Parties to Negotiable Instruments

Negotiable Instrument refers to a promissory note, bill of exchange or cheque payable either to order or to bearer.  It is a piece of paper which carries some value and is transferable from one person to another by mere delivery or by endorsement and delivery.

Maker/drawer: the person who makes or executes the note promising to pay the amount stated therein.

Drawee: The person directed to pay the money by the drawer. The drawee is the paying bank in case of cheque.

For the following conditions are need to be satisfied:

(i) Sufficient amount of funds to the credit of customer’s account should be there with the banker.

(ii) Such funds are required to be properly applied against the payment of such cheque, e.g., the funds are not under any kind of lien etc.

(iii) The cheque is duly required to be paid, during banking hours and on or after the date on which it is made payable.

Payee: Payee is the person whose name is written on the promissory note or bill of exchange or cheque. The payee is entitled to receive amount mentioned in the note or bill or cheque.

Holder: Holder is either the payee or some other person to whom he may have endorsed the promissory note or bill of exchange or cheque. A person cannot be a holder unless he is the payee or indorsee (endorsee) thereof.

Holder in due course: Holder in due course means 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.”

Endorser: A signature of the owner (the holder of the instrument) would serve the legal rights to transfer an instrument to another party. The holder of the instrument who transfers his right to another party by endorsement is called endorser.

Endorsee: If the endorser adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specified person, the person so specified is called the “endorsee” of the instrument.

Endorsement: If the endorser signs his name only, it is called endorsement in blank. If the endorsement contains the instructions of endorser to pay the amount mentioned in the instrument to, or to the order of, a specified person, the endorsement is called endorsement in full.

Drawee in the case of need: In addition to drawee’s name, the name of a person is given in the bill or endorsement, to have resorted in case of need. Such person is called drawee in case of need.

Acceptor for honour: In the event of refusal of acceptance of bill by the original drawer or in cases of providing better security when demanded by notary public, with the consent of the holder some other person who is originally not liable for payment of bill, may accept it for honor of any party liable on the bill.  Such acceptor is called ‘Acceptor for honour”.