12th Standard Commerce — The Negotiable Instruments Act, 1881 Online Test
Chapter 22 of 12th Commerce explains the Negotiable Instruments Act 1881: the meaning, characteristics and presumptions of negotiable instruments, negotiability versus assignability, bills of exchange, cheques and promissory notes with their differences, general and special crossing of cheques, and the requisites and kinds of endorsement.
Study this chapter
About The Negotiable Instruments Act, 1881
Medium ~50 min study
The Negotiable Instruments Act, 1881 is the twenty-second chapter of the Tamil Nadu State Board Class 12 Commerce book and the second lesson of Unit 8. It opens with Thirukkural 416 and explains how a written document entitling a person to a sum of money can pass from hand to hand by delivery or by endorsement and delivery.
The lesson covers the meaning, characteristics and presumptions of negotiable instruments, compares negotiability with assignability, defines the bill of exchange, cheque and promissory note under Sections 4, 5 and 6, and sets out their differences. It ends with the crossing of cheques, endorsements and boxes on MICR, IFSC and emergency holidays.
This page gives the printed one mark questions of the 12th Commerce exercise with answers checked against the lesson, plus additional MCQs on every section, each with a short explanation.
What you'll learn
- Explain the meaning and characteristics of a negotiable instrument.
- List the presumptions applicable to negotiable instruments.
- Distinguish negotiability from assignability.
- Define a bill of exchange, a cheque and a promissory note and state their features.
- Compare a bill of exchange, a cheque and a promissory note.
- Explain general and special crossing and the requisites and kinds of endorsement.
Before you start
- Basic idea of banks and bank accounts from Class 11 Commerce.
- The meaning of debtor, creditor and consideration.
- The Sale of Goods Act, 1930 from Chapter 21.
Topics covered in this chapter
The Negotiable Instruments Act, 1881 explained
What this lesson covers
Meaning and characteristics
A negotiable instrument is a document entitling a person to a sum of money, transferable by mere delivery or by endorsement and delivery. Justice K.C. Wills stressed that a bonafide holder for value gets good title despite defects in the transferor's title.
- Transferability without formality
- Title of the holder in due course free from defects
- Right of the transferee to sue in his own name
Presumptions
Consideration, acceptance, date, acceptance before maturity, transfer before maturity, order of endorsements, due stamping of a lost instrument and holder in due course.
Negotiability and assignability
They differ on legal ownership, notice, nature of title and consideration.
Bill, cheque and promissory note
Section 5 defines the bill of exchange, Section 6 the cheque and Section 4 the promissory note. Comparison tables cover parties, payability, acceptance, days of grace, stamping, crossing, liability and notice of dishonour.
Crossing and endorsement
General crossing (Section 123) needs two parallel transverse lines; special crossing (Section 124) needs a banker's name. Section 15 defines endorsement. Kinds: blank, full, conditional, restrictive, sans recourse, facultative and partial.
Common mistakes to avoid
- Saying a promissory note has three parties. It has two, the maker and the payee; a bill and a cheque have three.
- Allowing days of grace for a cheque. Three days of grace apply only to time bills and promissory notes.
- Treating an 'X' mark as a crossing. A general crossing needs two parallel transverse lines.
- Mixing up Sections 123 and 124. Section 123 is general crossing; Section 124 is special crossing.
- Calling the drawer of a bill primarily liable. The drawer's liability is secondary; the maker of a note is primarily liable.
Test yourself on these with the practice test, then check the worked reasoning in the solved MCQs.
Frequently asked questions
What is a negotiable instrument?
A negotiable instrument is a document which entitles a person to a certain sum of money and which is transferable from one person to another by mere delivery or by endorsement and delivery. The Negotiable Instruments Act 1881 covers promissory notes, bills of exchange and cheques.
Who is a holder in due course?
A person who takes a negotiable instrument in good faith and for value is a holder in due course. His title is free from defects in the title of the transferor, so he need not return the instrument to the true owner.
How does negotiability differ from assignability?
In negotiability, ownership passes by delivery or endorsement and delivery, no notice to the debtor is needed, the holder in due course gets a better title and consideration is presumed. In assignability, formalities and notice are required, defects pass on and the assignee must prove consideration.
What is a cheque?
Under Section 6 of the Negotiable Instruments Act 1881, a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. It must be in writing, unconditional, for a certain sum of money and signed by the drawer.
What is the difference between general and special crossing?
A general crossing under Section 123 consists of two parallel transverse lines across the face of the cheque, with or without 'and Co.' or 'not negotiable'. A special crossing under Section 124 adds the name of a banker, and payment is made only to that banker, so it is safer.
What is an allonge?
When there is no space on a negotiable instrument for further endorsements, a piece of paper can be attached to it for the purpose. This piece of paper is called an allonge.
What are the kinds of endorsement?
The lesson lists blank or general endorsement, endorsement in full or special endorsement, conditional or qualified endorsement, restrictive endorsement, sans recourse endorsement, facultative endorsement and partial endorsement.
Last updated 16 October 2026