Characteristics & Endorsements - Negotiable instruments Act(1881), Business Law Video Lecture | Business Law - B Com

hello students welcome to the lecture on
negotiable instruments and after this
lecture we will be able to learn the
following objectives explain the
characteristics of negotiable
instruments understand types of
negotiable instruments define
endorsement describe discharge from
liability learning about a dishonor of a
negotiable describe noting and
protesting explain liability of parties
or negotiable instrument
let's start with a concept negotiable
instruments exchange of goods and
services is the basis of every business
activity goods are bought and sold for
cash as well as on credit all these
transactions require a flow of cash
either immediately or after a certain
time in modern businesses large number
of transactions involving huge sums of
money takes place every day it is quite
inconvenient as well as risky for either
party to make and receive payments in
cash therefore it is a common practice
for businessmen to make use of certain
documents as means of making payment
some of these documents are called
negotiable instruments the idea of
negotiability as applied to modern
business affairs is a product of
commercial intercourse indeed without
this principle or some equivalent which
the wit of man might have devised it is
safe to say that the world's commerce
and consequently its civilization would
have been greatly retarded oh hello guys
say can anyone tell me what is a
negotiable instrument yes a negotiable
instrument is a contract I am sorry and
I hate to disagree but actually a
negotiable instrument is a pig oink oink
you are both so funny and I don't want
to come off like I know everything but
really I'm ago Schabel instrument is a
toaster
ha well we have quite a variety of
opinions it reminds me about a story
where three blind men place their hands
on an elephant based on what they feel
each describes a different object let's
start with you Alan you say a negotiable
instrument is a contract can you tell me
why you feel this way
certainly when two people enter into a
contract April of them can assign their
benefits to someone else simply tell the
person who is to deliver on the contract
that is to deliver to the person you
signed your contract rights to Wow
you make a good point Alan a promissory
note then is like a contract assignment
exactly if someone gives me a promissory
note
they promise to pay me money let's say I
want my dear mother to get paid the
money I simply assign the rights I had
in the promissory note to mother just
like it works with a contract good point
Alan you might be on to something how
about you McDonald you say a negotiable
instrument is a pig how is that that's
easy
if I have a pig and I want to give it to
someone I just hand it over and say here
it's yours and it then belongs to the
other person Wow you raised a good point
when we assigned benefits in a contract
we never had to actually transfer
anything material but what you're saying
as with a pig is that we have to hand
over the thing in order to complete a
transfer yes yes you gotta have the pig
no Pig no bacon if I don't have the
promissory note I don't get paid how
about you Darla why do you say the
negotiable instrument is a toaster that
seems a bit odd doesn't it I mean a
toaster come on
it's no stranger than seeing a
negotiable instrument is a peg like mr.
McDonald does you make a good point
please go on
okay let's say I have a toaster and I
give it to some girl
well she puts in some bread and it
doesn't work no toast
she gets all huffy but so what who cares
okay this time I am selling stuff at a
street sale I sell someone the chest her
for lots of money I don't think anything
like you are assuming all the risk or
you are taking it as is well that hangry
girl returns to my street sale and she
demands art get her her money back I
look her right in the eye and say
whatever why she died and look if she
say that to you she said the thing you
sold me was not what a purported to be
since it was a toaster there an implied
warranty that it would function like one
and toast bread okay you are saying that
a negotiable instrument that is sold or
given to someone else for value must be
genuine and to what is expected of it
just like any other sale otherwise it
would be a fraudulent sale yeah people
shouldn't pay money for something and
get cheated right anything you want to
add to that
yeah just one thing if I sell you the
toaster and it doesn't work and you sell
it to someone else that person cannot
come to me and demand their money back
okay I see why that would be I mean it's
not like you sold the toaster to that
person for sure
like with a toaster sold in a street
sale your assurances only extend to the
person you sell it to that's right
yes or should I say correct on Monday
now let's say someone takes the
promissory note from the maker and then
sells it to someone else okay
are there any watches of sale light
there was with the toaster sold at the
street sale yeah that's what I'm saying
when I make or sell a promissory note I
am saying that it is genuine and that it
will meet buyers expectations
just like the chester i sold at the
street sale it has to live up to
expectations I see
and if there is a problem with that
let's say the maker of the promissory
note refuses to pay well then I am
responsible to pay splendid anything
else you would like to add
what was that
don't mind him he is just chasing some
peg there is one more thing yellow
what's that oh nothing bad just that if
the person I sell the promissory note to
then sells it to someone else the buyer
of it cannot make me pay when the maker
of the note refuses to honor it
oh Willy you're off the hook yeah that
is unless I sign up if I sign it I am
telling everyone else who buys it that I
will stand behind it very cool
that's because if I sign a note I have a
doorstep in the early stages of society
when man was yet in a savage nomadic
state generally at war with all the
world beyond his own tribe Commerce was
of necessity limited to a narrow sphere
and to the exchange or bottom of the
route articles which savage ingenuity
could device the advent of Agriculture
led to the foundation of communities
with fixed habitations tribal barriers
was removed and nations were formed
manufacturing followed leading to
demands for distant products the
exchange of commodities however article
for article was difficult and burdensome
