Quaid-e-Azam Law College, Lahore.

Negotiable Instruments.
By Prof: Syed M Mustafa Aleem.

Hand Out 4:
Negotiation (Introduction-Chapter 4).

Introduction:

The negotiation of an instrument should be distinguished from transfer by assignment.

When a person transfers his right to receive the payment of a debt that is called
“assignment of the debt”.1 Where, for example, the holder of a life insurance policy
transfers the right to receive the payment to another person that is an assignment. When
the holder of a bill, note or cheque transfers the same to another, he, in essence, gives his
right to receive the payment of the instrument to the transferee. Thus in both
“negotiation”, and “assignment” there is the transfer of the right to receive the payment
of a debt.2

Legal Epigrammatic:
Isolation between Assignment and Negotiation.

Assignment:
 The assignee of a debt takes it subject to all defects and equities that may exist in
the title of his assignor3.
 An assignment does not bind the debtor unless a notice of the assignment has
been given to him and he has, expressly or impliedly, assented to it.
 Assignee must prove that he has given consideration for the assignment.
 An Assignment attracts stamp duty

Negotiation:
 Holder in due course of a Negotiable Instrument takes it free from all defects in
the title of the previous transferors4.
 No information of the transfer of a Negotiable Instrument has to be given to the
debtor. The acceptor of a bill and the maker of a promissory note are liable on
maturity to the person who is at the time the holder in due course of an
instrument.
 There are number of presumptions are in favor of a holder in due course that he
has given consideration for the instrument. The burdens of prove lies to the
opposite party to show that he had given no consideration5.
1
Subba Narayan Vathiyar v. Ramaswami Aiyar, ILR 1906 (30) Mad FB.
M. Rama Kotaiah v. M. Seshamma, AIR 1971 AP 315.
2
The Negotiable Instrument Act 1881, Assignment and Negotiation distinguished By Dr Avtar Singh p.96.
3
Section 58, The Negotiable Instrument Act 1881.
4
Section 58, The Negotiable Instrument Act 1881.
5
Section 118 (a).
  Endorsement does not require stamp duty6.

Negotiation by Delivery:

An instrument payable to bearer can be negotiated by simple delivery. The person to

whom the instrument delivered becomes the holder.

Case Law: Lloyds Bank Ltd v. Chartered Bank of India, Australia & China, (1929) 1KB
Court Finding: A person who steals or finds a bearer instrument is not the holder, for; it
has not been delivered to him, though if he delivers it to another person, the latter will
become holder.

 Delivery by Post: where an instrument delivered by post, a question can arise in

some cases whether delivery takes place at the point of posting or at the place of
destination.

Case Law: Thairlwall v Great Northern Rly, (1910) 2 KB 509.

Court Finding: The defendant sent by post a cheque for the amount due; it was
stolen and cashed by a thief. It was held that the posting was a good delivery to
the payee, and the cheque operated as payment. This is a case of express
authority to send by post.

 Constructive Delivery: Where an instrument, though accepted and not delivered,

but the party entitled is informed that it has been accepted, that will have the
effect of completing the contract on the instrument.

Actual Delivery: When an instrument physically handed over to the entitled party.
Constructive Delivery: When it is delivered to the agent, middleman or attorney.

 Jurisdiction: Suit can be filed at any place at the option of the Plaintiff.
Case Law: Arunachalam Chettiar v. Murugappa Chettiar, AIR 1956 Mad 629.

Kinds of Endorsement:

1. Endorsement in Blank u/s 16 & 54.

2. Endorsement in Full u/s 16.
3. Effect of Endorsement and Restrictive Endorsement u/s 50.
4. Conditional Endorsement u/s 52.
5. Partial Endorsement u/s 56.

Note: also read carefully section 58, 59 & 60.

6
Mulji Mehta & Sons v. C. Mohan Krishna, AIR 1997 AP 153.