Negotiation of the

Negotiable Instruments
Negotiation:
According to Section 14:
“When a Promissory Note, Bill of
Exchange or
Cheque is transferred to any person,
so as to
constitute that person holder thereof,
the
instrument is said to be negotiated”.
Holder—Defined:
According to Section 8:
“The holder of a promissory note, bill of
exchange or cheque means the payee or
the endorsee, who has the possession of
the instrument as its holder, and when
the instrument is payable to bearer, the
bearer of the instrument is holder”
Essential of a Holder:
4. Possession of the instrument
5. Right to receive the payment.
 Holder in Due Course:
According to Section 9:
“Holder in due course means any
person, who for consideration
becomes the possessor of a
promissory note, bill of exchange or
cheque if payable to bearer, or payee
or endorsee, thereof if payable to
order, before it becomes overdue,
without notice that the title of the
person from whom he derived his
Essentials:
 Holder of the instrument

 Holder for lawful consideration

 Holder before maturity

 Must become holder in good faith

 Rights of Holder in Due
Course:
1. Obtains good title
2. Transfers good title
3. Right to complete inchoate stamped
instrument
4. All prior parties liable
5. Acceptor of a fictitious bill liable
6. No effect of conditional delivery
 How Negotiation is
Effected

-- Negotiation may be by delivery

or
- By Endorsement and Delivery

Who May Negotiate:

6) Maker/ Drawer
7) Payee
8) endorsee
 Endorsement:
According to Section 15:
“ When the maker or holder of a
negotiable instrument signs the
same, otherwise than as such maker,
for the purpose of negotiation on the
back or face thereof or on a slip of
paper annexed thereto, or so signs
for the same purpose a stamp paper
intended to be completed as a
negotiable instrument, he is said to
indorse the same, and is called
 Essentials of an
Endorsement:
1. Endorser must be holder
2. Signed
3. Intention
Kinds of Endorsement:
 Blank or general : endorser just signs
his name
 Full or special endorsement:
endorser mentions the name of
endorsee and puts his signature.
 Restrictive: such endorsements
restricts further negotiation of the
instruments, for example
 Essentials of an
Endorsement:
Kinds of Endorsement: Contd..
 Without recourse: without
responsibility of the endorser . For
example:
pay Yasir without recourse to me
Signature of endorser

 Partial endorsement: the endorser

directs the transfer of only a part of
amount payable on a bill of exchange or
Maturity of the
Instrument:
What is Maturity:
It is the date in case of a promissory
note or bill of exchange, at which the
said instrument falls due.
 Days of Grace:
Three days of grace—provided in
Sec. 22 determining payability of
instrument.
(Promissory not, bill of exchange not
cheque)
After Date or Sight—Concept—
Explanation
Calculating maturity of bill or note
payable—after-date /sight