let us now discuss the characteristics
of a negotiable instrument a negotiable
instrument has the following
characteristics property the processor
of the negotiable instrument is presumed
to be the owner of the property
contained therein the negotiable
instrument does not merely give
possession of the instrument but right
to property also title the transferee of
a negotiable instrument is known as
holder in do cause a bonafide transferee
for value is not affected by any defect
of title on the part of the transferor
or of any of the previous holders of the
instrument this is the main distinction
between a negotiable instrument and
other subjects of ordinary transfer
rights the transferee of the negotiable
instrument can sue in his own name in
case of dishonor a negotiable instrument
can be transferred any number of times
till it is at maturity the holder of the
instrument need not give notice of
transfer to the party liable on the
instrument to pay prompt payment a
negotiable instrument enables the holder
to expect prompt payment because a
dishonor means the ruin of the credit of
all persons who are parties to the
instrument now moving on to the next
topic we will study the types of
negotiable instruments according to the
negotiable instruments
at 1881 there are just three types
negotiable instruments that is
promissory note below exchange and check
however many other documents are also
recognized as negotiable instruments on
the basis of custom and usage like
Honda's Treasury bills share warrants
etc provided they possess the features
of negotiability promissory note a
financial instrument that contains a
written promise that one party to be
another party a definite sum of money
either on the mod or at a specified
future date a promissory note typically
contains all the terms
pertaining to the indebtedness by the
insurer or maker to the notes pay such
as the amount interest rate maturity
date date and place of insurance and
issuers signature the 1930 International
Convention that governs promissory notes
and Bills of exchange also stipulates
that the term promissory note should be
inserted in the body of the instrument
and should contain an unconditional
promise to pay promissory notes that are
unconditional and syllable become
negotiable instruments that are
extensively used in business
transactions in numerous countries a
promissory note is usually held by the
pay once the debt has been discharged it
must be cancelled by the payee and
returned to the issuer will of exchange
a written unconditional order by one
party the drawer to another the draw to
pay a certain sum either immediately a
site bill or on a fixed date a term bill
for payment of goods and/or services
received the Joye accepts the bill by
signing it thus converting it into a
post dated cheque and a binding contract
a bill of exchange is also called a
draft but while all drafts are
negotiable instruments only to order
Bills of exchange can be negotiated
according to the 1930 convention
providing a uniform law for bills of
exchange and promissory notes held in
Geneva also called Geneva
convention a bill of exchange contains
the term bill of exchange inserted in
the body of instrument and expressed in
the language employed in drawing up the
instrument an unconditional order to be
a determined sum of money the name of
the person who is to pay draw a
statement of the time of payment checks
check is very common form of negotiable
instrument a one has a savings bank
account or a current account in a bank
one can issue a check in own name or in
favor of others thereby directing the
bank to pay the specified amount to the
person named in the cheque therefore a
check may be regarded as a bill of
exchange the only difference is that the
bank is always the joy in case of a
check the negotiable instruments act
1881 defines a cheque as a bill of
exchange drawn on a specified banker and
not expressed to be payable otherwise
than on demand actually a check is an
order by the account holder or the bank
directing his banker to pay on demand
the specified amount to or to the order
of the person named at errand or to the
bearer features of a cheque let us look
into some important features of a check
a check must be in writing and duly
signed by the drawer it contains an
unconditional order it is issued on a
specified banker only the amount
specified is always certain and must be
clearly mentioned both in charts and
words let us know the meaning of
endorsement the word endorsement in its
a literal sense a means a writing on the
back of an instrument but under the
negotiable instruments Act
it means the writing or one's name on
the back of the instrument or any paper
attached to it with the intention of
transferring the rights therein thus
endorsement is signing a negotiable
instrument for the purpose of
negotiation the person who affects an
endorsement is called an endorser and
the person to whom negotiable instrument
is transferred by endorsement is called
the endorsee essentials of a valid
endorse
the following are the essentials of a
valid endorsement it must be on the
instrument the endorsement may be on the
back or face of the instrument and if no
space is left on the instrument it may
be made on a separate paper attached to
it called a loan age it should usually
be in ink it must be made by the maker
or holder of the instrument a stranger
cannot endorse it it must be signed by
the endorser full name is not essential
is initials may suffice thumb
impressions should be attested signature
may be made on any part of the
instrument a rubber stamp is not
accepted but the designation of the
holder can be done by a rubber stamp it
may be made either by the endorser
merely signing his name on the
instrument it is a blank endorsement or
by any words showing an intention to
endorse or transfer the instrument to a
specified person it is an endorsement in
foal who may endorse the pay of an
instrument is the rightful person to
make the first endorsement thereafter
the instrument may be endorsed by any
person who has become the holder of the
instrument the maker or the drawer
cannot endorse the instrument but if any
of them has become the holder thereof he
may endorse the instrument types of
endorse important kinds of endorsements
are given blank or general endorsement
if the endorser assigns his name only
and does not specify the name of the
endorsee the endorsement is said to be
in blank section 16 1 the effect of a
