Sale of Goods Act, 1930 Partnership Act 1932 Negotiable Instrument Act 1881

Sale of Goods Act, 1930

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. Sec.4(1) There may be a contract of sale between one part owner and another. A contract of sale may be absolute or conditional.

Essentials of contract of sale

1.
2. 3. 4. 5.

A contract (all essentials of valid contract applicable) Between two parties To transfer or agree to transfer the property In goods (Subject Matter) For a price, i.e. the consideration is money.

Transfer of property
Transfer of property means transfer of ownership. Mere transfer of possession can not be termed as a sale. Sec.2(11) Property means general property in goods and not merely a special property. General property means all ownership rights and special property means limited rights.

Goods

Sec.2(7). Goods means every kind of movable property other than actionable claims and money, and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under contract of sale.

Kind of goods
Existing goods- Sec.6(1) these are the goods which are in existence and are physically present in the sellers possession. They are further classified as Specific goods- 2(14) these are the goods identified and agreed upon at the time the contract is made. Ascertained goods- these are identified after the formation of the contract. Unascertained goods- these are the goods which are not specifically identified or agreed upon at the time of the contract of sale. 2. Future goods -sec.2(6) 3. Contingent goods 6(2)
1.

Subject matter of contract of saleGoods.

1.
2.

3.

Goods may be classified as :Existing Goods- a) specific goods, b) ascertained goods, c) unascertained goods. Future goods- which do not exist with the seller at the time of sale. the contract thus is an agreement to sell. Contingent goods a type of future goods, the acquisition of which depends upon a contingency which may or may not happen.

Price consideration
The consideration for the contract of sale must be money. If goods are exchanged against goods the transaction is barter and not covered by the act. However consideration may be partly in money and partly in goods. NO SPECIAL FORMALITIES ARE REQUIRED FOR CONTRACT OF SALE. IT MAY BE IN WRITING OR ORAL OR IMPLIED.

Sale and agreement to sale

When property is transferred from seller to buyer at the time of formation of contract, an absolute sale occurs. When property in the goods is to be transferred at some future date and not at the time of contract, the contract of sale is termed as an agreement to sell.

SALE AND AGREEMENT TO SELL

Sale
1.
2. 3.

Agreement to sell
1.
2.

Ownership is with the buyer

Executed contract Sue for price, in case of breach Goods lost by accident then loss falls on the buyer.

3.

4.

4.

Ownership is with the seller Executory contract Sue for damages only, in case of breach Goods lost by accident then loss falls on the Seller.

Perishing of goods
1. 2. 3. 4.

The possible causes of perishing of goods:Physical destruction of goods. Damage of goods in such a manner that they loose their commercial value. Loss of goods by theft. Lawful acquisition of goods by government.

Effect of perishing of goods

Goods perishing before formation of the contract.- in case of specific goods such contract is void ab initio as the performance of the contract is impossible due to destruction of subject matter. Goods perishing before the sale but after the agreement to sell.:- in case of specific goods the contract of sale becomes void and both parties are excused from the performance. (Sec.8)

Effect of perishing of goods

Effect of perishing of future goods.:- Sec.8 applies in this case also which says where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of the seller or buyer perish or become so damaged as no longer to answer to their description in the agreement before the risk passes to the buyer, the agreement is thereby avoided.

Price
Sec.2(10) defines the price as the money consideration for the sale of goods. Price has to be in terms of money. All monitory payments do not amount to price.

Fixing the price

Price is mentioned in the contract. The manner of fixing the price is mentioned in the contract. It is determined by the course of dealings of the parties. when price is not fixed by any of the above modes a reasonable price is considered as the price of the contract.

Time

When time is stipulated regarding the payment of price :- Time of payment is not considered the essence of the contract unless a different intention appears from the terms of the contract. Thus if payment is not made in time the seller can not avoid the contract but can claim damages. When time is stipulated regarding delivery of goods:time of delivery of goods is normally considered essence of the contract. Thus non performance at stipulated time will render the contract voidable at the option of the buyer.

Conditions And warranties

Condition
[sec12(2)]

A condition is a term (oral or written) which goes directly 'to the root of the contract', or is so essential to its very nature that if it is broken the innocent party can treat the contract as discharged. That party will not therefore be bound to do anything further under that contract.

