CU-SEM-III-BCOM-Legal Aspects of Business(Modified as per review report)

3.20 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Explain contingent contracts. 2. Explain Quantum Meruit. 3. Write a short note on assignment of contracts with respect to performance. 4. Explain the following: a) Liquidated damages b) Exemplary damages. 5. Write a short note on “a suit for specific performance of a contract”. Long Questions: 1. Explain discharge by impossibility of performance. 2. Explain damages as a remedy for breach of contract. 3. Explain the types of quasi contracts. 4. Explain discharge by breach of contract. 5. What are the rules of law relating to rights and liabilities of joint promisers in a contract? B. Multiple Choice Questions: 1. A contract of insurance is a. Contract of guarantee b. Contingent contract c. Wagering contract d. Unilateral agreement 2. Promises forming consideration for each other are known as a. Independent promises b. Dependent promises c. Reciprocal promises d. Mutual promises 3. Sale of goods for cash is an example of 101 a. Mutual and independent promises CU IDOL SELF LEARNING MATERIAL (SLM)

b. Mutual and dependent promises 102 c. Mutual and concurrent promises d. Conditional and dependant promises. 4. An agreement to do an act impossible in itself a. Is void b. Is voidable c. Is void ab initio d. Becomes void when impossibility is discovered 5. The Court may grant rescission where the contract is a. Voidable at the option of the plaintiff b. Void c. Unenforceable d. Illegal Answers 1. (b) 2. (c) 3. (c) 4. (c) 5. (a) 3.21 REFERENCE Textbooks:  Elements of Mercantile Law by N.D. Kapoor  Mercantile Law by Garg Chawla Reference Books:  Legal Aspects of business by Pathak Akhileshwar  Legal Aspects of Business by P.K. Pandhi Websites:  www.Manupatra.com CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 4: AGENCY Structure 4.0 Learning objectives: 4.1 Introduction 4.2 Definition of agent and prinicpal 4.4 Duties and rights of agent 4.5 Summary 4.7 Keywords 4.8 Legal activites 4.9 Unit end questions 4.10 References 4.0 LEARNING OBJECTIVES: After studying this unit, you should be able to:  Explain the concept of Agency  Describe the Legal position of a contract of agency  State the kinds of Mercantile agents  State the rights and duties of an agent  State the rights and duties of a principal 4.1 INTRODUCTION An agent is a person who acts as a representative of others in business negotiations. Agency is distinguished by representative character and derivative authority. Agency is representative in nature and the relationship of principal and agent is governed by Chapter X of the Indian Contract Act, 1881. 4.2 DEFINITION OF AGENT AND PRINICPAL Section 182 - ‘Agent’ and ‘Principal’ defined 103 CU IDOL SELF LEARNING MATERIAL (SLM)

An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the ‘principal’. 4.3 TYPES OF MERCANTILE AGENTS A mercantile agent is an agent having the authority to sell goods or consign goods for sale or buy goods or raise money on the security of the goods. The Types of Mercantile agents are as follows: (a) Factor A factor is a mercantile agent entrusted with the possession of goods for the purpose of selling them. He can sell the product in his own name as an apparent owner upon terms as he may think fit. He can even sell them on credit. He has the authority to receive payment and discharge the purchaser. A factor has a general lien on goods of his principal. If he is in possession of the goods or title documents, any sale, pledge or transaction made shall bind the principal. (b) Auctioneer An auctioneer is an agent appointed by a seller to sell his goods by public auction for a reward generally in the form of a commission. Auctioneer is first the agent of the seller and on purchase, becomes the agent of the purchaser. An auctioneer has only particular lien on the goods of the principal. The principal is liable to third parties for the acts of the auctioneer if he acts within the scope of his powers. (c) Broker A broker is appointed by a person to buy or sell a particular product and brings about contractual relations between the Principal and third parties. He is not entrusted with the possession of the goods. A broker cannot act or sue in his own name. (d) Commissioning Agent A commissioning agent is one who is employed to buy or sell goods or transact businesses and he is paid a commission for his services. 104 CU IDOL SELF LEARNING MATERIAL (SLM)

(e) Del Credre Agent A del credre agent apart acting as an agent to buy or sell goods, also gives guarantee for the person he brings for entering into the contract would fulfil his obligations. He is not liable to the buyer for any fault of the principal. He is not responsible for the disputes between the two. (f) Banker A bank is the agent of his customer while paying for a draft or order or cheque. 4.4 DUTIES AND RIGHTS OF AGENT Duties of an Agent 1. To carry out the work undertaken according to the directions given by the principal. 2. To carry out the work with reasonable skill, care and diligence 3. To render proper accounts to the Principal 4. To communicate with the principal in case of any difficulty. 5. Not to deal on his own account. If the agent deals on his own account, the principal may repudiate the transaction that was carried out by the agent if it proves detrimental to him or claim the benefits received by the agent from such transaction. 6. To pay the sums received for the principal 7. To protect and preserve the interest of the principal in case of his death or insolvency 8. Not to use information obtained in the due course of agency against the principal 9. Not to make secret profits. In case of secret profits, the Principal may repudiate the contract, claim the profits, dismiss the agent without notice or refuse to pay his commission. 10. Not to set up adverse title 11. Not to put himself in a situation where duty and personal interest’s conflict 12. Not to delegate Authority Rights of an Agent 1. Right to retain a sum of money out of the sum provided for the purposes of his expenses and remuneration. 2. Right to receive remuneration 105 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Right of Lien 4. Right of indemnification 5. Right of compensation 6. Right to stop the transit of goods if the Principal has not paid for the goods bought by the agent incurring personal liability and if the buyer of goods sold on behalf of the Principal does not pay for the goods. Duties of Principal 1. To indemnify the agent against all consequences of all lawful acts. 2. To indemnify the agent against consequences of acts done in good faith. 3. Indemnify the agent for injury caused by the Principal’s neglect. 4. To pay the commission or remuneration Rights of Principal 1. To recover damages for loss due to the disregard for instructions by the agent 2. To obtain an account of secret profits and claim the same 3. To resist the claim of indemnity against liability incurred Duties of an Agent 1. To carry out the work undertaken according to the directions given by the principal. 2. To carry out the work with reasonable skill, care and diligence 3. To render proper accounts to the Principal 4. To communicate with the principal in case of any difficulty. 5. Not to deal on his own account. If the agent deals on his own account, the principal may repudiate the transaction that was carried out by the agent if it proves detrimental to him or claim the benefits received by the agent from such transaction. 6. To pay the sums received for the principal 7. To protect and preserve the interest of the principal in case of his death or insolvency 8. Not to use information obtained in the due course of agency against the principal 9. Not to make secret profits. In case of secret profits, the Principal may repudiate the contract, claim the profits, dismiss the agent without notice or refuse to pay his commission. 106 CU IDOL SELF LEARNING MATERIAL (SLM)

