Report On Negotiable Instrument - Final

Negotiable Instruments
Preface:
The Negotiable Instruments Act was passed in 1881. It is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. More specifically, it is a document contemplated by a contract, which. (1) warrants the payment of money, the promise of or order for conveyance of which is unconditional. (2) specifies or describes the payee, who is designated on and memorialized by the instrument and. (3) is capable of change through transfer by valid negotiation of the instrument. As payment of money is promised subsequently, the instrument itself can be used by the holder in due course as a store of value although, instruments can be transferred for amounts in contractual exchange that are less than the instruments face value. Under United States law, Article of the Uniform Commercial Code as enacted in the applicable State law governs the use of negotiable instruments, except banknotes. Some provisions of the Act have become redundant due to passage of time, change in methods of doing business and technology changes. However, the basic principles of the Act are still valid and the Act has stood test of time. The Act exTwentyds to the whole of India. There is no doubt that the Act is to regulate commercial transactions and was drafted to suit requirements of business conditions then prevailing. The instrument is mainly an instrument of credit readily convertible into money and easily passable from one hand to another.
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Background
The law relating to negotiable instruments in Bangladesh is contained in the Negotiable Instrument Act, 1881. This law was framed in British India and later adapted in Pakistan in the wake of partition of the sub-continent. Following the liberation of Bangladesh all the laws then in force including the Negotiable Instrument Act, 1881 were adapted in Bangladesh through an omnibus Presidential Order which, in the main, sought to replace the word Pakistan by Bangladesh in 1971 just as the former did by replacing the word by India in 1947. Although the good number of amendments have been made in the Act it continues to play an important part to dictate commercial transaction in Bangladesh especially the ones that involve a negotiable or even quasi-negotiable instrument. The provisions of the Act have been subject to innumerable scrutiny and interpretations at various forums and especially in the law of courts in the sub-continents for nearly 125 Years. Curiously most of the decisions quoted in the standard text Books pertain to the period before 1947 i. e. during the British regime. Cheques, bills of exchange, promissory notes etc which can be transferred to third parties simply by transfer or endorsement called negotiable instruments. These instruments have gained prominence as the principal instruments for making payments, and discharging business obligations. A negotiable instrument is a transferable document that passes freely from hand to hand and forms an integral part of the modern business mechanism. In Bangladesh particularly, the legal decisions in respect of negotiable instruments is few and far between. It means that due to delay in the dispensation of justice and the hassles and the costs of litigation, the clients prefer to settle the disputes outside the court amicably. People ofTwenty prefer settlement of disputes through physical violence than going to the court. It is evident from the fact although cheques issued in settlement of debts are quite ofTwenty dishonored, mostly for want of funds, the payees hesitate to collect their dues through litigations.
Main Objective
The main object of the Negotiable Instruments Act is to legalise the system by which instruments contemplated by it could pass from hand to hand by negotiation like any other goods. The purpose of the Act was to present an orderly and authoritative statement of leading rules of law relating to the negotiable instruments. To achieve the objective the Act, the legislature thought it
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proper to make provision in the Act for conferring certain privileges to the mercantile instruments contemplated under it and provide special procedure in case the obligation under the instrument was discharged.
Meaning of Negotiation
Negotiation is a problem-solving process in which two or more people voluntarily discuss their differences and attempt to reach a joint decision on their common concerns. Negotiation requires participants to identify issues about which they differ, educate each other about their needs and interests, generate possible settlement options and bargain over the terms of the final agreement. Successful negotiations generally result in some kind of exchange or promise being made by the negotiators to each other. The exchange may be tangible (such as money, a commitment of time or a particular behavior) or intangible (such as an agreement to change an attitude or expectation, or make an apology).
Negotiation is the principal way that people redefine an old relationship that is not working to their satisfaction or establish a new relationship where none existed before. Because negotiation is such a common problem-solving process, it is in everyone's interest to become familiar with negotiating dynamics and skills. This section is designed to introduce basic concepts of negotiation and to present procedures and strategies that generally produce more efficient and productive problem solving. Thus, When a promissory note, bill of exchange or cheque is transferred to any person, so to constitute that person the holder thereof, the instrument is said to be negotiated. [Section 14]
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The essence of negotiation thus lies not in mere transfer of instrument from one person to another but also in the fact that the transferee gets the right as title holder of the instrument. If the transferee of an instrument cannot be called its holder, as defined in Section 8, the instrument is not said to have been negotiated. Negotiation is NOT compromise "Compromise" means giving concessions or settling upon an intermediate point between two positions. It is not a means of getting what you want. Whenever anyone on the other side of the bargaining table offers the word compromise they are voicing their preparedness to lose... and we're about to find out how much it will cost.
Negotiable Instrument
The Negotiable Instruments Act does not define a negotiable instrument but merely states that a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or bearer [Section-13] This does not indicate the characteristics of negotiable instrument but only identifies three instruments cheque, bill of exchange and promissory note as negotiable instruments. These three instruments are, therefore, negotiable instrument by statue. Section l3 does not preclude any other instrument which satisfies the essential features of negotiability, to be treated as negotiable instrument. What is important is the language used to draw a negotiable instrument. According to a court decision as far back as 1936 There must be no reasonable possibility of ambiguity in Construction of a negotiable instrument and its meaning should be instantly recognizable" (AIR 1936 Nag).
Justice K.C. Willis defines a negotiable instrument as "One the property in which a acquired by anyone who takes it bona fide and for value notwithstanding any defect of title in the person from whom he took it Another useful definition is given by Thomas who states that An instrument is negotiable when it is, a legally recognized custom of trade or by law, transferable by delivery or by endorsement and delivery, without notice to the party liable in such a way (a) the holder of it for the time being may sue upon it in his own name, and (b) the property in it passes to a bona fide transferee for value free from any defect in the title of the person from whom he obtained it."
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These definitions clearly reveal the true nature of a negotiable instrument. A negotiable instrument is a transferable document either by the application of the law or by the custom of the trade concerned. The special feature of such an instrument is the privilege it confers on the person who receives it bona fide and for value, to possess good title thereto, even if the transferor had no title or had defective title to the instrument. Characteristics of Negotiable Instrument An analysis of this definition expresses the following characteristics of a negotiable instrument: 1. It is an instrument, in writing. 2. Property in the instrument passes from hand to hand by mere delivery. 3. The holder has a right to sue in his own name. 4. The holder in due course is not affected by defects in the title of his transferor or of previous holders. 5. Without giving notice of assignment to any previous party liable in respect of it. 6. The holder in due course is not affected by certain defences which might by available against previous holders, e.g. fraud to which he is not a party. 7. It can be conveniently assigned in discharge of debts. An instrument may be negotiated in any of the following two ways: 1) By Delivery: A promissory note, bill of exchange or cheque payable to bearer is negotiable by delivery thereof (section 47). Thus is case of bearer instrument mere delivery thereof constitutes its negotiation. The delivery may be given either to the transferee himself or to his agent or banker acting for him. Example: A, the holder of a negotiable instrument payable to bearer, delivers it to Bs agent to keep it for B. The instrument is thus negotiated. A is the holder of a negotiable instrument payable to bearer. The instrument is in the hand of As banker who is at the time the banker of B also. A directs the banker to transfer the instrument to Bs credit in the bankers account with B. The banker does so accordingly now possess the instrument as Bs agent. The instrument is thus negotiated and B becomes its holder.
2) By endorsement and Delivery: . A promissory note, bill of exchange or cheque payable to order is negotiable by the holder by endorsement and delivery thereof (Section 48) Thus the
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negotiation of an order instrument requires first an endorsement thereon by its holder and thereafter its delivery to the transferee.
Promissory Note
A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand to the payee, or at fixed or determinable future time, certain in money, to order or to bearer. Bank note is frequently referred to as a promissory note, a promissory note made by a bank and payable to bearer on demand. Suppose you take a loan of Tk. Five Thousand from your friend Rajib. You can make a document stating that you will pay the money to Rajib or the bearer on demand. Or you can mention in the document that you would like to pay the amount after three months. This document, once signed by you, duly stamped and handed over to Rajib, becomes a negotiable instrument. Now Rajib can personally present it before you for payment or give this document to some other person to collect money on his behalf. He can endorse it in somebody elses name who in turn can endorse it further till the final payment is made by you to whosoever presents it before you. This type of a document is called a Promissory Note. Section 4 of the Negotiable Instruments Act, defines a promissory note as an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. A Promissory note is drawn and signed by debtor, who promises to pay the creditor a certain sum of money the Specimen of a Promissory Note is given below: Tk. 10,000.00 Dhaka-1205 27 November, 2011
On demand, I promise to pay Rajib, s/o Jahidnal Abedin of Aoronkola or order a sum of Tk. 10,000.00 (Taka Twenty Thousand only), for value received. To, Rajib 90, lake circus Kalabagan, Dhaka-1205. S/d Bappy (Signature across the stamp) Stamp
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A Promissory note may be drawn by more than one person also who may undertake to pay the amount both in their individual capacities as well as jointly. The specimen of a Promissory note with joint and several liabilities is given below:
Tk. 10,000.00
Dhaka-1205 27 November, 2011
On demand, We jointly and severally promise to pay Rajib, s/o Jahidnal Abedin of Aoronkola or order a sum of Tk. 10,000/- (Taka Twenty Thousand only), for value received. To, Rajib 90, lake circus Kalabagan, Dhaka-1205. s/d Bappy s/d Aziz (Signature across the stamp) Stamp Stamp
Parties to a Promissory Note

