The Negotiable Instruments Act, 1881.

The Negotiable Instruments Act, 1881.
The Act extends to the whole of India. It regulates commercial transactions, monetary dealings and deals with promissory notes, bills of exchange and cheques. The latest amendment to the Act was made in 2002.

DEFINITION OF NEGOTIABLE INSTRUMENTS
Negotiable instrument is a document which entitles a person to a sum of money and which is transferable from one person to another by mere delivery or by endorsement and delivery. The word “negotiable” means “ transferable from one person to another in return for consideration” and “instrument” means a “ written document by which a right is created in favour of some person”

Characteristics of a Negotiable Instrument:
1. Easy negotiability.
2. Transferee can sue in his own name without giving notice to the debtor.
3. Better title to a bona fide transferee for value.
4. Presumptions:
a). Consideration.
b). Date.
c). Time of acceptance.
d). Time of transfer.
e). Order of endorsements.
f). Stamp.
g).Holder presumed to be a holder in due course.
h).Proof of protest.

KINDS Of NEGOTIABLE INSTRUMENTS
The Act recognises only three kinds of instruments under section 13 of the Act but it does not exclude any other negotiable instrument provided the instrument entitles a person to a sum of money and is transferable by delivery.
The various kinds of instruments are:
Bills of Exchange.
Promissory Notes.
Cheques.

BILLS OF EXCHANGE
Definition: 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.
There are three parties to the bill of exchange- drawer, drawee and payee.

Essentials of a Bill of Exchange :
Must be in writing.
Must contain an unconditional order to pay money.
Must be signed by drawer.
Parties must be certain.
Sum payable must be certain.
Must comply with other formalities eg. Stamps, date etc.

PROMISSORY NOTES
A promissory note is an instrument in writing ( not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money to, or to the order of , a certain person, or only to the bearer of the instrument.
Parties to a promissory note are the Maker, the Payee, and the Holder.

Essentials of a promissory note:
Must be in writing.
Must contain an express promise or clear undertaking to pay.
Promise must be unconditional.
Must be signed by the maker in token of an undertaking to pay to the payee or his order.
The maker and the payee must be certain person.
Sum must be certain.
Amount payable must be in legal tender money of India.
Must be properly stamped .
Must contain a name of place, number and the date on which it is made.

Holder in Due Course.
A person is ‘holder in due course’ if he posses the following qualifications:
That for consideration became the possessor of the negitiable instrument if payable to the bearer, or the payee or the indorsee thereof if payable to order .
That he became the holder of the instrument before its maturity.
That he became the holder in good faith without sufficient cause to believe that any defect existed in the title of the transferor.
Privileges of a Holder in Due Course
Gets a better title than that of a transferor.
Liability of prior parties.

CHEQUE
A cheque is a bill of exchange drawn on 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 electronic form.
Cheque is a bill of exchange but has 2 additional qualifications:
a). Always drawn of specified banker.
b). Always payable on demand.

Crossing of Cheques.
There are two types of cheques :
a). Open cheque- a cheque which is payable in cash across the counter of a bank is called an open cheque. Such a cheque runs great risk in the course of circulation.
b). Crossed cheque- is one on which two parallel transverse lines with or without the words are drawn on the left hand top corner of the cheque. The payment of such a cheque is obtained through a banker.

There are two types of crossing:
General crossing: Where a cheque bears across its face two parallel transverse lines without any words or with words ‘and company’ or/ and ‘not negotiable’ written in between these lines is called general crossing.
1. Special crossing: Where a cheque bears across its face an addition of the name of a banker, either with or without words ‘not negotiable,’ the cheque is deemed to be crossed specially.The payment can be obtained only through the particular banker whose name appears across the face of the cheque.
2. Restrictive crossing: This type has been adopted by commercial or banking usage. In this type of crossing the words ‘ A/c Payee’ are added to the general or special crossing.
Who may cross a cheque :
The drawer.
The holder.
The banker.

Negotiation
When a negotiable instrument is transferred to any person, so as to constitute that person as holder thereof, the instrument is said to be negotiated.

There are two methods of negotiation:

1. Negotiation by delivery: If a instrument is payable to bearer , it is negotiation by delivery.
2. Negotiation by indorsement and delivery: If an instrument is payable to order, it is negotiable by the holder by indorsement and delivery thereof.

