Ch.7nego.instru.

8/22/2019 Ch.7nego.instru.

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Negotiable Instruments Act

I. State whether the following statements are True and False

S.No. Statements TRUE FALSE

1 A negotiable instrument means a written document that confers on itsholder a right to receive a certain sum of money and this right istransferable from one person to another.

2 No person other than the Reserve Bank of India or the entral !overnmenthas the power to draw" accept" make or issue any bill of e#change" hundi"promissory note payable to bearer on demand.

$ A negotiable instrument" under the Negotiable Instruments Act" 1%%1" couldonly be a promissory note" bill of e#change or che&ue.

' A banker(s pay order" hundi or railway receipt is not a negotiableinstrument.

) *very negotiable instrument is presumed to have been made" drawn"accepted or negotiated for consideration.

+ *very holder of a negotiable instrument is presumed to be a holder in duecourse.

, A -promissory note( is an instrument in writing including a bank note orcurrency note/

% A promissory note must contain an e#press promise to pay.

0 A promissory note may be payable to a specific person on demand.

1 A bill of e#change is an instrument in writing containing an unconditional

order" signed by the maker" directing a certain person to pay a certain sumof money only to" or to the order of" a certain person or to the bearer of theinstrument.

11 A bill of e#change contains an order to pay money.

12 A che&ue is a bill of e#change drawn upon a specified banker and payableon demand.

1$ hough a che&ue is essentially a bill of e#change" it does not re&uiredrawee(s acceptance.

1' 3aking of a che&ue means that the drawee bank would honour it when dulypresented for payment.

1) A che&ue marked -good for payment( at the instance of the drawer entitlesthe banker to earmark sufficient funds out of the drawer(s account tohonour the che&ue.

1+ A che&ue marked -good for payment( at the instance of the holder thereofmeans that there are sufficient funds in the drawer(s account at the time ofsuch marking and that the che&ue would be honoured whenever presentedthereafter.

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1, A che&ue can be marked -good for payment( at the instance of a collectingbanker.

1% 4hen two parallel transverse lines are drawn on a che&ue" it is known as-crossing of a che&ue(.

10 A crossed che&ue may be encashed at the bank counter by its holder.

2 A che&ue is said to be crossed especially when it bears across its face anaddition of the words -and company( between two parallel transverse lines.

21 In a restrictive crossing the words 5A6c 7ayee( are added to the general orspecial crossing.

22 A -not negotiable( crossing on a che&ue renders it non8transferable.

2$ A che&ue may be crossed by its drawer only.

2' 4hen a negotiable instrument is delivered for a special purpose orconditionally" it is called an -escrow(.

2) If the amount undertaken or ordered to be paid is stated differently in

figures and in words on a negotiable instrument" the amount stated in wordsshall be the amount undertaken or ordered to be paid.

2+ 4hen a person signs and delivers to another a blank or incomplete stampedpaper called inchoate instrument/" he thereby gives authority to the holderthereof to make or complete upon a negotiable instrument for any amountnot e#ceeding the amount covered by the stamp.

2, A negotiable instrument payable otherwise than on demand is at maturity"i.e." due for payment" on the third day after the day on which it is e#pressedto be payable.

2% A bill or promissory note payable on a specified day is not entitled to -days

of grace(.

20 4here a promissory note is made on 9anuary 1) and is payable $ monthsafter date" it becomes payable on April 1).

$ 4here a promissory note is made on 9anuary 1) and payable $ months afterdate" the day on which it is drawn i.e." 9anuary 1)/ is e#cluded forcalculating the date of maturity.

$1 4hen the day on which a promissory note or bill of e#change is at maturityis a public holiday" the instrument is deemed to be due on the ne#tpreceding day.

$2 If the month in which the period of payment would terminate has nocorresponding day" the period is held to terminate on the last day of themonth.

$$ 57ayment in due course: means payment n accordance with the apparenttenor of the instrument in good faith the without negligence to any personin possession thereof under circumstances which do not afford a reasonableground for believing that he is not entitled to receive such payment.

