Updated: Thursday January 14, 2010/AlKhamis Muharram 29, 1431/Bruhaspathivara Pausa 24, 1931, at 07:05:39 PM

Course Contents:

1.      The Negotiable Instruments’ Act (XXVI of 1881).

Books Recommended:

1.      The Negotiable Instruments’ Act, (XXVI of 1881) by Mian Ghulam Hussain.

2.      The Negotiable Instruments’ Act, (XXVI of 1881) by K. B. Abbas.

Definition: Negotiable Instrument is a Promissory Notes, Bill of Exchange, or Cheques.

Promissory Note: It is a written promise to pay a certain amount of money unconditionally.

Promissory Note is defined as unconditional promise in writing made by one person to another, signed by the maker, promising to pay on demand or at a fixed or determinable future time, a sum certain in money, to, or the order of, a specified person or to bearer.


Rs. 5,000/-

Lahore, May 24, 2001

            Three months after date (or on demand) I promise to pay Mr. Samee Ozair or order (or bearer) rupees five thousand, for value received.


Dr. Dil Muhammad Malik

Maker: He, who promises, is called the maker, i.e., Dr. Dil Muhammad Malik.

Payee: He to whom the promise is made is called payee, i.e., Mr. Samee Ozair.

Bill of Exchange: It is a written order for the payment of a certain sum of money unconditionally.

A Bill of Exchange is an unconditional order in writing addressed by one person to another. It is signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain is money to or to the order of a specified person or to bearer.


Rs. 10,000/-

148 – F, Model Town, Lahore, May 24, 2001

            Three months after date (or on demand) pay to Mr. Samee Ozair or order (or bearer) of rupees ten thousand, for value received.


Mr. Iftikhar Ahmed Tarar

Law College


Dr. Dil Muhammad Malik

Drawer: He who makes this order is called the drawer, i.e., Dr. Dil Muhammad Malik.

Drawee: He to whom it is addressed is called drawee, i.e., Mr. Iftikhar Ahmed Tarar.

Acceptor: If drawee accepts it then he is called acceptor, i.e., Mr. Iftikhar Ahmed Tarar. Acceptor may be another person.

Payee: He in whose favour it is made is called payee, i.e., Mr. Samee Ozair.

Cheque: It is a species of Bill of Exchange drawn on a specified banker and always payable on demand. It is intended for immediate payment and needs no acceptance.

Essential features and characteristics of Negotiable Instruments: Negotiable instruments include Promissory Notes, Bill of Exchange, and Cheques. Negotiable Instruments have certain characteristics, which are as follows:

1.            Written: The instrument may be written on paper, parchment, or any other convenient substitute for paper. Writing means any printing, engraving, or in fact any mode by which words and figures can be expressed on any material.

2.            Promise to pay: It must import any clear and definite promise to pay. In case of Promissory Note it should contain imperative and right-full order to pay amount involving an idea of demand as of right if it is a Bill of Exchange or Cheque.

3.            Unconditional undertaking: Promise to pay amount must be unconditional and it must be payable at all events. It may be expressed for making payment, or payable on the expiry of a certain time after the happening of an event, which is certain.

4.            Promise to pay money: It is also necessary that amount payable is money and only money. It contains only legal currency. Bonds, bills, notes, or any article other than money are not subject of negotiable instrument for the purpose of payment. Currency does not mean the currency of local area. It may be currency of any country whatever.

5.            Certain sum: The amount promised to pay must be certain. Deductions cannot be made. Mere promise to pay other due sums does not form negotiable instrument. Interest is not certain sum payable.

6.            Certain payee: If the instrument is not payable to bearer, the person to whom it is payable must be a certain person.

7.            Certain maker: Person who makes the instrument must be a certain person who makes himself liable on the basis of note. Makers may be a single or more than one person. A liability can never be alternative.