INDORSEMENT
It means writing of a person’s name on the instrument for the purpose of negotiation. The person who indorses the instrument is known as ‘indorser’ , and the person to whom it is indorsed is called the ‘indorsee’ .
Types of indorsement:

• Blank or general indorsement: A blank indorsement is effected by the simple signature of the indorser on the face or back of the instrument.It specifies no indorse and the instrument in consequence becomes payable to the bearer.
  
• Full or special indorsement: If the indorser signs his name and adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specified person, indoresement is full.
  
• Restrictive indorsement: When by express words , indorsee is prohibited from further negotiation , indorsement is restrictive.
  
• Partial Indorsement: When an indorsement purports to transfer to the indorsee a part of the amount only . A partial indorsement does not operate as negotiation of the instrument.
  
• Conditional indorsement: If the indorser by express words, make his liability, dependent on the happening of the event, although such event may never happen, such indorsement is conditional indorsement.

Sale of Goods Act 1930

Sale of Goods Act 1930
Sale of Goods Act is one of very old mercantile law. Sale of Goods is one of the special types of Contract. Initially, this was part of Indian Contract Act. Later these sections in Contract Act were deleted, and separate Sale of Goods Act was passed in 1930.

Sec 4. Sale and agreement to sell.-

(1) 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.
(2) A contract of sale may be absolute or conditional
(3) Where under a contract of sale the property in the goods in transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

Hire Purchase – Pledge – Mortgage –Hypothecation Lease

Hire Purchase
In cases where a buyer cannot afford to pay the asked price for an item of property as a lump sum but can afford to pay a percentage as a deposit, a hire-purchase contract allows the buyer to hire the goods for a monthly rent. When a sum equal to the original full price plus interest has been paid in equal installments, the buyer may then exercise an option to buy the goods at a predetermined price (usually a nominal sum) or return the goods to the owner.

Pledge
It is an oath .The act of deposition of one's personal property to obtain personal loan of money. Such a property is called collateral property and if the loan amount is not paid within the due date the property will be lost to repay the loan

Mortgage
A mortgage is the pledging of a property to a lender as a security for a mortgage loan. While a mortgage in itself is not a debt, it is evidence of a debt. It is a transfer of an interest in land, from the owner to the mortgage lender, on the condition that this interest will be returned to the owner of the real estate when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.

Hypothecation Lease
This term is used principally in the civil law; it is defined to be a right which a creditor has over a thing belonging to another, and which consists in the power to cause it to be sold, in order to be paid his claim out of the proceeds.

Sec 5 How Contract of sale is made -
A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by installments, or that the delivery or payment or both shall be postponed. [section 5(1)].

Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the parties. [section 5(2)].

Thus, credit sale is also a ‘sale’. - - A verbal contract or contract by conduct of parties is valid. e.g. putting goods in basket in super market or taking food in a hotel.
Subject matter of contract of sale of goods

The subject matter of this act is basically goods. Classification of goods is as follows--

I Existing goods
Specific goods,
Ascertained goods,
Unascertained goods or generic goods

II Future goods

III Contingent goods

Explanation
Sec 6. Existing or future goods.- (1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or future goods.
(2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen.
(3) Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.

Effect of Destruction of Goods

7. Goods perishing before making of contract.- Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge of the seller have, at the time when the contract was made, perished or become so damaged as no longer to answer to their description in the contract.
Barrow, Lane & Ballard Ltd v . Philips & co

8. Goods perishing before sale but after agreement to sell.- 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.
Howell v . Coupland

Price
Price - “Price” means the money consideration for a sale of goods. [section 2(10)]. Consideration is required for any contract. However, in case of contract of sale of goods, the consideration should be ‘price’ i.e. money consideration.

Sec9. Ascertainment of price.- (1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties.

(2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

Sec10. Agreement to sell at valuation.- (1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party and such third party cannot or does not make such valuation, the agreement is thereby avoided. Provided that, if the goods or any part thereof have been delivered to, and appropriated by, the buyer, he shall pay a reasonable price therefor.

(2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a suit for damages against the party in fault.

Sec11. Stipulations as to time.- Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulations as to time is of the essence of the contract or not depends on the terms of the contract.


Conditions and Warranties
There are certain stipulations which are essential for main purpose of the contract of sale of goods. These go the root of contract and non-fulfillment will mean loss of foundation of contract. These are termed as ‘conditions’.
Other stipulations, which are not essential are termed as ‘warranty’. These are collateral to contract of sale of goods. Contract cannot be avoided for breach of warranty, but aggrieved party can claim damages. - - A breach of condition can be treated as breach of warranty, but vice versa is not permissible.

