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Negotiable Instruments Law

fraud in inducementMinority .5 acquisition of the instrument by force,duress or fear Marriage in .6 case of a wife acquisition of the instrument by unlawful means Insanity where .7 the insane person has a guardian appointed by the court acquisition of the instrument for an illegal consideration Ultra .8 vires acts of a corporation where its charter or by statue, it is prohibited from issuing commercial paper negotiation in breach of faith Want of authority of agent .9 negotiation under circumstances amounting to fraud Execution .10 of instrument between public enemies MistakeIllegality of contract made by statue.11 intoxication Forgery .12 ultra vires acts of corporations .13 want of authority of the agent where he has apparent authority .14 illegality of contract where form or consideration is illegal .15 l16. insanity where there is no notice of insanity

An instrument not in the hands of a HDC is subject to the same defenses as if it .49 .were non-negotiable :Exception a holder who derives his title through a HDC and is not aparty to any fraud or illegality affecting the instrument, has all the rights of (such HDC in respect to all parties prior. (Sec. 58 NIL Rights of a holder not a HDC >, may sue in his own name may receive payment and if it is in due course, the instrument is discharged holds the instrument subject to the same defenses as if it were non-negotiable if he derives his title through a HDC and is not a party to any-

fraud or illegality thereto, has all the rights of such HDC .General rule: every holder is deemed prima facie to be a holder in due course .50 :Exception where it is shown that the title of any person who has negotiated theinstrument is defective, the burden is on the holder to prove that he is (a HDC or that a person under whom he claims is a HDC (Sec. 59 NIL :A maker is primarily liable .51 :Effects of making the instrument, the maker a. engages to pay according to tenor of instrument (b. admits existence of payee and his capacity to indorse (Sec. 60 NIL

Notes on Section 60 a makers liability is primarily and unconditionalone who has signed as such is presumed to have acted with care and tohave signed with full knowledge of its contents, unless fraud is proved the payees interest is only to see to it that the note is paid according to its terms when two or more makers sign jointly, each is individuallyliable for the Full amount even if one did not receive the value given

the maker is precluded from setting up the defense of,a) the payee is fictional b)that the payee was insane, a minor or a corporation acting ultra vires A drawer is secondarily liable .52 :Effects of drawing the instrument, the drawer ,admits the existence of the payee . a b. the capacity of such payee to indorse c. engages that on due presentment, the instrument will be accepted or paid or .both according to its tenor If the instrument is dishonored, and the necessary proceedings on dishonor duly taken a.the drawer will pay the amount thereof to the holder b.will pay to any subsequent indorser who may be compelled (to pay it. (Sec. 61NIL Notes on Section 61 a drawer may insert an express stipulation to negative or limit his liability-

An acceptor is primarily liable.53 :By accepting the instrument, an acceptor engages that he will pay according to the tenor of his acceptance admits the existence of the drawer, the genuineness of hissignature and his capacity and authority to draw the instrument the existence of the payee and his then capacity indorse Irregular Indorser .54 a person not otherwise a party to an instrument places his signature in blank :before delivery is liable as an indorser in the following manner if payable to order of a third person liable to the payee and.a to all subsequent parties if payable to order of the maker or drawer liable to all.b parties subsequent to the maker or drawer if payable to bearer liable to all parties subsequent to the.c maker or drawer if signs for an accommodation party liable to all parties.d subsequent to the payee (Sec. 64

(NIL :Warranties where negotiating by delivery or qualified endorsement .55

a. the instrument is genuine and in all respect what it purports to be b. the indorser has good title to it c. all prior parties had the capacity to contract d. indorser has no knowledge of any fact that would impair the validity or the value .of the instrument :Limitations of warranties if by deliveryextends only to immediate transferee warranty of capacity to contract does not apply to personsnegotiating (public or corporate securities (Sec. 65 NIL

Notes on Section 65 a qualified indorser is one who indorses without recourse or sans recourse recourse - resort to a person secondarily liable after default of person -

