Negotiable Instruments Contract of Sale of Goods Conditions and Warranties Contract of Property

By Khalid Mahmood Lodhi kmlodhi@yahoo.com

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NEGOTIABLE INSTRUMENTS
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Contents

Introduction Characteristics & Types Pro-Note, Bill of Exchange, Cheque Crossing of Cheque Parties To a Negotiable Instrument Presentment of Negotiable of Instrument
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Introduction
The law relating to negotiable instruments is contained in the Negotiable r Instruments Act, 1881. It deals with the promissory notes, bills of exchange and cheques. A negotiable instrument means a promissory note, bill of exchange, or cheque payable either to order or bearer.
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Characteristics

Easy Transferability (The right of the ownership in these instruments can be transferred from one person to another easily). Rights of Holder (Negotiable instrument gives the right to the creditor to recover something from debtor). Better Title to Transferee (A person getting the negotiable instruments in good faith, without negligence and trusting it bonafide, he gets a better title than that of the transferor). Unconditional Promise (A negotiable instrument contains unconditional promise or order to pay). Certain Amount (In the negotiable instruments, the promise or order is made for the payment of certain amount. The drawee of the instrument must pay certain amount of money and not anything else like goods, shares, etc.). Presumptions (certain presumptions regarding consideration, date, time of acceptance, stamp, holder in due course apply to the negotiable instruments)
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Classification of Negotiable Instruments

Inland Instrument (Bill of exchange drawn upon a person within country) Foreign Instrument (Bill of exchange drawn within Pakistan but payable outside Pakistan or vice-versa) Bearer Instrument (the holder in possession of the instrument, not necessarily containing the name is entitled to be paid.) Order Instrument (the instrument containing an expressed order payable to a particular person) Bank Draft (Also known as demand draft. It is a negotiable instrument containing an order issued by one bank to another to pay a certain amount to the holder of the instrument)) Documentary Bill (documents relating to the goods represented by the bill of lading or railway receipt etc.) Clean Bill (When no documents of title relating to the goods are attached to the bill, it is called clean bill.) 6

Promissory Note
A promissory note is an instrument in writing containing an unconditional undertaking, signed by the maker, to pay on demand or at a fixed or determinable future time a certain some of money only to, or to the order of a certain person, or to the bearer of instrument. Example: A sign the instruments by writing I promise to pay B or order Rs. 500. This is a valid promissory note.
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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 on demand or at fixed or determinable future time, a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. Example: 1) A draws a bill on B, as under: Pays Rs. 5000 to X or order. It is a valid bill. 2) Pay Rs. 5000 to C as early as possible.. It is not a valid bill.
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Cheque
A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise on demand. Example: A draws a cheque in the following terms: Pay C Rs. 300. Pay X or bearer Rs. 500 The above cheques are valid. Pay C Rs. 400, if you can. Since cheque is an unconditional order the above cheque is not a valid cheque as it is conditional.
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Crossing of Cheque

Meaning Two parallel transverse lines, with or without any word, are drawn across the face of the cheque.
Explanation: The purpose of crossing the crossing is to give a direction to the banker not to pay the cheque across the counter but to pay only to a banker.
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Types of Crossing

General crossing (i. crossing with two parallel lines, ii. Crossing contain words & Co., iii. Crossing contain words not negotiable or not negotiable and Co. or account payee) Special crossing (i. crossing containing the name of a banker, ii. Containing the words not negotiable or account payee or account payee and not negotiable in addition to the name of a banker) Account payee crossing (it contain the words account payee or payees account only or A/c payee are added to the general or special crossing.) Not negotiable crossing (A cheque marked with the words not negotiable can be transferred by payee. Transferee will get the same rights, as regards payment, as transferor had but will not get the rights of a holder in due course.)

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Parties to Negotiable Instrument

Holder Holder of a promissory note, bill of exchange or cheque means the payee or endorsee who is in possession of it or the bearer thereof but it does not include a beneficial claiming though a benamidar.

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Condition

He must be entitled to the possession (must have a legal right to possess ) He must be entitled to receive the amount (must have the right to receive the amount) He must be entitled to negotiate (must have the right to negotiate it further according to the law) He must be entitled to sue (must have a right to sue in his own name for the payment)
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Joint holder
When there are several payees and endorsees in a bill, all of them are joint holders and none of them can alone sue on it.