10. Not to set up adverse title 11. Not to put himself in a situation where duty and personal interest’s conflict 12. Not to delegate Authority Rights of an Agent 1. Right to retain a sum of money out of the sum provided for the purposes of his expenses and remuneration. 2. Right to receive remuneration 3. Right of Lien 4. Right of indemnification 5. Right of compensation 6. Right to stop the transit of goods if the Principal has not paid for the goods bought by the agent incurring personal liability and if the buyer of goods sold on behalf of the Principal does not pay for the goods. 4.5 SUMMARY  An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the ‘principal’.  A mercantile agent is an agent having the authority to sell goods or consign goods for sale or buy goods or raise money on the security of the goods. 4.6 KEYWORDS  Agent: An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third persons.  Principal: The person for whom such act is done, or who is so represented, is called the ‘principal’.  Mercantile Agent: A mercantile agent is an agent having the authority to sell goods or consign goods for sale or buy goods or raise money on the security of the goods. 107 CU IDOL SELF LEARNING MATERIAL (SLM)

4.8 LEARNING ACTIVITES 1. A, a factor has a lien on P’s goods in his possession to the extent of moneys advanced to by A to P. P directs A to return the goods or sell them on credit. Is A bound to comply P’s Orders? Analyse. ___________________________________________________________________________ _____________________________________________________________________ 2. An agent, instructed to insure goods, neglects to do so. Ascertain his liability for the negligence. ___________________________________________________________________________ _____________________________________________________________________ 4.9 UNIT END QUESTIONS A. Descriptive Questions: Short Questions 1. Write short notes on factor. 2. Write short notes on auctioneer. 3. Comment briefly on the statement, “He who acts through an agent is himself acting” 4. Discuss the types of mercantile agents. 5. Comment on the statement, “Agency is not irrevocable.” Long Questions 1. Discuss the rights and duties of an agent. 2. Discuss the rights and duties of Principal. 3. What is a contract of agency? What are the essentials of relationship of agency? 4. What are the various ways in which the relation of agency arises? 5. What are the principal’s remedies against a) his agent, b) against a third party, where the agent is found to have taken a bribe offered to him by the third party? B. Multiple Choice Questions: 108 1. The contract between the agent and principal can be appropriately said as CU IDOL SELF LEARNING MATERIAL (SLM)

a. Contract of services 109 b. Contract for services c. Service Contract d. service by contract 2. Anyone can become an ____________ a. Agent b. Principal c. Contractor d. Party to the contract 3. In case of ratification the principal must ratify __________ a. Part transaction based on necessity b. the agreement of agency c. whole transaction d. the third party about agency 4. The consideration in case of Contract of Agency ______________ a. can be past, present, future b. Need not be adequate c. Need to be real d. Not Mandatory 5. An agent who is appointed to sell a house is ___________ a. General agent b. Special agent c. Mercantile agent d. Non mercantile Agent Answers 1. (b) 2. (a) 3. (c) 4. (d) 5. (c) 4.10 REFERENCES CU IDOL SELF LEARNING MATERIAL (SLM)

Textbooks:  Elements of Mercantile Law by N.D. Kapoor  Mercantile Law by Garg Chawla Reference Books:  Legal Aspects of business by Pathak Akhileshwar  Legal Aspects of Business by P.K. Pandhi  Study material published by ICAI Websites:  Manupatra.com 110 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 5: SALE OF GOODS Structure 5.0 Learning objectives: 5.1 Introduction 5.2 Definiton of a contract of sale of goods 5.3 Formation of A Contract 5.4 Unpaid seller 5.5 Rights of an unpaid seller 5.6 Summary 5.7 Keywords 5.8 Learning activity 5.9 Unit end questions 5.10 References 5.0 LEARNING OBJECTIVES: After studying this unit, you should be able to:  Explain the concept of contract for sale of goods  Explain the rights of an unpaid seller against the property  Explain the rights of an unpaid seller against buyer  Describe the legal position of an unpaid seller.  State the elements to be satisfied to be recognised as an unpaid seller. 5.1 INTRODUCTION Sale of goods is governed by Sale of Goods Act, 1930, which lays down the principles which apply to contracts with respect to sale of goods and decides on the rights and liabilities of the parties to a contract of sale. 111 CU IDOL SELF LEARNING MATERIAL (SLM)

5.2 DEFINITON OF A CONTRACT OF SALE OF GOODS Section 4(2): Contract of Sale A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part- owner and another. This includes both a contract for sale and an agreement to sell. When the goods for sale are transferred from the seller to the buyer, it is a contract of sale. When the goods are to be transferred on a future date, it is an agreement to sell. A contract of sale can be made in any form or manner as agreed between the parties, like any other contract. There is no prescribed form or manner to form a contract for sale of goods. 5.3 FORMATION OF A CONTRACT OF SALE OF GOODS A Contract of Sale with respect of goods can be formed if the following elements are present: 1. Two Parties The two parties herein are buyer and seller, being complimentary to each other. Seller is the person who sells the goods and the buyer is the one who buys the goods. State of Gujarat vs. Raman Lal & Co1. A partnership firm was dissolved and the surplus assets, including the stock in trade, were divided among partners. Held it was not a contract of sale. 2. Goods 1 AIR(1965)Guj60 112 CU IDOL SELF LEARNING MATERIAL (SLM)

The subject matter of the contract must be goods, viz. Movable property. Contract with respect to the sale of goods can be only for movable properties. Transfer of immovable property is not governed by the Sale of Goods Act. Associated Hotels of India vs. Excise & Taxation Officer A hotel gave boarding and lodging services. No rebate was allowed if food was not taken by customers. It was held that supply of food was a service and not sale of goods as the whole service is indivisible. 3. Price Consideration must either be wholly in money or partly by money and partly by goods. However, if the whole consideration is in the form of goods, it would be a barter and would not come under sale of goods. 4. Transfer of General Property The goods must be in the absolute ownership of the seller. He must hold the goods on pledge. He must transfer the absolute ownership of the goods. Specific property refers to the rights obtained by pledge. General property refers to the absolute ownership of the property. Therefore, sale of goods refers to transfer of general property and not specific property. 5. Essential elements of a valid contract A contract for sale of goods should satisfy all the essential elements of a valid contract. 5.4 UNPAID SELLER An unpaid seller is one who has not received the whole price of the goods sold or has received a negotiable instrument as a conditional payment, which has not been fulfilled owing to the dishonour of the instrument. The essential elements to qualify as an unpaid seller are: 113 CU IDOL SELF LEARNING MATERIAL (SLM)

b) The seller must not have received the full price of the products c) The seller must have an immediate right of action d) The negotiable instrument received was dishonoured. 5.5 RIGHTS OF AN UNPAID SELLER Rights with respect to the property: 1. Right of lien A lien is a right to retain the possession until payment of price. A right of lien is available if the goods have been sold without any stipulation of credit or if there was a stipulation of credit, it expired, or the buyer becomes insolvent. Lien is with respect to actual possession only and not title. Right of Lien gets terminated when the goods are delivered to another Bailee or Carrier for the purpose of transmission to the buyer, without reserving his right to disposal of the goods or when the buyer or his agent lawfully obtained the possession of the goods or when the right to lien has been waived. 2. Right of stoppage in transit The seller has the right to stop the transit of goods and hold the goods in transit if the buyer becomes insolvent and when the goods are in transit. Rights with respect to the buyer 1. Suit for price The seller has the right to sue the buyer for the price of the goods irrespective of whether the goods have passed or not. 2. Suit for damages for non-acceptance The seller may sue for damages against the buyer for non-acceptance and non-payment of the price of the goods. 3. Repudiation of Contract before due date If the buyer repudiates the contract before the due date, the seller may either treat the contract as subsisting and wait till the due date or sue for damages for breach, by treating the contract as rescinded. 114 CU IDOL SELF LEARNING MATERIAL (SLM)

