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Legal aspects Legal aspects Document Transcript

  • Negotiable instrument act of 1881The actis called negotiable instrument of 1881. It came in to force on 1March,1882.The provision of the act are based on English common law and customs & usagesrelating to the negotiable instrument in which were applied to negotiableinstruments prior to 1881.The act governs only three kinds of negotiable instruments viz. promissory note, bill ofexchange and cheque.The other documents like bill of lading, railway receipt etc., are not recognized by -the actas negotiable instruments and therefore such documents are not governed bynegotiable instrument act.Definition and Meaning :-The negotiable instrument act of 1881 defines negotiable instrument as "A negotiableinstrument means a promissory note not a bill of exchange or a cheque payable to orderor to the bearer of the instrument. Thus the act recognizes three kinds, of negotiableinstruments stated in the definition, however the definition given by the act is silent asto the meaning of N.I. this term cart be defined by saying that itconsist of two wordsviz.negotiable & instrument The word negotiable means a transferable &instrumentmeans a document by which a right is created in favor of some persons.Thus NI means transferable documents which creates right in favor of a certain person.Ln other words a N.I means a piece of paper which entitles a person a certain sum ofmoney mentioned there in and which can be transferred from one person to another bydelivery or by endorsement of delivery. The person to whom it is so transferredbecomes entitled to the amt. mentioned in the document and a right to further transfer it.In addition to this right he also has a right to file a suit on the basis of the document inhis own name in the event of his failure to receive the amount, mentioned in the
  • document.Thus a bonafied transfer for value becomes entitled to all the above rights on theinstrument.Definition and meaning of promissory note:- (SECTION 4)N.I. act of 1881 defines promissory note. as "A promissory note is an instrument inwriting (not being a bank note or a currency note ) containing an unconditional undertaking, signed by the maker to pay a certain. sum of money only, to or to the order ofcertain person or to the bearer of the instrument." • - The person who makespromissory note is called maker and person who is entitle to receive payment or towhose order payment is to made is called payee.Essential requirement of promissory note :-I) It must be in writing:-:-It must be in writing. In other words, an oral promise doesnot make a promissory note since-it is not an instrument.. An oral promise to paycannot be called a promissory.note. The act has not prescribed any particular form for apromissory note. It merely says that promissory must be in writing. The writing can bein any form. It need not be on a stamp paper. However the writing in order to be apromissory note must fulfill all essential requirements prescribed by the definition.21 A promissory note must contain an undertaking promises:-A valid promissory notemust contains promise to pay a mere implied undertaking by use of words like debts ordues, in an instrument is not sufficient. In other words acknowledgment of liabilityor receipt of the amount cannot be called a promissory note. However, it is notnecessary that the Word promise or an undertaking must be used to have a validpromissory note. It is sufficient that the words used in a document clearly indicatesthe intention of the maker to pay •amount of the promissory note.3)APromise contain in a promissory note must be unconditional promise A Promiseto pay should not be dependent upon the happening or. non-happening of an events,
  • which is uncertain when it is dependent upon an uncertain event it is called aconditional undertaking .And such an undertaking cannot create a valid promissorynote. But if the undertaking or promise is dependent upon an event which is certain tohappen it is riot a conditional undertaking and it can create a valid promissory note.Similarly just because it contains sortie conditions in respect of time or place ofpayment it is not a conditional undertaking.It can create a promissory note.4.) A Promissory note must be signed by the person who makes it :- In other words themaker should have put his signature at his own free will without any coercion , undueinfluence etc. having been used.5) The amount promised to be paid must be certain sum of money :-The amt. must beclearly specified in a promissory note. It must be a fixed sum of money, if the amt. isleft uncertain the document cannot be called a promissory note. However, justbecause the promise is made to pay the interest on the fixed amount ,Thearnountcannot be called an uncertain amt.6) A promise must be to say in monetary terms only :- A promissory note mustcontain a promise to pay the liability in monetary terms only. A promise to paythe entire amt. or part of the amt. in kind or in any other terms other thanmonetary terms cannot create a promissory note.7) Maker & The payee must be a certain person :-A promissory note must be clearlymentioned as to who is liable on the promissory note at the same time. When thepromissory note is an order the promissory note must state with certainty as towho is the person entitled to receive the amt. mentioned in the document. In otherwords payee must be capable of being identified at the time of making payments.8)If a promissory note is a bearer, promissory note it cannot be made payableon demand simultaneously.9)A promissory note must be stamped according to the Bombay stamp act.
