B.

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Chapter 14 – Negotiable instruments Act

1
(b)
(i) This instrument is a promissory note. It should not be accepted as it is invalid since the amount
payable under it is not certain.
(ii) This instrument is a bill of exchange. It will be considered valid if signed by drawer and drawee
as it meets rest of the conditions of bill of exchange hence should be accepted.
(iii) This instrument is a promissory note. It should not be accepted as it is invalid since payment of
principal amount has not been promised.

2 Mujahid would issue a promissory note as time instrument to Shoaib in satisfaction of his debt.
Draft of the promissory note
Date: September 26, 2020
Rs. 600,000/- only
Three months after date I promise to pay Shoaib or to his order the sum of Rupees Six Hundred
Thousand, for value received.
To Sd/- _________________
Shoaib Mujahid
XYZ Street Down Town
Karachi Karachi

3 (a) Payment in due course of crossed cheque:

The banker in this case would not be liable to Samad and can debit Samad’s account with the
amount of the cheque provided the payment was made in due course without negligence and in
accordance with the apparent tenor of the cheque. The banker is not expected to verify the
signatures of the payees and the endorsees in an order cheque. The banker would only be liable
to Samad if he can prove that payment was not made in due course.
(b) Payment in due course:
Payment in due course means payment in accordance with the apparent tenor of the instrument
in good faith and without negligence to any person in possession thereof under circumstances
which do not afford a reasonable ground for believing that he is not entitled to receive payment
of the amount therein mentioned

4 (a) Holder in due course - means any person who for consideration becomes the possessor (holder)
of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or endorsee
thereof, if payable to order, before it became overdue, without notice that the title of the person
from whom he derived his own title was defective.

5 (a)
(i) It is a valid bill of exchange as it contains an unconditional order to pay.
(ii) It is in the nature of bill of exchange but it is not a valid bill of exchange as it contains only
request to pay and not an order to pay.
(iii) It is a valid promissory note containing all the essential elements.
(iv) It is a valid promissory note. It is not considered to be conditional, for it is certain that
Nauman will die, though the exact time of his death is uncertain.
(b) Effect(s) of the words ‘Not negotiable' on a cheque crossed specially.
The effect of the words “not negotiable” on a crossed cheque is that the title of the transferee of
such a cheque cannot be better than that of its transferor. The addition of the words not
negotiable does not restrict the further transferability of the cheque. It only takes away the main
feature of negotiability, which is transferability free from defects.
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6 (a) Endorsement
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 stamped paper intended to be completed as a negotiable instrument
such act is called endorsement.

7 If the landlord has no knowledge of the defects in title of the previous holders of the cheque, he would
be regarded as holder in due course as he has received the cheque against consideration (rent).
Therefore, he is entitled to recover the amount of the cheque.
However, if the landlord was aware of the defective title of the holder from whom he derived his
own title, then he would not be considered as holder in due course and he would not be able to
recover the amount of the cheque.

8 Endorsement: When the maker or holder of a negotiable instrument signs the same, otherwise than
as maker, for the purpose of negotiation on the back or face of it or on a slip of paper annexed thereto,
or so signs for the same purpose a stamped paper intended to be completed as a negotiable
instrument he is said to indorse the same and is called the endorser.”

9 Sarwat would issue a promissory note to Zain

10 Bill of Exchange:
The above negotiable instrument is a bill of exchange.
Essential characteristics of a bill of exchange:
Following are the essential characteristics of a bill of exchange:
(i) In writing
A bill of exchange is required to be in writing.
(ii) Order to pay
The drawer orders the drawee to pay money to the payee. Mere request does not constitute an
order.
(iii) Definite and unconditional
The order to pay should not depend upon a condition or upon the happening of an uncertain
event.
(iv) Signed by drawer
The instrument must be signed by the maker (drawer) and accepted by the drawee.
(v) Certain parties
All the parties must be certain i.e. indicated in a bill of exchange with reasonable certainty.
(vi) Sum payable must be legal tender
The order must be to pay money and money only.
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(vii) Sum Payable must be certain