4. Suit for interest Where there is a provision for interest on the default in payment of price, the seller may sue the buyer for interest at the agreed rate. In case there is no such provision, the seller may notify the buyer about the interest on the due date and interest would be at the rate awarded by the Court. 5.6 SUMMARY  A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.  This includes both a contract for sale and an agreement to sell. When the goods for sale are transferred from the seller to the buyer, it is a contract of sale. When the goods are to be transferred on a future date, it is an agreement to sell.  A contract of sale can be made in any form or manner as agreed between the parties, like any other contract. There is no prescribed form or manner to form a contract for sale of goods.  An unpaid seller is one who has not received the whole price of the goods sold or has received a negotiable instrument as a conditional payment, which has not been fulfilled owing to the dishonour of the instrument.  The rights of an unpaid seller include:  Rights with respect to the property:  Right of lien  Right of stoppage in transit  Rights with respect to the buyer  Suit for price  Suit for damages for non-acceptance  Repudiation of Contract before due date  Suit for interest 5.7 KEYWORDS: 115 CU IDOL SELF LEARNING MATERIAL (SLM)

 Contract for sale of goods: A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.  Unpaid seller: An unpaid seller is one who has not received the whole price of the goods sold or has received a negotiable instrument as a conditional payment, which has not been fulfilled owing to the dishonour of the instrument. 5.8 LEARNING ACTIVITY 1. A bought from B a shipment of certain goods. B sent the bill of lading to A, A handed over the bill of lading to C in return of a loan. C took the bill of lading in good faith. A became insolvent. B attempted to stop the goods in transit, but C claims them. Decide who has right over the goods. ___________________________________________________________________________ _____________________________________________________________________ 2. B cells and consigns certain goods to A. A becomes insolvent and then assigns the Bill of lading for cash to C, who receives it knowing full well that A is insolvent. Decide on its validity and the claim of B and C. ___________________________________________________________________________ _____________________________________________________________________ 5.9 UNIT END QUESTIONS A. Descriptive Questions: Short Questions: 1. Write short notes on goods. 2. Write short notes on document of title of goods 3. Write short notes on earnest 4. Write short notes on stipulations as to time. 5. Discuss the rights of an unpaid seller against the buyer personally. Long Questions: 116 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Write a short note on a) Stoppage in transit b) Right to lien 2. Discuss the rights of an unpaid seller 3. Explain the nature of a contract of sale of goods and bring out clearly the distinction between a sale and an agreement to sell. 4. How is a contract of sale made? State briefly the necessary formalities of such a contract with illustrations. 5. Is an unpaid seller of goods who is in possession of them entitled to retain possession? If so, under what circumstances? When does he lose his lien over the goods? B. Multiple Choice Questions 1. In a sale, the property in goods, a. Is transferred to the buyer b. May be transferred at a future time c. Is transferred when goods are delivered to the buyer d. Is transferred when the buyer pays the price. 2. In a sale, if the goods are destroyed, the loss falls on a. The buyer b. The seller c. Partly on the buyer and partly on the seller d. The seller, if the price has not been paid. 3. The term property as used in the Sale of Goods Act, 1930 means a. Possession b. Ownership c. Ownership and possession both d. The subject matter of Contract of sale. 4. If a price is not determined by the parties in a contract of sale, the buyer is bound to pay a. The price demanded by the seller b. A reasonable price 117 CU IDOL SELF LEARNING MATERIAL (SLM)

c. The price which the buyer thinks is reasonable d. The price to be determined by a third independent person. 5. The lien of an unpaid seller depends on a. Possession b. Title c. Ownership d. Whether the buyer has paid the price or not. Answers 1. (a) 2. (a) 3. (d) 4. (b) 5. (a) 5.10 REFERENCE Textbooks:  Elements of Mercantile Law by N.D. Kapoor  Mercantile Law by Garg Chawla Reference Books:  Legal Aspects of business by Pathak Akhileshwar  Legal Aspects of Business by P.K. Pandhi Websites:  Manupatra.com 118 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 6: CONDITIONS AND WARRANTIES Structure 6.0 Learning objectives: 6.1 Definition of condition and warranty 6.2 Implied conditions and implied warranties 6.3 Summary 6.4 Key words 6.5 Learning Activity 6.6 Unit end questions 6.7 References 6.0 LEARNING OBJECTIVES: After studying this unit, you should be able to:  Explain the concepts of conditions and Warranties  State the various types of implied conditions and warranties  Describe the legal effect of implied conditions  Describe the legal effect of warranties  Describe the legal position of conditions and warranties 6.1 DEFINITION OF CONDITION AND WARRANTY Section 12(2) Condition A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. Section 12(3) Warranty A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. 119 CU IDOL SELF LEARNING MATERIAL (SLM)

6.2 IMPLIED CONDITIONS AND IMPLIED WARRANTIES IMPLIED CONDITIONS 1. Stipulations as to time Stipulations as to time of payment are not the essence of contract, unless the contract says otherwise. Other stipulations as to time of delivery, etc. may or may not be essence of the contract, depending on the terms of each contract. 2. Condition as to title The seller is presumed to have the right to sell the goods 3. Sale by description When the goods are sold by description, the goods are presumed to correspond to such description. 4. Condition as to quality or fitness The buyer shall examine the goods before buying and shall make sure they are of the quality and fitness expected by him. 5. Condition as to merchantability It is an implied condition that the goods are of merchantable quality and are commercially saleable. 6. Condition implied by custom An implied condition as to quality or fitness may be annexed to the usage of trade. The purpose of buying the product may be implied from the conduct of the buyer and the nature of description of the product 7. Sale by sample Where a sale is done on producing the sample, the whole stock should correspond to the sample. 8. Condition as to wholesomeness In case of eatables, it is implied that the whole portion of the food is supplied. IMPLIED WARRANTIES 1. Warranty of quiet possession Warranty that the buyer shall have quiet and peaceful possession of the goods 2. Warranty of freedom from encumbrances 120 CU IDOL SELF LEARNING MATERIAL (SLM)

The buyer shall have clear title and ownership over the goods with no charge or claim on it. 3. Warranty as to fitness by usage of trade Fitness for a particular purpose may be annexed to the product 4. Warranty to disclose dangerous nature of goods. The buyer is warned of any inherent danger or peril that arises from the product. 6.3 SUMMARY  A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.  IMPLIED CONDITIONS  Stipulations as to time  Condition as to title  Sale by description.  Condition as to quality or fitness  Condition as to merchantability  Condition implied by custom  Sale by sample  Condition as to wholesomeness  IMPLIED WARRANTIES  Warranty of quiet possession  Warranty of freedom from encumbrances  Warranty as to fitness by usage of trade  Warranty to disclose dangerous nature of goods. 6.4 KEYWORDS 121 CU IDOL SELF LEARNING MATERIAL (SLM)

