SECTION. 24 presumption of consideration – every negotiable value to what is promised.

It only requires that the

instrument is deemed prima facie to have been issued for a consideration must have some value in the eyes
valuable consideration, and every person whose signature of law, even if it is very small. If it’s out of pity or
appears thereon to have become a party thereto. compassion that will not be considered a valid
valuable consideration because it is not legally
General idea: Section 24 means that the law assumes recognized value
every negotiable instrument is made for value and
that everyone who signs it does so with a valid Ex. A borrows ₹50,000 from B and gives a promissory note
reason. This assumption applies unless someone agreeing to repay the amount with very low interest. The
proves that no consideration was involved. consideration is still valuable even if it benefits one party more.

Purpose of section 24:The purpose of this rule is to Note: Ex.(2): L owes Q 25,000 from a previous loan that Prima facie means”
accepted as correct until
make business transactions easier and to ensure was supposed to be paid last week. L doesn’t have the cash proved otherwise

trust in the use of negotiable instruments. to settle it, so L writes and signs a promissory note promising to
pay to Q the full amount within 30 days. The promissory note is
Consideration- is the immediate, direct or essential valid because the consideration is L’s antecedent or pre-existing
reason which induces a party to enter into a contract. debt to Q.
It’s the exchange of both value that binds both party
SECTION 26. What constitutes holder for value. Where value
Note : is the value or benefit given in exchange for has at any time been given for the instrument, the holder is
making or signing the instrument. deemed a holder for value in respect to all parties who become
such prior to that time
: No need to disclose the consideration or
intention of the party. -The presumption under this sec is disputable

: this presumption is disputable Note: Section 26 means that a person is called a

holder for value if they have given something of
Ex. A borrows ₹10,000 from B. Here, B is the
value for a negotiable instrument at any time. Once
creditor and A is the debtor. To repay the loan, A
value is given, the holder is treated as a holder for
issues a promissory note promising to pay ₹10,000 to
value agains
B after three months.
The loan amount of ₹10,000 given by B is the t all parties who signed the instrument before that
consideration for the promissory note, and A’s value was given. In short, paying or giving value for
promise to repay is based on that consideration. the instrument makes the holder legally entitled to
claim payment from earlier parties.
Presumption of consideration
What is a holder for value ??
A negotiable instrument needs consideration
(payment) just like other contracts. It doesn’t have to Someone who gave something of worth (money or
say this on the paper- the law assumes there was service) to get the negotiable instruments.
value involve and everyone who signed did so for
something in return. But this assumption can be Ex. A sells her laptop to B for 20k, B has no cash so B
proven wrong with evidence issued a check to A. A gave the computer (value) to
B. A is the holder for value

1. This status applies not just when dealing

SECTION 25. Value; what constitutes. – value is with the person they got the instrument
any consideration sufficient to support a simple from, but also with everyone who was part
contract. An antecedent or pre-existing debt of the instrument before that
constitutes value ; and is deemed such
whether the instrument is payable on demand 2. The law assumes any holder is Antecedent- Antecedent means
or at a future time. a holder for value unless something that existed or happened
earlier, before the present act or
event. Or in our case, it is the pre-
someone proves otherwise existing
Adequacy of consideration. A valuable debt
The discharge of such debt is a
consideration need not be adequate. It is sufficient if valuable consideration for a
Ex if D found a promissory note negotiable instruments

it is a valuable one
in the streets that is made out to brearer, D
- Need not to be specific is presumed to be holder for value. E the
- means something of value given in return for a one who signed the note has to prove that D
promise or act. never gave value to it so that D cannot
- Value to be issued with a lack of consideration is valid - enforce the note anymore.