8.            Date: Where amount is payable at certain time after date it becomes material factor of an instrument. Unauthorized alteration makes it void. Mere correction of date or authorized insertion of date does not make it void. Postdating is not permitted where it is used to evade (escape) stamp laws. It becomes punishable offence. Cheque can be made post dated. Cheque may be anti-dated or even undated.

9.            Wording of amount: It is usual practice that amount is written in both figures and words. Where any dispute arises whether which amount is correct one, amount in words is upheld (preferred).

10.        Stamp: Requisite stamp duty is always paid on negotiable instruments except on Cheque. Stamps are affixed before putting signature. Its price varies with regard to amount. Endorsement does not need stamp.

11.        Signature: Although this word has not definition in law, but it includes the mark made by a person who is unable to write his name. Where the intention of the parties is clear, the position of a signature on a bill is immaterial. Cheque needs signature otherwise it is refused to pay.

12.        No currency note: Instrument is a piece of paper, which makes maker liable. Currency or bank notes do not form instrument as they lack certain maker and payee.

Difference between Promissory Note and Bill of Exchange: A Promissory Note differs from a Bill of Exchange in the following respects:

1.      Parties:

Note: There are two parties in Promissory Note like promisor and promisee or maker and payee.

Bill: There are always three parties in Bill of Exchange, like drawer (one who signs a Bill of Exchange as the maker), drawee (the person to whom a Bill of Exchange is addressed), and payee (a person to whom a Bill of Exchange is payable).

2.      Mode of payment:

Note: The executant or maker undertakes (promises) himself to pay amount.

Bill: Maker directs another person to pay sum.

3.      Liability:

Note: Since he binds himself to pay, so his liability is absolute.

Bill: Since the drawee becomes surety so liability of maker becomes conditional or secondary.

4.      Origination:

Note: Maker is originator of the Promissory Note.

Bill: Drawee who accepts is not originator.

5.      Holding of payee status:

Note: Promise cannot be made of payment to maker himself. Maker and payee are two different persons.

Bill: In case of Bill of Exchange maker may hold two positions at a time, i. e., drawer and payee.

6.      Noting:

Note: Noting is not made on Promissory Note if it remains unpaid or refused.

Bill: If the payment is refused, noting is made on back of it, which is conclusive proof of refusal of payment.

7.      Installments:

Note: It is not drawn in installments.

Bill: It can be drawn in sets.

8.      Acceptance:

Note: Acceptance of note is always unconditional.

Bill: It can be accepted conditionally.

9.      Status of maker:

Note: Maker is principal debtor.

Bill: Maker is principal surety.

Difference between Cheque and Bill of Exchange: Following are differences between Cheque and Bill of Exchange:

1.      Drawn at:

Cheque: It is always drawn on a specified banker.

Bill: It may be drawn on any one. Banker may also be subject of it.

2.      Time for payment:

Cheque: It becomes payable right at the time when it is presented for payment.

Bill: Its payment may take grace period, which is three days after it becomes due for payment.

3.      Acceptance:

Cheque: It does not require acceptance and becomes payable upon presentation at the counter of bank.

Bill: It requires acceptance before payment.

4.      Discharge upon refusal:

Cheque: Maker of Cheque is not discharged if it is not presented unless drawer has sustained damage by the delay.

Bill: Drawer discharges if payee fails to present it at due date or commits default.

5.      Notice:

Cheque: Banker is not obliged of notice if Cheque is not met.

Bill: Notice is necessary through Notary Public (a person licensed by government) if it dishonors.

6.      Revocation:

Cheque: It is revocable after it is issued.

Bill: It remains irrevocable after it is made.

Discharge: Endorser is discharged from liability in certain cases such as:

1.            Act without consents: Where creditor does any act, which is inconsistent with the rights of surety, surety discharges from liability.

2.            Destruction: If the holder of Negotiable Instrument destroys the securities given by maker or acceptor, discharges endorser from liability.

3.            Default in presentation: Where holder commits default in presentation of Negotiable Instrument, discharges the maker or acceptor or drawee, whatever the case is, from liability.

