COMMERCIAL TRANSACTIONS

o Commercial Transactions has 3 components:

A. The Sale of Goods Act, 1930, (Selling of moveable goods between two parties).
B. Negotiable Instruments Act, 1881.
C. Carriage Laws. (Rail, Air, Road, Sea, etc.)
SALE OF GOODS ACT, 1930
Case Laws:
1. State of Madras V/s Gannon Dunkerley& Co. (Madras) Ltd.; 1959 SCR 379
2. State of A.P. V/s KallaSree Ramamurthy; AIR 1962 SC 1585
3. M/s New India Sugar Mills Ltd. V/s Commissioner of Sales Tax, Bihar; AIR 1963
SC 4. 1207
5. Saler Jing Sugar Mills Ltd. V/s State of Mysore; (1972) 1 SCC 23.
6. Vishnu Agencies (P) Ltd. V/s Commercial Tax Officer; AIR 1978 SC 445
7. Coffee Board Karnataka V/s Commissioner of Commercial Taxes; AIR 1978
SC 8. 1487
9. Northern India Caterer (India) Ltd. V/s Governor of Delhi; (1978) 4 SCC 36 & (1980)
1 SCR 650.
10. Badri Prasad V/s State of M.P.; AIR 1970 SC 706
11. Commissioner of Sales Tax, M.P. V/s M.P. Electricity Board, Jabalpur; AIR 1970 SC
732.
12. Vikas Sales Corporations Vs. CCT, 1996, 4 SCC 433
13. T.C.S. V/s State of A.P.; AIR 2005, 371
14. Bharat Sanchar Nigam Ltd. Vs. Union of India, 2006, 3 SCC, 1
15. Vodafone Essar Cellular Ltd. Assistant CIT, 2010 Tax LR, 618 (Ker)
16. State of Andhra Pradesh Vs. Kone Elevators ( India) Ltd. 2005, 3 SCC, 389
17. State of Utranchal Vs. Khurana Brothers, AIR 2011, SCC, 224
18. China Cotton Exporters V/s Beharilal Ramcharan Cotton Mills Ltd.; AIR 1961 SC 1295
19. British Paints (India) Ltd.V/s Union of India; AIR 1971 Cal. 393.
20. Richard Thorald Grant V/s Australian Knitting Mill Ltd; AIR 1936 PC 34.
21. Jones V/s Just; 1868, 3 Q.B. 197.
22. Cehave NV V/s Bremer HandalgesellasahaftmbH; 1975, 3 All ER 739.
23. Aswan Engineering Establishment Co. V/s Lupdine Ltd.; 1987 1 All ER
135. 24. Niblett V/s Confectioners Materials Co. Ltd.; 1921 3 K B 387.
25. Orissa Textile Mills V/s Ganesh Das; AIR 1961 Pat. 107.
26. City and Industrial Development Corp. of Maharashtra Ltd. V/s Nagpur Steel and
27. Alloys (P) Ltd.; AIR 1992 Bom. 55.
28. CIT V/s Mysore Chromite Ltd.; 1955, 1 SCR 849.
29. Badri Prasad V/s State of M.P.; 1965, 3 SCR 381.
30. Sadhusaran Singh V/s West Bengal State Electricity Board; AIR 1986 Cal.240.
31. Agricultural Market Committee V/s Shalimar Chemical Works Ltd.; AIR 1997 SC
2502.
32. Morvi Merchantile Bank Ltd. V/s Union of India; AIR 1965 SC 1954.
33. Aluminum Industries Vassen BV Vs. Romalpa Alumium Ltd. 1976, 2 All ER 552 CA
34. Usha Beltron Ltd. Vs. State of Punjab, 2005, 7 SCC, 58
35. R.D. Saxena V/s Balram Prasad Sharma; AIR 2000 SC 2912.
36. Re Charge Card Services Ltd, 1988, 3 All ER, 702 CA
37. Union of India vs. Hariram Shamji Thakkar, 1974, 6 UJSC, 562
38. President of India vs. La Pintada Compania SA, 1985 AC 104

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 39. Benc Graphics International Ltd, 1997, 1 All ER 979

NEGOTIABLE INSTRUMENTS ACT

40. Mohammad Akbar Khan V/s Attar Singh; AIR 1936 PC 171.
41. Ponuswami Chettiar V/s P. Vellaimuthu Chettiar; AIR 1957 Mad. 355.
42. Laxman Krishnji Mustilwar Vs. Ramesh Amarchan Agrawal, 2000, BC 406
43. Ashok Jeshwant Badeve V/s Surendra Madhavrao Nighojakar; AIR 2001 SC 1315.
44. Lachmi Chand V/s Madanlal Khemka; AIR 1947 All 52.
45. Singheshwar Mandal V/s Gita Devi; AIR 1975 Pat. 81.
46. S.D. Asirvatham V/s G.P. Mudaliar; AIR 1973 Mad. 439
47. India Saree Meseum Vs. P Kapurchand, 1992, 73 Comp Cases, 375
48. Mehrunnisa Begum Vs. Sheik Chand Bi, 1985, 58 Comp Case 197.
49. Canara Bank Ltd. V/s I.V. Rajagopal; 1975 I M.L. I 420
50. Canara Bank Vs. Canara Sales Corporations, AIR, 1987, SC, 1603
51. Ltd. Vs. SangethaTubewell Corporation, AIR 1989, Mad. 302
52. Tirumalalareddi Ramgopal Reddy &Ors. Vs. Bhimavarapu Paravathi, 2004, III BC
536 (AP)
53. Allamati Subba Reddy V/s N. Ramanreddi; AIR 1966 A.P. 267.
54. Shivalingappa V/s P.B. Puttappa; AIR 1971 Mys. 273.
55. Rajagopal Vs. M Thigarajan, 1999, 95 Comp Cases, 286
56. Raghvendra Singh Bhadoria Vs. State Bank of Indore, AIR, 1992, MP 148
57. Capital Syndicate Vs. Jameela, 2003, 2 JCC (NI) 152 (Ker.)
58. Veera Exporters V/s T. Kalavathy; AIR 2002 SC 38.
59. Indian Overseas Bank V/s Industrial Chain Concern; 1990, I SCC 484
60. SBI V/s United Commercial Bank Ltd.; AIR 2003 Del. 284
61. Modi Cements Ltd. V/s Kuchil Kr. Nandi; 1998 3 SCC
249.
62. K. Ingats& Alloys Ltd. V/s Pennar Petrson Securities Ltd.; AIR 2000 SC 954.
63. Rajinder Steels Ltd. Vs. Union of India, 2000, 100, Comp Cases , 274
64. Ramawati Vs. Union of India, 2001, 107 Comp Cases, 216
65. OPTS Marketting Pvt. Ltd. Vs. State of Andhra Pradesh, 2001, 105, Comp Cases,794
66. Dalmia Cement (Bharat) Ltd. V/s Galaxy Traders & Agencies Ltd.; AIR 2001 SC 676.
67. Suganthi S. Kumar V/s Jagdarshan; AIR 2002 SC 681
68. Avneet Food Products and others Vs. Government of NCT of Delhi and another,
2003,1,JCC, 1
69. K.R. Indira V/s G. Adinaragena; AIR 2003 SC 4689.
70. Goaplast Pvt Ltd. Vs. Chico Ursula D’Souza, 2004, Cri. LJ 664.
71. Jayanti Bhai Vijay Kataria Vs. Kamlaker, 2006, 2 JCC 174
72. Veer Prakash Shrama Vs. Anil Kumar Agrwal, 2007, 3 Crimes 314, SC
73. Shanker Finance & Investements Vs. State of AP, AIR, 2009 SC, 422
74. Sharan P. Khanna Vs. Oil & Natural Gas Corporation Ltd., 2010, Crij LJ 4256, Bom
75. IL SUNG Construction Pvt Ltd.Vs. Manoj Pandey, 2011 Cri. Lj 191.
76. Milind Sripad ChandrukarVs. Kalim M Khan, 2011Cri. LJ 1912
77. Prakash Sevantilal Vora Vs. State, 2011, Cri LJ 2007, Bom.

