Practical Questions in Negotiable Instruments Act

Practical Questions In Negotiable Instruments Act
Pr.1. State whether the following statements are promissory notes or not?
a. "I promise to pay B or order Rs. 500".
b. "I acknowledge myself to be indebted to B in Rs. 1,000 to be paid on demand, for value received".
c. "r. B, I.!.". Rs. 500".
d. #I am liable to B, in a sum of Rs.500 to be paid by instalments.
e. #I am bound to pay t$e sum of Rs.500 w$ic$ I received from you.%
f. "I promise to pay B Rs. 500 and all ot$er sums w$ic$ s$all be due to $im".
g. "I promise to pay B Rs. 1,000 and t$e fine according to t$e rules".
h. "I promise to pay B Rs. 500, first deducting t$ere out any money w$ic$ $e may owe me".
i. "I promise to pay B Rs. 500 by instalments wit$ a provision t$at no payment s$all be made after my deat$". aster
inds.
j. "I promise to pay B Rs. 500 first deducting t$ere out any money w$ic$ $e may owe me".
k. "I promise to pay B a sum of Rs.500 w$en convenient or able".
l. "I promise to pay B Rs. 500 w$en $e delivers t$e goods".
m. "I promise to pay B Rs. 500 seven days after my marriage wit$ &".
n. "I promise to pay B Rs. 500 on '(s deat$, provided ' leaves me enoug$ to pay t$at sum".
o. "I promise to pay B Rs. 500 and to deliver to $im my black $orse on 1st )anuary ne*t"
p. "I promise to pay B Rs. +00 and deliver one ,uintal of paddy".
q. "I promise to pay B in +0 s$ares and 10 bonds of -. /td".
r. "I promise to deliver to B 100 bags of w$eat".
Sol.:
a. Yes 0 since it is an absolute promise to pay a specific sum of money to a specific person or $is order.
b. Yes 0 1$e maker is acknowledging $is debt and also promises to pay for t$e value received.
c. No 2 It is a mere acknowledgement of debt and t$ere is not specific promise to pay t$e sum.
d. No 2 It is a mere acknowledgement of debt and t$ere is not specific promise to pay t$e sum.
e. No 0 In t$is case drawer is agreeing t$at $e is bound to pay. But $e is promising to pay t$e sum.
f. No 01$e amount is uncertain. 3In commercial transactions t$e amount s$ould be certain.4
g. No 0 same as above.
h. No 0 same as above.
i. No 0 In t$is case deat$ is a certain event and a negotiable can be drawn on t$e basis of suc$ certain event. But t$is
instrument is uncertain as to t$e amount. In commercial transactions certainty is very important.
j. No 0 5ince t$e amount is uncertain. 3%4
k. No 0 6 negotiable instrument can7t be drawn on t$e basis of future uncertain event. In t$is case it is uncertain as to
date of payment.
l. No 0 6 negotiable instrument can7t be drawn on t$e basis of future uncertain event. In t$is case it is uncertain as to t$e
date of payment. 1$e ot$er party may never deliver t$e goods.
m. No 0 8egotiable instruments can be drawn to be payable on t$e basis of some future certain event. But marriage wit$
& is an uncertain event. aker may never marry &.
n. No 0 8egotiable instruments can be drawn to be payable on t$e basis of some future certain event. In t$is case '7s
deat$ is a certain event. But ' may not leave enoug$ sum. 1$is is an uncertain event. aster inds.
Corporate & Other Laws__________________________________________1
MASTER MINDS - QUALITY EDUCATIN !EYND YUR IMA"INATIN
Copy Rights Reserved
To Master Minds, Guntur
o. No 0 6 negotiable instrument must be drawn for money and money only. In t$is case it is written for partly cas$ and
partly kind.
p. No 0 same as above.
q. No 0 same as above.
r. No 0 5ame as above.
Pr.. "I of my own free will and accord approac$ed B and borrowed from $im t$e sum of Rs.100 bearing interest at t$e rate
of + per cent per mensem. I $ave, t$erefore, e*ecuted t$ese few presents by way of a promissory note so t$at it may serve as
evidence and be of use w$en needed% signed by 6.
Sol.: In t$is case t$e drawer is acknowledging t$e receipt of money. But t$ere is no specific promise to pay a specific sum
of money. 9Bal ukand :s. unna /al Ram;i /al<
Pr.!. "=e $ave received t$e sum of Rs.>,000 from s$ri R.R.5$arma. 1$is amount will be repaid on demand. =e $ave
received t$is amount in cas$.
Sol.: In t$is case t$ere is an acknowledgement of receipt of money. !n t$e ot$er $and drawer is also promising to pay a
specific sum of money on demand. ?eld, t$is is a promissory note 95ur;it sing$ v. Ram Ratan<
Pr.". "r. /ittle, @lease let t$e bearer $ave AB and oblige." 5igned by 6. is t$is a bill of e*c$angeC
Sol.: 1$is is not a bill of e*c$ange as it contains a re,uest and not an order 9/ittle :s. 5lackford4
Pr.# (I promise to pay B Rs.550 and all ot$er sums w$ic$ s$all be due to $im(. Is it a promissory noteC 5tate reasons.
Sol: It is not a promissory note since t$e amount payable is not a certain sum. 1$e e*pression( all ot$er sums w$ic$ s$all
be due to $im( makes t$e amount indefinite or incapable of being made definite. 5ection D of t$e 8egotiable Instruments
6ct w$ic$ defines @romissory 8ote readsE
6 (promissory note( is an instrument in writing 3not being a bank note or currency note4 containing an unconditional
undertaking, signed by t$e maker, to pay a certain sum of money only to, or to t$e order of, a certain person, or to t$e
bearer of t$e instrument. aster inds.
1$us, to constitute a valid promissory note, t$e amount payable must be a certain sum or capable of being made certain.
Pr.$. r. - e*ecutes a promissory note in t$e following form, (I promise to pay a sum of Rs.10,000 after t$ree mont$s(.
'ecide w$et$er t$e promissory note is a valid promissory note.
Sol: 1$e promissory note is unconditional promise in writing. 6mount is certain. It is not dated, but dating is not a
mandatory re,uirement. Filling of date later will not be (material alteration( as long as date put is not before t$e date of
actual e*ecution. 1$us, t$e instrument fulfils all re,uirements of promissory note as per 8egotiable Instruments 6ct.
?owever, name of payee is not mentioned and $ence it is a bearer instrument. 6s per RBI 6ct, a promissory note cannot be
made payable to bearer 2 w$et$er on demand or after certain days. ?ence, t$e instrument is illegal as per RBI 6ct and
cannot be legally enforced.
Pr.%. r. - promises by way of a promissory note to pay r.. $is partner a sum of Rs.10,000 in t$e event of later(s
retirement from partners$ip firm. 'ecide giving reasons for your answer w$et$er t$e @romissory 8ote is a valid
promissory note.
Sol: 1$e promise is conditional on an event w$ic$ is not certain. ?ence, it is not a promissory note.
Pr.&. G*amine t$e validity of t$e following @romissory 8otesE 3a4 I owe you a sum of Rs.1,000. (6( tells (B(. 3b4 (-(
promises to pay (.( a sum of Rs.10,000, si* mont$s after (.(s marriage wit$ (H(.
Sol:
a. It is only acknowledgement of debt. It is not a promise to pay. 1$us it is not a promissory note
b. @romissory note can be based on future event. 1$e event s$ould be certain, but date on w$ic$ it will $appen
need not be certain. In t$is case, t$e event of .(s marriage wit$ (H( is not certain, as . may not marry or marry some
ot$er person. ?ence, t$is is not a promissory note.
Practical questions in Negotiable Instruments Act _____________________2
Ph: !"# $ 22 %2 #&& ###$"NTMASTERMINDS$R" Cell: '!%!& 21
Pr.'. 5 writes "I promise to pay (B( a sum of Rs.500, seven days after my marriage wit$ (&"(. Is t$is a promissory noteC
Sol: @romissory note can be based on future event. 1$e event s$ould be certain, but date on w$ic$ it will $appen need not
be certain. In t$is case, t$e event of 5(s marriage wit$ (&( is not certain, as 5 may not marry or marry some ot$er person.
?ence, t$is is not a promissory note.
Pr.1(. 5tate, giving reasons, w$et$er t$e following instruments are valid promissory notes 2 3i4 - promises to pay ., by a
promissory note, a sum of Rs.5,000, fifteen days after t$e deat$ of B. 3ii4 - promises to pay ., by a promissory note,
Rs.500 and all ot$er sums, w$ic$ s$all be due.
Sol:
a. 1$e future event i.e. deat$ of B is certain, t$oug$ date is uncertain. 1$e instrument is valid.
b. t$e sum payable is not certain. ?ence, it is not a negotiable instrument.
Pr.11. 6 bill is drawn as "@ay to - or order t$e sum of ten t$ousand rupees". In t$e margin t$e amount stated is Rs 1,000.
'iscuss t$e legal position.
Sol: 1$is bill is a valid bill for Rs 10,000 because in case of discrepancy between t$e amount stated in figure and in words,
t$e amount stated in words s$all be t$e amount of t$e instrument.
Pr.1. =$ic$ of t$e following is a bill of e*c$angeC Iive reasons.
a. #1o 6nderson, 'ear 5ir, =e $ereby aut$orise you to pay on our account, to t$e order of =olf, t$e sum of
si* t$ousand rupees.%
b. #Rs. 500.% #@ay to my order t$e sum of five $undred rupees, for value received.% It is neit$er signed by
any person as drawer nor addressed to any person as drawee. It is accepted by /am.
Sol: 5ec.5 of t$e 8egotiable Instruments 6ct reads as #6 bill of e*c$ange is an instrument in writing containing an
unconditional order, signed by t$e maker, directing a certain person to pay a certain sum of money, only to, or to t$e order of a
certain person or to t$e bearer of t$e instrument.%
a. In t$e given case t$ere is no definite order to pay t$e sum of money. 5o, it is not a bill of e*c$ange.
b. In t$e given case, drawee is neit$er named nor indicated wit$ certainty. 5o, it is not a bill of e*c$ange.
).1!. J67 signs, as maker, a blank stamped paper and gives it to JB7, and aut$orises $im to fill it as a note for Rs. 500, to
secure an advance w$ic$ J&7 is to make to JB7. JB7 fraudulently fills it up as a note for Rs.+,000, payable to J&7, w$o $as
in good fait$ advanced Rs. +,000. 'ecide, wit$ reasons, w$et$er J&7 is entitled to recover t$e amount, and if so, up to w$at
e*tentC
Sol: 5ection +0 of t$e 8egotiable Instruments 6ct, 1KK1 provides t$at w$en one person signs and delivers to anot$er a
paper stamped in accordance wit$ t$e law relating to negotiable instrument t$en in force in India and eit$er w$olly blank
or $aving written t$ereon an incomplete negotiable instrument, $e t$ereby gives prima facie aut$ority to t$e $older t$ereof
to make or complete, as t$e case may be, upon it a negotiable instrument, for any amount specified t$erein and not
e*ceeding t$e amount covered by t$e stamps. 1$e person so signing s$all be liable upon suc$ instrument, in t$e capacity
in w$ic$ $e signed t$e same to any $older in due course for suc$ amount. 6 person ot$er t$an $older in due course is not
aut$orised to recover anyt$ing in e*cess of t$e amount intends by $im to be paid t$ereunder.
1$e principle contained in section +0 is t$at a person w$o gives anot$er possession of $is signature on blank stamped paper
prima facie aut$orises t$e latter as $is agent to fill it up and give to t$e world t$e instrument as accepted by $im. 1$e
principle is one of estoppel. In t$e given problem J67 is estopped from setting up B7s fraud, and J&7 is entitled to recover
Rs. +,000L2 from J67 because J&7 $as obtained it as a $older in due course. 1$is liability does not stand of a person ot$er
t$an t$e $older in due course. J&7 as a $older in due course is entitled to enforce payment of t$e full amount even t$oug$
t$e aut$ority $as been e*ceeded but it is necessary t$at t$e sum oug$t not to e*ceed t$e amount covered by t$e stamp.
9/loyds Bank vs. &ooke 31>0B4 MB B>D<
P.1". 6 signs, as t$e maker, a blank stamped paper and gives it to B and aut$orises $im to fill it as a note for Rs. +,000, it
being t$e amount of advances made by B to 6. B fraudulently fills it up as a note for Rs. N,000 and t$en, for consideration,
endorses it to &. &an & enforce t$e instrumentC
!R
Corporate & Other Laws__________________________________________#
(6( signs, as maker, a blank stamped paper and gives it to (B(, and aut$orises $im to fill it as a note for Rs. 500, to secure an
advance w$ic$ (c( is to make to. (B(. (B( fraudulently fills it up as a note for Rs. +,000, payable to (&(, w$o $as in good fait$
advanced Rs. +,000. 'ecide, wit$ reasons, w$et$er (c( is entitled to recover t$e amount, and if so, upto w$at e*tentC aster
inds.
Sol: 6 duly signed blank stamped instrument is called an inc$oate instrument. 6ccording to 5ection +0 of t$e 8egotiable
Instruments 6ct an Inc$oate instrument is an incomplete Instrument in some respect. =$en a person signs and
delivers blank or incomplete stamped paper to anot$er, suc$ ot$er is aut$orised to complete it for any amount not
e*ceeding t$e amount covered by t$e stamp. 1$e person so signing is liable upon suc$ instrument, to any $older in
due course for any amount. But any ot$er person can7t claim more t$an t$e amount intended by t$e drawer of t$e
instrument.
1$us, for &(s claim to be valid and enforceable, two t$ings are importantE
a. 1$at & is a $older in due course, i.e., t$ere s$ould be valid consideration and $e would $ave obtained it in
good fait$ and before maturity.
b. 1$e amount filled in i.e. Rs. N,000 is covered by stamp amount.
In 8egotiable Instruments act every $older is deemed to be a $older in due course. 1$us t$e ot$er party $as to establis$ t$at
& is not a $older in due course.
P.1#. 5tate wit$ reasons w$et$er eac$ of t$e following instruments is bearer or orderE
a. 6 bill is drawn payable to - or bearer.
b. 6 bill is drawn payable to - w$o endorses it in blank in favour of ..
c. 6 bill is drawn payable to -.
d. 6 bill is drawn payable to - or order.
e. 6 bill is drawn payable to - only.
Sol: First state t$e rules related bearer instrument and order instrument.
*ase +ecision ,eason
-a.
-b.
-c.