  • I 0)The maker & the payee of a promissory note cannot be one & the same personwhen the promissory note is paid.11) A promissory note can be made payable to bearer but when it is a bearerpromissory note it cannot be made payable on demand.BILL OF EXCHANGE:-(Section 5)The negotiable instrument act, 1881 defines BOE as " A BOE is an inst. inwriting, containing an unconditional order signed by the maker, directing certainperson ,to pay a certain sum of money only to or to the order of certain person orto the bearer of the instrument. " .A BOE involves three parties viz, drawer, drawee and payee A drawer is. aperson who makes or draws a BOE. He is the person who gives an order to acertain person to pay a certain sum of money only either to himself or to a thirdperson named in a BOE.Drawee is a person who is directed by the drawer to pay a certain sum of moneyonly to the drawer or to the third person mentioned in the BOE. When the draweesigns the BOE i.e. when he accepts the order of the drawer he is called theacceptor.A payee is the person to whom, or to whose order payment is to be made i.e. heis the person entitled to receive the payment on the BOE.. All these three partiesmust be clearly named & must be indicated with certainty in BOE. Sometimesdrawer & payee may be one & the same person e.g. Mi. A draws a BOE on Mr.B & directs MY. B to make payment to himself. In this e.g. Mr. A is a drawer aswell as payee.However, drawer & a drawer of a.BOE cannot be one and the same person.Similarly drawee& payee cannot be one and the same person, at the time when thebill is made or drawn. However, drawee may become payee as and by way of
  • negotiation back in ehich event the document stands duly discharged in thehands of the drawee.ESSENTIAL REQUTREIYLNT OF A BOBI)In Writing. An oral order tO pay cannot be called a BOE. The act has notprescribed any particular form for a BOE. It merely says that BOE must be inwriting. The writing can be in any form. It need not be on a stamp paper.However the writing in order to be a BOE must all essential requirementsprescribed by the definition.?)It must contain an order, a BOE must contain an order of drawer directing thedrawee to pay a certain sum of money only. Mere request in an inst. is notsufficient to call the inst. a BOE.3)An order contained in a BOE must be unconditional order :-An order to payshould not be dependent upon the. happening or non-happening of an events,which is uncertain when it is dependent upon an uncertain event it is called aconditional order . And such an order cannot create a valid BOE . But if theUndertaking or order is dependent upon an event which is certain to happen it isnot a conditional undertaking and it can create a valid BOE.Similarly just because it contains some conditions in respect of time or placeof payment it is not a conditional undertaking. And it can create a BOE.4) A BOE must be signed by the person who makes it, In other words the makershould have put his Signature at his own free will without any coercion , undueinfluence etc. having been used.5) The amount ordered to be paid must be certain sum of money. The amt. mustbe clearly specified in a BOE. It must be a fixed sum of money, if the amt. is leftuncertain the -document cannot be called a BOE. However, just because the orderis made to pay the interest on the fixed amount .The amount cannot be called anuncertain amt.
