THE NEGOTIABLE INSTRUMENTS ACT 1881 Negotiable Instruments means a promissory note, bill of exchange or cheque payable either to order or to the bearer (Sec. 13(1)).
ESSENTIAL CHARACTERISTICS OF A NEGOTIABLE
Payable to Order or Bearer
Freely Transferabl e
Presumptio n as to Holder
Title of Holder in Due Course
Presumption as to consideration
a) Payable to order or bearer: It must be payable either to order or to bearer. b) Freely Transferable: An instrument payable to order is negotiable by endorsement and delivery and an instrument payable to bearer is negotiable by mere delivery.
c) Presumption as to Holder: Every holder of a negotiable instrument is presumed to be a holder in due course.
d) Title of holder in due course free from all defects: A holder in due course (i.e. the person who become the possessor of negotiable instrument before maturity, for valuable consideration and in good faith) get the instrument free from all defects in the title of the transferor. transferor.
e) Presumption as to Consideration: Every negotiable instrument is presumed to have have been been made made,, draw drawn, n, acce accept pted ed,, endo endors rsed ed,, nego negoti tiat ated ed or tran transf sfer erre red d for for consideration.
PROMISSORY NOTE: A promissory note is an instrument in writing (not being bank 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 of certain person or to the bearer of the instrument (Sec-4). Note: 1. A promi promisso ssory ry note note may may be payab payable le on demand demand or afte afterr a defi definit nite e perio period d of time time.. 2. The words words ‘or ‘or to to the the beare bearerr of the the inst instru rumen ment’ t’ hav have e become become inoper inoperat ative ive in in view view of of the provision contained in Section 31(2) of the RBI Act, which provides that no person in India other than RBI or the Central Government can make or issue promissory note to the bearer or the instrument. 3. A bank bank note note or cur curren rency cy note note is not a promis promissor sory y note note beca becaus use e it is is money money itself itself..
ESSENTIAL CHARACTERISTICS OF A PROMISSORY
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Promise to Promise Express Definite Signed In Pay Certain to Pay Promise by the 1. Writing In Writing: It must beUnconditional in writing. In other words, Certain an oral promise will not make Payeea Money to Pay Promise Maker promissory note. Sum only 2. Express promise to pay: There must be an express promise to pay and not mere acknowledgement acknowledgement of indebtedness. 3. Definite unconditional promise: The promise must be definite and unconditional. It may be noted that a promise to pay is not conditional if it depends upon an event, which is certain to happen, but not the time of its occurrence may be uncertain. 4. Signed by the maker: It must be signed by the maker. The purpose of signature is to authenticate the instrument. instrument. The signatures can be made on any part of the Instrument. 5. Promise Promise to pay certain certain sum: The promise must be to pay a certain sum. The sum payable is also certain in the following cases. a) Where Where it is payable payable along with interes interestt and either the the amount of interest interest itself itself or the rate or interest is given. b) Where Where it is payabl payable e at a specifi specified ed rate rate of exchange exchange.. c) Whether Whether it is payable payable by install installments ments with with a provision provision that a default default being being made in payment, the unpaid balance shall become due (Sec – 5). 6. Promise to pay money only: The payment must be in money only. 7. Certain payee: The payee must be certain. Where the payee is designated by description only (say captain of particular particular cricket team), the promissory note is valid if the payee can be ascertained ascertained by evidence. A promissory note cannot be made payable to the maker himself. Such a note is invalid. However, it becomes a valid promissory note if it is endorsed by the maker because it then becomes payable to bearer (if endorsed in blank) or it becomes payable to the endorsee or his order (if endorsed specially). specially). A promissory note must be stamped with adhesive stamp or engrossed on a stamp paper of proper value. Parties to a promissory note: There are two parties to a promissory note as under. a) The maker: The person who makes the promissory note. payee: The person to whom or to whose order the payment is to be made is b) The payee: called the payee.
