Download - Week 7 & 8 Negotiable Instrument Act 1881
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Department of
Management
Sciences
By
Muhammad Naveed Chohan
Wednesday, May 02, 2012 1
CORPORATE LAW
Week 7 &8Negotiable Instruments
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Introduction to Negotiable Instrument
Presentment of Negotiable Instrument
Negotiation of Negotiable Instrument
Dishonouring of Negotiable Instrument
Outline
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Law: Negotiable Instrument Act, 1881
Introduction to Negotiable Instrument
Negotiable Instrument
Negotiable Instrument
Transferable byDelivery Written Documentwhich Creates
Rights in favour ofsome person
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Introduction to Negotiable Instrument
What is Negotiable Instrument?
A negotiable instrument means a promissory note, bill of exchange or
cheque payable either to order or bearer
[Sec. 13 of Negotiable Instrument Act, 1881]
Kinds of Negotiable Instruments:
Promissory Note
Bills of Exchange
Cheque
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Introduction to Negotiable Instrument
Promissory Note
A promissory note is an instrument in writing [not being a bank note or a
currency note] containing an unconditional undertaking signed by the
maker, to pay on demand or at fixed or determined future time a certain
sum of money only to, or to the order of, a certain person, or to bearer ofthe instrument
[Sec. 4 of Negotiable Instrument Act, 1881]
Rs 5,000 Lahore, 2nd August 2007
Sixty days after date, I promise to pay to Mr. A or order the sum of rupees fivethousand for value received
Sd/- Mr. A
22-A GardenRoad,Lahore (The Maker/Promisor)
Revenue StampSd/ Mr. B
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Introduction to Negotiable Instrument
Essential Elements of Promissory Note:
In writing
Promise to pay
Unconditional Promise
Signed by maker
Certain maker
Certain payee
Certain sum
Other formalities
Parties in Promissory Note:
Maker
Payee
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Introduction to Negotiable Instrument
Bill 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 on demand
or at a fixed or determinable future time a certain sum of money only to,
or to the order of, a certain person or to the bearer of the instrument
[Sec. 5 of Negotiable Instrument Act, 1881]
Rs 6,000 Lahore, 2nd August 2007
Three months after date, pay to B or order the sum of rupees six thousand onlyfor value received.
Sd/- Mr. B
122-A SquareRoad,Lahore (Drawer)
Sd/- Mr. A122-A Bank Road,Lahore (Drawee/Acceptor)
Revenue StampSd/ Mr. B
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Introduction to Negotiable Instrument
Essential Elements of Bill of Exchange:
In writing
Unconditional order
Signed by drawer
Certain drawee
Certain payee
Certain sum
Other formalities
Parties in Bill of Exchange:
Drawer
Drawee
Payee
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Introduction to Negotiable Instrument
Cheque:
A cheque is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand
[Sec. 6 of Negotiable Instrument Act, 1881]
Muslim Commercial Bank LimitedBank Square, The Mall Road, Lahore, Pakistan
Pay /orbearerRupees /
b/
Rs.
PLS A/C No. 5583-6Cheque No. CX 087792
Date: /
||||||||||||||||||||||||||||||||||| ||||||||||||| ||||||| ||||||||||||||||||||||| ||||||||||||||||||||||| |||||||||||||| |||||||||||||| ||||||||||||||
Signature
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Introduction to Negotiable Instrument
Essential Elements of Cheque:
In writing
Unconditional order
Signed by drawer
Payable on demand
Certain sum
Payable to bearer or order
Parties in Chaque:
Drawer/Customer
Drawee/Bank
Payee
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Introduction to Negotiable Instrument
Crossing of Cheque:
A cheque is said be crossed when two parallel transverse lines, with or
without any words, are drawn across the face of a cheque
Types Crossing of Cheque:1. General Crossing 3. Account Payee Crossing
2. Special Crossing 4. Not Negotiable Crossing
Muslim Commercial Bank LimitedBank Square, The Mall Road, Lahore, Pakistan
Pay /orbearerRupees /
b/
PLS A/C No. 5583-6Cheque No. CX 087792
Date: /
Rs.
||||||||||||||||||||||||||||||||||| ||||||||||||| ||||||| ||||||||||||||||||||||| ||||||||||||||||||||||| |||||||||||||| |||||||||||||| ||||||||||||||
Signature
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Introduction to Negotiable Instrument
Types Crossing of Cheque:
1. General Crossing: (Sec. 123 & 126)
Where a cheque is crossed generally, the banker on whom it is
drawn shall not pay it otherwise than to the banker.