blank endorsement is to convert the
order instrument into bearer instrument
which may be transferred merely by
delivery endorsement in full or special
endorsement if the endorser in addition
to his signature also adds a direction
to pay the amount mentioned in the
instrument to or to the order of a
specified person the endorsement is said
to be in full discharge of an instrument
an instrument is discharged when all the
rights under it are extinguished
that the instrument ceases to be
negotiable for example when the party
primarily liable on the instrument that
is the maker or the acceptor is
discharged the instrument is also
discharged after an instrument is
discharged all the parties are also
discharged from their liabilities even
holder in due course cannot claim the
amount of the instrument from one party
to the instrument by payment in due
course section 10 and 80 to see perhaps
this is the most natural and usual mode
of discharge of an instrument all
parties to an instrument are discharged
by payment made in due course essential
rules regarding payment the payment
should be made by the party primarily
liable that is the maker of a note or
the acceptor of a bill and the joy of a
check of the payment is made by any
endorser the instrument will not be
discharged only that endorser and
subsequent parties will be discharged
the payment of the instrument should be
made at or after maturity if the payment
is made before maturity it will not
discharge the instrument unless the
instrument is canceled if it is not
cancelled it is likely to reach again in
the hands of a holder in due course who
can enforce payment discharge a one or
more parties when one or more bodies are
discharged the instrument continues to
be liable and the under dodged parties
remain liable on the instrument
discharged by cancellation section 82 a
where the holder of an instrument with
the intention of discharging the
instrument cancels the name of the party
primarily liable that is the maker of a
note or the acceptor of a bill the
instrument is discharged discharged by
release section 80 to be where the
holder of the instrument releases any
endorser or otherwise discharges him
then that endorser and subsequent
parties are discharged from the
liabilities discharged by payment
section 82 C where the party primarily
liable
on the instrument makes the payment the
instruments as well as all the parties
to the instrument are discharged four
essential rules regarding payment please
refer to discharge of instrument
discharged by allowing more than 48
hours to the droid to accept the bill
section 83 if the holder allows more
than 48 hours to the joy to consider
whether or not he will accept the bill
all previous parties not consenting to
such allowance are discharged from their
liability to such holder dishonor of a
negotiable instrument when a negotiable
instrument is dishonoured the holder
must give a notice of dishonor to all
the previous bodies in order to make
them liable dishonor by non acceptance
section 91 a bill of exchange can be
dishonoured by non acceptance in the
following ways if a bill is presented to
the joy for acceptance and he does not
accept it within 48 hours from the time
of present meant for acceptance when the
joy is a fictitious person or if he
cannot be traced after a reasonable
search duties of the holder of
bandhasana
notice of dishonor when a promissory
note bill of exchange or cheque is
dishonored by non acceptance or
non-payment the holder must give notice
of dishonor to all the parties to the
instrument whom he seeks to make libel
thereon noting and protesting when a
promissory note or bill of exchange has
been dishonored by non acceptance or
non-payment the holder may cause such
dishonor to be noted by a notary public
upon the instrument or upon a paper
attached thereto or partly upon each
section 99 noting and protesting when a
negotiable instrument is dishonoured the
holder may sue his prior parties that is
the drawer and the endorses after he has
given a notice of dishonor to them
noting as soon as a bill of exchange or
a promissory note is dishonoured the
holder can after giving the party's Jew
notice of dishonour through the
party is liable there on noted should
specify the instrument the fact of
dishonor the date of the sauna protest
protest is a formal certificate of the
notary public attesting the dishonor of
the bill by non acceptance or by
non-payment liability of parties are
negotiable instrument an individual who
signs an instrument is either primarily
or secondarily liable for payment
secondary liability individuals who are
secondary liable on a negotiable
instrument are not obliged to pay unless
it has been presented for payment and
dishonoured individuals who are
secondarily liable must receive notice
of the dishonor of a commercial paper in
order to be held liable for its payment
such notice must be given by a bank
prior to midnight on the date following
the dishonor notice can be oral or in
writing as long as the language
identifies the paper and indicates that
it has been dishonored if more than one
person is eligible to obtain payment
only one of them need notify those
parties who are secondarily liable now
in the end let us summarize what we have
learnt in this lecture negotiable
instrument in law a written contract or
other instrument whose benefits can be
passed on from the original holder to
new holders the negotiable instruments
act 1881 defines a cheque as a bill of
exchange drawn on a specified banker and
not expressed to be payable otherwise
than on the mount the word endorsement
is its literal sense means writing on
the back of an instrument but under the
negotiable instruments Act it means the
writing of one's name on the back of the
instrument or any paper attached to it
with the intention of transferring the
rights therein
and instrumentals is charged when all
the rights under it are extinguished so
that the instrument ceases to be
negotiable for example with the party
primarily liable on the instrument that
is the maker or the acceptor is
discharged the instrument is also
discharged any material alteration of a
negotiable instrument renders the same
void as against anyone who is party
thereto at the time of making such
alteration
notice of the sauna means the actual
notification of the dishonor of the
instrument by non-acceptance or by
non-payment the holder may need an
authentic evidence of the fact that a
negotiable instrument has been
Dishonored
you