$' 4hen no rate of interest is specified in a promissory note or bill of

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e#change" interest is calculated at the rate of 1% per cent per annum.

$) A person competent to contract only can be a party to a negotiableinstrument.

$+ A minor may draw" indorse" deliver or negotiate a negotiable instrumentthat binds all parties e#cept himself.

$, 4here a minor makes payment for necessaries supplied to him through anegotiable instrument" it is void even against his estate.

$% A non8trading company cannot be a party to a negotiable instrumentwithout e#press authori;ation by its memorandum of association.

$0 An agent can bind his principal on a negotiable instrument only when hesigns it e#pressly as an agent and is authori;ed in this regard.

' An agent would be personally liable if he does not disclose agency even tothose who induced him to sign a negotiable instrument upon the belief thathis principal only would be liable.

'1 In a trading partnership" no partner has an implied authority to make firmliable on a negotiable instrument.

'2 A legal representative of a deceased person who signs his name to anegotiable instrument is liable personally thereof unless he e#pressly limitshis liability to the e#tent of the assets received by him as such.

'$ 4here a person obtains possession of a negotiable instrument by theft" he isa holder of the instrument.

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due course has the rights thereof of the latter unless he himself is a party toany fraud or illegality afflicting that instrument.

)2 4hen a negotiable instrument has been lost" or has been obtained from anymaker" acceptor or holder thereof by means of an offence" fraud or unlawfulconsideration" no possessor or indorsee who claims though the person whofound or so obtained the instrument is entitled to receive the amount

thereon whether as a holder or holder in due course.

)$ No maker of a promissory note" and no drawer of a bill of e#change orche&ue or acceptor thereof shall deny the validity of the instrument asoriginally made or drawn in a suit thereon by a holder in due course.

)' A maker of a promissory note or an acceptor of a bill of e#change payableto order may" in a suit thereon by a holder in due course" deny the payee(scapacity to indorse the same at the date of the note or bill.

)) he drawer of a bill of e#change or che&ue is bound" in case of dishonourby the drawee or acceptor thereof" to compensate the holder irrespective ofthe fact whether due notice of dishonour has been given to the drawer.

)+ he drawee of a che&ue having sufficient funds of the drawee in his hands"properly applicable to the payment of such che&ue must pay the che&uewhen duly re&uired to do so and" and" in default of such payment" mustcompensate the drawer for any loss or damage caused by such default.

), In the absence of a contract to the contrary" the maker of a promissory noteor che&ue and acceptor of a bill are respectively liable thereon as principaldebtors and the other parties thereto liable thereon as sureties for them.

)% In the absence of a contract to the contrary" as between the parties liable ona negotiable instrument as sureties" each prior party is a principal debtor in

respect of each subse&uent party.)0 4here the holder of a negotiable instrument" without the consent of the

indorser" destroys" or impairs the endorser(s remedy against a prior party"the indorser is discharged from liability to the holder to the same e#tent asif the instrument had been paid at maturity.

+ An acceptor of a bill of e#change drawn in a fictitious name and payable tothe drawer(s order is not" by reason that such name s fictitious" relievedfrom liability to any holder in due course claiming under an endorsementby the same hand as the drawer(s signature and purporting to be made bythe drawer.

+1 4here a promissory note" bill of e#change or che&ue is transferred by oneparty to another" so as to constitute the transferee the holder thereof" theinstrument is said to be assigned.

+2 An instrument payable to bearer is negotiated by delivery thereof.

+$. An instrument payable to order is negotiable by the holder by endorsementonly.

+' An instrument delivered on a condition that it is not to take effect unless aspecified event happens" is not negotiable till the event has taken place.

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+) An instrument delivered on a condition that it is not take effect unless aspecified event happens" s not negotiable till the even has taken place.

++ here is no difference between -negotiation( and -assignment(.

+, 4hen the maker or holder of a negotiable instrument signs the sameotherwise than as such maker/ for the purpose of negotiation" on the back

or face thereof or on a slip of paper anne#ed thereto or a stamped paper" heis said to endorse the same.

