Is this a Negotiable Instrument?

1.The instrument speaks of “I promise to pay B, Rs. 500/- when B delivers the goods” signed by A.   Discuss the nature of the transaction between A and B and
will the instrument become a pronote?
2.“Mr. ‘P’ please let bearer have Rs. 500/- and oblige” signed by ‘Q’ in this bill of exchange, whether the document comes under Bill of Exchange or not? 
Explain. 
A bill is drawn a “pay to X or order the sum of ten thousand rupees”.  In this margin the amount stated is Rs. 1000/-.  Discuss the legal position.  (May-2019).
‘A’ signs an instrument in the following terms:  “I promise to pay B or order Rs.500/-“.  What is this instrument?  (Dec-2015).
A bill is drawn payable at 50 Lucknow Road, but does not contain the name of the drawer.  ‘B’ who resides at 10 Lucknow Road, accepts the bill.  Is it a valid
bill?  (Jan-2015).
Issue:
Case A:  Whether this is a Negotiable Instrument?  No, this is not a Negotiable Instrument.
Case B:  Whether this is a Negotiable Instrument?  No, this is not a Negotiable Instrument.
Case C:  Whether this is a Negotiable Instrument?  No, this is not a Negotiable Instrument.
Case D:  Whether this is a Negotiable Instrument?  Yes, this is a Negotiable Instrument (pronote).
Case E:  Whether this is a valid NI?  No, this is a not a valid NI (Bill of Exchange).
Rule:  What is Negotiable Instrument:  As per Section 13(a) of the Act, “Negotiable instrument means a promissory note, bill of exchange or cheque payable
either to order or to bearer, whether the word “order” or “ bearer” appear on the instrument or not.”
     A negotiable instrument is actually a written document. This document specifies payment to a specific person or the bearer of the instrument at a specific
date. So we can define a bill of exchange as “a document signifying an unconditional promise signed by the person giving the promise, requiring the person to
whom it is addressed to pay on demand or at a fixed date or time”.
ELEMENTS OF NEGOTIABLE INSTRUMENTS: For a negotiable instrument the following essential elements are required:
1. Written: Negotiable instrument must be in writing
2. Signed: Instrument must be signed by maker 
3. Unconditional: It must contain unconditional promise or order to pay 
4. Certain sum: Instrument must require payment of a certain sum of money only and nothing else. 
5. Certain time: Instrument must be payable at a time which is certain to arrive.
6. Certain payee: Drawee of a bill or cheque must with reasonable certainty be named or desired. 
7. Mere delivery: Instrument must be transferable by simple delivery like cash.
8. Legal Provisions:  Pronote must be stamped with revenue stamps that are available from the post offices. In case of a pronote executed for a large
sum of money, a non-judicial stamp paper can also be used. It is important for all pronote to be stamped with the proper revenue stamp or non-
judicial stamp paper as per the Indian Stamp Act. Pronote that is improperly stamped or insufficient stamped becomes an invalid document not
admissible in Court.
Application:       In Y.Veeraiah v. M/S Margadarsi Chit Fund (P) Ltd, the court held that to make a document a “Promissory Note” within the meaning of Section
4 of the Act, it must substantially consist of a promise to pay on demand a defined sum and must not be something else and if it is a document guaranteeing
payment of a fixed sum on a certain date after certain period, it becomes a “Promissory note payable otherwise than on demand”, as contemplated within the
meaning of Section 49 of the Stamp Act.    
Conclusion: Case A:  In this case a condition is involved, the instrument is not unconditional, hence as per above discussed Rule No.3 it is not a Negotiable
Instrument.
Case B:  This is an order, where ‘Q’ ordering ‘P’ to pay money to the bearer of that note, this is not a Bill of Exchange because in Bill of Exchange at the time of
execution two parties are required here ‘P’ is a third person hence it is not a Negotiable Instrument.
Case C:  In this instrument the amount in figures and letters differ, as per the above stated rule number 4 the amount should be certain; hence it is not a
Negotiable Instrument.
Case D:  This is a Promissory Note/Pronote having all the required elements hence it is a valid Negotiable Instrument.