Primarily liable a qualified indorser cannot raise the defense of a) forgery b) defect of his title or that it is void .c) the incapacity of the maker, drawer or previous indorsers a qualified Indorsement makes the indorser mere assignor of title ofinstrument, relieves him of general obligation to pay if instrument is dishonored, but he is still liable for the warranties arising from instrument only up to warranties of general indorser the warranty is to the capacity of prior parties at the time the instrument .was negotiated. Subsequent incapacity does not breach the warranty lack of knowledge of the indorser as to any fact that would impair the validity .or the value of the instrument must be subsisting all throughout a person Negotiating by Delivery warrants same as those of qualifiedindorser and extends to immediate transferees only .56 Warranties of a general indorser:a. the instrument is genuine and in all respect what it purports to beb . t h e h e h a s g o o d t i t l e t o i t c.all prior parties had the capacity to contractd.that the instrument at the time of his indorsement was :valid and subsisting (Sec.66 NIL)In addition engages that the instrument will be accepted or paid or both according to itstenor on due presentment engages to pay the amount thereof if it be dishonored and the n e c e s s a r y proceedings on dishonor are takenNotes on Section 66 the indorser under Section 66 warrants the solvency of a prior party the indorser warrants that the instrument is valid and subsisting regardless of whether he is ignorant .of that fact or not warranties extend in favor of a) a HDC b) persons who derive their title from HDCc) immediate transferees even if not HDC the indorser does not warrant the genuineness of the drawers signature general indorser is only secondarily liable .57 General rule: Presentment for payment is not necessary to charge p e r s o n s primarily liable on the instrument. Presentment for payment is necessary to chargethe drawer and indorsers. (Sec 70 NIL)Notes on Section 70 presentation for payment production of a BOE to the drawee for hisacceptance, or to a drawee or .acceptor for payment. Also presentment of a PNto the party liable for payment of the same consists of a) a personal demand for payment at a proper place b) the bill or note must be ready to be .exhibited if required and surrendered upon payment -

parties primarily liable persons by the terms of the instrument are absolutelyrequired to pay the .same. E.g maker and acceptors. They can be sued directly if payable at the special place, and the person liable is willing to pay there atmaturity, such .willingness and ability is equivalent to tender of payment presentment is necessary to charge persons secondarily liable otherwise theyare discharged Acts needed to charge persons secondarily liable: a) presentment for payment/acceptance b) dishonor by non-payment/non-acceptance c) notice of dishonor to secondary parties Acts needed to charge persons secondarily liable in other cases: a) Protest for non-payment by the drawee b) protest for non-payment by the acceptor for honor .58 Proper presentment:a.by the holder or an authorized personb.at a reasonable hour on a business dayc . a t a p r o p e r p l a c e d.to the person primarily liable or if absent to any person found at the place wherepresentment is made (sec. 72 NIL)Notes on Section 72 only the holder or one authorized by him has the right to make presentment for payment presentment cannot be made on a Sunday or holiday .presentment for payment is made to the maker, or acceptor. Not to the personsecondarily liable

L A W M E M O R Y A I D Negotiable Instruments Law if the instrument is payable on demand a) if it is a note presentment must bemade within reasonable time after issue b) if it is a bill - presentment must bemade within reasonable time after .last negotiation .59 Presentment not required to charge the drawer:a . h e h a s n o r i g h t t o e x p e c t b . h e h a s (n o r i g h t t o r e q u i r e that the drawee or acceptor will pay (Sec 79 NIL .60 Presentment not required to charge the indorser where:a.the instrument was made or accepted for his accommodationb.he has no reason to expect that the (instrument will be paid if presented (Sec. 80NIL .61 General rule: Presentment for payment necessary to charge persons secondarilyliable :otherwise they are discharged:Exception Section 79 and 80Notes on Section 79 and 80 .only the drawer or indorser are not discharged. All other parties secondarilyliable are discharged

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.62 :Presentment for payment excused if .a after due diligence, presentment cannot be made .b presentment is waived .c the drawee is a fictitious person (Sec 82 NIL)Notes on Section 82 what is excused is the failure to make presentment. There is no need to makeany presentment versus under section 81 (delay in presentment) presentment for payment is still .required after the cause of delay has ceased .63 Summary of rules as to presentment for payment:a.presentment not necessary to charge persons primarily liableb.necessary to charge persons secondarily liable :except the drawer under Sec. 79 the indorser under Sec. 80 when excused under Sec. 82 when the instrument has been dishonored by non-acceptance under Sec. 83 .64 :How dishonored by non-acceptance the instrument was duly presented but payment is refused or cannot be obtained (presentment is excused and the instrument is overdue and unpaid (Sec. 83 NIL .65 :Effects of dishonor by non-payment an immediate right of recourse to all parties secondarily liable accrues to theholder. (Sec. 84 NIL)Notes on Section 84 .parties cease to be secondarily liable and become principal debtors .Liability becomes the same as that of the original obligors .66 Requisites for payment in due course:a.made at or after the maturity of the instrumentb . t o t h e h o l d e r c . i n g o o d f a i t h d.without notice of (any defect in the holders title (sec. 88 NIL