BILLS OF EXCHANGE A bill of exchange is an instrument in writing containing an unconditional order signed by the maker directing a certain person to pay a certain sum of money only to, or to the order of a certain person or the bearer of the instrument (Sec – 5). Note: 1. A bill of exchange may be made payable to bearer on demand or after a definite period of time. 2. A bill of exchange ca cannot be be made payable to to bearer on demand because section 31 of the RBI Act prohibits the issue of such bills of exchange. Essential Characteristics Of Bills Of Exchange
1.
In writing: It must be in writing.
2.
Express order to pay: There must be an express order to pay and not a mere request to pay.
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3.
Definite and unconditional order: The order must be definite and unconditional.
4.
Signed by the drawer: the drawer must sign it.
5.
Order to pay certain sum: The order must be to pay certain sum.
6.
Order to pay money only: The order must be to pay money only.
7.
Certain three parties: The three parties (i.e. drawer, drawee and payee) must be certain and must be mentioned in the instrument. It may be noted that the drawer and payee can be the same person but the drawer and drawee cannot be the same person.
Parties to Bill of Exchange:
a) Drawer: The person who draws a bill of exchange is called the drawer. b) Drawee: The person on whom the bill of exchange is drawn is called the drawee. c) Payee: The person named in the instrument to whom or to whose order the money is directed to be paid by the instrument, is called the payee.
CHEQUE A cheque is a bill of exchange, exchange, which is a) Drawn Drawn upon upon a specif specific ic banke banker, r, and and b) Paya Payabl ble e on dema demand nd.. Essential Characteristics Of Cheque
1.
In writing: It must be in writing.
2.
Express order to pay: There must be an express order to pay and not request to pay.
3.
Definite Definite and unconditio unconditional nal order: order: The order must be definite
and unconditional. unconditional.
4.
Signed by the drawer: It must be signed by the drawer.
5.
Order to pay certain sum: The order must be to pay certain
sum.
6.
Order to pay money only: The order must be to pay money
only.
7.
Certain three parties: The three parties (i.e. drawer, drawee and payee) must be certain and must be mentioned in the instruments. In addition to the above said essentials of a bill of exchange, the cheque must also satisfy the following two requirements. requirements. 1. Drawn upon a specified banker: It must always be drawn upon a specified banker.
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2. Payable on demand: It must always be payable on demand. Thus, Thus, all cheque cheques s are are bills bills of exchan exchange ge in the sense sense that that these these have have all all the essentia essentiall elements of a bill of exchange. But all bills of exchange are not cheques because bill of exch exchan ange ge beco become mes s a cheq cheque ue only only when when it sati satisf sfie ies s the the afor afores esai aid d two two addi additi tion onal al requirements. Notes: 1. 2.
No accep ceptan tance of cheq cheque ues s is requi equire red. d. Cheque is is no not re required to to be be st stamped.
There are three parties to a cheque as under: Drawer: The person who draws the cheque is called a drawer. a) Drawer: The
b) Banker: The bank on which the cheque is drawn is called the drawee. c) Payee: The person in whose favour the cheque is drawn is called the payee. The payee may be a third party or the drawer himself.
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PARTIES TO NEGOTIABLE INSTRUMENTS Holder: Holder: Any person entitled to the possession of the instrument in his name and to receive or recover the amount due there on from the parties liable there to (Sec-8). Thus, in order to be called a ‘holder’ a person must satisfy the following two conditions: a) He must must be entitle entitled d to the the possessi possession on of the the instrume instrument nt in his his own name. name. b) He must must be entitled entitled to to receive receive or recove recoverr the amount amount due due thereon thereon from from the partie parties s liable there to. Holder In Due Course Means any person who for consideration became the possessor of a Negotiable Instrument if payable to bearer, or the payee or endorsee there of if payable to order, before the amount mentioned in it become payable, and without sufficient cause to believe that any defect existed in the title of the person from whom he derived his title (S-9). Thus, in order to be called ‘Holder in due course’ a person must possess the following qualifications. 1. He must must be a hol holde der. r. 2. He must must be a holder holder for valuab valuable le conside considerati ration. on. 3. He must have become become the holder of the Negotiable Negotiable Instruments Instruments before before its maturity. 4. He must take take the Negotia Negotiable ble Instrum Instrument ent complete complete and and regular regular on the face face of it. 5. He must have have become holder holder in good faith-w faith-withou ithoutt having suffici sufficient ent cause cause to believe that any defect existed in the title of the transferor.