Note: This statement means that the law does not If party is holder in due course and not:
require the consideration to be equal or fair in - If party is holder in due
 - course under no. 1 he may enforce full o But this defense cannot be used against a
payment for the full amount of the holder in due course (someone who
other previous holder. received the instrument honestly and for
- value).
- If not, the parties can set up the
absence of consideration o If the consideration only partly fails, then
it is a defense “pro tanto” — meaning
only to the extent of the failure.
SEC. 27 when lien on instrument constitutes holder for value-
Where the holder has a lien on the instrument arising either
from contract or by implication of law, he is deemed a holder
for a value to the extent of his lien What “pro tanto” means
- A lien is a legal right that allows a person (usually the holder of a negotiable
instrument) to retain possession of the instrument until a certain obligation, typically payment of
a debt, is fulfilled.
- In simpler terms:  “
- If someone owes you money and gives you a negotiable instrument (like a
promissory note or bill of exchange), you can keep it until they pay their debt. P
ro tanto” is Latin for “for so much” or “to that
extent”.

 It means the defense is limited to the amount that

Note:
actually failed.
Under Section 27 of the Negotiable Instruments Act, a person
 Example: If you gave a bill for a service worth Rs.
who has a lien on a negotiable instrument is treated as a holder for
1,000, but the service was only partly delivered
value to the extent of that lien. This means that even if the person
worth Rs. 400, then the defense can reduce the claim
did not give money or consideration for the instrument, having a
only by Rs. 400, not the whole Rs. 1,000.
legal right to retain it until a debt or obligation is paid gives
them the same protection as a holder for value, but only up to the
amount of their lien. For example, if a bank holds a promissory
note as security for a loan, it can enforce the note for the amount of
Example in Simple Terms
the loan because its lien makes it a holder for value to that extent.
 John gives a promissory note to pay Mary Rs. 1,000
for goods.
Ex. A ( pledgor) couldn’t pay the amount he owes B (pledgee)
today, rather than paying cash, a friend of A who is named C who  Mary delivers goods worth only Rs. 600.
owes him money that issued a promissory note in the past was told
by A to pay it directly to the amount that A owes to B . B can only  John can raise a defense that there was a partial
get the amount A owes him, if he exceeds he will be liable for A for failure of consideration.
the surplus
 He must pay Rs. 600 (the part of the consideration
actually received), and the defense works pro tanto
—only for Rs. 400 (the undelivered part).
Ex. 2 A B C B (PLEDGOR)

July 10 maturity date A (MAKER)

40,000 C can go to A on In short:

or after July 10
No consideration or failed consideration is a defense against
ordinary holders, but not against a holder in due course. If it
partly fails, the defense works only to that extent—that’s what
SEC 28. Effect of want of consideration – absence or failure of “pro tanto” means.
consideration is a matter of defense as against any person not a
holder in due course; and partial failure of consideration is a
defense pro tanto, whether the failure is an ascertained and
SECTION 29. liability of the accommodation party.- An
liquidated amount or otherwise
accommodation party is one who has signed the instrument as
maker, drawer, acceptor, or indorser without receiving value
therefor, and for the purpose of lending his name to some other
1. Key points: person. Such a person is liable on the instrument to a holder
for value, notwithstanding such holder at the time of taking the
o If there is no consideration or the instrument knew him to be only an accommodation party
consideration fails, this is a defense, a
personal defense Note: this is conclusive, stating who’s liable to who
 B makes (signs) a promissory note promising to pay ₹1,00,000
to the bank.
DEFINITIONS The money is actually used by A, not B.

Accommodation bill – An accommodation bill is a bill of  Accommodation drawer

exchange or promissory note drawn or accepted to help someone
else, without any real consideration. A wants to discount a bill but lacks creditworthiness.
B agrees to help.
2. An accommodation party is a person who signs a
negotiable instrument to help someone else (like a B draws a bill of exchange on C for ₹50,000, payable to A.
friend or relative) raise money or credit, without A discounts the bill with a bank and gets the money.
receiving any benefit for themselves. They base it on
their kindness  Accommodation acceptor

Example (a) A wants to loan money from the bank but his accounts A draws a bill of exchange on B (who actually owes A nothing).
are not ideal for lending so he asked B to lend him B’s account B accepts the bill only to help A raise money.
temporarly and then later on A will be the one to pay the amounts.
A discounts the accepted bill with a bank.

