NI Act_Practicle Problems_37

What is meant by “Payment of Due Course” in respect of a negotiable instrument? A cheque originally expressed payable to bearer is subsequently made payable to order by endorsement in full. Is it in order for the drawee bank to pay the amount to the bearer of the cheque?

In the cases of an instrument payable to order the drawee of a bill or maker of a note is discharged by payment in due course if it is indorsed by or on behalf of the payee. But, in the case of a cheque there is an exception. The rule is once a bearer instrument is always a bearer instrument. Hence the banker will be discharged by payment in due course to the bearer of a cheque which was originally expressed payable to bearer even though it was subsequently endorsed in full [Section 85(2)].

NI Act_Practicle Problems_36

X needs Rs.10,000 but cannot raise this amount because his credit is not good enough. Y whose credit is good, accomodates X by giving him a pronote made out in favour of X, though Y owes no money to X. X endorses the pronote to Z for value received. Z who is a holder in due course, demands payment from Y. Can Y refuse and plead the arrangement between him and X?

NI Act_Practicle Problems_35

A owes money to B. A makes a promissory note for the amount in favour of B. For safety of transmission he cuts the note in two halves and posts one half to B. He then changes his mind and calls upon B to return the half of the note which he had sent. B requires A to send the other half of the promissory note. Decides as to how the rights of the parties are to be adjusted.

The relevant question in the given situation is whether the making of the promissory note is complete when one half of the note was delivered to B. Under Section 46 of the Negotiable Instruments Act, 1881, the making of a promissory note is completed by delivery, actual or constructive. Delivery, of course, refers to the delivery of the whole of the instrument and not merely a part of it. Delivery of half instrument cannot be treated as constructive delivery of the whole. Therefore, the claim of B to have the other half of the Promissory note sent to him is not maintainable. Thus A is justified in demanding the return of the first half sent by him.

NI Act_Practicle Problems_34

X accepts a bill for the accommodation of A (drawer). A transfers it to B for value after maturity. B becomes the holder in good faith. Discuss the rights of A and B.

NI Act_Practicle Problems_33

X accepts a bill for the accommodation of A (drawer), A transfers it to B for value. The bill is dishonoured by X on the due date. B collects the amount from A. Can A sue X for the recovery of the amount?

In general, accommodating parties are liable on the bill to the same extent as that of an ordinary bill. However, they are not liable to the accommodated party - the person for whose benefit they signed the instrument. So, A cannot sue X for the recovery of the amount in view of the specific provision to that effect provided in Explanation I to section 43.

NI Act_Practicle Problems_32

X accepts a bill for the accommodation of A (drawer). A transfers it to B, without consideration. B transfers it to C without consideration. C transfers it to D for value. D transfers it to E, without consideration. On the due date, the bill dishonored by X. Discusse the rights of A, B, C, D and E.