         To whom it may present: Note is presented for payment to its maker or promisor, bill is presented to acceptor, and Cheque is presented to its drawee. If the person responsible to pay dies, instrument is to be presented to his legal heirs or representatives.

         Who may present: Holder, agent, or legal representatives are competent to present instrument for payment.

4.            Default to give notice: Where non-acceptance or non-payment dishonors any instrument, the holder shall require giving notice to respective maker. If he commits default in giving notice, maker shall be discharged from liability.

         Form of notice: It may be oral or written. Telephone, wire, mail, or e-mail are forms of communication of notice which can be proved by circumstantial evidence.

         Notice by whom: Holder, agent, or party to bill is competent to give notice of refusal of payment.

         Notice to whom: Notice must be given to all other parties whom the holder seeks to make liable. In case of death, it must be given to his legal representative. In case of insolvency, it is given to official assignee.

5.            Upon payment: Where due amount on Note, Bill, or Cheque is paid, it discharges the maker, acceptor, and drawee.

         Payment to whom: Specific person or whose name is indorsed or bearer is the persons to whom payment is to be made. If the payment is made to the person whose name was identical to original one, shall no discharge liability.

         Payment by whom: Promisor in case Note, acceptor in case of Bill, and drawee in case of Cheque are persons liable to pay amount.

         Time of payment: Instruments become payable as soon as maturity date comes. Action cannot be brought after making due payment.

         Medium of payment: It is always expressed on instrument that only money is subject to pay. Money includes cash, currency, or coin.

6.            Material alteration: Any material alterations in instrument by holder without consents of maker render it void.

         This provision prevents the chance of fraud without running any risk of loss.

Alteration must be material such as alteration in date, amount, time of payment, place of payment, rate of interest, and addition of new party etc.

7.            Cancellation of name: If holder of Negotiable Instrument or his authorized agent intentionally conceals the name of acceptor or endorser to discharge them, such party is discharged from liability. It also discharges all the parties subsequent to him.

Unintentional cancellation or cancellation under mistake or cancellation without authority do not have effect of discharge.

8.            Release: Release is made by agreement, satisfaction, or accepting something in satisfaction of the whole debt. In all cases the cases parties are discharged.

9.            Unauthorized allowance of forty-eight hours: Drawee of Bill of Exchange is entitled to retain bill upto forty-eight hours to decide its acceptance or rejection. Upon the passing of forty-eight hours, if bill is remained unanswered, it shall be presumed that bill has been dishonored. Notice to endorser and drawer becomes imperative. Failure in giving such notice shows that holder has deliberately allowed to drawee extra time without consent of drawer. This act of holder discharges endorser from liability.

10.        Cheque payable to order: If the agent of payee endorses Cheque without authority or where the endorsement is forged, drawer discharges from liability.

11.        Endorsement of bank: Where a bank endorses draft on the behalf of payee, the bank is discharged by payment in due course. Such endorsement and payment should be the act of two branches of the same bank.

12.        Payment on non-apparent alteration: Where Negotiable Instrument is altered but does not seem (prima facie) as altered and payment is made, banker shall be discharged from liability. This discharge includes the non-apparent alteration, payment in due course, and liability of payment of drawee.

13.        Extinction: When the principal debtor becomes the holder of a note or bill at or after maturity in his own right, the right and liability unite in the same person and cancel each one. The instrument is therefore discharged.

Noting: When an instrument like Bill is dishonoured, the holder of Bill may sue drawer and endorser. The document on which he sues is noting. A minute or memorandum made by a notary public on a Bill of Exchange, which he has presented, and which has been dishonored. It consists of his initials, charges, and date. It is a better security of evidence for holder of dishonored bill.

When noting is made: Noting is made on bill when it dishonors or has reasonable cause, which may render it, dishonor.