1. 2. 3. 4. 5. 6. 7.
Privileges Of Holder In Due Course He gets gets a bet bette terr tit title le than than that that of the the tra trans nsfe fero ror. r. Priv Privil ileg ege e in case case of inch inchoa oate te stam stampe ped d ins instr trum umen ents ts (Sec (Sec-2 -20) 0) Liability of prior parties. Privil ivile ege in case of fact factio iou us bil billls (S(S-4 42) Priv Privil ileg ege e whe when n an an inst instru rume ment nt del deliv iver ered ed con condi diti tion onal ally ly neg negot otia iate ted. d. Esto Estopp ppel el aga again inst st den denyi ying ng orig origin inal al vali validi dity ty of inst instru rume ment nt (S(S-40 40). ). Esto Estopp ppel el aga again inst st den denyi ying ng ori origi gina nall vali validi dity ty of of paye payee e to ind indor orse se (Se (Secc-12 121) 1).. Capacity of Parties Every person capable of contracting, according to the law to which he is subject, may bind himself himself and be bound by the making, making, drawing, drawing, acceptan acceptance, ce, endorseme endorsement, nt, delivery delivery and negotiation of a promissory note, bill of exchange or cheque (Sec-26) This section thus declares that capacity to incur liability on negotiable instruments is coextensive with the capacity to contract. sectio ion n 26 decl declar ares es that that a mino minorr may may draw draw,, deli delive verr and and nego negoti tiat ate e a 1. Minor – sect Negotiable Instrument so as to bind all parties except himself. Minor can be a party to Negotiable Instrument but he does not incur any liability himself although other adult parties to the instrument remain liable thereon. insolv olvent ent is not competen competentt to draw, draw, make, make, accept accept or indors indorse e a 2. Insolvent – An ins Negotiable Instrument. But if he indorses an instrument of which he is payee, the endorsement is valid as against all prior parties liable except himself.
3. Joint Stock Company - A company being an artificial person is competent of doing only only such such acts acts as are are expr expres essl sly y or impl implie iedl dly y allo allowe wed d by its its memo memora rand ndum um of Association.
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Agent An agent can execute Negotiable Instruments so as to bind his principal in that capacity (i.e. as a drawer, maker, acceptor or endorser) only for which he is expressly authorized by the principal, in very clear terms for and on behalf’ per pro’. Legal Representative: A legal representative of a deceased person who signs his name to a Negotiable Instrument (either as a maker or drawer or acceptor or factitious) is liable personally there on unless he expressly limits his liability liability to the extent of the assets inherited by him for the said deceased (Sec-29). ‘Without recourse to me personally’ ‘Without recourse against the estate of the deceased only’ Liability Of Parties To Negotiable Instruments 1) 2) 3) 4)
Liabil Liability ity of Draw Drawer er (S-3 (S-30). 0). Liability Liability of Drawe Drawee e of cheque cheque (S-31) (S-31).. Liability Liability of ‘maker’ ‘maker’ of note note and ‘accept ‘acceptor’ or’ of the bill bill (Sec-32). (Sec-32). Liabil Liability ity of of Factit Factitiou ious s (S(S-35) 35)..