+% *very sole maker" drawer" payee or endorsee or any of the several =ointmakers" drawers" payees or endorsees of a negotiable instrument mayindorse and negotiate it.

+0. 4here no space is left on a negotiable instrument to make indorsement" aseparate slip is attached to the instrument for the purpose and it is called an-anne#ure(.

,. 4hen the indorser signs his name only on the face or back of theinstrument for the purposes of endorsement" it is known as a blank or

general endorsement.,1 A blank endorsement converts an instrument -payable to order( into one

-payable to bearer(.

,2 In a full or special endorsement" the indorser directs the amount of theinstrument to be paid to a specified person or that person(s order.

,$ Any holder of a negotiable instrument endorsed in blank may convert itinto indorsement in full by writing some person(s name above the e#istingendorser(s signature" without his own signature and responsibility.

,' An endorsement which restricts or prohibits the further negotiability of the

instrument is void.,) A writing on a negotiable instrument is valid for the purposes of negotiation

of such writing purports to transfer only a part of the amount appearing tobe due on the instrument.

,+ he indorser of a negotiable instrument may" by e#press words in theendorsement" e#clude his own liability thereon by adding the words -sansrecours(.

,, A person" who obtains a negotiable instrument by theft" can neither claimits payment nor hold it against its true holder.

,% A negotiable instrument given for a consideration which is illegal" immoral

or opposed to public policy is void.

,0 An instrument with forged signatures of maker" drawer" indorser or anyother party thereto is void e#cept against a holder in due course.

% A negotiable instrument made" drawn" accepted" endorsed or transferredwithout consideration creates no obligation of payment between the partiesto the transaction.

%1. >nce a negotiable instrument made" drawn" accepted" endorsed" etc.

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without consideration passes through the hands of a holder in due course"he or every holder subse&uent to him can recover the instrument amountfrom any prior parties.

%2. 4here a bill of e#change has been lost before maturity" a duplicate thereofcannot be issued.

%$. All types of bill of e#change re&uires acceptance.%'. A bill payable after sight need not be presented for acceptance.

%). A bill payable on demand or a certain number of days after date or on afi#ed date must be presented for acceptance.

%+. 7resentment for acceptance may be made to the drawee of a bill ofe#change" or all6some of several drawees" or a drawee inc case of need ortheir duly authori;ed agent or legal representative.

%,. 4here there are several drawee of a bill of e#change who are not partners"each of them can accept it for himself but none of them can accept it foranother without his authority.

%%. A bill of e#change payable after sight must" if no time or place is specifiedtherein for presentment" be presented to the drawee thereof for acceptancewithin a reasonable time after it is drawn and in business hours on abusiness day.

%0. 4here a bill is directed to the drawee at a particular place for acceptance" itmust be presented at that place and if at the due date of presentment hecannot" after reasonable search" be found there" the bill is dishonored.

0. 4hen a bill of e#change has been noted or protested for non8acceptance orfor better security" any person including a party already liable thereon may"

with the consent of the holder" accept the same for the honour of any partythereto by writing his acceptance on the bill.

01. 4here an acceptor for honour does not e#press for whose honour theacceptance is made" it shall be deemed to be made for the honour of all theparties generally.

02. An acceptor for honour binds himself to all parties subse&uent to the partyfor whose honour he accepts to pay the amount of the bill if the draweedoes not.

0$. he party for whose honour the -acceptor for honour( accepts the bill andall prior parties are liable in their respective capacities to compensate him

for all costs or damage sustained by him in conse&uence of suchacceptance.

0'. An acceptor for honour s not liable to the holder of the bill unless it ispresented" or in case the address given by such acceptor on the bill is aplace other than the place where the bill is made payable/ forwarded forpresentment not later than ,2 hours ne#t after the day of its maturity.

0). An acceptor for honour cannot be charged unless the bill has at its maturitybeen presented to the drawee for payment" and has been dishonoured by

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him" and noted or protested for such dishonour.