How noting is made: When the Bill or Note dishonors, holder of it in addition to notice to its endorser and principal debtor, may present it to notary public. Notary public is a person so authorized by government. Notary Public sends the bill to its acceptor or principal debtor for payment, as the case may be, and on refusal he makes his noting on bill.

Minute: Minute is a noting which Notary Public records on dishonoured bill when it dishonors. Minute is made upon the dishonoured instrument on a paper attached thereto.

Contents of noting: Minute of noting, includes the following particulars:

1.      Fact of dishonor: Whether it has been dishonored on presentation.

2.      Date: Whether on which date it is dishonored.

3.      Reasons: If there are any reasons of such dishonor, they are also recorded in minute.

4.      Treatment as dishonoured: Where instrument has not been expressly dishonoured, he records the reasons apprehended (perceived) as to why holder treated it as dishonoured.

5.      Notary’s charges: Observation of notary in term of charges as to why it is dishonoured.

Need of noting: Noting is a proof of dishonor, which is acceptable in Courts.

It is of two dimensional such as:

1.      Inland instrument: Where the instrument is local, its noting is not compulsory. Holder of instrument may or may not, have to instrument noted, if he thinks fit.

2.      Foreign instrument: Where instrument relates to abroad, the law of the land of instrument is complied with, as it is.

Effect of noting: It becomes conclusive proof of refusal of payment when separate certificate as protest is issued. It is acceptable as evidence in Court. It is better security for protest.

Protest: A solemn declaration by a notary stating he has demanded acceptance or payment of a bill, and that it has been refused, with the reasons, if any given by the drawee or acceptor for the dishonor. When notary makes noting of refusal of payment on instrument and certifies it, it becomes protest. Protest is a certificate issued by notary public on the base of noting.

How made: Following is procedure to make protest:

1.      Time: When an instrument is dishonoured due to any reason such as non-acceptance or non-payment, holder is required to present it before notary within reasonable time.

2.      Authority: Notary Public is a person who has authority to give effect instrument as protest.

3.      Same day: Dishonoured instrument is required to present on the same day in which the bill is dishonoured.

4.      Minute: Notary Public sends instrument to drawee or acceptor for payment and upon refusal he makes minute consisting his initials, date of dishonor, the act of dishonor, reasons, and his charges.

5.      Certificate: As notary certifies his noting, it becomes certificate and this certificate is called protest.

Advantage: Following are the advantages of protest:

1.      Evidence: Court presumes instrument dishonoured upon the proof of protest. Object of noting and protest is to furnish authentic evidence of presentment. It enables the holder to proceed against the parties secondly liable under the instrument.

2.      Copy in case of lost: Where the original protest is lost elsewhere, the authentic copy of an instrument can be had.

Compulsion: In the case of inland instrument, protest is no more compulsory while in case of foreign instrument it follows the laws of that land.

Object of protest: The object of protest is to give satisfactory evidence of the dishonor to the drawer or other antecedent party, but it is not necessary except in case of a foreign bill.

Contents of protest: In order to make protest valid, it must contain the particulars provided in law. Omission of one or more renders the protest in valid. The particulars of protest are:

1.      Instrument or transcript of instrument: Instrument in original and all of its contents either written or printed.

2.      Names of parties: Protest must contain the names of parties either for whom and against whom protest is made.

3.      Facts and reasons of dishonor: Following reasons and facts may be stated:

(1)        Demand for payment or acceptance or better security has been made.

(2)        Reasons of refusal or dishonour given by drawee.

(3)        Refusal to give answer of drawee.

4.      Place and time of dishonour: When and where the instrument was dishonoured and when and where its better security was refused must be stated.

5.      Signature of notary: It also must contain the signature of notary who makes protest.

6.      Certain particulars of acceptance: If the instrument was accepted for honour or payment, name of those people who accepted it and for whom it was accepted.

Difference between noting and protest: Noting and protest are different to some extent. These differences can be described as:

1.      Formation:

Noting: Noting is mere minute (statement) appended on the back of note.

