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Negotiable instruments play an important role in trading activities .The most common negotiable instruments (bills) are three kinds, namely, bills of exchange promissory notes and cheques. Each of the three types have different prerequisites, characteristics and usages. However, the general rules of the law of contracts specifically in the matter of consideration apply to negotiable instruments, including the Court will not inquire into its adequacy.
However, consideration applies with some important modifications, of most important is the rule that consideration for negotiable instruments is presumed by law. Every party whose signature appears on a bill is prima facie deemed to have become party thereto for the value. Moreover, every holder of the bills is deemed to be a holder in due course, but if in an action on a bill it is admitted or proved that acceptance, issue or subsequent negotiation of the bill is affected with fraud, duress or force or fear or illegality, the burden of proof is shifted, unless and until the holder proves that subsequent to the alleged fraud or illegality, value has in good faith been given for the bill.
The requirement of giving value means that a bank which collects cheques for a customer is not a holder in due course of the cheque unless there is some agreement, express or implied, between the bank and the customer that the bank and before receipt of the proceeds will honor the cheque of the customer against cheques for collection. If there is no such agreement to give the value by allowing credit in anticipation of collection or to give value by taking cheques against the existing indebtedness of a customer who has an overdraft, then the bank will not be able to discharge the onus of proving value given subsequent to the fraud, etc., of the customer or one from whom the customer took otherwise than as a holder for value.
Another modification, an antecedent debt or liability is deemed valuable consideration whether the bill is payable on demand or at a future time. An antecedent debt or liability means prima facie a debt or liability due from the maker or negotiator of the instrument. An antecedent debt or liability of a third party cannot form a valuable consideration unless a connection is established between the receipt of the instrument and the debt so as to provide some consideration for the instrument in the way of a promise to sue.
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