Distinguishment between accommodated and accommodation

 Accommodation indorser
party
One party makes a promise, but
receives nothing of legal value in
return, or the exchange isn't
A holds a promissory note but the bank wants extra security.
bargained for.
C agrees to help A.
accommodation party lends accommodated party,
their credit by signing a who does receive the C endorses the note in favour of the bank without receiving any
negotiable instrument (like a funds/benefit and is primarily
benefit.
check or note) without liable
receiving direct benefit,
essentially guaranteeing it for
another person

Section 30. what constitutes negotiation

Absence of consideration
This section only constitutes bills of exchange.
means that with such conformity with the other party, once you
bind yourself to help that party, you are bound to be liable to pay Note: this is because it fixes the liability the drawer of a bill of
the party who lends their money. By saying “ I am not liable exchange or check
because I was not granted anything afterwards” does not excuse
you from the liability of passing the money to the party you along General explanation: if the drawer issues a bill to payee but
with the accommodated party owes drawee refuses to pay payee, drawer will then be liable to pay
payee.

Methods of transfer of a negotiable instrument

accommodation party, in effect, a surety
Issue – first step in making the negotiable instrument. The
after passing the payment to the holder, the accommodation party beginning of the negotiable instrument’s life
can regain his money from the accommodated party by
reimbursement. Additionally, the accommodation party acts as the Negotiation – it ordinarily involves indorsement
surety for the accommodated party.
Assignment- assigning/transferring of rights
Accommodation party receives a mere consideration
Negotiation- it is the shifting of negotiable instruments from one
Even if given such consideration, this does not change the status of to another.
the accommodation party
Note: there is no negotiable instrument if the transfer
doesn’t make the transferee the holder

Kinds of accommodation party Instruments payable to Instruments payable to

order bearer
 Accommodation maker Negotiated by mere delivery
Indorsement to payee/
Ex. A needs a loan but the bank won’t lend to him present holder
directly. Payable to whoever holds
B agrees to help. Delivery to the next holder the instrument
 Bearer- person in
possession of the bill
or note.

Payable to a specified 1. First delivery as to the payee- no negotiation as to the

person or his order first negotiation by the drawer to the payee because
there was no indorsement involve.
- Negotiation only occurs to the holders subsequent
Refer to example no. 2 pg. 110 “payable to bearer” to the payee
2. First delivery of instrument other than payee- this will
T(thief) be concluded as a form of negotiation because the
instrument is now merely transferred to a holder.
M(original holder)
Summary: First delivery ≠ negotiation → only when
P (holder in due course) delivered to payee
First delivery = negotiation → when
If T gave P (innocent party) the stolen note (M’s note) that would delivered to someone else
still be considered as a valid transfer even though it was stolen
from M. On the other hand, if M was proven to have no negligence 3. Delivery of the instrument to the payee by the last
upon the event, M will not be liable to pay P. holder

Payment of instrument by drawee not negotiation This will also be considered as delivery, what matters most is to
who (holder) gave it not to who will receive it and the indorsement
1. Generally: the bank is not considered the payee nor of the last holder is not necessary because the payee is remitted to
indorsee if it’s given a check that simply means it has to his former rights
just pay the check itself and can no longer reuse it.
2. Signing the back of a check before cashing/depositing:
putting your name doesn’t always coincide to transfer
of ownership, by signing in this paper proves that you SEC 31 Indorsement; how made.
have paid.
Meaning of indorsement
Assignment means the transfer of rights and title in a Indorsement means the signing of a negotiable instrument by the
negotiable instrument by a written document, not by holder, for the purpose of transferring the instrument to another
negotiation, so that the assignee gets the right to recover person.
the amount in his own name.
1. Payee signing ( indorsing )
2. Payee (indorser)
Effect of delivery of order instrument without 3. The one who receives it (indorsee)
indorsement
- This will not be a “proper transfer of Generally: an instrument without delivery conveys not
ownership” title and no holder, this involves both note and bills
1. It works as a regular handover- the person receiving it
will only have the same right as to its giver. If anyone Nature of indorsement
refuse to pay the holder, they can also refuse to pay the Indorsement is a legal act by which the holder transfers
receiver ‘ title in a negotiable instrument, creates secondary
2. If the signature thereof is not yours or you’re not the liability, and enables negotiation, subject to the nature
original holder in other words, the receiver isn’t the and terms of the indorsement.
official hodler
3. If you get the signature afterwards from the giver that Necessity of indorsement
will then be considered as a proper transfer 1. Essential to the execution of an
instrument payable to the order
Negotiable Assignment 2. Essential to the negotiation of an order
instrument
Refers only to negotiable Refers to ordinary contract instrument
instruments

