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CSEET · Business Laws and Management · Elements of Law relating to Negotiable Instruments

Under the Negotiable Instruments Act, 1881, the indorsement of a negotiable instrument followed by delivery has which of the following effects?

Indorsement followed by delivery transfers to the indorsee the property in the instrument along with the right to negotiate it further. This is the general rule, and it changes only if the indorsement uses express words restricting or excluding further negotiation, or makes the indorsee a mere agent.

  1. AIt transfers to the indorsee the property in the instrument with the right of further negotiation, unless the indorsement expressly restricts or excludes that rightCorrect
  2. BIt transfers only the physical possession of the instrument and never the property in it
  3. CIt makes the indorser the sole person liable and releases all prior parties
  4. DIt transfers the property in the instrument but always bars the indorsee from negotiating it further

Explanation

Section 50 provides that indorsement followed by delivery transfers the property in the instrument to the indorsee along with the right of further negotiation. The right can be restricted or excluded only by express words. The option saying further negotiation is always barred reverses the general rule.

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