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Holder in Due Course

Definition (9)
Any person who for consideration becomes the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or endorsee thereof, if payable to order, before it became overdue, without notice that the title of the person from whom he derived his own title was defective.
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Conditions

Holder (must be entitled to the possession of the instrument in his own name under a legal title ) Lawful Consideration (must be the holder of the instrument against consideration ) Holder Before Maturity (holder who. gets a negotiable instrument after its maturity cannot become holder in due course ) Complete and Regular (the instrument must be complete in all respects ) Holder in Good Faith (must get the instrument in good faith under the belief that the title of the transferor is not defective )
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Privileges

Better title (holder in due course gets a better title than that of the transferor ) Transfer of good faith (A holder in due course also transfers a good title to subsequent holders ) Incomplete stamped instrument (the original payee fills more amount than he was authorized, he cannot enforce. the instrument for the whole amount ) Prior parties (holder in due course holds the negotiable instrument free from any defect of title of prior parties ) Fictitious bill (when the name of the drawer or the payee or both are fictitious ) Conditional Instrument (If such an instrument is negotiated to a holder in due course, the instrument shall remain liable to him. ) Validity of Instrument (the maker of instrument cannot deny upon suit by a holder in due course, the validity of instrument) Payees incapacity to indorse (A holder in due course can claim payment in his own name despite the payee's in capacity to indorse the instrument ) Capacity of prior parties (the endorser of negotiable instrument, upon suit by holder in due course, is not allowed to deny the signature or capacity to contract of any prior party to the instrument)

Presentment of Negotiable Instrument

Presentment means presenting a neg9tiable instrument for acceptance, sight, or payment before acceptor, maker, drawee or other party liable thereon by or on behalf of the holder

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Kinds

Presentment for Acceptance Presentment for acceptance is necessary in case of bill of exchange only. It does not apply to a cheque or a pro-note. Acceptance Acceptance means acknowledgment of the sum mentioned in a bill by the drawee or any other person on his behalf Modes of Acceptance Usual mode of acceptance is writing the word "accepted" across the bill and signing under it. Writing the word "accepted" is not essential but the signature is. General Acceptance (If the drawee accepts the order of the drawer to pay the sum specified in the bill in full, without any condition, or qualification, the acceptance is called general acceptance) Qualified Acceptance (When the drawee accepts the bill subject to some condition or qualification, it is called conditional or qualified acceptance)

Contd

Presentment for Sight (Presentment for sight means showing of a promissory note to the maker for his knowledge) Presentment for Payment (The promissory notes, bills of exchange and cheques must be presented for payment to the maker, acceptor or drawee respectively by or on behalf of the' holder ) Rules:

Presentment through Post Office Hours of Presentment Presentment of instruments payable after date or sight Payment of Promissory note payable by installment Place of Presentment Presentment to agent, legal representative or assignee Excuse for delay in presentment for" acceptance or payment Holder's right of recourse against drawer and endorser

Contract of Sale of Goods

Conditions and Warranties Contract of Property

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Contract of Sale of Goods

Sales of Goods Act, 1930

Enforced on 1st July, 1930

Section 4(1) A contract whereby seller transfers or agrees to transfer the property in goods to the buyer for a price
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Contract of Sale of Goods

SALE
Section 4(3)

Whereby under a contract of sale property of the goods is transferred from the seller to the buyer

AGREEMENT TO SELL

Where transfer of property in the goods is to take place at some future time or subject to some condition to be fulfilled

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Essentials of Contract of Sale

Contract (Agreement enforceable by law) Two Parties (There should be two parties to a contract of sale, i.e. a buyer and a seller.) Transfer of Property (The seller must either transfer or agree to transfer the property (ownership) in the goods to the buyer ) Goods (subject matter of the contract of sale must be goods) Price (Consideration in a contract of sale must be the price )
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Difference B/W
Sale and Agreement to sell
Transfer of Property Types of Goods Nature of Rights Risk of Loss

Effect of Breach Right to Resale Insolvency of Seller Insolvency of Buyer

Nature of Contract

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Kinds of Goods

Existing Goods

Section 6(1)

Specific Goods Ascertained Goods Unascertained Goods

Section2(6)

Future Goods Contingent Goods

Section 6(2)

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Destruction of Goods

Physical Destruction Goods Loosing there Commercial Value Loss of Goods by Theft Lawfully Requisitioned by the Government

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Effects of Destruction of Goods

