Business Law UNIT 1

Nemo Dat Quod Non Habet -Section 27 of sales of goods act

When the seller himself is the owner of the goods, he conveys a good title in the goods when he sells it to the buyer. Problem occurs when he is neither the owner nor has any authority to do this.

The maxim NEMO DAT QUOD NON HABET means “no better title to the goods than the seller had”. It means that where the goods are sold by a person who is not the owner or has no authority to sell them, the buyer acquires no better title than what the seller had. If the title of the seller is defective then the title of the buyer is also defective and he cannot acquire a superior title to the seller.

EXCEPTIONS

The seller of the goods may not be having a good title yet the buyer gets a good title. The exceptions to the same are as follows:-

1. Transfer of title by estoppel:- When the owner of the goods makes the buyer to believe that the seller has the right to sell them, then the buyer gets a good title and the owner cannot recover the goods from the buyer.
2. Sale by a mercantile agent:- It states that when a mercantile agent is in possession of the goods with the consent of the owner then the sale made by him conveys a good title to the buyer provided the buyer acts in good faith.
3. Sale by one of the joint owners:-when one of the owners, with the consent of the other co-owners sells the goods then the sale made by him conveys a good title on the buyer.
4. Sale by a person under a voidable contract:-If the consent of the person to the contract has been obtained through fraud, coercion etc then the contract is a voidable contract. If the person sells the goods under a voidable contract and before the contract has been avoided then the buyer of such goods gets a good title.
5. 5.      Sale by a seller in possession:-  If the seller having sold the goods is still in possession of the documents or the goods then the transfer of the goods or the documents of sale, or sale by a mercantile agent on his behalf conveys a good title o the buyer.
6. Sale by the buyer in possession: - It states that if the buyer of the goods has obtained the possession of the goods or the documents of title with the consent of the seller then the buyer gets a good title provided that the seller has been acting in good faith.
7. Resale by an unpaid seller:- When an unpaid seller has exercised his right of lien and resells the goods the buyer acquires  a good title as against the original buyer.
8. Sale by finder of goods: - The finder of the goods acts as a bailee and he has to take care of the goods till the time they are in his possession. When the finder of the goods sell the goods when they are under the danger of perishing then the buyer of such goods gets a good title.
9. Sale by Pawnee: - As a general rule the Pawnee has to return the goods back when the debt secured to him is paid back. If the pawnor does not discharge the debt he may further sell the goods to any other person upon a reasonable notice to the pawnor. The buyer of such goods acquires a good title to them.

 

Performance of a Contract

It is the duty of the seller to sell the goods and of the buyer to accept the goods and pay for them according to the terms and conditions of the contract. It means that the seller has to deliver the goods of the kind, at a time and place in the manner agreed upon and the buyer has t o accept the goods when they are delivered properly.

 

Sellers Duty To sell The Goods

The duty of the seller is to sell the goods in accordance with the terms and conditions of the contract of sale of goods .According to section 2(2) of the act there should be a voluntary transfer of possession of the goods from one person to another.

The delivery of the goods can either be symbolic, actual or constructive delivery.

1. Actual Delivery:- When the goods are handed over by the seller to the buyer it is known as the actual delivery of the goods. Ex:- the seller the books to the buyer or to his agent and the agent takes the possession.
2. Symbolic Delivery:- When there is no actual transfer of the goods but only a symbol representing that there is a transfer from one person to another .The goods may remain where they are but the control may  transfer. This is referred to as the symbolic delivery of goods. Ex:- the key of the warehouse where the goods are kept.
3. 3.      Constructive delivery:- In this there is neither an actual delivery of goods nor the symbolic delivery of goods but something is done which the parties treat as the delivery of goods. It is referred to as the fictitious delivery or the delivery by allotment or acknowledgement.

 

Rules regarding Delivery

 