0+. A promissory note" payable at a certain period after sight" must bepresented to the maker thereof for sight if he can" after reasonable search"be found/ by a person entitled to demand payment" within a reasonable timeafter it is made and in business hours on a business day.

0,. he holder of a bill of e#change" if so re&uired by the drawee thereof foracceptance" must allow the drawee forty8eight hours inclusive of publicholiday6s/ to consider whether he will accept it.

0%. *very negotiable instrument must be presented for payment to the makeracceptor or drawee thereof by the holder or his authori;ed representative.

00. 7resentment for payment must be made during the usual hours of businessand banking hours in case of a banker.

1. It the maker" drawee or acceptor of a negotiable instrument has no knownplace of business or fi#ed residence and the instrument does not specify anyplace for presentment for acceptance or payment" such presentment need

not be made.11. A negotiable instrument payable on demand must be presented for payment

within a reasonable time after it is received by the holder.

12. Any delay in presentment for acceptance or payment is not e#cusable underany circumstances.

1$. No presentment for payment is necessary" and the instrument is dishonoredat the due date for presentment if the maker" drawee or acceptorintentionally prevents the presentment of the instrument.

1'. No presentment for payment is necessary" and the instrument is

dishonoured at the due date for presentment provided the instrument is notpayable at any specified place and the maker" drawee or acceptor cannot befound after due search.

1). A promissory note and a che&ue are dishonoured by non8acceptance or non8payment.

1+. A bill of e#change is dishonoured by non8acceptance when the drawee is aperson incompetent to contract.

1,. A bill is not deemed to be dishonoured unless it is not accepted by a draweein case of need also.

1%. 4hen a promissory note" bill of e#change or che&ue is dishonoured by non8

acceptance or non8payment" the holder thereof must give notice ofdishonour to all other parties whom he seeks to make liable thereon.

10. A notice of dishonour must be given to the maker of the dishonouredpromissory note" or the drawee or acceptor of the dishonoured bill ofe#change or che&ue.

11. Any party receiving notice of dishonour must" in order to render any priorparty liable to himself" given notice of dishonour to such party within areasonable time" unless such party otherwise receives due notice from the

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holder or any other party liable on the instrument.

111. 4hen the instrument is deposited with an agent for presentment" the agentcannot given notice of dishonour to parties liable thereon directly.

112. No notice of dishonour is necessary when the drawer of a che&ue hascountermanded payment.

11$. No notice of dishonour is necessary when the party entitled to notice"knowing the facts" promises to pay the amount due sub=ect to certainconditions.

11'. If the holder and the party to whom notice of dishonour is given carry onbusiness or live in the same place" such notice is given within a reasonabletime if it is dispatched in time to reach its destination on the day ne#t afterthe day of dishonour.

11). he holder of a negotiable instrument" who has ac&uired if after dishonour"with notice thereof" does not ac&uire a better title like a holder in duecourse but only the rights thereon of this transferor.

11+. 4hen a promissory note or bill of e#change has been dishonoured by non8acceptance or non8payment" the holder may cause such dishonour to benoted upon the instrument or a paper attached thereto with in a reasonabletime alongwith date and reason of dishonour" and sign it.

11,. 4hen a promissory note or bill of e#change has been dishonoured" theholder may cause such dishonour to be noted and certified by a notarypublic. ?uch certificate is called a -protest(.

11%. A -protest for better security( is applicable only when the acceptor of a billof e#change has become insolvent" or his credit has been publiclyimpeached" before the maturity of the bill.

110. A drawer of a dishonoured che&ue is punishable with imprisonment for aterm upto one year.

12. A drawer of a dishonoured che&ue is punishable with fine which maye#tend to twice the amount of the che&ue.

121. A drawee of a dishonoured che&ue is punishable only if the che&ue isdishonoured for insufficiency of funds in the account and it was issued aspayment in discharge of a legally enforceable debt or liability.

122. A drawee of a dishnoured che&ue is liable only if he fails to make paymentwithin $ days of a notice by payee or holder demanding payment.

12$. 7ayment of the amount due a negotiable instrument must" in order todischarge the maker or acceptor" be made to the holder of the instrument.

