06-12-2012, 01:46 PM
Negotiable Instruments
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Governed by Negotiable instruments Act 1881
A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or bearer ( section 13)
Negotiable instruments are easily transferable and the ownership of the property may be passed on by mere delivery and endorsement.
A negotiable instrument confers absolute and good title on the transferee, who takes it in good faith, for value and without notice of the fact that the transferor had a defective title.
In the case of goods or commodity, the transferor cannot transfer a better title to the transferee, than he himself possesses.
Distinct difference between transferability and negotiability
A holder of a negotiable instrument possesses the right to sue upon the instrument in his own name
As per section 8 of N I Act, 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.
Holder Vs Holder in due course
Consideration is not essential in case of a holder
Possession: holder in due course must possess the instrument before it became payable. In the case of the holder, neither actual possession nor any time limit within which it must be acquired is required
Defect in the title : holder in due course should have no cause to believe that any defect exists in the title of the transferor
Payment in due course
Section 10 “ 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.”
Payment should be made in accordance with the apparent tenor of the instrument.
Payment should be made in good faith and without negligence.
Payment must be made to the person in possession of the instrument in circumstances which do not arouse suspicion about his title to possess the instrument and to receive payment thereof.
Cheques
‘Did you get my cheque ?’
‘Yes, twice – once from you and when the bank sent it back !’
A cheque is an unconditional order, drawn on a specified banker and is payable on demand
Negotiation
Section 14 – When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated.
By delivery
By endorsement and delivery
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, he is said to have endorsed the same and is called the endorser