There are primarily two parties involved in a promissory note. They are
i. The Maker or Drawer the person who makes the note and promises to pay the amount
stated therein. In the above specimen, Bappy is the maker or drawer.

ii. The Payee the person to whom the amount is payable. In the above specimen it is
Rajib. In course of transfer of a promissory note by payee and others, the parties involved may be
The Endorser the person who endorses the note in favour of another person. In the above specimen if Rajib endorses it in favour of Muhit and Jahid also endorses it in favor of Turzo, then Rajib and Jahid both are endorsers. The Endorsee the person in whose favour the note is negotiated by endorsement. In the above, it is Muhit and then Turzo.
It is to be clarified that endorsement means transfer of any document or instrument to another person by signing on its back or face or on a slip of paper attached to it.
Features of a Promissory note

Let us know the features of a promissory note: i. A promissory note must be in writing, duly signed by its maker and properly stamped as per Stamp Act.
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ii. It must contain an undertaking or promise to pay. Mere acknowledgement of indebtedness is not enough. For example, if someone writes I owe Tk. 5000/- to Mehdi, it is not a promissory note. iii. The promise to pay must not be conditional. For example, If it is writTwenty I promise to pay Rajib Tk. 15,000/- after my sisters marriage, I promise to pay Rajibs Tk. 15,000/- and all other sums from my money which he may owe me is not a promissory note. iv. It must contain a promise to pay money only. For example, if someone writes I promise to give Pulak a Pulsar Motorbike it is not a promissory note. v. The parties to a promissory note, i.e. the maker and the payee must be certain. vi. A promissory note may be payable on demand or after a certain date. For example, if it is writTwenty three months after date I promise to pay Dipu or order a sum of Taka Five Thousand only it is a promissory note. vii. The sum payable mentioned must be certain or capable of being made certain. It means that the sum payable may be in figures or may be such that it can be calculated.
Bill of exchange
A bill of exchange or draft is a writTwenty order by the drawer to the drawer to pay money to the payee. A common type of bill of exchange is the cheque check in American English, defined as a bill of exchange drawn on a banker and payable on demand. Bills of exchange are used primarily in international trade, and are writTwenty orders by one person to his bank to pay the bearer a specific sum on a specific date. Prior to the advent of paper currency, bills of exchange were a common means of exchange. They are not used as ofTwenty today. A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at fixed or determinable future time a sum certain in money to order or to bearer. Suppose Rajib has given a loan of Taka Twenty Thousand to Noyon, which Noyon has to return. Now, Rajiv also has to give some money to Abul. In this case, Rajiv can make a document directing Noyon to make payment up to Taka Twenty Thousand to Abul on demand or after expiry of a specified period. This document is called a Bill of Exchange, which can be transferred to some other persons name by Abul. Section 5 of the Negotiable Instruments Act, defines a bill of exchange as an instrument in
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writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument. A bill of Exchange contains an order from the creditor to the debtor to pay a specified amount to a person mentioned therein. The Specimen of a Bill of Exchange is given below: Tk. 20,000.00 Dhaka 27 November, 2011
Five months after date pay to Tarun or (to his) order the sum of Taka Twenty Thousand only for value received. To, Noyon Address Accepted Noyon Stamp S/d Rajib
Parties to a Bill of Exchange

There are three parties involved in a bill of exchange. They are
i.
The Drawer The person who makes the order for making payment. In the above specimen, Rajiv is the drawer. the drawer. It is Noyon in this case.
ii. The Drawee -The person to whom the order to pay is made. He is generally a debtor of
iii. The Payee The person to whom the payment is to be made. In this case it is Abul.
The drawer can also draw a bill in his own name thereby he himself becomes the payee. Here the words in the bill would be Pay to us or order. In a bill where a time period is mentioned, just like the above specimen, is called a Time Bill. But a bill may be made payable on demand also. This is called a Demand Bill.
Features of a bill of exchange

Let us know the various features of a bill of exchange. i. A bill must be in writing, duly signed by its drawer, accepted by its Drawee and properly stamped. ii. It must contain an order to pay on demand or at fixed or determinable future date. Words like please pay Rs 5,000/- on demand and oblige are not used.
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iii.
The order must be unconditional. The order must be to pay money and money alone. The sum payable mentioned must be certain or capable of being made certain. The parties to a bill must be certain.
iv. v. vi.
Cheques
Cheque is a very common form of negotiable instrument. If you have a savings bank account or current account in a bank, you can issue a cheque in your own name or in favour of others, thereby directing the bank to pay the specified amount to the person named in the cheque. Therefore, a cheque may be regarded as a bill of exchange; the only difference is that the bank is always the drawee in case of a cheque. The Negotiable Instruments Act defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. [section -6] Actually, a cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or to the bearer. (a specimen copy of a cheque) City bank KA 2125879 Payable at any branch in Date: Bangladesh 2549875 .. Or Bearer .. Tk.
Pay to............................... The Sum of Taka Name of The Account 210115894221
Signature 2126050 Features of a cheque 22524895 10
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Let us look into some important features of a cheque. i. A cheque must be in writing and duly signed by the drawer.
ii. It contains an unconditional order.
iii. It is issued on a specified banker only.
iv. The amount specified is always certain and must be clearly mentioned both in figures and words. v. The payee is always certain.
vi. It is always payable on demand. vii. The cheque must bear a date otherwise it is invalid and shall not be honoured by the bank.
Similarities & Dissimilarities between Cheque and Bill of Exchange:

Similarities: 1. Both are governed by the same act i.e. negotiable instruments Act, 1881.
Dismilarities:
1. Under section 6 of the Negotiable Instruments Act cheque has been defined as A cheque is a bill of Exchange drawn on a specified Banker and not expressed to be payable otherwise than on demand. Section 5 of the Negotiable Instruments Act defines a bill of exchange in the following way A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.
2. By a cheque only a bank is ordered to pay money.

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By a bill of exchange any person (including bank) may be given an order to pay money.
3. In case of cheque acceptance is not at all necessary. Except in special cases the bill of exchange does not always require acceptance. 4. A cheque is always payable in demand. Bill of exchange may be payable on demand or it may be payable after a certain period of time. 5. In case of a cheque no grace period is allowed. It is always payable on demand. In case of bill of exchange the acceptor of bill of exchange is allowed a grace period of three days after the maturity of the bill to make the payment.
6. The drawer of a cheque is discharged from his liability only if he suffers damage owing to delay in presenting the cheque for payment. The drawer of a bill of exchange is discharged from liability if the bill is not presented to the acceptor for payment at the due time. 7. If a cheque is dishonoured by a Bank then it is necessary to give a notice of dishonor to the drawer for making him liable for paying compensation to the payee. In a bill of exchange, notice of such dishonor is not required to be given. But in certain special cases it is necessary. 8. A cheque may be crossed. There is no system (provision) of crossing a bill of exchange. 9. In the case of a cheque the payment may be countermanded by the drawer. There is no system of countermanding of a bill of exchange. 10. Stamp is not necessary in the case of a cheque. In the case of a bill of Exchange stamp is required i.e. a bill of exchange must be stamped except in certain cases.
Similarities & Dissimilarities between Cheque and Promissory Note:

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Dissimilarities: 1. Under section 6 of the Negotiable Instruments Act Cheque has been defined as A cheque is a bill of exchange drawn on a specified Banker and not expressed to be payable otherwise than on demand Section 4 of the Negotiable Instruments Act, 1881 has defined Promissory Note as An instrument in writing (not being a Bank Note or a Currency Note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument.
2. In a cheque there are generally three parties namely Drawer, Drawee and Payee. In a Promissory Note there are two parties Maker (Promisor) and Payee (Promisee).
3. In case of dishonor of Cheque notice of dishonor is must. In case Promissory Note no notice of dishonor is necessary.
4. A Cheque must be drawn in the printed cheque book supplied by the Bank. There is no such form in case of Promissory Note.
5. There is no need of any stamp in case of Cheque But Every Promissory Note is to be stamped as per requirement of the Stamp Act.
Dissimilarities between Bill of exchange and Promissory Note:

