that a negotiable instrument is a promissory note, bill of exchange or a cheque payable either to order or to bearer. Therefore, Negotiable instruments recognised by statute are: (i) Promissory notes (ii) Bills of exchange (iii) Cheques. J. Willis defined Negotiable Instruments as instruments such that the property in which is acquired by anyone who takes it bonafide and for value notwithstanding any defect in title in the person from whom it is taken.

c) Characteristics:

Characteristics Of Negotiable Instruments :- Following are the important characteristics of negotiable instruments :

1. In Writing :-

It is the basic condition of the negotiable instrument that it is always in writing. It can not be verbal.

2. Unconditional :-

It is an unconditional instrument if any condition is attached then it can not be called negotiable instrument.

3. Transferable :-

It can easily transferable from one person to another. In these instruments right of ownership passes either by delivery or by endorsement.

4. Payable On Demand :-

The amount of the instrument is payable on demand or at any predetermination future time.

5. Payable In Money :-

The amount must be written on the instrument and it is always payable in terms of money.

6. Payable To The Bearer :-

The amount written on it is payable to the bearer or to a specified person.

7. Payment of Debt :-

It can be very easily used for the payment of debt. It is very simple and convenient method of payment.

8. Right of Recovery :-

A cheque or Note gives the right to the creditor to recover the written amount from the debtor. He can recover this amount by himself or he can transfer this right to another.

9. Better Title :-

If there is a defect in the title of the previous holder it does not affect the holder in due course. So it is abetter little than others.

10. Exception of General Law :-

In case of transfer of property the general concept of law is that "No body can transfer a better title than that of his own."

But in case of instrument this law does not apply. A negotiable instrument even got in good faith from thief is better title.

11. Specified Amount :-

It is also a characteristic of negotiable instrument that specified and definite amount is written on the instrument.

d) Types of Negotiable Instruments:

1. Promissory Note:

i) Definition - S. 4 - A " promissory note" is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

ii) Essentials:
- must be in writing
- must contain a promise or undertaking to pay
- promise must be unconditional
- must be signed by the maker
- maker and payee must be certain persons
- must be for a certain sum of money
- promise to pay money only
- must bear sufficient stamp
- cannot be made payable to a bearer

2. Bill of Exchange:

i) Definition - S. 5 - 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.

ii) Essentials:
- must be in writing
- must contain an order to pay
- order must be unconditional
- must be signed by the drawer
- drawer, drawee and payee must be certain
- must contain an order to pay a certain sum of money
- order to pay money only
- must be properly stamped

3. Cheque:

i) Definition: - S. 6 - A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

ii) Essentials:
- must fulfil all requirements of a bill of exchange
- can be made payable to the bearere or to order - must be payable on demand
- must be signed by the drawer
- signature of drawer must tally with specimen bank signature
- must be presented within six months after the due date

The same holds when the instrument is acquired after maturity


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