CARRIAGE ACT
78. River Steam Navigation Co. Ltd. Vs. Shyam Sunder Tea Co. , 1962 2 SCR 802
79. R.R.N Ramalingam Nadar Vs. V. N Reddiar AIR, 1971 Ker 197
80. Siohn A & Co and Academy Garments (Wigan) Vs. Hagland etc. Transport, 1976, 2
Lyd’s Rep 428.
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81. Transport Corporation of India Vs. Indian Rayon Corporation, Veraval, 1992, 1 Guj
Law Herald, 277
82. Rajasthan Handicrafts Emporium Vs. P.A World Airways, AIR, 1984, Del, 396.
83. Indian Airlines Vs. Madhuri Chaudhary, AIR, 1965, Cal, 252.
84. Asiatic Steam Navigations Co. Ltd. Jethanlal Dharamsahi& Co. AIR 1959 Cal, 479
85. The Mogu Liner Ltd. Vs. Manipal Printers and Publishers Pvt. Ltd. AIR 1991 Ker, 183
86. Indian Airlines Vs. Akhilswar Prasad, AIR, 1986, Pat. 306.

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 SALE OF GOODS ACT

o Sale of moveable goods, payment of those moveable goods and carriage of those
goods, for exchange of monetary value, these three make up the subject matter of
Commercial Transactions.
o United Nations General Assembly Resolution, 1996.
o Primarily the subject matter fell in the State List, but the act was passed by the British
Parliament in 1930 (Indian Sale of Goods Act, 1930). It now falls in the concurrent
list.
o Why did this happen in the 1930s? Due to the Great Depression in 1929, there was
a requirement to encourage selling and purchasing activities and so it was decided to
have separate legislation to increase businesses and transactions. It was a commercial
exigency.
o The genesis of SOGA is Part VII of Indian Contracts Act, 1872. [Section 76-123]
o MCC Talwar Commission, 1958 recommended that since some foreign parliament
has passed the legislation, the term ‘Indian’ should be removed. 8th Law Commission
Report: Around the world, there was a race for becoming a commercial hub;
therefore, to give more recognition to international businesses also, the term was
recommended to be removed.
o Lex Mercatoria: Law of the Merchants (Party Autonomy).
o Party Autonomy means that parties are free to decide their responsibilities/
obligations and may limit or extend their liability in cases of breech, that the
jurisdiction in case of breech may be determined by them, determination of other
terms relating to performance, and it also pertains to whether parole evidence will be
taken into consideration or not and also which law will be governing in case the
parties are of 2 different countries. Every provision in the Sale of Goods Act
exception definitional clause (Section 2) starts with ‘unless otherwise agreed’. This
means that provisions of the Sale of Goods Act will apply if the parties have not
agreed on some things.
o Parole Evidence: Gathered evidence or collected evidence. Under common law,
parole evidence is allowed.
o Source of SOGA, 1930 is British Sale of Goods Act, 1893, drafted by Mackenzie
Chalmers (Bill of Exchange Act, 1882, SOGA, 1893 and Marine Insurance Act,
1906); Father of Commercial Laws.
o Sale of Goods is bilateral, consensual (consent of both parties/ meeting of minds in
terms of the 4 conditions) and commutative (equivalent monetary compensation)
contract. [Sec. 4]
o All Lex Mercatoria started getting codified.
o The Act came into force on 1st July, 1930.
o 15th March, 1930: The Act came into being.
 Legislative Competence: The subject of contracts is placed at entry 7 of the
Concurrent List in the 7th Schedule of the Constitution of India. The subject of
transfer of property other than agricultural land falls in the Concurrent List at item 6.
Therefore, both the Parliament and the State Legislatures are competent to make laws
with respect to contract of sale of goods.
o Customs and Precedents developed after 1930, can they be called Law of the Land?
Sale of Goods Act, 1930, Section 66(e); it accepts foreign judgements also.
o The Act Contains No Illustrations: The Legislature has not used the method of
attempting to guide the courts in interpreting a section by giving illustrations of it, and
has left it to the Courts to construe each section as it stands. Lex Mercatoria was very
new and in the process of development, so they had given the courts to interpret.
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Recognition of the concept of Party Autonomy. Absolute freedom to the courts.

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o There is no complete severance from ICA. Section 2(15) says that definition will be
taken from the ICA only. Terms used in this, without definition, the same will be
taken from the ICA. But wherever there will be any inconsistency between ICA and
SOGA, SOGA will prevail.
o Contract of sale is contract and conveyance. [Sec. 4] – 4 basic ingredients;
conveyance means time of transfer. If all the 4 basic ingredients of section 4 is getting
fulfilled, and there is no condition put forth in terms of time of transfer and payment,
then property transfers to the buyer immediately; Risk parito domine (risk
immediately transfers).
o ATS is Pure and Simple – it is merely agreement to sale, no provision of conveyance
in that contract. Timing of transfer will be decided subsequently.
o Foreign Commercial transactions are also regulated by the SOGA.
o CISG: Convention on International Sale of Goods, 1980 [Operational: Jan 1, 1988].
o India is not a party to CISG, but Indians can be regulated by CISG.
o Latest Amendment: 1993, Section 2(4).
o SOGA, 1930 is not a pre-emptive, neither systematic nor a comprehensive piece
of legislation.
o Pre-emptive indicates that it has displaced all other laws in the subject area.
The Contract Act still continues to be there. Therefore, it is not a complete
displacement from the previous arrangement.
o Systematic means that it integrates, interlocked and it is having it’s own
methodology of regulating the sale of goods transactions.
o Not comprehensive as for sale of drugs there is NDPS Act, for sale of cars
there is Indian Patent Act. SOGA is subjected to other legislations and hence
not comprehensive.
o Boiler Plate Clauses means stipulated clauses which will be present in all contracts
of a company. No negotiations are required in such clauses. There are certain
presumption clauses, carried forward from one contract to another. They are pre-
printed obligations for which negotiations do not take place.
If parties have disagreement about boiler plate clauses, and they have decided that in
case of dispute, only arbitration will be the mode. When dispute arises, one of the
parties challenged that it is not a valid clause, as not permitted by Sec. 27 of ICA
(Restraint of legal proceedings). Sometimes courts allow, sometimes courts don’t
(Scott v. Avery clause).
o Court of first instance in contractual obligations:
o Niblet v. Confectioners Material Company Ltd. (First common law case for
counterfeiting product). Nestle and Nissley.
o Who codifies commercial laws in India and around the world? Laws are
developed by merchants, trade associations, UNCITRAL, UNITROD, ICC, FICCI,
ASSOCHAM, CII, etc.
o Section in which 2 parties are not there? Section 24 of SOGA.
o Sale of goods and Assignment:
o Sale of goods and Mortgage:
o Sale of goods and Barter:
o Sale of goods and Contract for Work and Material supplied: Sec. 4; CASE:
Cannon Dunkerley, 1959 and Delhi carters, 1978 and article 3 of CISG, BSNL
Case, 2006 “Preponderance or substantial service”. I magic, 2009
o Sale of goods and Hire Purchase Agreement:
o Sale of goods and Gift transactions:

