Negotiation of the Negotiation of the Negotiable InstrumentsNegotiable Instruments

Negotiation:Negotiation:

According to Section 14:According to Section 14:

““When a Promissory Note, Bill of When a Promissory Note, Bill of Exchange or Exchange or

Cheque is transferred to any person, so Cheque is transferred to any person, so as to as to

constitute that person holder thereof, the constitute that person holder thereof, the

instrument is said to be negotiated”.instrument is said to be negotiated”.

Holder—Defined:Holder—Defined:

According to Section 8:According to Section 8:

““The holder of a promissory note, bill of The holder of a promissory note, bill of exchange or cheque means the payee or exchange or cheque means the payee or the endorsee, who has the possession of the endorsee, who has the possession of the instrument as its holder, and when the instrument as its holder, and when the instrument is payable to bearer, the the instrument is payable to bearer, the bearer of the instrument is holder”bearer of the instrument is holder”

Essential of a Holder:Essential of a Holder:

1.1. Possession of the instrumentPossession of the instrument

2.2. Right to receive the payment.Right to receive the payment.

Holder in Due Course:Holder in Due Course:

According to Section 9:According to Section 9:““Holder in due course means any person, Holder in due course means any person, who for consideration becomes the who for consideration becomes the possessor of a promissory note, bill of possessor of a promissory note, bill of exchange or cheque if payable to bearer, exchange or cheque if payable to bearer, or payee or endorsee, thereof if payable or payee or endorsee, thereof if payable to order, before it becomes overdue, to order, before it becomes overdue, without notice that the title of the person without notice that the title of the person from whom he derived his own title was from whom he derived his own title was defective”.defective”.

Essentials:Essentials:

1.1. Holder of the instrumentHolder of the instrument

2.2. Holder for lawful considerationHolder for lawful consideration

3.3. Holder before maturityHolder before maturity

4.4. Must become holder in good faithMust become holder in good faith

Rights of Holder in Due Rights of Holder in Due Course:Course:

1.1. Obtains good titleObtains good title

2.2. Transfers good titleTransfers good title

3.3. Right to complete inchoate Right to complete inchoate stamped instrumentstamped instrument

4.4. All prior parties liable All prior parties liable

5.5. Acceptor of a fictitious bill liableAcceptor of a fictitious bill liable

6.6. No effect of conditional deliveryNo effect of conditional delivery

How Negotiation is How Negotiation is EffectedEffected

-- -- Negotiation may be by delivery orNegotiation may be by delivery or- - By By Endorsement Endorsement and and DeliveryDelivery

Who May Negotiate:Who May Negotiate:1)1) Maker/ DrawerMaker/ Drawer2)2) PayeePayee3)3) endorseeendorsee

Endorsement:Endorsement:

According to Section 15:According to Section 15:“ “ When the maker or holder of a When the maker or holder of a

negotiable instrument signs the same, negotiable instrument signs the same, otherwise than as such maker, for the otherwise than as such maker, for the purpose of negotiation on the back or purpose of negotiation on the back or face thereof or on a slip of paper face thereof or on a slip of paper annexed thereto, or so signs for the annexed thereto, or so signs for the same purpose a stamp paper intended to same purpose a stamp paper intended to be completed as a negotiable be completed as a negotiable instrument, he is said to indorse the instrument, he is said to indorse the same, and is called endorser”.same, and is called endorser”.

Essentials of an Essentials of an Endorsement:Endorsement:

1.1. Endorser must be holderEndorser must be holder2.2. Signed Signed 3.3. IntentionIntentionKinds of Endorsement:Kinds of Endorsement:1)1) Blank or general : Blank or general : endorser just signs his endorser just signs his

namename2)2) Full or special endorsement: Full or special endorsement: endorser endorser

mentions the name of endorsee and puts his mentions the name of endorsee and puts his signature.signature.

3)3) Restrictive: Restrictive: such endorsements restricts such endorsements restricts further negotiation of the instruments, for further negotiation of the instruments, for exampleexample pay Yasir only pay Yasir only

Signature of endorserSignature of endorser

Kinds of Endorsement: Contd..Kinds of Endorsement: Contd..4)4) Without recourse: Without recourse: without responsibility of the without responsibility of the

endorser . For example:endorser . For example:pay Yasir without recourse to mepay Yasir without recourse to me

Signature of endorser Signature of endorser

5)5) Partial endorsement: Partial endorsement: the endorser directs the the endorser directs the transfer of only a part of amount payable on a transfer of only a part of amount payable on a bill of exchange or promissory note through bill of exchange or promissory note through such endorsement. such endorsement.

Essentials of an Essentials of an Endorsement:Endorsement:

Maturity of the Maturity of the Instrument:Instrument:What is Maturity:What is Maturity:

It is the date in case of a promissory It is the date in case of a promissory note or bill of exchange, at which the note or bill of exchange, at which the said instrument falls due.said instrument falls due.

Days of Grace:Days of Grace:

Three days of grace—provided in Sec. Three days of grace—provided in Sec. 22 determining payability of instrument.22 determining payability of instrument.

(Promissory not, bill of exchange not (Promissory not, bill of exchange not cheque)cheque)

After Date or Sight—Concept—After Date or Sight—Concept—ExplanationExplanation

Calculating maturity of bill or note Calculating maturity of bill or note payable—after-date /sight payable—after-date /sight