1. 1.      Delivery according to the contract:- The seller must deliver the goods according to the terms of the contract. This may be w.r.t time, place and the manner of delivery.
2. 2.      Buyers duty to apply for delivery:- It is the duty of the buyer to apply for the delivery of the goods before the seller can be expected to deliver them. The buyer cannot blame the seller for the non delivery of the goods unless he has made a demand and then the seller has failed to deliver them. Therefore the buyer has to be ready and willing to pay the price in exchange of the goods.
3. 3.      Place of delivery:- The parties are free to decide the place of delivery of goods. The seller is supposed to discharge the goods after paying the freight and other insurance charges. In case the goods are future goods as they are yet to be produced then the place of delivery is the place where they are manufactured.
4. 4.      Expenses of delivery:- Unless otherwise agreed upon the expenses of the sale of goods are to be borne by the seller. If the buyer incurs such expenses he can later on claim the same from the seller.
5. 5.      Effect of part delivery on the passing of property:- When only the part of the goods have been transferred then the question arises tat whether the property only in the part of the goods which have been transferred or that in the whole of the goods pass from the seller to the buyer.
6. 6.      Delivery of goods of wrong quantity or of different description:-It is the duty of the seller to sell the goods of the same quantity and the same description as has been decided under the contract.In VILAS UDHYOG LTD vs PRAG VANASPATI PRODUCTS The plaintiff agreed to transfer 120 barrels of groundnut oil but instead transferred 140 barrels, the defendant refused to take the delivery and pay for the same as they were in the excess of contract quantity. The buyer not only refused to take the delivery but also repudiated the contract.
7. 7.      Delivery to carrier:- The delivery of the goods to the carrier is prima facie deemed to be the delivery of the goods to the buyer. The delivery of the goods to the carrier or some other bailee for the purpose of transmission to the buyer may pass the property in the goods to the buyer.
8. 8.      Risk where goods are delivered at a distant place:- Where the seller undertakes to deliver the goods at his own risk at a place other than where they are at the time of the contract. He shall not be liable for the loss to the goods which is necessarily incident to the course of transit.

 

DUTY OF THE BUYER

 

1. Duty to accept the goods:- The buyer is bound to accept the goods if they are properly delivered. He is not bound to accept the goods if they are more or less in quantity than what was decided in the contract. He is not bound to take the delivery of the goods by installments.
2. Duty to pay the price:- It is the duty of the buyer to pay the price in accordance with the terms and conditions of the contract. If the buyer does not pay the price after it has become due then the seller may sue hi, for the same.

 

 

 

 

 

 

UNIT II

 

UNPAID SELLER:-

In simple words, "Unpaid seller" means a person who has sold the goods for a price but price has not been paid to him.

According to Sec 45, the seller of the goods is deemed to be an unpaid seller:

(i)                 When the whole of the price has not paid or tendered

(ii)               When a bill of exchange or other negotiable instrument has been received as a condition payment and the condition on which it has been received remains unfulfilled by reason of dishonor of the instrument or otherwise.

RIGHTS OF AN UNPAID SELLER

An unpaid seller has two-fold rights, namely:

1. Rights against goods; and 
2. Rights against the buyer personally. 

 

1. 1.      Rights of unpaid seller against goods: 

1.1  Rights of lien

1.2  Right of stoppage of goods in transit

1.3  Right of rescale 

 

1. 2.      Rights of unpaid seller against buyer personally:

2.1  Suit for price.

2.2  Suit for damages for non-acceptance.

2.3  Suit for special damages and interest

 

1. 1.      Rights of unpaid seller against goods:

 

1.1  Rights of lien

The right of lien means lawfully right to retain the goods possession until the full price is received. An unpaid seller can exercise his right of lien in following cases. Sec 47-49

1. Where the goods have been sold on the cash basis.
2. Where the goods have been sold on credit basis and the term of credit has expired.
3. Where the buyer has become insolvent even if the period of credit has not been expired.

 

Other rules to satisfy the conditions for this right are

 

1. The unpaid seller must be in actual possession of the goods sold.
2. It can be exercised even If the documents of title have been delivered to the buyer.
3. It can be exercised for the price and not for other expenses.
4. If the seller delivers some goods, it can be exercised on the remaining.

 

Termination of right of lien

Seller’s right of lien is terminated in following cases.

1. When he delivers the goods to the carrier or other bailey for transmission to the buyer.
2. When the buyer or his agent lawfully obtains the possession of the goods.
3. When seller waives his right of lien on the goods
4. The right of lien once lost will not be restored.
5. When the buyer further sells the goods and the seller agrees

 

Example: A seller “S” sells a TV set to “B” and delivers it to “B” and since the TV set was not functioning properly, “B” delivered it back to “S” for the repairs. It was held that “S” can not exercise his right of lien over TV set.

 

1.2  Right of stoppage of goods in transit:-

It means stoppage of goods while they are in transit to take possession until the price is paid (Sec. 50-52) Unpaid seller can stop the goods in transit in the following cases:

 

1. While the buyer becomes insolvent.
2. While the goods are out of actual possession of seller, but have not reached buyer’s possession i.e. goods are in transit with career.
3. The unpaid seller can stop the goods in transit only for payment of the price of the goods and not for any other charges.