Case E:  As per the details given in the case the drawer name is not there, without the drawer name and his signature it is not a valid Negotiable Instrument
(Bill of Exchange).
17. Holder in due course:
A. ‘A’ the holder of a bill, endorses it to “B or order” for the express purpose that ‘B’ get it discounted.   ‘B’ negotiates the bill to ‘C’ who takes it bona
fide and for value.  Explain the position of ‘C’.  (May-2016).
B. Mr. Srinu draws a cheque for Rs. 2000/- and hands it over to Balu by way of gift.  Is Balu a holder in due course?  Discuss the interest of Balu to
receive the proceeds of the cheque.
C. A, on point of pistol, forces ‘B’ to issue a bearer cheque in the name of ‘A’.  ‘A’ afterwards hands over the cheque to ‘C’ who takes it in good faith and
for valuable consideration.  Is ‘C’ a holder in due course?  (May-2016).
Issue:
Case A:  Is ‘C’ holder in due course?  Yes, he is holder in due course.
Case B:  Is Balu holder in due course?  Yes
Case C:  Is ‘C’ a holder in due course?  Yes
Rule: As per Section 9 of the Negotiable Instruments Act, 1881 
"Holder in due course" means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or
the payee or endorsee thereof, if payable to order, before the amount mentioned in it became payable, and without having sufficient cause to believe that any
defect existed in the title of the person from whom he derived his title.
Requirements for Holder in Due Course Status
 To qualify as an HDC, the transferee must meet the requirements established by the Negotiable Instrument Act.
 The person must be the holder of a negotiable instrument that was taken:
 For value.
 In good faith.
 Without notice that it is overdue, dishonoured, or encumbered in any way, and
 Bearing no apparent evidence of forgery, alterations, or irregularity.
Application: In Banking or Commercial law, a holder in due course is a person who accepts a negotiable instrument in a value-for-value exchange without
doubting its legitimacy so ultimately in a good faith. Now the person who took it for value in good faith now becomes a real owner of the instrument and is
known as “holder in due consideration”. According to Section 9, “Holder in due course means any person who for consideration became the possessor of a
promissory note, bill of exchange or cheque is payable to bearer, or the payee or endorsee thereof, if payable to order before the amount mentioned in it
became payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title”.
The phrase “in good faith and for value” has split into 4 rudiments under sec 9-
• The instrument taken by the holder is should be for value.
• It’s necessary to obtain the instrument before its maturity.
• The instrument should be complete and regular on its face.
• The instrument should have been received in a good faith without noticing any defect or error neither in the instrument, title nor in the person negotiating it
to him.
Case- SukhanRajkhim Raja a Firm of Merchants, Bombay V. N. Raja Gopalan-
The Hon’ble court held that the plaintiff was cognizant that the cheque had been dishonoured and endorsement in his favour was only after it was returned by
the bank. Furthermore, it has lost its negotiability. Hence, the plaintiff cannot beholder in due course.
Conclusion:
Case A:  In this case ‘C’ is the holder in due course and he got it in good faith and for value.
Case B:  In this case ‘B’ is the holder in due course.
Case C:  In this case ‘C’ is the ‘holder in due course’ even though the cheque was stolen and ‘A’ was not having the good title over it.
18. Endorsing fewer amount:
A. The holder of a promissory note for Rs. 10000 writes on it “pay Rs.6000/- and endorses the note.  Examine the consequences of such an
endorsement.  (Jan-2019).
B. The holder of a promissory note for Rs. 1000 writes on it “Pay ‘B’ Rs. 500” and endorses the note.  Explain the consequential developments.
Issue: Is endorsing fewer amounts on a promissory not valid?  Yes, but it should be as per Section 56 of NI Act.
Rule: Endorsement of Instruments
Section 15 of Negotiable Instruments Act 1881 defines "Endorsement" as under:
When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation on the back or face thereof
or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to
endorse the same, and is called the "endorser".