 Condition: A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated.  Warranty: A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. 6.5 LEARNING ACTIVITY 1. R bought a car from D and used it for four months. D had no title to the car and subsequently R had to hand it over to the true owner. Decide on what claim R has. ___________________________________________________________________________ __________________________________________________________________________ 2. A ship was contracted to be sold as a ‘copper fastened vessel.’ To be taken with all faults, without any allowance for defects whatsoever. The ship turned out to be partially copper fastened. Decide. ___________________________________________________________________________ ___________________________________________________________________________ 6.6 UNIT END QUESTIONS A. Descriptive Questions: Short Questions: 1. State the conditions implied in a contract for the sale of goods by description. 2. State the conditions implied in a contract for the sale of goods by sample. 3. State the conditions implied in a contract for the sale of goods required for a particular purpose. 4. “In a contract for the sale of goods there is no implied condition or warranty as to the quality of the goods or their fitness for any particular purpose”. Comment 5. Distinguish between condition and warranty. Long Questions: 1. Briefly explain the conditions and warranties implied by law in a contract for the sale of goods. 122 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Distinguish between a condition and a warranty. When does a condition descend to the level of a warranty? Explain the rule of caveat emptor and state how far it is modified by implied conditions. 3. “If a person sells an article, he thereby warrants that it is fit for some purpose, but he does not warrant that it is fit for any particular purpose”. State the various qualifications subject to which this proposition should be received. B. Multiple Choice Questions: 1. If a sale is by sample as well as by description, the implied condition is that the goods shall correspond with a. Sample b. Description c. Both sample and description d. Either sample or description. 2. In a sale, there is an implied condition on the part of the seller that he a. Has a right to sell the goods. b. Is in possession of goods c. Will have the right to sell d. Will acquire the goods. 3. A condition is a stipulation which is a. Essential to the main purpose of contract of sale b. Not essential to the main purpose of contract of sale c. Collateral to the main purpose of contract of sale d. None of these. 4. In case of breach of a warranty. a. The buyer can repudiate the contract b. Claim damages only c. Return the goods d. Refuse to pay the price. 5. In case of breach of a warranty, the buyer can 123 CU IDOL SELF LEARNING MATERIAL (SLM)

a. Claim damages only b. Repudiate the contract c. Cannot return the goods d. Refuse to take the delivery of goods. Answers 1. (c) 2. (a) 3. (a) 4. (b) 5. (b) 6.7 REFRENCE Textbooks:  Elements of Mercantile Law by N.D. Kapoor  Mercantile Law by Garg Chawla Reference Books:  Legal Aspects of business by Pathak Akhileshwar  Legal Aspects of Business by P.K. Pandhi Websites:  Manupatra.com 124 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 7: BAILMENT AND PLEDGE Structure 7.0 Learning objecives 7.1 Definition of bailment, bailro and bailee 7.2 Classification of bailment 7.3 Termination of bailment 7.4 Finder of lost goods 7.5 Pledge 7.6 Pledge by non owner 7.7 Summary 7.8 Keywords 7.9 Learning Activity 7.10 Unit end questions 7.11 References 7.0 LEARNING OBJECIVES After studying this unit, you should be able to: -  Explain the concept of Bailor and Bailee  State the rights and duties of Bailor  State the rights and duties of Bailee  Explain the concept of Bailment and Pledge  Explain the legal position of a pledge by a non-owner. 7.1 DEFINITION OF BAILMENT, BAILRO AND BAILEE BAILMENT A ‘bailment’ is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. 125 CU IDOL SELF LEARNING MATERIAL (SLM)

BAILOR The person delivering the goods is called the ‘bailor’ BAILEE The person to whom they are delivered is called the ‘bailee’ 7.2 CLASSIFICATION OF BAILMENT 1. Bailment for the exclusive benefit of the Bailor When goods are delivered for the safe custody and benefit of the bailor 2. Bailment for the exclusive benefit of the Bailee When goods are given to the Bailee for his usage and to be returned after use 3. Bailment for the mutual benefit of Bailor and Bailee Goods are delivered by the bailor to the bailee for some purpose and the Bailee gets a consideration for fulfilling that purpose. 4. Gratuitous Bailment Bailment in which consideration is involved 5. Non-Gratuitous Bailment Bailment in which no consideration is involved 7.3 TERMINATION OF BAILMENT Bailment expires under the following circumstances 1. On expiry of the period of bailment 2. On achieving the object or purpose of the Bailment 3. When there is inconsistent usage of the goods by the Bailee 4. When the subject matter of the bailment is destroyed 5. When a gratuitous bailment is terminated by the Bailor. In such a case, the Bailor is liable to indemnify the Bailee for the loss accrued, in case the benefit gained is greater than the loss suffered. 6. On the death of the Bailor or Bailee 126 CU IDOL SELF LEARNING MATERIAL (SLM)

7.4 FINDER OF LOST GOODS A person who finds anything which does not belong to him and takes it in his custody, shall have the same responsibility as a Bailee. Rights of a Finder of Lost Goods 1. Right to lien over the goods found for the expenses he incurs in maintaining them 2. Right to sue for a reward promised by the owner. 3. Right to sell the goods if the owner is not found after due diligence or the owner refuses to pay the lawful charges, which amounts to two third of the value of the goods to the finder or if the goods are perishable. 7.5 PLEDGE Pledge The bailment of goods as security for payment of a debt or performance of a promise is called ‘pledge’. Pledgor or Pawnor The bailor is in this case called the ‘pawnor’. Pledgee or Pawnee The bailee is called the ‘pawnee’. 7.6 PLEDGE BY NON-OWNER Under the following circumstances, non-owners of the goods can execute a valid pledge: 1. Pledge by mercantile agent is valid, provided it is done in good faith and with the consent of the principal 2. Pledge by buyer in possession before sale or seller in possession after sale is valid 3. When Pawnor has limited interest, the pledge is valid to the extent of interest 4. Pledge by one of the co-owners in possession of the goods is valid 127 CU IDOL SELF LEARNING MATERIAL (SLM)

5. Pledge by a person obtaining possession of the goods under a voidable contract is valid provided the contract has not been rescinded and the pawnee acts in good faith without the knowledge of defective title, 7.7 SUMMARY  A ‘bailment’ is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the ‘bailor’.  The person to whom they are delivered is called the ‘bailee’. The bailment of goods as security for payment of a debt or performance of a promise is called ‘pledge’. The bailor is in this case called the ‘pawnor’. The bailee is called the ‘pawnee’.  Under the following circumstances, non-owners of the goods can execute a valid pledge:  Pledge by mercantile agent is valid, provided it is done in good faith and with the consent of the principal  Pledge by buyer in possession before sale or seller in possession after sale is valid  When Pawnor has limited interest, the pledge is valid to the extent of interest  Pledge by one of the co-owners in possession of the goods is valid  Pledge by a person obtaining possession of the goods under a voidable contract is valid provided the contract has not been rescinded and the pawnee acts in good faith without the knowledge of defective title. 7.8 KEYWORDS: Bailment: A ‘bailment’ is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. Pledge: The bailment of goods as security for payment of a debt or performance of a promise is called ‘pledge’. The bailor is in this case called the ‘pawnor’. 128 CU IDOL SELF LEARNING MATERIAL (SLM)