Warranty
[sec12(3)]

A warranty is a term of the contract which is collateral or subsidiary to the main purpose of the contract. It is therefore not so vital as to affect a discharge of the contract. A breach of warranty only entitles the innocent party to an action for damages; he cannot treat the contract as discharged.

CONDITION AND WARRANTY

Condition
1.

Warranty
1.

Its is a term in contract which is essential.

When condition breaches? Breach of condition can be breach of warranty

Its a term in contract which is collateral.

When warranty breaches? Breach of warranty cannot be breach of condition.

2.

2.

3.

3.

Types of conditions and warranties

1) Express which are expressly provided in the contract. 2) Implied- which the law implies into the contract unless the parties stipulate to the contrary.

Implied conditions
1. 2. 3.

Condition as to title
sell.

[sec.14(a)]

- seller has the right to

Sale by description
the description.

(sec.15)- goods shall correspond with

4.
5. 6.

Condition as to quality or fitness [sec16(1)] Condition as to merchantability [sec.16(2)] Condition implied by custom- fitness for a particular
purpose may be annexed by the usage of trade [sec.16(3)]

7.

Sale by sample (sec.17) Condition as to wholesomeness

Condition as to title:
In a contract of sale, unless the situation of the contract are such as to show a different intention, there is an implied condition on part of the seller that

In sale, he has right to sell goods. In agreement to sell, he will have a right to sell at the time when property is to pass.

SALE BY DESCRIPTION
In sale by description there is an implied condition that the goods shall correspond with description. This means if you contract to sell peas, you cannot oblige the party to take beans. Hence if the description of the article tendered is different then the buyer may not buy the goods.

SALE BY SAMPLE
1. 2.

3.

A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. That bulk shall correspond with the sample in quality, That the buyer shall have a reasonable opportunity of comparing the bulk with the sample. That the goods shall be free from any defects, rendering them unmerchantable.

SALE BY DESCRIPTION AND SAMPLE

If the sale is by sample as well as by description, it is not sufficient that the bulk of goods corresponds with the sample, if the goods do not also correspond with the description.

This means goods must match with the description and sample.

CONDITION AS TO QUALITY OR FITNESS

Normally, in a contract of sale there is no implied condition as to quality or fitness for particular purpose.

The buyer must test the goods before he buys them in order to satisfy him self that the goods shall be suitable for him.

CONDITION OF MERCHANTABILITY

Where goods are bought by description from a seller who deals in goods of that description there is an implied condition that the goods are of merchantable quality.

This means goods should be such that they are commercially saleable, as per the description by which they are known in the market at their full value.

CONDITION IMPLIED BY CUSTOM

An implied condition as to quality or fitness for a particular purpose may be annexed by the usage of trade.

This means that the goods which are required may be ascertained from the acts and from the nature of description of that article.

CONDITION AS TO WHOLESOMENESS

In the case of eatables and provisions, in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesome.

Implied warranties
1. Warranty of quiet possession [sec.14(b)] 2. Warranty of freedom from encumbrances
[sec.14(c)]

3. Warranty as to quality or fitness by usage of trade [sec16(4)] 4. Warranty to disclose dangerous nature of goods

WARRANTY OF QUIET POSSESSION

In a contract of sale, unless there is a contrary intention, there is an implied warranty that the buyer shall have and enjoy quite possession of the goods. If the buyer is in any way disturbed in the enjoyment of the goods in consequence of the sellers defective title to sell, he can claim damages from the seller.

WARRANTY OF FREEDOM FROM ENCUMBRANCES

In addition to the previous warranty, the buyer is entitled to a further warranty that the goods are not subject to any charge or right in favor of a third party.

If the possession is in any way disturbed by reason of the existence of any charge or encumbrances on the goods in favor of any third party, he shall have a right to claim damages for breach of this warranty.

WARRANTY AS TO QUALITY OR FITNESS BY USAGE OF TRADE

An

implied warranty as to quality or fitness for a particular purpose may be annexed by the usage of trade.

WARRANTY TO DISCLOSE DANGEROUS NATURE OF GOODS.

When a person sells goods knowing that the goods are inherently dangerous or they are likely to be dangerous to the buyer and that the buyer is ignorant of the danger, he must warn the buyer of the probable danger, other wise he will be liable in damages.