 

Example:- "X" sells 100 bales of cotton to "Y" but delivery will be two stages. "X" delivers 50 bales first. Later on he comes know that "Y" has become insolvent. "X" can stop delivery of bales in transit.

1.3  Right of Resale:-

If a buyer fails to pay or offer the price within a reasonable time, the unpaid seller has the right to resell the goods in the following circumstances.

a)      Where the goods are of perishable nature.

b)      Where the unpaid seller has exercised his right of lien or stoppage in transit and gives a notice to buyer of his intension of resell the goods.

c)      Where the unpaid seller has expressly reserved his right of resale.

 

d)     Where seller gives notice to the buyer of his intension to resell and the buyer does not pay within a reasonable time, he can

1. Recover loss on resale of the goods, if any
2. Retain any surplus on resale of goods, if any

 

However if the seller sells with out the notice to the buyer, he can not

1. Recover any loss of the goods, if any
2. Retain any surplus on the resale of the goods, if any

 

Example:“M” sells 100 blankets to “N” and gives him one week for payment. “N” does not pay. “M” can resell those to any other person

 

1. 2.      Rights of unpaid seller against buyer personally:

 

2.1  Suit for Price (Sec 55):- If the goods have passed to the buyer and buyer refuse to pay the price, the seller can sue for price.

 

2.2  Suit for Damages for Non Acceptance (Sec 56): - If buyer refuses to accept and pay for the goods, the seller has the right to sue him for damages non-acceptance. He can recover only damages and not full price.

 

2.3  Suit For Special Damages & Interest (Sec 61):- The unpaid seller can recover the reasonable interest on the unpaid price goods sold. The seller can also sue the buyer for special damages where both the parties are aware of such loss at the time of contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNIT III:-NEGOTIABLE INSTRUMENTS

 

Negotiable instrument is a piece of paper which enables its holder to claim something usually money but sometimes goods. A negotiable instrument includes a promissory note, A bill of exchange etc.

 

A bill of exchange has 2 qualities:-

1. The right of ownership contained in the instrument is transferred from one person to another by delivery or sometimes endorsement.
2. The transferee who takes the same gets a good title even though the title of the transferor is defective.

 

PROMISSORY NOTE- SECTION 4

 

A promissory note is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum to the holder of the instrument.

It contains the following essentials:-

1. It must be in writing and signed by the maker.
2. There must be a promise to pay.
3. Such promise must be unconditional.
4. The promise must be with respect to payment of money.
5. The amount payable must be certain.
6. The payee must be certain.

 

BILL OF EXCHANGE –SECTION 5

 

1. In a bill of exchange one person makes an order to another to pay a certain sum of money to someone. In a bill of exchange an order is made to another to pay the respective amount due on the bill of exchange.
2. There are three parties in a bill of exchange:- The drawer, drawee and the payee.
3. The person who draws the bill of exchange is called the drawer, the person on whom the bill of exchange is drawn is called the drawee and the person to whom it is payable is called the payee.
4. After the drawee has accepted the bill of exchange he is called the “acceptor”
5. If the drawee does not honor the order given to him, the person entitled to receive the payment approaches the drawer. In such a case if the first drawee does not honor the bill of exchange then the second drawee can be approached  and he is known as “the drawee in case of need”

 

WHO CAN ACCEPT

 

1. The drawee of bill of exchange that is the person on whom it has been drawn.
2. When it has been drawn on more than 1 drawee then any one of the several drawee can accept.
3. A person who is mentioned in the bill of exchange.
4. An acceptor for honour.

 

 

HOLDER, HOLDER IN DUE COURSE AND PAYMENT IN DUE COURSE

 

HOLDER (SECTION-8)

Holder means the owner of the negotiable instrument. In order to be a holder he must satisfy the following conditions:-

1. He should have the possession of the instrument.
2. He should have the right to recover the amount due from the Parties.

When a negotiable instrument is originally made the payee is the holder of the same. If the payee transfers his right to another person then the transferee becomes the holder in place of the payee

 

 

HOLDER IN DUE COURSE (SECTION-9)

 

A holder in due course is always a privileged person and generally has a good title even though the title of the transferor is defective. When a person receives a negotiable instrument as a holder in due course he is capable of receiving a better title than the transferor. Ex:- If a person receives a negotiable instrument by theft the title of the person having the same will be defective. But if he transfers it to a holder in due course the title of the holder in due course will be good.