-d.
-e.
Bearer instrument 9G*planation II to
5ec.1N 314<
Bearer instrument 9G*planation II to
5ec.1N314<
!rder instrument 9G*planation I to
5ec.1N 314<
!rder instrument 9G*planation I to
5ec.1N314<
8ot a negotiable instrument at all
9G*planation I to 5ec. 1N314<
It is e*pressed to be so payable.
1$e last endorsement is an endorsement in blank.
It is e*pressed to be payable to a particular person and does not
contain any words w$ic$ pro$ibit transfer or indicate any intention
t$at it s$all not be transferred.
1$e use of word Jonly7 pro$ibits or indicates an intention t$at bill
s$all not be transferred.
P.1$. 5tate wit$ reasons w$et$er eac$ of t$e following instruments is an Inland Instrument or a Foreign InstrumentE
a. 6 bill drawn in 'el$i upon a merc$ant in 6gra and accepted payable in /ondon.
b. 6 bill drawn in 'el$i upon a merc$ant in /ondon and accepted payable in 6gra.
c. 6 bill drawn in 'el$i upon a merc$ant in /ondon and accepted payable in /ondon.
d. 6 bill drawn in /ondon upon a merc$ant in 6gra and accepted payable in 'el$i.
e. 6 bill drawn in 'el$i on a merc$ant in 6gra but endorsed in /ondon.
f. 6 bill drawn in /ondon on a merc$ant in 6gra and endorsed in 'el$i.
Sol: First state t$e provisions related to Inland instrument and Foreign instrument.
Practical questions in Negotiable Instruments Act _____________________%
P.1%. 5tate wit$ reasons w$et$er eac$ of t$e following instrument is an 6mbiguous Instrument or Fictitious InstrumentE
a. 6 bill is drawn by 6, an agent, acting wit$in t$e scope of $is aut$ority, upon $is principle @.
b. - draws a bill on . w$o is a fictitious person and negotiates it $imself.
c. - draws a bill on . w$o is a minor.
d. 6 bill is drawn by 'el$i branc$ of 'ena Bank upon its Bombay branc$.
e. 6 bill is drawn upon . w$o is a ma;or person payable to H w$o is a fictitious person.
f. 6 bill is drawn upon . as payable to H. 1$e drawer is a fictitious person.
Sol: First state t$e provisions related to ambiguous instrument and fictitious instrument.
Case Decision Reason
-a.
-b.
-c.
-d.
-e.
-f.
6mbiguous instrument 95ec.1B<
Fictitious instrument 95ec.D+<
Fictitious instrument 95ec.D+<
1$e drawer and t$e drawee are t$e same person.
1$e drawee is a factious person.
1$e drawee is competent to contract.
1$e drawer and t$e drawee are t$e same person.
1$e payee is a fictitious person.
1$e drawer is a fictitious person.
P.1&. 5tate wit$ reasons w$et$er eac$ of t$e following instruments is an Inc$oate Instrument or notE
a. - signs and delivers an unstamped and blank promissory note to ..
b. - delivers a stamped and blank promissory note to . wit$out $is signature.
c. - signs a stamped and blank promissory note and keeps in $is safe.
d. - signs and delivers a stamped and blank promissory note to ..
e. - signs and delivers a stamped and complete promissory note to ..
Sol: First write t$e provisions related to Inc$oate instrument 35ection +04.
-a.
-b.
-c.
-d.
-e.
8o
8o
8o
.es
8o
It is not stamped.
It $as not been signed by t$e maker.
It $as not been delivered.
1$ere is a delivery of a signed, stamped O blank instrument.
It is not incomplete.
Corporate & Other Laws__________________________________________&
*ase +ecision ,eason
-a.
-b.
-c.
-d.
-e.
-f.
Inland instrument 95ection 11 <
Inland instrument 95ection 11<
Foreign Instrument 95ection 1+<
Foreign instrument95ection 1+<
Inland instrument 95ection 11<
Foreign instrument 95ection 1+<
It is drawn in India and t$e drawee is resident in India.
It is drawn in India and is payable in India.
It is not accepted payable in India and at t$e same time its drawee
is not a resident of India.
It is drawn in India.
It is drawn in India and drawee is resident in India.
It is not drawn in India.
P.1'. 5tate wit$ reasons w$et$er eac$ of t$e following instruments is a 1ime Instrument or 'emand InstrumentE
a. I promise to pay B Rs 500.
b. I promise to pay B Rs 500 on 'emand.
c. @ay Rs 500 at sig$t.
d. @ay Rs 500 on presentment.
e. I promise to pay B Rs 500 after Nmont$s.
f. I promise to pay B Rs 500 on 1st )an. 1>>B.
g. I promise to pay Rs 500 after sig$t.
h. I promise to pay B Rs 500 after &7 s 'eat$.
i. @ay B Rs 500 on or before 1st )an. 1>>B.
Sol: First state t$e provisions related to order instruments and time instruments.
-a.
-b.
-c.
-d.
-e.
-f.
-g.
-h.
-i.
'emand instrument 95ec.1> O +1<
1ime instrument 95ec.+1<
8ot a negotiable instrument at all
8o time for payment $as been specified.
1$e e*pression Jat sig$t7 means Jon demand7.
1$e e*pression Jon presentment7 means Jon demand7.
Fi*ed period $as been specified.
6 particular day $as been specified.
6fter sig$t means after presentment for sig$t.
It is payable on t$e $appening of an event 3i.e. deat$4 w$ic$ is
certain to $appen.
1ime is uncertain.
P.(. - accepts a bill for t$e accommodation of 6 3drawer4. 6 transfers it to B, wit$out consideration. B transfers it to &
wit$out consideration. & transfers it to ' for value. ' transfers it to G, wit$out consideration. !n t$e due date, t$e bill
dis$onored by -. 'iscusse t$e rig$ts of 6, B, &, ' and G.
Sol:
a. G cannot recover from ', & cannot recover from B, B cannot recover from 6, and 6 cannot recover from - because a
negotiable instrument wit$out consideration creates no obligation of payment between t$e parties to t$e transaction.
b. ' and G can recover from -, 6, B and & because any $older for consideration 3'4, and every subse,uent $older
deriving title from $im 3G4 can recover t$e amount due from t$e transferor for consideration or any prior party t$ereto.
P.1. - accepts a bill for t$e accommodation of 6 3drawer4, 6 transfers it to B for value. 1$e bill is dis$onoured by - on
t$e due date. B collects t$e amount from 6. &an 6 sue - for t$e recovery of t$e amountC
Sol: In general, accommodating parties are liable on t$e bill to t$e same e*tent as t$at of an ordinary bill. ?owever, t$ey
are not liable to t$e accommodated party 2 t$e person for w$ose benefit t$ey signed t$e instrument. 5o, 6 cannot sue - for
t$e recovery of t$e amount in view of t$e specific provision to t$at effect provided in G*planation I to section DN.
P.. - accepts a bill for t$e accommodation of 6 3drawer4. 6 transfers it to B for value after maturity. B becomes t$e
$older in good fait$. 'iscuss t$e rig$ts of 6 and B.
a. 6 cannot recover from - because an instrument wit$out consideration creates no obligation between t$e
parties to t$e transaction as per t$e provisions of 5ection DN.
b. B can recover from - and 6, because a bonafide $older for value can recover from any prior party even
t$oug$ $e ac,uires t$e instrument after maturity as per t$e provisions of @roviso to 5ec.5>.
P.!. 6 owes money to B. 6 makes a promissory note for t$e amount in favour of B. For safety of transmission $e cuts t$e
note in two $alves and posts one $alf to B. ?e t$en c$anges $is mind and calls upon B to return t$e $alf of t$e note w$ic$
$e $ad sent. B re,uires 6 to send t$e ot$er $alf of t$e promissory note. 'ecides as to $ow t$e rig$ts of t$e parties are to be
ad;usted.
Practical questions in Negotiable Instruments Act _____________________"
Sol: 1$e relevant ,uestion in t$e given situation is w$et$er t$e making of t$e promissory note is complete w$en one $alf
of t$e note was delivered to B. "nder 5ection DP of t$e 8egotiable Instruments 6ct, 1KK1, t$e making of a promissory note
is completed by delivery, actual or constructive. 'elivery, of course, refers to t$e delivery of t$e w$ole of t$e instrument
and not merely a part of it. 'elivery of $alf instrument cannot be treated as constructive delivery of t$e w$ole. 1$erefore,
t$e claim of B to $ave t$e ot$er $alf of t$e @romissory note sent to $im is not maintainable. 1$us 6 is ;ustified in
demanding t$e return of t$e first $alf sent by $im.
P.". - needs Rs.10,000 but cannot raise t$is amount because $is credit is not good enoug$. . w$ose credit is good,
accomodates - by giving $im a pronote made out in favour of -, t$oug$ . owes no money to -. - endorses t$e pronote to
H for value received. H w$o is a $older in due course, demands payment from .. &an . refuse and plead t$e arrangement
between $im and -C
Sol: 6ccording to 5ection 1+0 of t$e 8egotiable Instruments 6ct, in a suit by $older in due course, maker of a promissory
note and no drawer of a bill of e*c$ange or c$e,ue are not permitted to deny t$e validity of t$e instrument, as originally
made or drawn. 1$us, H is entitled to receive payment on t$e instrument.
P.#. =$at is meant by #@ayment of 'ue &ourse% in respect of a negotiable instrumentC 6 c$e,ue originally e*pressed
payable to bearer is subse,uently made payable to order by endorsement in full. Is it in order for t$e drawee bank to pay
t$e amount to t$e bearer of t$e c$e,ueC
Sol: In t$e cases of an instrument payable to order t$e drawee of a bill or maker of a note is disc$arged by payment in due
course if it is indorsed by or on be$alf of t$e payee. But, in t$e case of a c$e,ue t$ere is an e*ception. 1$e rule is once a
bearer instrument is always a bearer instrument. ?ence t$e banker will be disc$arged by payment in due course to t$e
bearer of a c$e,ue w$ic$ was originally e*pressed payable to bearer even t$oug$ it was subse,uently endorsed in full
95ection K53+4<.
P.$. 6 c$e,ue originally e*pressed payable to bearer is subse,uently made payable to order by endorsement in full. Is it
an order for drawee bank to pay t$e amount to bearer of t$e c$e,ueC
/r
&omment on t$e following statement wit$ reference to provisions of 8egotiable Instruments 6ct 0 J!nce a bearer
instruments always a bearer instrument7.
Sol: 6 bearer instrument is one, w$ic$ can c$ange $ands by mere delivery of t$e instrument. 1$e instrument may be a
promissory note or a bill of e*c$ange, or a c$e,ue. It s$ould be e*pressed to be so payable or on w$ic$ t$e last
endorsement is in blank. 3G*planation + to 5ection 1N of t$e 8egotiable Instrument 6ct 1KK14.
"nder 5ection DP w$ere an instrument is made payable to bearer, it is transferable merely by delivery, i.e. wit$out any
furt$er endorsement t$ereon. But t$is c$aracter of t$e instrument can be subse,uently altered. 5ection D> provides t$at a
$older of negotiable instrument endorsed in blank 3i.e. bearer4 may, wit$out signing $is own name, by writing above t$e
endorser7s signature, direct t$at t$e payment of t$e instrument be made to anot$er person. 1$us t$e c$aracter of t$e
instrument is c$anged and t$e instrument cannot be negotiated by mere delivery.
But in t$e case of a &$e,ue, $owever, t$e law is a little different from t$e one stated above. 6ccording to t$e provisions of
5ection K5 3+4 w$ere a c$e,ue is originally e*pressed to be payable to bearer, t$e drawee is disc$arged by payment in due
course to t$e bearer t$ereof, despite any endorsement w$et$er in blank or full appearing t$ereon not wit$ standing t$at any
suc$ instrument purported to restrict or e*clude furt$er negotiation. In ot$er words, t$e original c$aracter of t$e c$e,ue is
not altered so far as t$e paying bank is concerned, provided t$e payment is made in due course. ?ence t$e proposition t$at
once a bearer instrument always a bearer instrument.
P.%. 6 of &alcutta drew a bill of e*c$ange on B of ?onkong payable si*ty days after sig$t. 1$e $older & kept t$e bill
wit$ $im for five mont$s and t$en presents it for acceptance before B. B in t$e meanw$ile becomes insolvent. & sues 6
for payment. =ill $e succeedC
Sol: In t$e given case, t$e bill is payable P0 days after sig$t. First t$e $older & $as to present t$e instrument for reckoning
P0 days wit$in reasonable time. In t$e given case t$ere is unreasonable delay in presenting t$e instrument for sig$t. 5o, &
can7t succeed in receiving t$e payment.
P.&. 6scertain t$e date of maturity of a bill payable 100 days after sig$t and w$ic$ is presented for sig$t on Dt$ ay,
+000.
Sol: In case of bill payable after a certain period after sig$t, t$e date of maturity is calculated by adding t$ree days of grace
to t$e period after w$ic$ t$e bill is payable. In case of bills payable after sig$t, t$e period is calculated from t$e date w$en
t$e bill is presented for sig$t. In case t$e date of maturity $appens to be a public $oliday including 5unday, t$e bill falls
Corporate & Other Laws__________________________________________(
due for payment on t$e day preceding t$e public $oliday. In t$e given case, t$e bill is made payable 100 days after sig$t
and t$e same was sig$ted on Dt$ ay, +000. 100 days from Dt$ of ay, +000 works out to 1+t$ of 6ugust, +000, adding
t$ree days of grace makes t$e bill due for payment on 15t$ of 6ugust, +000 w$ic$ $appens to be a public $oliday. 1$us,
t$e date of maturity of t$e bill s$all be 1Dt$ of 6ugust, +000 unless t$e same is also a public $oliday 3including 5unday4.
P.'. 6 promissory note, e*ecuted on N1st)uly, 1>>B, is made payable (!ne mont$ after date. =$en does t$e note become
payableC
Sol: Nrd 5eptember, 1>>B. It is calculated in t$e following mannerE 'ate of G*ecution2N1st )uly, 1>>B. 'ate of maturity2
N1st 6ugust Q N days of grace R Nrd 5eptember, 1>>B.
P.!(. @romissory 8ote dated 1st February +001 payable two mont$s after date was presented to t$e maker for payment 10
days after maturity. =$at is t$e date of maturityC
Sol: 1$e date of maturity is Dt$ 6pril, +001 312D2+001 plus t$ree days of grace4.