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 o How will you avoid a contract? The other party is not upto your expectations. In
contract, for avoiding you need to give a notice. On the basis of the other parties
subsequent conduct, you can avoid. Or if the other party expressly declares, that he
will not accept the goods/ make payment.
o Romallapa Clause in context of formation of contract of sale: Sec. 4 read with
Sec. 23 of SOGA. The name comes from the Aluminium Industries Case, 1976
(House of Lords). Sale of goods under a condition that the buyer cannot further sell
the good for some time. The clause means putting a reasonable restriction on the
buyer not to sell the goods for some time until certain conditions are fulfilled. It is
permitted in India.
o Special Property: It means a bailees/ mortgagees right, a mere right to possess, and
not to dispose off. Whenever the goods are transferred, 4 rights in that property is
transferred to the owner: ownership, right to possess, custodial right and marketable
title (right to sell further). In special property, this does not happen.
o A property right or qualified interest in property (such as the interest of a bailee,
pledgee, lawful possessor, a conditional vendee prior to full payment, or a lienholder)
subordinate to the absolute, unconditional or general property or ownership.
o Legal Term of Frustration/ Commercial Hardship in ICA [Sec. 56]: Supervening
Impossibility.
o SECTION 4: CONTRACT OF SALE
o It includes 2 things: Sale agreement and Agreement to Sale agreement (ATS).
o Conditions for Contract of Sale:
 There must be a contract. The contract must be bilateral i.e. have 2
parties: seller and a buyer.
 Purpose of contract: transfer of ownership [immediate (sale) or
subsequent (ATS); conditional or absolute]. (Sec. 4 read with Sec. 27)
 Property means movable goods is transferred [Section 2(7) defines goods].
 There must be monetary consideration [price, as defined in Sec. 2(10)].
Price has to be there, exchange of goods for goods will be barter, and not
sale of goods.
[Bailment is not sale as only possession is transferred and the ownership is conditional – jus
in persona and not jus in rem (no right to transfer the goods further, whereas, the buyers right
is in rem)].
o Sale and Agreement to Sale: Immediate or Subsequent sale; absolute or conditional
sale; jus in rem – quiet possession (right against disturbance, you can keep, use or sale
the goods and whatever manner you want) and jus in persona. [Sec. 2(1) defines
buyer and Sec. 2(13) defines seller].

o Differences in Sales and ATS:

i. 1st difference: Sale contract = Contract + Conveyance; Agreement to sell is
purely a contract. Transfer of property has taken place in case of sale
contract. Agreement to sell-transfer has not taken place.
ii. 2nd difference: Ownership is transferred immediately if the 4 essentials are
completed, whereas in ATS, it will be transferred subsequently [Section 4].
iii. 3rd difference: Risk parito domino; Sale contract – risk is transferred;
Agreement to sell- Risk will pass subsequently [Physical Risk (perishable,
theft, fire), Financial Risk, Risk of Credit Worthiness (buyers ability/
willingness to pay), Risk of Supervening Impossibility, Risk of Buyers
Acceptance]. Risk will be determined by ownership, and not possession.

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 iv. 4th difference in terms of Remedies: Sale: If price not paid, or the buyer
wrongfully neglect, suit for price will take place by the seller; Agreement to
Sale: If the buyer is not accepting the goods, damages will be required to be
paid [Suit for non-acceptance].
v. 5th difference: Sale – jus in rem (title against the whole world as sale is an
absolute contract, nobody can interfere against the quiet possession of these
goods); Agreement to Sale – jus in personam (title against a person).
vi. 6th difference: Sale is an executed contract. ATS is an executory or conditional
contract which is subsequently performed.
vii. 7th difference: Exercise of Lien: Lien means retaining the property till the
time payment is done. ATS: Lien cannot be exercised.

CASE LAWS:

1. Instalment Supply Pvt. Ltd. Case (hire purchase agreement)

 A hire purchase agreement partakes of the nature of a contract of bailment
with an element of sale added to it.
 A hirer may not be bound to purchase the things hired, but where there is
an obligation or an option to buy on the terms that the hirer on payment of
premium as also the number of instalments, shall enjoy the goods which
ultimately may become his property, the transaction amounts to one of
hire- purchase, thought the title to the goods would remain with the owner
till all the instalments are paid or the hirer has exercised his option to
finalize the purchase on payment of a sum nominal or otherwise.

2. Mumtaz Hussain Ansari v. State of UP, 1984

 A reading of section 4 shows that before a sale can come into existence
there has to be a contract whereby the seller transfers or agrees to transfer
the property in the goods to the buyer for a price. Such a contract may
either be absolute or conditional. Where under a contract of sale property in
the goods is passed immediately, the contract is called a sale. But if the
contract contemplates that the property in the goods would pass on a future
date or on happening of some contingency. It would become a sale when
that future contingency happens or the condition is fulfilled and till then
the contract of sale is designated as an agreement to sell. Accordingly
existence of a contract of sale is sine qua non for the coming into existence
of a sale. No doubt when defendant put up the Shisham trees for auction
and invited bids he invited offers for purchasing the trees and the offer was
accepted and an agreement as contemplated by Section 2(e) of the Indian
Contract Act came into existence. However, according to Section 2(h) of
the Indian Contract Act, only such agreements which are enforceable in
law are called 'contracts'. Agreements which are not enforceable in law are
as laid down in Section 2(g) of the Contract Act, said to be void.
Accordingly, before a contract of sale can come into existence it must be
shown that there was an agreement between the State Government and the
plaintiff which was enforceable in law. In view of provisions of Article
299 of the Constitution as interpreted by various Supreme Court cases
mentioned above such an agreement cannot be enforced unless the
provisions thereof have been complied with. As the agreement in the
instant case had not been made in accordance with the provisions of
Article 299 of the Constitution, the same
8
 could not be enforced and was void against the State. Such an agreement
therefore cannot amount to a contract of sale and as such no question of the
transaction passing on into the domain of actual sale, as contended by the
defendant in this case. Since no transaction amounting to sale took place,
the title in the Shisham trees throughout remained with the State
Government and for this reason the plaintiff cannot maintain an action for
tort against the State Government on the ground that its officials had
misappropriated some property belonging to him.

