Beruflich Dokumente
Kultur Dokumente
continued….
Other modes
¡ Special Crossing -Across its face it bears an addition of the
name of a banker with or without the words “ Not
Negotiable”.
¡ Restrictive Crossing-” Account payee” are added to the
general or special crossing. The amount has to be
credited to the account of the payee. They are not
negotiable.
¡ Not Negotiable Crossing- It means that the title of the
transferee cannot be better than the transferor. It is
crossed so, as a protection to the drawer or holder of
the cheque against miscarriage or dishonesty in the
course of transit by making it difficult to get cashed, until
it reaches its destination.
Crossing after issue of the cheque
¡ If the cheque is not crossed, the holder of the cheque may
cross it either generally or specially.
¡ If the cheque is crossed generally, the holder may cross it
specially
¡ The holder may add the words "Not Negotiable” to the
crossing
¡ If it is crossed to specified banker, it may be again crossed
to another specified banker, or agent for collection.
Parties to a Negotiable Instrument
¡ Capacity of parties- Every person capable of contracting may
bind himself and be bound by the making, drawing,
acceptance, indorsement, delivery and negotiation of the NI
¡ The capacity of the party to a NI is co-extensive with the
capacity of his or her contract capacity to contract
¡ Minor can draw, indorse, deliver and negotiate such
instruments as to bind all other parties other than himself.
¡ Minor can also acquire all rights under it, and if he is a holder
he is entitled to sue all the prior parties to the instruments.
¡ If minor is one of the parties and all others are adults, then
other than the minor all are liable. Adults are not discharged
from liability even if the minor is discharged.
Holder ( Sec 8)
¡ A person who is entitled to hold the negotiable instruments
in his own name, to possess the instrument and to
recover or receive its amount due from the parties
thereto is called a holder.
¡ To be a holder the person must be named in the instrument
as a payee, or the endorsee or a bearer thereof
Holder in due course (HDC)
¡ If a person proves that he acquired the instrument
for a valuable consideration, then he is known
as holder in due course.
¡ The holder in due course should show that for
consideration he became the payee or indorsee
of the instrument , if it is payable to the order.
¡ In such cases, the instrument should have been
indorsed and delivered to him, as his title to the
instrument will be incomplete without delivery.
Other essentials to be a holder in due
course
¡ The HDC should have acquired the instrument any time
before the amount became payable.
¡ If a person takes the instrument after the day the amount
becomes payable, such a person cannot take the place
of HDC, and the rights acquired by him are only co-
extensive with that of his immediate transferor.
¡ The HDC should have acquired the title without notice of the
defect in the title
Privileges of a HDC
¡ The presumption is that the HDC obtains title to the
instrument free from equity.
¡ If the instrument is stamped but otherwise inchoate, the
person who has signed and delivers is prevented from
asserting against the HDC as the stamp in itself is
sufficient to cover the amount, though the instrument
was incomplete
¡ Until the instrument is duly satisfied, every prior party to a NI
is liable thereon to a holder in due course.
Cont….
Continued..
¡ If the bill or note is negotiated to a HDC , then the
negotiating parties cannot avoid liability if there was a
condition or special purpose attached to it.
¡ Once the NI passes through the hands of the HDC, the NI
get cleansed of all its defects, provided the holder is not
a party to the fraud
¡ No defence can be set up against the holder in due course
¡ The validity of the instrument as originally made or drawn
cannot be denied by the maker/ drawer/ acceptor for
honor
¡ The endorser cannot deny the signature or capacity to the
contract of any prior party to the instrument
Liabilities of Parties (Drawer)
¡ Liability of the drawer- the drawer is liable to compensate in
case of dishonor by the drawee or acceptor, provided
due notice has been given to or received by the drawer.
¡ The liability of the drawer in case of bill is secondary in
nature. It is the acceptor who is primarily liable to make
the payment.
¡ By drawing a bill, the drawer undertakes that on
presentment of the same to the acceptor, it will be
accepted and duly honored and
¡ If it is dishonored by the acceptor or not accepted, the
drawer will compensate to the holder or the indorser,
provided due notice is given to him.
Cont…..
Continued…..
¡ The drawer can also limithis or her liability by using the
sans recourse indorsement
¡ If the holder fails to give notice , then the drawer is not liable
and beyond this he is discharged from his/her liability.
¡ This is not only with reference to the bill but also upon the
original debt.
Liability of the Drawee
¡ The relationship between the banker( drawee) and customer is
that of debtor and creditor.
¡ The banker has to undertake to honor the customers cheque until
the funds are available with the bank in the customers
account.
¡ Banker can refuse to honor the customers in certain instances
like,
a) bankers lien,
b) no amount to honor in the customers account,
c) post dated fund presented before the date,
d) if the instrument is ambiguous,
e) if the customer been declared insolvent,
f) if the customer has countermanded the cheque,
g) if the bankers receives the notice of death or insanity
Liability of the Drawee Bank for
Wrongful Dishonour
¡ Cheques to be presented during the usual banking hours.
¡ If there is sufficient fund in the customers fund and still the
bank does not honor the cheque , it has to fulfill the
monetary loss of the customer and also the injury to
reputation of the customer.
¡ This remedy against the bank is available only to the
drawer of the cheque and not the holder of the cheque.
Liability of the Drawee Bank Where the
Drawer’s Signature is Forged
¡ If bank honor’s a cheque which is forged, the bank cannot
get the statutory protection, even if the sign could not be
distinguished.
¡ The Act provides protection to the drawee bank paying a
cheque that carries a forged indorsement.
