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LEGAL ASPECTS OF BUSINESS

Click to edit Master subtitle style PREPARED BY S.POUGAJENDY,MBA,M.Phil,(Ph.D) SL/MBA/SREC

NEGOTIABLE INSTRUMENTS A Negotiable instrument means

promissory note, bill of exchange, or cheque, payable either to order or to bearer

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Freely Transferable

Absolute Title In Writing Unconditional Certain Sum

Payee must be a certain Person Signature a must.

Certain Time Delivery Essential

Stamping is Mandatory.

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TYPES OF NEGOTIABLE INSTRUMENTS

In writing, signed, stamped Unconditional promise to pay Money only Certain party On demand or certain date Certain sum Parties Drawer, payee

Pro

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Bill of Exchange
Writing, signed, accepted, stamped Unconditional order to pay Money only Certain party Certain sum Parties Drawer, Drawee & Payee

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CHEQUES

Writing, signed Unconditional order Issued by specified banker, certain payee On demand Certain amount Must bear a date

5/3/12 Nature and requisites of negotiable instruments

Be

in writing Be signed by the maker or drawer Be an unconditional promise or order to pay State a fixed amount of money Not require any undertaking in addition to the payment of money Be payable on demand or at a definite time Be payable to order or to bearer

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model

Transfer by Assignment or Negotiation

Transfer by Assignment
The

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Transfer by Negotiation
The

transfer of rights under a contract. It transfers the rights of the transferor (assignor) to the transferee (assignee).

transfer of a negotiable instrument by a person other than the issuer. The person to whom the instrument is transferred

LIABILITY OF PARTIES
Makers

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Liability (unconditional promise to pay) primarily liable on note Drawee Liability (order to pay) Acceptors Liability Primarily liable Drawers Liability secondarily liable

Endorser's Liability Unqualified endorser secondarily liable Qualified endorsement No contract liability

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Secondary liability
Secondary

liability refers to the responsibility of a person or entity that arises when the party directly liable fails to perform a duty. Secondary liability often targets two types of persons: 1) those who induce others to break the law, and 2) those who control others who break the law. drawers and indorsers are subject to secondary liability; and then, only if:

Only

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Holder and due course

Holder defined (S. 8) holder of a promissory note, bill of exchange. or cheque means any person entitled his own name, to the possession thereof, and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time loss or destruction.
The

Holder in due course (S. 9) in due course means any person who for consideration, became the possessor of a promissory note, bill of exchange, or cheque, if payable to bearer, or the payee or endorsee thereof, if payable to order, before the amount mentioned if it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
Holder

5/3/12 REQUISITES FOR HOLDER IN DUE COURSE

1.

He must show that he has paid consideration. Any

valuable

consideration which would support an ordinary contract would be sufficient to constitute the transferee a holder in due course,
2

.But the donee of a pro-note, who

takes it by way of a gift, is not a holder

5/3/12 REQUISITES FOR HOLDER IN DUE COURSE (ctd)

3.

He must prove that he became possessor due thereof under the before the instrument

the

amount
4.

became actually payable. He must also show that he became the possessor thereof without having sufficient cause to believe that any defect existed in the title of the

Discharge of parties

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Discharge of instrument and discharge of parties from liability is not same. Parties may be discharged from liability on a negotiable instrument in any of the following ways: 1. By payment 2. By cancellation 3. By release 4. By default of the holder 5. By material alteration 6. By holder destroying indorser remedy 7. Draft indorsed by payee 8. Discharge of drawee of cheque 9. By operation of law
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