     The act of a person who is a holder of a negotiable instrument in signing his or her name on the back of that instrument, thereby transferring title or
ownership is an endorsement. An endorsement may be in favour of another individual or legal entity. An endorsement provides a transfer of the property to
that other individual or legal entity. The person to whom the instrument is endorsed is called the endorsee. The person making the endorsement is the
endorser. Let us discuss the Endorsement of Instruments here in detail.
Types of Endorsement
1. Blank Endorsement or General Endorsement
An endorsement is blank or general where the endorser signs his name only, and it becomes payable to bearer. Thus, where a bill is payable to “Ram or order”,
and he writes on its back “Ram”, it is an endorsement in blank by Ram and the property in the bill can pass by a mere presentation.
     We can convert a blank endorsement into an endorsement in full. We can do so by writing above the endorser’s signature, a direction to pay the instrument
to another person or his order.
2. Special or Full Endorsement
An endorsement “in full” or a special endorsement is one where the endorser puts his signature on the instrument as well as writes the name of a person to
whom order the payment is to be made.
     A bill made payable to Ram or order, and endorsed “pay to the order of Shyam” would be specially endorsed and Shyam endorses it further. We can turn a
blank endorsement into a special one by adding an order making the bill payable to the transferee.
3. Restrictive Endorsement
An endorsement is restrictive which restricts the further negotiation of an instrument.
Example of restrictive endorsement: “Pay to Mrs. Geeta only” or “Pay to Mrs Geeta for my use” or “Pay to Mrs Geeta on account of Reeta” or “Pay to Mrs.
Geeta or order for collection”.
4. Partial Endorsement
Section 56 deals with partial endorsement, which says that an instrument cannot be indorsed for a part of its amount only. An endorsement partial is one
which allows transferring to the endorsee a part only of the amount payable on the instrument. This does not operate as a negotiation of the instrument.
Example: A. Mr. Mohan holds a bill for Rs. 5,000 and endorses it as “Pay Sohan or order Rs. 2500”. The endorsement is partial and invalid.
B. If the instrument is for Rs.100, it cannot be indorsed for Rs. 50 only.  But if the amount due has already been partly paid, a note to that effect may be
indorsed on the instrument and it may then be negotiated for the balance.
5. Conditional or Qualified Endorsement
Where the endorser puts his signature under such writing which makes the transfer of title subject to fulfilment of some conditions of the happening of some
events, it is a conditional endorsement.
Application: The act of a person who is a holder of a negotiable instrument in signing his or her name on the back of that instrument, thereby transferring title
or ownership is an endorsement. An endorsement may be in favour of another individual or legal entity. An endorsement provides a transfer of the property
to that other individual or legal entity. The person to whom the instrument is endorsed is called the endorsee. The person making the endorsement is the
endorser. Let us discuss the Endorsement of Instruments here in detail.
Conclusion: As per the Section 56 of the Negotiable Instrument Act, a partial endorsement is invalid, but when the payment is received in part and the
endorsement is for the remaining part, in this case the partial endorsement is valid.
19. Stolen/Forged cheques:
A. The cheque is payable to ‘M’ or order.  It is stolen and the thief forges M’s signature and presents it to the banker, who makes the payment in due
course.  Can M recover the amount from the bank?  (Jan-2020).
B. A cheque is drawn payable to ‘X’ or bearer.  Y steals it and negotiates it to ‘Z’.  Is it possible to ‘X’ to get back the cheque from ‘A’.  (Jan-2017).
C. ‘A’ drew cheques in favour of ‘B’. A’s clerk forged B’s endorsement and negotiated the cheques to ‘C’ who took in good faith and for value.   ‘C’
received payment of the cheques.  ‘A’ claims to recover the amount from ‘C’.  Will he succeed?  (Dec-2015).
D. ‘B’ obtains A’s acceptance to a bill by fraud.  B endorses it to ‘C’ who takes it as a holder in due course.  ‘C’ endorses the bill to ‘D’ who knows of the
fraud.  Can ‘D’ recover from ‘A’?  (May-2016).
