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NEGOTIATION

Table of Contents

QUESTION BANK.

1. What is negotiation? What are the modes of negotiations?

Q.2. What is negotiation? State capacity required for negotiatin and effect of inforsement.

SHORT NOTES.

Allonage.

SYNIPSIS

INTRODUCTION:-
MODES OF NEGOTIATIONS:-
a) Negotiation by delivery (S. 46 and 47):-
b) Negotiation by enforcement (S. 48):-

III. CAPACITY TO NEGOTIATE (S. 51):-

EFFECT OF ENDORSEMENT (S. 50):-

I. INTRODUCTION:-

According to S. 14, when a promissory note, bill of exchange or cheque is transferred to any person to constitute that person the holder thereof, the instrument is said to be negotiated. In other words, the transfer of an instrument by one party to another (third party) to constitute the transferee a ‘holder’ is called ‘negotiation[1]’. A bearer instrument is transferable by simple delivery.[2].

Negotiation is the process by which a third party constitutes the holder of the instrument to enable him to possess it and to receive or recover the amount due thereon in his own name.

II. MODES OF NEGOTIATIONS:-

The negotiation may be made by actual (or constructive) delivery or by endorsement.

a) Negotiation by delivery[3] (S. 46 & 47):-

When a negotiable instrument is made payable to the bearer, it can be transferred by mere delivery of the instrument, and therefore, it is called ‘negotiation by delivery. In this form, the name of the barter does not appear on the instrument; therefore, he is not liable for the instrument as the endorser. He holds himself liable to pay in case the maker or acceptor dishonours. All contracts on negotiable instruments are completed by delivery and not merely by signature on the document.

Illustrations

(a) A, the holder of a negotiable instrument payable to the bearer, delivers it to B’s agent to keep for B. The instrument has been negotiated.

(b) A, the holder of a negotiable instrument payable to the bearer, which is in the hands of A’s banker, who is at the time the banker of B, directs the banker to transfer the instrument to B’s credit in the banker’s account with B. The banker does so and, accordingly, now possesses the instrument as B’s agent. The instrument has been negotiated, and B has become the holder of it.

The delivery between immediate parties should be made by the party liable to pay or his duly authorised agent.

b) Negotiation by endorsement[4] (S. 48):-

When the instrument is payable to order[5], the transfer must endorse at least his signature before delivering the instrument. An instrument payable to order is negotiated by endorsement and delivery. An indorsement is made by signing the name of the indorser, usually on the back of the instrument. But when the back is already full of endorsements, further endorsements may be signed on a slip of paper annexed to the instrument. Such a slip is called an “alonge” and becomes part of the instrument. In the case of an instrument negotiable by endorsement, mere delivery without endorsement confers no title to the person to whom an instrument is so delivered.

Unless the holder thereof signs his endorsement thereon, the transferee does not become a holder. If there are more payees than one, they all must sign it.

Thus, if a bill is drawn by A payable to B or order, B indorses it in favour of C, who takes it for value and in good faith. If C transfers the same bill to D, who takes it for value and in good faith? D becomes the holder in due course. If C transfers the same bill without endorsement to D, even though D takes it in good faith and for the value, he could not become a holder in due course because the negotiation is not valid. For the negotiation to be valid, it must be made in accordance with the rules of endorsement under this section.

III. CAPACITY TO NEGOTIATE (S. 51):-

Every sole maker, drawer, payee or endorsee, or all of several joint makers, drawers, payees or endorsees, of a negotiable instrument may, if the negotiability of such instrument has not been restricted or excluded as mentioned in S. 50, indorse and negotiate the same.

Explanation- Nothing in this section enables a maker or drawer to endorse or negotiate an instrument, unless he is in lawful possession or is holder thereof, or enables a payee or endorsee to endorse or negotiate an instrument unless he is holder thereof.

Illustration.

A bill is drawn payable to A or order. A endorses it to B, but the endorsement does not contain the words “or order” or any equivalent words. B may negotiate the instrument.

IV. EFFECT OF INDORSEMENT (S. 50):-

The endorsement of a negotiable instrument is followed by delivery transfers to the endorsee of the property therein with the right of further negotiation. But the endorsement may, by express words, restrict or exclude such right or may merely constitute the endorsee an agent to endorse the instrument or to receive its contents for the endorser or some other specified person.

Illustration

B signs the following indorsement on different negotiable instruments payable to the bearer-

(a) Pay the contents to C’ only.”

(6) ‘Pay C for my use.

(d) “The amount within must be credited to C.’

These endorsements exclude C from the right to further negotiation.

(e) “Pay C.”

(J) “Pay C value in account with the Oriental Bank.”

(g) “Pay the contents to C, being part of the consideration in a certain deed of assignment executed by C to the indorser and others”.

These endorsements do not exclude C from the right to further negotiation.

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[1] एका व्यक्तीकडून दुस-या व्यक्तीस चलनक्षम दस्तऐवजाचे हस्तांतरण कि ज्या योगे हस्तांतरीत व्यक्ती धारक होतो त्यास ‘‘हस्तांतरण’’ म्हणतात किंवा चलनक्षम दस्ताऐवजाचे हस्तांतरण म्हणतात.- [एक व्यक्ति से दूसरे व्यक्ति को एक परक्राम्य लिखत का हस्तांतरण जिसमें उचित अंतरिती धारक बन जाता है, इसे एक “स्थानांतरण” या एक परक्राम्य लिखत का स्थानांतरण कहलाता है।]

[2] वहक दस्ताऐवज हे दुस-याच्या ताब्यात देण्याने हस्तांतरीत होत [एक परक्राम्य लिखत को दूसरे को सौंप कर स्थानांतरित किया जाता है]

[3] ताब्यात देण्याने हस्तांतरण. [कब्जे से स्थानांतरण।]

[4] मान्यता देवून किंवा सही करुन हस्तांतरण. [अनुमोदन या हस्ताक्षर द्वारा स्थानांतरण।]

[5] Instrument payable to a specified person or to the order of a specified person are “instruments payable to order”.