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?