P.!1. Find out date of maturity in t$e following casesE
a. 6 bill dated 1
st
)anuary 1>>N is made payable four mont$s after date.
b. 6 bill, dated N0
t$
)anuary 1>>N, is made payable one mont$ after date.
c. 6 bill, dated N1
st
)uly, 1>>N, is made payable two mont$s after date.
d. 6 bill dated 1
st
)anuary 1>>N is payable P0 days after date.
e. 6 bill is payable on +K
t$
February 1>>N.
f. 6 bill is payable t$irty days after sig$t is presented for sig$t on 1st arc$, 1>>N.
g. 6 bill, dated 15 )anuary, 1>>N, is payable t$ree mont$s after date.
Sol:
a. It falls due on D
t$
ay, 1>>N.
b. 1$e date of maturity falls on N
rd
arc$, 1>>N.
c. 1$e bill is at maturity on N
rd
!ctober, 1>>N.
d. It falls due on 5
t$
arc$, 1>>N.
e. It falls due on N
rd
arc$, 1>>N.
f. It falls due on Nrd 6pril, 1>>N.
g. It falls due on 1Kt$ 6pril, 1>>N w$ic$ $appens to be a 5unday. 6s suc$ it will fall due on 1Bt$ 6pril, 1>>N, i.e., t$e
preceding business day.
P.!. =$at will be t$e due dates of following instrumentsE
a. 6 Bill of G*c$ange dated 10t$ 8ovember 1>>+, payable D mont$s after date.
b. 6 @romissory 8ote dated +Bt$ 8ovember 1>>+, payable P0 days after date wit$out grace.
c. 6 Bill of G*c$ange dated +Kt$ 6ugust 1>>+, payable 1K0 days after date.
d. 6 Bill of G*c$ange dated 1
st
February 1>>+, payable D5 days after sig$t. 1$e Bill was accepted on P
t$
February 1>>+.
Sol: 3i4 arc$ +D, 1>>N.
3ii4 +5
t$
)anuary, 1>>+.
3iii4 +B
t$
February, 1>>N
3iv4 +5
t$
arc$, 1>>N.
P.!!. @romissory note dated 1
st
February, +001 payable two mont$s after date was presented to t$e maker for payment 10
days after maturity. =$at is t$e date of aturityC G*plain wit$ reference to t$e relevant provisions of t$e 8egotiable
Instruments 6ct, 1KK1 w$et$er t$e endorser and t$e maker will be disc$arged by reasons of suc$ delay.
Practical questions in Negotiable Instruments Act _____________________!
Sol: If a promissory role is made payable a stated number of mont$s after date, it becomes payable t$ree days after t$e
corresponding date of mont$s after t$e stated number of mont$s 35ection +N read wit$ 5ection ++ 8egotiable Instruments
6ct, 1KK14. 1$erefore, in t$is case t$e date of maturity of t$e promissory note is D
t$
6pril, +001.
In t$is case t$e promissory note was presented for payment 10 days after maturity. 6ccording to 5ection PD of 8egotiable
Instruments 6ct read wit$ 5ection PP, a promissory note must be presented for payment at maturity by on be$alf of t$e
$older. In default of suc$ presentment, t$e ot$er parties t$e instrument 3t$at is, parties ot$er t$an t$e parties primarily
liable4 are not liable to suc$ $older. 1$e endorser is disc$arged by t$e delayed presentment for payment. But t$e maker
being t$e primary party liable on t$e instrument continues to be liable.
P.!". 6 c$e,ue is drawn upon 'ena Bank. It is stolen by - w$o $ands it over to . w$o takes in good fait$ for valuable
consideration. . deposits t$e c$e,ue into $is own account in &anara Bank w$o presents it and obtains payment from 'ena
Bank. 'iscuss t$e legal position of paying banker, collecting banker, . and true owner in eac$ of t$e following alternative
casesE
a. If t$e c$e,ue is payable to bearer.
b. If t$e c$e,ue is payable to bearer and is crossed generally.
c. If t$e c$e,ue is payable to bearer and is crossed generally wit$ words (not negotiable7.
d. If t$e c$e,ue is payable to bearer and is crossed specially wit$ words (&anara Bank(.
e. If t$e c$e,ue is payable to bearer and is crossed specially wit$ words (6lla$abad Bank7.
f. If t$e c$e,ue is payable to B or order and - forges B(s endorsement.
g. If t$e drawer(s signatures were forged.
Case Paying banker Collecting banker Y True owner
3a4
3b4
3c4
3d4
3e4
3f4
3g4
'rawer is disc$arged
by payment in due
course35ec K53+4<
2 do 2
2 do 2
2 do 2
'rawee is liable to
true owner 95ec.1+><
'rawee is
disc$arged by
payment in due
course 95ec. K5314<
'rawee is liable to
true owner because
t$e payment is not in
due course 95ection
101<
&ollecting banker does not
incur any liability to t$e true
owner 95ection 1N1<
2 do 2
2 do 2
2 do 2
&ollecting banker is liable to
true owner
95ection 1N1<
&ollecting banker does not
incur any liability to t$e true
owner 95ection 1N1<
&ollecting banker is liable to
t$e true owner 95ection 1N1<
?e is not liable to true
owner.
2 do 2
?e is liable to true owner
because $e got a defective
title.
?e is liable to true owner.
?e is not liable to true
owner.
?e is not liable to from -
true only.
?e is liable to true owner
because forgery passes no
title at all.
?e can recover from - and
not from ..
2 do 2
?e can recover from . and
-.
?e can recover from -
only.
?e can recover from - or
paying banker or collecting
banker.
?e can recover from -
only.
?e can recover from
paying banker, collecting
banker or ..
P.!#. 6 c$e,ue payable to bearer is crossed generally and is marked "not negotiable". 1$e c$e,ue is lost or stolen and
comes into t$e possession of B w$o takes it in good fait$ and gives value for it. B deposits t$e c$e,ue into $is own bank
and $is banker presents it and obtains payment for $is customer from t$e bank upon w$ic$ t$e c$e,ue is drawn. 3a4 &an
bot$ t$e bankers, viS., banker paying t$e c$e,ue and t$e banker collecting it plead e*oneration from t$eir liability. 3b4 &an
B be compelled to refund t$e money to t$e true owner of t$e c$e,ue.
Sol:
Corporate & Other Laws__________________________________________'
-a. .esT 6 person w$o takes a c$e,ue crossed (not negotiable( $as no better title to keep suc$ a c$e,ue t$an $is immediate
transferor, and t$e true owner can always reclaim it or t$e amount of it. !n t$e ot$er $and bot$ collecting banker and paying
banker will be protected under t$e act, provided t$e payment and t$e collection $ave been made in good fait$ and wit$out
negligence 95ec. 1+K O 1N0<.
-b. .es. B can be compelled to refund t$e money as $e was not entitled to receive payment upon instrument.
P.!$. #It would be safer for t$e drawer to cross a c$e,ue Jnot negotiable7 wit$ t$e words Jaccount payee7 added to it%.
G*plain, $ow it is safer for t$e drawer in suc$ case.
Sol: 6s per t$e instructions issued by Reserve Bank of India on >.>.1>>+, it would be safer for t$e drawer to cross a c$e,ue
Jnot negotiable7 wit$ t$e words Jaccount payee7 added to it. 1$e effect of t$e words Jnot negotiable7 on a crossed c$e,ue
is t$at t$e title of t$e transferee of suc$ a c$e,ue cannot be better t$an t$at of its transferor 35ection 1N0 of 8egotiable
Instrument 6ct4. 1$e addition of t$e words Jnot negotiable7 does not restrict t$e furt$er transferability of t$e c$e,ueT it
only takes away t$e main feature of negotiability, w$ic$ is, t$at a $older wit$ a defective title can give a good title to
subse,uent $older, in due course. 6ny one w$o takes a c$e,ue marked Jnot negotiable7 takes it at $is own risk. 1$e ob;ect
of crossing a c$e,ue Jnot negotiable7 is to afford protection to t$e drawee or $older of t$e c$e,ue against miscarriage or
dis$onesty in t$e course of transit by making it difficult to get t$e c$e,ue so crossed cas$ed, until it reac$es its destination.
1$e words J6ccount @ayee7 on a c$e,ue are a direction to $e collecting banker t$at t$e amount collected on t$e c$e,ue is to
be credited to t$e account of t$e payee. If $e credits t$e proceeds to a different account, $e is prima facie guilty of negligence
and will be liable to t$e true owner for t$e amount of t$e c$e,ue. But suc$ a crossing does not affect t$e paying banker w$o
is under no duty to ascertain t$at t$e c$e,ue in fact $as been collected for t$e account of t$e person named as t$e payee.
1$us t$e c$e,ue crossed Jnot negotiable7 wit$ t$e words Jaccount payee7 added to it protects t$e drawer of t$e c$e,ue in
two ways. 314 1$e main feature of negotiability is lost i.e. t$e $older in due course cannot get a better title t$an t$at of t$e
transferor. 3+4 1$e collecting banker must take utmost care to in,uire into t$e title of its customer and satisfy itself t$at
t$ere is no defect in t$e title of t$e customer presenting suc$ c$e,ue of collection.
P.!%. &an an acceptor of a bill avoid $is liability against a person w$o is a $older in due course or w$o derives $is title
from a $older in due course, on t$e following groundsE
a. 1$at t$e instrument $as not been filled in accordance wit$ t$e aut$ority given by $im.
b. 1$at t$e ot$er parties to t$e bill were fictitious.
c. 1$at t$e instrument was drawn wit$out consideration.
d. 1$at t$e delivery of t$e instrument was conditional.
e. 1$at t$e instrument $ad been lost.
f. 1$at t$e instrument was obtained from $im by means of fraud.
g. 1$at t$e instrument was obtained from $im for an unlawful consideration.
h. 1$at $is signature was forged.
i. 1$at payee $ad no capacity to endorse.
Sol: First state t$e privileges of $older in due course.
0ro1nd +ecision 23planation
-a.
-b.
-c.
-d.
-e.
-f.
-g.
-h.
-i.
8o
8o
8o
8o
8o
8o
8o
.es
8o
@rivilege given to $older in due course under 5ection +0 provided t$e stamp put on t$e
instrument was sufficient to cover t$e amount.
@rivilege given to a $older in due course uLs D+
@rivilege given to a $older in due course uLs DN
@rivilege given to a $older in due course uLs DP
@rivilege given to a $older in due course uLs 5K
Forgery passes no title to anyone at all.
@rivilege given to a $older in due course uLs 1+1
Note: 1$e aforesaid decisions also $old good for a $older w$o derives title from a $older in due course.
P.!&. 5tate w$et$er a $older can refuse to take t$e following acceptance or notE
a. 6ccepted payable w$en in funds.
b. 6ccepted payable w$en a cargo consigned to me is sold.
c. 6 bill drawn for Rs 5,000 but accepted for t$e D,000 only.
d. 6ccepted payable at 'el$i w$en no place of payment is specified in t$e order.
e. 6ccepted payable at 'el$i only w$en no place of payment is specified in t$e order.
f. 6ccepted payable at 'el$i w$en place of payment specified in t$e order was Bombay.
g. 6 bill drawn payable t$ree mont$s after date but accepted payable two mont$s after date.
h. 6 bill drawn on -, ., and H 3w$o are not partners4 but accepted by - only.
i. 6 bill drawn on -, . and H 3w$o are partners4 but accepted by -.
-a.
-b.
-c.
-d.
-e.
-f.
-g.
-h.
-i.
&an refuse
&an refuse
&an refuse
&an7t refuse
&an refuse
&an refuse
&an refuse
&an refuse
&an7t refuse
It is a ,ualified acceptance because it is conditional acceptance.
It is a ,ualified acceptance because it is conditional acceptance.
It is a ,ualified acceptance because it is a partial acceptance for a part only.
It is a general acceptance and not a ,ualified acceptance.
It is a ,ualified acceptance because of t$e use of t$e word (only(.
It is a ,ualified acceptance because it is accepted payable at a place ot$er t$an specified
one.
It is a ,ualified acceptance because it is accepted payable at a time ot$er t$an specified one.
It is a ,ualified acceptance because acceptance $as not been made by all drawees.
It is a general acceptance because acceptance $as been made by a partner.
Note: First state when acceptance is valid.
P.!'. ? is t$e $older in due course of a bill of w$ic$ 6 is t$e acceptor. ', t$e drawer of t$e bill, is fictitious. &an 6 escape
from $is liability to ?C
Sol: 5ection D+ of t$e 8egotiable Instruments 6ct provides t$at w$ere a bill of e*c$ange is drawn by a fictitious person
and is payable to $is order, t$e acceptor cannot be relieved from $is liability to t$e $older in due course. 1$us, ? being
$older in due course, 6 cannot escape liability. ?owever, ? s$all $ave to establis$ t$at t$e bill was endorsed by t$e same
$and as drawer(s signature.
P."(. 6 draws a c$e,ue for Rs. 100 and $ands it over to B by way of gift. Is B a $older in due courseC G*plain t$e nature
of $is title, interest and rig$ts to receive t$e proceeds of t$e c$e,ue.
Sol: !ne of t$e re,uirements of 5ection > of t$e 8egotiable Instruments 6ct to constitute a $older, as $older in due course
is t$at $e must $ave received t$e instrument for consideration. 1$ere are no e*ceptions to t$is condition. 1$us B can7t be
treated as $older in due course. But $e is certainly a $older wit$ good title t$ereto and $ence $e will $ave every rig$t to
claim payment upon instrument.
P."1. - obtains .7s acceptance to bill by fraud. - endorses it to H w$o takes it as $older in due course. H endorses t$e bill
to F w$o knows of t$e fraud. &an F recover from -C
Sol: .es. =$en a document reac$es t$e $ands of $older in due course it will be cured from all defects. Gven an ordinary
$older deriving title from suc$ $older in due course will get pure title. In t$e above case, -7s title was defective as it was
obtained by fraud. 6s H is a $older in due course $e gets pure or defective title and instrument will be cured of all defects.
8ow t$e instrument reac$es t$e $ands of F, w$o knowingly accepts t$e instrument. 5o F becomes $older. But $e will also
get pure title to t$e instrument and t$us $e can recover money from -.
