Lecture Law on Negotiable instrument

8/20/2019 Lecture Law on Negotiable instrument

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Law onNegotiable

Instruments

Law 3


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COURSE OUTLINE

• 1.1 Negotiability of instrument

• 1.2 Functions and kinds of negotiable

instruments

• 1.3 Construction of ambiguous instrument

• 1.4 Parties and their liabilities

• 1.5 ndorsements

• 1.! "ccommodation #arty

• 1.$ Consideration

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COURSE OUTLINE

• 1.$ Consideration

• 1.) *anner and conse+uence of transfer of

instruments

• 1., -ishonored instruments and its effects includingclearing house rules and /P 220

• 1.1 e+uisites of holder in due course

• 1.11 -efense of #arties

• 1.12 Forgery and its effects• 1.13 -ischarge of negotiable instruments and the

#arties secondarily liable



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ACT NO. 2031

February 03, 1911

• he la relating tonegotiable instruments is

contained in the Negotiablenstruments "ct. 231



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What is Ne!tiab"e I#stru$e#t%

" #iece of #a#er hich entitles a #erson to a certain sum

of money and hich is transferable from one to

another #erson by a deliery or by endorsement and

deliery.ϖ

hus& the term 6negotiable instrument7 literally means 8a

ritten document hich creates a right in faor of

somebody and is freely transferable by deliery.9ϖ

he ord instrument means 8a ritten document by

hich a right is created in faor of some #erson.9ϖ he

ord negotiable means 8transferable by deliery



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!

Chara&teristi&s !' #e!tiab"e

I#stru$e#ts

• Free transferability or easy negotiability Negotiable instrument is freelytransferable.

• Title of holder is free from all defects A person who takes negotiable instrument bona-fide and for value gets the instrumentfree from all defects in the title. The holderin due course is not affected by defectivetitle of the transferor or of any other party.


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$

(r!$iss!ry N!te )

A “promissory –note is an instrument in

writing !not being a bank-note or acurrency-note" containing an unconditional

undertaking# signed by the maker$ to pay a

certain sum of money only to or to the

order of a certain person or the bearer of

the instrument.


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)

S*e&i$e# !' a *r!$iss!ry #!te

Ph#. 5:; *la Noember 25& 2)

hree moths after the date& #romise to #ay *r. < of

*umbai or order a sum of Ph# Fifty housand for aluereceied.

o

*r. "ddress===..

=====

>orsogon >ignature of *r ?


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(arties t! a (r!$iss!ry N!te

here are #rimarily to #arties inoled in a #romissory note. hey are@

• i0 he *aker or -raer@ he #erson ho makes the note and

#romises to #ay the amount stated therein.

• .ii0 he Payee A the #erson to hom the amount is #ayable.

n course of transfer of a #romissory note by #ayee and others& the

#arties inoled may be A

a0 he Bndorser A the #erson ho endorses the note in faour of

another #erson.

b0 he Bndorsee A the #erson in hose faour the note is negotiated by

endorsement



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1

+i"" !' E&ha#e

• A bill of e%change is an instrument in writingcontaining an unconditional order# signed by the

maker# directing a certain person to pay a certain

sum of money only to# or to the order of a certain person or to the bearer of the instrument.

&g - 'r. ( purchases goods from 'r. ) for *hp.

+,,,-

'r. ) buys goods from 'r. for *hp. +,,,-

Then 'r. ) may order 'r. ( to pay *hp. +,,,-

'r. .


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(arties t! a +i"" !' E&ha#ehere are three #arties inoled in a bill of echange

i0 he -raer A he #erson ho makes the order for

making #ayment. n the aboe s#ecimen

ii0he -raee A he #erson to hom the order to #ay is

made. De is generally a debtor of the draer.

iii0he Payee A he #erson to hom the #ayment is to be

made..he draer can also dra a bill in his on name

thereby he himself becomes the #ayee.

Dere the ords in the bill ould be Pay to us or order.n a

bill here a time #eriod is mentioned& %ust like the aboes#ecimen& is called a ime /ill.

/ut a bill may be made #ayable on demand also. his is

called a -emand /ill.



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• Ence the bill is dran& it is sent to the -raee for

acce#tance ho ould

• rite 6acce#ted7 across the face of the bill& sign and

date it and return it to the

• -raer.