CAVEAT EMPTOR
In a contract of sale of goods the seller is under no duty to reveal unflattering truths about the goods sold. Therefore, when a person buys some goods, he must examine them thoroughly. If the goods turn out to be defective or do not suit his purpose, he cannot blame anybody excepting himself.

Rights of buyer
Receive delivery of goods To repudiate contract of seller commits BOC Examine the goods Sue the seller for damages To recover unpaid amount To sue the seller for breach of specific performance

Duties of a buyer
To pay for the goods Take delivery of the goods To apply for delivery of goods To compensate the seller for any loss caused to him

Rights of a seller
To receive price of goods To receive compensation To relieve care and charge of his products If unpaid seller, right to exercise his lein To sue for damages T recover interest from the buyer on a future date

Duties of a seller
To deliver the goods To compensate the buyer if there is BOC

To refund excess amount to the buyer To compensate buyer in case of wrong delivery

WHO IS AN UNPAID SELLER

A seller of goods is deemed to be an unpaid seller:When the whole of the price has not been paid or tendered When any negotiable instrument is dishonoured

Against the goods

Where the property in the goods has passed

Rights of unpaid seller

Against the seller personally

Where the property in the goods has not passed

Stoppage in transit

Lien

Stoppage in transit

With holding delivery

Re sale
Suit for damages

Suit for price

Repudiation of contract

Suit for interest

RULES OF DELIVERY

Mode of delivery Delivery and payment con current condition Effects of part delivery Buyer to apply for delivery Place of delivery

Time of delivery Goods in possession of a third party Cost of delivery Delivery of wrong quantity Installment deliveries

Indian Partnership Act, 1932

Definition of Partnership
relation between persons who have agreed to share the profits of a business carried on by all or by any of them acting for all. - Persons who have entered in to partnership with one another are called individually partners and collectively a firm and the name under which their business is carried on is called the firm name.

Characteristics

Association of two or more persons Result of an agreement Carry on some business Sharing of profits Mutual agency - carried on by all or any of them acting for all.

Other Legal Characteristics of Partnership Form of Organisation

Unlimited liability No separate legal entity Utmost good faith Restriction on transfer of interest Unanimity of consent

Formation of Partnership
Based on agreement oral/written/implied All essential elements of a valid contract must be present Free and genuine consent of parties competent to contract Object lawful and all legal formalities to be complied with.

Two points to be noted

1)

Minor partner minor may be admitted to the benefits of partnership with consent of all partners.

2)

Consideration No consideration is required to create partnership which is an extension of the law of agency.

Partnership Deed
Interest of parties: agreement be in writing and such document is called partnership deed must be duly stamped as required by the Indian Stamp Act, 1889. Contents: provisions relating to nature, principal place of business, firm name, names and addresses of partners, duration of firm, profit-sharing ratio, interest on capital & drawings, valuation of goodwill, management, accounts, etc.

ILLEGAL PARTNERSHIP
A partnership may be illegal in either of two ways:
1.

By being formed to carry on an illegal business. e.g., to carry on a business of illicit liquor.

2. Where the number of partners exceeds the maximum limit (i.e. banking business: more than 10 and other businesses: more than 20) or comes down to one person.

Partnership for a fixed term

The partners may, at the time when they enter in to partnership agreement, fix the duration of the partnership. Partnership is entered into for a fixed period of time and when this period is over, it comes to an end.

Partnership at will
A Partnership is called a partnership-at-will, 1) When the partnership is not for a fixed period of time and, 2) When no provision is made as to when and how the partnership will come to an end.

A partnership-at-will can be dissolved at any time by any of the partners notifying his willingness to do so.

Particular partnership
When a person becomes a partner another person or persons in a particular adventure or undertaking. It comes to an end as soon as that adventure is completed.

REGISTRATION OF THE FIRMS

Directly not compulsory Indirectly by certain disabilities suffered by unregistered firm. Does not create partnership: Only a reliable evidence of the existence of partnership.

Procedure for Registration (Section 58-59)

Section 58 - partnership firm may be registered at any time by sending by post, or delivering to the registrar of the firms of the area in which any place of business of the firm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee stating:

Name of the firm, The place or principal place of business of the firm, The names of any other places where the firm carries on business. The date when each partner joined the firm The names in full and addresses of the partners, and The duration of the firm - Signed by all the partners/agents and verified in prescribed manner.