7.9 LEARNING ACTIVITY 1. S sells 100 bags of wheat to B, delivery and payment of price to be made in the next three months. Before the goods are delivered to B, S pledges the goods with P who acts bona fide without the knowledge of the prior sale. Decide on the validity of the pledge. ___________________________________________________________________________ ___________________________________________________________________________ 1. F finds a pen on the road and pledges it with P. F sent Rs. 10 in its repairs. Decide on the right of the owner over recovering the value of the pen. ___________________________________________________________________________ ___________________________________________________________________________ 7.10 UNIT END QUESTIONS A. Descriptive Questions: Short Questions: 1. To what extent is a bailee responsible for loss arising from defective title of the bailor? 2. Distinguish between general lien and particular lien. 3. When does a bailment come to an end? 4. When is a pledge created by non-owners valid? 5. When a pledger fails to redeem his pledge what right does the pledgee have in the pledge? Long Questions: 1. Define a bailment. Discuss the rights and responsibilities of a paid and a gratuitous bailee. How does a bailment differ from a pledge? 2. Explain how a bailment may result without the owner actually delivering the goods to the bailee. 3. In bailment which factors are considered in determining whether or not the bailer took reasonable care of the goods bailed. 4. The position of a finder of goods is exactly that of a bailee in the case of a deposit. Comment and discuss. 129 CU IDOL SELF LEARNING MATERIAL (SLM)

5. Define pledge. What are the respective rights and duties of pawnor and pawnee? B. Multiple Choice Questions: 1. A bailee has a. A right of particular lien over goods bailed b. A right of generation c. A right of both particular and general lien d. No lien at all over the goods bailed. 2. The position of a finder of lost goods is that of a a. Bailor b. Bailee c. Surety d. Principal debtor 3. A gratuitous bailor is liable to the bailee for defects in the goods bailed a. Even if he is not aware of them b. Only if he is aware of them c. In all cases of loss d. None of the above. 4. A bailee fails to return the goods according to the bailor’s direction. He takes reasonable care of the goods but still the goods are lost. The loss will fall on a. The bailee b. The bailor c. On both of them d. Neither of them. 5. A who purchases certain goods from B by a misrepresentation pledges them with C. The pledge is a. Valid b. Void c. Voidable d. Invalid. 130 CU IDOL SELF LEARNING MATERIAL (SLM)

Answers 1. (c), 2. (b), 3 (a), 4 (b), 5 (a) 7.11 REFERENCE Textbooks:  Elements of Mercantile Law by N.D. Kapoor  Mercantile Law by Garg Chawla Reference Books:  Legal Aspects of business by Pathak Akhileshwar  Legal Aspects of Business by P.K. Pandhi Websites:  Manupatra.com 131 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 8: LAW OF NEGOTIABLE INSTRUMENTS Structure 8.0 Learning objectives: 8.1 Introduction 8.2 Definition of a negotiable instrument 8.3 Promissory note 8.4 Charecterestics of a promissory note: 8.5 Bill of exchange 8.6 Essential elements of a bill of exchange 8.7 Cheque 8.8 Negotiation 8.9 Difference between assignment and negotiation 8.10 Modes of negotiation 8.11 Kinds of indorsement 8.12 Presentment 8.13 Dishonour 8.14 Noting 8.15 Protest 8.16 Rules as to compensation 8.17 Summary 8.18 Keywords 8.19Unit end questions 8.20 References 8.0 LEARNING OBJECTIVES: 132 CU IDOL SELF LEARNING MATERIAL (SLM)

After studying this unit, you should be able to: -  State the different kinds of negotiable instruments.  Explain the legal position of a negotiable instrument  Describe the effect of dishonour of a negotiable instrument.  Explain the concept of presentment for payment  Describe Bills of Exchange, Promissory Notes and Cheques. 8.1 INTRODUCTION Negotiable instruments are nothing but acknowledgement of debts or liabilities, which are transferable. Cheques, Promissory Notes and Bills of Exchange are some of the prominent negotiable instruments used. Negotiable Instruments Act, 1881 governs Negotiable instruments, their usage, legal position, honour and dishonour and the legal rights and liabilities of the parties to a negotiable instrument. 8.2 DEFINITION OF A NEGOTIABLE INSTRUMENT A negotiable instrument is an acknowledgement of a debt or liability of any nature. Therefore, it amounts to a movable asset, being a proof or acknowledgment of a debt or liability, which is transferable. Section 13 of the Negotiable Instruments Act defines Negotiable Instruments and reads as follows: - Section 13: Negotiable Instruments: (1) A \"negotiable instrument\" means a promissory note, bill of exchange or cheque payable either to order or to bearer. Explanation 1: A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable. 133 CU IDOL SELF LEARNING MATERIAL (SLM)

Explanation 2: A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank. Explanation 3: Where a promissory note, bill of exchange or cheque, either originally or by endorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option. (2) A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees. Section 13 of the Negotiable Instruments Act, 1881 states that negotiable instruments means a promissory note, bills of exchange or a cheque which is payable to either the order or the bearer. Therefore, the definition aims at establishing to whom the payment must be made. A negotiable instrument is payable to Order when the person to whom the amount is payable is specified. It is payable to bearer when the person to whom the payment must be made is not specified. In such a case, the amount goes to the person in whose possession the Negotiable Instrument is. The main difference between a normal acknowledgment of liability and a negotiable instrument is its transferability. An instrument to order is transferable by endorsement and delivery. That is, the transfer is made by writing by way of an endorsement in the instrument and by delivering the instrument. However, a bearer instrument can be transferred by mere delivery. Even though section 13 of Negotiable Instruments Act talks about only three negotiable instruments they are not limited to the three instruments. Section 137 of Transfer of Property Act, 1882 recognises shah jog hundis, delivery orders, government promissory notes and railway receipts as negotiable instruments. 8.3 PROMISSORY NOTE A promissory note is a promise made by a person to pay a certain amount to a specified person or to his order. Section 4 of the Negotiable Instruments defines a promissory note and reads as follows: - 134 CU IDOL SELF LEARNING MATERIAL (SLM)

Section 4: Promissory Note A \"promissory note\" is an instrument in writing (not being a banknote or a currency-note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. Illustrations A signs instruments in the following terms: -- (a) \"I promise to pay B or order Rs. 500.\" (b) \"I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for value received.\" (c) \"Mr. B. I.O.U. Rs. 1,000.\" (d) \"I promise to pay B Rs. 500 and all other sums which shall be due to him.\" (e) \"I promise to pay B Rs. 500 first deducting there out any money which he may owe me.\" (f) \"I promise to pay B Rs. 500 seven days after my marriage with C.\" (g) \"I promise to pay B Rs. 500 on D's death, provided D leaves me enough to pay that sum.\" (h) \"I promise to pay B Rs. 500 and to deliver to him my black horse on 1st January next.\" The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked (c), (d), (e), (f), (g) and (h) are not promissory notes. The provision itself provides for illustrations as to what constitutes a promissory note and what does not. 8.4 CHARECTERESTICS OF A PROMISSORY NOTE: 1. WRITING A promissory note must mandatorily be in writing and cannot be valid and enforceable when executed orally. 2. PROMISE TO PAY A promise to pay is essential in a promissory note. A mere acknowledgement of liability or receipt of money does not constitute a promissory note, even if there is a clause with respect 135 CU IDOL SELF LEARNING MATERIAL (SLM)