1. Section 5 of the Negotiable Instrument Act defines a Bill of Exchange in the following
way-A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sun of money only to, or to the order of a certain person or to the bearer of the instrument.
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Section 4 of the Negotiable Instruments Act, 1881 has defined Promissory Note as An instrume nt in writing (not being a Bank Notre or a currency Note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument. 2. A Bill of Exchange is an order given by creditor over debtor to pay money. A promissory note is a writTwenty promise from the debtor to the creditor.
3. In a Bill of Exchange there are three parties m namely drawer, drawee and payee. In a promissory note there are two parties namely Promisor (Maker) nad Promisee (Payee).
4. In a Bill of Exchange acceptance is required, otherwise the drawee is not liable to pay the money of the bill. In a promissory Note acceptance is not necessary.
5. In a bill of exchange if the bill is dishonoured the parties responsible for the dishonor must communicate the subject of dishonor through Notary Public. In a promissory Note notice of dishonor is not necessary.
6. In the case of bill of Exchange, the primary liability to pay money is of the drawee, but if
the drwee refuses to pay the money then only the drawer is liable to pay the money. In a promissory note the promisor or the maker is primarily liable to pay the money of the instrument
Holder
According to section 8 the holder of a promissory note , bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. A person is called the holder of a negotiable instrument if the following conditions are satisfied:
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a. He must be entitled to the possession of the instrument in his own name and under a legal title. Actual possession of the instrument is not essential; the holder must have the legal right to possess the instrument in his own name. For example, a thief, or a finder on the road , or an indorsee under a forged indorsement, although may be having the possession of the instrument, cannot be called its holder because he does not acquire the legal title thereto and hence is not entitled in his own name to the possession thereof. b. He must be entitled to receive or recover the amount from the parties concerned in his own name. In order to be called a holder, besides being entitled to the possession of the instrument in his own name, the person must also have the right to receive or recover the amount of the instrument and give a valid discharge to the payer. It may, thus, be concluded that both of the above conditions must be satisfied by a person to be a holder. Holder in due course: The holder in due course means any person who for consideration became the possessor of a negotiable instrument if payable to bearer, or the payee or endorsee thereof if payable to order, before the amount mentioned in it became payable, and without sufficient cause to believe that any defect existed in the titled of the person from whom he derived his titled (section 9). A person becomes a holder in due course of a negotiable instrument if the following conditions are satisfied: 1. He must be entitled to the possession of the instrument in his own name and under a legal title and to recover the amount thereof from the parties liable thereto. 2. 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.
3. 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 called holder in due course without consideration. The consideration must be legal and adequate. For example, if a cheque is given in respect of a debt incurred in gambling, the consideration for the cheque is unlawful. If the value of the of the consideration falls short of the amount of the instrument, the person will be deemed as holder in due course to the exTwentyt of the value of consideration. 4. The instrument must have been obtained before the amount mentioned therein becomes payable. This condition is applicable to document payable otherwise than on demand and does not apply to a cheque which is always payable on demand. 5. The holder in due course must obtain the instrument without having sufficient cause to believe that any effect existed in the title of the transferor. This is the most important
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condition to be satisfied. He must take the instrument without any negligence on his part. If there is something to arouse a suspicion and he take the negotiable instrument without making proper inquiries he cannot be said to be the holder in due course. Holder in due course for bearer instruments In the case of an instrument payable to bearer, holder in due course means any person who for consideration became its possessor before the amount mentioned in it becomes payable. Holder in due course for instruments payable to order In the case of an instrument payable to order, holder in due course means any person who become the payee or endorsee of the instrument before the amount mentioned in it became payable. Prerequisites for being holder in due course A person who claims to be holder in due course is required to prove: i. ii. iii. iv. That he is a holder: That he is a holder for consideration: Acquisition before maturity: That he has no knowledge of defective title:
The instrument was complete at the time of possession
Right of a holder: The holder of a negotiable instrument enJahids 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 Not negotiable. He can negotiate a cheque to a third person, if such negotiation is not prohibited by the direction given in the cheque.
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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.
Privileges of a holder in due course: A holder in due course enJahids the following privileges under the negotiable instruments act:
i.
He gets a better title that that of the transferor: This is the greatest privilege of a holder in due course. He always possesses better title than that of his transferor. For example, if P transfers the instrument (being a bearer one) to R under circumstances (for value in good faith) which make R a holder in due course, r can sue on the instrument. The party liable to pay can take, as against P, the defence of theft or fraud, but as against R he will not be allowed to take such a defence. Liability of prior parties to holder in due course: According to section 36 Every prior party to a negotiable instrument , i.e., its maker or drawee , acceptor or endorser, is liable thereon to a holder in due course until the instrument is duly satisfied. It means that a holder in due course can recover the amount of the negotiable instrument, from any or all of the previous parties to the instrument. Right of the holder in due course in case of inchoate instrument: If a negotiable instrument was originally inchoate (incomplete) instrument and a subsequent transferor completed the instrument for a sum greater than what was the inTwentytion of the maker, the right of a holder in due course to recover the money of the instrument is not at all affected. Right in case of fictitious bills: If a bill of exchange is drawn on behalf of a fictitious person and is payable to his order, the acceptor is not relieved of his liability to holder in due course because of such fictitious name. But it is essential that the holder in course proves that the document bears the endorsement with signature in the same hand as that of the drawer and pupating to be made by the drawer. Example: X draws a bill on Y but signs in the fictitious name of Z. It is payable to the order of Z and is duly accepted by Y. X endorses it to A who becomes the holder in due course. Y, the acceptor of the bill, cannot deny his liability on the bill to the holder in due course on the ground that it was drawn on behalf of a fictitious person Z. It is, however, essential that the signature of Z as drawer, and as endorser must be in the same handwriting.
ii.
iii.
iv.
v.
Right in case the instrument is obtained by unlawful means or unlawful consideration:
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A person liable on a negotiable instrument cannot defend himself against a holder in due course on the ground that the instrument was lost or obtained from him by means of an offence or for an unlawful consideration (section 58). vi. Estoppels against denying original validity of the instrument: Section 120 provides that no maker of a promissory note and no drawer of bill of exchange or cheque and no acceptor of a bill of exchange for the honor of the drawer shall in a suit thereon by a holder in due course be permitted to deny the validity of the instrument as originally made or drawn. Estoppel against denying capacity of payee to endorse: No maker of a promissory note and no acceptor of a bill of exchange payable to order shall, in a suit thereon by a holder in due course, be permitted to deny the payees capacity at the date of note or bill, to endorse the same (section 121). By virtue of the section 121, a holder in due course can claim payment in his own name despite the payees incapacity (being an insolvent) to endorse the instrument. Estoppel against denying signature or capacity of prior party: No endorser of a negotiable instrument shall, in a suit thereon by a subsequent holder, be permitted to deny the signature or capacity of any prior party to the instrument (Section122).
vii.
viii.
Difference between holder and holder in due course

The difference between holder and holder in due course are: 1. Meaning: Holder means any person entitled in his own name to the possession of the negotiable instrument and to recover or receive the amount due thereon from the parties thereto. A holder in due course on the other hand, means a holder who takes the instrument in good faith for consideration before it is overdue and without any notice of defect 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 a holder of the instrument. 3. Title: Holder of negotiable instrument does not acquire a better title than that of the person from whom he acquired the instrument. Thus a holder does not acquire a good title if the title of any of the prior parties is defective. But a holder in due course gets a good title even though there was a defect in the title of any prior parties to the instrument.
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4. Liability: A holder in due course can sue all prior parties to a negotiable instrument until the instrument is duly satisfied. Whereas a holder of the instrument can enforce it against the person 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 before the amount mentioned in it become payable. But a holder may acquire the instrument even after it has become due for payment.
Different Types of Cheque