12'. Any person liable to pay" and called upon by the holder thereof to pay" theamount due on a negotiable instrument is" before payment" entitled to haveit shown" and is on payment entitled to have it delivered up" to him or to beindemnified against any further claim thereon against him if the instrumentis lost or cannot be produced.

12). A negotiable instrument is discharged by payment only.

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12+. he maker" acceptor or indorser of a negotiable instrument is dischargedfrom liability thereon to a holder thereof who cancels such acceptor(s orindorser(s name with intent to discharge him" and to all parties claimingunder such holder.

12,. he maker" acceptor or indorser of a negotiable instrument is dischargedfrom liability thereon to a holder thereof who otherwise discharged such

maker" acceptor or indorser" and to all parties deriving title under suchholder after notice of such discharge.

12%. If a holder of a bill of e#change allows the drawee more than twenty8fourhours" e#clusive of public holidays" to consider whether he will accept thesame" all previous parties not consenting to such allowance are therebydischarged from liability to such holder.

120. A party to a negotiable instrument" which does not consent to a &ualifiedacceptance" is discharged thereby.

1$. Any material alternation of a negotiable instrument renders the samevoidable against any party thereto which does not consent thereto.

II. Fill the blanks in the following sentences

1$1. A@@@.. @@may be crossed but not a bill of e#change.

1$2. A@@@@@.company has implied power to be a party to a negotiable instrument.

1$$. *very holder in due course is a holder but every holder@@@@@@be a holder in due course.

1$'. A transfer through@@@@@can only be made in writing.

1$). A@@@@@@does not re&uire presentment for acceptance.

1$+. illing blanks in an inchoate instrument@@@@@@.a material alternation.

1$,. A banker@@@@@@..dishonour a customer(s che&ue when it has received notice of his

death or insanity.

1$%. 4here a che&ue is crossed specially" the payee banker is obliged to make its payment only

to@@@@@@..

1$0. A banker gets a good discharge by payment in the due course of the amount on a@@@@@@

che&ue to its holder.

1'. A banker who" in good faith and without negligence" has received payment of a crossed che&ueon behalf of a customer@@@@@@incur any liability if the title of the customer turns out to

be defective.

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III. hoose the correct alternati!e in the following sentences.1'1. 4hich one of the following gets a better title than that of his transferor888

a. holderb. payeec. makerd. holder in due course.

1'2. 4hich one of the following can be crossed88a. promissory noteb. hundic. bill of e#changed. che&ue

1'$. 4hich one of the following is always payable on demand 88a. promissory noteb. che&uec. bill of e#changed. none of the above

1''. An -ambiguous instrument( can be interpreted 888a. either as a promissory note or a bill of e#changeb. either as a bill of e#change or a che&uec. either as a promissory note or a che&ued. none of the above

1'). elivery of instrument is an important step in 888a. assignmentb. negotiationc. nothing and protestingd. payment

1'+. A bill of e#change is dishonoured 888a. if the drawee does not accept t within '% hours form the time of presentment for

acceptance.b. If the drawee is incompetent to contractc. If the drawee gives a &ualified acceptanced. In all the above cases

1',. A drawee of a che&ue dishonoured due to insufficiency of funds and which was issued todischarge a legally enforceable debt" can be punished with 88

a. A fine which may e#tend to twice the amount of the che&ueb. Imprisonment which may e#tend to two years.c. a/ and b/ aboved. None of the above

1'%. 4hich one of the following is not an instance of a material alternation88a. ?um payableb. ime of payment

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c. 7lace of paymentd. rossing of a che&ue

1'0. A banker may dishonour a che&ue if 888

a. he che&ue is mutilated

b. he che&ue is ambiguousc. he che&ue is not duly presentedd. In all the above

1). A banker must dishonour a che&ue if 88

a. he customer has countermanded paymentb. A court order attaches the customer(s accountc. he customer has given a notice of loss of the che&ue to the bankerd. In all the above cases.

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Ch.7nego.instru.

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Transcript of Ch.7nego.instru.