Transferee = holder Transferee= assignee

3. Without an indorsement of an order
instrument. Thus, he cannot be a holder
Holder in due course = Assignee = both real and
only to real defense personal defenses in due course
General indorser = Assignor = does not
warrants the solvency warrant the solvency

Indorser= liable unless

unless expressly stipulated
Assignor= liable even
Form of indorsement
there is presentment and without dishonor
notice of dishonor
Governed by negotiable
instruments
Articles 1624-1635
Of the civil code
It must be in writing which it includes it can be
printed/ rubber stamp/ typewritten

Can there be a negotiation to a payee?

1. The word ‘assigns” is not equivalent as
being an assignment
 2. The signature alone of the indorser is a If the part of the amount has already been paid, the
sufficient indorsement, this is called the unpaid balance may be indorsed as this is expressly
“blank indorsement” authorized by law.
3. Name of indorsee specified = special
indorsement however, indorser may provide SEC 33 kinds of indorsement
words that limits the further negotiation of
Classification of indorsement
the instrument
1. As to the method of negotiation
Place of indorsement
a. Special
On the Upon a paper attached b. Blank
instrument itself thereto 2. As to the kind of title transferred
It doesn’t matter where Allonge- used when there is not a. Restrictive
you sign the indorsement enough space from the indorsement
(back or front) because paper b. Non-restrictive
the law would rather look - Physically attached 3. As to scope of liability of indorser
into both parties intention to the indorsement
a. Qualified
b. Unqualified
SEC 32 Indorsement must be of entire 4. As to presence or absence of limitation
instrument A. Conditional
B. Unconditional
“Indorsement must be of entire instrument” 5. The other kinds of indorsements
the instrument must be delivered to the indorsee and a. Joint
there can be no partial payment. An indorsement b. Successive
purporting to transfer the instrument to 2 or more c. Irregular
person does not operate as a negotiation d. Facultative

Why?? Note: no indorsement can negate its negotiable

status once it is issued and satisfied all requirements
To avoid multiplicity of suits or actions in court / to
prevent many separate court cases being filed for the
same matter.
SEC 34 special indorsement; indorsement in
Indorsement to multiple payees or indorsees. blank

1. Joint payees – although it was said to be Special Indorsement in blank

invalid to have multiple indorsements given, indorsement
this on the other hand is still valid as long as o Specifies the person to o Specifies no indorsee
whom or whose the o Instrument so
the indorsees are joint order the instrument is indorsed is payable to
to be payable bearer
o The indorsement is o May be negotiated by
Note: if it says “pay to A 20k and pay to B 20k” this is necessary for further delivery
not a negotiation but if it says “pay to A and B 20k” negotiation o Known as
o Know as “specific “unqualified
that wilol be considered valid because this is a joint indorsement” or indorsement’
payees “indorsement in full”

Forms of special indorsements

2. Alternative payees - instruments that are
payable to 2 or more alternative payees. 1. Specifies to whom the instrument is to
And negotiation can be made by the be paid
indorsement of either. Ex. “pay to A”

Note: if it says “pay to P or A” either one of them may 2. Specifies the person to whose order
indorse the instrument the instrument is to be payable
Ex. “pay to the order of A” or “pay to
A or order”
When partial payment is allowed

