Dear Class 12 Samacheer Kalvi students, here are the text book solutions for Chapter 22, The Negotiable Instruments Act 1881 in Commerce for your reference.
I. Choose the Correct Answers:
| 1. Negotiable Instrument Act was passed in the year ______. |
| a. 1981 |
| b. 1881 |
| c. 1994 |
| d. 1818 |
| 2. Number of parties in a bill of exchange are |
| a. 2 |
| b. 6 |
| c. 3 |
| d. 4 |
| 3. Section 6 of Negotiable Instruments Act 1881 deals with |
| a. Promissory Note |
| b. Bills of exchange |
| c. Cheque |
| d. None of the above |
| 4. _______ cannot be a bearer instrument. |
| a. Cheque |
| b. Promissory Note |
| c. Bills of exchange |
| d. None of the above |
| 5. A cheque will become stale after _____ months of its date: |
| a. 3 |
| b. 4 |
| c. 5 |
| d. 1 |
II. Very Short Answer Questions:
1. What is meant by Negotiable Instrument?
In the words of Justice K.C. Wills, a negotiable instrument is one, the property in which is acquired by anyone who takes it bonafide and for value, and withstanding any defect to title in the person from whom he took it.
2. List three characteristics of a Promissory Note.
1. A promissory note must be in writing. An oral promise to pay does not constitute a promissory note.
2. It must contain a promise or undertaking to pay a mere acknowledgement of indebtedness will not make it a promissory note.
3. The promise to pay must be unconditional. In other words, the promise to pay must not depend upon the happening of any uncertain event.
3. What is a meant by Cheque?
Section 6 of the Negotiable Instruments Act, 1881 defines a cheque as “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”.
III. Short Answer Questions:
1. Distinguish between Negotiability and Assignability. (any 3)
| Negotiability | Assignability |
| It passes to the transferee by mere endorsement in the case of a bearer instrument and by endorsement and delivery in the case of an order instrument. | An assignment can be made by observing certain formalities. For instance, an instrument is to be made in writing, duly stamped and signed by the transferor or his agent. |
| Notice is not necessary for the holder of negotiable instrument to claim the payment from the debtor. | In case of actionable claim, notice of the assignment by the transferee regarding the transfer of debt to the debtor is necessary. |
| Consideration is presumed | The assignee has to prove the consideration for the transfer. |
2. What are the characteristics of a bill of exchange? (any 3)
1. A bill of exchange is a document in writing.
2. The document must contain an order to pay.
3. The order must be unconditional.
3. Draw the two different types of crossing.
Crossing a cheque refers to the practice of drawing two parallel transverse lines across the faceof a cheque with or without the words ‘and Co’. The effect of this crossing is that the drawee bank will pay the amount of a cheque only to the banker. There are two types of crossing:
1. General Crossing
2. Special Crossing
IV. Long Answer Questions:
1. Distinguish a cheque and a bill of exchange. (any 5)
| Cheque | Bill of Exchange |
| A cheque can be drawn only on a particular banker. | A bill of exchange can be drawn on any person including a banker. |
| It is payable on demand only. | It is payable on demand or on the expiry of a certain period. |
| A cheque does not require any acceptance. | In case of time bill, acceptance by the drawee is necessary before he can be made liable on it. |
| When a bill is dishonoured, notice of dishonour is necessary. | Notice is not necessary for a cheque. |
| A bill can be discounted with a bank. | A cheque cannot be discounted. |
2. Discuss in detail the features of a cheque. (any 5)
(1) Instrument in Writings
A cheque or a bill or a promissory note must be an instrument in writing. Though the law does not prohibit a cheque being written in pencil, bankers never accept it because of risks involved. Alternation is quite easy but detection impossible in such cases.
(2) Drawn on a Specified Banker Only
The cheque is always drawn on a specified banker. A cheque vitally differs from a bill in this respect as latter can be drawn on any person including a banker. The customer of a banker can draw the cheque only on the particular branch of the bank where he has an account.
(3) A Certain Sum of Money Only
The order must be for payment of only money. If the banker is asked to deliver securities, the document cannot be called a cheque. Further, the sum of money must be certain.
(4) Payee to be Certain
The cheque must be made payable to a certain person or to the order of a certain person or to the bearer of the instrument. The word, person includes bodies corporate, local authorities, associations, holders of office of an institution etc.,
(5) Signed by the Drawer
The cheque is to be signed by the drawer. Further, it should tally with specimen signature furnished to the bank at the time of opening the account.
3. What are the requisites for a valid endorsement? (any 5)
If an endorsement is to be valid, it must possess the following requisites:
1. Endorsement is to be made on the face of the instrument or on its back. It is usually made on the back of a negotiable instrument.
2. When there is no space for making further endorsements a piece of paper can be attached to the negotiable instrument for this purpose. This piece of paper is called ‘Allonge’.
3. If the endorsee’s name is wrongly spelt, the endorsee should sign the same as spelt in the instrument and write the correct spelling within brackets after his endorsement.
4. Endorsement for only a part of the amount of the instrument is invalid. It can be made only for the entire amount.
5. Signing in block letters does not constitute regular endorsement.
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