Negotiation and Assignment Distinguished
Table of Contents
- Mere delivery in case of bearer A separate deed of assignment is essential. instrument and indorsement and
delivery in case of an order instrument are sufficient to transfer title.
- Notice of transfer is not required to Notice of assignment must be given to the debtor. be the given to debtor.
- Consideration is presumed in case Consideration must be proved by the of negotiable instrument. assignee.
- The transferee, as holder in due The assignee gets only the right of course may get a better title than transferor,
- The Negotiable instrument Act deal The Negotiable instrument Act does not with transfer of instrument by deal with transfer of negotiable negotiation. instruments by negotiation.
How Negotiation is Effected
A negotiable instrument payable to bearer can be negotiated by mere delivery i.e., by merely handing over the instrument to the transferee, and no writing is necessary. When a negotiable instrument is payable to order, it is negotiated by the holder by indorsement and delivery
Endorsement or Indorsement means signature of the holder made with the object of transferring the insturment. Endorsement may be made on the back or face of the instrument. If there is no space on the instrument the endorsement may be made on a slip of paper attached to it. Such a slip a called Allonge.
It will be noticed that delivery of the instrument to the transferee or his agent is essential of both the bearer and order iristruments. Thus, where A endorses a bill in favour of B and puts it in his desk-drawer, there is no negotiation as the bill has not been delivered to B. If A dies and the bill is found by B in the drawer, B cannot sue on it, because the bill was never delivered by A to B.
Delivery of the instrument must be voluntary on the part of the holder and must be made with the intention of passing property in the instrument to the person to whom it is delivered. So that a thief cannot get a good title to the instrument, nor can a finder of a lost instrument.
A negotiable instrument can be negotiated till payment or satisfaction. After payment or satisfaction it cannot be negotiated.
Business Low Notes :-
When the maker or holder of a negotiable instrument signs the same otherwise than as such make for the purpose of negotiation, on the face or back thereof, or a slip of paper annexed thereto called allonge or so sign for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to endorse the same and is called as endorser. (Sec. 15).
Classes of Endorsement
An endorsement may be (i) General or blank, (ii) Special or Full (iii) Restrictive, (iv) Partial, or (v) Conditional or qualified.
- An endorsement is blank or general where the endorser merely writes his signature on the back of the instrument, e.g., a bill payable to “Ram or order” and he writes on back of its back “Ram”, it is endorsement in blank and the bill has become payable to
- An endorsement is full or special where the endorser mentions the name of the person to whom the money due on the instrument is to be paid. Where a bill is payable to “Ram or order” and Ram writes on the back of the instrument ‘Pay to Sham’ or ‘Pay to Sham or order’, and signs, it is a full
- An endorsement is restrictive if it restricts further negotiation of an instrument, e.g., ‘Pay Sham only’, or ‘Pay Sham for my use’ or ‘Pay Sham on account of Radha’.
- An endorsement is Partial which purports to transfer to the indorsee a part only of the amount payable on the instrument; but a partial endorsement does not operate as a negotiation of the instrument; e.g. , A sells a bill for Rs.1000 endorses it thus: ‘Pay B or order Rs.500’ or ‘Pay Rs.500 to Band Rs.500 to C’, the endorsement is partial and invalid.
- An endorsement is conditional or qualified which limits or negatives the liability of the endorser. For example, where the indorser makes it clear that he does not incur the liability of an endorser towards the indorsee or subsequent holders he makes a ‘Sans Recourse’ or ‘Without Recourse’ endorsement. He may endorse thus: ‘Pay Sham or order Sans Recourse’, or ‘Pay Sham or order without recourse to me’. In these cases, if the instrument is dishonoured he cannot be called upon to
When the endorser by express words abandons some right or increase his liability under otiable instrument is called Faculative : e.g., ‘Pay Sham or order. Notice of dishonour ‘uired’.