If the part of the amount has already been paid, the Notes: - Indorsement must be followed by the
unpaid balance may be indorsed as this is expressly signature of the indorser
authorized by law.
- The words of negotiability is not
Constitutes through this exceptions necessary “or order” or “to bearer”
Negotiation of order and bearer instruments But the mere absence of words
implying power to negotiate does not
a. Instrument that is originally payable to make the indorsement restrictive
order, negotiated by payee as special
indorsement, the indorsement of the Restrictive Indorsement
indorsee is necessary for further negotiation is an indorsement that limits how a
b. Instrument that is originally payable to negotiable instrument can be used or paid.
bearer retains its bearer form unless
specially converted to order form = 1. Limits rights of indorsee- the indorser
negotiated by mere delivery. However, the notifies the other prospective holders the
special indorser’s liability is limited to rights and limitations of the said indorsee,
holders who derive title through their this is to protect the latter’s interest
indorsement (kun cu lng iya na indorsesan) 2. Destroys negotiability of the
instrument- the instrument can no longer
blank indorsement explained
be made negotiable and all subsequent
- It consists only the signature of the indorsees acquires only the title of the first
payee or indorser. indorsee under the restrictive indorsement.
- Using bearer instrument = greater risk
Note: by omitting the words “to order or bearer”
than order paper
does not make the instrument restrictive but by
- Can be negotiated to whoever posses it
using the word “only” or other words equivalent to
by mere delivery regardless if the
that, the instrument becomes restrictive and can no
instrument is originally payable to
longer be negotiated
bearer or not
- A check payable to the order of a
named person and indorsed by him in
blank on the back makes it a bearer SEC 37 effect of restrictive indorsement; rights
instrument of indorsee
Ex. A issues a cheque:
“Pay B or order ₹10,000” a. To receive payment of the instrument
B writes on the back: - The indorsee can demand payment from
“B” (signature only) the maker or drawee.
The cheque now becomes payable to b. To bring any action thereon that the
bearer. indorser could bring
Anyone who lawfully possesses it can claim - If the indorser had a right to sue for non-
payment. payment, the indorsee can also sue in the
same way.
SEC 35 blank indorsement; how to c. To transfer his right as such indorsee,
change to special indorsement where the form of the indorsement
- To change a blank indorsement into a authorizes him to do so
special indorsement, the holder simply - If the indorser had a right to sue for non-
writes the name of the person (payable payment, the indorsee can also sue in the
to order) they want to pay above the same way.
signature, not inconsistent with the
character of the indorsement. However, But all subsequent indorsees acquire
a note made payable to bearer will only the title of the first indorsee under
remain and thus will be completed by the restrictive indorsement
mere delivery.
THIS MEANS
The subsequent holders only get to inherit
the same rights as to there former holders

SEC 38 qualified Indorsement

SEC 36 when indorsement restrictive

a. Prohibits the further negotiation of the Qualified indorsement- restricting the

instrument indorser’s liability and makes the
b. Constitutes the indorsee the agent of Indorsee the assignor who only acts in
the indorser the Indorser’s place
c. Vests the title in the indorsee in trust
for or to the use of some other person
Ex. A(Indorsee) b( Indorser) C(drawer)
Pay to A, indorser not holder
 SEC. 41 indorsement where payable to
two or more persons.

Note: all must indorse if the instrument is

payable to the order of two or more subject
who are not partners

; in the light of our law on partnership

: This refers to a joint indorsement

1. Two or more payees or indorsees

jointly - both must indorse in order for
the instrument to become negotiable.
One payee alone cannot validly
negotiate or cash it

Ex. Pay to A and B

2. Two or more payees severally –

Alternative payees. One of them may
indorse the instrument for it to become
negotiable. Any of the party in
possession of the instrument is the
holder

Ex. Pay to A or B
3. Indorsement by all the payees or
indorsees
- Meaning all must indorse for the
instrument to become negotiable.
- If not indorse by the indorser, the
indorsee will have no right to the said
indorsement

Exaptions

- Unless they are partners

- When the one indorsing has the
authority to