P.". ) purc$ases some bills amounting to Rs.1,B+B for a sum of Rs.+00 only. ?e knows at t$e time of purc$ase t$at bot$
drawer and t$e acceptor are in embarrassed circumstances but accepts t$em wit$out en,uiry and e*planation. 1$e bill
Corporate & Other Laws__________________________________________11
proved to $ave been obtained by fraud. ) insists t$at $e is a $older in due course and is t$erefore entitled to get t$e full
value of t$e instruments. =ill $e succeedC
Sol: 8o. 6ccording to 5ec.> of t$e 6ct 2 ?older in due course means any person w$o, for consideration, became t$e
possessor of a promissory note, bill of e*c$ange or c$e,ue, if payable to t$e bearer, or t$e payee or endorsee t$ereof, if
payable to t$e order, before t$e amount mentioned in it became payable, and wit$out $aving sufficient cause to believe t$at
any defect e*isted in t$e title of t$e person from w$om $e derived $is title.%
In t$e given case t$ere are clear grounds of suspicion and ) $as s$own negligence in en,uiring t$e validity of t$e
instrument. 5o, $e can7t be considered as $older in due course.
P."!. 6 sells a radio to , a minor, w$o pays for it by c$e,ue. 6 indorses t$e c$e,ue to B w$o takes it in good fait$ and
for value. 1$e c$e,ue is dis$onoured on presentation. &an B enforce payment of t$e c$e,ue against 6 or C
Sol: @ayment can7t be enforced against as $e is a minor. But t$e instrument can be enforced against 6.
P."". 6 bill is dis$onoured by non2acceptance. 1$e bill is endorsed to J67. J67 endorses it to JB7. 6s between J67 and
JB7, t$e bill is sub;ect to an agreement as to t$e disc$arge of J67. 1$e bill is afterwards endorsed to J&7, w$o takes it wit$
notice of dis$onour. 'ecide, wit$ reasons, w$et$er J&7 is entitled to accept t$e bill in t$e capacity of a $older in due
course.
Sol: 5ection 5> of t$e 8egotiable Instruments 6ct, 1KK1 states t$at t$e $older of negotiable instrument, w$o $as ac,uired it
after dis$onour, w$et$er by non2acceptance or non2payment, wit$ notice t$ereof, or after maturity, $as only, as against t$e
ot$er parties, t$e rig$ts t$ereon of $is transferor.
6ccordingly w$ere a negotiable instrument $as been dis$onoured, any person w$o takes it wit$ notice of dis$onour, takes
it sub;ect to any defect of title attac$ing t$ereto at t$e time of dis$onour. 1$e transferee of a dis$onoured instrument takes
it sub;ect to any defect of title attac$ing t$ereto at t$e time of dis$onour. 1$e transferee of a dis$onoured instrument, w$o
takes it wit$ notice of dis$onour, cannot ac,uire a better title to it t$an t$at w$ic$ $is transferor $ad.
In t$e problem given $ere, t$e transferor J67 $as ac,uired t$e bill w$ic$ $as already been dis$onoured by non2acceptance.
r. J67 $as indorsed it to B sub;ect to t$e agreement as to t$e disc$arge of J67. 6fter endorsement J&7 takes it wit$ notice
of dis$onour. J&7 w$o takes it wit$ notice of dis$onour cannot ac,uire a better title to it t$an t$at w$ic$ $is transferor JB7
$ad. J&7 takes t$e bill sub;ect to t$e agreement between J67 and JB7 and not a better title t$an t$is.
Furt$er J&7 is also not a $older in due course under 5ection > of t$e 6ct because $e $as not ac,uired t$e instrument before
it became payable. 6lt$oug$ t$e $older in due course is not affected by t$e defect in t$e title of $is transferor, but it is not
so in t$e case of a $older w$o ac,uires t$e instrument after dis$onour or after maturity. ?ence J&7 is not entitled to accept
t$e bill in t$e capacity of a $older in due course.
P."#. - by inducing . obtains a Bill of G*c$ange from $im fraudulently in $is 3-4 favour. /ater, $e enters into a
commercial deal and endorses t$e bill to H towards consideration to $im 3H4 for t$e deal. H takes t$e bill as a ?older2in2
due2course. H subse,uently endorses t$e bill to - for value, as consideration to - for some ot$er deal. !n maturity t$e bill
is dis$onoured. - sues . for t$e recovery of t$e money. =it$ reference to t$e provisions of t$e 8egotiable Instruments
6ct, decide w$et$er - will succeed in t$e caseC
Sol: 1$e problem stated in t$e ,uestion is based on t$e provisions of t$e 8egotiable Instruments 6ct as contained in
5ection 5N. 1$e section provides E J!nce a negotiable instrument passes t$roug$ t$e $ands of a $older in due course, it
gets cleansed of its defects provided t$e $older was $imself not a party to t$e fraud or illegality w$ic$ affected t$e
instrument in some state of its ;ourney. 1$us any defect in t$e title of t$e transferor will not affect t$e rig$ts of t$e $older
in due course even if $e $ad knowledge of t$e prior defect provided $e is $imself not a party to t$e fraud. 35ection 5N4
1$us applying t$e above provisions it is ,uite clear t$at - w$o originally induced . in obtaining t$e bill of e*c$ange in
,uestion fraudulently, cannot succeed in t$e case. 1$e reason is obvious as - $imself was a party to t$e fraud.
P."$. -, on attaining t$e age of ma;ority, makes a fres$ promissory note in consideration of a promissory note made by
$im during $is minority. &an a suit be maintained on t$e fres$ promissory noteC
Sol: 6 suit cannot be maintained on t$e fres$ promissory note because t$e fres$ promissory note is void in t$e absence of
consideration. !n t$e ot$er $and a minor can7t ratify t$e transactions entered by $im during $is minority.
P."%. - sells a 1: to , a minor, w$o pays for it by $is c$e,ue. - endorses t$e c$e,ue to . w$o in turn endorses it in
favour of H. 1$e c$e,ue is dis$onoured. 'iscuss t$e legal position.
Sol:
a. . can enforce payment of t$e c$e,ue against - only and not against because a minor cannot bind $imself.
b. H can enforce payment of c$e,ue against - and ..
P."&. 6 draws a bill payable t$ree mont$s after sig$t on B. It passes t$roug$ several $ands before - becomes its $older. !n
presentation by -, B refuses to accept t$e bill. 'iscuss t$e rig$t of -.
Sol: 1$e effect of dis$onour of a negotiable instrument, w$et$er by non2acceptance or by non2payment, is to render t$e
drawer and all t$e endorsers liable to t$e $older. 1$us, in t$e present case, since t$e bill is payable certain mont$s 3N
mont$s4 after sig$t, acceptance is necessary for fi*ing its date of maturity. 8on2acceptance by drawee 3B4 amounts to its
dis$onour. - may, t$erefore, $old t$e endorsers as well as t$e drawer liable t$ereon. ?owever, t$eir liability can be
invoked only if t$e $older 3-4 gives t$em notice of suc$ dis$onour. 1$e drawee 3B4 s$all not be liable as $e $as not
accepted t$e bill. ?e can be $eld liable only in t$e event of non2payment of an accepted bill.
P."'. draws a c$e,ue in favour of 8, a minor. 8 endorses it in favour of @. 1$e c$e,ue is dis$onoured by t$e banker on
t$e ground of insufficiency of fundsC 'iscuss t$e rig$ts of @.
Sol: 5ection +P of t$e 8egotiable Instruments 6ct, 1>K1 provides t$at a minor may draw, endorse, deliver and negotiate
instruments so as to bind all parties e*cept $imself. In t$e given problem, @ s$all $ave a rig$t to proceed against only. 8,
t$e minor, cannot be $eld liable.
P.#(. 6 promissory note duly e*ecuted in favour of minor is void. 3&orrectLIncorrect4
Sol: 6s per section +P, a minor may draw, indorse, deliver and negotiate any negotiable instrument so as to bind all parties
e*cept $imself. ?ence, t$e instrument is valid. inor can even indorse t$e instrument. ?e will not be bound by suc$
indorsement, but ot$er parties will be bound. Gstoppel is not applicable against $im. 6 minor can deny validity of Bill,
even if $e $imself was drawer 96s per section 1+0, a maker cannot deny validity of instrument as originally made.
?owever, minor can deny t$e validity of t$e instrument<.
P.#1. -, a ma;or, and , a minor, e*ecuted a promissory note in favour of @. G*amine wit$ reference to t$e provisions of
t$e 8egotiable Instruments 6ct, t$e validity of t$e promissory note and w$et$er it is binding on - and .
Sol: Gvery person competent to contract $as capacity to incur liability by making, drawing, accepting, endorsing,
delivering and negotiating a promissory note, bill of e*c$ange or c$e,ue 35ection +P, para 1, 8egotiable Instruments 6ct,
1KK14.
6s a minor7s agreement is void, $e cannot bind $imself by becoming a party to a negotiable instrument. But $e may draw,
endorse, deliver and negotiate suc$ instruments so as to bind all parties e*cept $imself 35ection +P, para +4.
In view of t$e provisions of 5ection +P e*plained above, t$e promissory note e*ecuted by - and is valid even t$oug$ a
minor is a party to it. , being a minor is not liableT but $is immunity from liability does not absolve t$e ot$er ;oint
promisor, namely - from liability 95uloc$ana v. @andiyan Bank /td., 6IR 31>B54 ad. B0<.
P.#. 6 bill is addressed to ?erbert orris w$o is partner in t$e firm #@erkin and @artner%. ?erbert orris accepts t$e bill in t$e
firm7s name. G*plain w$et$er $e will be personally liable on t$e bill or not.
Sol: .es. ?e is t$e drawee and $as given $is acceptance to t$e instrument. !n t$e ot$er $and a partners$ip firm $as no
separate legal identity and t$e liability of eac$ partner is ;oint and several.
P.#!. 5$yam fraudulently encas$ed t$e c$e,ue obtained from Mamal, crossed "8ot negotiable" at a bank ot$er t$an t$e
drawee bank. Is t$e drawee bank liable for conversionC 38ot liable4 G*plain t$e liability of a drawee of c$e,ue.
Sol: 6s per section N1, a drawee of c$e,ue 3i.e. banker4 must make payment of c$e,ue, as long as drawer $as sufficient
balance in $is account in t$e bank. If bank makes a default, it must compensate t$e drawer of c$e,ue for any loss or
damage caused by suc$ default. 1$us, banker is liable only if t$ere is (default( on $is part. 1$e liability is towards drawer
and not t$e $older. Banker is obliged only to compensate for loss or damage. 1$us, e*emplary damages cannot be
awarded, even if banker is found to be negligent. In some cases, bank can refuse to $onour a c$e,ue and it will not be
considered as default. ('amage( is to t$e credit of drawer. 5maller t$e amount of c$e,ue dis$onoured, greater is damage to
credit of drawer.
Corporate & Other Laws__________________________________________1#
5ection K5 specifically provides t$at banker is disc$arged if $e makes payment in due course, if c$e,ue payable to order is
purported to be endorsed by or on be$alf of payee. 1$e protection is available only if Bank makes payment in due course. If
payment is not in due course(, Bank will be liable.
P.#". @, t$e $older of a bill of e*c$ange, transfers it to U wit$out consideration. U also transfers it to R wit$out
consideration. R transfers it to - for consideration. - transfers it to . wit$out consideration. 5tate w$et$er . can recover
t$e amount of suc$ instrument from - or @.
Sol: 6s per 5ection DN, a negotiable instrument made, drawn, accepted, endorsed or transferred wit$out consideration or
w$ere consideration fails, creates no obligation for payment between t$e immediate parties. !f course, $older w$o $as
obtained Bill for consideration can recover t$e consideration paid by $im. 5ection DN uses t$e words (creates no obligation
between t$e parties to t$e transaction(. 1$us, t$e section applies only to immediate parties to transaction and not ot$er parties.
In t$e above case, . cannot recover from - as t$ere is no consideration and - is (immediate party(. ?owever, . can sue @,
U or @. 1$e reason is . $older, w$o is deriving title from - w$o is a $older in due course. ?e $as all rig$ts w$at - $as.
P.##. B signs t$e following endorsements on different negotiable instruments payable to bearer. &lassify t$e endorsements
wit$ reasons as Blank Gndorsement or Full Gndorsement or Restrictive Gndorsement or @artial Gndorsement or
&onditional Gndorsement. 6lso, state w$et$er t$e following Gndorsements are valid or invalid.
a. 8o ot$er words e*cept B(s signature.
b. @ay &.
c. @ay & or order.
d. @ay & only.
e. @ay & or order for t$e account of B.
f. @ay & or order Rs 500 out of Rs.1,000.
g. @ay & or order being t$e unpaid residue of t$e bill.
h. @ay & or order on safe receipt of goods.
i. @ay & sans Recourse.
j. @ay & sans Frais.
k. @ay &, notice of dis$onour dispensed wit$.
5olE
Practical questions in Negotiable Instruments Act _____________________1%
*ase +ecision 4alidity ,eason
-a.
-b.
-c.
-d.
-e.
-f.
-g.
-h.
-i.
-j.
-k.
Blank endorsement
Full endorsement
Full endorsement
Restrictive endorsement
Restrictive endorsement
@artial endorsement
@artial endorsement
&onditional endorsement
:alid
:alid
:alid
:alid
:alid
Invalid
:alid
:alid
:alid
:alid
:alid
8o ot$er words $ave been used.
1$e use of word &.
1$e use of word J& or order7.
1$e use of word Jonly7.
1$e use of word Jfor t$e account of B7.
1$e endorsement purports to transfer only a part of t$e amount
due on instrument.
1$e endorsement is for t$e unpaid balance.
"se of t$e words Jon safe receipt of goods7.
1$e use of t$e words J5ans Recourse7.
1$e use of words t$e J5ans Faris7.
1$e use of words J8otice of dis$onour dispensed wit$7.
P.#$. B signs t$e following endorsements on different negotiable instruments payable to bearer. 5tate w$et$er eac$ of t$ese
alternative endorsement e*cludes t$e rig$t of furt$er negotiation by & or notE
a. "@ay t$e contents to & only"
b. "@ay & for my use"
c. "@ay & or order for t$e account of B"
d. "1$e wit$in must be credited to &"
e. "@ay & "
f. "@ay & value in account wit$ t$e 5tate Bank "
g. "@ay t$e contents to &, being part of t$e consideration in certain deed of assignment e*ecuted by t$e endorser and
ot$er".
Sol: 5ection 50 of t$e 8egotiable Instruments 6ct, 1KK1 provides t$at t$e endorsement of a negotiable instrument followed
by delivery, will transfer t$e property t$erein to t$e endorsee wit$ t$e rig$t of furt$er negotiation. But t$e endorsement
may, by e*press words, restrict or e*clude suc$ rig$t, or may merely constitute t$e endorsee an agent to indorse t$e
instrument, or to receive its contents for t$e endorser, or for some ot$er specified person.
