In other words as between immediate parties a negotiable instrument made, drawn, accepted, indorsed or transferred without considerations or for consideration which subsequently fails, creates no obligation of payment. It may be recalled that no contract is valid without consideration except those provided under section 25 of the Indian Contract Act, The only point distinguished between the two contract i.e. ordinary contract and contract o negotiable instruments is that in the former contract, consideration is to be proved, while in the later contract, consideration is presumed. If it is proved in contracts on negotiable instruments that no consideration passed or consideration which passed failed subsequently such a negotiable instrument is void and creates no obligation of payment.
However, the second part of the section makes it clear that if the subsequent party has obtained the instrument for consideration such a plea that consideration has not passed cannot be raised as against a subsequent holder for consideration. All prior parties are liable on the instruments to the subsequent holder for consideration. The point to be noted is that consideration must be lawful. Unlawful consideration is no consideration and creates no obligation on any of the prior parties unless the holder claims as holder in due course or he is a person deriving title from the holder in due course.
Partial absence of failure of money consideration: When the consideration for which a person signed a promissory note, bill of exchange or cheque, consisted of money, and was originally absent in part, or has subsequently failed in part the sum which a holder standing in immediate relation with such signor is entitled to receive from him is proportionately reduced.
In simple words this section deals with consideration which is absent in part or subsequently fails in part. The amount which a holder standing in immediate relation is entitled to recover from that signor is the actual amount of considerations paid not the amount mentioned in the instrument.
A draws a bill on B for for Rs 500 payable to the order of A. B accepts the bills but subsequently dishonors it by non payment. A sues B on the bill B proves that it was accepted for value as to Rs 400 and as an accommodation to the plaintiff as to the residue. A can only recover Rs 400.
Parties standing in immediate relation i.e. parties in direct relation with each other are:
1) The drawer of a bill of exchange stands in immediate relation with the acceptor.
2) The maker of a promissory note, bill of exchange or cheque stands in immediate relation with the payee.
3) The indorser stands in immediate relation with his indorsee and the holder. All other parties are remote.
4) Other signors may by agreement stand in immediate relation with a holder.
All other parties are remote.
Until the contrary is proved, it shall be presumed that every negotiable instrument bearing a date was made or drawn on such date. An instrument may be anti-dated or post dated. It may even be made on a Sunday or a public holiday. A post dated instrument can be sued upon only after the date passes.
Time of acceptance
Until the contrary is proved, it shall be presumed that every accepted bill of exchange was accepted within a reasonable time after is date and before its maturity
Time of transfer
Until the contrary proved, it shall be presumed that every transfer of negotiable instrument was made before its maturity.
Order of Indorsements:
Until the contrary is proved, it shall be presumed that the indorsements appearing upon negotiable instruments were made in the order in which they appear thereon.
Stamp: Until the contrary is proved, it shall be presumed that a promissory note, bill of exchange or cheque was duly stamped. This presumption arises in case when the instruments is lost or destroyed