2017

Laws relating to
Foreign Negotiable
Instruments
Private International Law

Devesh Mohan (A040)

1|Page B.B.A. LL.B. (Hons.) 4th Year
31st July, 2017
 SVKM’S

NARSЕЕ MONJЕЕ INSTITUTЕ OF

MANAGЕMЕNT STUDIЕS
Kirit P Mеhta School of Law

A Project Submitted on
Laws relating to Foreign Negotiable Instruments
(In compliance to partial fulfilment of the marking scheme for
Trimester X of 2017-18 in the subject of
Private International Law.)

Submitted To - Prof. Syam Kumar

Submitted By - Dеvеsh Mohan (A040)

B.B.A. LL.B. (Hons.) 4th Yеar

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 Index

Chapter No. Topic Page No.

i Abbreviations 4

ii List of Cases & Statutes 5

1 Conflict of Laws pertaining 6-9

to Foreign Negotiable
Instruments in Various
Countries
2 The Conflict of Law 10-13
Provisions of the Negotiable
Instruments Act, 1881
3 Conclusion 14

iii References 15

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 Abbreviations

 &- and
 NI Act- Negotiable Instruments Act
 v.- versus

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 List of Cases & Statutes

List of Cases

 Baindail v. Baindail
 Cooper v. Cooper
 Kashiba v. Shripat,
 Male v. Roberts
 Sottomayor v. De Barrow
 TNS. Firm v. Muhammad Hussain

List of Statutes

 English Bills of Exchange Act

 German Exchange Laws, 1849
 Commercial Code
 Negotiable Instruments Act,

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 Chapter 1 - Conflict of Laws pertaining to
Foreign Negotiable Instruments in Various
Countries

A Comparative Study

Much uncertainty exists in this country concerning the rules of the Conflict of Laws
applicable to Negotiable Instruments. In England the law on the subject was codified by the
Bills of Exchange Act. The Negotiable Instruments Law fails to lay down rules for the
Conflict of Laws and thus leaves the matter as it was before. Through the unification of the
law of Bills and Notes, which has resulted from the adoption of the Negotiable Instruments
Law by practically all of the states of this country, the conflicts that will arise with respect: to
such instruments in the future will result, in the main, where the rules of the Negotiable
Instruments Law of this country come into collision with those of a foreign nation. Though
there are some important differences between the Negotiable Instruments Law and the
English Bills of Exchange Act it may be said that there exists, on the whole, quasi-uniformity
in the law of Negotiable Instruments of the English speaking countries wide divergence
continue to exist, however, between the Anglo-American system and that of other countries,
which is embodied now in the Convention of the Hague, of June, 1912.

Capacity of Parties

Neither the Negotiable Instruments Law, nor the Bills of Exchange Act, nor the Hague
Convention has attempted to lay down a uniform municipal rule governing capacity. In
England and the United States the ordinary rules relating to capacity apply also to bills and
notes.1

1. English Law

The Bills of Exchange Act2 fails to acknowledge the capacity of parties. There appears to be
only a single case throwing direct light upon the subject, that of Male v. Roberts.3 In this case

1
For a comparative statement of the municipal law relating to capacity, see Weiss, Traite de Droit International
Prive, 2nd ed., IV., pp. 439-440; Ottolenghi, La Cambiale nel Diritto Internazionale, pp. 43-44; Diena, Trattato
di Diritto Commerciale Internazionale, III, pp. 42-44.
2
Section 72 (2) lays down the rule that the "interpretation" of the drawing, indorsement, acceptance or
acceptance supra protest of a bill is determined by the law of the place where such contract is made. But this

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an action was brought in England to recover a sum of money advanced in Scotland to an
infant who appears to have been domiciled in England. Lord Eldon, at Nisi Prius, held that
the defense of infancy depended upon the lex loci contractus, the law of Scotland. At the time
the decision was rendered, the English law seemingly favored the view, both with respect to
ordinary commercial contracts and contracts of marriage, that the law of the place where a
contract was entered into determined the capacity of the parties.

