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MB0051 Unit 08 Law of Negotiable Instruments

MB0051 Unit 08 Law of Negotiable Instruments

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Published by: Sensorica Evanescere on Sep 19, 2011
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Unit-08-Law of Negotiable Instruments
 Structure:8.1 IntroductionObjectives8.2 Negotiable Instrument8.3 Important TermsAmbiguous instrument (Sec.17)Inchoate stamped instruments (Sec.20)Capacity of parties to the negotiable instrument8.4 Promissory Notes and Bills of ExchangePromissory noteBill of exchange8.5 ChequesSpecimen of a chequeRequisites of a cheque8.6 Holder and Holder in due Course8.7 Negotiation of a Negotiable InstrumentMeaning of negotiationNegotiation and assignmentEndorsementForged endorsement (Sec.85)8.8 PresentmentMaturity (Secs.21-25)Presentment for payment8.9 DishonourDishonour of a bill
NotingProtesting (Sec.100)8.10 Crossing of ChequesMeaning of crossingSignificance of crossingTypes of crossing8.11 The Paying Banker8.12 Summary8.13 Terminal Questions8.14 Answers8.1 IntroductionIn the earlier units, you came to know about the law of sales of goods. In this unit you willstudy about the law of negotiable instruments.In this unit you will study law relating to negotiable instruments is primarily contained inthe Negotiable Instruments Act, 1881, which came into force on 1
March, 1882. Bills of exchange, cheques and promissory notes have been dealt with in considerable detail inthis Act.
The term „instrument‟ means „any written document by which a right is created in favourof some person‟. The word „negotiable‟ has a technical meaning whereby rights in an
instrument can be transferred by one person to another.ObjectivesAfter studying this unit you should be able to:· Define some negotiable terms· Describe promissory notes· Analyze holder· Explain presentment· Describe paying banker8.2 Negotiable Instrument
An „Instrument‟ as referred to in the Act is a legally recognised written document,
whereby rights are created in favour of one and obligations are created on the part of another. The w
ord „negotiable‟ means transferable from one person to another either by
mere delivery or by endorsement and delivery, to enable the transferee to get a title inthe instrument. An instrument may possess the characteristics of negotiability either by
statute or by usage. Promissory note, bill of exchange and cheque are negotiableinstruments by statute as they are so recognised by Sec.13. There are certain instrumentswhich are recognised as negotiable instruments by usage. Thus, bank notes, bank drafts,share warrants, bearer debentures, dividend warrants, scripts and treasury bills are
negotiable by usage. An instrument is called „negotiable‟ if it possesses the following
Freely transferable.
Transferability may be by (a) delivery, or (b) by endorsement anddelivery.2.
Holder’s title free from defects.
The term „negotiability‟ means that not only is the
instrument transferable by endorsement and/or delivery, but that its holder in due courseacquires a good title notwithstanding any defects i
n a previous holder‟s title. A holder in
due course is one who receives the instrument for value and without any notice as to thedefect in the title of the transferor.3.
The holder can sue in his own name.
Another feature of a negotiable instrument isthat its holder in due course can sue on the instrument in his own name.4. A negotiable instrument can be transferred infinitum, i.e., can be transferred anynumber of times, till its maturity.5.
 A negotiable instrument is subject to certain presumptions.
An instrument, whichdoes not have these characteristics, is not negotiable, but is assignable, i.e., thetransferee takes it subject to all equities and liabilities of the transferor.Self Assessment Questions1. A negotiable instrument need not be in writing. (True/False)2. ____________ is one who receives the instrument for value and without any notice as tothe defect in the title of the transferor.8.3 Important Terms8.3.1 Ambiguous instrument (Sec.17)An ambiguous instrument is one which may be construed either as a promissory note or asa bill of exchange. Regarding such instruments, Sec.17 provides that the holder may, atthis election treat it as either and the instrument shall be thenceforward treatedaccordingly. Thus, a bill of exchange drawn by a person upon himself may be construed asa promissory note.8.3.2 Inchoate stamped instruments (Sec.20)An inchoate instrument means an instrument that is incomplete in certain respects. Whereone person signs and delivers to another a paper stamped in accordance with the lawrelating to negotiable instruments then in force in India and either wholly blank or havingwritten thereon an incomplete negotiable instrument, he thereby gives prima facieauthority to the holder thereof to make or complete, as the case may be, upon it anegotiable instrument, for any amount specified therein but not exceeding the amountcovered by the stamp.8.3.3 Capacity of parties to the negotiable instrument

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