• • the -raee is under no obligation to acce#t the bill

• • f it is acce#ted& the -raee at this #oint becomesthe Acceptor

• • he acce#tor #romises at that #oint to #ay the bill in

accordance ith its terms

• • f the -raee refuses to acce#t& the bill is said to bedishonoured



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Se&ti!# 1. Form of negotiable

instruments• . - An instrument to be negotiable must conform to the

following requirements:

• a0 t must be in riting and signed by the maker or

draer

• b0 *ust contain an unconditional #romise or order to

#ay a sum certain in money

• c0 *ust be #ayable on demand& or at a fied or

determinable future time

• d0 *ust be #ayable to order or to bearer and

• e0 Ghere the instrument is addressed to a draee& he

must be named or otherise indicated therein ith

reasonable certainty



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Esse#tia" &hara&teristi&s !' a

(r!$iss!ry N!te

• *romissory note is a negotiable instrument

• /t must be in writing

• /t is a promise to pay money only.• /t must be definite. The promise to pay

must be definite.

• /t must be unconditional. 0ndertaking to pay must be unconditional.

• /t must be signed by the maker.


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• 'aker of the promissory note must be a certain person and the payee must also be certain.

•Amount of the promissory note must be certain.

• 1ther formalities like number# date#consideration# place etc. are generally found in

the promissory notes but they are not essential

in law.


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1!

Che-ue

“A che2ue is a bill of e%change drawn ona specified banker and e%pressed to be

payable otherwise than on demand.

The maker of a bill of e%change or 3he2ue

is called the “4rawer5$ the person therebydirected to pay is called the 54rawee5.


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1$

Esse#tia" &hara&teristi&s !' a

Che-ue

• A che2ue is a negotiable instrument.

• /t is a bill of e%change.

• /t is always drawn on a specified banker.• /t is always payable on demand.

• A che2ue can be bearer# order or crossed


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1)

• A che2ue re2uires no acceptance in the ordinary

course of business as it is intended for immediate payment.

• /n case of a che2ue# a drawee is always a

specified bank# a drawer is a person who draws ache2ue and who has an account in the bank ad

payee is a person to whom the amount of che2ue

is made payable.


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1,

Ne!tiati!#

“/t is a process of transferring the

ownership# right# title# interest of a person

in a negotiable instrument to another

person so as to give a good title to the

transferee and make a transferee a holder of

such instrument.


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2

Negotiation does not mean a simple transfer.

imple transfer may not necessarily involvethe transfer of property in the negotiableinstrument but negotiation implies the transferof property or ownership.

&g -( hands over a che2ue to 'r. ) here 'r.( has negotiates the instrument.

6ut if he hands over a che2ue to 'r. ) asking

him to keep the same in his safe# the che2ue isnot negotiated to 'r. )# 'r. ) does not become its holder but only a bailee.


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Esse#tia"s !' #e!tiati!#

• There must be transfer of a negotiableinstrument to another person.

• As a result of such transfer# the transfereemust become the holder of the instrument.


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!/es !' #e!tiati!#)

• Negotiation by delivery – The negotiable/nstrument is transferred by delivery# actual or

constructive. /t is physical act of delivering the

instrument or handing over the delivery# actual possession of the instrument is not passed.

• Negotiation by endorsement and delivery – The

negotiable /nstrument payable to order isnegotiable by the holder by endorsement and

delivery thereof.


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E#/!rse$e#t

“7iteral meaning of the term endorsement is

writing on an instrument.

&ndorser - The person who signs on the back

or on the face of the instrument or on the

slip is an endorser.

&ndorsee - The person to whom the

instrument is endorsed is called the

endorsee.


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Ty*es !' E#/!rse$e#t

• 8eneral or blank endorsement - &ndorsersigns his name either on the back or face

of the instrument.

• 9ull or special endorsement - /t specifiesthe name of the person to whom or to

whose order the payment must be made.


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• *artial endorsement – &ndorsement is made

for remaining balance of payment.• 3onditional endorsement – The liability of

the endorser is limited or negative.


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2!

ish!#!ur !' #e!tiab"e

i#stru$e#t

• Negotiable instruments# *romissory notesand 3he2ues may be dishonored by non

payment

• 6ills of e%change may be dishonored bynon payment or by non-acceptance as they

re2uire acceptance from drawees.


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Lecture Law on Negotiable instrument

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