2. American Law

The American law is in a somewhat less uncertain state than the English. As the commercial
life of the nation grew, the lex domicilii was found inconvenient, and was discarded as
inconsistent with our conditions, at least as regards married women.4 The prevailing rule thus
became the lex loci contractus.5

3. French Law

The capacity of French subjects is determined by French law irrespective of the place where
the bill or note is executed or payable.6 The personal (national) law is applied also to
foreigners. A party cannot avail himself of his foreign personal law if he has fraudulently
concealed the same, or if its application would contravene the public policy of France.7 The
courts have tended to disregard the foreign personal law in favor of the lex loci contractus,
also, when the interests of a Frenchman, who had exercised due care, would be prejudiced by
its application.

term is not comprehensive enough to include "capacity." See, Lafleur, The Conflict of Laws in the Province of
Quebec, p. 184
3
(1800) 3 Esp. 163.
4
"We do not think the continental rule applicable to our situation and condition. A state has the undoubted right
to define the capacity or incapacity of its inhabitants, be they residents or temporary visitors; and in this country
where travel is so common, and business has so little regard for state lines, it is more just, as well as more
convenient, to have regard to the laws of the state of contract as a uniform rule operating on all contracts, and
which the contracting parties may be presumed to have had in contemplation when making their contracts than
to require them, at their peril, to know the domicile of those with whom they deal, and to ascertain the law of
that domicile, however remote, which in many cases could not be done without such delay as would greatly
cripple the power of contracting abroad at all." Deemer, J., in Nichols & Shepard Co. v. Marshall, (1899) 108
Iowa, 518, 79 N. W. 282.
5
Nichols & Shepard Co. v. Marshall, (1899) 108 Iowa 518, 79 N. W. 282; International Harvester Co. v.
McAdams, (1910) 142 Wis. 114. 124 N. W. 1042; Thompson v. Taylor, (1901) 66 N.J. Law 253; 49 Atl. 544;
54 L. R A. 585; 88 Am. St. Rep. 485; .Bell v. Packard, (1879) 69 Me. 105; 31 Am. Rep. 251; Milliken v. Pratt,
(1877) 125 Mass. 374; 28 Am. Rep. 241
6
Code Civil, Art. 3.
7
Weiss, Traite de Droit International Pi:ive; 2d ed., IV, p. 442.

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 4. German Law

The German law is found in Article 84 of the German Exchange Law of 1849, which reads as
follows: "The capacity of a foreigner to incur liabilities under exchange law is to be decided
according to the law of the state to which he belongs. Nevertheless, a foreigner, incapable of
contracting by exchange law according to the law of his own country, is liable within the
Empire (Inland), if he incur such liabilities, in so far as he is so capable according to inland
law."8

This rule has now become the general rule governing the Conflict of Laws, for Article 7 of
the Law of Introduction of the Civil Code provides : "The business capacity of a person
(Geschaftsfiihigkeit) is adjudged according to the laws of the state to which he belongs."

5. Italian Law

According to Article 6 of the Preliminary Dispositions of the Civil Code, "The status and the
capacity of persons and the family relations are regulated by the law of that state of which
they are subjects." Article 58 of the Commercial Code provides, however, that "The form and
the essential requisites of commercial obligations are regulated respectively by the laws and
usages of the place where the obligations are created."

From the preceding comparative study it is seen that none of the countries, the law of which
has been studied, applies, without qualification, the personal law of the parties (the lex
domicilii or the lex patriae) in the determination of the capacity of parties to enter
commercial contracts.9 This is most noteworthy in view of the strong stand by continental
Europe in support of the doctrine that the personal law should govern the capacity of parties
in general. Individual authors, in the theoretical atmosphere of their study, have expressed the
view 'that the principle of the lex patriae should not yield in any respect, on grounds of

8
The same provision is found in the Hungarian Law of 1876 (Art. 95) ; the Scandinavian Law of 1880 (Art. 84)
; the -Swiss Law of Obliga- · tions of 1881 (Art. 822) ; the Commercial Code of Servia (Art. 168) ; the Russian
Law on Bills and Notes (Art. 82), and the law of Brazil of 1908 (Art. 42). See, Weiss, IV, p. 443. The exception
to the application of the personal law was adopted in Germany only after a long debate at the Conference of
Leipzig, on grounds of commercial convenience, by a vote of 10 to 9. It was aimed primarily at the special
incapacities relating to bills and notes which existed in many of the continental states. The wording of the
exception in favor of the lex loci contractus was couched, however, in such broad terms as to :cover all kinds of
incapacity, general or special. See, Staub, Kommentar zur allgemeinen deutschen \Vechselordnung, 3d ed., Art.
84; Meili, Internationales Civil- und Handelsrecht, II, pp. 327-329.
9
Contra: Quebec, where the lex domicilii is applied, even though the party would have capacity under the law
of Quebec, where the contract was entered into. Jones v. Dickinson, R. ]. R., 7 Quebec S. C. 313; Lafleur,
Conflict of Laws in the Province of Quebec, p. 147.