PRESENTMENT OF NEGOTIABLE INSTRUMENTS 6
Exhibi Exhibitin ting, g, presen presentin ting g or placin placing g of a Negoti Negotiabl able e ins instru trumen mentt for accep acceptan tance, ce, sig sight ht or payment before the acceptor, maker, drawee or other party liable there on by or on behalf of the holder holder is called called ‘present ‘presentmen ment’. t’. Thus presen presentme tment nt may be made made for any of the following three purposes. I. Presen Presentme tment nt for for acce accepta ptance nce.. II. II. Pres Presen entm tmen entt for sigh sight. t. III. III. Presen Presentme tment nt for payme payment nt 1. PRESENTMENT FOR ACCEPTANCE It is only Bills of Exchange of a certain type that require acceptance. A bill is said to be accepted when the drawee puts his signature on it signifying his assent to the order of the drawer that he will pay the bill at the time when it is due. The liability of the drawee does not arise until he has acceptance these bills. The acceptance is given by the Drawee, by signing his name on the bill. The ‘word’ accepted is also some times added, but this is not necessary. necessary. After the Drawee has accepted the bill, he is known as the acceptor. The essentials essentials of a valid acceptance are as follows: a) It must must be writ written ten on the the bill. bill. b) It must be signed by the Drawee Drawee personally personally or through through a duly duly authorized authorized agent. c) The accepte accepted d bill must be be deliver delivered ed to the the holder. holder. Presentment for acceptance acceptance is not obligatory in all cases but in the following cases, a bill must be presented for acceptance in order to make the parties to the bill liable thereon. a) A bill payable some some period after sight sight or after presentment presentment in order to fix its date of maturity (Sec-61) b) A bill in which there is an express express stipulation stipulation that it shall be presented for for acceptance before it is presented for payment. Presentment for acceptance acceptance must be made at a reasonable hour on a business before the bill is over due (S-61) Modes Of Acceptance: An acceptance may be general or qualified.
1.
General acceptance: An acceptan acceptance ce is general or absolute where the Drawee, while accepting the bill, does not attach any condition or qualification to it. Qualified acceptance: An acceptance is 2. qualified where it is given subject to some condition or qualification. qualification. Presentment Of Acceptance To Whom Presentment for acceptance may be made: 1. To the Drawee Drawee or his duly duly autho authorize rized d agent. agent. 2. To his legal legal represen representati tative ve if the the Drawee Drawee has has died. died. 3. To his assign assignee, ee, if the the Drawee Drawee has been been declar declared ed insolven insolvent. t. 4. To all the drawees, if there are several several drawees drawees unless they are partners or agents of another 5. Draw Drawee ee in in case case of of need need.. Presentment For Acceptance Excused: Presentment may be excused where: 1. The Drawe Drawee e is a fictit fictitious ious or or incompet incompetent ent person person.. 2. He cannot, cannot, after after reason reasonable able search, search, be be found. found. 3. He is is dead dead or or inso insolv lven ent. t.
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4. Although the the presentment presentment has been irregular, irregular, acceptance acceptance has been refused refused on some other ground. Acceptor For Honour Normally a stranger to a bill cannot accept it, but he may, with the consent of the holder, accept the bill in place of the Drawee for the honour of some party liable on the bill. Such an acceptor is known as acceptor for honour. 2. PRESENTMENT FOR SIGHT A promissory note payable after sight must be presented to the maker for sight to determine its maturity, during business day. If the maker cannot be found after a reasonable search, presentment is excused and the note may be treated as dishonoured (Sec – 62). 3. PRESENTMENT FOR PAYMENT Promissory Notes, bills of exchange and cheques must be p resented for payment to the maker, acceptor or Drawee thereof respectively, by or on behalf of the holder. If the default is made, the parties other than the parties primarily liable are discharged of their liability (Sec - 64).