Broadly speaking, cheques are of four types. a) Open cheque, and b) Crossed cheque. c) Bearer cheque d) Order cheque Let us know details about these cheques. Open cheque: A cheque is called Open when it is possible to get cash over the counter at the bank. The holder of an open cheque can do the following: i. Receive its payment over the counter at the bank, ii. Deposit the cheque in his own account iii. 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 to issue such cheques. This risk can be avoided by issuing another types of cheque called Crossed cheque. The payment of such cheque is not made over the counter at the bank. It is only credited to the bank account of the payee. A cheque can be crossed by drawing two transverse parallel lines across the cheque, with or without the writing Account payee or Not Negotiable. 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 can be transferred by mere delivery and requires no endorsement. 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 word order may be writTwenty. The payee can transfer an order cheque to someone else by signing his or her name on the back of it.
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There is another categorization of cheques which is discussed below: Ante-dated cheques:- Cheque in which the drawer mentions the date earlier to the date of presenting if for payment. For example, a cheque issued on 20th May 2003 may bear a date 5th May 2003. Stale Cheque:- A cheque which is issued today must be presented before at bank for payment within a stipulated period. After expiry of that period, no payment will be made and it is then called stale cheque. Find out from your nearest bank about the validity period of a cheque. Mutilated Cheque:- In case a cheque is torn into two or more pieces and presented for payment, such a cheque is called a mutilated cheque. The bank will not make payment against such a cheque without getting confirmation of the drawer. But if a cheque is torn at the corners and no material fact is erased or cancelled, the bank may make payment against such a cheque. Post-dated Cheque:- Cheque on which drawer mentions a date which is subsequent to the date on which it is presented, is called post-dated cheque. For example, if a cheque presented on 8th May 2003 bears a date of 25th May 2003, it is a post-dated cheque. The bank will make payment only on or after 25th May 2003.
Crossing of Cheque:
A cheque is said to be crossed when two parallel transverse lines are drawn across the face of the cheque, with or without words like & Co, or not negotiable inserted between them. Significance of Crossing: Ordinarily, the payee of a cheque is entitled to encash the cheque at the counter of the paying banker by presenting it within the specified banking hours. In case of a bearer cheque, the paying banker does not need to go into an elaborate exercise with regard to the identity of the holder of the cheque. The practice has been given legal coverage in the Negotiable Act, 1881. When a cheque is crossed it in effects means a request more appropriately, an instruction by the client not to pay the cheque directly over the counter but to a banker only for crediting the payees account with the latter. A cheque bearing such an instruction is called a crossed cheque.
Types of Crossing
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General Crossing: Where a cheque bears across its face an addition of the words and company or any abbreviation thereof, between two parallel transverse lines, or two parallel transverse line simply, either with or without the words not negotiable that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally. [Section 123] The drawing of two parallel transverse lines on the face generally diagonally across the top left cornerof the cheque constitutes general crossing. The lines must be (i) on the face of the cheque, (ii) parallel to each other, and (iii) in cross direction. The effect of general crossing is that the cheque must be presented to the paying banker through any banker and not by the payee himself at the counter. The collecting banker credits the proceeds the account of the payee or the holder of the cheque. The latter ''may thereafter withdraw the money.
Fig: Specimen of General Crossing Special Crossing:

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where a cheque bears across its face an addition of the name of banker, either with or without the without the words not negotiable that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed specially and to be crossed to that banker.[ Section 124] The addition of the name of a banker across the face of a cheque constitutes special crossing. Drawing of two parallel lines on the face of the cheque is not essential in case of special crossing. Special crossing differs from general crossing because in case of the former inclusion of the name of a banker is essential whereas in general crossing drawing of two parallel transverse lines is a must. It should be noted that in addition to these minimum statutory requirements for two types of crossings, addition of words or lines may also be included, e.g., In case of 'Special Crossing', the name of a banker may be writTwenty within two parallel transverse lines or with the words 'and Company' or "Account Payee only or Not negotiable. The inclusion of these words has become customary. The cheque crossed specially thus becomes Safer than the generally specially.
Pubali Bank Ltd
Pubali Bank Ltd
Account Payee Only Pubali Bank Ltd
Fig: Specimen of Special Crossing. What does not constitute Crossing:

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(1)
(2) (3)
A cheque bears the words 'not negotiable' or 'account payee without two parallel lines or the name of any bank. This is not deemed to be a crossed cheque because the words vnot negotiable' within two parallel transverse lines on the face of the cheque constitute general crossing . The two transverse lines are essential in case of general crossing. To qualify for 'Special Crossing' the name of a bank must be writTwenty with or without two parallel lines. If a cheque bears single line across its face or simply an X mark, the cheque is not treated as a crossed cheque. The inclusion of any other word/words within two parallel lines is irrelevant and the cheque is still deemed to be a crossed cheque,
Persons who can Cross a Cheque: Crossing is an instruction or a direction to the paying banker. Obviously, the drawer of a cheque is compeTwentyt to cross it generally or specially. Section 125, however, permits the following persons also to cross the cheque:
1. The holder of a cheque may cross it generally or specially, if ; it is uncrossed or may cross
it specially if it is crossed generally or may add the words 'not negotiable' in case of both types of .crossing.
2. The banker to whom the cheque is crossed specially may again cross it especially to
another banker, his agent, for collection. This is called Double Special Crossing. A general crossing may be converted into a special crossing by a holder by adding the name of a banker to make the payment of the cheque safer. But the reverse is not possible. Liability of the Paying Banker on Crossed Cheques According to the section 126 Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker and 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 it is crossed or his agent for collection. The payment of a crossed cheque is to be made to a banker only. If it is presented for payment at the counter of the paying bank, the latter will be justified in refusing its payment. If the payee or the holder of a crossed cheque has an account with, the paying banker and presents a crossed cheque for payment at the counter, the banker should not comply with such request and the cheque should be paid through his account. "Any banker paying a cheque crossed generally, otherwise than to a banker, or a cheque crossed specially, otherwise than to the banker to whom the same is crossed, or his agent for collection
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being a banker, shall be liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid." (Section 129) Liability to the true owner of the cheque: Generally, the paying banker is not responsible to the payee or tne holder of a cheque, as there is no contract between the two, but if the paying banker makes payment of a crossed cheque in contravention of the direction of the drawer conveyed through the crossing, the banker shall be liable to the true owner of the cheque for any loss sustained by him as a result of such payment. Whatever is the loss suffered by the true owner or are the expenses incurred by him will be reimbursed by the banker. Not Negotiable Crossing: The words not negotiable may be included in the general and special crossing respectively. The inclusion of the words 'not negotiable ' in the crossing has great practical significance. These words do not make the cheque non-transferable but their inclusion in the crossing takes away one of the important characteristics of a negotiable instrument. The effect of the words not negotiable in the crossing will be clear- from the following examples:
1.
A draws a crossed cheque on his banker in favour of B without the words 'not negotiable' therein. C steals it from the house of B and endorses it to D who receives it for value (i.e.. for valid consideration) and in good faith (i.e., without the knowledge of the fact that C had no title to the cheque). D will, be its holder in due course and will have valid title, though his transferor (endorser) had no title thereto. If in the above example the cheque bears the words 'not negotiable' in the crossing, it will make a material difference in the title of the parties. As the title of C is defective, he cannot transfer to D title better than what he himself possesses. In other words, D cannot be its holder in due course and cannot have absolute title to the cheque, even if he has acquired it for valid consideration and in good faith.
2.
The primary objective of 'not negotiable' crossing is to safeguard the interest of the true owner of the cheque. It is in reality a warning to the payee or endorsee or the holder of the cheque to accept it only if he knows the endorser well and is convinced that the latter has good title thereto, because, in its absence, his own title to the cheque will become defective and he himself will be liable to the true owner of the cheque even if he has acquired it for consideration. The Paying Banker's Position:
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The paying banker does not bear any liability or risk in case of a crossed cheque with not negotiable crossing provided he makes payment i. in due course, and ii. in accordance with the crossing. He can make payment of such a cheque even if it bears endorsement. Not negotiable crossing is a caution to the holder and his collecting banker. Account Payee Crossing: The words "Account Payee" or "Account Payee only" in the crossing have special significance because they inTwentyd to make the cheque safer. These words are not recognised by the Negotiable Instruments Act but are in usage due to the practice prevalent in the business community.
Double Crossing: Where a cheque is crossed specially to more than one banker, except when crossed to more than one banker, except when crossed to an agent for the purpose of collection, the banker on whom it is drawn shall refuse payment thereof. (Section 127) A cheque bearing a special crossing is to be collected through the banker specified therein. It cannot therefore, be crossed specially again to another banker, i.e., cheque cannot have two special crossings, as the very purpose of the first special crossing is frustrated by the second one. However, there is one exception to this rule for a specific purpose. If the banker, to whom a cheque is specially crossed, does not have a branch at the place of the paying banker, or if he otherwise feels the necessity, he may cross the cheque especially to another banker, who acts as his agent for the purpose of collection of the cheque. In such a case, the latter crossing must specify that the banker to whom it has been specially crossed again shall act as the agent of the first banker for the purpose of collection of the cheque, e.g., National Bank Ltd. To Janata Bank as agent for collection It is essential that words "as agent for collection" must be included in.the special crossing, subsequent endorsement or discharge. Thus a cheque bearing-a double special crossing as given below shall not be honoured by the paying banker. The collecting banker on his part cannot refuse to collect such a cheque. National Bank Ltd. Janata Bank
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Obliterating a Crossing: Sometimes the crossing on a cheque is obliterated or erased by a dishonest person so cleverly and skilfully that the paying banker is unable,despite outmost efforts on his part, to detect such obliteration and pays the cheque as an open cheque. Section 89 provides statutory protection to the paying banker provided the following conditions are fulfilled:
a) The cheque does not appear to be a crossed one at the time of presentation or the
obliteration of the crossing is not apparent.