3. Motilal v. State of HP, 1980.

 Case Note: Property - sale - Himachal Pradesh Common Lands Vesting
and Utilization Act, 1974 - respondent was forest contractor entered into
agreement with villagers for felling of trees - permission granted by
Collector for felling of trees but later changed his opinion after Act of 1974
coming into force - after coming into force of Act of 1974 Deputy
Commissioner passed Order that respondent had no right to fell trees as
trees belonged to be vested with State - respondent filed writ petition
seeking quashing of Order of Deputy Commissioner - appeal - whether
property in tress had passed to respondent - agreement between parties
revealed that neither of parties knew about number of trees sold nor knew
identity of trees sold by sellers - agreement in question was not a sale but
only an agreement to sell as goods were not ascertained and requisite
permission were not taken from authorities - Collector had no jurisdiction
to examine an agreement and decide whether permission to cut trees should
be granted or not - respondent had no right to be heard before Collector
changed his opinion - appeal allowed.

o Statutory Transactions are valid in India:

i. New Sugar India Mills Case, 1963
ii. Salar Jung
iii. Vishnu Agencies Case
iv. Coffee Board Karnataka
o New Sugar India Mills v. Commissioner of Sales Tax

Facts: Sugar and Sugar Products Control Order, 1946, it was intimated to the Sugar
Controller of India by the consuming states their requirements of sugar. The
Controller made allotments and addressed orders to the factory owners directing them
to supply sugar to the consuming states. The assesses, the sugar factory in Bihar,
under these order, dispatched sugar to State of Madras. The State of Bihar treated this
transaction as sales and levied sales tax. The State of Madras contended that it did not
amount to sale.

Held: It did not amount to sale as a contract of sale is a prerequisite to a sale and there
was absence of any offer by the assesses to State of Madras and no acceptance by the
latter. The assesses were under the Control Order which compelled them to carry on
the transaction.

Dissenting Opinion (Hidayatullah): It is a sale there was an implied contract of sale.

The controller permitted the assesses to supply sugar of a stated quality and quantity
to

9
 the State of Madras. Thereafter the 2 parties agreed to sell and purchase the sugar. So
long as the parties trade under controls at fixed price they must have deemed to have
agreed to such price. There was an implied contract with an implied offer and implied
acceptance. The same is the position w.r.t quality and quantity fixed by the Controller.

o Salar Jung Sugar Mills Ltd. v State of Mysore

ISSUE: Levy of tax on purchase of sugarcane was challenged on the ground that on
account of the Central and State Control Orders applicable to the transactions, there
was no mutual consent between the purchasers and growers of sugarcane in regard to
the transaction and therefore, they did not amount to sales.

HELD:

 It was held that it was established that statutory orders regulating the supply and
distribution of goods by and between the parties under the Control Orders do not
absolutely impinge on freedom to enter into contract. Legislative measures or
statutory provisions regulating the price, delivery and supply restricting areas for
transactions are all within the realm of planning economic needs, ensuring
production and distribution of essential commodities and basic need of the
commodity.
 In spite of the fact that under the relevant Control Orders the parties, the
minimum price and the minimum quantity of supply were determined or
regulated, the Court held that the Control Orders left to the parties the option in
regard to a higher quantity than was stipulated in orders, higher price than the
minimum for which the growers can bargain, as also the mode of delivery and
the form and manner of payment.
 A factory could reject goods after inspection which indicated not only freedom
in formation but also in the performance of the contract.
 These features indicated with unerring accuracy that parties entered into an
agreement with mutual consent and with volition for transfer of goods in
consideration of price. The transaction therefore amounted to sales within the
Mysore Sales Tax Act.

o Vishnu Agencies Pvt. Ltd. v. Commercial Tax Officer and ors.

o Coffee Board, Karnataka v. Commissioner of Commercial Taxes

Facts: The appellant Coffee Board filed writ petitions in the High Court praying for a
declaration that the mandatory delivery of the Coffee under Section 25(i) of the
Coffee Act, 1942, was not sale and that section 2(t) of the Karnataka Sales Tax Act,
1957 required to be struck down if the same encompassed compulsory acquisition
also. The appellant Coffee Board had contended that the compulsory delivery of
Coffee under the Coffee Act, 1942 extinguishing all the marketing rights of the
growers was 'compulsory acquisition' and not sale or purchase to attract levy of
purchase-tax and that the appellant was only a 'trustee' or agent of the growers not
eligible to purchase tax.

Held: In the nature of transactions contemplated under the Act, mutual assent either
express or implied is not totally absent in this case in the transactions under the Act.
Coffee growers have a volition or option, though minimal or nominal to enter into the
coffee growing trade. If anyone decides to grow coffee, he must transact in terms of
the
10
 regulation imposed for the benefit of the coffee growing industry. Section 25 of the
Act provides the Board with the right to reject coffee if it is not up to the standard.
Value to be paid as contemplated by the Act is the price of the coffee. There is no
time fixed for delivery of coffee either to the Board or the curer. These indicate
consensually not totally absent in the transaction.

The High Court had rightly observed that the Board has been chosen as the
instrumentality for the administration of the Act. It cannot be said in the Act, there is
any compulsory acquisition. In essence, the scheme envisages sale and not
compulsory acquisition. The terms 'sale’ and 'purchase' have been used in some of the
provisions and that is indicative that no compulsory acquisition was intended.

o Sale includes bargain. [Sec. 4] – This means that the payment is decided in between
parties considering the mode of payment, time of payment, place of payment,
currency of payment (international sales transactions).

o Deemed Sale: Art. 366(29A) of the Constitution talks about deemed sale.
It is assumed that there is a sale even if the basic ingredients of a sale are absent.
46th Constitutional Amendment: Article 366 (29-A)- for the purpose of tax imposition,
it is deemed to be a sale.
Hire Purchase Agreement
1. Hirer and hiree.
2. Shall be in writing.
3. Payment must be made in instalments.
4. There must always be option to buy that particular good.
 Lee v Butler (Bailment + option to buy) carriage law doc.
 Delhi Caterers Case (Northern India Caterers v. Government of Delhi  pg 21
of Dukki)- Where food is supplied in an eating house or restaurant and the
substance of the transaction, evidenced by its dominant object, is a sale of food
and the rendering of services is merely incidental, the transaction would
amount to sale.
 Another transaction involving option to buy: Section 24, Sale of Goods Act.

o Hire Purchase Agreement:

At any point of time, if the parties had subsequently agreed to turn the hire agreement, into a
purchase agreement, it is a hire-purchase contract. Provided, for purposes of transactions, it is
a sales contract. Generally considered as a bailment contract.