a) b) c)
Presentment for payment must be made during the usual hours of business. It must be made – At the the pla place ce of paym paymen entt spe speci cifi fied ed in the the ins instr trum umen ent. t. If no plac place e is is spe speci cifi fied ed at the the pla place ce of busi busine ness ss or resi reside denc nce. e. In any any oth other er case case wher wherev ever er the the par party ty liab liable le to pay pay can can be foun found. d. Presentment For Payment To Whom a) To the duly authorized agent of the the drawer, maker or acceptor, as the case case may be. b) Where the Drawee, Drawee, maker maker or acceptor has died, died, to his representative representative;; c) Where Where he has been been declar declared ed insolven insolvent, t, to his assig assignee. nee. Delay in presentment for payment is excused if it is caused by circumstances circumstances beyond the control of the holder. Presentment for Payment is Not Necessary: a) Where Where it is intentional intentionally ly prevented prevented by the maker, maker, Drawee Drawee or acceptor acceptor,, or b) Where the the business of the maker, maker, Drawee Drawee or acceptor acceptor is closed or he can not after due search be found, or there is no person at the place of payment, or c) Where Where there is a promis promise e to pay not withstan withstanding ding non-pres non-presentme entment, nt, or d) Where Where presentmen presentmentt is expressly expressly or implie impliedly dly waived, waived, or e) Where Where the bill bill is dishon dishonoured oured by by non-accep non-acceptanc tance, e, or f) Where Where the the Drawee Drawee is is a facti factitio tious us perso person, n, or g) Where Where the presentm presentment ent become becomes s impossi impossible. ble. Payment for Honour: Just as bill may be accepted for the honour of a party to the bill it may also be paid for the honour if a party liable to pay the bill.
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DISHONOUR AND DISCHARGE OF NEGOTIABLE INSTRUMENTS Dishonor Of Negotiable Instruments A negotiable instrument may be dishonored by 1. Non Non acc accep epta tanc nce e 2. Non Non paymen ymentt Dishonor By Non Acceptance A bill of exchange is said to be dishonored by non-acceptance in the following cases (s-91) a) When hen the the Draw rawee does oes not accep cceptt the the bill ill with ith in 48 hrs from from the time time of its its presentment, though the bill is properly presented. b) When there there are several several drawers drawers (who (who are not partners) partners) and any of them does not accept accept the bill (sec 63) c) When the Draw Drawee ee makes makes a qualified qualified acceptan acceptance ce d) When the Draw Drawee ee is incompeten incompetentt to contra contract ct e) When presentment presentment for acceptance is not obligatory, obligatory, and and the bill bill is not accepted f) When the the Drawee Drawee is factitiou factitious s person person or is not traceabl traceable e despite despite reasona reasonable ble search search (s61) Where a ‘Drawee incase of need is’ named in the bill (by the drawer or any factitious), the bill is not deemed to be dishonored till it has been dishonored by such a Drawee also (S – 115). Dishonour by Non – Payment A Negotiable Instrument is said to be dishonoured by non-payment when the maker of the note, acceptor of the bill or Drawee bank of the cheque, as the case may be makes default in payment, when duly presented for payment (S - 92). Further an instrument is also dishonoured by non-payment when presentment for payment is excused and the instrument when overdue remains unpaid (Sec-76). Effect of The Dishonor The effect of the dishonor of a negotiable instrument is that drawer and all the intermediate indorses. Become liable to the holder, whether the dishonor is by the non-acceptance or nonpayment provided the holder has given all of them a notice of such dishonor. Notice Of Dishonor When a negotiable instrument is dishonored either by non acceptance or by non payment the holder of the instrument or some prior who is liable thereon must give a notice of dishonor to all the prior parties whom he wants to hold liable on that instrument. Notice by Whom? Notice of dishonor must be given by the holder or by some party to the instrument who remains liable thereon (s-93) Notice to Whom? Notice of dishonor must be given to all the parties (other than the maker of the note acceptor of the bill or a Drawee of a cheque) to whom the holder seeks to make liable or to their duly authorized agents Mode Of Giving Notice According to (S - 94) the notice of the dishonor may be oral or written if it is written it may be sent by post. It should be given within a reasonable time after dishonor, at a place of business or at the residence of the party for whom it is intended.