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expediency, to the lex loci contractus.10 But whenever they were confronted with the actual
needs of business life, they have not hesitated to make such concessions.

10
Audinet, Principes elementaires du Droit International Prive, 2d ed., pp. 607-609, Despagnet, Precis de Droit
International Prive, 5th ed., p. 986; Ottolenghi, -p. 16; Surville et Arthuys, Cours elementaire de Droit
International Prive, 5th ed., pp. 669-670.

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 Chapter 2 - The Conflict of Law Provisions of
the Negotiable Instruments Act, 1881

The principal provisions concerning conflict of laws in negotiable instruments are embodied
in sections 134 to 137 of the Negotiable Instruments Act, 1881, though certain other
provisions embodied in sections 4, 11, 12, 46 and 104 may also be relevant as lex fori for an
Indian Court in the determination of the rights and liabilities of the parties arising Out of a
negotiable instrument involving a foreign element or elements. These provisions are
inadequate to meet many questions of choice of law which a negotiable instrument
circulating in the course of modern international commercial intercourse may give rise to and
which may come up for determination in an Indian Court. The Act only deals with the
‘liabilities’ of the maker or drawer, endorser and acceptor, and with the questions ‘what
constitutes dishonour and ‘what notice of dishonour is sufficient’. It does not deal with
capacity of the parties, the formation of the contract, the formal and essential validity of the
contract and its interpretation, effect and discharge. It is noted that there is lack of uniformity
in the principles embodied in the English and the Indian enactments and also as between such
principles and those followed in other countries11. Moreover, the existing provisions
contained in sections 134-137 of the Indian Act do not deal with all questions which
ordinarily arise in this branch of the law. The principal questions which, according to the
Commission require to be solved in connection with international dealings in negotiable
instruments are—the capacity of the parties, the formal and essential validity of the contract,
the liabilities of the parties including the formalities regulating for presentment for
acceptance, presentment for payment, notice of dishonour for non acceptance and non-
payment, noting and protest.

Capacity of the Parties

There is no existing provision in the Act for determining the capacity of the parties to the
contract or contracts embodied in a negotiable instrument. The question whether the parties to
a negotiable instrument can have their own choice in the matter of the law which would
govern their capacity does not appear to have arisen for the decision of the Indian Courts.
There are two conflict of law cases in which the courts had to determine the law governing

11
Para 24 of the Law Commission Report

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the capacity of the parties to enter into mercantile contracts. The first is Kashiba v. Shripat12,
in which the Bombay High Court decided in favour of the Lu domicilli. The other is TNS.
Firm v. Muhammad Hussain13 in which the Madras High Court held that the capacity to
enter into mercantile contracts is governed by the lex loci contractus. But neither court had
occasion to, nor expressed any opinion on whether the parties are free to choose the law.
Probably it is out of question in view of the basic presumptions of the Indian Law of contract.

Section 72 of the English Bill of Exchange Act, 1882, which contains the conflict of law
provisions does not deal with the question of capacity. The general principles of conflict of
laws applicable to mercantile contracts also lacks authority on the question, which law
determine the capacity of a person to bind himself in contract. In Sottomayor v. De
Barrow14, the Court of Appeal, in determining the capacity of persons to bind themselves in
marriage has used the language which implies that a person’s lex domicilli governs his
capacity to enter into any contract whatsoever. Some support to this dicta has come from
Lord Macnaghten in Cooper v. Cooper.15 But there are other judicial views which favour the
lex laci contractus such as that of Lord Greene in Baindail v. Baindail16 Thus, judicial view
is either in favour of the lex domicilli or in favour of the lex loci contractus. It is nowhere
suggested, that the choice between these two or of any other Law can be made by the parties
themselves by stipulating to that effect in the contract, as in the case of the proper law. There
is judicial opinion to the effect that the doctrine of the proper law which enables the parties
to select the law governing their agreement is not suitable for application to the question of
capacity to enter into mercantile contracts.

Validity

The question which law determines or which laws determine the essential validity of a
negotiable instrument is a difficult one to answer, all the more so because of the uncertainty
as to what constitutes essential validity.

The Negotiable Instruments Act in force subjects the liabilities of the maker of the note and
the drawer of the bill to the law of the place where the instrument is made, and those of the
acceptor and endorser to the law of the place where the instrument is payable. The maker of

12
(1894) 19 Bom. 697
13
(1993) 65 MLJ 458 146 IC 606
14
(1877) 9 PD (CA) I 5
15
(1888) 13 App. Cas 88, 108.
16
(1946) p.122

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the note is the principal debtor, like the acceptor of the bill. The obligations of the drawer are
similar to that of a surety. And therefore to place the liabilities of the maker and those of the
drawer in the same category is to apply the wrong law to one of them. Similar is the result of
placing the acceptor and the endorser in the same category, because their liabilities arise from
different contracts.