E. A bill payable to ‘X or order’ was stolen.  Y forged X’s endorsement and endorsed it to ‘Z’, who takes it for value and in good faith.  Shall ‘Z’ acquire
good title to it?  (Jan-2017).
F. ‘B’ obtains A’s acceptance to a bill of exchange by fraud.  ‘B’ endorses it to ‘C’ who is a holder in due course; ‘C’ endorses the bill to ‘D’ who knows of
the fraud.  Can ‘D’ get a good title and recover money from A?  (Jan-2018).
Issue: Write the Issue according to the below explanation.
As per the analysis of the below given definition of Section 58 of Negotiable Instrument Act, 1818 it is very clear that the forged Negotiable Instrument will not
create any legal rights are duties, but when a holder in due course gets it in good faith and for valid consideration then the amount cannot be recovered from
him provided that he encashed the instrument.
Rule: Section 58 of the Negotiable Instruments Act, 1881 
Instrument obtained by unlawful means or for unlawful consideration.—When a negotiable instrument has been lost, or has been obtained from any maker,
acceptor or holder thereof by means of an offence or fraud, or for an unlawful consideration, no possessor or indorsee who claims through the person who
found or so obtained the instrument is entitled to receive the amount due thereon from such maker, acceptor or holder, or from any party prior to such
holder, unless such possessor or indorsee is, or some person through whom he claims was, a holder thereof in due course.
Application:
An instrument (negotiable instrument like cheque/bill of exchange/promissory note) is called forged instrument when forgery takes place in signature of the
drawer, signature of the endorser, and alteration in name of the payee, alteration in amount, alteration in date etc. validated by forged signature.
     A forged instrument is meaningless as far as drawer/endorser whose signature is forged is concerned because holder of such instruments is not protected
under law. Forgery is void ab-initio and confers no title to the holders. Therefore, transferee will not be able to enforce payment from parties to the bill,
cheque and promissory note. In case such transferee gets payment by mistake such payment can be claimed back from him/her. For example, when the forged
cheque is paid by the drawee bank, it is deemed payment without actual mandate of the customer. The paying bank is required to make good of loss to the
customer. Similarly a bank which collected the cheque on the basis of forged endorsement, will be held responsible and may have to return the proceeds
collected by it.
Conclusion:
The forged or stolen instruments will not create any rights and the instruments are void.
20. A customer of the Royal Bank drew an open cheque for Rs. 1000 payable to ‘P’ the cheque was stolen.   The thief forged the payee’s endorsement and
presented the cheque for payment at the branch upon which it was drawn.  The bank cashier paid the cheque without asking for proof of his
identity.  To whom is the bank liable for the cashier’s action?  (May-2016).
Issue:
Is the bank responsible for the payment of the cheque?  Yes, responsible for their negligence and the customer will get back that amount.
Rule:
For a paying banker to claim protection under the negotiable Instruments Act, one of the criteria he has to satisfy, is that the payment should be in due
course.  As to what is payment in due course, has been stated in Section 10 of the negotiable Instrument Act, which reads as follows:
     “Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in
possession thereof under circumstances which does not afford a reasonable ground for believing that he is not entitled to receive payment of the amount
therein mentioned.  
     From the above definition, it can be observed that payment in due course has to qualify the payment to be made on the basis of following principles:
1. In accordance with the apparent tenor of the instrument;
2. In good faith;
3. Without negligence;
4. To the person in possession of the instrument; and
5. While making payment the banker should not have reasons to ‘believe’ that the person in possession of the instrument is not entitled to receive payment of
the amount mentioned in the instrument.
Application:
Canara Bank v. Canara Sales Corporation and Ors.  1987 AIR 1603 Also, the Apex Court observed that, the relationship between the customer of a bank and the
bank is that of a creditor and debtor. When a cheque which presented for encashment contains a forged signature the bank has no authority to make payment
against such a cheque. The bank would be acting against law in debiting the customer with the amounts covered by such cheques. When a customer demands
payment for the amount covered by such cheques, the bank would be liable to pay the amount to the customer.
Conclusion:
In this case the bank cashier performed his duty negligently and the bank is held responsible for the negligence of its cashier under vicarious liability.