Protest: As soon as noting of bill is certified, it attains the status of protest.

2.      Legality:

Noting: Noting has not legal effects as far as legality is concerned. It cannot be presented as evidence of dishonour in Court.

Protest: Legality of protest is maintainable in Court. It is accepted as conclusive proof of dishonour in Court.

3.      Pages:

Noting: Noting is appended on the back of bill.

Protest: A separate page contains certificate acceptable as protest.

4.      Presentation stage:

Noting: Bill is presented for noting immediately after the dishonour of bill. It is also first stage of the process.

Protest: Protest is latter stage of the process of certification.

5.      Applicability:

Noting: Application of noting is narrowest in nature.

Protest: Application of protest is wider in nature.

6.      Place of drawn:

Noting: Noting and protest are not compulsory and remain optional if they relate to inland.

Protest: In case of foreign bill, law of the land is kept in view, regarding the noting and protest, where it is to be drawn.

Holder: It means the person to whom payment against instrument is made, i.e., payee. It also includes endorsee. Person who has possession or who is bearer is called holder.

Essentials of holder: The holder of Negotiable Instrument, either Bill or Note or Cheque, means the person who is:

1.      Payee or endorsee of the instrument.

2.      One who is in possession of instrument.

3.      Person who is bearer of Negotiable Instrument.

Person who possesses the above qualifications is a holder within the meaning of law.

Persons who are holder: Within the meaning of law, following are person who may be a holder:

1.      Possessor: Where the instrument is bearer, the person who is in possession is called holder.

2.      Firm: Where a note is written in the name of partner of a firm, firm can sue on the fact that firm ipso facto becomes a holder. Partner and firm are not separate entities.

3.      Blank endorsee: Where instrument is endorsed without mentioning any name, the person in possession becomes holder.

4.      Endorsee of Cheque: Where holder of Cheque endorses it in the name of third person, such person becomes holder.

5.      Legal heir: He is holder of instrument after passing on person who is not holder.

Who has not status of holder: There may be certain persons who do not attain the status of holder. They include:

1.      Minor of adoptive mother: Minor of adoptive mother is no competent to sue where note is taken in the name of adoptive mother. She alone is holder and not her minor son.

2.      Thief or finder: Since they have no title of instrument, therefore they cannot be termed as holder.

3.      Unlawful possession: One who obtains possession unlawfully, i. e., forged instrument, cannot be termed as holder.

4.      Collector: Endorsee who is only responsible for collection is not holder within the meaning of law.

5.      Order without endorsement: Where a bank receives a Cheque payable to order, without endorsement on another bank, is not a holder.

6.      Benamidor: He is not holder.

Holder in due course: Possessor of an instrument for consideration which is payable to payee, bearer, or endorsee.

Essentials of holder in due course: In order to constitute a person a holder in due course it must that:

1.      He should be a holder: Instrument must be in possession of holder. This possession must be legal and physical.

2.      Consideration: Holding is acquired with lawful consideration and which is neither forbidden by law nor opposed to public policy, constitutes holder in due course.

3.      Before maturity: Holder in due course must take the instrument before it becomes overdue. After maturity its taking does not constitute holder in due course.

4.      Transfer in good faith: Transfer of title must be made in good faith. Full enquiry is impossible. Simple enquiry is sufficient. Title of transferor must not be defective.

Defective title: It includes:

1.      Fraud

2.      Coercion

3.      Fear

4.      Unlawful means

5.      Illegal consideration

Rights and privileges of a holder in due course: Following are the rights and privileges of a holder in due course:

1.      Protection against defective title: A person who gets such an instrument in the normal course and in good faith after having paid the consideration, consequently he is protected against all the defects of title of the person from whom he gets it. He enjoys exclusive privilege of being protected.

2.      Amount is recoverable: He recovers amount although the title of prior transferors was defective.

3.      Channel to protect subsequent holders: Once a Negotiable Instrument reaches in the hands of a holder in due course, it is purchased of all defects. It makes subsequent holder enable to recover amount from the prior holder.