¡ This section applies if the bank pays a cheque that carries a
forged indorsement and it is payable to order and it
purports to be indorsed by or on behalf of the payee.
………..
If the bank on which is drawn , makes the payment in
due course, then the bank is discharged from its liability
even if the signature of the payee might be forged.
Liability of the ‘Maker of the note’ and
‘Acceptor of the bill’
¡ Both the maker and the acceptor are liable to make the
payment.
¡ The liability of the maker in case of note and acceptor in
case the bill is absolute, Unconditional and primary. The
liability exists only when he signs and delivers the note
¡ But to make the acceptor liable only signature is not
enough, it has to be accepted i.e. notice of acceptance
should be given and the bill has to be delivered.
¡ As the acceptor is not the originator of the bill as in case of
the note, the acceptor can have an option to give a
qualified acceptance.
Liability of endorser
¡ Every indorser after dishonor is liable as upon an instrument
payable on demand to every subsequent holder.
¡ The indorser is in a position of a new drawer and the liability
of the indorser is conditional.
¡ By endorsing the bill the endorser undertakes that the
instrument will be accepted and paid as per the tenor of
presentment.
¡ If it is dishonored, he will compensate the holder or
subsequent indorsers who is compelled to pay for it
subject to due notice of dishonor.
¡ The indorsers liability as per this provision
(sec 35) will not commence until the indorsed instrument
is delivered to the transferee. The indorser has to make good
the loss but he can make qualified indorsement by using
‘sans recourse indorsement’
Liability of the other parties
¡ Every prior party to the indorsement will be liable to the
subsequent party until the instrument is duly discharged or
satisfied.
¡ If the indorser knows that bill was forged, he cannot later deny
the liability by pleading forgery as a reason.
¡ The indorser cannot challenge the holder’s title. He will be
liable twice. One to the holder and the other to the true
owner of the instrument.
¡ Acceptor of the bill drawn in fictitious nameand payable to the
drawer’s order is not, by reason that such name is fictious,
relieved from liability to any holder in due course.
Negotiation
¡ Negotiation of an instrument may be either by delivery or by
indorsement. Delivery of NI is an essential ingredient in
order to bind the parties as they are incomplete and
revocable.
¡ The delivery should be with an intention to passingof the
property . A PN , BOE or Cheque is considered to be
completed only when it is delivered i.e., actual or
constructive
¡ As between the immediate parties, delivery to be effectual must
be made by the party making , accepting or indorsing the
instrument or by a person authorized by such person
¡ For other parties, other than HDC it has to been shown that the
instrument was delivered conditionally or for special
purpose only and not for the purpose of transferring
absolutelythe property therein. All the NI’s are negotiable
by delivery after indorsement.
Endorsements / Indorsements
¡ A bearer instrument is defined as an instrument where the
only or last indorsement is an indorsement in blank.
¡ Partial Indorsement- No writing on a negotiable instrument
is valid for the purpose of negotiation if such writing
purports to transfer only a part of the amount appearing
tobe due on the instrument, …….
¡ But where such amount has been [partly paid, a note to that
effect may be indorsed on the instrument, which may
then be negotiated for the balance ( This is called partial
indorsement)
Features of indorsement
¡ Intention should be there for negotiating the instrument.
¡ Effected by the signature of drawer or holder of a negotiable
instrument.
¡ Indorsement can be made on the back or face of instrument
generally – it can be made on a plain paper or on a
stamp paper)
¡ The person who signs is called – Indorser/endorsor
¡ The person in whose favour it is made is called-
Indorsee/endorsee.
¡ The additional slip pf paper, if used for indorsement is called
as “ allonge”
Legal aspects of endorsement
¡ Negotiation
¡ The endorsee acquires the property or interest in the
instrument as a holder. He can further pass the title
negotiation, other than for restrictive endorsement
(Transfer)
¡ It can be negotiated till the payment is made
¡ Endorsement in part is invalid
¡ If the endorser dies before delivery, endorsement becomes
invalid.
¡ Presumption- Endorsement made in the order it appears
¡ Endorsers signature-Not to be in block letters
¡ Endorser should spell his name in the same way as it
appears on the cheque.
¡ Need not include prefixes and suffixes
Kinds of endorsement
¡ Endorsement in blank: If there is only name of the endorser
( payable to bearer)
¡ Endorsement in full- If it made to a specified person, A
blank endorsement may be converted into full.
¡ Sans recourse endorsement- Exclude his personal liability
by limiting the liability.
¡ Conditional endorsement- If a condition is specified by the
endorser
¡ Restrictive endorsement- if it specified to one person only
¡ Facultative endorsement-If the provisions of giving notice of
dishonor is waived by the endorse
Difference between Assignment and
Negotiation
¡ Assignment should be in ¡ Negotiation by delivery /
writing endorsement and
¡ Notice of transfer of delivery
actionable claims must be ¡ No notice of such kind
given by the transferee to required in negotiation
the debtor in case if the
assignment in order to ¡ The title of the transferee
complete the title is better than the
¡ The title is subject to all the transferor
defects, equities of the ¡ Consideration is presumed
assignor in negotiation
¡ Transferee to prove
consideration for transfer
Instruments obtained by unlawful
means
¡ Stolen instruments- Acquires no title
¡ Instruments obtained through fraud or coercion- usually not
liable , but liable if due and reasonable care not taken
¡ Instruments obtained for unlawful consideration- Does not
create a legal obligation but HDC obtains good title
¡ Forged instruments- Generally it cannot convey title
¡ Forged endorsement-depends of the different situations
Presentment
Meaning- Showing an instrument to the drawee, acceptor or
maker for acceptance, sight or payment.
¡
Presentment when excused
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