A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. [section 12(1)].
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(2)]( Where a particular stipulation in contract is a condition or warranty depends on the interpretation of terms of contract. Mere stating ‘Conditions of Contract’ in agreement does not mean all stipulations mentioned are ‘conditions’ within meaning of section 12(2))
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. [section 12(3)].
Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the con­tract. A stipulation may be a condition, though called a warranty in the contract. [section 12(4)].

When condition to be treated as warranty -

VOLUNTARY WAIVER OF CONDITION
Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warran­ty and not as a ground for treating the contract as repudiated. [section 13(1)].

ACCEPTANCE OF GOODS BY BUYER
Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the con­tract, express or implied, to that effect. [section 13(2)].
Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility or otherwise. [section 13(3)].

Implied warranties

Implied warranties of quiet possession

warranties against encumbrances

Disclosure of Dangerous Nature of Goods clarke v. Army and Navy Co-operative Society

Implied conditions

Implied condition as to title

Implied condition under a sale by description-
goods must correspond with description,
goods must be of merchantable quality,
condition of wholesomeness,
condition for a fitness for a particular purpose- Priest v. Last Grant v.Australian Knitting Mills

Implied conditions under Sale by Sample-
Correspondence with sample
Seller's opportunity
merchantability

Implied conditions under Sale by Sample as well as description

Doctrine of caveat emptor

The principle termed as ‘caveat emptor’ means ‘buyer be aware’. Generally, buyer is expected to be careful while purchasing the goods and seller is not liable for any defects in goods sold by him. This principle in basic form is embodied in section 16 that subject to provisions of Sale of Goods Act and any other law, there is no implied condition or warranty as to quality or fitness of goods for any particular purpose. As per section 2(12), “Quality of goods” includes their state or condition.

Exceptions

1. False representation by seller
   
2. Seller actively conceals a defect
   
3. Buyer relying upon the skill of the seller Priest v. Last , Bombay Burma Trading Corp.Ltd Aga Muhammed
   
4. Goods bought by description
   

Legal ownership
Transfer of general property is required in a sale. ‘Property’ means legal ownership. It is necessary to decide whether property in goods has transferred to buyer to determine rights and liabilities of buyer and seller. Generally, risk accompanies property in goods i.e. when property in goods passes, risk also passes.

Risk follows ownership
-Action against third party
-Insolvency of seller / buyer
-Suit for price

Transfer of property or ownership sec18-26

Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. [section 18].

Property passes when intended to pass - Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. (section 19)

Specific goods in a deliverable state - Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immate­rial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed. (section 20)
contd
21. Specific goods to be put into a deliverable state.- Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.

22. Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain price.- Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof.

23. Sale of unascertained goods and appropriation.- (1) Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made.

(2) Delivery to carrier.- Where, in pursuance of the contract, the seller delivers the goods.

24. Goods sect on approval or ‘on sale or return’- when goods are delivered to the buyer on approval or on sale or return or other similar terms, the property therein passes to the buyer-
(a) when he signifies his approval or acceptance to the seller to does not other act adopting the transaction.
(b) if he does not signify his approval or acceptance to the seller but retains the gods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if not time has been fixed, on the expiration of a reasonable time.

NOTE : The property in goods will never pass to anybody if the seller reserves the right of disposal

Reservation of right of disposal.-sec 25

(1) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of the goods to a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.
(2) Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill of landing or railway receipt, as the case may be, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal.

Sale by non-owners (sec 27-30)
Subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by conduct precluded from denying the seller’s authority to sell.

Exceptions

1.Mercantile agent
2.Sale by co-owners
3.Sale by person under voidable contract
4.Buyer in possession after sale
5.Estoppels
6.Sale by unpaid seller
7.Sale by person under other laws

Auction sale -
Auction sale is special mode of sale. The sale is made in open after making public announcement. Buyers assemble and make offers on the spot. Person offering to pay highest price gets the goods. Usually, auctioneer is appointed to conduct auction. Higher and higher bids are offered and sale is complete when auctioneer accepts a bid

Unpaid seller

sec45. "Unpaid seller" defined.-
(1) The seller of goods is deemed to be an "unpaid seller" within the meaning of this Act-
(a) When the whole of the price has not been paid or tendered.
(b) When a bill of exchange or other negotiable instrument has been received as conditional payment, and the conditions on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.
(2)The term "seller" includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price.

