negotiable instrument

Q.No.01

Define negotiable instrument?

Ans. to the Q.No.01

Documents of a certain type, used in commercial transactions and monetary dealings, are called Negotiable instruments.

“Negotiable “means transferable by delivery and “Instruments’ “means a written document by which a right is created in favour of some person.

The term negotiable instrument literally means “a document transferable by delivery “

A negotiable instrument means a promissory note, bill of exchange or cheque either to order or to bearer “---------Sec-13 (1)

 Q.No.02:

What are the characteristics of a Negotiable instrument?

Ans. to the Q.No.02:

Essential features of Negotiable instruments ---------------

1. Writing and signature
2. Money
3. Negotiability
4. Title
5. Presumptions’
6. Special Procedure
7. Popularity
8. Evidence
9. Transferability
   
10. 
    

Q.No.03:

Explain clearly what is meant by negotiation?

Ans. to the Q.No.03:

Definition of Negotiation:

Negotiation of an instrument is the process by which the ownership of the instrument is transferred from one person to another.

When a promissory note ,Bill of Exchange or Cheque is transferred to any person , So as to constitute that person the holder thereof, The instrument is said to be Negotiated ---------Sec. 14.

Negotiation by Delivery (Sec. 47)

Subject to the provisions of section 58,a promissory note , Bill of Exchange or Cheque payable to bearer is Negotiable by Delivery thereof.

Negotiation by Instrument (Sec. 48)

Subject to the provision of section 58 , A promissory note, Bill of exchange or Cheque payable to order is negotiable by the holder by endorsement and delivery thereof.

Who may negotiate?

The sale maker ,drawer ,payer or endorsee and if there are several makers ,drawers ,payees or endorsees ,all of than jointly can negotiate an instrument, Provided its Negotiability has not been restricted or excluded or exchange by a term used in the instrument.---------------Sec. 51.

The document of Negotiability

Instrument negotiable till payment or satisfaction.

Q.No.04:

In what different ways may an instrument be dishonored?

Or

Distinguish between dishonor by non-payment and dishonor by Non-Acceptance.

Ans. to the Q.No.04:

Mode of Dishonour :

A negotiable instrument may be dishonored in two ways ;

1. By Non-Acceptance and
2. By non-Payment.
   Only bill of Exchange can be dihonoured by non-acceptance, Since only bill required acceptance. Promissory notes, Bills of exchange and cheques can be dishonoured by non-payment .
   
   
   Dishonour by non-acceptance: A bill of exchange is dishonoured by non-acceptance in the following cases :

1. “When after due presentation, the bill is not accepted by drawee “when there are several drawees (who are not partners), refusal by any one of the drawees will amount to dishnour.
2. In case where presentation for acceptance is excused, the bill is treated as dishounered if it is not accepted without presentation.
3. Where the drawee is incompletent to contract, the bill may be treated as dishounred -------Sec. 91.
4. If the acceptance is qualified, the bill may be treated as dishounered .
5. Drawee incase of need: Where a drawee in case of need is named in a bill ,or in any endorsement thereon, the bill is not dishnoured until its has been dishonoured by such drawee .--------------Sec.115.
   
   
   Dishonour by Non-Payment :
   A promissory note ,bill of exchange or cheque is dishonoured by non –payment when the maker of the note or the acceptor of the bill of exchange or the drawee of the cheque makes default in payment up or being duly required to pay the same.--------------Sec. 92.
   Consequence of dishonor :
   
   

Steps to be taken by the holder when a negotiable instrument Is dishonoured ,The holders

1. Becomes entitled to file a suit for the recovery of the amount due from the parties to pay.
2. He must, subject to certain exception, give notice of dishouner to parties against when he entends to proceed.
3. He may also have the instrument noted and portended before a notary public.

Q.No.05:

What is notice of dishonour

Ans. to the Q.No.05:

Definition:

Notice of dishonor means the notice which must be given by the holder of a dishonoured instrument all parties liable to pay the amount due on the instrument.

Q.No.06:

Define Ambiguous instrument ?

Ans. to the Q.No.06:

Ambiguous instrument :

An instrument which owing to faulty drafting, can be interpreted either as a promissory note or as a bill of exchange, is called an Ambiguous instrument.

Example:

P signs an instrument which purports to be an order upon B to pay a certain sum of money to the order of P and Negotiates the instrument to C,

B is a non- existent person. The instrument is drafted like a bill a non-existent person is liable to pay to the holder the money due on it.

An ambiguous instrument can be treated either as a bill or as a note, At the option of the holder-------Sec.17.

The holder must decide once for all, whether to treat the instrument as a bill or as a note –after he decides one way he cannot change his mind.

Q.No.07:

Define Inchoate Instrument?

Ans. to the Q.No.07:

Inchoate Instrument:

An inchoate stamped instrument is a paper signed and stamped in accordance with the law relating to negotiable instruments and either wholly blank or containing an incomplete negotiable instrument. When one person gives to another such a document, the latter is prima facie entitled to complete the document and make it in to a proper negotiable instrument up to the value mentioned in the instrument. if any , or up to the value covered by the stamp affixed on it ,The person signing the instrument is liable on it , in the capacity in which he signed it, to any holder in due course for such amount . But persons who are not holders in due course cannot recover more than the amount intended to be paid by the signatory. -------------Sec.20.

