Negotiable Instruments

Definition of Negotiable Instrument Means a promissory note, bill of exchange and cheque payable either to order or to the bearer

Characteristics Freely transferable Title of the holder Recovery Presumptions Consideration Date Time of acceptance Time of transfer Order of endorsements Stamp Holder presumed to be a holder in due course Proof of protest

Types of Instruments Negotiable by Statute Negotiable by Custom

Classification of Negotiable Instruments Bearer Instruments Order Inland & Foreign On Demand Time Accommodation bill Fictitious Documentary bill

Contd Escrow Ambiguous Inchoate Undated bills

Payment in Due Course Payment according to the apparent tenor Payment on behalf of acceptor or drawee The person must be in possession Payment in good faith No ground to believe that possessor is not entitled

Parties to Negotiable Instrument Parties to bill of exchange – Drawer, drawee, Acceptor, payee, holder, endorser, endorsee Parties to promissory note – maker, payee, holder, endorser, endorsee Parties to Cheque – maker, drawee, payee, holder, endorser, endorsee

Holder & Holder in Due Course Holder – possession, to recover or receive the amount Holder in Due Course – consideration, holds instrument before maturity, good faith

Privileges of a Holder in Due Course Inchoate stamped instrument Liability of prior parties Fictitious payee Without consideration Conditional delivery Cleansed of all defects Unlawful means Every holder is a holder due course

Endorsement Must be on the instrument Signed by the endorser Mere signature or signature & name of the party

Kinds of Endorsement Blank or general Full or special Restrictive endorsement Partial endorsement Conditional indorsement

Discharge By payment Party primarily liable becoming holder Express waiver Cancellation Contract

Discharge of Parties By payment Party primarily liable becoming holder Express waiver Cancellation Contract More then forty-eight hours Non-presentment of cheque Material alteration Operation of law

Case Study X Ltd a cotton textile company, enters into a contract with A Ltd, an adjacent cotton textile mill, to supply electricity from their power generation plant. After supplies have been made for 3 months it is discovered that this activity is beyond the scope of the objects clause of the memorandum of association of X Ltd. Share holders of X Ltd ratify the contract in their general body meeting. Can A Ltd which refuses to make payment on the ground that the contract is wholly null and void. Can A Ltd be compelled to make the payment?