Negotiable Instruments Act (Incl. Sec) Flashcards
What are the different types of endorsement?
Endorsement in Blank
Endorsement in Full
Restrictive Endorsement
Partial Endorsement
Endorsement without Persisting Liability
What does ‘endorsement’ mean in the context of negotiable instruments?
The act of signing a negotiable instrument for negotiation, either on its face, back, or a slip of paper attached to it.
Who are the two main parties in an endorsement?
The endorser (who makes the endorsement) and the endorsee (to whom the instrument is endorsed).
What happens after a negotiable instrument is endorsed?
The right is transferred to the endorsee after endorsement and delivery.
What is an ‘endorsement in blank’?
An endorsement where only the endorser’s signature is present, without specifying an endorsee.
What is an ‘endorsement in full’?
An endorsement that includes both the name of the endorsee and the signature of the endorser, directing payment to a specific person.
What is a ‘restrictive endorsement’ (Section 32)?
An endorsement that restricts the further negotiation of the instrument, such as preventing re-endorsement or allowing transfer only under specific conditions.
What is a ‘partial endorsement’ (Section 36)?
An endorsement transferring only part of the amount mentioned in the negotiable instrument. Negotiation is not possible in such cases.
What is ‘endorsement without persisting liability’ (Section 35)?
When the endorser explicitly states that their liability will not persist after endorsement.
Can a general endorsement be changed into a special endorsement? Who can do it?
Yes, it can be changed by the holder of the instrument (Section 31).
Who can endorse or negotiate a negotiable instrument?
Any party of the negotiable instrument unless restricted by Section 32.
When does a holder receive a negotiable instrument deliberately?
After dishonor (due to non-acceptance or non-payment) or after maturity (Section 39).
What is the right of a concern holder in cases of dishonor or overdue instruments?
Their rights are equivalent to those of the transferor of the instrument.
What happens to the rights when an instrument is endorsed?
The entire right is transferred to the endorsee, except in partial endorsements.
What is the liability of endorsers in negotiable instruments?
Endorsers remain liable to the holder and subsequent parties unless liability is discharged.
Can an endorsement be made without bearing liability?
Yes, by explicitly stating that liability does not persist.
Who is a Holder in Due Course (HIDC)?
- A person having entitlement upon the Negotiable Instrument according to law.
- For bearer instruments: The person possessing it.
- For order instruments: The payee or endorsee.
What are the privileges of a Holder in Due Course?
- Every prior party to a negotiable instrument is liable to the HIDC until payment is made.
- HIDC gets a valid title even if the transferor’s title was defective.
What are the additional conditions to be a Holder in Due Course?
-Holder
-For valuable consideration
- Must receive or endorse before maturity.
- Must receive in good faith without knowledge of any defect in the title of the transferor.
What is Estoppel Against Denying Validity of Negotiable Instruments?
- The maker or drawer cannot deny the validity of the instrument.
- A negotiable instrument is presumed to be validly prepared or drawn.
What is Estoppel Against Denying Signature or Capacity of Prior Party?
- An endorser cannot deny the signature or contractual capacity of any prior party.
What are the legal presumptions regarding Negotiable Instruments?
- Consideration: Every negotiable instrument is made for consideration.
- Date: It was made on the date mentioned.
- Time of Transfer: It was transferred before maturity.
- Time of Acceptance: Accepted within a reasonable time before maturity.
- Order of Endorsement: Endorsements were made in the order they appear.
- Holder in Due Course: The lawful holder is presumed to be HIDC.
- Dishonour: A notary’s protest is evidence of dishonour.
What are the types of dishonour of Negotiable Instruments?
-
Dishonour due to non-acceptance – Bills of Exchange only
- Drawee refuses to accept.
- Acceptance with conditions.
- Drawee is incompetent to contract.
-
Dishonour due to non-payment
- Default in payment by the maker, acceptor, or drawee banker.
When is Notice of Dishonour required?
- Must be given when an instrument is dishonoured by non-acceptance or non-payment.
- Given by the holder to all relevant parties.
When is Notice of Dishonour unnecessary?
- If it is waived.
- If the drawer has cancelled payment.
- If the party entitled to notice cannot be found.
- If the acceptor is also the drawer.
- If the party knew about the dishonour but promised to pay.
What is the grace period for negotiable instruments?