A general crossing can be made as follows:
a) Crossing with Parallel lines
b) Crossing containing words & Co
c) Crossing containing words not negotiable
d) Crossing containing words not negotiable & Co.
e) Crossing containing words account payee
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Introduction to Negotiable Instrument
Types Crossing of Cheque:
2. Special Crossing: (Sec. 124)
Where a cheque bears across its face an addition of the name of a
banker, either with or without words not negotiable that an addition
shall be deemed crossed specially
A Special crossing can be made as follows:
a) Crossing with Parallel lines containing name of a banker
b) Crossing containing words not negotiable in addition to bankers
name
c) Crossing containing words account payee in addition to bankers
name
d) Crossing containing words account payee and not negotiable in
addition to bankers name
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Introduction to Negotiable Instrument
Types Crossing of Cheque:
3. Account Payee: (Sec. 123-A)
Where a words account payee, or payees account only, or A/C
payee are added
An account payee crossing has following effect:
a) Becomes non-transferable
b) Duty of collecting banker to credit proceed in account
4. Not Negotiable Crossing: (Sec. 130)Protect original owner in case if goes to wrong hands
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Presentment of Negotiable Instrument
What is meant by Presentment?
Presentment means presenting a negotiable instrument
Kinds of Presentment:
Presentment
For Acceptance
For Sight
For Payment
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Presentment of Negotiable Instrument
1. Presentment for Acceptance:
Acceptance is only necessary in case of bill of exchange
Acceptance means acknowledgment of sum mentioned in a bill by the
drawee or any other person on his behalf
Bill of Exchange are not presented for acceptance:
Payable on demand
Payable on happening of a certain event
Drawee dead, insolvent, fictitious person or person with no capacity
Drawee can not be found or acceptance refused
Bill of Exchange are presented for acceptance:
Bill payable after a specified period
If there is express stipulation in bill about presentment for acceptance
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Presentment of Negotiable Instrument
1. Presentment for Acceptance:
Essential of a valid acceptance:
Written
Signed by drawee
Appear on the bill
Must be delivered to holder
Types of acceptance:
General acceptance
Qualified acceptance
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Presentment of Negotiable Instrument
1. Presentment for Acceptance:
Who can Present?
Holder himself
Authorised agent
Endorsee in case of endorsement
Effect of Non-Presentment:
All the concerned parties thereon discharged from liability
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Presentment of Negotiable Instrument
1. Presentment for Acceptance:
Who can Accept?
Drawee or authorised agent
All drawees in case of several drawees
Legal representative
Official receiver
Time of Presentment: (U/S 61)
On business day
Reasonable time if no time is mentioned
At time in case of mentioned time
Place of Acceptance: (U/S 61)
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Presentment of Negotiable Instrument
2. Presentment for Sight: (U/S 62)
Means showing of a promissory note to the maker for knowledge
No need of maker to validate for such presentment
Holder get acknowledgment
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Presentment of Negotiable Instrument
3. Presentment for Payment:
Promissory note, Bill of exchange and Chaque are presented
for payment
Rules regarding presentment for payment:
Presentment through post office
Hours of presentment
Instrument payable after date or sight
Promisory not payable by instalment
Place of presentment Presentment of Chaque (U/S 72, 73, 84)
Instrument payable on demand
Agent, legal representative or assignee
Excuse for delay and right of holder under sec.131-H
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Presentment of Negotiable Instrument
3. Presentment for Payment:
Presentment for payment unnecessary (U/S 76)
Intentional prevention by other party
Close of business
Payable at any other place
Payer cannot be found
Payer waives presentment
Dishonouring
Drawee is fictitious person
Drawer and drawee are same
Impossible to present
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Presentment of Negotiable Instrument
3. Presentment for Payment:
Payment for honour
Bill must have been dishonoured for non payment
Noting and protest
Declaration before notary public
Recording of declaration by notary public
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Negotiation of Negotiable Instrument
Introduction:
Kinds of Negotiation:
1. Transfer by Negotiation: (Sec.14)
Holder will be entitled to in his own name to sue on the instrument and
receive the amount due thereon
Modes (U/s 47 & 48) : (1) By Delivery (2) By Endorsement and Delivery
2. Transfer by Assignment: Instrument is transferred by written and registered document
Who can negotiate?