b) the payment is made according to the apparent Twentyor of the cheque and in due course
(under Section 10). The paying banker is discharged from his liability if such cheque is paid at the counter on presentment. He can debit the amount of the cheque to the drawer's account.
Opening of the crossing: If the crossing on a cheque is cancelled, it is called opening of the crossing. The cheque thereafter becomes an open cheque. Only the drawer of the cheque is entitled to open the crossing of the cheque by writing the words 'Pay Cash' and cancelling the crossing along with his full signature. His initials are not sufficient for this purpose. The paying banker must be very careful in ascertaining the validity or genuinenes's of the drawer's signature opening the crossing. If drawer's signature (already on the cheque) is forged by the holder in order to open the crossing and the payment is obtained at the counter, the banker will remain liable to the true owner of the cheque. The banker is under an obligation to pay the cheque according to the direction of the drawer conveyed through the crossing on the cheque.
Endorsement of Cheque
Endorsement: When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of 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 stamped paper inTwentyded to be completed as a negotiable instrument, he is said to endorse the same and is called endorser [Section-15]
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Endorser: The person who sings the instrument for the purpose of negotiation is called the endorser. The endorser may sign either on the face or on the back of the negotiable instrument but according to the common usage endorsements are usually made on the back of the instrument. Endorsee: The person in whose favor instrument is transferred is called the endorsee. Endorsement has different meanings, but in the law of negotiable instruments such as checks and securities, it is the act of the owner or payee his/her name to the back of a check, bill of exchange or other negotiable instrument so as to make it payable to another or cashable by any person. It is also sometimes referred to as "endorsement". An accommodation endorsement is the guarantee given by one person (or legal entity) to induce a bank or other lender to grant a loan to a different person (or legal entity). It is also the banking practice whereby one bank endorses the acceptances of another bank, for a fee, making them appropriate for purchase in the acceptance market. Section 15 defined Endorsement as follows: When a maker or holder of a negotiable instrument signs the same, otherwise then as such maker, for the purpose of negotiable, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper inTwentyded to be completed as a negotiable instrument, he is said to indorse the same and is called endorser
Types of Endorsement
There are five kinds of endorsements recognized in the Uniform Commercial Code: 1. Endorsement in blank: If the endorser signs his name only, the endorsement is said to be in blank (Section 16). The endorser does not specify the name of endorsee with effect that an instrument endorsed in blank becomes payable to the bearer (subject to the provisions as regards crossed cheques) even though originally payable to order (Section 54) and no further endorsement is required for its negotiation. For Example, If a cheque is payable to X or order and X merely signs on its back, such endorsement is called endorsement in blank. Such endorsement makes it a bearer cheque which may be further negotiable by mere delivery. But if such a cheque is a crossed one, its payment cannot be made at the counter of the bank, even if it is endorsed in blank. If the endorsement in blank is followed by endorsement in full, it becomes payable to or to the order of the person mentioned in the last endorsement. 2. Endorsement in Full: If in addition to his signature, the endorser adds a direction to pay the amount mentioned in the instrument to or to the order of, a specified person, the endorsement is said to be endorsement in full (Section 16). If in the above illustration X adds the words Pay to Y or Pay to
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Y or order, such endorsement is called endorsement in full. The instrument will then be payable to Y or his order and will necessitate endorsement by Y for its further negotiation. 3. Conditional Endorsement: If the endorser of a negotiable instrument, by express words in the endorsement, makes his liability or the right of the endorsee to receive the amount due thereon, dependent on the happening of a specified event, although such even may never happen, such endorsement is called a conditional endorsement (Section 52). Such an endorser gets the following rights: a. He may make his liability on the instrument condition on the happening of a particular event. He will not be liable to the subsequent holder if the specified event does not take place. The endorsee in such a case can sue other parties to the instrument even before the particular event takes place. b. He may make the right of the endorsee of the instrument conditional on the happening of a particular event. For example, pay C if he returns from London. Thus C gets the right to receive payment only on the happening of a particular event i.e., if he returns from London. If the event does not take place, the endorsee cannot sue any of the parties. Conditional endorsements do not make the instruments nontransferable. However, such endorsements are generally not used. 4. Restrictive Endorsement: Generally, an endorsee of a negotiable instrument is fully compeTwentyt to negotiate it further but Section 50 permits restrictive endorsements which take away the negotiability of such instruments. The endorsement may, by express words, restrict or exclude the right to negotiate or may merely constitute the endorsee an agent to endorse the instrument or to receive its conTwentyts for the endorser or for some other specified person. Such an endorsement, prohibits further endorsement and is called Restrictive endorsement. For example, if B endorses an instrument payable to bearer as follows, the right of C to further negotiates is excluded a. Pay the conTwentyts to C only b. Pay C for my use c. Pay C or order for the account of B d. The within must be credited to C 5. Endorsement Sans Recourse: The endorser of a negotiable instrument may, by express words in the endorsement exclude his won liability thereon (Section 52). For Example, R endorses a cheque as follows: a. Pay to X or order at his own risk b. Pay to C without recourse to me 6. Facultative Endorsement: The endorsement must give notice of dishonor of the instrument to the endorser, but the latter may waive this duty of the endorsee by writing in the endorsement Notice of dishonor waived. The endorser remains liable to the endorsee for the non-payment of the instrument. The following is an example of a state statute dealing with endorsement: "(a) An endorsement may be in blank or special. An endorsement in blank includes an endorsement to bearer. A special endorsement specifies to whom a security is to be transferred or who has power to transfer it. A holder may convert a blank endorsement to a special endorsement. (b) An endorsement purporting to be only of part of a security certificate representing units inTwentyded by the issuer to be separately transferable is effective to the exTwentyt of the endorsement. 28 | P a g e
(c) An endorsement, whether special or in blank, does not constitute a transfer until delivery of the certificate on which it appears or, if the endorsement is on a separate document, until delivery of both the document and the certificate. (d) If a security certificate in registered form has been delivered to a purchaser without a necessary endorsement, the purchaser may become a protected purchaser only when the endorsement is supplied. However, against a transferor, a transfer is complete upon delivery and the purchaser has a specifically enforceable right to have any necessary endorsement supplied. (e) An endorsement of a security certificate in bearer form may give notice of an adverse claim to the certificate, but it does not otherwise affect a right to registration that the holder possesses. (f) Unless otherwise agreed, a person making an endorsement assumes only the obligations provided in Section 7-8-108 and not an obligation that the security will be honored by the issuer."
Legal Provision regarding Endorsements:

1) Effect of Endorsement: . The endorsement of a negotiable instrument followed by delivery transfers to the endorsee the property therein with the right of further negotiation (Section 50). Thus the endorsee acquires property or interest in the instrument as its holder. He can also negotiate it further. (His right can, of course, be restricted by the endorser in case of a restrictive endorsement). Section 50 also permits that an instrument may also be endorsed so as to constitute the endorsee an agent of the endorser To endorse the instrument further or To receive its amount for the endorser or for some other specified person. The example of such endorsements is as follows: i) ii) pay C for my use Pay C or order for account of B 2) Endorser: Every sole maker, drawer, payee or endorsee or all of several joint makers, drawers, payees or endorsees, of a negotiable instrument may endorser and negotiate the same. This is subject to the condition that the right to negotiate has not been restricted or excluded (Section 51). Thus in case the instrument is held jointly by a number of persons, endorsement by all of them is essential. One cannot represent the other. 3) Time: A negotiable instrument may be negotiated until its payment has been made by the banker, drawee or acceptor at or after maturity but not thereafter (section 60) 4) Endorsement for a part of the amount: The instrument must be endorsed for its entire amount. Section 56 provides that no writing on a negotiable instrument is valid for the purpose of negotiation if such writing purports to transfer only a part of the amount appearing to be due on the instrument. Thus an endorsement for a part of the amount of the instrument is invalid. But in case an instrument has been partly paid, it may be negotiated for the balance of the amount provided a note to that effect is given on the instrument (Section 56). If the endorser inTwentyds 29 | P a g e
to transfer the document to two or more endorsees separately, it will not constitute a valid endorsement. 5) The legal representative of a deceased person cannot negotiate by delivery only, a promissory note, bill of exchange or cheque payable to order and endorsed by the deceased but not delivered (section 57). If the endorser dies after endorsing the instrument payable to order but without delivering the same to the endorsee, such endorsement shall not be valid and his legal representative cannot complete its negotiation by mere delivery thereof. 6) Unless contrary is proved it is presumed under Section 118 that the endorsements appearing upon a negotiable instrument where made in the order in which they appear thereon. It means that the endorsement which appears on an instrument first is presumed to have been made earlier to the second one.
General Rules regarding the Form of Endorsements:

The correct way of an endorsement depends upon the practice amongst the bankers. The following rules usually followed in this regard. Signature of the endorser: The signature of the documents for the purpose of endorsement must be that of the endorser or any other person who is duly authorized to endorse on his behalf. If a cheque is payable to two persons. Both of them should sign their names in their own handwriting. If the endorser signs in block letters. It will not be considered a regular endorsement. Spelling: The endorser should spell his name in the same way as his name appears on the cheque or the bill as its payee or endorsee. if his name is misspelt or his designation has been given incorrectly, he should sign the instrument in the same manner as given in the instrument. Thereafter he may also put his proper signature, if he lies to do so. For example, if the payees name is wrongly spelt as Azizul Haq instead of Md. Moin Uddin regular endorsement will be as Azizul Haq Md. Moin Uddin
No addition or omission of initial of the name: An initial of name should neither be added nor omitted from the name of the payee or endorsee as given in the cheque. For example, a cheque payable to Segufta Baksh should not be endorsed as S. Baksh. Similarly, a cheque payable to Md. Moin Uddin should not be endorsed as A. Haque because it will create doubts in the mind of the paying banker about what does the initial stand for. It is possible that some Aminul Haque has singed on the cheque as A haque. Prefix and Suffixes to be excluded: The prefixes and suffixes to the name of the payee or endorsee need not be included in the endorsement. For Example, the words Mr. , Messrs, Mrs Miss, Janab, Maulavi, Haji, Shri, Srimati, Babu, General, Dr., Major etc need not be given by the endorser; otherwise the endorsement will not be regular. However, an endorser may indicate his title or rank, etc. after his signature. For example a cheque payable to Major Rana Habib or Dr. Shariful Islam may be endorsed as Rana Habib, Major or Shariful Islam M D.
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Regular Forms of Endorsement:
Married Woman: If a cheque should be as follows: Payee Mrs. Rashida Begum (Wife of Mr. Md. Moin Uddin) Mrs. S. A. Haque of exchange is payable to a married woman, the endorsement
Regular Endorsement Irregular Endorsement Rashida Begum or (Mrs.) Md. Mrs. Md. Moin Uddin Moin Uddin Rashida Begum (Wife of Mr. Mrs. S. A. Haque Or Mrs. S. S. A. Haque) Aminul Haque Illiterate Person: If the payee of negotiable instrument is an illiterate person, he may endorse the instrument by affixing his thumb impression, It should be duly witnessed or attested by somebody who should give his full address thereon as follows: Thumb Impression of A Attested or witnessed by XYZ, Advocate, 12, Dhaka University, Shahbag Dhaka Partnership Firm: In case of a partnership firm, the name of the firm must be signed by a person (partner, manager, etc) who is duly authorized to sing on behalf of the partnership firm. For example, a cheque payable to M/S Khurshid Alam Mohammad Ali may be endorsed in any of the following ways: o For M/S Khurshid Alam Mohammad Ali (Mohammad Ali, Partner ) o Pre Pro M/S Khurshid Alam Mohammad Ali (Khurshid Ali Akmal Hossain Manager) But if the two partners sings without showing that they are the partners in the firm, the endorsement will not be a regular one. Agent: A person may authorize his agent to endorse the cheques on his behalf. The agent should, therefore, use the words for, for and on behalf of , on behalf of, Per procurationem or Per Pro, etc. in the endorsement which will indicate that he is signing as the representative of his principal and not as principal himself. If the payee banker doubts the compeTwentyce of the person signing Per Pro on behalf of his principal, he should make necessary enquiry before making payment. Regular endorsement in such a case should be as follows: For (or on behalf of or Per Pro) M/S Khurshid Alam Mohammad Ali / Agent (or Manager). But the following endorsement will be an irregular endorsement: M/S Akbar Hossan. Agent of Mohammad Ali
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Joint Stock companies and other institutions: In case of joint stock companies, institution, etc., endorsement should be made by persons who are duly authorized to sign on behalf of these institutions. The signatory must give his capacity or official position to indicate his authority to sign the cheques on behalf of his institute. Liquidator: If a company is liquidated and an official receiver is appointed the latter will sign on behalf of the company as follows: For Ali Trading Corporation Ltd. In liquidation, Sekander Ali Liquidator Executor: If an executor is appointed on the death of a person, he will endorse the cheque the cheques payable to the deceased as follows: B. A Khan Executor of the late A R Khan If two or more executors (or administrators) are appointed, one of them may endorse as follows: For self and Co-Executor of the late A R Khan, B A Khan Trustee: If a cheque is payable to the Trustees of the late A R Khan, both or all of them will sing as follows: R. Afroj Trustees of the S. Chaudhury Late A R Khan
Sometimes a cheque is drawn payable to cash or wages or order. It may be endorsed by the drawer himself.
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IMPLEMENTING EFFECTIVE ENDORSEMENTS AND TESTIMONIALS

In addition to adhering to existing laws and regulations governing use of endorsements and testimonials for advertising purposes, business experts cite several other considerations that should be weighed by business owners. Some of these considerations are unique to specific types of endorsements (i.e., celebrity or consumer testimonials, which are the two types most frequently utilized), while others are common to all four types. For example, celebrity testimonialswhile poTwentytially valuable in attracting atTwentytion to a firm's products and/or servicesalso have a higher risk factor. For example, media atTwentytion on celebrity athletes, singers, and other personalities can turn negative quickly. In these instances, products or services with which the celebrity is associated can be stained by implication. For this reason, companies include "opt-out" clauses in most contracts so that they can end a business relationship quickly and without penalty if the celebrity's reputation is compromised. Moreover, some analysts question the value of celebrity endorsements in increasing public allegiance to a product or service, especially if the public figure in question is of limited stature (generally, the only type of celebrity whose endorsement is within the financial grasp of smaller and mid-size companies). They instead urge companies to consider customer testimonials, which are widely regarded as more honest and believable, and less expensive and time-consuming to create. "Testimonials given by satisfied customers are far, far more effective than testimonials given by celebrities because the customer-to-be knows the celebrity is paid for their endorsement," stated businessman Murray Raphel in Direct Marketing. "Testimonials are easy to find. They are live, in person and visit your place of business every day in person, on the phone, or through the mail, fax, or Internet." Another element of consumer endorsements that needs to be addressed is assurance of legality. All types of endorsements need to be specified in writTwenty form. But unlike the celebrity, expert, or association forms of endorsement, in which contracts are expected to be long and detailed, customer testimonials are usually relatively short and simple release forms. "When we originally asked our lawyer for a 'release form' he gave us (literally) a five page single spaced document!," recalled Raphel. "That will scare any 33 | P a g e
poTwentytial testimonial-giver, no matter how much they like you or your business." Small business owners, then, are urged to obtain legal advice that will enable them to adopt and utilize short, easy-tounderstand contracts that will not intimidate customers.
Payment of Cheques:
Issue that should consider while payment of cheque: 1. The Time of Presenting the Cheque: Cheque should be presented at bank within the banking hour otherwise tha bank will not pay the amount of the cheque. Issue of payment
2. The Date: We should consider 3 types of date a) Stale Cheque: The cheque containing more than previous 6 months days is stale cheque. Amount can not be paid for this cheque. b) Post dated cheque: The cheque containing date less than present date but Issue of payment
More than previous 6 months. Should be honored. c) Ante-dated cheque: The cheque containing advanced date. Should not be honored.
Issue of payment
3. Value of cheque: The amount of the chaque should be writTwenty in figure and word. According to the transfer act, if there is any mismatch between the word and the figure, the word should get prevail. But according to the banking system if there is any mismatch between word and figure, the cheque should not be honored. Issue of payment
4. Material Alteration:
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Material alteration means the change in date, in value, in crossing, name of the bank, name of the payee etc. According to the act, if there any change is happen in the cheque, then the change should be done by only the account holder/holders with full signature otherwise the cheque will be dishonored. Issue of payment
5. Tore/Mutilated Cheque: The cheque which has not been mutilated by the owner willingly is known as mutilated cheque. Bank will not pay the amount of such type of cheque. But the cheque is mutilated by any accident and the owner agrees then the bank can pay the amount of the cheque. Issue of payment
6. Signature of the Owner: Before the payment of the cheque the signature of the cheque should be verified with signature card of the account holder which was preserved in bank. Two issues should considered in this regard: a) If the signature is account holders signature Issue of payment
b) If the signature is genuine. 7. Crossed Cheque: Two types of crossing. a) General Crossing: The drawee bank can not pay the cheque with other bank account.
b) Special Crossing: The payment of the cheque can be given by the definite bank mentioned in the cheque. Issue of payment
8. Available Balance: There should be sufficient available balance in the account holders account.
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9. Payment of the Cheque: The payment of the cheque should be done through fulfilling the following conditions: a) Have to check the duration of the cheque. Issue of payment
b) Have to pay in good faith. c) Have to pay without negligence. d) Have to pay to the cheque holder.
Rights and Liabilities of Parties under Negotiable instrument

