presentation on negotiable instrument

7/29/2019 presentation on negotiable instrument

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Presentationon Negotiable instruments

Legal environment of BusinessCourse code: EM 526

Name : ID

Tanzila Rahman 03-11-20-050

Bipul Biswas 03-10-19-063S.K.M. Moklesur Rahman 03-10-19-072

Tahmida Jakia 03-11-20-037

Md. Arman 03-10-19-046


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Negotiable Instruments

Documents of certain type, used in commercial transactions andmonetary dealings, are called Negotiable Instruments.

Negotiable means transferable by delivery

Instrument means a written document by which a right is created infavour of some persons.

The term Negotiable Instrument, literally means a documenttransferable by delivery.

Thus a Negotiable Instrument is one which, the true owner could

transfer, the contract or engagement contained therein by simpledelivery of the instrument.


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According to Banglapedia 'negotiable instrument' refers tofinancial instruments that can be sold, paid or transferred bymere endorsement.

These are payable either to order or to a bearer by endorsementin due course.

Negotiable instruments got their formal identity and recognitionwith the promulgation of the Negotiable Instruments Act, 1881.


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An analysis of the definition by Judge Wills expressed the followingcharacteristics of a negotiable instruments:

Property in the instrument passes from hand to hand by meredelivery

The holder in due course is not affected by defects in the title ofhis transferor or of previous holders.

The holder in due course can sue in his own name.

The holder in due course is not affected by certain defenses which

might be available against previous holders, e.g., fraud to which heis not a party.

It passes from hand to hand like cash and can be convenientlyassigned in discharge of dents.


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Promissory Note (Pro-Note or Hand Note)

Definition

A promissory note is an instrument in writing (not being a banknote or a currency note) containing an unconditional undertakingsigned by the maker, to pay a certain sum of money only to, or to

order of a certain person, or to the bearer of the instrument.

The person who makes the promise to pay is called theMaker.He is the debtor and must sign the instrument.

The person who will get the money (the creditor) is calledpayee.


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Essential Elements

The instrument must be in writing

The instrument must be signed by the maker of it

The instrument must contain apromise to pay. The promise topay must be express. It cannot be implied or inferred. A mereacknowledgement of indebtedness is not enough.

The promise to pay must beunconditional. If the promise to pay

is coupled with a condition it is not a promissory note.

The maker of the instrument must be certainand definite.

A promissory note must bestampedaccording to the Stamp Actof the country


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An instrument is valid as a promissory note if it is so drafted as tosatisfy the essential requirements of a promissory note.Subject to this condition the parties may use any formdesired. Some typical forms are given below:

on demand IAB promise to pay CD or his order the sum ofTk. 2000.00 for value received.

IAB promise to pay CD Tk. 2000.00

IA acknowledge myself to be indebted to B in Tk. 2000.00and promise to pay the said amount on demand for valuereceived.

At three months after date IA promise to pay B the sum ofTk. 2000.00 only. Value received


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Bill of ExchangeDefinition

A bill of exchange is an instrument in writing containing an unconditionalorder, signed by the maker, directing a certain person to pay a certain sum ofmoney only to, or to the order of a certain person or to the bearer of theinstrument.

The maker of the bill of exchange is called theDrawer.

The person who is directed to pay is called theDrawee.

The person who will receive the money is called the Payee.

When the payee has custody of the bill, he is called theHolder.

It is the holder's duty to present the bill to the drawee for his acceptance.The drawee signifies his acceptance by signing on the bill. After suchsignature the drawee becomes theAcceptor.

In a bill of exchange sometimes the name of another person is mentioned asthe person who will accept the bill if the original drawee does not accept it.

Such a person is called theDrawee in case of need.


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Bill of Exchange

Essential Elements of Bill of Exchange:

A bill of exchange be valid must fulfill the following requirements:

The instrument must be in writing.

The instrument must be signedby the drawer

The instrument must contain an order to pay, which is express andunconditional.

The drawer, drawee and the payee must be certain and definiteindividuals.

The amount of money to be paid must be certain.

The money must be payable to a definite person or according tohis order.

A bill of exchange must be properly stamped.

The bill may be made payable on demand or after a definite periodof time.


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Differences between a promissory note and a bill ofexchange

Number of parties: In a promissory note there are two parties-the

maker and the payee. In a bill of exchange there are three parties-the drawer, drawee and the payee.

Promise and order: In a promissory note there is a promise to pay.

In bill of exchange there is an order to pay.