(Section 69)
1) A partner cannot file a suit against the firm or any partner, so as to enforce a right a) arising from contract, or b) conferred by the Partnership Act. Thus, if a partner of an unregistered firm is not paid his share of profits, he cannot claim it through a suit in the court of law. 2) An unregistered firm cannot sue a third party to enforce a right arising from a contract.

3) An unregistered firm or any of its partners cannot Claim a set-off in a proceeding instituted against the firm. - Is not affected if the claim of set-off deos not exceed Rs. 100 in value.

MINOR AS A PARTNER (Sec. 30)

Agreement with or by a minor: Void ab-initio. Sec. 30: Rights and Liabilities of minor partners

Right to share of the property as agreed Total access Minors share in property and profits of the firm is liable for acts of the firm, minor is not personally liable. Cannot file a suit against the other partners for accounts or for payment of his share. Can do so for severing his connection with the firm. Minor attaining majority.

RIGHTS OF A PARTNER
1. 2. 3.

4.

5.

Right to take part in the conduct of business. Right to express his opinion on any matter. Right to have access to and inspect and copy any of the books of the firm. Right to share in the profits (equally in the absence of an agreement to the contrary) of the firm. Right to interest on capital.

A partner is a joint owner of firms property. 7. Right to interest on advances. 8. In an emergency, a partner has authority to do all such acts as are reasonably necessary to protect the firm from loss. 9. He has a right to be indemnified for liabilities incurred by him during the ordinary course of business. 10. Agent of the firm for the purposes of the businesses of the firm.
6.

11. No liability for any act of the firm done before one becomes a partner. 12. Not to be expelled. 13. Right to resist the introduction of a new partner. 14. Right to retire. 15. Right to carry on competing business after ceasing to be a partner. 16. Right of outgoing partner to share subsequent profits in certain cases.

DUTIES OF PARTNERS
1.

To carry on the business to the greatest common advantage. To be just and faithful to each other. To render true accounts and full information of all things affecting the firm. To indemnify for loss caused by his fraud. To attend diligently to firms business.

2. 3.

4. 5.

6. Not to claim remuneration. 7. To share losses 8. To indemnify the firm for any loss caused by his willful neglect. 9. To hold and use property of the firm exclusively for the firm. 10. To account for personal profits.

11. To account for profits in competing business. 12. To act within authority 13. To be liable jointly and severally 14. Not to assign his rights. 15. Unless otherwise agreed, to contribute equally to the losses of the firm.

LIABILITIES OF A PARTNER.
Acc. To Sec. 9, a partner shall be liable;
i.

ii. iii.

For not carrying on the business of the firm to the greatest common advantage; For not being just and faithful to other partners and For failure to render true accounts and information of all things affecting the firm to any partner or his legal representative.

DISSOLUTION OF PARTNERSHIP (Sec. 39-44)

Dissolution of partnership firm: The discontinuance of the judicial relation between all the partners of the firm. It amounts to the break-up of the relation of partnership between all the partners. Dissolution of firm: Complete breakdown of the relationship of partnership between all the partners of a firm. Dissolution of partnership: Involves only a change in the relation of the partners.

Dissolution of firm
Voluntary/Without the order of the court By agreement Compulsory dissolution Happening of certain contingencies By notice II) By the order of the court
I)

Dissolution by agreement
With the consent of all the partners In accordance with a contract between them which may be either express or implied.

Compulsory Dissolution
By the adjudication of all partners or all the partners but one as insolvent. By the happening of any event which makes it unlawful for the business of the firm to be carried on, or for the partners to carry it on in partnership.

Dissolution on the happening of certain contingencies

The expiry of the term for which the firm was constituted. The completion of the particular adventure/s The death of a partner The adjudication of a partner as an insolvent

Dissolution by notice of partnership-atwill

The firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.

Dissolution by Court
Court may, at the suit of a partner, dissolve a firm on the following grounds:
1) 2) 3) 4)

Insanity Permanent incapacity Misconduct Persistent breach of agreement

5) Transfer of interest 6) Business working at a loss 7) Any other ground which renders it just and equitable that the firm should be dissolved.

Assignment
1)

Explain the details of case Garner vs. Murray and give the effects of the decision.