Differences - Contract of Sale and Hire-Purchase Contract

1. In COS, the seller transfers or agrees to transfer the property in the goods to the buyer
at a price, whether paid at once or through instalments. Whereas, in HP, there is no
such agreement. It is a contract of hire, though it may eventually ripen into a sale.
2. In COS, there is an agreement to buy, whereas, in HP, the hirer is not a buyer, who
has agreed to buy. He simply has an option to buy.
3. In COS, ownership is transferred immediately from the seller to buyer. In HP,
ownership transfers only when certain number of instalments are paid at the option of
the hirer.
4. In COS, the buyer becomes the owner of the goods and has all rights of the owner. In
HP, the hirer is only a bailee.

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 5. In COS, the buyer cannot terminate a contract and is bound to pay the price at the
contract terms. In HP, hiree cannot be compelled to buy.
6. In COS, if the seller or the buyer sells the goods to a third party, then the third party 1.
Must have bought in good faith and 2. Must exercise reasonable care to find out the
owner. Then any transfer from the first party to third party will be valid sale (Section
29, 30). The hiree cannot transfer goods to a third party.
7. A COS is sales per se. In COS sales tax is imposed from the beginning. HP is deemed
to be sale only for the purposes of taxation.
8. A HP has to be in writing.

The most important distinction is that of the option to buy, under hire-purchase.
LIEN ENDS RIGHT OF STOPPAGE COMMENCES
When the buyer of goods becomes insolvent, 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.

Meaning of transit: Transit does not mean that the goods should be in motion. If the goods
are delivered to the carrier or other bailee by the seller the transit is commenced and it comes
to an end when the buyer acquires possession thereof. Therefore, when goods are in the
hands of a middle man, goods are said to be in transit. Even if the goods arrive at the
destination of the buyer the transit continues until the buyer obtains possession from the
middleman. When the right of lien ends, right of stoppage in transit begins.

o Which Law governs Specific Performance? In what circumstance, Specific

Performance in the contract is asked for? Specific Relief Act, 1963; Chapter 2,
Section 10 [amended in 2018]. Earlier, it was the discretion of the court to provide
you specific performance, but the amendment makes it compulsory for the courts to
do so, it is a matter of right of the parties. This will significantly improve India’s
position in the international market. In case of Sale, specific performance is allowed,
and in case of ATS, suit for non-acceptance is permitted.
o Where is Sale and ATS defined: Section 4(3).
o What things is the arbitrator required to see in a court about how that particular
contract to resolve the disputes? (As per sec. 4):
1. Sale of Goods Act
2. Common Law
3. Customs and Usages prevailing in that market; If the parties want that those
Customs and usages in market should not be affecting out transactions, they
can do so by written clause in the contract [Parole Evidence Rule].
4. Terms of the Contract
o Law governing sales between government and the private contractor:
Government Procurement Contract, it is regulated by the General Finance Act, 2017
read with SOGA, 1930. [Ministry of Railways and Defence]
o Basic framework of Contract: Contract, transfer, goods. Price may or may not be
there. Even without price, it is considered to be valid. Law that governs is Art. 14 of
the CISG, read with Art. 53. [No conflict with Indian laws – Lex Mercatoria Art.
66(5)].

12
o In what circumstances CISG is applied?: Two parties located in different countries
enter into a contract, there will be conflict of the laws to be applied. Party autonomy,
when parties opt for a specific legislation. It eradicates the problems arising out of
conflict of laws.
o If an Indian opts for CISG, Indian courts will not have jurisdiction but only foreign
courts.
o How can the price be considered confidential in nature? Confidentiality in price in
sales transactions in case of high prized products. It's just by virtue of CISG, 1980.
There is always some reason why we want to hide the price.
o Section 14 read with sec 55; And CISG’s applicability in Indian commercial
transaction is by virtue of Section 66(e) of SOGA, 1930; Even without express or
implicit fixation of price, the buyer and seller can enter into a contract of sale.

o Battle of Forms: Example: One party in Jodhpur, another in Mumbai. Party has been
identified; price may/may not fixed. Party in Jodhpur contacted a lawyer (by seller) to
draft a contract based on the transaction. Party in Mumbai had also contacted a lawyer
to do the same. Contract started performing, some parts done. Difference in contracts.
Arbitration.
Landmark case: Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation (England)
Ltd. Article 19 of CISG recognises this rule of Battle of forms.
 Mirror Image Rule: According to this rule, a contract is not formed until the
terms and conditions of both the parties are exact mirror image of each other,
i.e. are the same.
 Knock-out Rule in article 2.1.2 of UNIDROIT Principles of International
Commercial Contracts [PICC]. This is the first shot rule. The person who sent
the first draft, their contract will prevail over the last one. [America]
 Last Shot Rule: The man who fires the last shot won the battle. The party that
keeps the latest terms and conditions and the opposite party do not object then
it may be considered by the other party that, the party has taken over what was
agreed. [Common Law]
 Gun Powder Rule by Lord
Atkin. India follows Last Shot Rule.
o To describe effects of multiple of forms or formats used by buyers and sellers to
accept and confirm terms expressed in other forms. There was omission on part of the
parties to check the terms.
o Letters of Credit governed by which law: Uniform Commercial Practices 600 by
ICC. [FICCI, ASSOCHAM, CII – members] UCC 600 is an example of Lex
Mercatoria, Incoterms [International Commercial Terms, 2020].
o Certain times ‘promotional schemes’ of certain brands prescribes that if you buy one
goods, second one is free. If the second product is very substandard, not good, and
that has caused some damage to you. Are you entitled to seek damages of the second
item that you have received?
Case: Esso Petroleum Co. Ltd. v. Customs and Excise Commissioners, 1976.
Esso bought a new site for a service station. When they purchased it they estimated
that it could sell 200,000 gallons of petrol a year. However, building regulations made
them put the pumps on the back of the property. This considerably lowered the
amount that could be sold, but no change was made to the estimate. They leased it to
Mardon, and assured him contrary to his scepticism that the site could sell 200,000
gallons a year. However, it did not sell anywhere near this amount. Esso realized this
and renegotiated
13
 the contract, but even that did not properly assess how much could be sold. Mardon
tried his best, however he lost money. Eventually Esso cut off his petrol supply when
he stopped paying. Mardon is seeking damages. The Court of Appeal held that the
contract could not be voided for misrepresentation as the defendants presented the
inflated figure as an estimate rather than as a hard fact. On the other hand, as the
defendant had taken it upon themselves to employ experts for the purpose of
providing an estimate of sales, they owed a duty of care to the plaintiff to ensure that
this was done on the basis of accurate information. The plaintiff was therefore able to
recover the losses which he had suffered as a result of the defendant’s negligent
misstatement.
o Find out: RBI Circular in this regard.
o Case: State of Madras v. Gannon Dunkerley &Co.
 Pre-independent transaction.
 Madras Sales Act, 1939 was amended in 1947, through which the definition of
‘sale’ was revised to include transfer of property in goods, from one person to
another in the course of any trade or business or cash or deferred payment or
valuable consideration. This sale shall include transfer of property in
execution of works contract (building contract).
 Now, the raw material can be procured by the builder himself from a third
party, or you provide him with the raw materials. In either case, seemingly,
there is a transfer of property.
 In this case, the company was asked by the government to construct a
particular building, the raw materials for which were provided by the
government. The company could have procured it itself, if the government
would not provided.
 The value of the materials was a benefit given to the company. But the
company included them in their annual turnover report. Based on this report,
the government of madras imposed Sales tax on the transfer of property. They
said it happened in the course of the execution of the works contract.
 The company says that there is no sale of these goods, it is just an ancillary
contract of the larger works contract. The government contends that there is a
separate mention of this kind of transaction in the Govt. of India Act and the
Madras Sales Tax Act. Therefore because they are mentioned specially, the
interpretation of sales under these laws will take place in a different manner
than the sale of goods act. But when we are considering sales from taxation
point of view, we have a wide interpretation, roping in as many as possible
transaction within sales.
 The Supreme Court refuted the government’s contention and said that when
this particular law enacted, the SOGA was pretty much in operation and the
concept of sale was understood in an uniform manner in UK as well as in
India, it was firmly established. There was no reason for the people to think
that now that it has a special mention in some other act, it would have a
separate understanding. The court said that when we talk about sale of goods,
it is ‘Nomen juris’ i.e. it is a kind of a consensual contract. Consent is very
vital. 3 component of SOGA:
i. Agreement to transfer the title of the goods.
ii. It is to be supported by consideration.
iii. There must be an actual transfer of that good.
 The 3 requirements must relate to the same subject matter which is passing
from the seller to the buyer. This is an executed contract and not executory in
nature. The consent of the party must relate to all these 3 essentials of the
14
 contract.
 The main purpose of this contract was for the accomplishment of certain
construction. It can either be purely a works contract, or a contract of sale.
The