Example:

X signs a promissory not without stating the amount payable ,puts stamp on it sufficient to cover tk.500 and hand it to his clerk y, for making certain purchase ,instructing y to put in the value of the purchases as the amount payable. Y purchases goods worth tk.400 but puts in tk.500 in the promissory note. The note is negotiated to z. who takes it for consideration without any notice of the real transaction .z can recover tk.500 from x .But the shopkeeper is presumably aware of all the circumstances and if he had retained the instrument he would have been entitled to recover only tk.400.

Q.No.08:

What is mean by crossing a cheque ?

Ans. to the Q.No.08:

A cheque is a bill of exchange drawn upon a specified banker and payable on demand--------Sec.6.

A cross cheque is one which has two short parallel lines marked across its face. A cheque marked in this fashion can be paid only to another banker.

Naturally it will not be paid across the counter. The system of crossing cheques arose by mercantile usage and was later on sanctioned by law, the advantage of crossing is that it reduces the danger of unauthorized persons getting possession of a cheque and cashing it. A crossed cheque can only be cashed though a bank of which the payee of the cheque is a customer.

There are different modes of crossing a cheque.

Q.No.09:

Why a cheque is crossed?

Ans. to the Q.No.09 :

Following resion for crossed a cheque :

1. Security
2. Certainty
3. Reduce of risk and uncertainty
4. Payable in a suitable place
5. Prevention of fraud and forgery
6. Identification of fault
7. Transaction of big amount
8. Maintenance of record.

Q.No.10:

Who can cross a cheque ?

Ans. to the Q.No.10:

A cheque can be crossed by the Drawer, the holder and Bank (for collection)

Q.No.11:

Distinction between negotiation and assignment.

Ans. to the Q.No.11:

Negotiation can be distinguished from assignment as under :

Basis of distinction	Negotiation	Assignment
Consideration	In case of negotiation is presumed (Sec. 118)	In case of assignment consideration is to be proved.
How to effect	Instrument payble to bearer are negotiated by mere delivery ,and instrument payble to order are negotiated by endorsement and delivery.	Assignment is done always by means of a written and registered document under the provision of transfer of property Act,1882.
Where to effect	Negotiation can be done in respect of negotiable instruments only	Assignment can be done in case of other documents in addition to negotiable instruments.
Notice	Notice of transfer to the debtor by the transferee is not necessary.	An assignment does not bind the debtor unless notice of assignment has been given by the assignee to the debtor and the debtor in turn expressly or impliedly , has assented.
Title	The title of the holder in due course is better than that of the transferor.	The title of the assigne is subject to all equities in the title of assignor .in other words; assigne gets the right of assignor only.

Q.No.12:

Duration of Negotiability under section -60.

Ans. to the Q.No.12:

A negotiable instrument may be negotiated:

1. By person other than the maker, drawee or acceptor until payment.

By the maker, drawee or acceptor.

Q.No.13:

Meaning discharge of an instrument:

Ans. to the Q.No.13:

An instrument is said to be discharged only when the party who is ultimately liable there on is discharged from liability.

All rights of action under the instrument are completely extinguished and the instrument cases to be negotiable.

Q.No.14:

Modes of discharge of an instrument

Ans. to the Q.No.14:

An instrument may be discharged in anyone of the following ways shown in ----------

1. By payment in due course
2. By party primarily liable becoming holder.
3. By cancellation
4. By release.

Q.No.15:

Meaning of discharge of a party.

Ans. to the Q.No.15:

A party is said to be discharged only when a party or parties (Other than a party ultimately liable on instrument)

To a negotiable instrument is or are discharged and the instrument continues to be negotiable with the liabilities of undercharged parties attaching there to.

Q.No.16:

Modes of discharge of a party

Ans. to the Q.No.16:

A party may be discharged in one of the following ways shown------------

1. By payment
2. By cancellation
3. By release
4. By allowing drawee more than 48 hours to accept.
5. By non-presentment within a reasonable time
6. By payment of a cheque
7. By qualified acceptance.
8. By material alteration .
9. By payment of an instrument on which alteration in not apparent.
10. By acceptor becoming holder of a bill at or after maturing.
11. By operation of law.

Q.No.17:

Distinction between discharge of an instrument and discharge of a party.

Ans. to the Q.No.17 :

Discharge of an instrument differs from discharges of a party in the following respects :

Basis of distinction	Discharge of an instrument	Discharge of a party
When takes place	When the party who is ulitnately liable is discharged from liability.	When any party or parties to an instrument is are discharged.
Negotiability	The instrument cases to be negotiable	The instrument continues to be negotiable.
Extinguishment of all rights of action.	All rights of action under the instrument are completely extinguished.	All rights of action under the instrument are not completely extinguished.
Discharge of all parties	Discharge of an instrument means discharge of all parties.	Discharge of a party does not mean discharge of all parties.