Negotiation of the Negotiable Instruments

Negotiation: According to Section 14: “When a Promissory Note, Bill of Exchange or Cheque is transferred to any person, so as to constitute that person holder thereof, the instrument is said to be negotiated”.

According to Section 8: “The holder of a promissory note, bill of exchange or cheque means the payee or the endorsee, who has the possession of the instrument as its holder, and when the instrument is payable to bearer, the bearer of the instrument is holder” Essential of a Holder: 4. Possession of the instrument 5. Right to receive the payment.

Holder in Due Course:
According to Section 9:
“Holder in due course means any person, who for consideration becomes the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or payee or endorsee, thereof if payable to order, before it becomes overdue, without notice that the title of the person from whom he derived his

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Holder of the instrument Holder for lawful consideration Holder before maturity Must become holder in good faith

Rights of Holder in Due Course:
1. 2. 3. 4. 5. 6. Obtains good title Transfers good title Right to complete inchoate stamped instrument All prior parties liable Acceptor of a fictitious bill liable No effect of conditional delivery

How Negotiation is Effected
-- Negotiation may be by delivery or - By Endorsement and Delivery Who May Negotiate: 6) Maker/ Drawer 7) Payee 8) endorsee

According to Section 15: “ When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamp paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called

Essentials of an Endorsement:
1. Endorser must be holder 2. Signed 3. Intention Kinds of Endorsement:  Blank or general : endorser just signs his name  Full or special endorsement: endorser mentions the name of endorsee and puts his signature.  Restrictive: such endorsements restricts further negotiation of the instruments, for example

Essentials of an Endorsement:
Kinds of Endorsement: Contd..  Without recourse: without responsibility of the endorser . For example: pay Yasir without recourse to me Signature of endorser
 Partial endorsement: the endorser

directs the transfer of only a part of amount payable on a bill of exchange or

Maturity of the Instrument:
What is Maturity: It is the date in case of a promissory note or bill of exchange, at which the said instrument falls due.

Days of Grace:
Three days of grace—provided in Sec. 22 determining payability of instrument. (Promissory not, bill of exchange not cheque) After Date or Sight—Concept— Explanation Calculating maturity of bill or note payable—after-date /sight

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