-a.
-b.
-c.
-d.
-e.
-f.
-g.
.e
s
.e
s
.e
s
.e
s
8o
8o
8o
1$e use of t$e word (only( e*cludes t$e rig$t of furt$er negotiation.
1$e use of t$e words (for my use(, e*cludes t$e rig$t of t$e furt$er negotiation.
1$e use of words (or order for t$e account of B( e*cludes rig$t of furt$er negotiation
1$e use of t$e words (must be credited to &( e*cludes t$e rig$t of furt$er negotiation.
1$e endorsement does not contain words e*cluding t$e rig$t or furt$er negotiation.
1$e endorsement does not contain words e*cluding t$e rig$t of furt$er negotiation.
1$e use of t$e words (ot$ers( gives t$e rig$t of furt$er negotiation.
P.#%. B accepts a bill drawn upon by 6 w$o endorses it to & w$o in turn endorses it to ', w$o in turn endorses it to 6.
'iscuss t$e legal position of 6.
Sol: 1$is is clearly a case of 8egotiation back. In case of negotiation back, if any endorser subse,uently becomes $older of
t$e instrument t$en all intermediary parties are disc$arged from t$eir liability. 1$is is to avoid circuitry of action. In t$e
given case 6 can sue B only because B is a prior party to $is original endorsement. 6 cannot sue & or ' because it will
lead to circuitry of action 3i.e., if 6 is allowed to sue & or ', t$en & or ' in turn can sue 6 because 6 is a prior party4.
P.#&. B accepts a bill drawn upon 6 w$o endorses it wit$ words (5ans Recourse7 to &, w$o in turn endorses it to ', w$o in
turn endorses it to 6. 'iscuss t$e legal position of 6.
Sol: 1$e $older of a bill may indorse it in suc$ a way t$at $e does not incur t$e liability of an endorser to t$e
endorsee. ?e can do so by adding t$e words Jsans recourse7 3wit$out recourse4 to t$e endorsement. Examples of such
endorsement are Pay A or order without recourse to me or Pay A or order sans recourse or Pay A or order at
his own risk.
If t$e instrument is dis$onoured t$e subse,uent $older or endorsee can7t claim t$e endorser for payment of t$e same.
In t$e given case 6 can sue B, & or ' because it will not lead to circuitry of action as 6 at t$e time of first endorsement,
e*pressly e*cludes $is liability by using t$e words( 5ans recourse(.
P.#'. @, t$e $older of a Bill of G*c$ange, transfers it to U wit$out consideration. U also transfers it to R wit$out consideration.
R transfers it to - for consideration. - transfers it to . wit$out consideration. 5tate giving reasons w$et$er . can recover t$e
amount on suc$ instrument from - or @.
Sol: In t$is case t$e bill of e*c$ange $as been transferred wit$out consideration. 5ection DN deals wit$ rig$ts of t$e parties
in suc$ a case. 5ection DN lays down t$e following two rules regarding absence of consideration in negotiable instruments.
a. As between immediate parties: If a negotiable instrument is made, accepted endorsed or transferred wit$out
consideration or for a consideration w$ic$ faces, it create no obligation of payment between t$e parties to t$e transaction.
6s between t$e immediate parties t$e defendant can plead absence of consideration and avoid liability.
b. As between remote parties: If a $older ac,uires a negotiable instrument for consideration, every subse,uent $older
desiring title from $im wit$ or wit$out consideration may recover t$e amount due on suc$ instrument from t$e transferor
for consideration or from any ot$er party t$ereto. 1$is means t$at once t$e instrument gets into t$e $ands of a $older in due
course, $e or any subse,uent $older deriving title from $im can recover t$e amount from any or all of t$e prior parties
t$ereto.
?ere - and . are immediate parties and no consideration passed from . to -. ?ence first rule applies and . $as no rig$ts
against -.
- is t$e $older for value. ?ence - and every subse,uent $older deriving title from $im may recover t$e amount due on
suc$ instrument from t$e transferor for consideration or any prior party t$ereto. 1$e second rule applies. ?ence . can
recover t$e amount from @.
P.$(. B accepts a bill drawn upon 6 w$o endorses it to & wit$out consideration, and & endorses it to ' in good fait$ for
valuable consideration and ', in turn endorses it to G as a gift. G endorses it to 6. 'iscuss t$e legal position of 6.
Sol: 6 can sue B because B is a prior party to $is original endorsement. 6 can sue & because 6 was not liable to & as t$e
endorsement was wit$out consideration 95ection DN<. 6 cannot sue ' or G because it will lead to circuitry of action.
P.$1. 6 bill is payable to - or order, - endorses t$e bill in blank. 1$e bill is t$ere after lost and comes into t$e $ands of ..
'iscuss t$e legal position in eac$ of t$e following alternative casesE
a. If . receives t$e payment of t$e bill.
b. If . passes t$e bill by simple delivery to H as a gift.
c. If . passes t$e bill after maturity by simple delivery to H w$o takes t$e bill in good fait$ for valuable
consideration.
d. If . passes t$e bill before maturity by simple delivery to H w$o takes t$e bill in good fait$ for valuable
consideration.
Sol:
a. 1$e true owner can recover t$e amount from . because . $ad no title to bill.
b. 1$e true owner can recover t$e amount from . and H because . and H 3not being $olders in due course4
$ad no title to bill.
c. 1$e true owner can recover t$e amount from . and H because . and H 3not being $olders in due course4
$ad no title to bill.
d. 1$e true owner can recover t$e amount from . and not from H because H being a $older in due course
$ad a good title to bill.
P.$. 6 bill is payable to - or order. 1$e bill is t$ereafter lost and comes into t$e $ands of ., w$o forges -(s signature to
affect an endorsement in blank. 'iscuss t$e legal position in eac$ of t$e following alternative casesE
a. If . passes t$e bill by simple delivery to H as a gift.
b. If . passes t$e delivery before maturity by simple delivery to H w$o takes t$e bill in good fait$ for valuable
consideration.
Sol: In bot$ t$e cases, t$e true owner can recover from . and H because under forged endorsement no person, w$et$er $e
is a $older in due course or not, ac,uires any legal title to t$e bill.
P.$!. 6 bill is payable to - or order, - endorses t$e bill in blank. It comes into t$e $ands of . w$o passes it on by simple
delivery to H, w$o forges .(s signature and transfers it to =. &an = sue any of t$e parties to t$e billC
Sol: = can sue all t$e prior parties because $e derives $is title t$roug$ genuine endorsement by - and not t$roug$ forged
endorsement by H.
P.$". - obtains .(s acceptance to a bill by fraud. - endorses it to H w$o takes it in good fait$ for valuable consideration. H
endorses t$e bill to F w$o knows of t$e fraud. 'iscuss t$e rig$ts of -, . and H.
Sol:
a. - cannot recover from . because - is not a $older in due course.
b. H can recover from - or . because H is a $older in due course. 95ection 5K<.
c. F can recover from -, . and H because F derives t$e title from H w$o is a $older in due course and at t$e same
time H is not a party to fraud. 95ection 5N<
P.$#. 6 draws a bill in favour of B upon -, B endorses it to & w$o, in turn endorses it to ' w$o, in turn, endorses it to G
w$o, in turn, endorse to F. !n presentment for acceptance, - refuses to accept t$e bill. =$o $as a rig$t of action against
w$om in eac$ of t$e following alternative casesE
a. If F gives no notice of dis$onour.
b. If F gives notice of dis$onour only to G.
c. If F gives notice of dis$onour only to G and 6.
Sol: First state the provisions relating to Notice of dishonour.
Case Decision
3a4
3b4
3c4
F $as no rig$t of action against any prior party because all prior parties w$o do not receive t$e notice of
dis$onour are disc$arged. 95ection >N<
F $as rig$t of action against G only and not against 6, B, & or '.
F $as rig$t of action against G and 6 only and not against B, & or '. 95ection >N<
P.$$. &, t$e payee of a bill, endorses it in blank and delivers it to ', w$o specially endorses it to G or order. G transfers t$e
bill to F wit$out endorsement. 'iscuss t$e rig$ts of F in case of dis$onour of t$e bill.
Sol: In t$e given problem, & $as endorsed t$e bill to ' in blank. In ot$er words, ;ust placed $is signature on t$e back,
leaving t$e name of endorsee ' to be recorded. ' endorses it specially to G. 1$us, ' would $ave written (@ay G or order(
above t$e signature of &. 1$us, '(s name or signature does not figure anyw$ere. G t$en transfers to F wit$out endorsement.
!n dis$onour, t$erefore, F can $old t$e immediate transferor G liable w$o s$all be entitled to $old &, w$o in turn can make
t$e drawer liable. F, if $e is a $older in due course, can $old & and t$e drawer liable directly also.
P.$%. 6 is t$e payee and $older of a negotiable instrument. G*cluding personal liability by an endorsement (wit$out
recourse( $e transfers t$e instrument to B, indorses it to &, w$o indorses it to 6. 5tate w$o is liable to 6.
Sol: 5ection 5+ of t$e 8egotiable Instruments 6ct, 1KK1 specifically provides t$at w$ere an endorser e*cludes $is liability
and afterwards becomes t$e $older of t$e instrument, all intermediate endorsers are liable to $older. 1$us, in t$e given
case, & as well as B s$all be liable to 6.
P.$&. 6 is a payee $older of a bill of e*c$ange. ?e endorses it in blank and delivers, it to B. B endorses it in full to & or
order. & wit$out endorsement transfers t$e bill to '. 5tate giving reasons w$et$er ' as bearer of t$e bill of e*c$ange is
entitled to recover t$e payment from 6 or B or &.
Sol: "nder 5ection 55 of t$e 8egotiable Instrument 6ct, if an instrument after $aving been endorsed in blank is endorsed
in full, t$e endorsee in full does not incur t$e liability of an endorser, so t$e amount of it cannot be claimed from $im. It
means if an endorsement in blank is followed by an endorsement in full, t$e instrument still remains payable to bear and
negotiable by delivery as against all parties prior to t$e endorse in full, t$oug$ t$e endorser in full is only liable to a $older
w$o made title directly t$roug$ $is endorsement and t$e person deriving title t$roug$ suc$ $older. In t$e ensuing case, in
view of section 55, ' as t$e bearer of t$e instrument can receive payment of sue t$e drawer, acceptor, or 6 w$o endorsed
t$e bill in blankT but $e cannot sue B or &. But t$ere is an e*ception to t$e above rule contained in 5ection 55. 1$e person
to w$om it $as been endorsed in full, or any one w$o derives little t$roug$ $im, can claim t$e amount from t$e endorser in
full.
P.$'. 6 c$e,ue is drawn payable to (B or order( and delivered to B in payment of a debt. B(s agent wit$out $aving any
aut$ority to endorse, endorses t$e c$e,ue (@er @ro( for B and obtains payment of t$e money and misappropriates it. Is t$e
banker disc$arged by payment in due courseC
Sol: 5ection +B lays down t$at every person capable of binding $imself or of being bound may so bind by $imself or be
bound by a duly aut$orised agent acting in $is name.
But, it is essential t$at at t$e time of putting $is signature to t$e instrument, t$e agent must $ave e*press or implied
aut$ority. 6 signature by procuration 3per pro4 operates as a notice t$at t$e agent $as only a limited aut$ority to sign and
t$at t$e principal will only be bound if t$e agent is acting wit$in t$e actual limits of $is aut$ority. 1$e utmost care and
caution is re,uired in dealing wit$ person w$o profess to act as agent on be$alf of t$e principal. 6 prudent man will always
call for proof t$at t$e alleged aut$ority $as been given. ?ence, a person w$o takes or deals wit$ bill or c$e,ue signed per
pro must take or deal wit$ t$e greatest caution, and s$ould satisfy $imself t$at t$e aut$ority really e*ists 96ttwood vs.
unnings<. If an agent endorses wit$out aut$ority a bill 3or c$e,ue4 on be$alf of $is principal, t$e endorsement conveys no
title to t$e person taking it 3endorsee4 91$e Bank of Bengal vs. Fagan<.
6ccordingly, in t$e given case t$e paying bank will not be entitled to any protection under 5ection K5 under w$ic$ a
banker is protected against forgery of endorsements if t$e payment is made in due course. In fact, t$e payment cannot be
considered as a payment in due course.
P.%(. 6 is $older of a Bill indorsed by B in blank. 6 writes over B(s signature t$e words (@ay to - or order(. !n t$e dis$onour of t$e
Bill, - sues 6 as t$e endorser to recover t$e amount of Bill. &an 6 succeedC
Sol: 6s per section D>, t$e $older of a negotiable instrument indorsed in blank may simply write above t$e endorser(s
signature a direction to pay to any ot$er person as endorsee. ?e will do so wit$out signing $is own name. 1$is will convert
t$e endorsement in blank into an endorsement in full. In suc$ a case, t$e $older does not become endorser and does not
incur t$e liability of an endorser. In t$is case, 6 $as only written t$e words (@ay - or order(. ?e $as not signed t$e
instrument. ?ence, $e is not endorser of Bill and is not liable.
P.%1. 6 endorsed a bill to B, B to &, & to ' and ' to G. /astly G endorsed it to 6. &an 6 $old G liable if t$e bill is
dis$onoured.
Sol: 6s a general rule, eac$ party to t$e instrument is liable to prior parties. e.g., 6 draws a Bill on B making it payable to
&. !nce t$e Bill is accepted by B, $e becomes primarily liable. If & endorses to ', ' to G and G to F, t$en ('( is liable to G
and F w$ile previous parties 6, Band & are liable to '. 6ll parties i.e. 6 to G are liable to F, but F is liable to no one. 8ow,
let us assume t$at F endorses t$e Bill to '. 1$us, ' w$o was an endorsee becomes a $older. 1$is is termed as (8egotiation
Bank(. In suc$ a case, ' cannot $old prior endorsee i.e. G and F liable. 1$e reason is t$at even if $e $olds so, t$e liability
will come back to $im, as G and F will in turn $old ' liable as $e was prior endorsee. 1$us, liability will move in an
endless circle. ?ence, if a document is negotiated back, t$e $older cannot sue intermediate parties. 1$is is an e*ception to
t$e rule t$at a $older can sue all parties prior to t$e transaction. !f course, ' can sue 6, B and &.