  • 6)An order must be to pay in monetary terms only :- A BOE must contain an orderto pay the liability in monetary terms only An order to pay the entire amt. or partof the amt. in kind or in any other terms other than monetary terms cannot createa BOE.7) Maker & The payee must be a certain person. A BOE must be clearly mentionedas to who is liable on the BOE note at the same time. When the DOE is an order. Itmust state with certainty as to who is the person entitled to receive the amtmentioned in the document.In other words payee must be capable of being identified at the time of makin g.payments.If a BOB is a bearer, BOB it cannot be made payable on demand simultaneously.8)A BOB can be made payable to the bearer. But when it is bearer BOB it cannot bemade payable on demand.9)An order to pay must be unconditional , order of bill of exchan ge must be signedby the drawer.10) The order to pay rntiAbe in monetary terms only.11)Amt. payable must be a certain sum.12) drawer, drawee, & payee must be a certain person.13) aBOE must be duly stamped as per the stamp act.14) aBOB can be made payable to bearer at the same time payable on demand.Distinguish between a premisscry note &a 130E:-
  • POints Bill of exchange Promissory note .._1) No. of parties There are three parties- There are two parties- maker drawer, drawee and payee. And payee. -2)- Protnise/order It contains an unconditional It contains an unconditional order. Promise given by a debtor to a• creditor. 3) Nature of liability The liability of the drawer is . The liability of the maker is secondary and conditional. Primary and absolute. 4) Acceptance It requires acceptance to It does-not require any become a valuable acceptance since it is a insUnment. , valuable ins-mat-pent right.. from the beginning. • 5) Same identity of payor and payee. The drawer and payee may The maker and payee cannot be the same person. be the same person.• 6)-Payable to It can be pa_yable_to bearer.. It cannot be payable .tobearer. It caw-let be drawn-as Payable-to--bearer v u I 1 - bearer. demand. 7) Protest for _It requires the protesting........- It does not require any ---- . dishonour. . fordishonour. protesting..._ _. .8) Notice of Notice of dishonour must such notice is not required dishonour. be given to all persons to be given to the maker._ (including drawer) liable to pay.MEANING & DEFINATION:-(SECTION —6)The negotiable instrument act of 1881 defines cheque as "cheque is a bill ofexchange drawn on a specified banker and not expressed to be payable otherwisethan on demand."A cheque is always drawn on a bank and therefore in a chequedrawee is alwaysa bank. it can only be drawn on the specified bank with whom the drawer has anaccount like BOE, a cheque also contains an unconditional order to pay !& itinvolves three parties viz., drawocIdrawee(bank) & Payee.However, unlike a BOE a cheque does not require any acceptance on the bank
  • on whom it is drawn , because drawing of a cheque simply amounts to giving adirection to the bank who is the custodian of the money of the drawer td pay theamt. of the cheque to the payees out of the funds of the drawer. The bank onwhich it is drawn i.e. the drawee bank cannot be liable if the cheque isdishonoured.Thuscheque is the special kind of BOE and though it is similar toBOE in many asyects it does differ from DOE but all BOE are not cheques.A cheque is always payable on demand & it cannot be made payable after a fixedperiod of time. A cheque is valid for a period of 6months from the date on whichit is drawn, if the payee fails to present the cheque within the period of 6mo4sas stated above he cannot there after receive the a.mt. of the cheque from thebank.A cheque can be crossed .generally or specifically or it may be a bearer cheque.A cheque may bear past, present or future date. A cheque with a pastcheque,with a past date is known as anti datedcheque. A cheque with a fixturedate is known as post datedcheque.ESSENTIAL features of a cheque:-1)Acheque is a Bill if exchange.2)lt contains an unconditional order to pay a certain sum of money only.3)Adrawee in case of a cheque isalways a bank4)It must be signed by the drawer.5)The order must be to pay money only.6)Acheque involves a three parties viz., drawer, drawee& payee.7)Acheque is always payable on demand & it cannot be made payable aftera fixed period of time. 8)Acceptance of the cheque by the bank is notrequired. Distinguish between cheaue& bill of exchange:-
  • Points BOE 1. Drawer. It can be drawn upon an individual .is well as a bank. It need not always be payable 2_ Payable on demand It is always payable to bearer on demand.• on demand_ It require an acceptance of the 3. Acceptance it does not require an acceptance. drze.‘ee. a It requires a stamp. 4: Stamp it does not require a stamp.• A bill; unless payable On 5. Grace of days It is not entitled to three days of demand is entitled to three grace. days of grace_ It can be crossed. „ _. .. It cannot be crossed, ._ ..._. Crossin Notice of dishonour is not required. Notice of dishonour is usuallyg7. Notice of , required.dishonour Its fixed form is honoured by a bank. There is no fixed form. - 8. Form Types of cheques:- Cheques can be broadly classified into two categories i.e. a)crossedcheque iv. b)bearercheque. _A cheque may be crossed either specially or generally. A cheque may bear past, present or future date. A blieqtle with a past date is known as antidatedcheque. A cheque with a future date is called a post datedcheque.Bearer cheque:- A bearer cheque is a cheque which is not crossed. It may or may not bear the name of payee. A bearer cheque is thus payable to the bearer of the cheque& it can be encashed at the cash counter of the drawee bank. In other words a person who is in possession of such a chequecanencash it by presenting it at the cash counter of the bank on which it is drawn. A bearer cheque