2)

Explain the rights and liabilities of partners on dissolution of the firm.

3) P, Q and R enter into a partnership agreement to ply motor buses on certain routes for a period of twenty years. The business was run for four years and it was found that business incurred losses in each of the four years. P however, insists on the business being continued for the remaining period. Can P so insist? If he can, state the course; if any, open to Q & R who are not anxious to run the business.

Negotiable

1881

Instruments Act

Law relating to promissory notes, bills of exchange, Cheque and other negotiable instruments is codified in India under the Negotiable Instruments Act, 1881

Negotiable Instrument
A written document transferable by delivery Negotiable instruments originated as a form of bill of exchange. A Negotiable instrument is a document made by a person instructing another person to make payment to a third person or the bearer of the document.

Characteristics
In writing Signed by Drawer Promise order must be unconditional Promise to pay Payment at the time of certain arrive Drawee must b certain

Types of Negotiable Instrument

1.

2.
3.

Promissory Note Bill of Exchange Cheque

PROMISSORY NOTE (S.4)

A promissory note is(1) an instrument in writing, (2) not being a banknote or a currency note,

(3) containing an unconditional undertaking,.

(4) signed by the maker, (5) to pay a certain sum of money only

(i) to a certain person, or

(ii) to the order of a certain person, or (iii) to the bearer of the instrument :

ILLUSTRATIONS

Promissory Notes 1. I promise to pay B or order Rs. 500. 2. I acknowledge myself to be indebted to B in Rs.1,000, to be paid on demand, for value received.
Not Promissory Notes 1. Mr. B, I.O.U. Rs. 1,000. 2. I promise to pay B Rs, 500, and all other sums which shall be due to him. 3. I promise to pay B Rs. 500, first deducting thereout any money which he may owe me, 4. I promise to pay B Rs. 500, seven days after my marriage with . 5. I promise to pay B Rs. 500 on Ds death provided D leaves me enough to pay that sum

ESSENTIALS OF A VALID PROMISSORY NOTE

1. It must be in writing.
2. It must contain an undertaking to pay. 3. The undertaking to pay must be unconditional. 4. It must be signed by the maker. 5. The maker of the note must be certain. 6. The sum payable must be certain. 7. The promise should be to pay money, and money only.

8. The payee must be certain.

SPECIMENS OF PROMISSORY NOTES

Bombay, 10th January, 1998 Bombay, January, 1998 Rs. 5,000/ON DEMAND I Promiseto pay WILLIM JONES THE SUCM OF FIVE THOUSAND RUPEES. Sd/- Henery Brown 10th ON DEMAND I Promise to pay MOHAN LALVANI the sum of Rs. 5,000/- (RUPEES FIVE THOUSAND ONLY) FOR VALUE RECEIVED.. Sd/- SATISH GANDHI

Bombay, 10th January, 1998 ON DEMAND I promise to pay JOSEPH DE SOUZA or order the sum of five thousand rupees with interest on the said sum at 10% (ten percent) per annum till payment. Sd/- PAUL FERNANDES

BILLS OF EXCHANGE (S. 5 & Ss. 132-133)

A Bill of Exchange is (1) an instrument in writing, (2) containing an unconditional order, (3) signed by the maker, (4) directing a certain person, (5) to pay a certain sum of money only-. (i) to a certain person, or (ii) to the order of a certain person, or (iii) to the bearer of the instrument. The maker of a Bill of Exchange is called the drawer, and the person thereby directed to pay is called the drawee. (S. 7) A bill of exchange is also sometimes called a draft. When it is drawn by a bank on its own branch, it is called a bank draft.

BILL OF EXCHANGE ESSENTIAL REQUISITIES

The following are the eight essential requirements of
valid Bill of Exchange : 1. It must be in writing.

2. It must contain an order to pay.

3. The order contained in the bill should be unconditional. 4. It must be signed by the drawer,.

5. The drawee must be certain.

6. The payee must be certain. 7. The sum payable must be certain. 8. It must contain an order to pay money, and money

SPECIMENS OF BILL OF EXCHANGE

Bombay, 20th January, 1998
Bombay, 10th January, 1998 Rs. 5000/Sixty Days after date, pay to William Smith, the sum of five thousand rupees only for value received. To Paul Jacobson, 40, Mahatma Gandhi Road, Bombay 400 023. Rs. 5000/Sixty Days after date pay to John Smith, or order, the sum of Rupees Five thousand only for value received. Sd/- RAM GHELACHAND To Paul Jacobson, 40, Mahatma Gandhi Road, Bombay 400 023.