?owever, if ' $ad made first endorsement as a conditional endorsement, (san recourse( 3i.e. wit$out liability4, $e can sue G
and F and t$e liability will not come back to $im as circle cannot be completed due to t$e conditional endorsement of (san
recourse7.
P.%. 6 bill of e*c$ange is drawn payable to - or order. - endorses it to ., . to H, H to 6, 6 to B and B to -. 5tate wit$
reasons w$et$er - can recover t$e amount of t$e bill from ., H, 6 and B, if $e $as originally endorsed t$e bill to . by
adding t$e words (5ans Recourse(.
Sol: 1$e endorser of a negotiable instrument may, by e*press words in t$e endorsement, e*clude $is own liability t$ereon.
If t$e endorser writes t$e words (sans recourse( or( sans recourse(, $e e*cludes $is liability on t$e instrument. =$ere an
endorser so e*cludes $is liability and afterwards becomes t$e $older of t$e instrument, all intermediate endorsers are liable
to $im 95ection 5+<. If endorser e*cludes $is liability, furt$er negotiation is not pro$ibited. It only e*cludes liability of
endorser.
In t$e above case, normally, - cannot $old ., H, 6 and B, as if - $olds t$em responsible, t$e responsibility will come back to
$im by circuitry of action. ?owever, in t$is case, - $ad endorsed (wit$out recourse(. ?ence, ., H, 6 and B cannot $old -
liable and $ence circle does not get complete. !n t$e ot$er $and, - is $older after ., H, 6 and B and can $old t$em liable, as
provided in 5ection 5+.
P.%!. 6 is a payee of bill of e*c$ange. ?e endorses it in blank and delivers it to B. B endorses it in full to & or order. &
wit$out endorsement transfers t$e bill to '. 5tate giving reasons w$et$er ' as bearer of t$e bill of e*c$ange is entitled to
recover t$e payment from 6 or B or &.
Sol: 6s per e*planation 3ii4 to section 1N, a bearer instrument is one
3a4 w$ic$ is e*pressed to be payable to bearer or
3b4 on w$ic$ t$e only or last endorsement is in blank.
In t$e given case, t$e original instrument was payable to a particular person 364 and not to bearer. 1$e instrument was
converted into blank instrument by 6. 1$e blank instrument was converted into full by B and delivered to &. 1$us, instrument
is no more a blank instrument. ?ence, & cannot transfer t$e instrument to anot$er wit$out endorsement. 1$us, ' $as no title to
t$e instrument and cannot sue anyone. ' would get title only if & signs i.e. endorses in blank and delivers instrument to '.
?owever, if originally instrument was drawn as payable to bearer, it continues to be payable to bearer, irrespective of any
subse,uent endorsement. In t$at case, even if B $as endorsed in full, t$e instrument is still payable to bearer. ?ence, even
if & $ad not made any endorsement, ' will $ave title to instrument and can recover t$e amount from B or &.
P.%". 6 is t$e $older of a bill of e*c$ange made payable to t$e order of (B(. 1$e bill of e*c$ange contains t$e following
endorsements in t$e blank. First endorsement (B(, second endorsement (&(, t$ird endorsement ('(, fourt$ endorsement (G(. 2 2
(6( strikes out, wit$out G(s consent, t$e endorsement by (&( and ('(. 'ecide wit$ reasons w$et$er (6( is entitled to recover
anyt$ing from (G(.
Sol: Gvery endorser is entitled to recover amount of Bill from prior endorsers. ?ence, 5ection D0 provides t$at if a $older
of a negotiable instrument destroys or impairs t$e endorser(s remedy against a prior party 3wit$out t$e consent of t$e
endorser4, t$e endorser is disc$arged from liability to t$e $older as if t$e instrument $ad been paid at maturity.
In t$e above case, 6 is a $older w$o $as cancelled endorsement of & and ' wit$out consent of G. 1$is $as destroyed
remedy w$ic$ G $ad against & and '. ?ence, G gets disc$arged from $is liability towards 6, as provided in section D0.
P.%#. - is a $older of a bill of e*c$ange made payable to t$e order of . w$ic$ contains t$e following endorsements in
blankE
First endorsement E #.%
5econd endorsement E #I.1.Mris$an%
1$ird endorsement E #1.@.at$ew%
Fourt$ endorsement E #M./.6bdul.%
!n dis$onour, t$e $older - puts in suit against M./. 6bdul and strikes out wit$out M./. 6bdul7s consent t$e endorsements
of I.1.Mris$an and 1.@. at$ew. Is - entitled to recover anyt$ing from M./.6bdul. 5tate reasons for your answer.
Sol: 8o. 1$is is so because - $as destroyed 6bdul7s remedy against prior parties by deleting t$e endorsements of
I.1.Mris$nan and 1.@.at$ew.
P.%$. 6 draws a bill on B. B accepts t$e bill wit$out any consideration. 1$e bill is transferred to & wit$out consideration.
& transferred it to ' for value, 'ecide 0
3i4 =$et$er ' can sue t$e prior parties of t$e bill, and
3ii4 =$et$er t$e prior parties ot$er t$an ' $ave any rig$t of action intenseC
Iive your answer in reference to t$e @rovisions of 8egotiable Instruments 6ct, 1KK1.
Sol: 5ection DN of t$e 8egotiable Instruments 6ct, 1KK1 provides t$at a negotiable instrument made, drawn, accepted,
indorsed or transferred wit$out consideration, or for a consideration w$ic$ fails, creates no obligation of payment between
t$e parties to t$e transaction. But if any suc$ party $as transferred t$e instrument wit$ or wit$out endorsement to a $older
for consideration, suc$ $older, and every subse,uent $older deriving title from $im, may recover t$e amount due on suc$
instrument from t$e transferor for consideration or any prior party t$ereto.
3i4 In t$e problem, as asked in t$e ,uestion, 6 $as drawn a bill on B and B accepted t$e bill wit$out consideration and
transferred it to & wit$out consideration. /ater on in t$e ne*t transfer by & to ' is for value. 6ccording to provisions of
t$e aforesaid section DN, t$e bill ultimately $as been transferred to ' wit$ consideration. 1$erefore, ' can sue any of t$e
parties i.e. 6, B or &, as ' arrived a good title on it being taken wit$ consideration.
3ii4 6s regards to t$e second part of t$e problem, t$e prior parties before ' i.e., 6, B and & $ave no rig$t of action inter se
because first part of 5ection DN $as clearly lays down t$at a negotiable instrument, made, drawn, accepted, indorsed or
transferred wit$out consideration, or for a consideration w$ic$ fails, creates no obligation of payment between t$e parties
to t$e transaction prior to t$e parties w$o receive it on consideration.
P.%%. 5tate w$et$er t$e following alterations are material or notE
a. 6 bill dated 1
st
6pril 1>>> is c$anged to a bill dated 1
st
ay 1>>>.
b. 6 bill payable N mont$s after date is c$anged to a bill payable N mont$s after sig$t.
c. 6 bill payable at 'el$i is c$anged to bill payable at Bombay.
d. 6 bill for Rs.1,000 is c$anged into a bill for Rs.+,000.
e. 6 bill is accepted payable at 'ena Bank is c$anged to a bill accepted payable at &anara Bank.
f. 6 bill payable to @ is c$anged into a bill payable to @ and U.
g. 6 bill was endorsed in blank and $anded over to ., w$o endorsed as (@ay to H or order7.
h. 1$e $older of a bill inserts t$e words (or order(.
i. 6 bill was dated 1>K> instead of 1>>> O subse,uently t$e agent of t$e drawer corrected t$e mistake.
j. 6 c$e,ue payable to bearer was converted into a c$e,ue payable to order.
k. &rossing a c$e,ue.
Sol: First write the provisions related to aterial Alteration
&ases 3a4 to 3g4E aterial alterations.
&ases 3$4 to 3;4E 8on2material alterations.
&ase 3k4E aterial alteration aut$orised by t$e 6ct wit$out any aut$entication.
P.%&. - draws a c$e,ue for Rs +,000 and ., a $older wit$out t$e consent of - alters t$e figure of Rs +,000 to Rs +0,000
and makes t$e instrument look like a c$e,ue drawn for Rs +0,000. 1$e banker pays t$e c$e,ue in due course. 'iscuss t$e
legal position of t$e banker.
Sol: First write the provisions related to Protection given to paying !anker
1$e banker is disc$arged from all liabilities since t$e banker made t$e payment in due course and alteration was not
apparent. 1$e banker also gets protection under t$e act if $e pays t$e c$e,ue wit$ due diligence and wit$out any
negligence. aster inds.
P.%'. 6 promissory note was made wit$out mentioning any time for payment. 1$e $older added t$e words (on demand( on
t$e face of t$e instrument. 5tate w$et$er it amounted to material alteration and e*plain t$e effect of suc$ alteration.
Sol: In t$e given problem, addition of t$e words (on demand( does not amount to material alteration since according to
5ection 1> of t$e 8egotiable Instruments 6ct, a promissory note, in w$ic$ no time for payment is specified, is payable on
demand. 1$us, since t$e instrument even wit$out use of t$e words (on demand(, was nevert$eless payable on demandT t$e
addition of t$ese words does not amount to c$ange of its tenor and $ence it is not material alteration. 1$e e*pression
(material alteration( is described to mean alteration w$ic$ tends to speak a language different from t$e one intended
originally.
Eect o material alteration: 5ection KB of t$e 8egotiable Instruments 6ct states t$at any material alteration of a
negotiable instrument renders t$e same void as against anyone w$o is party t$ereto at t$e time of making suc$ alteration
and does not consent t$ereto, unless it was made in order to carry out t$e common intention of t$e original parties. Furt$er,
any suc$ alteration, if made by endorsee, disc$arges $is endorser from all liability to $im in respect of t$e consideration
t$ereof.
P.&(. 'o t$e following alterations of a negotiable instrument render t$e instrument voidC
3a4 1$e $older of a bill alters t$e date of t$e instrument to accelerate or postpone t$e time of payment.
3b4 1$e drawer of a negotiable instrument draws a bill but forgets to write t$e words (or order(. 5ubse,uently, t$e
$older of t$e instrument inserts t$ese words.
3c4 6 bill payable t$ree mont$s after date is altered into a bill payable t$ree mont$s after sig$t.
3d4 6 bill was dated 1>>+ instead of 1>>N and( subse,uently t$e agent of t$e drawer corrected t$e mistake.
3e4 6 bill is accepted payable at t$e "nion Bank, and t$e $older, wit$out t$e consent of t$e acceptor, scores out
t$e name of t$e "nion Bank and inserts t$at of t$e 5yndicate Bank.
Sol: 3a4 .es. 3b4 8o. 3c4 .es. 3d4 8o. 3e4 .es.
6ccording to 5ection KB of t$e 8.I. 6ct, 1KK1 any material alteration of a 8egotiable Instrument renders t$e same void as
against anyone w$o is party t$ere to at t$e time of making suc$ alteration and does not consent t$ereto, unless it was made
in order to carry out t$e common intention of t$e original parties. If any suc$ alteration is made by an endorsee, t$e
endorser $is disc$arged from all liability to $im in respect of t$e consideration t$ereof. 1$e alteration must be so material
t$at it alters t$e c$aracter of t$e instrument, to a great e*tent. Ienerally, alteration of t$e date, amount payable, time, place
of payment is regarded as material alteration.
P.&1. =$en is an alteration made in negotiable instrument called Jaterial 6lteration7C 5tate wit$ reasons w$et$er t$ere is
any Jaterial 6lteration7 in t$e following casesE
3i4 t$e $older of a bill of e*c$ange alters t$e date of t$e instrument to accelerate or prepone t$e time of paymentT
3ii4 t$e drawer of a bill e*c$ange forgets to write t$e words, Jor order7 on t$e bill. 5ubse,uently, t$e $older of t$e bill of
e*c$ange inserts t$ese words on t$e bill.
Sol: 6fter considering t$e given cases wit$ respect to material alteration, t$e following conclusions can be drawnE
3i4 .es, t$ere is material alteration, since alteration in t$e date and time of payment is treated as material alteration in t$e
eye of law. 36. 5ubba Reddy vs. 8. Ramana Reddy, 6IR, 1>PP 6.@. +PB4.
3ii4 8o, t$ere is no material alteration. 6ddition of $e words Jor order7 do not in any way affect t$e validity of t$e
instrument. 3Gyron vs. 1$ompson 31KN>4, 11 6. O G. N14
P.&. 5tate wit$ reasons w$et$er t$ere is any (material alteration( in following cases and w$et$er to invalidates t$e
instrument 0 aster inds.
a. ', in possession of an inc$oate instrument w$ere t$e amount $as not been written on t$e instrument, writes $imself t$e
amount
b. M, in possession of an uncrossed c$e,ue received from 6 writes (@ayee(s 6ccount !nly( on t$e face of instrument.
Sol:
a. 5uc$ filling in is permitted uLs +0 of t$e 6ct and $ence is not (material alteration(
b. &rossing of uncrossed c$e,ue or converting general crossing to special crossing is permitted uLs 1+5. 1$is is not
material alteration. 1$us, in bot$ cases, instrument is valid and enforceable.
P.&!. / $ad two promissory notes of Rs.500 eac$ issued by 5 Banking &orporation. ?e placed t$em in t$e pocket of $is
coat and $aving forgotten, $e was$ed, dried and starc$ed t$e coat. ?e remembered of t$e notes w$ile $e was ironing $is
coat. ?e searc$ed for t$em in t$e pocket of $is coat and could find t$em in spoiled condition. 1$e identity of t$e notes
was rested to a certain e*tent e*cept its numbers. &an $e recover t$e money from t$e bank.
Sol: .es. 1$e principle of material alteration does not apply to mere accidents. / can prove $is rig$t of receiving payment
t$roug$ any ot$er evidence and obtain payment on it.
P.&". 6 promissory note did not contain t$e rate of interest in t$e space provided for t$e purpose. 1$e creditor puts in t$e
rate. 1$e debtor contends t$at it is a material alteration and, t$erefore, $e is not liable to pay. 'ecide.
Sol: It amounts to material alteration. 5o, 'ebtor7s contention is correct.
P.&#. 5tate wit$ reasons w$et$er t$e following s$all amount to material alteration and invalidate t$e instrument.
a. ', in possession of an inc$oate instrument w$ere t$e amount $as not been written on t$e instrument, writes $imself t$e
amount.
b. M, in possession of an uncrossed c$e,ue received from 6, write #@ayee7s 6L& only% on t$e face of t$e instrument.
Sol:
a. 8o material alteration as sec. +0 permits and
b. 8o material alteration as section 1+5 permits it.