  • carries a risk in as much as in the event of it being misplaced or stolen any personwho gets possession of this kind of cheque can recover the amt. mentioned in it bymerely presenting it at the cash counter of the drawee bank. Thus an order toreduce the risk involved in hearer cheque another type of cheque which iscommonly used in crossed cheque.Crossed cheque:-A crossed cheque is a cheque which bears two parallel lines on the face of it. Theadvantage of a crossed cheque is that the bank does not make the payment at thecash counter. The payee of such a chequecan recover the ar»t. only by presentin gthe cheque throu gh his bank to drawee bank for which he has to deposit hischeque into his account.On such presentation if the drawer bank is satisfied about the validity of thecheque and if the chequefulfills all the requirements.if-there is sufficientcredit balance in the a/c of the drawer it may honour the cheque. On thecheque being honoured by the drawee bank the amt. of cheque gets creditedin the payees a/c in his bank.Thus the risk involved in a crossed cheque is much less than the risk involvedin the bearer cheque. Crossed cheque can be classified into three categories:-1)Acheque crossed generally.2)Achequecrossed specially.3)Acheque crossed a/c payee.1)Acheque crossed generally:-A cheque is said to be crossed generally when it is one of the following types:- (a) when it bears two parallel lineson the face of it. (b) when it bears abbreviation & company between two parallel lines. (c) when the word not negotiable is written between the two parallel lines.-All crossed cheques are basically generally crossed. The important features of this
  • type of crossing is that cannot he encash at the cash counter of the drawee bank.When a cheque is crossed not negotiable it doesnt meant that it cannot betransferred but the tranferee.will not get better title than what the transfer has.2)Acheque crossed specially:-It is a cheque in which in between the two parallel lines the name of the bankthrough which the payment is to be made is mentioned with or without the wordnot negotiable or account payee.This kind of crossing gives the direction to thedrawee bank to pay the amt. of the cheque only when it is presented through thebank whose name is mentioned in between the two parallel lines .In other words , the payee must present the cheque through the bank whose nameis mentioned in between the two parallel3)Acheque crossed account payee:-When in..between The two Orallef lines the word a/o payee Or a/c payee. only isMentioned it is called an ale payee crossing. In addition to the features of generallycrossing an a/c payee crossing has one more feature tlhat is the drawee bank cannotmake the payment to any other person but to the person whose name is nnentionedin the cheque& it is because of this features of this type of crossing that it is calledrestrictive crossing..LAW IN RESPECT OF DISHONOUR:--.Cheque or insufficiency of finds in the afc of the drawee (section 138 read withsection 142 h of the negotiable instrument act 1881 as amended in 1988) orbouncing of a cheque.As per negotiable instrument act of. 1881 as amended in 1988 when any persondraws a cheque for payment of any amt. to pay off either whole or part of his debtsor liability is dishonoured by bank either because the amt, of money sending to thecredit of the a/c of drawee is insufficient to honoured the cheque or that it exceedsthe amt. to be paid from the a/c of the drawer as per the agreement made with the
  • bank(overdraft facility saanted by the bank) The person is drawer shall,be deemed to havecommitted an offense and shall be punished with imprisonment for a term which can beintended to lyTs Or with fine which may be twice the amt. of cheque or with both.however drawer of dishonouredcheque can be made liable in above circumstancesfor the said offense only when the payee compiles with the folio .:-ngrequirements:-1) He should have presented the cheque within the validity period of six monthsfrom the date on which it is drawn.2)He must give notice of dishonour by registered post to the drawer within aperiod of fifteen days from the date of his receiving intimation from bank that thecheque is dishonoured.3)If drawer of such a cheque fails to make payment of amt. ofcheque withinfifteen days of receipt of such notice of dishonourthe payee must institute thecriminal proceedings within a period of lmonth after expire of next 15days withinwhich the drawer was required to make the payment as stated above.A drawer cannot be made criminally liable as per this new provision if the aboverequirements are not strictly compiled within by payee than the only remedy left topayee is to file a civil suit similarly if drawer makes payment within 15days fromthe date of notice by him he cannot be made criminally liable similarly a draweecannot be made criminally liable if the cheque is not given for payment of debts orliability.Bearer & ordered docoment:-A negotiable instrument in which no name of the person to whom the payment is tobe paid-is mentioned is called a bearer instrument. In a bearer instrument name ofthe payee is left blank & therefore it is payable to the bearer of the instrument i.e.to any person who is in possession of such a bearer instrument A bearer
