Q.1 What is meant by negotiation? What are its different modes? How does the negotiation complete?
The negotiation has been defined under Section 14 of the negotiable instrument act as follows. “When a promissory note, bill of exchange or cheque is transferred to any person so as to constitute that person the holder thereof, the instrument is said to be negotiated”.
When we analysis this definition we find that following conditions must be fulfilled for the negotiation of the instrument.
1. There must be transfer of the promissory note, bill of exchange or cheque from one person to another.
2. The person to whom instrument is transferred must constitute as the holder of the instrument.
3. He must have all the rights of the holder of the instrument. So by negotiation means
“the transfer of negotiable instrument from one person to another in such a ways that the transferee must become the holder of the instrument”.
MODES OF NEGOTIATION
The following are the methods of negotiation.
1. NEGOTIATION BY DELIVERY
“A promissory note; bill of exchange or cheque payable to bearer is negotiated by delivery thereof”. Sec47
According to Section 47 when an instrument is payable to bear can be negotiated simply by transferring the possession of instrument by one person to another.
2. NEGOTIATION BY ENDORSEMENT
“A promissory note bill of exchange or cheque payable to order is negotiable by the holder by endorsement and delivery thereof”. Sec 48
This section provides that when an instrument is payable to order is transferable only by endorsement and delivery thereof. With out the endorsement, ‘the transfer cannot be constituted as the holder of the instrument.
HOW IS NOGOTIATION COMPLETED?
Generally when the holder of the instrument transfers the possession of the instrument to another by delivery actual or constructive, the negotiation is said to be completed. But according to Section 47 of this Act, when the delivery is conditional and the person acquires the delivery with the knowledge of such condition, the negotiation cannot complete unless and until such condition is fulfilled. Actual delivery means physical handing over the possession of the instrument to another person. But the delivery is constructive when the means to acquire possession is hand over.