NEGOTIATION UNDER THE NEGOTIABLE INSTRUMENT ACT

Ø  NEGOTIATION
BUSINESS LAW II
NEGOTIABLE INSTRUMENTS ACT

Ø  SHASHI AGGARWAL ECONOMICS AND LAW CLASSES

Ø  MEANING OF NEGOTIATION

• ONE OF THE SIGNIFICANT AND ESSENTIAL FEATURE OF NEGOTIABLE INSTRUMENT IS TRANSFER ABILITY,
• A NEGOTIABLE INSTRUMENT MAY BE TRANSFERRED:-

1. BY NEGOTIATION OR
2. BY ASSIGNMENT

• MEANING OF NEGOTIATION
• NEGOTIATION MAY BE DEFINED AS THE PROCESS BY WHICH A THIRD PARTY IS CONSTITUTED THE HOLDER OF THE INSTRUMENT SO AS TO ENTITLE HIM THE POSSESSION OF THE SAME AND TO RECEIVE THE AMOUNT DUE THERON IN HIS OWN NAME. ( SEC 14)
• WHEN A PROMISSORY NOTE/BILL OF EXCHANGE/CHEQUE IS TRANSFERRED BY ONE PARTY TO ANOTHER SO AS TO CONSTITUTE THE TRANSFER THE HOLDER THEREOF THE INSTRUMENT IS SAID TO BE NEGOTIATED.
• MODE OF NEGOTIATION:-

1. NEGOTIATION BY DELIVERY ( SECTION 47)
2. NEGOTIATION BY ENDORSEMENT AND DELIVERY( SECTION 48)

• NEGOTIATION BY DELIVERY ( SEC 47)

1. AN INSTRUMENT PAYABLE TO BEARER IS NEGOTIABLE BY DELIVERY. NO ENDORSEMENT IS NECESSARY.
2. FOR EXAMPLE :-X IS THE HOLDER OF THE NEGOTIABLE INSTRUMENT PAYABLE TO THE BEARER,DELIVERS IT TO X’S AGENT TO KEEP IT FOR X. THE INSTRUMENT HAS BEEN NEGOTIATED.
3. TRANSFER BY DELIVERY OF BEARER INSTRUMENT IS A SALE OF THE INSTRUMENT IS JUST LIKE SALE OF THE GOODS
4. A NEGOTIABLE INSTRUMENT DELIVERED ON THE CONDITION THAT IT IS NOT TO TAKE EFFECT EXCEPT ON THE CONDITION BEING FULFILLED IN NOT NEGOTIABLE EXCEPT IN THE HANDS OF HOLDER IN DUE COURSE FOR VALUE RECEIVED WITHOUT NOTICE OF THE CONDITION

• NEGOTIATION BY ENDORSEMENT AND DELIVERY ( SECTION 48)

1. A PROMISSORY NOTE/A CHEQUE/OR BILL OF EXCHANGE PAYABLE TO THE ORDER CAN BE NEGOTIATED ONLY BY ENDORSEMENT AND DELIVERY
2. IMPORTANCE OF DELIVERY:-
3. TO COMPLETE NEGOTIATION DELIVERY OF THE NEGOTIABLE INSTRUMENT IS ESSENTIAL WHETHER THE INSTRUMENT IS PAYABLE TO BEARER OR ORDER
4. THE OBJECT OF THE DELIVERY SHOULD BE PASS TO THE PROPERTY IN THE INSTRUMENT TO THE PERSON TO WHOM IT IS DELIVERED SO AS TO CONSTITUTE THAT PERSON THE HOLDER THERE OF.
5. DELIVER CAN BE :-

1. ACTUAL : INSTRUMENT CHANGES HAND PHYSICALLY
2. CONSTRUCTIVE:- DELIVERED TO THE AGENT/SERVANT OF THE ENDORSEE/WHEN THE ENDORSER HOLDS THE INSTRUMENT AS AN AGENT OF THE ENDORSEE
3. CONDITIONAL OR FOR SPECIAL PURPOSE:-

• TRANSFER BY ASSIGNMENT

1. WHEN A PERSON TRANSFERS HIS RIGHT TO RECEIVE THE PAYMENT OF A DEBT,ASSIGNMENT OF DEBT TAKES PLACE.
2. BILLS ,NOTES AND CHEQUE REPRESENT DEBTS AND AS SUCH HAVE BEEN HELD TO BE ASSIGNABLE WITHOUT ENDORSEMENT.
3. TRANSFER BY ASSIGNMENT TAKES PLACE WHEN THE HOLDER OF A NEGOTIABLE INSTRUMENT SELLS HIS RIGHT TO ANOTHER PERSON WITHOUT ENDORSING IT.
4. THE ASSIGNEE IS ENTITLED TO GET POSSESSION AND CAN RECOVER THE AMOUNT DUE ON THE INSTRUMENT FROM THE PARTIES.
5. NEGOTIABLE INSTRUMENT ONLY RECOGNIZES MODE BY NEGOTIATION.

• NEGOTIATION AND ASSIGNMENT
  DIFFERNECE
• NEGOTIATION

1. REQUIRES ONLY DELIVERY WITH OR WITHOUT ENDORSEMENT
2. NO NEED TO GIVE ANY NOTICE OF THE TRANSFER TO THE DEBTOR BY THE TRANSFEREE TO COMPLETE THE TITLE
3. CONSIDERATION IS ALWAYS PRESUMED
4. HE BECOMES HOLDER IN DUE COURSE AND GETS BETTER TITLE FOR THE VALUE AND GOOD FAITH
5. CAN SUE THIRD PARTY IN HIS OWN NAME

• ASSIGNMENT

1. A SEPARATE  WRITTEN DOCUMENT SUCH AS TRANSFER DEED SIGNED BY THE TRANSFERROR
2. A NOTICE TO BE GIVEN BY THE DEBTOR BY THE ASSIGNEE IN ORDER TO COMPLETE THE TITLE
3. CONSIDERATION MUST BE PROVED BY THE ASSIGNEE
4. SUBJECT TO THE DEFECTS IN THE TITLE OF THE TRANSFEROR EVEN IF TAKES THE ASSIGNMENT FOR VALUE AND IN GOOD FAITH
5. CAN NOT SUE THE THIRD PARTY IN HIS OWN NAME