15
 focus has to be on one theme at one time. Cannot be a works contract but also
have sale. The contract to construct a building, thrust is not for sale of
material. As much as the legislation has the power to tax, (Entry 54 of Govt. to
India Act), they can only tax sale of goods. And if we have to establish sale of
goods, we have to show that there was an agreement of sale, price, etc.
 The bigger transaction subsumes the smaller components. We cannot take out
the smaller components and say that okay, the is sale for the purpose of
SOGA. We have look at the intention of the parties. The dominant nature test
comes to play here. What was the focus od the contract? Did the parties want
the property in goods to pass from one party to other? Or Is it a small part of
the actual contract?
 There was no intention to pass the ownership of materials for a certain price.
No element of sale of goods. Only a service.
 If the other party supplies the builder, the contract is a mere part of the works
contract, and not the contract of sale. The actual contract is the sale of
building.
 It is a single contract, and it is indivisible. It is ONE contract.

o Post Gannon developments:

o *46th amendment only takes 3 contracts out of the ambit of dominant nature test hire-
purchase contract, works contract, catering contract. We can use it to understand the
subject matter of the contract.

o BSNL V. UOI (2006 3 SCC 1)

o The petitioner challenged Kerala high court decision (escotel mobile communications
ltd. v. UOI). Issue raised was whether connection of mobile phone service, a sale or a
service, or both (composite transaction)? U/art. 369(29)(a)(b) correctness was
challenged. When it comes to sale of goods or deemed sale of goods, what doesn’t
change is the subject matter of sale. Subject matter must always be goods. When
taking about SIM card, we’re talking about electromagnetic waves transmitted by
towers. A SC judge, gives a test to understand what is goods (TCS V. Andhra
Pradesh), so these waves-
1. Must be capable of being extracted or consumed. They should be able to be
extinguished by user. There is some deterioration. But we can’t do that with
waves.
2. Being delivered, stored or possessed? But these waves aren’t marketable.
Because they are merely a medium of communication. It is not a good in
itself.

o What is being transmitted is not the waves but the signals to facilitate communication.
Signal is being derived by subscriber himself. Unless it is goods in the first place, we
should not go in the question of whether it is sale or deemed sale.
o We need to look at dominant nature test, what was the intention of the contract. As far
as Art. 369(29)(a) is considered, hire- purchase contract, works contract, catering
contract, in these cases we will not apply the test. In all other cases, we are not going
to exempt ourselves from dominant nature test to understand the subject matter in
which the arties intended to contract. We will look into the intention of the parties in
case of mobile service. A subscriber to mobile network, does not intend to consume
the radio waves when taking a connection, or do we intend to own a part of the wires,
cable, satellite etc. so no intention to own any tangible goods involved in the process.
u/369(29)(a)(b) it has to be a deemed sale of goods, but this isn’t qualifying as goods.
16
They must be made marketable (deliverable). First we must prove that they are goods.

17
 They don’t satisfy the test of being goods. At the very inception, the SC is rejecting
the question of whether it is a sale of goods or deemed sale of goods because they
aren’t goods in the first place.
o Lastly the SC observes that with respect to transactions other than the 3 contracts,
dominant nature test will be applicable to all other composite contracts. We have to
justify that the language of contract is such that it includes two or more distinct
contracts. We must be able to see the severance, it must be discernable. Unless the
court sees this severance they won’t be able to apply the Gannon Dunkerly test.
Whether they apply to the same thing in the same sense.

 Agreement between customer and manufacturer of lifts in one section it was

written that manufacturer will supply the equipment, once that’s done the
customer will take care of the installation. State where this transaction takes
place, wants to impose sales tax on the transfer of property of goods, which
includes the transfer of equipment from customer to manufacturer.
 There are two separate and discernable contracts.

 Hire Purchase Agreement: It is an arrangement for buying consumer goods, where the
buyer makes an initial down payment and pays the balance plus interest in instalments.
With hire purchase agreements, the ownership of the merchandise is not officially
transferred to the buyer until all the payments have been made.
At the beginning, when all instalments are not paid, how can you say at the inception only we
can call it a sale?
It all boils down to the intentions of parties. Parties’ intent maybe that: at initial stage of
transaction property is transferred from seller to buyer and then payment making upfront OR
part payment OR in instalments, if you intend this property to transfer at beginning then also
it can become sale of goods
S5 and S6 gives you complete freedom how you want to make contracts of sale- immediate
delivery or pay at a later date or pay right now and get delivery later. if both delivery and
price take later, then it is agreement to sale. No contract of sale right now.

K L Johar & Co. v. Deputy Commissioner Tax Officer, AIR 1965 SC 1082
Observations of Wanchu J:
The essence of sale is that good are properly transferred from seller to buyer for a price.
Regardless of time of payment, at once or later in instalments, it is still sale and could be
charged for sales tax. According to Sec. 5 or Sec. 6 you can structure payment in sale as you
wish, only we have to see if property is transferred from seller to buyer at certain price.

On the other hand, the Hire Purchase agreement, as the name implies, has two aspects. First
aspect is bailment of goods subjected to Hire Purchase agreement, then an element of sale
which fructifies when option to purchase is exercised by intending purchaser. The essence of
Hire Purchase agreement is that property in the goods does not pass at the time of agreement
but remains in the intending seller and passes later when the option is exercised by intending
purchaser.
Here, the property is not transferred from seller to buyer, but only possession of good is
transferred, and once the particular purpose is accomplished you return the good to bailor or

18
you dispose them off. All rights related to good are not transferred to bailee, or the hirer in
HPA.