P.&$. 6 draws a c$e,ue in favour of B. 6(s clerk forges B(s endorsement and negotiates t$e c$e,ue to &, w$o takes it in
good fait$ and for value. & receives payment on t$e c$e,ue. 'iscuss t$e rig$ts of 6 and &.
Sol: In t$e given problem, issues involved areE
&an 6 claim t$e reimbursement of t$e payment from $is bank for t$e payment $aving been made to a person under forged
endorsementC
& $aving received t$e payment, does $e en;oy t$e rig$t of retaining t$e amountC
Regarding t$e first issue i.e., rig$t of 6, it may be stated t$at a paying banker is not e*pected to know t$e signature of t$e
payee or endorsers. 1$erefore, if it makes t$e payment in due course and wit$out negligence, 5ection K5 of t$e 8egotiable
Instruments 6ct offers t$e bank protection against any action for wrongful payment. 1$us, 6 may $ave no claim unless
negligence or connivance of t$e banker(s staff can be establis$ed.
Regarding &(s rig$t, since it is stated t$at $e took t$e c$e,ue in good fait$ and for value, $e is a $older in due course and $e
can get better title t$an t$at of transferor of t$e instrument. 1$erefore, $e will $ave lawful rig$t to retain t$e amount.
P.&%. ? is t$e $older in due course of a bill of w$ic$ 6 is t$e acceptor. 0, t$e drawer of t$e bill is fictitious. &an 6 escape
from $is liability to ?C
Sol: 5ection D+ of t$e 8egotiable Instruments 6ct provides t$at, w$ere a bill of e*c$ange is drawn by a fictitious person
and is payable to $is order, t$e acceptor cannot be relieved from $is liability to t$e $older in due course. 1$us, ? being
$older in due course, 6 cannot escape liability. ?owever, ? s$ould establis$ t$at t$e bill was endorsed by t$e same $and as
drawer(s signature.
P.&&. 6 c$e,ue is payable to or order. It is stolen and t$e t$ief forges (s signature and presents it to t$e banker w$o
makes t$e payment in due course. &an recover t$e amount from t$e bankerC
Sol: being t$e payee need not be a customer of t$e paying bank. 1$e paying bank, t$erefore, is not e*pected to know
(s signature. 5ection K5 of t$e 8egotiable Instruments 6ct, t$erefore, grants protection to paying bankers in case of
forged endorsements. 1$e section provides t$at if a c$e,ue payable to order purports to be indorsed by or on be$alf of t$e
payee, and t$e banker on w$om it is drawn pays it in due course, t$e banker is disc$arged, even t$oug$ t$e endorsement of
t$e payee mig$t turn out to be a forgery. ?owever, to claim protection, t$e banker $as to prove t$at t$e payment was a
payment in due course.
P.&'. B obtains 6(s acceptance to a bill by fraud. B indorses it to & w$o takes it as a $older in due course. & endorses t$e
bill to ' w$o knows t$e fraud. &an ' recover from 6C
Sol: .esT ' can recover t$e amount from 6 as $e derived t$e title from & w$o is a $older in due course. oreover, ' is
not a party to t$e fraud. !nce, t$e title $as been cleansed of t$e defect, notwit$standing notice of t$e fraud, ' s$all get a
good title. 6ccording to 5ection 5N of t$e 8egotiable Instruments 6ct, 1KK1 any defect in t$e title of t$e transferor will not
affect t$e rig$ts of t$e $older in due course even if $e $ad knowledge of t$e previous defect provided $e $imself is not a
party to t$e fraud.
P.'(. r. &lever obtains fraudulently from ) a c$e,ue crossed (8ot 8egotiable(. ?e later transfers t$e c$e,ue to ', w$o
gets t$e c$e,ue encas$ed from 6B& Bank, w$ic$ is not t$e 'rawee Bank. ), on coming to know about t$e fraudulent act
of &lever, sues 6B& Bank for t$e recovery of money. G*amine wit$ reference to t$e relevant provisions of t$e 8egotiable
Instruments 6ct, 1KK1, w$et$er ) will be successful in $is claim. =ould your answer be still t$e same in case &lever does
not transfer t$e c$e,ue and get t$e c$e,ue encas$ed from 6B& Bank $imselfC
Sol: 6ccording to 5ection 1N0 of t$e 8egotiable Instruments 6ct, 1KK1 a person taking c$e,ue crossed generally or
specially bearing in t$e words (8ot 8egotiable( can7t get a better title t$an t$at of transferor. 1$us, if t$e title of t$e
transferor is defective, t$e title of t$e transferee will also be defective.
Basing on above provisions, it can be concluded t$at if t$e $older $as a good title, $e can still transfer it wit$ a good title,
but if t$e transferor $as a defective title, t$e transferee is affected by suc$ defects, and $e cannot claim t$e rig$t of a $older
in due course by proving t$at $e purc$ased t$e instrument in good fait$ and for value.
In t$e given case r. &lever $ad obtained t$e c$e,ue fraudulently. 6s $is title is defective, $e could not give good title to
' and 6B& Bank would be liable for t$e amount of t$e c$e,ue for encas$ment. 3Ireat =estern Railway &o. vs. /ondon
and &ounty Banking &o.4
1$e answer in t$e second case would not c$ange and s$all remain t$e same for t$e reasons given above. 1$us in bot$
cases, ) will be successful in $is claim from 6B& Bank.
P.'1. 1$e drawer, ('( is induced by (6( to draw a c$e,ue in favour of @, w$o is an e*isting person. (6( instead of sending
t$e c$e,ue to (@(, forges $is name and pays t$e c$e,ue into $is own bank. =$et$er ('( can recover t$e amount of t$e
c$e,ue from (6(s banker. 'ecide.
Sol: 6s per section 1N1, if banker receives payment for a customer of a c$e,ue crossed generally or specially in t$e name
of t$at banker in good fait$ and wit$out negligence, $e s$all not incur any liability to t$e true owner of t$e c$e,ue ;ust
because $e 3i.e. bank4 $as received payment for customer. 1$is would be so even if t$e title to t$e c$e,ue was defective.
1$us, Banker will not be liable if it $as only collected t$e payment.
P.'. !n a Bill of G*c$ange for Rs.10,000, -(s acceptance to t$e Bill is forged. 6 takes t$e Bill from $is customer for
value and in good fait$ before t$e Bill becomes payable. 5tate wit$ reasons w$et$er 6 can be considered as a ($older in
due course( and w$et$er 6 can receive t$e amount of Bill from -.
Sol: 1$e 8egotiable Instruments 6ct makes no specific provision in respect of forgery. ?ence, common law provisions
apply. 6s per common law, a forgery is nullity of law and it passes no title to $older. It is not a mere defect in title but
complete absence of title, w$ic$ cannot be cured. 5ection 5K of 8egotiable Instruments 6ct does not give protection
against forgery, t$oug$ it gives protection against offence or fraud. ?ence, a person does not get good title even if $e
obtains Bill bona fide and for value, if t$e signature was forged. ?ence, 6 is not $older in due course and cannot get
amount from -.

P.'!. -, by inducing ., obtains a Bill of G*c$ange from $im fraudulently in $is 3-4 favour. /ater, $e enters into a
commercial deal and endorses t$e bill to H towards consideration to $im 3H4 for t$e deal. H takes t$e Bill as a $older in due
course. H subse,uently endorses t$e bill to - for value, as consideration to - for some ot$er deal. !n maturity, t$e bill is
dis$onoured. - sues . for recovery of money. =it$ reference to t$e provisions of 8egotiable Instruments 6ct, decide
w$et$er - will succeed in t$e case.
Sol: 5ection 5K of 8egotiable Instruments 6ct provides t$at w$en an instrument is obtained by fraud, offence or for
unlawful consideration, possessor or endorsee cannot receive t$e amount of Instrument. ?ence, normally, - would not be
entitled to sue . as - $as obtained instrument t$roug$ fraud.
?owever, as per section 5N, a $older w$o derives title from $older in due course $as all rig$ts of a $older in due course. 5ince -
derives $is title from H 3w$o is a $older in due course4, - $as all rig$ts of H.
5econd part of section 5K also makes it clear t$at even if a negotiable instrument is obtained by means of an offence or
fraud or for unlawful consideration, t$e possessor or endorsee is entitled to receive t$e amount from t$e maker, if $e is a
$older in due course or claims t$roug$ a person w$o was a $older in due course. ?ence, - can sue . as $e is deriving $is
rig$t from H, w$o is $older in due course. ?ence, - will succeed.
P.'". 5tate w$et$er t$e following s$all amount to a valid acceptanceE
a. 6n oral acceptanceT
b. 6cceptance by mere signature of t$e drawee wit$out t$e addition of t$e word J6ccepted7 on t$e
negotiable instrument.
Sol:
a. It is one of t$e essential elements of a valid acceptance t$at t$e acceptance must be written on t$e bill
and signed by t$e drawee. 6n oral acceptance is not sufficient in law. 1$erefore, an oral acceptance does not stand to
be a valid acceptance.
b. 1$e usual form in w$ic$ t$e drawee accepts t$e instrument is by writing t$e work #accepted% across t$e
face of t$e bill and signing $is name underneat$. 1$e mere signature of t$e drawee wit$out t$e addition of t$e words
Jaccepted7 is a valid acceptance.
6s t$e law prescribes no particular form for acceptance, t$ere can be no difficulty in construing an acknowledgement as an
acceptance but it must satisfy t$e re,uirements of 5ection B of 8egotiable Instrument 6ct i.e. it must appear on t$e bill and
must be signed by t$e drawee 3anackc$and v. &$artered Bank, 6IR 1>P1 and P5N4. aster inds.
P.'#. 6n acceptor accepts a #Bill of G*c$ange% but write on it #6ccepted but payment will be made w$en goods delivered
to me is sold.% 'ecide t$e validity.
Sol: 6cceptance may be eit$er general or ,ualified. 6n acceptance is said to be general w$en t$e drawee assents wit$out
,ualification order of t$e drawer. 1$e ,ualification may relate to an event, amount, place, time etc. 3G*planation to 5ection
KP of t$e 8egotiable Instruments 6ct 1KK14. In t$e given case, t$e acceptance is a ,ualified acceptance since a condition
$as been attac$ed declaring t$e payment to be dependent on t$e $appening of an event t$erein stated.
6s a rule, acceptance must be general acceptance and t$erefore, t$e $older is at liberty to refuse to take a ,ualified
acceptance. =$ere, $e refuse to take it, t$e bill s$all be dis$onoured by non2acceptance. But, if $e accepts t$e ,ualified
acceptance, even t$en it binds only $im and t$e acceptor and not t$e ot$er parties w$o do not consent t$ereto. 35ection KP4
P.'$. 5tate w$et$er a bill can be said to $ave accepted by B in eac$ of t$e following casesE
a. B delivers t$e bill confirming orally t$at $e $as accepted t$e bill.
b. B delivers t$e bill after writing t$e words (accepted( only.
c. B delivers t$e bill wit$out writing words (accepted( but after putting $is signature on t$e face of t$e bill.
d. B delivers t$e bill wit$out writing t$e words (accepted( but after putting $is signatures on t$e back of t$e bill.
e. B(s agent delivers t$e bill after putting $is signature as an agent of t$e bill.
f. B puts $is signature on t$e bill and dies. 5ubse,uently, t$e bill was delivered by B(s $eirs.
g. B puts $is signatures on t$e bill and informs t$e drawer t$at $e $as accepted t$e bill but does not deliver t$e bill to t$e
drawer.
P.'%. 5tate w$et$er presentment for acceptance is necessary in eac$ of t$e following casesE
a. 6 bill payable on demand. aster inds.
b. 6 bill payable N0 days after date.
c. 6 bill payable on 1st )an. 1>>B.
d. 6 bill payable N mont$s after sig$t.
e. 6 bill payable N mont$s after presentment.
f. 6 bill in w$ic$ t$ere is an e*press provision t$at it s$all be presented for acceptance before it is presented for
payment.
g. =$ere t$e drawee cannot after reasonable searc$ be found.
h. =$ere t$e drawee is a fictitious person.
i. =$ere t$e drawee is a person incapable of contracting.
Sol: First state the provisions relating to presentment for acceptance.
@resentment is necessary inE 3d4, 3e4, 3f4.
@resentment is not necessary inE 3a4, 3b4, 3c4, 3g4, 3$4, 3i4.
P.'&. 5tate w$et$er presentment for payment is necessary to c$arge t$e drawer of instrument in eac$ of t$e following
alternative casesE
a. 6 promissory note payable on demand and is not payable at a specified place.
b. 6 promissory note or bill of e*c$ange payable at a specified period after date of sig$t t$ereof.
c. 6 bill is not payable at a specified place and t$e acceptor cannot after due searc$ be found.
d. 6 bill is payable at a specified place and neit$er t$e acceptor nor any person aut$orised to pay is present at
suc$ place during t$e usual business $ours.
e. If t$e drawer cannot suffer any damage for want of presentment.
-a.
-b.
-c.
-d.
-e.
-f.
-g.
8o
8o
.es
.es
.es 95ec. +B<
8o 95ec. DP<
.es 95ec. DP<
1$e acceptance must be in writing.
1$e acceptance $as not been signed by t$e drawee.
1$e acceptance $as been signed by t$e drawee. 1$e use of t$e word (accepted( is not
compulsory.
1$e acceptance is on t$e bill. It is immaterial w$et$er t$e acceptance is on t$e face or
back of t$e bill.
1$e acceptance may also be signed by a duly aut$orised agent.
1$e acceptance would not complete until t$ere is delivery t$ereof.
1$e acceptance $as completed on giving notice of acceptance.
Sol: First state the provisions relating to presentment for acceptance.
@resentment is necessaryE 3b4.
@resentment is not necessaryE 3a4, 3c4, 3d4, 3e4.
P.''. 6 signs a blank stamped paper and places it in $is drawer from w$ere it was stolen, completed and negotiated. Is 6
liable to a $older in due course of suc$ instrumentC
Sol: 6 person cannot be $eld liable on an instrument for merely $aving signed t$e same unless it is accompanied by its
delivery. 1o constitute and create any obligation, delivery of t$e instrument is a must. 1$erefore, 6 will not be liable to t$e
$older in due course of suc$ instrument.
P.1((. 6 bill is dis$onoured by non2acceptance. 1$e bill is endorsed to (6(. (6( endorses it to (B(. 6s between (6( and (B(, t$e
bill is sub;ect to an agreement as to t$e disc$arge of (6(. 1$e bill is afterwards endorsed to (&(, w$o takes it wit$ notice of
dis$onour. 'ecide, wit$ reasons, w$et$er (&( is entitled to accept t$e bill in t$e capacity of a $older in due course.