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What is Reasonable Time? Regard shall be had to the nature of the instrument, the usual course of dealing with respect to similar instruments and the distance between the parties and in calculating such time public holidays shell be excluded (S - 105) When Notice Of Dishonor Is Unnecessary Notice of dishonor is not necessary, that is the parties are liable without any notice of dishonor in the following cases mention in sec 98 1. When it it is dispens dispensed ed with with by the party party entitled entitled to to the notice. notice. 2. When the drawer drawer of a cheque cheque counte counterman rmanded ded paymen payment. t. 3. When the the party party charged charged could could not suffer suffer damage damage for for want want of notice. notice. 4. When When the party party entitl entitled ed to notice notices s cannot cannot after after due search search be found or the party party bound to give notice is because of justifiable reason (e.g. death, accident, serious illness), unable to give it. 5. When the drawe drawerr also also happens happens to to be the the accepto acceptorr 6. In the case case of of a promiss promissory ory note note which which is not not negotia negotiable ble 7. When the party party entitled entitled to notice, notice, promises promises to pay unconditi unconditional onally ly the amount due due on the instrument after dishonor and with full knowledge of facts Consequences Of Not Giving Notice Of Dishonor Any party to a negotiable instrument (other than the maker of a note acceptor of a bill or Drawee of a cheque) to whom notice of the dishonor is not sent by the holder is discharged from his obligation under the instrument and cannot be sued by the holder unless the circumstances are such that no notice of the dishonor is required to be sent. The drawer or indorse who has not received notice is discharged not only on the bill or note but also in respect of the original consideration consideration (Mohd. Rafi vs Qasi Mahzar). Noting: Noting Noting is the authentic authentic and official official proof of the presentment presentment and dishonor dishonor of a negotiab negotiable le instrument . In case of cheques it is not necessary and also Inland bill and notes noting is not dishonor and must specify: 1) The The date date of of dish dishon onor or 2) The reaso reason n assigne assigned d for such dishonor dishonor and and 3) The The notar notary’ y’s s charg charges es Protest Protest is a formal certificate of dishonor issued by the notary public to the holder of the bill or note on the demand (noting is merely a record of dishonor on the instrument itself) (Sec100) Protest For Better Security The only advantage of protest for the better security is that it enables the bill to be accepted for honor, for Sec 108 provides that when a bill of exchange has been noted or protested for non acceptance or fro the better security the sane can be thereafter be accepted for honor Noting Noting and protes protestt of inland inland bill or notes notes is not compulso compulsory ry but but foreig foreign n bills bills must must be protested for dishonor if so required by the law of the place where they are drawn sec 104 Contents Of Protest (Sec – 101) The protest must contain the following: 1) The instrume instrument nt itself itself or a liter literal al transc transcrip riptt of the instrume instrument nt contai containin ning g every everythi thing ng written or printed thereon. 2) The name of the person person for whom and against against whom the instrument instrument has been been protested 3) The fact and the reason reason for dishonor dishonor i.e. i.e. stating stating that payment payment or acceptanc acceptance e or better securi security ty as the case may may be was demande demanded d by the notary notary public public from the person person concerned and he refused to give or did not answer or that he could not be found 4) The pla place ce and and time time of of dishon dishonor or
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5) The sign signatu ature re of the the notar notary y public public 6) In case of acceptance acceptance for honor or payment payment for honor the the names of the persons persons by whom whom and for it is accepted or paid.