Until and unless HPA fructifies into element of sale upon the option of transfer, we cannot
say there is contract of sale, and till that point no tax can be levied.
This is the fundamental difference.
HPA ultimately becomes sale, but at the inception we cannot say it is a sale.

There maybe case where hirer may default on payment and may ask for extension in time and
is approved mutually, then we have to wait for entire extended period to see if property of
goods has passed from dealer to hirer, only then we will conclude it to be sale.

Lee v Butler 1893 2 QB

Facts: A lady had brough furniture, and price has to be paid in 3 instalments, and if she failed
to pay instalments, shop owner had right to take furniture back. Lady defaulted in payment of
2nd instalment and this particular furniture was sold by the lady to the defendant.
Issue: Can we say the defendant acquired a good title to this particular furniture?
Held: The lady never had the option to withdraw. It is not complementary to the plaintiff’s
right to take furniture back; there is no corresponding right of lady to take back from this. In
HPA it is imp- as the intending purchaser you should never have an obligation, you should
always have an option- that you may stop paying instalments and withdraw.

SO, the lady never had any right to withdraw, it was an obligation. At the very inception, the
property in goods had passed to the lady and acquired a good title and she could pass it on to
the defendant. So now defendant has to either pay or return furniture, and in a subsequent suit
defendant can file against lady and then recover.
Basically, this was no HPA, a contract of sales can also be structured like this of paying in
instalments. Here, we do see the ownership ahs been transfer, in HPA she would have had an
option, no compulsion.
Court held: The differences are important when the rights of third parties come to be
considered, as when the hirer disposes of the goods by purporting to sell them to a third party.
If the contract is a contract of sale, the third party, if he acts in good faith, will be protected
and will obtain a good title against the original seller even though the instalments had not
been paid, whereas if the contract was merely a contract of hiring with an option to purchase,
the third party will lose, as the hirer under such a contract and not a buyer in the possession of
goods under a contract of sale [Helby v Mathews, [1895] AC 471]
Couple of cases pre 46th amendment, affirmed the ruling, held in Gannon Dunkerley:

1. State of Himachal Pradesh & Ors. v Associated Hotels of India Ltd. 1967 SC
Respondents were carrying out business of hotels and extended both loading an boarding
facilities for a consolidate price and part of this also served meals. Whatever price was
charged for meals, sales tax levied under Punjab general’s sale tax act 1948. IN HC said this
transaction was one and indivisible and was essential one for service of boarding and lodging
and one pf the components were supply of food. Pre 46th amendment so not considered
deemed sale and could not be divided for levying sales act

19
2. Northern India Caterers ltd. v. Lieutenant Governor of Delhi 1978 42 SPC 386
This is also pre 46th amendment. And affirming GD. In thus case, service of meals was made
to non-lodgers who only came to restaurant for food and they charged for a meal as whole.
Can this be charge for sales tax? In isolation, one is service component of cooking and
bringing and serving it to people, the amt charged to you also include price of items that have
been cooked, It is a composite contract and appears indivisible, and this was equal to
rendering service by way of hospitality and supply of meals must be regarded as ministering
to a bodily want or satisfaction of human need. In essence it is a service with an element of
goods clubbed with it. GD view was followed and we considered this not to be a deemed
sale, and just as service and this was subjected to Union Parliament.
In early 70s and 80s it was always tug of war between state and centre. State wanted more
things to come under sale to earn more revenue.
POST 46th amendment we did in yesterday lecture’
Consent in sale:
Another aspect of what constitutes sale is nomen juris contract: There has to be an element of
consent between seller and buyer. Both must be at idem with respect to the goods they are
transferring. This principle flows from the general section of Sec. 13 of ICA, 1872.
What happens when consent is tampered with?
This happened frequently in 1960s and 1970s, when India was strictly proclaimed as a
welfare state. Our aim had been to regulate and distribute, essential and scarce commodities.
But these goods could not be freely transferred b/w private parties, had to be only pursuant to
control orders.
A question raised: When sale purchase agreements are not purely consensual but propelled by
control orders- where is free will?? This was taken up in following case:
New India Sugar Mills Ltd. v Commissioner of Sales Act 1963 14 SPC 316 (SC)
Facts: Appellant owned a sugar factory in Bihar, dispatched sugar to Provincial Government
of Madras in compliance with the lawful directions issued by the controller in exercise of
powers under the Sugar Control Order.
Issue: Since seller is compelled to charge and transfer only certain quantity, whether there is
mutual assent for it to be amounted to sale of goods?
Held: SC affirmed this and said it was nomen juris going by Gannon Dunkerley judgement.
The majority view represented by Shah J held it not a sale as sugar was dispatched pursuant
to valid directions of the controller. There was manifestly no offer to purchase sugar by
Government and no acceptance of any offer by the manufacturer. The manufacturer had no
option but to dispatch the sugar as he would be punished for declining to carry out the order.
Thus, the sugar was dispatched pursuant to the directions of the controller and not in
acceptance of any offer by Madras Government.
Further a subsequent point of view came later then

Andhra Sugar Ltd v State of A.P., AIR 1968 SC 599

20
Petitioner challenged validity of Sec. 21 of Andhra Pradesh Sugarcane Regulation of Supply
and Purchase Act, 19, that they were compelled to buy sugarcane by control order by Cane
Commissioner, and there is a compulsion; the consensual element of nomen juris is missing.
Hence, it is not sale under Sec. 4 of SoGA and it should not be taxable under the list.
SC held for the 1st time that when we are talking about this compulsion, it does not amount to
coercion (as under S.15 of ICA), and only when it is coercion, does it become voidable..
This agreement has been freely made. You have come to negotiating table on your own
volition, and then cards are laid down, that you can take it or leave it. Have you made
agreement freely? Is there lawful condition and object? Are you of age? If yes, the all this is
perfectly enforceable by law and would qualify under s.4. Hence, purchase of sugarcane here
can be taxed under sales tax

Salar jung Sugar mills ltd. v State of Mysore 1972 2SCR 228
Justice Ray:
An order passed by cane commissioner- sugarcane (Munirabad) order 966- the appellants
were compelled to purchase sugarcane from grower, who were also in turn compelled by law
to grow the sugarcane- regulated by control order. Appellants raised objection.
J Ray followed elimination option- if it is not a sale then what is it? A barter? A
hypothecation or a loan? (no. since no debt or security)? A gift? NO. The only thing that
remains is sale under a controlled condition.
The problem with all these judgements of Andhra and Salar Jung- they could not overrule the
earlier judgement of New India cause the bench was not bigger. So law had to be laid down
in finality, and when a similar controversy arose in 1978 , SC constituted a bench of 7 judge.

Vishnu Agencies Pvt Ltd v Commissioner. Tax Officer, AIR 1978 SC 449
Appellant were contesting imposition of sale tax on compulsory sale of cement under Cement
Control Orders, 1948. Same contention by appellant that there is no consent. Vishnu agencies
carried cement distribution to various allotted as directed by the Commissioner.