  • instrument can be negotiated or transferred by mere delivery of the instrument tothe transferee.A negotiable instrument which clearly specifies the name of the payee i.e. theperson to whom the payment is to be made is called an ordered instrument.An ordered instrument is payable only to the person whose name is mentioned inthe instrument or to the person in whose favor the instrument is validly transferred.Anordered instrument can be transferred as negotiated by endorsement & deliveryi.e. to negotiate the order instrument, it must be first endorsed & than delivered tothe transferee.DEMAND INSTRUMENT:-Negotiable instrument payable on demand & not after a specified period oftime are called demand documentsIt may be one of the following type(I)Cheque is always payable on demand therefore,cheque is called a demanddocument. (2) A HOE or a promissory note which is payable at sight or on presentment or specifically made payable on demand is called a demand document. (3) A BCE or a promissory note in which no time is mentioned is called a demand document. ACCOMODATION OF BILL OF EXCHANGE:-Accommodation of bill of exchange is drawn & accepted withoutconsideration i.e. withont any transaction or existence of liability. It isgenerally drawn & accepted to accommodate the drawer or to accommodateboth the drawer & the drawee in their financial difficulty. A person who accept aHOE is ca-lied -a accommodation party. And the drawer from whom each bill isaccepted is called Accommodated party. -• When an accommodation HOE is drawn & accepted the drawer of such a billis bound, liable to provide the accommodation party i.e. the acceptor with
  • sufficient funds as agreed upon in or before the due .deta to enable the acceptor tohonour the bill of exchange on the due date.The rights & privileges of a holder in due course are in no way affected by anaccommodation of BOE & he is entitled to recover the amt. of the BCE fram theaccommodation party, the acceptor who may ultirratelyrecover from theaccommodation party i.e. the drawer. In other words an accommodation BOBcan be enclosed or negotiated first like an ordinary BCE.Inchoate stain edinstrunrent-incornlete stain ed instrument)Inchoate stamped instrument means an Incomplete stamped N.I. When a personsigns a stamp paper ova paper duly stamped in accordance with the provisions oflaw relating to NJ. act and a stamp act & leaves it wholly or partly blank anddelivers the same to another person, he thereby gives prima facie authority to thatanother person to complete the document.An inchoate stamped instrument may be Incomplete either in respect of-date, amt.,rime of payment or in- respect of name of the payee etc. The holder of the inchoatestamped instrument is entitled to fill up the blank and complete document_However, if the inchoate stamped instrument is incomplete in respect of amt. , theholder of the instrument cannot fill up the amt. which cannoirJe covered by thevalue of stamps affixed thereon.In order to make the signatory liable on the document following conditions must befulfilled:- I) An inchoate instrument should have been signed by the maker and delivered to another person. II) Such an instrument have been adequately stamped in accordance withlaw in force at the time ofdelivery of such document
  • 2) Before taking any action on the basis of such a document should be completed by the holder. 3) The amt. to be filled in by the holder should not exceed the amt. which would be covered by the value of stamps affixed on such document.INLAND &FOREIGN INSTRUMENT:-A promissory note, BOE, or cheque drawn or made in India and payable in India isan inland instrument. Similarly, a negotiable instrument drawn or made in Indiathough payable outside India is an inland instrument provided a person who is anIndian residentNoting & protesting of an inland instrument when dishonoured is not compulsoryA RN, BOE, or a cheque drawn or made outside India & payable outside India is aforeign instrument SiMilarly, a negotiable instrument drawn or made in India andpayable outside India on a person who is not an Indian resident is a foreigninstrument.In absence of any contract to contrary the liability of the maker of foreign bill ofexchange, P.N. or a cheque is governed & regulated by law of the country where itwas made and liability of the acceptor and the endorser is governed by the law ofthe place where it is made payable.HOLDERThe holder of a promissory note or 130E or a cheque means any person who isentitled in his own name to the possession:thereof& to receive & recover the amt.due thereon from the parties liable on the instrument In other words, to call aperson holder of negotiable-instruments following 2 conditions must be fulfilled :-1) He should be entitled to the possession of N.I. in his own name. -2) He should have a right to receive & recover the aint if the instrument is in hisown name. Thus, the holder need not have actual possession of instrument, It is sufficient if