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DISCHARGE OF THE INSTRUMENT AND THE PARTIES An instrument is said to be discharged only when the party who is ultimately liable thereon is dis discha charge rged d from from liabil liability ity.. All right rights s of actio action n under under the ins instru trumen mentt are are comple completel tely y extinguished and the instrument ceases to be negotiable. Modes of Discharge of an Instrument: An instrument may be discharged in any one of the following ways:
MODE OF DISCHARGE OF AN INSTRUMENT
BY PAYMENT IN DUE COURSE
BY PARTY PRIMARILY LIABLE BECOMING MEMBERS
BY CANCELLATION
BY RELEASE
a) By Payment In Due Course: If the maker or acceptor makes payment to the holder of the instrument at or after maturity in good faith and without notice of any defect in the title to the instrument, the instrument is discharged. discharged. b) By Party Primarily Liable Becoming Holder (Sec – 90): If the acceptor of a bill of exchange becomes its holder at or after maturity in his own right, the instrument is discharged. This happens by ‘Negotiation Back.’ Cancellation: on: If the holder of an instrume instrument nt cancels cancels acceptor’s acceptor’s or factitiou factitious s c) By Cancellati name with intent to discharge him, the instrument is discharged. against all the parties d) By Release: If the holder of an instrument renounces his right against to the instrument, the instrument is discharged. Meaning Of Discharge Of A Party Any Any party party is said said to be dis discha charge rged d only only when when a party party or parti parties es (other (other than a party party ultimately liable on instrument) to a negotiable instrument is or are discharged and the instrument continues to be negotiable with the liabilities of undischarged parties attached there to. Modes Of Discharge Of A Party (S-82 To 90)
a) By Payment (Sec – 82(C)): If the maker, acceptor or endorse makes payment to the holder of the instrument at or after maturity in good faith and without notice of any any defect defect in the title to the instrum instrument ent,, all the parti parties es to the instrum instrument ent are are discharged.
b) By Cancellation (S – 82(A)): If the holder of an instrument cancels the name of any of the parties parties liable liable under that instrume instrument nt with the intention intention to discharg discharge e him, such such party party and and all all subseq subsequen uentt parti parties es derivi deriving ng their their title title from from such such party party are are discharged from the liability to the holder.
c) By Release (S – 82(B)): If the holder of an instrument renounces his rights against any party to the instrument, such party is discharged from the liability to the holder.
d) By Allowing Drawee More Than 48 Hours To Accept (S – 83): If the holder of a bill of exchange allows the Drawee more than 48 hours exclusive of public Holidays
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to decide which he will accept the same, all previous parties not consulting to such allowance are discharged from liability to such holder.
e) By Non-Pr Non-Prese esentm ntment ent Of Cheque Cheque Within Within A Reason Reasonabl able e Time Time (S –84): –84): The drawer of a cheque is discharged to the extent of the loss or damage suffered by him if the following two conditions are fulfilled: i) The chequ cheque e is not presente presented d for payment payment within within a reason reasonabl able e time of its issue, issue, and ii) The drawer drawer suffer suffers s actual actual damages damages through through the the delay. delay. f) By Payment Payment of Cheque Cheque Payable Payable to Order Order or or Bearer Bearer by the Drawee Banker Banker (s – 85): i) When When a cheque cheque payab payable le to order order purpor purports ts to be endors endorsed ed by or on behalf behalf of the payee, the Drawee is discharged by payment in due course. (Sec – 85(1)). ii) Where Where a chequ cheque e is origina originally lly expres expresse sed d to be payab payable le to bearer bearer the Drawee Drawee is discharged discharged by payment in due course to the bearer thereof. (S – 85(2)) The rule of discharge applicable to a cheque payable to order also applies to a draft drawn by one of the banks upon another payable to order or demand (Sec – 85 A).
g) By Qualified Acceptance (S – 86): If the holder of bill acquiesces (or assents) to a qualified acceptance, all the previous parties shall be discharged from liability, unless on notice being given to them, they assent to such acceptance.
h) By Material Alteration (S – 87): Any material alteration of a negotiable instrument renders the same void as against any one who is party there to at the time of making such alteration and does not consent there to, unless it was made in order to carry out the common intention of the original parties. Altera Alteratio tion n by the endorsee endorsee – Any Any such such alter alterati ation, on, if made made by an Endors Endorsee, ee, disch dis charg arges es his facti factitio tious us from from all all liabil liability ity to him in respec respectt of the consid considera eratio tion n thereof.