Unpaid seller’s rights.-

I . Right against goods - (these rights can be practiced by the seller till he has the possession of the goods or till buyer has`nt received the goods )
Subject to the provisions of this Act and of any law for the for the time being in force,

- (a) a lien on the goods for the period while he is in possession of them,

• The unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely :-
  where the goods have been sold without any stipulations as to credit.
  
• where the goods have been sold on credit, but the term of credit has expired.
  
• where the buyer becomes insolvent.
  

Part delivery.- Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien.

Termination of lien.-
The unpaid seller of goods losses his lien thereon -

• when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods.
  
• when the buyer or his agent lawfully obtains possession of the goods,
  
• by waiver thereof.
  

- (b) Right of stopping the goods in transit after he has parted with the possession of them.

The unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit, and may retain them until payment or tender of the price.
conditions

• seller has parted with the possession of the goods
• the buyer of goods becomes insolvent
  

- (c) a right of re-sale as limited by this Act.

The seller can practice this right under following conitions

• where goods are of perishable nature
• where the seller has reserved the right of re-sale in the contract
• where the seller gives notice to the buyer via court order

-(d) right to withhold delivery

This right is co-extensive of right of lien and is practiced between right of lien and right of stopping the goods in transit

II . Right against the buyer(these rights can be practiced by the seller if he has parted with the possession of the goods or buyer has received the goods )

(a)-suit for price
(1) Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods.
(2) Where under a contract of sale the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the goods has not passed and the goods have not been appropriated to the contract.

(b)-suit for damages

The right of the seller is to recover interest or special damages if any, or to recover the money paid where the consideration for the payment of it has failed with the help of law.

LAW OF TORTS

Law of Torts

Tort law is the name given to a body of law that creates, and provides remedies for, civil wrongs that do not arise out of contractual duties.
A person who is legally injured may be able to use tort law to recover damages from someone who is legally responsible, or "liable," for those injuries. Generally speaking, tort law defines what constitutes a legal injury, and establishes the circumstances under which one person may be held liable for another's injury. Torts cover intentional acts and accidents.


Categories of torts (There are seven categories of torts)

1. Negligence
   It is a legal concept in the common law legal systems usually used to achieve compensation for injuries (not accidents). Negligence is a type of tort or delict (also known as a civil wrong).
   
2. Statutory torts
   A statutory tort is like any other, in that it imposes duties on private or public parties, however they are created by the legislature, not the courts.
   One example is in consumer protection, with the Product Liability Directive, where businesses making defective products that harm people must pay for any damage resulting. Liability for defective products is strict in most jurisdictions
   
3. Nuisance
   It is a common law tort. It means that which causes offence, annoyance, trouble or injury. A nuisance can be either public (also "common") or private.
   Public nuisance is a class of common law offence in which the injury, loss or damage is suffered by the local community as a whole rather than by individual victims.
   Private nuisance" is the interference with the right of specific people
   
4. Defamation
   It is tarnishing the reputation of someone; it is in two parts, slander and libel. Slander is spoken defamation and libel is printed and broadcast defamation, both share the same features.
   
5. Intentional torts
   Intentional torts are any intentional acts that are reasonably foreseeable to cause harm to an individual, and that do so. Intentional torts have several subcategories, including tort(s) against the person, including assault, battery, false imprisonment, intentional infliction of emotional distress, and fraud. Property torts involve any intentional interference with the property rights of the claimant.
   
6. Competition law
   Modern competition law is an important method for regulating the conduct of businesses in a market economy
   
7. Economic torts
   Economic torts are torts that provide the common law rules on liability for the infliction of pure economic loss, such as interference with economic or business relationships.
   Economic torts protect people from interference with their trade or business. The area includes the doctrine of restraint of trade and has largely been submerged in the twentieth century by statutory interventions on collective labour law, modern antitrust or competition law, and certain laws governing intellectual property, particularly unfair competition law. The "absence of any unifying principle drawing together the different heads of economic tort liability has often been remarked upon."
   

The principal torts can be listed as passing off, injurious falsehood and trade libel ,conspiracy, inducement of breach of contract, tortious interference (such as interference with economic relations or unlawful interference with trade), and watching and besetting. These torts represent the common law's historical attempt to balance the need to protect claimants against those who inflict economic harm and the wider need to allow effective, even aggressive, competition (including competition between employees and their workers).