Business Low Requisities of valid endorsement notes
- It should be done on the instrument or
- It must be done by the maker/drawer/payee/holder/indorser of the
- It must be
- Though no specific words are prescribed for endorsement yet the words used must clear the intention of the indorser to transfer the ownership of the
- It must be completed by subsequent delivery of the instrument to the
Legal provisions regarding endorsements
The Negotiable Instrument Act contains many provisions regarding endorsement :
- Effect of The endorsement of a negotiable instrument followed by delivery, transfers to the endorsee the property therein with the rights of further negotiation. Thus the endorsee acquires property or interest in the instrument as the holder. He can also negotiate further if not restricted by a restricted endorsement by the endorser.
- Who can According to section 51. ‘Every sole maker, drawer, payee or endorsee or all of several joint makers, drawers, payees or endorsees, of negotiable instrument may endorse and negotiate the same’. Thus, in case the instrument is held jointly by a number of persons, endorsement by all of them is essential, one can not present the other.
- A negotiable instrument may be negotiated until its payment has been made’ by the maker drawee or acceptor at or after maturity not after its payment.
- Endorsement for a part of the amount. The instrument must be endorsed-for its entire amount: According to section 56 ‘no writing on a negotiable instrument is valid for the purpose of negotiation if such writing purports to transfer only a part of the amount appearing to be due on the instrument’. Thus an endorsement for a part of the amount of the instrument is invalid. But in cases where an instrument has been partly paid, it may be negotiated for the balance of the amount provided a note to that effect is given on the instrument. If the endorser intends to transfer the document to two or more endorses separately, it will not constitute a valid
- The legal representative of a deceased person cannot negotiate by delivery only a promissory note, bill of exchange or cheque payable to order and endorsed by the deceased but not delivered. Thus if the endorser dies after endorsing the instrument payable to order but without delivering the same to the endorsee, the endorsement is not valid and his legal representative cannot complete the negotiation by mere delivery thereof.
- Unless the contrary is proved it is presumed under section 118 that ‘the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon’. It means that the endorsement which appears on the instrument first is presumed to have been made earlier to the second
Once a Bearer Cheque, Always a Bearer Cheque
If a negotiable instrument is endorsed in blank or is payable to bearer, it is bearer instrument. The holder may negotiate by mere delivery.
But if the holder endorses it specially to a person and makes it payable to the order of such person, then the endorser in full cannot be sued by any person except the person in whose favour he endorsed it. But as regards all parties prior to the endorser in full, the instrument remains tranferable by mere delivery.
A, the payee of a bill, endorses it in blank and delivers it to B who endorses specially to C, or order C without any endorsement transfers it to D. D as the bearer is entitled to receive payment. In case of dishonour D is entitled to sue the drawer and the acceptor of the bill and also A and all indorsers prior to A, if any. He cannot, however, sue B or C.
Where a cheque is originally drawn payable to bearer, the drawee (the paying banker) is discharged by payment in due course to the bearer, even if there are any subsequent endorsement. The rule is ‘once a bearer cheque always a bearer cheque’ which means that if a cheque is originally drawn payable to bearer, it remains bearer, even though it is subsequently endorsed in full. This rule is not applicable if a cheque originally made payable to order becomes payable to bearer by blank endorsement
Where a, bearer negotiates an instrument by mere delivery, and does not put his signature thereon, he is not liable to any party to the instrument in case it is dishonoured as he has not lent his credit to it.
Forged Instruments and Forged Endorsements
The general law is that forger, confers no title, so that the forged signature of the maker of a promissory note, or of the bill or of the cheque does not give to the forger any title whatever, as the forged instrument is a nullity from the very beginning. Nobody has any title to it and there is no holder in due course. A’s signature is forged on a cheque as a drawer. A is not liable on the cheque, nor does ally party acquire any right under it.
If an instrument is payable to order or endorsed in full, it cannot be negotiated except by an endorsement signed by the person to whom or to whose order the instrument is payable, for the endorsee receives title only through his endorsement.
Hence, if the signature of transferor is forged no person claiming through that forged signature gets any title, even if he obtained it for value and in good faith.
A is the payee of a bill. It is stolen by B, who forges A’s signature and transfers the bill to C for value. C is not a holder in due course, even if he obtains the bill without notice of the forged endorsement, and cannot recover the amount on the bill. And if the acceptor of the bill pays to C on maturity, he is not discharged and A, as the holder in due course, can recover the amount from the acceptor.