to repayment. There must be an explicit or specific undertaking to pay the amount. Mere implied undertaking does not amount to a promise to pay 3. UNCONDITIONAL The promise to pay must be unconditional and definite. Even if it is subject to some condition, it must be only on a condition which is bound to happen, according to normal human experience. Beardsley vs. Baldwin A promise to pay a certain sum of money within a certain number of days after his marriage does not amount to a promissory note, as there are chances that he will not marry at all. Roberts vs. Peake A person promises to pay a specific sum if Mr. George Hindhshaw left sufficient money for him. It was held that it does not qualify as a promissory note. 4. MONEY ONLY A promissory note can be executed with respect to money only and the promise made must be only for payment of money. The subject matter of a promissory note can be money and money only. Further, the amount of money to be paid or promised to pay must be certain. Smith vs. Nightingale The promissory note said that the promise is to pay 65 Pounds with lawful interest and any other amounts due. It was held that the amount was definite. 5. CERTAIN PARTIES The parties to the promissory note must be designated with reasonable certainty. However, it is not necessary that the payee’s name is mentioned, as long as the instrument clearly shows who the payee is. The payee can be a holder of a position or office and not necessarily a specific person. 6. SIGNATURE 136 Lastly, the promissory note must be signed by the maker. CU IDOL SELF LEARNING MATERIAL (SLM)

Apart from the aforesaid six elements, two more elements have been listed in Bahadurrinisa Begum vs. Vasudev, which are as follows: - (a) There must be nothing inconsistent with the character of the instrument as a promise to pay. (b) The parties must intend the instrument to be a promissory note. 8.5 BILL OF EXCHANGE A bill of exchange is an instrument with respect to a direction for payment of money to a specific person or his order or the bearer of the instrument. Section 5 of Negotiable Instruments Act, 1881 defines Bill of Exchange and reads as follows: - Section 5: bill of exchange A \"bill of exchange\" is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. A promise or order to pay is not \"conditional\", within the meaning of this section and section 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain. The sum payable may be \"certain\", within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due. The person to whom it is clear that the direction is given or that payment is to be made may be a \"certain person\", within the meaning of this section and section 4, although he is mis- named or designated by description only. 137 CU IDOL SELF LEARNING MATERIAL (SLM)

A Bill of Exchange is nothing but an Order or direction to one person to pay a certain amount of money to another. The amount must be certain and the payee, that is the person to whom the amount is to be made. 8.6 ESSENTIAL ELEMENTS OF A BILL OF EXCHANGE 1. WRITING A Bill of Exchange must mandatorily be in writing and cannot be valid and enforceable when executed orally. 2. PROMISE TO PAY An order to pay is an essential element in a bill of exchange. Though the order to pay can be in the form of a request, it must be imperative. Ruff vs. Webb The Plaintiff dismissed his servant from service and for his settlement, gave a draft saying that Mr. Webb would pay the settlement to him. Though it was worded as a request, it amounts to a bill of exchange. 3. UNCONDITIONAL The order to pay must be unconditional and definite. Even if it is subject to some condition, it must be only on a condition which is bound to happen, according to normal human experience. 4. MONEY ONLY A bill of exchange can be executed with respect to money only and the order made must be only for payment of money. The subject matter of a bill of exchange can be money and money only. Further, the amount of money to be paid or ordered to pay must be certain. 5. THREE PARTIES A bill of exchange consists of three parties, being the drawer, the executor of the Bill of Exchange, drawee, the person to whom the Bill of Exchange is addressed and the payee, to 138 CU IDOL SELF LEARNING MATERIAL (SLM)

whom the amount is to be paid. All these three parties must be given with reasonable certainty. 6. INDICATION OF DRAWEE WITH REASONABLE CERTAINTY Even if the payee is not certainly mentioned, the drawee must be designated with reasonable certainty. However, the Drawee need not be specifically indicated. The instrument must only indicate who the Drawee is. 7. SIGNATURE Lastly, the Bill of Exchange must be signed by the Drawer. A Bill of Exchange is subject to the acceptance of the Drawee. However, a Bill of Exchange will not become invalid owing to non-acceptance but only dishonoured. Acceptance is given by signing the assent. Section 33 of Negotiable Instruments Act declares that a Bill can be accepted by one drawee or more than one drawee or by a person mentioned in the instrument as a drawee in case of need or by any person who accepts it for the honour of the drawee. 8.7 CHEQUE A cheque is nothing but a specific bill of exchange directing the bank to pay a particular amount. Therefore, all the essentials of a bill of exchange apply to a cheque also. A cheque is defined under section 6, which reads as follows: - Section 6: \"Cheque\" A \"cheque\" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. Explanation 1 -- For the purposes of this section, the expressions— (a) \"a cheque in the electronic form\" means a cheque drawn in electronic form by using any computer resource and signed in a secure system with digital signature (with or without biometrics signature) and asymmetric crypto system or with electronic signature, as the case may be. 139 CU IDOL SELF LEARNING MATERIAL (SLM)

(b) \"a truncated cheque' means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing. Explanation II.-- For the purposes of this section, the expression \"clearing house\" means the clearing house managed by the Reserve Bank of India or a clearing house recognised as such by the Reserve Bank of India. Explanation III.-For the purposes of this section, the expressions \"asymmetric crypto system\", \"computer resource\", \"digital signature\", \"electronic form\" and \"electronic signature\" shall have the same meanings respectively assigned to them in the Information Technology Act, 2000(21 of 2000). The definition has been amended to suit the technological development and recognises truncated cheques and cheques in electronic form. An electronic cheque is a cheque in electronic form, which is generated by a computer source and signed using a digital signature. A truncated cheque is a cheque truncated during the course of clearing cycle on generation of an electronic image or transmission by the bank or clearing house. The main difference between a cheque and a bill of exchange is that a cheque is payable on demand, while a bill of exchange is not necessarily paid on demand and can be paid after a fixed period of time. A post-dated cheque is not a cheque on the date it is drawn but becomes one only on the date written on it. CROSSING OF CHEQUES A cheque may be crossed generally or specially. When there is nothing written in between the lines or says ‘any company’ it is a generally crossing. If the name of the bank is mentioned along with additional words, it is special crossing. The other words may be ‘Account Payee only’ or ‘Not negotiable.’ A cheque may be crossed by the drawer, the holder or the bearer. The drawer may cross the cheque generally or specifically. If the cheque is not crossed, the holder may cross it 140 CU IDOL SELF LEARNING MATERIAL (SLM)

generally or specifically. If it is crossed generally, the holder may cross the same specifically. If the cheque is crossed specifically, the words ‘not negotiable’ can be added. A bank can cross an already crossed cheque to direct it to another bank or collecting agent. PAYING BANKER The banker who makes the payment of a crossed cheque is the paying banker. The paying Banker is duty bound to pay a crossed cheque to another banker only and when crossed specifically, only to the banker to whom it is crossed. Once the payment is made in this manner, the payment banker is discharged from liability, even if the contents of the cheque do not reach the true owner. Even if a cheque is not crossed and if the bank has paid the cheque in good faith, it will be discharged from liability. When a cheque is crossed on more than one bank, the bank is duty bound to refuse payment. A collecting banker is the bank which collects the payment of cheque for payment on behalf of the customer. The collecting bank is protected under section 131 of the Negotiable Instruments Act, 1881 if the following conditions are satisfied: - (a) The payment must be received on behalf of the customer only. (b) The payment must be received only in the capacity of an agent of the customer. (c) The cheque must be crossed. (d) The payment must be received in good faith and without negligence. DISHONOUR OF CHEQUES Section 138 of the Negotiable Instruments Act, 1881 provides for the punishment for the issuance of a cheque without having sufficient funds. The legislative intent of making dishonouring of cheques for insufficient funds a penal offence is to inculcate faith in the banking operations and ensure credibility in transacting business on the basis of negotiable instruments. The essential elements of making out an offence under section 138 are as follows: - 141 CU IDOL SELF LEARNING MATERIAL (SLM)