Payment date + 3 additional days
Not available for instruments payable on demand, at sight, or on presentment
Which days are excluded when computing the maturity date of negotiable instruments?
The day written on the instrument
The day of presentment for acceptance
What happens if the maturity date falls on a holiday?
The instrument is deemed due on the next business day
What is the rule for the time and place of presentment of negotiable instruments payable on demand?
Within a reasonable time
At the place mentioned in the instrument
If no place is mentioned, at the business or residence of the maker, acceptor, or drawee
To whom should negotiable instruments be presented for payment?
Bills of exchange → Drawee
Promissory notes → Maker
Cheque → Drawee Banker
Who can present negotiable instruments for payment?
Holder or any person on behalf of the holder
When is a notice of dishonor required?
When a bill of exchange is dishonored due to non-acceptance or non-payment
Who gives the notice of dishonor and to whom?
Given by holder to all other preceeding liable parties
Who is exempt from giving notice of dishonor?
Maker of a promissory note
Acceptor of a bill of exchange
Drawee banker
In what manner can notice of dishonor be given?
Oral or written
What should be included in a notice of dishonor?
The instrument has been dishonored
The concerned party will be held liable
What is the time and place for giving notice of dishonor?
Within a reasonable time
At the place of business or residence
What happens if the party to whom notice is given has died?
If the sender was ignorant of the death, the notice remains valid
What law regulates the liability of the maker or drawer of foreign negotiable instruments?
- The law of the country where the instrument was made.
What law governs the liabilities of the acceptor and endorser of foreign negotiable instruments?
- The law of the country where the instrument is made payable.
What determines what constitutes dishonor and sufficient notice of dishonor for foreign instruments?
- The law of the country where the instrument is made payable.
What is the general rule regarding foreign law in relation to negotiable instruments?
- The law of any foreign country regarding negotiable instruments is presumed to be the same as that of Nepal.
When is the presumption of foreign law being the same as Nepal’s law not applied?
- When it is proved that the law of the foreign country is contrary to the law of Nepal.
What happens if a negotiable instrument is made, drawn, accepted, or endorsed outside Nepal but is in accordance with Nepalese law?
- The instrument is valid, even if the agreement evidenced by it is invalid according to the law of the country where it was entered into.
Does the invalidity of an agreement in a foreign country affect subsequent acceptance or endorsement in Nepal?
- No, it does not invalidate any subsequent acceptance or endorsement made within Nepal.
How is a Notary Public appointed, and what are their qualifications and duties?
- The Government of Nepal appoints a Notary Public via notification in the Nepal Gazette.
- Qualifications, certificates, conduct, fees, and procedures are prescribed by the government.
Under what conditions can a Notary Public be removed?
- The Government of Nepal may remove a Notary Public under prescribed conditions.
How is compensation determined in case of dishonor of a negotiable instrument?
- The holder is entitled to recover the amount mentioned in the instrument and expenses incurred in presenting, noting, and protesting it.
- An endorser who has paid the amount is entitled to recover the amount paid with interest from the date of payment.
What is the punishment for a drawer who deliberately issues a cheque without sufficient funds?
- The drawer must pay the amount mentioned in the cheque, along with interest, to the holder.
- If not, imprisonment up to three months or fine up to Rs. 3000 or both.
What is the time limit for filing a complaint related to a negotiable instrument?
- No complaint is valid if it is not filed within five years from the date of the cause of action.
Who can make a payment for honor, when does it occur, and what must the payer do before making the payment?
- Any person not a party to the BOE can make the payment.
- It occurs when the BOE is dishonored due to non-payment by the drawee, and the dishonor has been protested by a notary public.
- Before payment, the payer must note in the notary public’s record the party for whose honor the payment is being made.
What rights does a person paying for honor acquire?
- They are entitled to all rights of the holder.
- They can recover the paid amount, interest, and expenses incurred from the party for whose honor they paid.
Why is a Bill of Exchange drawn in sets, and what happens if one part is accepted or paid?
- It is drawn in sets for security, with each part numbered, and the whole set constitutes one bill.
- If one part is accepted or paid, it results in deemed acceptance or payment of all other parts.
What happens if one part of a bill in sets remains unpaid?
- The other parts continue to be valid only if the remaining parts are also unpaid.
Who is an ‘alternative drawee,’ when does liability arise, and can they act without protest?
- An alternative drawee is a person mentioned or endorsed in the BOE to be contacted if the original drawee does not accept or pay.