 

A person can be called a holder in due course

 

If the following conditions are satisfied:-

1. He is the holder of the negotiable instrument.
2. He has obtained it for a consideration.
3. He has obtained it before the maturity of the instrument.
4. He has obtained the negotiable instrument in good faith.

 

 

 

 

PAYMENT IN DUE COURSE(SECTION 10)

 

 

1. It should be in accordance with the tenor of the negotiable instrument:- It should be according to whatever is written on the instrument.
2. It should be in good faith:- The person should be acting in good faith and honest belief that a proper payment is made to a genuine person.
3. It should be without negligence:- If on a travelers cheque the signature of the person receiving the payment are different from the ones put by the holder at the time of their issue, and the bank officer does not bother to check the signatures and makes the payment, there is a negligence and hence the payment is out of due course.
4. It should be given to a person whose title does not appear to be defective.

 

 

DISTINCTION BETWEEN A BILL OF EXCHANGE AND A PROMISSORY NOTE.

 

 

 

CHEQUE- SECTION 6

 

A cheque is a bill of exchange drawn on a specified banker,  it includes an electronic image of truncated cheque.

 

 

 

FEATURES OF A CHEQUE

 

1. It is always drawn on some bank and the drawee is always the bank.
2. It is always payable on demand. A bill of exchange other than a cheque may be either or not payable on demand.

 

DISTINCTION BETWEEN A CHEQUE AND A BILL OF EXCHANGE.

 

1. In a cheque the drawee is always a bank and in case of a bill of exchange it is a person.
2. A cheque is always payable on demand but a bill of exchange may or may not be payable on demand.
3. In a cheque there is no system of acceptance but in a bill of exchange there is always a system of acceptance.
4. In case of a cheque as it is always payable on demand no grace days are allowed but in a bill of exchange as it is not payable on demand three days grace period is allowed.

 

NEGOTIATION OF NEGOTIABLE INSTRUMENTS

 

When the holder of the negotiable instrument i.e the person who is entitled to receive the payment transfers the negotiable instrument to another person so that the transferee is now entitled to the payment, the instrument is said to have been negotiated.

Negotiation further means that the transfer of the negotiable instrument form one person to another in accordance with the provisions of the negotiable instrument act. The transfer should have been made with the intention to transfer the rights. For ex:-  if I deliver a cheque to my servant for a safe custody he will not be entitled to receive the payment as he cannot be called the holder of the cheque. But if the cheque is delivered to the servant for his services the servant will become the holder of the cheque.

 

DIFFERENCE BETWEEN NEGOTIATION AND ASSIGNMENT

 

1. Negotiation can be made by delivery whereas assignment has to be made by a written document signed by the transferor.
2. When a negotiable instrument is negotiated it is presumed that it has been done for a consideration, whereas in case of assignment there is no such presumption and the burden of proof lies on the transferee.
3. No notice is to be given in case of negotiation but a notice has to be given to the person who has to make a payment in case of assignment.
4. Indorsement in a negotiable instrument does not require any stamp but an assignment requires a payment of stamp duty.

 

KINDS OF INDORSEMENT

 

1. GENERAL INDORSEMENT:- The indorser does not indicate as t who is the indorsee but his signatures indicate that he wants to transfer his rights to someone.
2. SPECIAL INDORSEMENT:- When the indorser in his indorsement mentions as to whom the amount is to be paid, the indorsement is said to be the indorsment in full or special indorsement.
3. RESTRICITIVE INDORSEMENT:- An indorsement is restrictive when the indorses while making the indorsement restricts the right of the indorsee to further transfer the negotiable instrument.
4. SANS RECOURSE INDORSEMENT:- When a person makes an indorsement the indorsee gets a right to have the payment who are liable to pay the same. And if he is unable to receive the same he can bring an action against the indorser Sometimes when the indorser excludes his liability on the instrument this is referred to as the sans recourse indorsement.

 

HOLDER, HOLDER IN DUE COURSE AND PAYMENT IN DUE COURSE

Holder means the owner of the negotiable instrument. In order to be a holder the following conditions should be satisfied:-

1. He should be entitled to the possession of the negotiable instrument.
2. He should have the right to receive the payment due on the parties.