Sol: 1o constitute a $older in due course, 5ection > of t$e 8egotiable Instruments 6ct re,uires t$e $older to $ave obtained
t$e instrument in good fait$.
?owever, 5ection 5N provides t$at a $older of a negotiable instrument, w$o derives title from a $older in due course, will
also ac,uire t$e status of $older in due course.
If a document reac$es t$e $ands of $older in due course, it will be cleansed of all defects and it remains good even if t$e
subse,uent $older $as t$e notice past defects provided t$at $e was not a party to t$em. 1$us, (G( s$all get a good title to t$e
bill.
P.1(1. 6 draws a bill of e*c$ange on B for Rs.1,000 payable to t$e order of 6. B accepts t$e bill but subse,uently dis$onours it
by non2payment. 6 sues B on t$e bill. B proves t$at it was accepted for value as to Rs.500 and as an accommodation to t$e
plaintiff as to t$e residue. &an 6 recover Rs.1,000C
Sol: 8o. &onsideration absent in part. &an recover only Rs.500.
P.1(. 6 issues a c$e,ue for Rs.+5,000L2 in favour of B. 6 $as sufficient amount in $is account wit$ t$e Bank. 1$e c$e,ue
was not presented wit$in reasonable time to t$e Bank for payment and t$e Bank, in t$e meantime, became bankrupt.
'ecide under t$e provisions of 8egotiable Instruments 6ct, 1KK1, w$et$er B can recover t$e money from 6C
Sol: 5ection KD314 provides t$at c$e,ue s$ould be presented to Bank wit$in reasonable time. If c$e,ue is not presented
wit$in reasonable time, meanw$ile t$e drawer suffers actual damage, t$e drawer is disc$arged to t$e e*tent of suc$ actual
damage. 1$is would be so if t$e c$e,ue would $ave been passed if it was presented wit$in reasonable time. 6s per section
KD3+4, in determining w$at is reasonable time, regard s$all be $ad to 3a4 t$e nature of t$e instrument 3b4 t$e usage of trade
and of bankers, and 3c4 facts of t$e particular case.
1$e drawer will get disc$arge, but t$e $older of t$e c$e,ue will be treated as creditor of t$e bank, in place of drawer. ?e
"=ill be entitled to recover t$e amount from Bank. I 9section KD3N4<.
In t$e above case drawer i.e. 6 $as suffered damage as c$e,ue was not presented by B wit$in reasonable time. ?ence, 6
will get disc$arged but B will be t$e creditor of bank for amount of c$e,ue and can recover t$e amount from bank.
P.1(!. @roblem NE & issues a c$e,ue for Rs.15 wit$out writing t$e word (only( and gives it to '. ' adds t$e words ($undred
only( after fifteen and adds two Seros after figure 15 as t$ere is sufficient space for making t$ese additions. 1$e bank pays
Rs. 1,500 to ' w$o absconds. Is t$e bank liable to & for e*cess payment. aster inds.
Sol: 1$e problem relates to material alteration. In t$is regard, 5ection KB of t$e 8egotiable Instrument 6ct provides t$at
"any material alteration of a negotiable instrument renders t$e same void as against anyone w$o is party t$ereto at t$e time
of making suc$ alteration and does not consent t$ereto". 5o, w$en a c$e,ue is altered, as in t$e present case, a banker w$o
makes t$e payment cannot debit t$e customer(s account. ?owever, 5ection K> grants protection to a paying banker w$ere
t$e alteration is apparently not noticeable 3similar to t$e given case4 and t$e payment is made in due course as per 5ection
10. 1$us, assuming t$at t$e bank made t$e payment in due course, it will en;oy protection under 5ection K> and will not be
liable to t$e customer 3i.e. &4.
P.1(". 6 c$e,ue was drawn by a customer on $is Bank, marked (@ayee(s 6ccount only(. 1$e c$e,ue on t$e face of it was
tampered by some one and converted into a bearer c$e,ue. 1$e bank was negligent in making payment to a bearer instead
of payee. 5tate wit$ reference to provisions of 8egotiable Instruments 6ct w$et$er t$e Bank is liable to pay t$e amount to
t$e customer.
Sol: 5ection K5 of 8egotiable Instruments 6ct provides t$at banker is disc$arged if $e makes payment in due course, if
c$e,ue payable to order is purported to be endorsed by or on be$alf of payee. ?owever, if t$ere is obvious discrepancy
between name of payee and $is endorsement, bank will not be protected. @aying bank gets protection only w$en payment
is (in due course( and in accordance wit$ apparent tenor of t$e c$e,ue.
In t$is case, it is clear t$at payment made by Bank was not in due course in accordance wit$ apparent tenor. Bank was
negligent and will be liable to compensate t$e customer.
P.1(#. ) stole a number of c$e,ues belonging to I, indorsed t$em to $imself and paid t$em into $is account wit$ & Bank.
In eac$ case, t$e money was immediately credited to $is account and $e was eit$er allowed to wit$draw t$e money or $is
overdrafts wiped out before t$e c$e,ues could be cleared. I sues t$e bank for wrongful conversion of funds. =ill $e
succeedC
Sol: .es. 1$e circumstances s$ow t$at t$e banker was working as a $older and not as an agent. 5o bank is guilty of
mistake and protection under t$e act will no be available.
P.1($. 6 was a managing director and s$are$older of a company. 1$e c$e,ue payable to t$e company were endorsed by
$im to $imself in t$e capacity as managing director and deposited in personal account wit$ B Bank. 1$e bank collected t$e
money and allowed $im to wit$draw. 1$e company soon went into li,uidation and t$e li,uidator sues t$e bank for
recovery of t$e money of t$e c$e,ues payable to t$e company but credited to t$e account of 6. =ill $e succeedC
Sol: .es. Bank is guilty of negligence.
P.1(%. 1$e drawer, J'7 is induced by J67 to draw a c$e,ue in favour of @, w$o is an e*isting person. J67 instead of
sending t$e c$e,ue to J@7, forgoes $is name and pays t$e c$e,ue into $is own bank. =$et$er J'7 can recover t$e amount
of t$e c$e,ue form J67s banker. 'ecide.
Sol: 1$e problem is based upon t$e privileges of a J$older in due course7. 5ection D+ of t$e 8egotiable Instrument 6ct,
1KK1, states t$at an acceptor of a bill of e*c$ange drawn in a fictitious name and payable to t$e drawer7s order is not, by
reason t$at suc$ name is fictitious, relived from liability to any $older in due cause claiming under an indorsement by t$e
same $and as t$e drawer7s signature, and purporting to be made by t$e drawer. In t$is problem, @ is not a fictitious payee
and ', t$e drawer can recover t$e amount of t$e c$e,ue from 67s bankers 98ort$ and 5out$ =ales Bank B. acket$
31>0K4T 1own and &ountry 6dvance &o. B, @rovincial Bank<.
P.1(&. 6 induced B by fraud to draw a c$e,ue payable to & or order. 6 obtained t$e c$e,ue, forged &7s endorsement and
collected proceeds to t$e c$e,ue t$roug$ $is Bankers. B t$e drawer wants to recover t$e amount from &7s Bankers.
'ecide in t$e lig$t of t$e provisions of 8egotiable Instruments 6ct, 1KK12
a. =$et$er B t$e drawer, can recover t$e amount of t$e c$e,ue from &7s BankersC
b. =$et$er & is t$e Fictitious @ayeeC
c. =ould your answer be still t$e same in case & is a fictitious personC
Sol: 6ccording to 5ection D+ of t$e 8egotiable Instruments 6ct, 1KK1 an acceptor of a bill of e*c$ange drawn in a
fictitious name and payable to t$e drawer7s order is not, by reason t$at suc$ name is fictitious, relieved from liability to any
$older in due course claiming under an instrument by t$e same $and as t$e drawer7s signature, and purporting to be made
by t$e drawer.
1$e word Jfictitious payee7 means a person w$o is not in e*istence or being in e*istence, was never intended by t$e drawer
to $ave t$e payment. =$ere drawer intends t$e payee to $ave t$e payment, t$en $e is not a fictitious payee and t$e forgery
of $is signature will affect t$e validity of t$e c$e,ue.
6pplying t$e above, answers to t$e ,uestions asked can be as underE
a. In t$is case B, t$e drawer can recover t$e amount of t$e c$e,ue from &7s bankers because &7s title was
derived t$roug$ forged endorsement.
b. ?ere & is not a fictitious payee because t$e drawer intended $im to receive payment.
c. 1$e result would be different if & is not a real person or is a fictitious person or was not intended to $ave
t$e payment.
P.1('. 6 c$e,ue was dis$onoured at t$e first instance and t$e payee did not initiate action. 1$e c$e,ue was presented for
payment for t$e second time and again it was dis$onoured. 5tate in t$is connection w$et$er t$e payee can subse,uently
initiate prosecution for dis$onour of c$e,ue.
Sol: 5upreme &ourt in 5adanandan B$adran :s. ad$avan 5unil Mumar case $eld t$at on a careful analysis of 5ection 1NK
of t$e 8egotiable Instruments 6ct, 1>K1 it is seen t$at a c$e,ue is said to be dis$onoured w$en it is returned by t$e bank
unpaid for any of t$e reasons mentioned t$erein. 1$e said proviso lays down t$ree conditions for t$e applicability of t$e
above section. 1$ey areE
a. t$e c$e,ue s$ould $ave been presented to t$e bank wit$in si* mont$s of its issue or wit$in t$e period of its validity
w$ic$ever is earlierT
b. t$e payee s$ould $ave made a demand for payment by registered notice after t$e c$e,ue is returned unpaid 3wit$in N0
days of receiving information t$at c$e,ue was dis$onoured4T and
c. t$e drawer s$ould $ave failed to pay t$e amount wit$in 15 days of t$e receipt of notice.
@rosecution under section 1NK can be launc$ed only w$en all t$e N conditions are satisfied.
5o far as t$e first condition is concerned, clause 3a4 of t$e proviso to 5ection 1NK does not put any restriction upon t$e
payee to successively present a dis$onoured c$e,ue during t$e period of validity. It is common for a c$e,ue being
presented again and again wit$in its validity period in t$e e*pectation t$at it would be encas$ed. 1$e ,uestion w$et$er
dis$onour of t$e c$e,ue on eac$ occasion of its presentation gives rise to a fres$ cause of action, t$e following facts are
re,uired to be proved to successfully prosecute t$e drawer for an offence under 5ection 1NKE
a. t$at t$e c$e,ue was drawn for payment of an amount of money for disc$arge of a debtLliability and t$e c$e,ue was
dis$onouredT
b. t$at t$e c$e,ue was presented wit$in t$e prescribed periodT aster inds.
c. t$at t$e payee made demand for payment of t$e money by giving a notice in writing to t$e drawer wit$in t$e stipulated
periodT and
d. t$at t$e drawer failed to make t$e payment wit$in 15 days of t$e receipt of t$e notice.
If one $as to proceed on t$e basis of t$e generic meaning of t$e term( cause of action(, certainly eac$ of t$e above facts
would constitute a part of t$e cause of action, but it is significant to note t$at clause 3b4 of 5ection 1D+ gives a restrictive
meaning in t$at it refers to only one fact w$ic$ will give rise to t$e cause of action and t$at is failure to make t$e payment
wit$in 15 days from t$e date of receipt of t$e notice.
1$erefore, t$e $older L payee of a c$e,ue can initiate prosecution for an offence under 5ection 1NK for its dis$onour for t$e
second time, if $e $ad not initiated suc$ prosecution on t$e earlier cause of action.
P.11(. 6 finance company after $aving issued a c$e,ue in favour of a depositor informs t$e depositor not to deposit
c$e,ue as well as informs t$e bank to stop payment. G*amine wit$ reference to t$e provisions of 8egotiable instruments
6ct w$et$er it is an offence under t$e 6ct.
Sol: 5ection 1NK of 8egotiable Instruments 6ct provides for penalty of imprisonment and fine if c$e,ue issued by $im
bounces for insufficiency of funds.
6fter issue of c$e,ue, drawee can give instructions to bank to stop payment of a c$e,ue. 1$is is termed as countermanding
of payment. In suc$ case, it was argued t$at t$ere is no offence. 1$is would $ave provided an escape route to unscrupulous
people and made t$e section 1NK a (dead letter(.
?ence, in odi &ements /td. :s. Muc$il Mumar 8andi case, it was $eld t$at t$e drawer will be liable even if $e issues
(stop payment( instructions after issue of c$e,ue.
In Ioa @last @vt. /td. :s. &$ico "rsula '(5ouSa, it was $eld t$at t$e drawee will be liable even if (5top @ayment(
instructions to Bank are issued before t$e c$e,ue was due for payment.
P.111. 'escribe, in brief, t$e main amendments incorporated by t$e 8egotiable Instruments 36mendment and
iscellaneous @rovisions4 6ct, +00+ in 5ections 1NK, 1D1 and 1D+ of t$e @rincipal 6ct i.e. t$e 8egotiable Instruments 6ct,
1KK1.
Sol: 5mendments in the Negotiable 6nstr1ments 5ct7 1&&1
1$e main amendments made t$roug$ t$e 8egotiable Instruments 36mendment and iscellaneous @rovisions4 6ct, +00+ in
5ections 1NK, 1D1 and 1D+ of t$e 8egotiable Instruments 6ct, 1KK1 are as followsE
Section 1!&:
a. 1o increase t$e punis$ment as prescribed under t$e 6ct from one year to two years.
b. 1o increase t$e period for issue of notice by t$e payee to t$e drawer from 15 days to N0 days 9@roviso3b4
to 5ection 1NK<.
Section 1"1: 1o e*empt t$ose directors from prosecution under 5ection 1D1 of t$e 6ct w$o are nominated as directors of a
company by virtue of t$eir $olding any office or employment in t$e &entral Iovernment or 5tate Iovernment or a
Financial &orporation owned or controlled by t$e &entral Iovernment, or t$e 5tate Iovernment, as t$e case may be
9@roviso to 5ection 1D13I4<.
Section 1": 1o provide discretion to t$e court to waive t$e period of one mont$, w$ic$ $as been prescribed for taking
cogniSance of t$e case under t$e 6ct 9@roviso to 5ection 1D+3b4<.
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Practical Questions in Negotiable Instruments Act

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