- Liability arises when the BOE is not accepted or paid by the original drawee.
- They may accept or pay the BOE without previous protest by a notary public.
Who can assign an alternative drawee?
- The drawer or an endorser (if the BOE is endorsed without acceptance by the drawee).
Which law governs dishonor for foreign negotiable instruments, and what governs them if a contract exists?
- The law of the country where payment is to be made governs dishonor (Section 100).
- If a contract exists, contractual terms take precedence (Section 99).
Is protest by a notary public required for payment for honor?
- Yes, the dishonor must be protested by a notary public.
What is the process of noting under Section 71?
- Upon dishonor of a negotiable instrument (NI) due to non-payment or non-acceptance, the holder complains to the notary public within a reasonable time.
- The notary public notes the particulars of dishonor on the instrument or a paper attached to it, including the date and reason for dishonor.
What is the purpose of protesting after noting under Section 72?
- The holder may have the facts of dishonor certified by the notary public after noting.
What must a protest contain under Section 74?
- The NI or its duplicate and everything written or printed on it.
- The name of the person for whom and against whom the instrument has been protested.
- A statement that payment, acceptance, or additional security was demanded, along with the person’s answer or lack thereof.
- The place and time of dishonor or refusal of additional security.
When can a holder demand additional security, and how is it done?
- When the acceptor of a bill of exchange becomes insolvent before the bill’s maturity.
- The demand is made through a notary public.
What happens if additional security is not furnished?
- The fact is noted and certified by the notary public.
How is reasonable time determined for giving notice of dishonor under Section 79?
- It depends on the place of residence or business of the holder or the party to whom notice is given.
- Notice must be dispatched by registered post or other means on the day after dishonor.
- If dispatched in time to reach its destination, it is considered reasonable.
What factors determine reasonable time for presentment, notice of dishonor, and noting?
- The nature of the negotiable instrument and the usual course of dealing with similar instruments.
- Public holidays are excluded when calculating time.
What are the types of dishonor under Sections 64 and 65?
-
Dishonor due to non-acceptance (Section 64):
- Non-acceptance of a bill of exchange by the drawee.
- Acceptance with conditions.
- Drawee is incompetent to contract.
-
Dishonor due to non-payment (Section 65):
- Default by the maker of a promissory note, receiver of a bill of exchange, or drawee banker of a cheque.
When is notice of dishonor unnecessary?
- When dispensed with by the party entitled to notice.
- When the drawer has canceled payment.
- When the party has not suffered damage for want of notice.
- When the acceptor is also the drawer.
- When the party entitled to notice cannot be found.
- When the party bound to give notice is unable to do so.
- When the party entitled to notice unconditionally promises to pay.
Who must give notice of dishonor, and to whom?
- The holder or a party liable on the instrument must give notice to all other related parties.
What are the contents of a notice of dishonor?
- The NI has been dishonored.
- The concerned party will be held liable.
- The notice must be given within a reasonable time and at the place of business practice.
What happens if the party to whom notice is given is dead?
- If the sender is unaware of the death
What is the meaning of protesting?
- When an instrument is dishonored
- This certification is called protesting and serves as prima facie evidence in court.
What is the advantage of noting and protesting?
- It provides legal evidence of dishonor and allows for legal action against the parties.
