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Parties to a Negotiable Instrument

Parties to a Negotiable Instrument

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Published by Aamir Khan

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Published by: Aamir Khan on Apr 04, 2013
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04/04/2013

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PARTIES TO A NEGOTIABLE
INSTRUMENT
The NI Act 1881 recognizes three forms of negotiable instruments,namely, promissory note, bill of exchange, and cheque
The parties to these instruments can be :
PARTIES TO A PROMISSORY NOTE
Maker, payee, endorser, endorsee
PARTIES TO A BILL OF EXCHANGE
Drawer, acceptor or drawee, drawee in case of need, endorser andendorsee
PARTIES TO A CHEQUE
Drawer, drawee (always a bank), payee , endorser and endorsee
Out of these parties, some parties are liable to pay upon theinstrument, and some are entitled to receive the money on theinstrument. The party entitled to receive may be holder or holder indue course.
 
A bearer, payee, or endorsee may acquire the status of a
‘holder’ or a ‘holder in due course’ in the course of negotiation
of an instrument.
Ex: Ram issues a PN to Shyam, who is now the payee of thenote. At the same time he is holder of the instrument sine he isin possession of the instrument and is entitled to sue upon it inhis own name.
At the same time he is holder of the instrument since he is inpossession of the instrument and is entitled to sue upon it inhis own name.
He may be an’ ordinary holder’ or a ‘holder in due course’
 
If Shyam has acquired the promissory note for value andwithout having a reason to believe that any defect exists in thetitle of the instrument, he is a holder in due course, otherwise
he is an ‘ordinary holder.
 
PARTIES TO A NEGOTIABLE
INSTRUMENT
 
HOLDER: Sec-8 reads-
‘the holder of a promissory note, bill of 
exchange or cheque means any person, entitled in his own name, tothe possession thereof and to receive or recover the amount due
thereon from the parties thereto’
 
Thus a person is ‘holder’ when he satisfy two conditions:
 
1. He is entitled to possess the instrument I his own name.
The person entitled to hold the instrument in his name may be apayee, endorsee, hearer and some one who is given a bearer instrument by a thief or finder is holder 
2. He is entitled to receive or recover the amount due thereon. Theholder must have right to receive or recover the amount of theinstrument and give the valid discharge to the payer.
STATUS OF A HOLDER. A holder has the legal power to transfer theinstrument to another person, to enforce the payment of theinstrument, or to discharge the instrument, which means to releasethe maker or drawer from obligation of paying the instruments
PARTIES TO A NEGOTIABLE
INSTRUMENT

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