SPECIMENS OF ACCEPTANCE OF A BILL OF EXCHANGE

Bombay, 20th January, 1988 Bombay, Rs. 5000/ON Demand Pay to William Smith, the sum of Rupees five thousand only for value received. Sd/- RAM GHELACHAND To Paul Jacobson, 40, m. Gandhi Road, Bombay 400 023. On Demand pay to William Smith the sum of five thousand rupees only for value received Accepted : S/d- Paul Jacobson To Paul Jacobson, 40, m. Gandhi Road, Bombay 400 023. Sd/HENRY BROWN 20th January, 1988 Rs. 5000/-

Accepted : S/d- Paul Jacobson

CHEQUE (S.6) 1. A cheque is a bill of exchange drawn on specified banker and 2. Not expressed to be payable otherwise: than on demand S. 6.

3. The mode of payment is special.

4.This bill of exchange must be drawn on a banker, 5. And the payment must be expressed to be made on demand. 6.Thus, all cheques are bills of exchange, but all bills are not cheques.

CROSSED CHEQUES (Ss. 123-130) 1.where a cheque bears across its face 2.an addition of the words and company, (or any abbreviation thereof) 3.between two parallel transverse lines, or of two parallel transverse lines simply (either with or without the words not negotiable, 4.that addition is deemed to be a crossing), and 5.the cheque is deemed to be crossed generally : S. 123. When a cheque is not crossed, it is called an open cheque.

SPACEMEN OF CHEQUE
BANK OF INDIA A/C No. 1001 BOMBAY 20th January, 1998 No. SB 7007007 Pay to William Smith or Bearer Rupees Five Thousand Only.

Rs. 5,000/-

Sd/- Henry Brown

SPACEMENS OF CROSSED CHEQUE

BODY OF THE CHEQUE

BODY OF THE CHEQUE

BODY OF THE CHEQUE

BODY OF THE CHEQUE

Forms of General Crossing

1.And Company 2. & Co., 3. Not Negotiable 4. Payees A/C 5. Under Rupees Fifty

Forms of Special crossing

ICICI Bank ltd b. With the parallel line c. ICICI Bank ltd Not Negotiable d. With Payees A/c e. With Not Negotiable a/c payee.
a.

PAYEE (Ss. 7) The person named in the instrument, to whom or to whose order the money is, by the instrument directed to be paid, is called the payee. PAYMENT IN DUE COURSE (S.. 10) Payment in due course means payment (i) in accordance with the apparent tenor of instrument. (ii) in good faith. and (iii) without negligence, (iv) to any person in possession thereof, (v) under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.

HOLDER (Ss. 8)
Holder defined (S. 8) The holder of a promissory note, bill of exchange. or cheque means any person entitled his own name, to the possession thereof, and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time loss or destruction.

Holder in due course (S. 9)

Holder in due course means any person who for consideration, became 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 the amount mentioned if it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

REQUISITES FOR HOLDER IN DUE COURSE

1. He must show that he has paid valuable consideration. Any consideration which would support an ordinary contract would be sufficient to constitute the transferee a holder in due course, 2 .But the donee of a pro-note, who takes it by way of a gift, is not a holder in due course. 2. He must show that, on payment of such consideration, he

became
(i) the possessor of the negotiable instrument, if the instrument is pay the bearer thereof; or (ii) the payee or endorsee thereof, if the instrument is payable to

the m,&-1
3. He must prove that he became the possessor thereof before the amount due under the instrument became actually payable. 4. He must also show that he became the possessor thereof without having sufficient cause to believe that any defect existed in the title of the transferee from whom he derived his title.

NEGOTIABLE INSTRUMENTS

A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer : S. 13(1). Explanation 1.-A promissory note, bill of exchange or cheque is payable to orderwhich 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. Explanation 11,-A promissory note, bill of exchange or cheque is payable to bearerwhich is expressed to be so payable, or on which the only or last endorsement is an endorement in blank. Explanation III. 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 the order, it is nevertheless payable to. him or his order at his option : S. 13. A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to ne of two, or one or some of several payees.