L A W M E M O R Y A I D Negotiable Instruments Law Notes on Section 88 payment must be made to the possessor of the instrument possession of the note by the maker is presumptive evidence that it has beenpaid .67 Notice of Dishonor may be given:a . b y o r o n b e h a l f o r t h e h o l d e r b . b y o r o n :b e h a l f o f a n y p a r t y w h o is a party to the instrument and might be compelled to pay the instrument to a holder who having taken it up would have a right of reimbursement from theparty (to whom notice is given. (Sec. 90 NIL .68 Notice:a . m a y b e w r i t t e n o r o r a l ( S e c . 9 6 ) b . w r i t t e n n o t i c e need not be signed or may be supplemented by v e r b a l communication (Sec. 95)c.may be by personal delivery or by mail (Sec. (96 .69 Notice may be waived either expressly or implied:a. before the time of giving notice (has arrivedb.after the omission to give due notice (Sec. 109 NIL .70 :Protest may be waived:Effects deemed a waiver of presentment and notice of dishonor as well (Sec. 111 NIL)NotesonSection111 Where notice is waived, presentment is not waived Where presentment is waived, notice is also waived Where protest is waived, notice and presentment is waived .71 Notice of Dishonor - given by the holder to the parties secondarily liable, drawer and each indorser, that the instrument was dishonored by non-acceptance or non-payment by the drawee/maker General rule: Any drawer or indorser to whom such notice is not given is discharged.Exceptions:a . W a i v e r ( S e c . 1 0 9 ) b . N o t i c e i s d i s p e n s e d ( S e c . 1 1 2 ) c . N o t n e c e s s a r y t o D r a w e r ( S e c . 1 1 4 ) d.Not necessary to Indorser ((Sec. 115)- if notice is delayed, delay may be excused (Sec. 113 .72 Instances when Notice of Dishonor Not Necessary to Drawer .a drawer and drawee same person

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.b drawee is a fictitious/incapacitated person .c drawer is the person to whom presentment for payment is made .d drawer has no right to expect that the drawee will accept/pay the (instrument(Sec. 114 NIL .73 Instances when Notice Not Required to Indorser .a drawee was a fictitious/incapacitated person and the indorser was aware of suchat the time of indorsement

L A W M E M O R Y A I D Negotiable Instruments Law .b indorser is the person to whom instrument was presented for payment .c (instrument made/accepted for his accommodation (Sec. 115 NIL .74 Omission to give notice of dishonor by non-acceptance doe not prejudice a HDC(Sec. (117 NIL .75 Protest only necessary for a foreign bill of exchange. Protest for other (negotiableinstruments is optional. (Sec. 118 NIL .76 Causes of Discharge of the Instrument .a payment by the debtor .b payment by accommodated party .c intentional cancellation by holder of instrument .d any other act discharging a simple monetary obligation .e

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debtor becomes holder of the instrument at/after maturity in his own right ( Sec119 NIL)Notes on Section 119 discharge of the instrument discharges all the parties thereto payment must be in due course, and by the principal debtor or on his behalf if payment is not made by the principal debtor, payment only cancels the liabilityof the .payor and those obligated after him but does not discharge the instrument .payment by an accommodation party does not discharge the instrument .77 :Discharge of Secondary Parties .a any act discharging the instrument .b cancellation of indorsers signature by indorsers .c discharge of prior party .d tender of payment by prior party .e release of principal debtor .f extension of payment by the holder/postponement of right to enforce withoutassent of secondary parties and without reservation of right of recourse (againstsecondary parties (Sec 120 NIL .78 :Rights of a party secondarily liable who pays the instrument is not discharge the party is remitted to his former rights as to all prior parties the party may strike out his own and all subsequent indorsements :the party may negotiate the instrument againException an instrument cannot be renegotiated where it is payable to order of a 3 rd personand has been paid by the drawer and instrument cannot be renegotiated where is was made or accepted for accommodation and it has been paid by the party accommodated.78. Renunciation by a holder discharges an instrument when:a . i t i s a b s o l u t e a n d u n c o n d i t i o n a l b.made in favor of a person primarily liablec.made at or after maturity of the instrumentd.in writing or the instrument is delivered up to the person primarily liable (Sec.122 NIL)Notes on Section 122 if renounced in favor of a party secondarily liable, only he is exonerated fromliability and all parties subsequent to him

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