  • he his entitled to have possession of instrument in his own name for e.g.:- The legal heirs of the deceased holder of a bill of exchange c.ti claim the instrument as the holder of the B4O.E. by operation of the law. A holder of instrument should not only be entitled to have possession of that instrument but his possession must be lawful possession. However it is not necessary that he must pay consideration to get the possession of the instrument i.e. even if a person gets possession of the instrument as & by way of gift he can be called holder of the negotiable instrument. V.V.Ilvil) HOLDER. IN DUE COURSEIt means any person who for consideration becomes the possessor of a P.N.. BCE,or a cheque if payable to !-bearer or a payee or a endorsee thereof is payable toorder, before the amt. mentioned in it becomes due for& without having sufficientcost to believe that there exists defect in the title of the transferor from -whomThus , to cal/ a person holder in due course, it is necessaty- that the followingconditions are fulfilled. -1) He should be a holder for consideration i.e. on payment of consideration eitherhe should become a possessor of a bearer instrument or endorser or payee of anorder instrument2) The instnurient should have been transfer to him before-the date of maturity i.e.before the amt. mentioned therein becomes due for payment3) He Should be a transferee in good faith & he should have obtain the documentwithout any notice of defecttitleof the transferor. In other words, he must exercisereasonable diligence to satisfy that the transferor has a valid tightto transfer thedocument.Thus, a holder in due course means a possessor of a bearer instrument or anendorsee or a payee of an ,order installment who comes into possession of the
  • instrument for consideration before the date of maturity ofinstrument in good faithand after having taken reasonable precaution to satisfy himself that it is free fromany defects in title of the transferor- Thus a person who comes into possession of the instruments withoutconsideration or after the date of maturity or with the full knowledge of the defectof the transferor is merely a holder of the N.I. and be cannot be called a holder indue course.RIGHTS &PRIVELEDGES OF HOLDER IN DUE COURSE :- 1) Holder in due course is protected against all defects in title of the person from whom he derived his title In other words holder in due course gets a better title to the instrument even if the title of the transferor is defective_ a 2) A holder in due course is entitle to receive & recover the amt. mentioned in the instruments is also entitled to tile a suit against all the parties liable on the instrument. 3) The capacity of an acceptor of a DOE or a maker of a P.N. rrra cannot be denied as against the holder in due course nor can they deny the validity of the instrument as originally made as against a holder in due course. 4) A N.I. which is made, drawn or endorsed without consideration, if comes in the hands of holder in due course. Absence of consideration cannot be preceded as against the holder in due course for e.z. accommodation DOE. DRAWEE IN CASE OF NEED ,11S
  • Drawee in case of need is the person whose name is mentioned in the BOE inaddition to the name of the drawee and he is to be dissorted to only in case ofneed i.e. when the BOE is dishonoured either for non acceptance or for nonpayment by the original drawee of the BOE . Thus, the position of the drawee incase of need is like that of a guarantor or a surity i.e. he is not actually liable on theBOE, but he gives the guarantee that the original draweewill honour the BCE &further undertakes that if the BOE is dishnoured by the original drawee he willhonour the BOE , when the name of the drawee in case of need is mentioned in .the BOE, it is obligatory on the part of the holder of the DOE to give notice ofdishonour to the drawee in case of need to make him aware of the fact ofdishonour. If the holder fails to gives such a notice of dishonour, to the drawee incase of need within a reasonable period, he shall be deemed to have discharged thedrawee in case of peed from the liability on the BOB.ENDORSEMEIVT:-(Section 15)The NI. act of 1881 defines endorsement as " when the maker or the holder ofthe N.I.signs the same otherwise that as maker for the purpose of negotiation onthe back or on the face thereof or on a slip of paper annexed there to or so sign forthe same purpose a stamp paper intended to be completed as an negotiableinstrument, he is saidio have eT;dorsed the same & he is called a endorser ".A person who endorses a negotiable instrument is endorser. A person inwthose favour endorsement is made is called endorsee. & the act of signing anegotiable instrument for the purpose of negotiation is called endorsement.Following are condition for valid endcrsernent:- 1) A endorsement can only made by maker or holder of a negotiable instrument. They include following parties to the instrument. Drawer of BOB. , payee or endorsee of NJ. , holdenin due course. When the there are more than one drawer or holder who are not partner,