ESSENTIAL FEATURES OF NEGOTIABILITY 1. The property in a , negotiable instrument, i.e., the complete right of ownership, and not merely the possession, that is, the right to retain it as against anyone except the true owner, passes, in the case of bearer instruments, by mere delivery, and in case of order instruments, by indrsement and delivery.. 2. The holder in due course is not in any way, affected by the defect of the title of his transferor or of any prior party. 3. The holder in due course can upon a negotiable instrument in his own name. 4. The holder in due course is not affected by certain defences which might be available against previous holders, e.g., fraud, to which he is not a party. NEGOTIATION When a promissory note, bill or cheque is transferred to any person, so as to constitute him the holder of it, the instrument is said to be negotiated: (S. 14).

Bouncing of Cheque A Criminal Offence

(Sections 138 to 142) Section 138 provides punishment for bouncing of cheques, i.e., dishonour for insufficiency of funds. Punishment provided is imprisonment up to 2 years or fine up to double the amount of the cheque or both.

Bouncing of Cheques
Conditions to be satisfied:
1. Insufficiency of funds. The expression insufficiency of funds includes:

stop-payment closure of account directing the payee not to present

Bouncing of Cheques
Conditions to be satisfied:
2. Legally enforceable debt or liability. Thus, where a person proposes to make an FDR or invest in shares and later changes his mind and stop payment of the cheque, he will not be guilty of an offence under Section 138. 3. Presentment within 6 months from the date on which it is drawn or within the period of validity, whichever is earlier. - Post-dated cheques?

Bouncing of Cheques
Conditions to be satisfied:
4. Payee/holder should have given notice demanding payment from the Drawer within 30 days of receipt of information of dishonour of cheque from bank.

5. The drawer must have failed to pay within 15 days of such period of notice.
6. Complaint before Metropolitan Magistrate/ First Class Judicial Magistrate should be made within one month of expiry of aforesaid period of 15 days.

DIFFERENCE BETWEEN

BILL OF EXCHANGE & PROMISSORY NOTE

BILL OF EXCHANGE 1. There are there parties: drawer, drawee and payee. -2. It contains an order to pay. 3. The liability of the drawer is secondary and conditional. 4. Presentment for payment and notice of dishonour are required. 5. A bill of exchange can be accepted conditionally. 6. Drawer of a bill of exchange stands in immediate relation with the acceptor. 7. Bills can be drawn in sets. 8. A bilief exchange can be made payable to bearer, provided it is not made payable on demand. 9. Foreign bills must be protested for, dishonour if so required by the law of the country of their. origin. PROMISSORY NOTE 1. There are only two parties: promissorand promisee. 2. It contains a promise to pay. 3. The liability of the maker is primary and absolute. 4. Presentment for payment and notice of dishonour are not required. 5. A promissory note cannot be made conditional. 6. Drawer of a promissory note stands in immediate relation with the payee. 7. Promissory notes cannot be drawn is sets. 8. A promissory note cannot be made payable to bearer. 9 Promissory notes need not be protested for dishonour.

POINTS OF DIFFERENCE BETWEEN CHEQUE

CHEQUE 1. The drwee of a cheque is always a bank. 2. Cheque is payable on demand, without any days of grace. 3. Cheque requires no acceptance. 4. Drawer of cheque is not discharged by failure of the holder to present it in due time. 5. Notice of dishonour is not necessary in the case of V cheques. 6. Cheques need not be protested for clishonour. 7. Cheques can be crossed . 8. In certain circumstances statutory protection is available to the draweebanker in connection with payment of cheques. 9. Under certain circumstances, statutory protect ion is available to the collecting banker against liability for conversion of crossed cheques.

BILL OF EXCHANGE
BILL OF EXCHANGE 1. Anyone can be a drawee in the case of a bill of exchange. 2. Bill of exchange is en titled to three days of grace. 3. Bill of exchange requires acceptance. 4 If bill of exchange is not presented for payment in due time, drawer is dis charged. 5. Notice of dishonour is necessary in the case of bills of exchange. 6. It is advisable that bills of exchange be protested for dishonour. 7. Bills of exchange cannot be crossed. 8. No such protection is available to the drawee or acceptor of a bill of exchange. 9. No such protection is available in the case of bills of exchange.