Perishing Of Goods Before Formation Of Contract Section 7

Whole of the goods are perished Part of the goods is perished

Perishing Of Goods Before Sale But After Agreement To Sell Section 7 Perishing of Future and Contingent Goods
Section 8
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Modes of Fixing Price

Parties (Parties are free to fix the price) Agreed Manner (Price may be fixed as per contract) Course of Dealing (if price is not fixed in contract nor the manner of fixing the price is clear then price will be determined during course of dealings between the parties) Reasonable Price (if price cannot be fixed in any of the above modes, than buyer is bound to pay to the dealer a reasonable price depending on case to case basis and prevailing circumstances) 29

Conditions and Warranties

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Definitions
Condition
Section 12(2)

A condition is a stipulation essential for the main purpose of the contract, the breach of which gives rise to treat the contract as repudiated.

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Definitions
Warranty
A warranty is a stipulation collateral to the main purpose of the contract breach of which gives rise to claim for damages but not right to reject the goods and treat the contract as repudiated.
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Section 12(3)

Difference B/W Condition and Warranty

Value Basics

Breach Treatment

Option

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Condition Treated as Warranty

Section 13

Option of Buyer

Acceptance of Goods by Buyer

The breach of condition by the seller gives the right to the buyer to reject the goods, but he is not bound to do so. He may treat the breach of condition as breach of warranty and accept the goods and claim the damages. 13(1) Where the buyer has accepted the goods he cannot reject them, but can claim damages. If the buyer has only accepted only part of the goods and the contract is indivisible, he will have to accept the remaining part also. But in the divisible he can reject the remaining goods. 13(2)

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Express and Implied Conditions

Implied Conditions

Condition as to Title Sale by Description Sale by Sample Sale by Sample as well as Description

Fitness and Quality Merchantability Wholesome Condition as to Custom

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Transfer of Property
Transfer of property in goods mean transfer of ownership of the goods.

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Rules Regarding Transfer of Property

Transfer of property in specific or ascertained goods.

Owner ship transfers when parties want to transfer it. It may transfer at time of contract or when goods are delivered or when the payments made.

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Rules Regarding Transfer of Property

If the contract is silent the following rules apply (Sec.19(1)(2)(3)

Goods in a deliverable state

Goods to be put into a deliverable state Goods to be measured, tested, etc. Goods deliverable on approval
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Contd

Transfer of property in unascertained and future goods. In the sale of unascertained or future goods, the property in goods does not pass to the buyer until the goods are ascertained. In contract for the sale of unascertained or future goods, by description, the property in goods passes to the buyer when goods of that description in deliverable state are unconditionally appropriated to the contract. The seller is deemed to have appropriated the goods when he delivers the goods to a carrier for transmission to the buyer.

Sale by Non-Owner

The general rule is that only owner of goods can sell the goods. Seller is not owner of goods then buyer cannot become true owner.

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Exceptions to the rule

Person not the owner (Where the owner of the goods believes that the seller has the authority to sell them, he cannot afterwards deny the seller's authority to sell) Mercantile agent (Where a mercantile agent is in possession of the goods, any sale made by him in business shall be valid if buyer acts in good faith.) Joint owner (When one of the joint owners, with permission of his co-owners, sells the goods he gets the good title to the goods if buyer buys them in good faith.) Person in possession in voidable contract (when person having possession of the goods sells the goods under voidable contract before its expiry, the buyer acquires a good title provided the buyer acts in good faith.) Seller in possession after sale (Where a person has sold goods but continues to be in possession of them or of the documents of title thereto, he may sell them to a third person and if such person obtains delivery thereof in good /faith and without notice of the previous sale, he gets a good title to them, although the property in the good )

Contd

Buyer in possession before sale. (the buyer may sell

the goods to third person after possession. If such person obtains delivery in good faith he gets a better title.) Un paid seller (Where an unpaid seller who has a right of lien or stoppage in transit resells the goods, the quyer gets a good title to the goods as against the original buyer in spite of the fad that no notice of resale has been given to the original buyer ) Finder of lost goods (A finder of the lost goods can also sell the goods under some circumstances and the buyer will get a good title ) Pledgee (A pledgee can also sell the goods under some circumstances. The buyer gets a good title)

Exception under other acts ( a non-owner can transfer a better title in case of insolvency of individuals, companies and negotiable instruments

Thank You.

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