Lost And Stolen Instruments

Lost Instruments

The following rules are applicable when a negotiable instrument is lost:

1) Where a bill of exchange has been lost before its maturity, its holder may request the drawer to give him another bill of the same tenor. The drawer in turn may request the holder to give security to indemnify him against all persons in case the bill alleged to have been lost is found again. 




If the drawer on request refuses to give such duplicate bill, the holder may have to obtain it by means of a suit (section 45A). The right to obtain a duplicate of lost instrument is also applicable to the holder of a promissory note or a cheque.

2) In case of loss of a negotiable instrument, the holder should inform all parties liable on it and should also give public notice by advertisement in some local newspaper to caution against its misuse.

3) If the holder could not obtain a duplicate copy, on maturity he should make an application to the person liable to pay on the lost instrument for payment of the amount due thereon. Although the payer is entitled to refuse payment till the instrument is delivered to him, he may make the payment after getting a written undertaking from the payee to indemnify him against any further claim thereon. In case the payer insists on delivery of the instrument and refuses to pay otherwise, then payment can be sought through court on similar undertaking to indemnify (section 81).

4) The finder of the lost instrument gets no title to it and cannot sue the party liable thereon for its payment. The rightful holder (the true owner) is entitled to get back the instrument from him. But if the finder obtains payment of the instrument, it being a bearer document, the payer (i.e., the maker, acceptor or drawee) will be discharged from his liability if he makes a payment in due course. The true owner, however, will be entitled to recover the amount from the finder (sections 58 and 82).

5) As the finder of the lost instrument does not get the title to it, he cannot lawfully transfer it. If that instrument is a bearer instrument or one indorsed in blank, the founder may negotiate it to a holder in due course. In such a case the holder gets a good title to it and can obtain payment from the party concerned (section 58). The true owner cannot take possession of the same from such a holder in due course, and can claim damages from the finder, if traceable.

6) In case the finder transfers an order instrument by making a forged indorsement, even a bonafide transferee for value gets no legal title to it, and, therefore, he is not entitled to sue on the instrument. Forgery can confer no title, and, therefore, the endorsee cannot be a holder in due course. If the party liable to pay on the instrument makes the payment to the endorsee who holds it under a forged indorsement, he shall continue to be liable to the true owner. (Protection has, however, been given by law to a paying banker in such a case).

 

Stolen Instruments

The position in case of a stolen negotiable instrument is almost the same as in the case of a lost instrument, with the difference that on being traced, the thief is open to criminal prosecution while a finder is not. Here also, the thief does not acquire any title to the instrument and the true owner can sue him for the recovery of the instrument or the money he has received from the maker, acceptor or drawee. But if the thief transfers a bearer instrument to a holder in due course, such a holder gets a good title to it (section 58).

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