Capacity to incur liability under negotiable instruments Section 26 of the Act states that every person who is capable of entering into a contract and to bind himself can make, draw, accept or negotiate a negotiable instrument, Section 27 provides that the negotiable instruments may also be drawn, accepted, and negotiated by an authorized agent on behalf of the principal. Therefore, a person not capable of entering into a contract cannot bind himself by being a party to the negotiable instrument. Different cases of parties capacity to incur liability under a negotiable instrument are discussed below : Minor : A minor is not compeTwentyt to contract and, therefore, he cannot bind himself by becoming a party to the negotiable instrument. Section 26 provides that A minor may draw, endorse, deliver and negotiate such instruments so as to bind all parties except himself. An instrument does not void just because a minor is party to it. It remains binding on all other parties. Lunatics: A lunatic or drunken person who is incapable of understanding the effect of contracting on his interest is on the same footing as that of minor. Corporation: The contractual capacity of a company or corporation depends on the provisions contained in its memorandum of association or the charter. It may become a party to the negotiable instrument only if so authorized by the charter of the company. In this connection section 26 provides that Nothing herein contained shall be deemed to empower a corporation to make, endorse or accept such instrument except in cases in which, under the law for the time being in force, they are so empowered.
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Agency: A person capable of contracting may also bind himself through his duly authorized agent acting in his name. But a general authority to transact business and to receive and discharge debts does not confer upon an agent the power of accepting or indorsing bills of exchange so as to bind the principal. Thus, an agent who has specifically been authorized to draw, accept and negotiate negotiable instruments only can bind his principal. The agent has to make it clear that he is acting in a representative capacity. The form of signature must show that he inTwentyds to act as agent or that he does not inTwentyd to incur any personal liability. If this is not so done, he becomes personally liable. (Sections 27 and 28) Legal representative : A legal representative of a deceased person who signs his personal name to a promissory note, bill of exchange or cheque is liable personally thereon unless he expressly limits his liability to the exTwentyt of the assets received by him as such (Section 29), The term legal representative includes heirs, executors and administrators. Escrow A bill, endorsed or delivered to a person subject to the understanding that it will be paid only if certain conditions are fulfilled, is called an Escrow. Regarding these bills there is no liability of the drawer until the conditions agreed are fulfilled. However, the rights of a holder in due course will not be affected. Liability of drawer of a Bill or Cheque: Section 30 of the Act states: The drawer of a bill of exchange or cheque is bound in case of dishonour by the drawee or acceptor thereof, to compensate to the holder, provided due notice of dishonour has been given to, or received by, the drawer as hereinafter provided. (a) (b) a bill of exchange may be dishonoured by non-acceptance a bill of exchange may be dishonoured by non-payment
Criminal Liability of the drawer of a Cheque Till 1994, the drawer of a cheque, as noted above, was subject to civil liability only in respect of the money due on a cheque, if it was dishonoured for reasons whatsoever. In order to promote use of cheque as a means of payment and to promote healthy commercial practices a few amendments were made in India as well as in Bangladesh and Pakistan to make dishonour of cheques as criminal offence with the enforcement of amendments made in section 138 of Negotiable instruments Act dishonor of cheques, because of insufficiency of funds was deemed as an offence for which 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. Such punishment will be in addition to his liability in a civil suit. Sections 138 to 142 which have been inserted in the Negotiable Instrument Act, 1881, Provide for such punishment, provided the following conditions are fulfilled: 1) The cheque should be presented to the paying banker in time, i.e. within 6 months or its specific validity period, whichever is earlier.
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2) The dishonor of the cheque should be on account of insufficiency of funds only if either the amount of money standing to the credit of the account of is insufficient or that the amount of cheque exceeds the amount arranged to be paid from that account by an agreement with the bank. 3) The payee or holder in due course should give notice in writing to the drawer demanding 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 receipt of the notice. 5) The complaint can be made only by the payee or holder in due course. Section 140 makes it quite clear that the drawer of the dishonoured cheque cannot defend himself on the ground that he had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentation on account of insufficiency of funds. It must be noted from the above that an offence under this section is committed only when the drawer of the cheque fails to make payment within fifteen days of receipt of notice, and not immediately on the dishonor of a cheque, because dishonor of cheque by itself does not give rise to a cause of action. Payment can still be made within 15 days of the receipt of notice of demand. In the notice a demand has to be made for the amount of the cheque. If, in addition to the cheque amount there is also a claim by way of interest damages etc. which are separately specified such claims for interest, cost etc. would be superfluous and these additional claims would be severable and will not invalidate the notice. If the above costs are not stated separately but an omnibus demand is made in the notice, the notice will fail to meet the legal requirement and may be regarded as bad. For other claims, a civil suit would be necessary. But if a notice has not been served within the specified period, the complaint is not sustainable. Where a cheque issued by a company is dishonoured because of insufficiency of funds, a notice to the Managing Director of the company under section 138 is sufficient, even if no separate notice is sent to the company. If the dishonoured cheque is drawn on behalf of a company, a firm or association of individuals every person who was in-charge of and was responsible to the company or the firm for the conduct of its business, at the time the offence was committed, and also the company shall be deemed to be guilty of the offence. But if any such person proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such an offence, he will not be liable to punishment (section 141). Criminal Liaility in case of stop Payment of Cheque The question whether dishonor of a cheque on stop payment instruction of the drawer to the drawee of the payee amounts to dishonor on account of insufficiency of funds and entails criminal liability on the drawer has been examined in two cases by the supreme court. In Electronics Trade and Technology development Corporation Ltd. Vs Indian Technologists and Engineers Electronic Pvt. Ltd. 1996(2) SCC 739 and Modi Cements Ltd vsKuchil Kumar Nandi (Criminal Appeal Nos. 244-46 of 1998), the Supreme court held as follows: (a) Even if a cheque is dishonoured because of stop payment instruction to the bank, section 138 would get attaracted and
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(b) by giving instruction to the bank to stop payment immediately after issuing cheque against debt or liability, the drawer can easily get rid of the penal consequences notwithstanding the fact that deemed offence was committed. Hence the court held that stop payment order will not preclude an action under section 138 by the payee or holder in due course. Liability of drawee of a cheque: Section 31 of the Act states: The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque when duly required to do so, and in default of such payment, must compensate the drawer for any loss or damage caused by such default. The drawee of a cheque who is always a banker is liable to the drawer if he, having sufficient funds of his customer, wrongfully refuses or fails to honour his customers cheque The liability of the drawee arises only when the cheque has been dishonored by mistake. But where the cheque is dishonoured for any of the reasons explained earlier in this chapter, the banker does not incur any liability for rightful dishonour. Liability of maker and Acceptor: Section 32 of the Act states: In the absence of a contract to the contrary, the maker of a promissory note and the acceptor before maturity of a bill of exchange are bound to pay the amount thereof at maturity according to the apparent Twentyor of the note or acceptance respectively, and the acceptor of a bill of exchange at or after maturity is bound to pay the amount thereof to the holder on demand. In default of such payment as aforesaid, such maker or acceptor is bound to compensate any party to the note or bill for any loss or damage sustained by him and caused by such default. The maker of a promissory note is bound to pay the amount at maturity, according to the Twentyor of the note and in case of default of such payment; he is bound to compensate any party to the note for any loss sustained by reason of such default. A promisor in case of promissory note and a drawer in the case of bill of exchange or cheque is the principal debtor. But after acceptance by the drawee the acceptor becomes the principal debtor. Therefore, in case of a bill the liability of the drawee arises only when the accepts the bills (Section 32). In the absence of a contract to the contrary, (An acceptor of a bill of exchange may become surety and the principle liability may have been agreed to be that of the drawer), the acceptor (drawee) of a bill is bound to pay the amount only at maturity, in accordance with the apparent Twentyor of the acceptance. In the event of the bill being accepted after maturity, he is bound for the amount to the holder on demand. In default of such payment, he is bound to compensate any party to the bill for any loss or damage caused to him by such a default.
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The following persons incur liability by acceptance; (1) drawee (2) person named as drawee in case of need, and (3) acceptor for honour. Where there are several drawers, each can accept only for himself, unless they are partners. Effect of forged Endorsement on acceptors liability An acceptor of a bill already endorsed is not relieved from liability by reason that such endorsement is forged, if he knew or had reason to believe that the Endorsement was forged when he accepted the bill (Section 41). Liability of acceptor of a bill drawn in a fictitious name Section 42 of the Act provides that an acceptor of a bill of exchange drawn in a fictitious name and payable to the drawers order is not, by reason that such name is fictitious, relieved from liability to any holder in due course claiming under an Endorsement by the same hand as the drawers signature, and purporting to be made by the drawer. 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 will indemnify the holder or subsequent endorsers who are compelled to pay, provided due notice of dishonour is received by him. But he may or make his liability conditional. In this respect, his position is better than that of a drawer or an acceptor, neither of whom can exclude his liability. Where the holder of a negotiable instrument, without the consent of the endorser, destroys or impairs the endorsers remedy against a prior party, the endorser is discharged from liability to the holder to the exTwentyt as if the instrument had been paid at maturity. Liability of parties to holder in due course Every prior party (i.e. maker or drawer, acceptor and all intervening endorsers to an instrument is liable to a holder in due course until the instrument is satisfied (paid). Therefore, the maker and endorsers of a note are jointly and severally liable for the payment and may be sued jointly. Liability on an instrument made drawn etc. without consideration An instrument made, drawn accepted, endorsed or transferred without consideration creates no obligation of payment between the parties to the transaction. Further, a bill drawn or accepted without consideration does not impose any liability either on the drawer or on the acceptor to pay the holder. Similarly, if an instrument is endorsed without consideration, the endorser is not liable. But if any party to such an instrument has transferred the instrument to a holder for a consideration such holder and every subsequent holder deriving title from him, may recover the
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amount due on such instrument from the transferor for consideration or from any party prior thereto. The salient points are: The liability of the maker of a note and the acceptor of a bill is the same, i.e. they are liable as principal debtors. The drawee of a bill incures no liability unless and until he accepts the bill. He becomes a partly only by accepting the bill. A bill may be accepted before maturity or at or after maturity. An acceptor of a bill before maturity is bound to pay the amount at maturity and an acceptor at or after maturity shall have to pay the amount to the holder on demand. There is one difference in the liability of the maker of a note and acceptor of a bill. The maker of a note is bound to pay the amount according to the apparent Twentyor of the note. As he himself makes the note, he cannot change its terms and shall have to abide by the Twentyor of the note. But the acceptor of a bill is liable to pay the amount according to the apparent Twentyor of his acceptance. The liability of the acceptor is absolute and is not affected or does not cease by reason of the death or bankruptcy of the drawer. The liability of the maker of a note or the acceptor of a bill ass laid down in this section is subject to the absence of any contract to the contrary. The drawer and the acceptor may enter into a contract whereby they may even alter their positions. In case a promissory note is signed by two or more promisors and consideration has been received by only one of them, both or all the joint promisors shall be equally liable for the amount of the promissory note, even though he/they have not received directly any consideration.
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Discharge of parties from liability