This dilemma lead to prolonged and thorny discussion at the Geneva Convention which
ultimately agreed upon the solution that the liabilities of the acceptor of the bill of exchange
and of the maker of the promissory note should be governed by one law, namely, the law of
the place where the instrument is payable and that any other obligation, for example of the
drawer or an endorser should be governed by the lex loci contractus.17

Though the original contract18 always has a certain effect upon others, nevertheless, the
several contracts are distinct and different, and therefore the liabilities of each of these
parties- the drawer, the endorser and the acceptor of a bill and the maker and the endorser of
a note are distinct and different. The several contracts may not all be substantially connected
to the same legal system and therefore, may have to be subjected, not to a single law, but to
several laws. The 'several laws' doctrine prevails in Europe, in the United Kingdom, in the
USA and in Canada. In is a doctrine which is almost universally accepted19.

Presentment, Dishonour Protest and Notice of Dishonour

It is proposed that the rule that law of the place where an instrument is payable shall govern
all questions concerning presentment dishonour, protest and notice of dishonour. However,
this is subject to the overriding clause (to which all the other provisions are also subject to)
that it will have effect in the absence of a contract to the contrary. How far the parties to a
negotiable instrument should be free to choose the law applicable to the determination of the
legal questions arising from it. The place of presentment for payment and that for acceptance
usually is the place where the instrument is payable. Protest is closely connected with the
place where the instrument is dishonoured20, that it would be unjust to make the holder

17
Art 4 of the Geneva Convention of June 7, 1930, for the Settlement of certain Conflict of Laws in connection
with Bills of Exchange and Promissory Notes.
18
The original contract in the case of a bill, is between the drawer and the payee, the first transferee as the case
may be, and in the case of a note, between the maker and the payee, the first endorser or the first transferee, as
the case may be
19
Dicey, p.842
20
Section 135 only deals with "what constitutes dishonour and what notice of dishonour is" There is no mention
of presentment and protest and the choice of law applicable.

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comply with the requirements of any law except that of the place where it is dishonoured.
The same argument holds good so far as the notice of dishonour to be given by the holder is
concerned. The rule therefore just and convenient.

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 Chapter 3 - Conclusion

Thus, we see that the parties to the negotiable instrument are free to choose the law or laws
by which any or all the incidents of the instrument should be governed. This is much further
than the contractual freedom conceded by any law so far not only as regards negotiable
instruments, but as regards mercantile contracts generally. The existing Indian Act follows
the law generally applicable to contracts by allowing the parties to choose the law applicable
to the obligations of the parties. In the English enactment there is no reference to the will of
the parties. There is no mention of it either in the Geneva Convention or in the various codes
in force in the Continent of Europe. However, none of them excludes it either. Therefore the
position would be the same as obtaining in contracts generally ie. it should be taken that these
legal systems concede to the parties to a negotiable instrument the same freedom as is
obtaining to the parties to any other contract. As regards contracts generally, the intention of
the parties is given effect to in most legal systems though not to the same extent.

It is only the ‘intention’ theory of Dicey based on the Benthamite tradition of individual
utilitarianism and its corollary of the maximum degree of liberty of contract, that gives the
widest latitude to the parties to an international contract in the matter of the choice of the
proper Law. However, the Courts in England have not accepted this theory without imposing
certain restrictions on the freedom of the parties to choose the proper law. And it is only with
regard to the proper law of the contract that the choice is left to the parties. As Cheshire says
‘the law to determine whether a binding obligation has been created cannot be left to the free
will of the parties.”

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 References

Websites Referred-

 https://www.lawteacher.net/free-law-essays/contract-law/the-negotiable-instruments-
act-1881-contract-law-essay.php
 http://www.gutenberg.us/articles/eng/Negotiable_instrument

Electronic Database-

 Manupatra (www.manupatra.com; eproxy.svkm.ac.in:2055)

 LexisNexis(www.lexisnexis,com; ezproxy.svkm.ac.in:2313)

Books Referred-

 Collin's Conflict of Laws; by Pippa Rogerson

 The Conflict of Laws by Adrian Briggs

Articles Referred-

 Recent Cases- Conflict of Laws regarding Negotiable Instruments; University of

Chicago Law Review.
 The Problem of Conflict of Laws in Negotiable Instruments; by N. Nettar.

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