  • all of them are required to sip the document jointly .However, when a partnership firm is the holder of a negotiable instrument any partnei who is duly authorized can endorsed a negotiable ientrument 2) It must be signed by the maker, as holder otherwise than as maker i.e. otherWise then in the capacity of a maker. 3) An endorsement should be made on the back or on the face of instrument or on a slip of paper annexed there to which is called allonge or on a stamp paper which is intended to be completed as a negotiable instrument. 4) 11 should be made with an intention to transfer not only the document in favour of endorsee but also to transfer all rights to the document in favourf endorsee including the rights to recover the amt. mentioned in the document. 5) Endorsement is complete only on delivery of instrument to endorsee. 6) the NI. act has not prescribed any particular form of writing for an endorsement. The only requiremtat in that the words used for it must clearly indicate intentions of endorser to transfer the instrument in favor of endorsee together with all rights of instrument. On the endorsement, being duly completed by delivery of instrument, it not only transfers instrument in favor of transferee but also confesses upon transferee all rights of instrument and also the right to further transfer the instrumentHowever, the endorser may by specific words restricts or exclude some of the rights of endorsee. KINDS OF ENDORSEMENT :- 1) GENERAL OR BLANK ENDORSEMENT :-
  • An endorsement is said to be blank or General when theendorser signs the document for the purpose of negotiation without writingthe name of endorsee (transferee). A NJ.endorsed in blank is like a bearer instrument & any person who isin possession of such an instrument is entitled to receive the amountmentioned in the document. In other words a N.J. endorsed in blank, is payable to the bearer of theinstrument even if it was originally an order instrument.FOR E.G.:- A B.O.E. which is payable to B can be endorsed by B, bymaking a blank endorsement as under i.e. without writing the name of thetransferee which Will have the effect of converting an order doc. in to a bearerdoe. TRANSFER TO Mr. SD (B) A NI.which is endorsed in blank can be converted into full or specialendorsement by the endorsee without making any fresh endorsement &without signing the instrurnent just by adding the name of the transferee in theblank space above the signature of the endorser who has made blankendorsement. Thus, in the above e.g. if Mr. C is in the possession of the DOE with the blankendorsement made by Mr. B, he can transfer the same to Mr. D withoutmaking a fresh endorsement just by adding the name of Mr. D above thesignature of Mr. B. TRANSFER TO Mr. SD!- ( B )2) FULL OR SPECIAL ENDORSEMENT :-
  • When a maker or a holder of a N.j .signs the N.I. for the purpose of negotiation & also gives a specific direction to pay the amt. mentioned in the instrument to a specified person or his order, it is called a full or special endorsement In other words, full or special endorsement is one in which the maker or the holder in addition to his signature & the writings also specifies the name of the person in whose favour the instrument is endorsed i.e. the name of the endorsee for e.g, a BOB which is payable to Mr. B can be endorsed by Mr. B by makingfall endorsement i.e. by writing the name of the transferee. For e.g. Mr. C Transfer to Mr. C SD /- ( B) When a negotiable instrument is endorsed in full, the amt. of the instrument cannot be claimed by any person except by the person in whose favor it is validly transfer by the endorsee. Thus, a N.J. which is a bearer instrument can be converted into an order instrument by making full or special endorsement.------- A N.I. , which endcnsed in blank can be converted in full or special endorsement by the endorsee without making any fresh endorsement and without signing the same just by adding the name of the transferee in the blank space above the signature of the endorser who has made the blank endorsement. 3) PARIZ4L ENDORSEMENT :- No form of writing in the nature of endorsement is valid if it only transfer a right to receive part of the amt. mentioned in the instrument. However, the instrument is partly paid and the fact of such payment is recorded on the
  • instrument it can be endorsed for the balance amt. of the instrument which remains unpaid. 4) RESTRICTIVE ENDORSEMENT - ( R. E. ) R.E. is one which prohibits farther negotiation of the inst- ument.Thus, an endorsement is RE. whenit by expressed words restricts the negotiability of the instrument. The effect of R.E. is that it puts - an end to the negotiability of the instrument and the person in whose favour it is endorsed can only recover the amt. of the instrument. For e.g. :- Transfer to Mr. A only. 5).CaND1770NAL OR QUALIFIED ENDORSEMENT An endorsement is said to be conditional Or qualified when it is subject to certain conditions. The most common type of conditional or qualified endorsement is called " SAN RECOURSE ENDORSEMENT San recourse means without recourse. By writing such words theendorser makes it very clear to the endorsee that he will be not be held liablein the event the instrument is dishonoured. Thus, when the instrument is endorsed with San recourse endorsement,& it is dishonour the holder of such instrument cannot make the endorserwho had made San recourse endorsement liable on the instrument. Thusby making a San recourse endorsement the endorser excludes hisliability on the instrument 6) FACULTATIVE ENDORSEMENT (F .E .) When an endorser expressly gives up some of its rights on thenegotiable instrument, by making endorsement ,the endorsement is calledfacultative endorsement.