(a) The cheque must be drawn on the account he holds and for the payment of a certain amount of money from the said account. (b) The cheque must be presented with three months from the date of the cheque or within its validity period, whichever is earlier. (c) The cheque must have been returned by the bank unpaid owing to insufficiency of funds in the bank account on which the cheque was drawn. (d) The payee or holder must have sent a notice calling upon the drawer to pay the amount in the cheque within thirty days from the date of knowledge of dishonour of cheque. (e) The drawer of the cheque must have failed to pay the said amount within fifteen days from the date of receipt of the notice issued by the payee. 8.8 NEGOTIATION The transfer of an instrument by one party to another so as to constitute the transferee a holder is called “negotiation”. A bearer instrument is transferable by simple delivery. An instrument payable to Order is transferable by endorsement and delivery. 8.9 DIFFERENCE BETWEEN ASSIGNMENT AND NEGOTIATION POINT OF DIFFERENCE NEGOTIATION ASSIGNMENT Subject to equities The defects in title of previous The Defect in title of the transferors do not affect the title of assignor affects the title of the bearer. the assignee. Notice of assignment No information as to the transfer Notice of assignment must be needs to be given to the debtor. given to the debtor and the debtor must give his assent explicitly, failing which the assignment will not bind the debtor. 142 CU IDOL SELF LEARNING MATERIAL (SLM)

Presumptions Consideration is presumed with Consideration is not respect to a negotiation of presumed with respect to an negotiable instrument. assignment. Table 8.1: Difference between Negotiation and Assignment 8.10 MODES OF NEGOTIATION Negotiation, as indicated earlier is the transfer of a negotiable instrument. It can be done in two modes: (i) NEGOTIATION BY DELIVERY Section 46 and 47 govern negotiation by delivery. The person to whom the instrument is delivered becomes the holder of the instrument. However, the instrument must be delivered to him and not be stolen or taken by force. Section 46 defines a delivery and how a delivery must be made. Section 46 says that actual or constructive delivery of a promissory note, bill of exchange or cheque completes the making of the negotiable instrument. Bearer instrument can be transferred by mere delivery. Delivery may be made by the person making the instrument or by the person authorized by him. However, if the delivery made is conditional or done for a specific purpose, such delivery does not amount to transfer. If a delivery is made to a holder in due course, it does not amount to a transfer. A holder is a person who is a possession of the instrument and is entitled to recover the amount which is a subject matter of the instrument. A holder in due course is a person in possession of an instrument from which money is payable in a future date. Section 46 reads as follows: - Section 46 – Delivery The making, acceptance or indorsement of a promissory note, bill of exchange or cheque is completed by delivery, actual or constructive. 143 CU IDOL SELF LEARNING MATERIAL (SLM)

As between parties standing in immediate relation, delivery to be effectual must be made by the party making, accepting or indorsing the instrument, or by a person authorized by him in that behalf. As between such parties and any holder of the instrument other than a holder in due course, it may be shown that the instrument was delivered conditionally or for a special purpose only, and not for the purpose of transferring absolutely the property therein. A promissory note, bill of exchange or cheque payable to bearer is negotiable by the delivery thereof. A promissory note, bill of exchange or cheque payable to order is negotiable by the holder by indorsement and delivery thereof. Section 47 talks about which documents can be negotiated by delivery and reads as follows: - Section 47 - Negotiation by delivery Subject to the provisions of section 58, a promissory note, bill of exchange or cheque payable to bearer is negotiable by delivery thereof. Exception. --A promissory note, bill of exchange or cheque delivered on condition that it is not to take effect except in a certain event is not negotiable (except in the hands of a holder for value without notice of the condition) unless such event happens Illustrations (a) A, the holder of a negotiable instrument payable to bearer, delivers it to B's agent to keep for B. The instrument has been negotiated. (b) A, the holder of a negotiable instrument payable to bearer, which is in the hands of A's banker, who is at the time the banker of B, directs the banker to transfer the instrument to B's credit in the banker's account with B. The banker does so, and accordingly now possesses the 144 CU IDOL SELF LEARNING MATERIAL (SLM)

instrument as B's agent. The instrument has been negotiated, and B has become the holder of it, asthe instrument is payable to bearer. (ii) NEGOTIATION BY INDORSEMENT An instrument payable to order to order is negotiated by indorsement and delivery. Indorsement is when the holder signs at the back of the instrument indicating the transfer of the instrument. In case there are many endorsements, and the back side of the instrument gets filled, a slip of paper can be annexed to the instrument for further indorsement, which is called ‘allonge’ and further indorsements can be made in the ‘allonge’, which becomes a part of the instrument. However, the transfer is completed only by delivery. Mere indorsement does not complete the transfer. Delivery must be made in the manner specified under section 46. Even if an endorsee finds an instrument duly indorsed in his favour, it is not valid as it was not duly delivered to the endorsee. If the instrument is sent by post, it is deemed to have been delivered as soon as it posted. Even if it was lost or stolen or damaged in transit, it is deemed to have been delivered to the endorsee. Thukaram Bapuji vs. Belgaum Bank Ltd A person sent a bank draft was sent by post to the payee and later he gave instructions to the bank not to pay for the draft. It was held that as the draft was sent by post, delivery has already been effected. Therefore, the executor did not have any right to cancel an instrument already delivered. The indorsement must not be forged and must be genuine. If not, the endorsee does not get any good title. However, a bona fide subsequent endorsee would become a valid holder even the endorser did not have proper title with respect to the instrument. An instrument will be negotiable if the claim is satisfied before or at maturity. The maker, drawee or acceptor cannot transfer the instrument anymore and it ceases to be a negotiable instrument for them. 145 CU IDOL SELF LEARNING MATERIAL (SLM)

The Payee of an instrument has the right to make the first endorsement. Subsequent to that, the holder of the instrument has the right to make an indorsement with respect to the instrument. Even a drawer or maker is entitled to make an indorsement if he becomes the lawful holder of the instrument. 8.11 KINDS OF INDORSEMENT 1. ENDORSEMENT IN BLANK When the endorser signs only his name on the back of the instrument for the purpose of negotiating it, it is an indorsement in blank. Such an indorsement is done to convert the instrument to a bearer instrument and will be treated as one for all other purposes. It can be negotiated by simple delivery. An indorsement in blank remains the same till it is converted to an indorsement in full. Once converted to an indorsement if full, a claim against the endorser in full lies only to the endorsee in whose favour it was made. 2. ENDORSEMENT IN FULL When the endorser mentions the person in whose favour the indorsement is made and affixes his signature. There is no specific form for the indorsement. It only needs to clearly establish the intention of the endorser. An indorsement in blank can be converted to an indorsement in full by adding the name of the endorsee. 3. RESTRICTIVE INDORSEMENT Generally, an indorsement confers the right to further negotiation to the endorsee. However, if it is expressly prevented or restricted by the endorser, it is a restrictive indorsement. 4. ENDORSEMENT SANS RECOURSE When an endorser excludes his liability by his indorsement, it is an indorsement sans recourse. However, when such an endorser becomes a holder of the instrument on his own right, all the intermediate endorsers are liable to him. 5. CONDITIONAL INDORSEMENT 146 CU IDOL SELF LEARNING MATERIAL (SLM)