Acceptance: A promissory note is signed by the person liable topay; therefore, no acceptance is necessary. A bill of exchangeexcept in certain cases , requires to be accepted by the draweebefore it is binding upon him.

Liability: The maker of promissory note is primarily liable on theinstrument. The drawee of a bill is liable only when the drawee

does not accept the instrument or pay the money due.


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Differences between a bill ofexchange and a cheque

Bill of exchange Cheque

Payable on demand, or at a fixedor determinable future date

Payable on demand

Drawn on anyone Drawn on a financial institution

Cant be crossed(always negotiable)

Can be crossed

Continuing security Presented for payment within areasonable time

Obligation from acceptance of bill Ongoing relationship

Substantial trading transactions Day-to-day transactions


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Comparison among bill of exchange, promissory note andcheque

Bill of exchangePromissory

noteCheque

Nature Entrusted payment Self payment Entrustedpayment

Basic parties Drawer, drawee, payeeDrawer &

payee

Drawer, drawee,

payee

Payers

qualification

No restriction Drawer Banks

Primary debtor Acceptor Drawer No

MaturityOn demand

Determinable future timeOn demand On demand

Acceptance

R i t f ti bl


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Requirements for negotiableinstruments :

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 ofmoney

Be payable on demand or at a definite time

Be payable to order or to bearer

Factors That Do Not Affect


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Factors That Do Not AffectNegotiability

Undated checks.

Pre or Post-Dating Checks.

Handwritten Terms.

Outweigh typed or printed terms.

Words outweigh Figures.

With Interest.

Check says Nonnegotiable.


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Methods of Negotiation

Negotiable instruments may be negotiated in twoways:

By endorsement and delivery; or

By delivery only. There are various types of endorsement:

Special endorsement;

Conditional endorsement;

Qualified endorsement; and

Anomalous endorsement.


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Indorsement

The signature (and other directions) written by or on behalfof the holder somewhere on the instrument.

The signature may:

Appear alone

Name an individual to whom the instrument is to be paid, or

Be accompanied by other words

Indorsement is a signature, with or without words

or statements. Indorser: person who transfers instrument by

signing it and delivering to another person.


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Indorsements

Blank Indorsements.

SpecialIndorsements.

QualifiedIndorsements.


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Restrictive Indorsements

Conditional Indorsements.

Indorsements for Deposit and Collection.


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Restrictive Indorsements

Trust (Agency) Indorsements.

Miscellaneous Indorsement


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Miscellaneous IndorsementProblems

Misspelled Names. Indorsement should beidentical to the name on the instrument.

Alternative or Joint Payees. Only one of the

payees needs to indorse. Suspension of the Drawers Obligation.

H ld


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Holder

Holder

According to section 8the holder of a promissory note , bill of exchangeor cheque means any person entitled in his own name to the possessionthereof and to receive or recover the amount due thereon from theparties thereto

A person is called the holder of a negotiable instrument if the following conditionsare satisfied:

He must be entitled to the possession of the instrument in his own name andunder a legal title. Actual possession of the instrument is not essential; theholder must have the legal right to possess the instrument in his own name. Forexample, a thief, or a finder on the road although may be having the possession

of the instrument, cannot be called its holder because he does not acquire thelegal title thereto and hence is not entitled in his own name to the possessionthereof.

He must be entitled to receive or recover the amount from the parties concernedin his own name.


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Holder in Due course

Holder in due course:

A person becomes a holder in due course of a negotiable instrument ifthe following conditions are satisfied:

He must be entitled to the possession of the instrument in his own name andunder a legal title and to recover the amount thereof from the parties liable

thereto. The negotiable instrument must be regular and complete in all respects.

Alterations, if any, must be confirmed by the drawee through his signature.Holder of an incomplete document cannot be its holder in due course.

The instrument must have been obtained for valuable consideration, i.e., by

paying its full value. A banker, who receives a cheque as a gift, will not be calledholder in due course without consideration. The consideration must be legal andadequate. For example, if a cheque is given in respect of a debt incurred ingambling, the consideration for the cheque is unlawful. If the value of the of theconsideration falls short of the amount of the instrument, the person will bedeemed as holder in due course to the extent of the value of consideration.


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Prerequisites for being holder in due course

A person who claims to be holder in due course is required to prove:

That he is a holder:

That he is a holder for consideration:

Acquisition before maturity:

That he has no knowledge of defective title.

Right of a holder:The holder of a negotiable instrument enjoys the following rights:

An endorsement in blank may be converted by him into an endorsement in full.

