Negotiable bills play a principal role in facilitating trading activities. The law governing negotiability provides that, where a bill is negotiable in origin it continues to be negotiable until it has been restrictively endorsed or discharged by payment or otherwise. When an overdue bill is negotiated it can only be negotiated subject to any defect of title affecting it at its maturity, and therefore no person who takes it can acquire or give a better title than that which the person from which he took it originally had. Bankers should be aware of such rules.
A bill payable on demand is deemed to be overdue when it appears on the face of it to have been in circulation for an unreasonable length of time. What is an unreasonable length of time is a question of fact. This is important in relation to cheques. Generally a bank will refuse to pay a cheque six months old (stale cheques) without special instructions.
Except where an endorsement bears date after the maturity of the bill, every negotiation is prima facie deemed to have been effected before the bill was overdue. Where a bill which is not overdue has been dishonored it loses its negotiability, and any person who takes it with notice of the dishonor takes it subject to any defect of title at the time of dishonor, but this, does not affect a holder in due course. There is need to understand this, for professional application.
Where a bill is negotiated back to the drawer, or to a prior endorsee, or to the acceptor, such party may re-issue and further negotiate the bill, but he is not entitled to enforce payment of the bill against any intervening party to whom he was previously liable.
Capacity to incur liability as a party to a bill is related with capacity to contract, and where a bill is drawn or endorsed by a minor or a corporation with no capacity or power to incur liability on a bill, the drawing or endorsement entitles the holder to receive payment of the bill and to enforce it against any other party. Therefore, a minor can sue on a bill and transfer the property therein by endorsement (for legally he can be an agent) he cannot be made liable as a party to the bill even though the bill was given in payment for necessaries.