When the endorser makes the indorsement along with some condition, it is a conditional indorsement. In such cases, if the endorsee receives payment without fulfilling the condition, he would be deemed to hold the instrument in trust of the endorser. Conditional endorsement is when the conditions are specified with the indorsement. Conditional delivery is when the condition is orally made for delivery. Conditional indorsement does not imply conditional delivery. 6. PARTIAL INDORSEMENT Partial indorsement is when the amount with respect to the instrument is partial paid and the indorsement is made after such payment. 8.12 PRESENTMENT RESENTMENT FOR ACCEPTANCE A Bill of Exchange has to be presented for payment in the following three conditions: (a) The bill is payable at a given time after acceptance or after sight. The expression ‘after sight’ means that the bill is payable at a given time after it has presented to his drawee for his knowledge. (b) The bill expressly contains a clause with respect to acceptance before it is presented for payment. (c) The bill is made payable at a place other than the place of residence or business as a drawee. If a bill or promissory note is payable after sight, it must be presented for the maker’s acceptance within the specified time or within a reasonable time. The bill must be presented at a place specified for presented and if not specified, at the place of the drawee’s residence or place of business. The Drawee can be given 48 hours for expressing his acceptance or rejection. If these conditions are not fulfilled, the bill is deemed to dishonoured for non- acceptance. PRESENTMENT FOR PAYMENT The holder of a negotiable instrument is duty bound to present the instrument for payment as per section 64 of the Negotiable Instruments Act, 1881. If the payee fails to do so, the other parties of the instruments will be discharged from their liability from in the instrument. The 147 CU IDOL SELF LEARNING MATERIAL (SLM)

exception to this rule is a promissory note which is payable on demand and not at a particular place, which need not be presented for payment. An instrument must be presented for payment on maturity. If it is a payment in instalments, the instrument must be presented for payment within three days from when each instalment becomes due. Even if one instalment is not paid, it amounts to dishonour of the instrument. An instrument payable on demand must be presented for payment within a reasonable time. The presentment must be made within the working hours of the maker or in case of a bank, within the banking hours. The instrument must be presented at the place specified in the instrument. The place so specified must be clear and definite and not vague or ambiguous. Mere mentioning of the name of the city in which the instrument is to be presented does not amount to a ‘specified place’. If the payee does not present the instrument for payment at the specified place, the instrument will be considered dishonoured. If the payee presents the instrument for payment at the specified place, the drawer will become liable, irrespective of whether the drawer is present there or if the place is shut. In case no place is specified in the instrument, it must present at the place of business of the drawer or maker. If the place or business or place of residence is not known, presentment can be made wherever the drawer is found. MATURITY The maturity of an instrument is when the payment under that instrument falls due. It applies to a promissory note, bill of exchange, cheque or any other negotiable instrument. If the instrument is payable at sight or on presentment, it is payable on demand. That is matured on the date of issue itself. However, if there is a specified period after sight for payment, the instrument matures on the expiry of the said period. However, Section 22 also provides for 3 days grace period from the date of maturity if there is a specified time for payment in the instrument. When the period is in the interval of months, then the date of maturity will be on the corresponding day on the relevant month. For instance, if the time for maturity is for three months and the instrument was executed on 15th of January, it will mature on 15th of March. If the period is in the interval of days, the day of presentment shall be excluded. If it is payable on the happening of a particular event, the date of occurrence of the event shall be 148 CU IDOL SELF LEARNING MATERIAL (SLM)

excluded. In case the date of maturity falls on a public holiday, the date of maturity will be considered the next business date. In case the drawee, maker or acceptor is dead, the instrument may be presented for payment to his legal representatives. In case he is insolvent, it can be presented to his agent. In case there is any delay in presentment and there is a justifiable cause for the same which is beyond the control of the holder, it can be excused. In case the instrument could not be presented for payment owing to the existence of a riot the presentment shall not be necessary and the instrument shall deem to be dishonoured. Section 76 talks about the circumstances in which presentment is not necessary and reads as follows: - Section 76 - When presentment unnecessary No presentment for payment is necessary, and the instrument is dishonoured at the due date for presentment, in any of the following cases: -- (a) if the maker, drawee or acceptor intentionally prevents the presentment of the instrument, orif the instrument being payable at his place of business, he closes such place on a business day during the usual business hours, or if the instrument being payable at some other specified place, neither he nor any person authorized to pay it attends at such place during the usual business hours, orif the instrument not being payable at any specified place, he cannot after due search be found. (b) as against any party sought to be charged therewith, if he has engaged to pay notwithstanding non-presentment. (c) as against any party if, after maturity, with knowledge that the instrument has not been presented—he makes a part payment on account of the amount due on the instrument,or promises to pay the amount due thereon in whole or in part,or otherwise waives his right to take advantage of any default in presentment for payment. (d) as against the drawer, if the drawer could not suffer damage from the want of such presentment. In case the bank shows negligence in payment of a bill duly presented, the bank will be liable to pay damages to the holder of the instrument. 8.13 DISHONOUR 149 CU IDOL SELF LEARNING MATERIAL (SLM)

DISHONOUR BY NON-ACCEPTANCE Disclosure by non-acceptance is dealt with under section 91 of the Negotiable Instruments Act, 1881. An instrument is construed as dishonoured by non-acceptance when the instrument is properly presented for acceptance and the drawee has defaulted in accepting it. When there are more than one drawee who are partners, then a default by any of them would result in the dishonour of the instrument. When presentment is excused and the bill remains unaccepted, it is dishonoured by non-acceptance. DISHONOUR BY NON-PAYMENT Section 92 deals with dishonour of a negotiable instrument by non-payment. When an instrument is duly presented for payment to the maker, acceptor or banker and when he makes a default in payment, the instrument shall be dishonoured by non-payment. NOTICE OF DISHONOUR In case the holder wants to hold previous or prior parties to the instrument jointly and severally liable to the amount payable, such previous parties must be given notice of the dishonour of the instrument by the holder. Unless a notice is given, the holder does not get the right to sue such a party for the dishonour of the instrument. However, the present party to the instrument need not be given a notice of dishonour. Notice can be served on the person or his agent or his legal representatives if he is dead. In case the recipient is dead, and the notice despatched without such knowledge, the service of notice is deemed to be sufficient. Notice may send by post or given orally or in writing form. There is no restriction with respect to the mode of service of notice, but the notice must clearly indicate that the specific instrument has been dishonoured. Section 98 provides for the circumstances under which notice of dishonour can be dispensed with. Section 98 reads as follows: Section 98: When Notice of Dishonour is not necessary 150 No Notice of dishonour is not necessary- (a) when it is dispensed with by the party entitled thereto. (b) in order to charge the drawer, when he has countermanded payment. (c) when the party charged could not suffer damage for want of notice. CU IDOL SELF LEARNING MATERIAL (SLM)