Negotiable Instruments Act, 2034 - Section 2
Definitions (Negotiation, Endorsement, Holder in Due Course)
Negotiable Instruments Act, 2034 - Section 4
Promissory Note
Negotiable Instruments Act, 2034 - Section 6
Bill of Exchange
Negotiable Instruments Act, 2034 - Section 7
Cheque
Negotiable Instruments Act, 2034 - Section 9
Maturity
Negotiable Instruments Act, 2034 - Section 11
Capacity of Parties to Make, etc., Negotiable Instruments
Negotiable Instruments Act, 2034 - Section 18
Inchoate Stamped Instruments
Negotiable Instruments Act, 2034 - Section 28
Negotiation by Delivery
Negotiable Instruments Act, 2034 - Section 40
Presentment for Acceptance
Negotiable Instruments Act, 2034 - Section 43
Presentment for Payment
Negotiable Instruments Act, 2034 - Section 53
Payment to Holder in Due Course
Negotiable Instruments Act, 2034 - Section 54
Interest When Specified
Negotiable Instruments Act, 2034 - Section 56
Discharge from Liability
Negotiable Instruments Act, 2034 - Section 60
Discharge by Conditional Acceptance
Negotiable Instruments Act, 2034 - Section 61
Discharge by Material Alteration
Negotiable Instruments Act, 2034 - Section 64
Dishonour by Non-Acceptance
Negotiable Instruments Act, 2034 - Section 66
Noting
Negotiable Instruments Act, 2034 - Section 73
Protest for Better Security
Negotiable Instruments Act, 2034 - Section 74
Contents of Protest
Negotiable Instruments Act, 2034 - Section 89
Cheque Bearing “Not Negotiable”
Negotiable Instruments Act, 2034 - Section 100
Law Governing Dishonour
Negotiable Instruments Act, 2034 - Section 102
Presumption as to Foreign Law
Negotiable Instruments Act, 2034 - Section 103
Presumptions as to Negotiable Instruments
(Sec) Definitions (Negotiation, Endorsement, Holder in Due Course)
Negotiable Instruments Act, 2034 - Section 2
(Sec) Promissory Note
Negotiable Instruments Act, 2034 - Section 4
(Sec) Bill of Exchange
Negotiable Instruments Act, 2034 - Section 6
(Sec) Cheque
Negotiable Instruments Act, 2034 - Section 7
(Sec) Maturity
Negotiable Instruments Act, 2034 - Section 9
(Sec) Capacity of Parties to Make, etc., Negotiable Instruments
Negotiable Instruments Act, 2034 - Section 11
(Sec) Inchoate Stamped Instruments
Negotiable Instruments Act, 2034 - Section 18
(Sec) Negotiation by Delivery
Negotiable Instruments Act, 2034 - Section 28
(Sec) Presentment for Acceptance
Negotiable Instruments Act, 2034 - Section 40
(Sec) Presentment for Payment
Negotiable Instruments Act, 2034 - Section 43
(Sec) Payment to Holder in Due Course
Negotiable Instruments Act, 2034 - Section 53
(Sec) Interest When Specified
Negotiable Instruments Act, 2034 - Section 54
(Sec) Discharge from Liability
Negotiable Instruments Act, 2034 - Section 56
(Sec) Discharge by Conditional Acceptance
Negotiable Instruments Act, 2034 - Section 60
(Sec) Discharge by Material Alteration
Negotiable Instruments Act, 2034 - Section 61
(Sec) Dishonour by Non-Acceptance
Negotiable Instruments Act, 2034 - Section 64
(Sec) Noting
Negotiable Instruments Act, 2034 - Section 66
(Sec) Protest for Better Security
Negotiable Instruments Act, 2034 - Section 73
(Sec) Contents of Protest
Negotiable Instruments Act, 2034 - Section 74
(Sec) Cheque Bearing “Not Negotiable”
Negotiable Instruments Act, 2034 - Section 89
(Sec) Law Governing Dishonour
Negotiable Instruments Act, 2034 - Section 100
(Sec) Presumption as to Foreign Law
Negotiable Instruments Act, 2034 - Section 102
(Sec) Presumptions as to Negotiable Instruments
Negotiable Instruments Act, 2034 - Section 103
(Negotiable Instruments Act, 2034) - Negotiable Instrument:
A promissory note, bill of exchange, or cheque.
(Negotiable Instruments Act, 2034) - Promissory Note:
An instrument in writing containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to, or to order of, a certain person, or to the bearer of the instrument.
(Negotiable Instruments Act, 2034) - Bill of Exchange:
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 a certain person or the order of a certain person or to the bearer of the instrument.
(Negotiable Instruments Act, 2034) - Cheque:
A bill of exchange drawn on a certain bank payable on demand.
(Negotiable Instruments Act, 2034) - Holder:
Any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.
(Negotiable Instruments Act, 2034) - Holder in due course:
Any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if payable to order, before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
(Negotiable Instruments Act, 2034) - Endorsement:
The act of signing on the Negotiable Instrument for the purpose of Negotiation.
(Negotiable Instruments Act, 2034) - Negotiation:
The act of transfer of Negotiable Instruments to any person so as to constitute that person the holder thereof.
(Negotiable Instruments Act, 2034) - Payment in due course:
Payment in accordance with the apparent tenor of the Negotiable Instrument in good faith and without negligence to any person in possession thereof.