He is entitled to cross a cheque either generally or specially with the words Notnegotiable.

He can negotiate a cheque to a third person, if such negotiation is not prohibited by thedirection given in the cheque.

He can claim payment of the instrument and can sue in his own name on the instrument.

A duplicate copy of a lost cheque may be obtained by a holder.

Difference between holder and


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Difference between holder andholder in due course

1. Meaning: Holder means any person entitled in his own name to the possession of thenegotiable instrument and to recover or receive the amount due thereon from the partiesthereto. A holder in due course on the other hand, means a holder who takes theinstrument in good faith for consideration before it is overdue and without any notice ofdefect in the title of the person who transferred it to him.

2. Consideration: A person who claims to be a holder in due course must show that he

acquired the instrument for consideration. However consideration may not pass from aholder of the instrument.

3. Title : Holder of negotiable instrument does not acquire a better title than that of the personfrom whom he acquired the instrument. Thus a holder does not acquire a good title if thetitle of any of the prior parties is defective. But a holder in due course gets a good title eventhough there was a defect in the title of any prior parties to the instrument.

4. Liability:A holder in due course can sue all prior parties to a negotiable instrument until theinstrument is duly satisfied. Whereas a holder of the instrument can enforce it against theperson who has signed it and also against the transferor from whom he obtained it.

5. Maturity:A person will be a holder in due course only if he acquires the instrument beforethe amount mentioned in it become payable. But a holder may acquire the instrument evenafter it has become due for payment.

Ch


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Cheque

Types of Cheque

Open cheque: A cheque is called Open when it is possible to get cash overthe counter at the bank. The holder of an open cheque can do the following:

Receive its payment over the counter at the bank,

Deposit the cheque in his own account

Pass it to some one else by signing on the back of a cheque.

Crossed cheque: Since open cheque is subject to risk of theft, it is dangerous toissue such cheques. This risk can be avoided by issuing another types of

cheque called Crossed cheque.Bearer cheque: A cheque which is payable to any person who presents it for

payment at the bank counter is called Bearer cheque. A bearer cheque canbe transferred by mere delivery and requires no endorsement.

Ch


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Cheque

Types of Cheque (Contd)Order cheque: An order cheque is one which is payable to a particular person. In

such a cheque the word bearer may be cut out or cancelled and the wordorder may be written. The payee can transfer an order cheque to someoneelse by signing his or her name on the back of it.

Ante-dated cheques:- Cheque in which the drawer mentions the date earlier tothe date of presenting if for payment.

Stale Cheque:- A cheque which is issued today must be presented before atbank for payment within a stipulated period. After expiry of that period, nopayment will be made and it is then called stale cheque. Find out from yournearest bank about the validity period of a cheque.

Post-dated Cheque:- Cheque on which drawer mentions a date which issubsequent to the date on which it is presented, is called post-dated cheque

C i h


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Crossing cheque

Crossing of Cheque:

A cheque is said to be crossed when two parallel transverse lines aredrawn across the face of the cheque, with or without words like & Co,or not negotiable inserted between them.

General Crossing: Where a cheque bears across its face an addition ofthe words and company or any abbreviation thereof, between twoparallel transverse lines, or two parallel transverse line simply, eitherwith or without the words not negotiable that addition shall be

deemed a crossing, and the cheque shall be deemed to be crossedgenerally.


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Crossing cheque

Crossing of Cheque (Contd)

Special Crossing: where a cheque bears across its face an addition ofthe name of banker, either with or without the without the words notnegotiable that addition shall be deemed a crossing and the chequeshall be deemed to be crossed specially and to be crossed specially

and to be crossed to that banker.[Section 124]

Persons who can Cross a Cheque: Crossing is an instruction or a direction tothe paying banker. Obviously, the drawer of a cheque is competent to cross itgenerally or specially. Section 125, however, permits the following personsalso to cross the cheque:

The holder of a cheque may cross it generally or specially, if; it is uncrossedor may cross it specially if it is crossed generally or may add the words 'notnegotiable' in case of both types of .crossing.

The banker to whom the cheque is crossed specially may again cross itespecially to another banker, his agent, for collection. This is called

Double Special Crossing.


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Liability of the Paying Banker on Crossed Cheques

According to the section 126 Where a cheque is crossed generally, thebanker on whom it is drawn shall not pay it otherwise than to a bankerand where and where a cheque is crossed specially, the banker on

whom it is drawn shall not pay it otherwise than to the banker to whom itis crossed or his agent for collection.