Duration of negotiability
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Negotiation of Negotiable Instrument
Endorsement: (U/S 15)
When the maker or holder of a negotiable instrument signs the same,
otherwise than as such maker, for the purpose of negotiation, on the back
or face thereof or on a slip of paper annexed thereto, or so sign or for the
same purpose a stamped paper intended to be completed as negotiableinstrument, he is said to indorse the same, and is called the endorser
Parties : (1) Indorse (2) Endorser
Essentials of a valid Endorsement:
1. Signature of Holder 6. Attested by somebody
2. Made by the maker or holder 7. Intention
3. On back or face 8. Completion by delivery
4. Made in ink
5. Illiterate endorser than thumb impression
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Negotiation of Negotiable Instrument
Kinds of Endorsement:
1. Blank Endorsement:
Endorser signs his name only
Does not specify the name of the endorsee
2. Full/Special Endorsement:
Signature of Endorser
Direction to pay the amount
3. Partial Endorsement:
Can not be indorsed for a part of the amount due on the instrument
Partial payment than balance than it can be negotiated
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Negotiation of Negotiable Instrument
Kinds of Endorsement:
4. Restrictive Endorsement:
Endorser prohibits the endorsee from further negotiation
Express words
5. Conditional Endorsement:
Express words
Depend upon happening or not happening
6. Sans Recourse Endorsement:
When endorser expressly excludes his own liability
7. Facultative Endorsement:
Endorser expressly gives up some of his rights
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Negotiation of Negotiable Instrument
Instruments Obtained by Unlawful Means:
1. Lost instruments
2. Stolen Instruments
3. Instrument obtained by fraud
4. Instrument obtained for an unlawful consideration
5. Forged instrument
6. Forged endorsement
7. Instrument without consideration
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Dishonouring of Negotiable Instrument
What is meant by dishonoring of negotiable instrument?
A negotiable instrument is dishonored when the drawee refuses to accept it
or to make payment.
Dishonouring
By Non-
Acceptance
By Non-
Payment
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Dishonouring of Negotiable Instrument
1. Dishonoring by Non-Acceptance:
Drawee does not accept it in 48 hours of presentment
Any one of drawee does not accept
Presentment is not necessary and bill is not accepted
Drawee is incompetent
Drawee gives conditional acceptance
Drawee is a fictitious person
Drawee can not be found after reasonable search
Counter dishonored
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Dishonouring of Negotiable Instrument
2. Dishonoring by Non-Payment:
Fail to make payment
Remains unpaid on maturity
Effect of Dishonoring :
Holder can sue parties liable and can initiate criminal proceedings
Liability of drawer, maker of note, acceptor and all Indorser
Collective and individual
Notice of Dishonoring: (U/S 93)
Holder or liable parties give notice to all prior parties
Discharge of liability in case of not giving a notice
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Dishonouring of Negotiable Instrument
Notice by Whom :
Holder
Authorised agent
Party liable on the instrument
Receiving party can give notice to prior parties
Notice to Whom:
All parties
Authorized agent Any person in case of several persons
Legal representative
Official assignee
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Dishonouring of Negotiable Instrument
Mode of Notice: (U/S 94)
Oral
Written
Post
Reasonable Time:
According to nature of instrument
Course of dealings
Distance
Nature of communication
Public holidays
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Dishonouring of Negotiable Instrument
Place of Notice:
Place of business
Residence of party
No address then sender should try to find addressee
Not known than notice to dishonor dispensed with
Notice of Dishonor Unnecessary: (U/S 98)
Mention at the time of endorsement
Drawer stopped the payment Not suffer any damage
Party entitled to notice could not be found
Drawer and acceptor same
Notice can not be given due to unavoidable circumstances
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Dishonouring of Negotiable Instrument
Noting: (U/S 99)
Noting is the authentic and official proof of presentment and
dishonoring
Noting byNotary Public
Upon the instrument or upon a paper attached thereto
Noting is not required in case of cheque
Protest:
Formal certification issued byNotary Public
Advantage of protest in court
Contents of Pretest;
1. Instrument or transcript 4. Time and place of dishonor
2. Name of parties 5. Signature of notary public
3. Facts and reasons of dishonor 6. In acceptance
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Dishonouring of Negotiable Instrument
Protest for Better Security: (U/S 100)
Acceptor of Bill of exchange becomes insolvent
Holder can demand better security
Acceptor refuses or unable to give better security
Bill is dishonored and protest by holder
Compensation for Dishonor: (U/S 117)
Amount due + Noting and protesting expenses
Current rate of exchange
Interest 6% per annum from date of dishonoring to realization +
expenses
Drawing a new bill upon the liable party
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Dishonouring of Negotiable Instrument
Dishonestly Issuing a Cheque: (U/S 489-F PPC 1860)
Cheque issued dishonestly towards repayment of loan or fulfillment of
obligation
Dishonored on presentation
Punishment 3 years or fine or both
Burden of proofmade arrangement for paymentbank was at fault
U/S 20(4) of financial institutions (recover of finance) ordinance, 2001
Cheque issued dishonestly towards repayment of loan or fulfillment ofobligation
Dishonored on presentation
Punishment 1 years or fine or both
Burden of proofmade arrangement for paymentbank was at fault
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End of Week # 6 and 7 Lecture Presentation
Thanks for Patience