PARTIES TO A NEGOTIABLE INSTRUMENT

• • • • • • • • • The NI Act 1881 recognizes three forms of negotiable instruments, namely, promissory note, bill of exchange, and cheque The parties to these instruments can be : PARTIES TO A PROMISSORY NOTE Maker, payee, endorser, endorsee PARTIES TO A BILL OF EXCHANGE Drawer, acceptor or drawee, drawee in case of need, endorser and endorsee PARTIES TO A CHEQUE Drawer, drawee (always a bank), payee , endorser and endorsee Out of these parties, some parties are liable to pay upon the instrument, and some are entitled to receive the money on the instrument. The party entitled to receive may be holder or holder in due course.

PARTIES TO A NEGOTIABLE INSTRUMENT
• A bearer, payee, or endorsee may acquire the status of a ‘holder’ or a ‘holder in due course’ in the course of negotiation of an instrument. • Ex: Ram issues a PN to Shyam, who is now the payee of the note. At the same time he is holder of the instrument sine he is in possession of the instrument and is entitled to sue upon it in his own name. • At the same time he is holder of the instrument since he is in possession of the instrument and is entitled to sue upon it in his own name. • He may be an’ ordinary holder’ or a ‘holder in due course’ • If Shyam has acquired the promissory note for value and without having a reason to believe that any defect exists in the title of the instrument, he is a holder in due course, otherwise he is an ‘ordinary holder.

PARTIES TO A NEGOTIABLE INSTRUMENT
• • • • • • HOLDER: Sec-8 reads- ‘the holder of a promissory note, bill of exchange or cheque means any person, entitled in his own name, to the possession thereof and to receive or recover the amount due thereon from the parties thereto’ Thus a person is ‘holder’ when he satisfy two conditions: 1. He is entitled to possess the instrument I his own name. The person entitled to hold the instrument in his name may be a payee, endorsee, hearer and some one who is given a bearer instrument by a thief or finder is holder 2. He is entitled to receive or recover the amount due thereon. The holder must have right to receive or recover the amount of the instrument and give the valid discharge to the payer. STATUS OF A HOLDER. A holder has the legal power to transfer the instrument to another person, to enforce the payment of the instrument, or to discharge the instrument, which means to release the maker or drawer from obligation of paying the instruments

PARTIES TO A NEGOTIABLE INSTRUMENT
• • • • WHO IS NOT A HOLDER? Someone who finds or steals a bearer instrument or takes an instrument under a forged endorsement is not a holder A beneficial holder claiming through a ‘Benamidar’ is not a holder. Ex: A advanced Rs 500 to B, B executed a PN in the name of ‘C’ a benamidar for the repayment of the same. On maturity, B failed to pay the amount due on the PN. A brought an action against B for its recover. The court held that A could not recover the money because he was not a holder of the instrument. An agent holding an instrument for his principal is not a holder. A payee prohibited by an order of the court from receiving the amount of instrument is a holder. Ex: A gets a BE endorsed in his name by making some misrepresentation to B. Later B approaches the court. In the course of proceedings, court prohibits A from receiving the money on the instrument till he disprove the charges.

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