Negotiable instrument : Negotiable instrument By Gyan Agnihotri Slide 2: we will examine such question as:
What types of negotiable instruments are governed by statute and how are they utilized?
What is negotiability and what are the methods, purposes and consequences of endorsement?
What is a holder in due course and what are the three defences available to the parties?
What is the liability of various parties to a negotiable instrument? Nature and Uses of Negotiable Instruments : Nature and Uses of Negotiable Instruments Negotiable instruments originated as a form of bill of exchange.
A bill of exchange was a document made by a person instructing another person to make payment to a third person or the bearer of the document.
The Bills of Exchange Act governs three kinds of negotiable instruments: bills of exchange, promissory notes and cheques. Bills of Exchange (Drafts) : Bills of Exchange (Drafts) A bill of exchange is a written order by one party, the drawer, addressed to another party, the drawee, to pay a specified amount of money to a named party, the payee, or to the bearer, at a fixed or determinable future time on demand.
There are three types of bills of exchange:
Sight drafts; and
Time drafts. Promissory Note : Promissory Note A promissory note is a written promise by one party, the maker, to pay a specified amount of money to another party, the payee, at a fixed or determinable future time or on demand.
A promissory note does not have to be presented for acceptance. Cheque : Cheque A cheque is a bill of exchange, drawn on a bank and payable on demand.
From the point of view of the holder, a cheque contains the implied promise of its drawer that the drawer has funds on deposit at the bank to meet the amount. Negotiability : Negotiability Negotiability is the special quality possessed by a negotiable instrument, namely:
A negotiable instrument may be transferred from one holder to another without the promisor being advised about each new holder;
An assignee of a negotiable instrument may sometimes acquire a better right to sue on the instrument than its predecessor had; and
A holder may sue in its own name any other party liable on the instrument. Methods of Negotiation : Methods of Negotiation Negotiable instruments may be negotiated in two ways:
By endorsement and delivery; or
By delivery only.
There are various types of endorsement:
Qualified endorsement; and
Anomalous endorsement. Liability of the Parties:The Drawer : Liability of the Parties:The Drawer A drawer of a draft undertakes that when the draft is presented it will be accepted and paid according to its terms.
The drawer also promises that if it is dishonored the drawer will compensate the holder or any endorser who is compelled to pay on it. Liability of the Parties:The Endorser : Liability of the Parties:The Endorser An endorser is generally liable to any holder for the amount of the instrument if the party that is primarily liable dishonours it.
However, if the endorser does not receive prompt notice of the dishonour from the holder of the instrument, the endorser will be freed from liability. Liability of the Parties:The Transferor by Delivery : Liability of the Parties:The Transferor by Delivery A transferor by delivery is anyone who negotiates the instrument in bearer form. Since no endorsement is required, a transferor by delivery is not liable on the instrument, as an endorser, if the party that is primarily liable is incapable of paying it.
A transferor by delivery is liable to an immediate transferee for such loss as the transferee would sustain. Liability of the Parties:The Acceptor or Maker : Liability of the Parties:The Acceptor or Maker By accepting a bill, a drawee undertakes to pay it in accordance with the terms of the acceptance.
A maker of a promissory note also undertakes to pay the promissory note in accordance with its terms. The Holder in Due Course : The Holder in Due Course A holder in due course is one who acquires more rights in an instrument than the transferor had.
To obtain the rights to which the holder in due course is entitled, he or she must satisfy a number of conditions. Holder in Due Course: The Conditions : Holder in Due Course: The Conditions The holder in due course must satisfy the following conditions:
The holder must have taken the instrument complete and regular on its face;
The instrument must have been acquired before it was overdue, and without notice of any dishonour;
Consideration must have been given; and
The holder must have taken the instrument in good faith and without notice of any defect. THANKS : THANKS