i) By Payment Of An Instrument On Which Alteration Is Not Apparent (S - 89): The payer of a material altered instrument is discharged from all liability under the instrument if the following two conditions are fulfilled. 1. The alteration must not be apparent. 2. The payment must be made in due course.
j) By Acceptor Becoming Holder Of A Bill At Or After Maturity (S – 90): If a bill of exchange which has been negotiated is, at or after maturity, held by the acceptor in his own right, right, all all right right of action action thereo thereon n are are exting extinguis uished hed.. This This happen happens s by ‘Negotiation back’.
k) By Operation Of Law: A negotiable instrument is also discharged by operation of law such as – i) Under Under the law law of Limitati Limitation on Act, on the the expiry expiry of the perio period d prescrib prescribed ed for the the recovery of the amount due.
ii)Under the law of the Insolvency, or declaration declaration of a party as an insolvent by an order of the court.
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LIABILITY OF PARTIES 1. Liability Of Drawer: The drawer of a bill of exchange or cheque is a liable in case of dishonour by acceptor or drawee thereof to compensate the holder or every factitious who has been compelled to pay for the suffered by him, provided that a notice of dishonor has been given to, or received by the drawer (S-30).
2. Liability Of Drawee Of A Cheque:
The Drawee of a cheque (who is always a banker) is under a contractual liability to honor the cheques issued by its customers, provided there are sufficient funds (of credit) in the account of the customer properly applicable to the payment of such cheque.
Liability for unjustified Dishonour: If the banker defaults in making a payment of cheque, it must compensate the drawer for any loss or damage caused by such default (S-31). Liability Of Maker Of A Note And Acceptor Acceptor Of A Bill: The maker of a note and 3. Liability the acceptor of a bill, are primarily liable to pay the amount to the holder on demand. Acceptors Liability on a forged instrument – The maker of a bill of exchange already endorsed, is not relieved of his liability by reason that such endorsement is forged; if he knew or had reason to believe that the endorsement was forged. Acceptors Liability on a bill drawn in fictitious name- an acceptor of a bill of exchange drawn in a factitious name and payable to the drawer’s order, is not relieved of his liability to any holder in due course, for the reason that the parties to the bill were factitious, provided the drawer’s signature and the endorsement are in the same hand writing. Liability ity Of Transf Transfero eror r By Delive Delivery: ry: 4. Liabil
Since, Since, the bearer bearer ins instru trumen mentt can can be transferred by mere delivery, the person who so transfers, it is known as ‘transferor by delivery’ the Indian law provides nothing about the liability of a transfer or by delivery. As such, a transferor by delivery does not incur any liability since, his name does not appear or the instrument in any capacity.
5. Liability Of Endorser: Every Endorser of a negotiable Instrument is liable to all subsequent holders of the instrument in case of its Dishonour. Liability ity Of Prior Prior Parties Parties To Holder Holder In Due Course: Course: 6. Liabil
Every prior party to a
negotiable instrument is duly satisfied.
7. Liability Under Accommodation Bills: A bill drawn, accepted or indorsed without consideration, consideration, and for the help of a party, is called accommodation, and for the help of a party, is called the accommodation bill. The primary and ultimate liability is that of the accommodated party. But when the accommodation bill has been transferred to any person for consideration, such holder in due course or any person for consideration, such holder in due course or any transferee from him, I can recover from all the prior parties to the bill. 14
Liability of acceptor for Honor- When a bill of exchange dishonored by non-acceptance or for want of better security, is accepted by a person who is not already liable on the bill, for the honor of any party, then the person so accepting is called ‘Acceptor for honor.’ An acceptor for honor has the same rights as the party for whose honour he accepts, has against his prior parties.
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