A. Under Section 82 of the Act, the maker, acceptor or the endorser respectively of a negotiable instrument is discharged from liability thereon in the following ways(i) By cancellation: An endorser or an acceptor is discharged from liability to holder, or any
one claiming under him who cancels such endorser's or acceptor's name with the inTwentytion of discharging him.
(ii) By release: A maker or an endorser or an acceptor is discharged from liability to a
holder, or who discharges such maker, acceptor or endorser otherwise than by cancellation and to all parties deriving title under such holder notice of such discharge.
(iii) By payment: All parties to a negotiable instrument are discharged when acceptor , the
drawee or the maker pays the amount due, on the maturity of the instrument, to the holder. In case an instrument payable to bearer, payment to any one in possession discharges all parties.
B. By default of holder.
(i) Under Section 83 of the Act, if the holder of a bill allows the drawee more than forty-eight hours, exclusive of public holidays to consider whether he will accept the same, ail previous parties not consenting to such allowance are thereby discharged from liability to such holder.
(ii) Under Section 84, if the holder of a cheque fails to present it before the relation
between the drawer and the banker is altered to the prejudice of the drawer and the drawer suffers damage due to such delay, the drawer is discharged of all liabilities to the holder.
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(iii) Under Section 86, if the holder of a bill agrees to a qualified acceptance, all
previous parties whose consent is not obtained to such acceptance are discharged as against the holder and those claiming under him.
(iv)
Under Section 93, if the holder fails to give notice of dishonor to such parties as are antecedent to him such parties are discharged as against holder and those claiming under him.
This rule does not, however, apply to the maker, acceptor or the drwee of a note, bill or cheque respectively, their liability being fixed by the last clause of this section.
C. By material alteration Under Section 87 of the Act, any material alteration of a negotiable instrument, while in the possession of the holder, discharges the liability of all parties prior to or at the time of such alteration who do not consent to such alteration, unless it was made to carry out the common inTwentytion of the original parties. Alteration in (i) Date (ii) The time of payment (iii) The place of payment (iv)The amount payable (v) The medium and method of payment (vi)And of parties have been regarded as material alterations. In some cases, however, even material alterations do not discharge the liabilities of the parties. These may stated as follows: (i) Alteration made before its completion, i.e., before the issue delivery of negotiation of the instrument. (ii) Alteration made in order to correct a bonafide error. (iii) Alteration made with the consent of the parties to the instrument. (iv) Alteration made by way of converting an endorsement in blank into an endorsement in full. (v) Alteration made by way of crossing a bearer cheque. Acceptance for honour. When a bill of exchange has been noted or protested for non acceptance or for better security, any person not being a party already liable thereon may, with the consent of the holder. by
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writing on the bill- accept the same for the honour of any party thereto, so The purpose of such acceptance is to save the honour of any parry liable on the bill and most usually to save the prestige of the drawer.
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BIBLIOGRAPHY
1. Prof. Mafizul Islam, Principle of Commercial Law, July 1963 2. Cates, Bill. "Get It In Writing" On Wall Street. April 2001. 3. "InsightCelebrity Endorsements: The benefits of keeping it real." Marketing Week. 16 March 2006. 4. Hillstrom, Northern Lights updated by Magee, ECDI 5. Syed Ashraf Ali & R A Howlader, Banking Law and Practice, November 2005 6. Raphel, Murray. "Realizing the Strength of Testimonials and How to Utilize Them in Your Business" Direct Marketing. June 1997. 7. Stark, Phyllis. "Redneck Radio: Jeff Foxworthy Style." Billboard Radio Monitor. 8 July 2005. 8. Mohammad Saiful Alam, The Negotiable Instrument Act, 1881 9. "Wall-Mart Ads Tout Surprises" Promo. 16 February 2006.
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Report On Negotiable Instrument - Final

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Report On Negotiable Instrument - Final

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Negotiable Instruments

Dhaka-1205 27 November, 2011

Parties to a Promissory Note

stated therein. In the above specimen, Bappy is the maker or drawer.

Features of a Promissory note

Parties to a Bill of Exchange

Features of a bill of exchange

Pay to............................... The Sum of Taka Name of The Account 210115894221

Signature 2126050 Features of a cheque 22524895 10

ii. It contains an unconditional order.

iii. It is issued on a specified banker only.

Similarities & Dissimilarities between Cheque and Bill of Exchange:

2. By a cheque only a bank is ordered to pay money.

Similarities & Dissimilarities between Cheque and Promissory Note:

Dissimilarities between Bill of exchange and Promissory Note:

The instrument was complete at the time of possession

Right in case the instrument is obtained by unlawful means or unlawful consideration:

Difference between holder and holder in due course

Different Types of Cheque

Fig: Specimen of General Crossing Special Crossing:

Pubali Bank Ltd

Pubali Bank Ltd

Account Payee Only Pubali Bank Ltd

Fig: Specimen of Special Crossing. What does not constitute Crossing:

obliteration of the crossing is not apparent.

Legal Provision regarding Endorsements:

General Rules regarding the Form of Endorsements:

IMPLEMENTING EFFECTIVE ENDORSEMENTS AND TESTIMONIALS

Rights and Liabilities of Parties under Negotiable instrument

Discharge of parties from liability

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