"Any banker paying a cheque crossed generally, otherwise than to abanker, or a cheque crossed specially, otherwise than to the banker towhom the same is crossed, or his agent for collection being a banker,

shall be liable to the true owner of the cheque for any loss he maysustain owing to the cheque having been so paid."


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Acceptance

Acceptance: only applies to bill of exchange.

Presentation: precondition for acceptance by drawee,except for sight draft

Payer should decide whether to accept such draft withinthree days from the receipt of it.

If accepted, indicate the date of acceptance and suchexpress words as "acceptance" on the face of the draft,and affix the signature or seal on it.

Draft payable at a fixed date after sight: date ofpayment must be indicated on it.


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Dishonor

Occurrence and certificate of dishonor

Occurrence Certificate

Upon maturity Non-payment Certificate of refusal

Prior to maturity Non-acceptance Certificate of refusal

Bankruptcy order

Administrative

decision

Drawee or acceptors deathor disappearance

Drawee or acceptorsbankruptcy

Drawee or acceptors closure


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Notice of dishonor

Bearer shall inform the previous parties:

within 3 days from receipt of certificate of dishonor orrejection of acceptance

Upon receipt of such notice by the predecessor, heshall

inform his next immediate predecessor within 3days.

Notice: contain major written items of the instrumentand

explanation for rejection


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Protection of lost-instrumentholders

If lost before payment is due, lost-instrument holder maynotify drawee to suspend payment.

Within 3 days of giving the notice for suspension of paymentor after the loss of the instrument, lost-instrument holdermay apply to court for publication of public notice forassertion of claims

Holder other than the lost-instrument holder comes forwardto claim the rights during the foregoing withholding period,the litigation method shall be utilized

Liabilities of Parties to Negotiable Instruments


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Liability of drawer :

The drawer of a bill of exchange or cheque is bound in case ofdishonour by the drawee or acceptor thereof, to compensate to theholder, provided due notice of dishonour has been given to, or receivedby, the drawer as hereinafter provided.

(a) a bill of exchange may be dishonoured by non-acceptance

(b) a bill of exchange may be dishonoured by non-payment

Liability of drawee of a cheque:

The drawee of a cheque having sufficient funds of the drawer in his

hands properly applicable to the payment of such cheque when dulyrequired to do so, and in default of such payment, must compensate the

drawer for any loss or damage caused by such default.




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Liability of drawer:

The drawer may be punished with imprisonment for a term up to one year or with

fine up to thrice the amount of the cheque or with both because of insufficiency offunds was deemed as an offence .

To Provide for such punishment, provided the following conditions are fulfilled:

1.The cheque should be presented to the paying banker in time

2.The dishonor of the cheque should be on account of insufficiency of funds only ifeither the amount of money standing to the credit of the account of is insufficientor that the amount of cheque exceeds the amount arranged to be paid from thataccount by an agreement with the bank.

3.The payee or holder in due course should give notice in writing to the drawerdemanding payment, within 15 days of his receiving information of dishonor.

4.If the drawer fails to make payment to the drawee within 15 days of the receiptof the notice.

5.The complaint can be made only by the payee or holder in due course.




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Liability of Maker and Acceptor:

In the absence of a contract to the contrary, the maker of apromissory note and the acceptor before maturity of a bill ofexchange are bound to pay the amount thereof at maturity

according to the apparent tenor of the note or acceptancerespectively, and the acceptor of a bill of exchange at or aftermaturity is bound to pay the amount thereof to the holder ondemand.

Effect of forged Endorsement on acceptors liabilityAn acceptor of a bill already endorsed is not relieved fromliability by reason that such endorsement is forged, if he knewor had reason to believe that the Endorsement was forgedwhen he accepted the bill .




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Liability of acceptor of a bill drawn in a fictitious nameAn acceptor of a bill of exchange drawn in a fictitious name and payable to

the drawers order is not relieved from liability to any holder in due courseclaiming under an Endorsement by the same hand as the drawers signature,and purporting to be made by the drawer. (Section 42 )

Liability of endorser

The endorser of an instrument by endorsing and delivering the instrument,before maturity, undertakes the responsibility that

1. That on the due presentment it shall be accepted, (if a bill), and paid; and

2. That if it is dishonoured by the drawee, acceptor or maker, he willindemnify the holder or subsequent endorsers who are compelled to pay,

provided due notice of dishonour is received by him.

Thank You All


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Thank You All

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