4.      Protection from legal liability: No suit can be instituted against him on the grounds of lost, fraud, or illegal consideration.

5.      Protection against conditions: Parties liable cannot avoid liability as against holder in due course on the ground of special or conditional purpose.

6.      Protection against fictitious name: Where the prior drawer has drawn it in fictitious name cannot effect holder in due course if he has signed it.

7.      Protection against non-payment: Maker or acceptor cannot deny his position as payee in lawsuit.

8.      Protection against execution: Executant or acceptor cannot deny the validity of instrument as originally executed.

9.      Every holder is presumed as holder in due course: If the instrument is obtained from lawful owner or from any lawful custodian, lawful possession may be proved.

Maturity: Maturity is a date on which an instrument falls due.

Days of grace: As soon as instrument is presented for payment, drawee can retain it for three days to decide its acceptance or payment.

Exception: Although three grace days are given after maturity, but there is exception to this rule. There are certain instruments, which are not entitled to any days of grace. They are:

1.      Instruments payable on demand.

2.      Instrument payable at sight or on presentment.

3.      Cheques are always payable on demand.

Calculation of grace period: Grace days are started to calculate excluding the days on which instrument becomes payable. As nothing is mentioned in law as regards the matter of holidays in connection with the days of grace, it has been held that the days of grace are all counted consequently without deducting any holidays between the first and the last day of grace. It is well-established rule that if last day of grace falls on holiday very next day shall be counted as last day.

Disallowance of grace: Although law is silent on this point but Bill of Exchange Act provides that parties may contract that the days of grace will be disallowed in the transaction between them. This can be expressed by the use of words such as “no grace” or “without grace”.

Calculation of maturity payable after sight: Where instrument is payable after several months, the last corresponding day is excluded from the calculation of days of grace.

Maturity after date of instrument: Where a bill drawn payable at a fixed period after date is not dated, the date of its maturity is calculated by computing the time from that date on which it was made.

Special rules of evidence as to Negotiable Instrument: Following are the presumptions as to Negotiable Instrument if the otherwise is not proved:

1.      Presumption as to consideration: Where any Negotiable Instrument is executed, i.e., accepted, endorsed, negotiated, or transferred, its consideration is proved. Onus of proof lies on the shoulders of defendant who had executed the note. Its presumption is different from recovery of loan in which plaintiff proves its consideration, but in case of Negotiable Instrument as evidence of debt, it is presumed that is was for consideration.

2.      Presumption as to date: Where date appears on the face of instrument, it is presumed that it is the date on which it was made or drawn. Date of making of instrument is date, which is appeared on it. Here again burden of proof lies on defendant or executor that date mentioned on instrument is incorrect.

3.      Presumption as to time of acceptance: Even instrument does not provide its exact date of acceptance, if it is once accepted, it is presumed that it has been accepted within reasonable time after its issuance and before its maturity.

4.      Presumption as to time of transfer: Every instrument can be transferred or endorsed before its maturity. Its transfer is, thus, prima facie presumption that it was transferred before its maturity. Exact date of negotiation does not matter.

5.      Presumption as to order of endorsement: Order of the endorsement is presumed as correct as appears on instrument. This problem arises where it is endorsed at more than one times. Each endorsement is presumed in order, which appears on instrument.

6.      Presumption as to stamp: This presumption arises when Negotiable Instrument is lost or destroyed. It is presumed regarding such instrument that it was bearing stamped.

7.      Presumption that holder is a holder in due course: Every holder of Negotiable Instrument is presumed holder in due course, provided otherwise is not proved. It is presumed that holder has paid consideration of Negotiable Instrument and have taken it in good faith. Holder has to prove that he is a holder in due course.

8.      Presumption as to protest: Where protest, once is produced in Court, it is presumed that instrument has been dishonoured unless or until fact is disproved.

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