 

When a negotiable instrument is originally made, the payee is the holder of the same. If the payee transfers his right to another person then the transferee becomes the holder in place of the payee. In case of bearer instrument the person to whom it is transferred , the transferee is called the “bearer” . The persons who are entitled to become the holder are as follows:-

1. The payee
2. The bearer( The transferee of the bearer instrument)
3. The indorsee( The transferee of the order instrument)

 

HOLDER IN DUE COURSE (SECTION-9)

A holder in due course is a person who generally has a good title even though the title of the transferor may be a defective one. EX:- if a person obtains a negotiable instrument by means of theft, fraud etc the title of the person having the possession of the same may be a defective one but if he transfers it to someone (who is a holder in due course)he may have a good title for the same.

In order to be a holder in due course the following conditions should be satisfied:-

1. He should be the holder of the negotiable instrument.
2. He should have obtained it for a consideration.
3. He should have obtained it before the maturity of the instrument.
4. He should have obtained it in good faith.

 

PAYMENT IN DUE COURSE

 

Generally a person making a payment in due course is discharged by making such payment i.e even if the payment is made to a wrong person but it is otherwise in due course the person making the payment cannot be held liable for the same.

 

In order that the payment is in due course the following conditions should be satisfied:-

1. It should be in accordance with the tenor of the negotiable instrument:- The payment should be made according to whatever is written on the instrument.
2. It should be in good faith:- It means that it should be made under such circumstances that the person to whom the payment has been made has a reason to believe that there is nothing wrong with such payment.
3. It should be without negligence: -  If on the travelers cheque the signatures of the person receiving the payment are different from the ones put by the holder at the time of their issue and the bank officer does not bother to compare the two signatures and makes the payment, there is a negligence.
4. It should be made to a person in possession whose title is not defective.

 

DISHCHARE FROM LIABILITIES ON NOTES, BILLS AND CHEQUES.

 

When a party who is liable on a negotiable instrument ceases to be liable he is said to have been discharged from the liability.

 

MODES OF DISCHARGE:

 

1. 1.      BY PAYMENT: - It is the most common mode of discharge. Since a negotiable instrument is ultimately meant for payment, payment of the amount due on the instrument to the holder.

 

1. 2.      BY CANCELLATION:- When the name of the negotiable instrument cancels the name of the party to a negotiable instrument with an intent to discharge him from liability, such party whose name has so been cancelled  are discharged from the liability to the holder who had thus cancelled the name.

 

1. 3.      BY RELEASE:- The discharge of parties liable on the negotiable instrument may also be affected by a release.

 

1. 4.      BY NON PAYMENT FOR ACCEPTANCE OF THE BILL OF EXCHANGE:- The act states that when a bill of exchange is payable after sight its holder must present it for acceptance to the drawee within a reasonable time after it is drawn. If he makes a default in making such presentment the drawer and all indorsers who were liable towards such a holder are discharged from their liability towards him.

 

1. 5.      BY THE HOLDER ALLOWING THE DRAWEE OF THE BILL MORE THAN 48 HOURS TO ACCEPT:- When the holder presents the bil of exchange for acceptance the drawee is entitled to be allowed a period of 48 hours to consider whether he will accept the bill or not. After the expiry of the period of 48 hours he holder is bound to demand back the delivery of the bill whether the same has been accepted or not.

 

1. 6.      BY THE HOLDER AGREEING TO A QUALIFIED OR LIMITED ACCEPTANCE OF THE BILL OF EXCHANGE:-  If the holder of the bill of exchange who presents the same for acceptance, acquiesces in a qualified acceptance of the bill  then the person who has to make the payment  is discharged as against the holder.

 

1. 7.      BY MATERIAL RELEASE:-  If the holder of the instrument makes a material alteration he looses his right of action as against those parties who would otherwisw be liable towards him. If however the prior parties themselves consent to the alteration their liability on such instrument is not affected by such alteration. By material alteration the identity of the original instrument is destroyed and those parties who had agreed to be liable are no more liable on the altered instrument.

 

1. 8.      BY THE DRAWEE BANK MAKING THE PAYMENT IN DUE COURSE:-  There are two cases when the drawee bank makes the payment to a wrong person but otherwise in due course, the bank is discharged and it can debit the customers account with such payment. The two cases are as follows:-
2. When in an prder cheque the payees payment is forged.
3. When the payment of the bearer cheque is made to the bearer. Ignoring the indorsement at the back of the chque.

 

1. 9.      BY THE DRAWEE NOT DULY PRESENTING A CHEQUE FOR PAYMENT:-The holder of the chque has a duty to present the cheque for payment within a reasonable time of its issue. If the holder makes a delay in presenting the cheque and in the meanwhile the bank fails causing damage to the drawer , the drawer is discharged to the extent of actual damage caused to him due to the delay in the presentment of the cheque.