Business Low Notes :-
After a bill has been issued, the holder should present it to the drawer for acceptance to find out whether the drawee is willing to carry out the order of the drawer. If the drawee agrees to obey the drawer order he is said to accept the bill, which he does by signing his name on the bill and writing the word “accepted”.
Acceptance is defined as the indication by the drawee of his assent to the order of the drawer. After acceptance the drawee is known as the acceptor. The drawee becomes liable on the bill only after he has accepted it and delivered it over to the holder or has given notice of acceptance to him.
An acceptance may be either General or Qualified.
An acceptance is general when it is unconditional or unqualified. That is to say, when the drawee accepts liability to pay the amount of the bill in full without any condition or limitation.
An acceptance is said to be qualified when (1) acceptor attaches some conditions to the acceptance e.g., “accepted payable when in funds” or (2) it is partial i.e., for part only of the
amount of the bill e.g., a bill, drawn for Rs. 1,000 as “accepted for Rs.500 only”, or (3) is made local i.e., to pay at a particular place or (4) is qualified as to time, e.g., a bill is drawn payable 3 months after date is “accepted payable 6 months after date”. Acceptance for payments in installments or by some of the drawees only is also a qualified acceptance.
The holder of the bill may refuse to take a qualified acceptance and may treat the bill as dishonoured by non-acceptance, and sue the drawer for payment. It he accepts the “qualified, acceptance, it binds him and the acceptor, but the drawer and endorsees are not bound or are discharged unless they assent to it.
( BBA 1st Semester Business Low Notes )
Who can accept a bill ?
- The drawee of the
- All or some of the several drawees; but if all the drawees have to be liable all of them must accept
- A drawee in case of
- The agent of any of the persons named
- An acceptor for honour i.e., person who accepts for the, honour of any party already liable on the.
- The agent of the acceptor for
An acceptor for honour: When a bill has been noted or protested for non-acceptance, any person who i” not already a party to the bill, may with the consent of the holder, accept it for the honour of any party thereto.
An acceptor for honour enjoys a slightly better position than an ordinary-acceptor. His liability is conditional, because his acceptance is in the nature of a qualified acceptance. He undertakes to pay only when the bill has been duly presented at maturity to the drawee for payment and the drawee has refused to pay and the bill has been noted or protested for non payment.
On acceptance the rights and liabilities of the acceptor for honour are the same as those of the party for whose honour he accepts. He is liable to all parties subsequent to the party for whose honour he accepts to pay in case the drawee fails to pay.
On paying the bill for honour he acquires all the rights of a holder for whom he pays and is entitled to all the remedies of the holder of the instrument. Those remedies are available only against the party for whose honour he pays and all parties prior to such persons and all parties subsequent to such person are discharged.
Presentment is made for two purposes :
- Presentment for acceptance and,
- Presentment for
Only bill of exchange of certain kinds require presentment for acceptance. Bills payable demand or at sight need not be presented. But the following bills must be presented for acceptance, otherwise the parties to the bill will be liable on it.
- A bill payable after Presentment is necessary in order to fix maturity of the bill.
- A bill in which there is an express stipulation that it shall be presented for acceptance before it is presented for But even in cases where presentment is optional, it is desirable to get it accepted as soon as possible. The bill must be presented for acceptance before the date of payment and within a reasonable time after it is drawn. The drawee can take 48 hours to accept it, but after 48 hours are over he must return the bill to the holder with or without acceptance. If the holder allows the drawee more than 48 hours to decide whether to accept or not, all prior parties to the bill are discharged from their liabilities under the bill.
If the drawee, after a reasonable search, cannot be found, the bill can be treated dishonoured. If a bill is directed to the drawee at a particular place, it must be presented at that place.
It” a bill, which requires acceptance, is not presented for acceptance; the drawer and all endorsees are discharged from their liability to the holder.
When presentment for acceptance not necessary
- When after a reasonable search the drawee cannot be
- When the bill is drawn on a fictitious person or on a person who .s incapable of entering into
- When the drawee is insolvent or
- Where, although the presentment is irregular, acceptance has been refused on some other