  • For e.g. :- When an endorser by an endorsement gives up his right toreceive the notice of dishonour it called as F.E. Because under NJ act he has rightto receive the notice of dishonour when the instrument is dishonoun But by makingsuch an endorsement, the endorser gives up some of his rights to receive the noticeof dishonour a thereby relieves, the endorsee from his duty to give notice ofdishonour. In. other words, endorser increases his J iabilon the endorsement.Therefore it is called FE. NOTICE OF DISHONOUR(Section 93 to 98) Notice of dishonour means a formal communication of the facts ofdishonour. The object of giving notice dishonour is not to demand payment but toinform parties to the instrument that the instrument is dishonoured. Thwhen a NJ.isdishonoured either for non acceptance or for non payment the holder must givenotice of dishonourall the parties liable on the instument. Such notice of dishonour must clearly state the following facts :- I) The fact that the instrument is dishonoured. 2) Whether the instrument is dishonoured for non payment. 3). The person to whom the notice is sent will be held liable of the instrument. If the holder fails to give such a notice of dishonour to the previous transferor, the transferors star discharged from their liabilities. The notice Ofdishonour can be given only by the parties to the instrument. Notice of dishonouris not necessary in following cases :-1) It is not necessary to the maker of the promissor:, note to the acceptor of BOE orto a drawer of a che-que, as they the person primarily reliable to the instrument:Aowever, the notice of dishonour must be given to the drawer of cheque if he isto be made criminally liable as per the new provisions.
  • 2) It is not necessary when it is dispensed by the person entitled to receive thenotice.3)/t is not necessary when the parry entitled to receive the notice cannot be found after the diligent search (Research ).4) It is not necessary for the drawer of the cheque who has instructed the bank tostop payment of the cheque.5) It is not necessary for the endorser who has made San Recourse Endorsement.6) It is also not necessary where the endorser has endorsed the instrument bymaking Facultative Endorsement i.e. when he has expressly given up his rightto receive notice of dishonour at the time of endorseuient . . . IVCTING AND PROTESTING :-(Section 99 to 104A) NOTING :-When a promissory note or a BOE is dishonoured theholder may after giving notice of dishonour may file a suit against the partyliable on the instrument. But before doing so he may get the facts ofdishonour authenticated by a notary public.In other words; he mayrequest a notary public to male a demand on his behalf from the personultimately liable on the instrument. If the person so liable refuses to acceptor make payment dispite of it being presented by the notary public, thenotary public will note tile fact of dishonour on the instrument or on apiece of paper next to the instrument. This act of the notary public ofrecording the facts of dishonour on the negotiable instrument is called thenoting of the NJ. Such noting should be made within the reasonable periodof time after the instrument is dishonoured.Noting must specify the date, thereason of dishonour if any and the noting charges, Noting is not necessary in case of promissory note or an inland
  • BOB. however, it is compulsory in case of foreign BOB. Noting is an important piece of evidence to prove that the document is actually dishonoured.PROTEST :- When an N.I. is dishonoured and is noted by the notary public he may issue a separate certificate to that effect, such a certificate is called a protest Thus, protest is a notorial formal certificate attesting the fact of dishonour& is based on the noting made by the notary public.lt must bear sufficient notorial stamps, seals & the sign of the notary public.PAYMENT IN THE DUE COUR.SE :- When the payment is made by person who has to honour the instrument, in accordance with oceurance tenure of the instrument in good faith & without negligence to any person in possession of the instrument, the payment is said to be made in due course & the payment in due course will discharge the party from his liability on thecinsuument. In other words, a party is discharged from his liability only when he makes the payment in due course only when the foil, conditions are satisfied :-1) Payment should be in accordance with the occurance tenure of the instrument.2) Payment of the instrument should be made by on behalf of the drawee, on theacceptor or the maker.3) Payment must be made in money only unless the parties have agreed to receivethe payment by ether N.I.4) The person to whom the payment is made should be entitled to receive the payment on the document &should be able to give valid discharge from the liability on the
  • instrument.5) Payment should be in good faith & without any negligence to the person inpossession of the instrument -without any doubt about his right to receive theamount mentioned in the instrument.