It is essential that sum of money ordered to be payable must be certain and definite. However,
it may include future interest or return in any other form or is payable at an indicated rate of
exchange, or is payable at the current rate of exchange or the sum payable being subject to
adjustment for profit or loss of the business of the maker.
(viii) Time for payment
The time for payment may be on demand or at a fixed or determinable future time.
(ix) It must be delivered:
A bill of exchange is incomplete until it is delivered to the payee

11 A person is called holder of a negotiable instrument if he satisfies the following two conditions:
 He must be entitled to the possession of the instrument in his own name and
 He must be entitled to receive / recover the amount due on the instrument from the parties
liable under the instrument Thus a holder is a bearer of the bearer instrument and the endorsee
or payee of the order instrument.

Explanation:
Where the note, bill or cheque is lost and not found again, or is destroyed, the person in possession
of it or the bearer thereof at the time of such loss or destruction shall be deemed to continue to be its
holder.

Holder in due course:

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 the payee or indorsee thereof, if
payable to order, before it became overdue, without notice that the title of the person from whom he
derived his own title was defective.

Explanation:
The title of a person to a promissory note, bill of exchange or cheque is defective when he is not
entitled to receive the amount due thereon.

Payment in due course:

Payment in due course means payment in accordance with the apparent tenor of the instrument in
good faith and without negligence to any person in possession thereof under circumstances which
do not afford a reasonable ground for believing that he is not entitled to receive payment of the
amount therein mentioned.

12 A promissory note is:

An instrument in writing (not being a bank note or a currency note) containing an unconditional
undertaking signed by the maker to pay on demand or at a fixed or determinable future time a certain
sum of money to a certain person or to his order or to the bearer of the instrument.

13 X can claim the amount from A being the principal debtor. On A’s refusal or inability to pay, he can
claim the same from all intervening parties in the order of acceptance/ transfers/ endorsements.

14 (i) Payment in due course

 The payment is in accordance with the apparent tenor of the instrument.
 The payment is made in good faith and without negligence.
 The payment is made to a person in possession of the instrument
 The payment is honestly made in the bonafide belief that the person demanding payment is
legally entitled to it.
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(ii) Holder
The ‘holder’ of a negotiable instrument means any person entitled to the possession of the
instrument in his own name and to receive or recover the amount due thereon from the parties liable
thereto.
(iii) Holder in due course
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 the payee or indorsee thereof, if
payable to order, before it becomes overdue, without notice that the title of the person from whom
he derived his own title was defective.

15 No, B’s contention is not justified against C who is a holder of the bill for value, even if C knew that B
is an accommodation party. Absence of consideration can be taken as a defense to avoid liability only
towards parties who stand in immediate relation to each other.

16 The liabilities incurred by the drawer of a bill are as follows:

(i) on due presentment, the bill shall be accepted. and paid according to its tenor, and that
(ii) if the bill is dishonored, the drawer shall compensate the holder or any indorser who is
compelled to pay it, provided that due notice of dishonor of bill is given to or received by drawer.
(iii) Until acceptance, the drawer is liable thereon as principal debtor.

17 If Salman has authority only to draw bill of exchange, he cannot accept or endorse it so as to bind his
principal and shall then be personally liable to Ghani. If Salman normally signs the bill of exchange in
the ordinary course of business, he has a right to be indemnified by Malik or else, Salman can recover
the amount from the estate of /amount due to Malik.

18 (i) It is not a promissory note as promise to pay is not “unconditional”.

(ii) It is a valid promissory note containing all the essential elements.
(iii)It is not a promissory note as the payment is not in terms of money only.
(iv) It is not a promissory note as the amount payable under it is not certain.
(v) It is not a promissory note as the payee in the instrument is not certain.
(vi) It is a valid promissory note. It is not considered to be conditional, for it is certain that Salik will
die, though the exact time of his death is uncertain.
(vii) It is not a promissory note as it lacks unconditional undertaking. There is only an
acknowledgement of indebtedness.