Initially appellants did not know this is disqualifies as sale by New India and that time they
paid tax and alter cam to know about this judgement and contented payment was made under
a mistake of law, and the transactions were not sale because no volition or free consent. SC
however refer to Andhra sugar and Salar jung and said it was legal compulsion, not coercion.
Under sales, under state and central law, this will qualify as sale and turnover of this co. will
be subject to sales tax.
If you don’t want to supply sugarcane no problem, no compulsion that you only have to
supply- very similar to standard from of contract – take it or leave it. But once you are in it,
you HAVE to follow the T&Cs. The SC was more lenient toward govt realising they were
facing policy needs- that supply of these be regulated. The aim was to put restriction on price
and qty.
, so that rich people cannot exploit. There was a very welfare state object. It ensured better
access to these particular goods. There were various undercurrents to this judgement.
Essential commodities were ltd. and that is why state regulations were more, compared to
self-reliance of today.

21
So long as the parties trade under controls at a fixed price and accept these as any other law
of the realm because they must, the contract is at the fixed price both sides having or deemed
to have agreed to such a price. SC, for consent, held that a transaction which is effected in
compliance with the obligatory terms of a statute may be sale if mutual assent, express or
implied, is not totally excluded.

[Sec. 5] How do you go about Making a contract of sale?

(1) 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
instalments, or that the delivery or payment or both shall be postponed.
(2) 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.

[Sec. 6] Existing or future goods.-

The bare section:
(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.
S.6: Talks about nature of the goods- existing goods, or goods may come into existence in
future- it depends on some kind of a contingency, that it is some event that may or may not
happen.
Before that it would only be ATS, would become sale only when goods come into existence
and when property of those goods passes from sellers to buyers.
What happens if seller and buyer have entered into an ats and contract of sale would be
executed on a later date, but at the time when they are entering into an ATS.
Exp: A and B have some contract for consignment of shirt kept in A’s warehouse to sell to B.
The shirts were destroyed by some fire struck in that particular factory. A and B had no
knowledge. What’s the status of this agreement? Does B have a claim for damages?

Barrow Lane and Ballard v Phillips, 1929 1 KB 574

[Where part of the goods have perished]
A agrees to sell to B a parcel of 700 bags of groundnuts. At the date of the contract, there
were not 700 bags but only 591 bags, the remaining 109 bags having been stolen before the
date of the contract without the knowledge of the seller. A tried delivering remaining bags,
but buyer refused to take delivery and to pay the price. A sues B. Does the seller have a claim
here? When we talk about perishing of good, it is not only qualitative but also quantitative
aspect like here, due to theft.

22
They had ad idem to 700 bags only. In such as case also, we say that we see if the goods have
lost commercial value? If yes, buyer cannot be forced to accept the lesser qty. of goods.
Subject matter of sale is goods and consent is governed by goods to which they had applied
their mind. If there is deviation from that consensus, it is void, unless contract is revised.
The Court thought that position was no way different from what it would have been if the
whole 700 bags had ceased to exist. Further, as the contract was void the buyer who had
given bills in payment of the price of the whole 700 bags was entitled to repudiate the
whole contract and cannot be compelled to accept what was left with the seller.
Similarly, the seller also could not be compelled to deliver what was left with him. But if
the contract is divisible the destruction of the part will not avoid the contract for the
remainder of the goods.
Note: These cases are without the knowledge of the seller.

 Asfer and Co. Ltd v. Blundell, 1896 1QB 123

Section 7
The subject matter of sale was a cargo of dates. These dates at the time of the making of
the contract were not consumable as they were contaminated by sewage. The question
arose that they were not dates but could be used for some other purposes like making
spirit. In terms of physical and chemical characteristics, they continue to remain dates. In
the eyes of law, cannot be a change in goods and still has to be accepted by the buyer.
The judgement said that it is a very silly argument. It may appeal to a body of chemist,
but not to a group of businessmen. They were underwater for 2 days. And when they were
brought up, it was simply a mass of pulp, impregnated with sewage, and in a state of
fermentation. Therefore, regardless of the fact that there is no change in chemical
composition and physical nature, they are still dates. The question is, can they be sold by
the traders? No. unless they remain fit for the purpose they were brought. We consider it
to be a qualitative loss. Void contract. No rights and obligations can be enforced.
Section 11 – we do not assume that time is of essence until some conditions

 Martil Dale v. Smith 1841, 1QB 389

There were some sacks of goods to be sold. Payment had to be made by the plaintiff within
12 weeks. The buyer failed to pay the amount within 12 weeks and asked for more time. The
seller denied. As a later date, the buyer wanted to pay the price, but the seller refuse to accept
the price. He resold the sacks. Question arose that stipulation as to the time of payment. Is
time of essence in this contract? The court went through the contract and said it is not
anywhere mentioned that the payment had to be made within 12 weeks only, and time is of
essence and it is of utmost importance. Typically, as a seller, you should give the buyer time
to pay you until a reasonable time. If this elapses, then you may resale. But you have to wait
for a reasonable time. Reasonable time means that time which a seller would wait for
reselling his product and he would expect the buyer to turn up within that time and approach
him for payment. But if you have mentioned that time is of essence, then you are at liberty to
sell post the time has elapsed.

 Bowes v. Shand, 1877 2AC 455

In this case, there was a contract between the seller and the buyer to supply a particular kind
of rice during the month of March and April. The seller shipped a large quantity of rice to the
buyer in the month of Feb, and 1/8th of the total volume in March. The question arose
23
whether

24
the buyer was entitled to reject the goods? The seller contended that there was no difference
in the quality of the goods, also the buyer did not suffer any loss due to earlier delivery. But
here, time was of essence, as was clear from the contract. However, the parties had agreed to
treat time as the essence of the contract. Therefore, the clause has to be honoured. Maybe
there were other reasons that the seller did not have storage capacity. Therefore, the most
important thing is that if parties have agreed to treat time as essence, it must be done. Loss
suffered or quality is then immaterial. The buyer will be allowed to reject the goods.

 Hartley v. Hymans, 1920 3KB 475

Here, there was a contract between the plaintiff and the defendant, and the defendant had to
supply cotton yarns. It was mentioned that failure of supply of goods within the stipulated
time, t would lead to termination of the contract. The goods were supplied 2 months late, at a
reduced volume. Buyer throughout these 2 months, kept on reminding the seller to supply the
goods. He did not. The order was later cancelled by the buyer. The question arose that since
time was so paramount, it was mentioned as a critical factor, then, is the buyer now entitled to
reject this contract? The court says that if the buyer had to terminate the contract, he should
have done it in September only. Not in March. The buyer mentioned in the contract, but by
his acts, his intention seems to be flexible with the contract because he keeps on reminding
the seller. Therefore, in effect, time was not of essence. Any other buyer would have
cancelled the contract and sought damages. This urgency was missing in this case. Therefore,
you mentioning that time is of the essence may not be enough sometimes. Your conduct is
equally important.

WORKS CONTRACT
Works Contract can be understood to be a contract wherein one party agrees to perform some
work for the other party using his specialised skill or labour. In pursuance of such work, the
party may use some goods and materials for the completion of the task. Some parties may
agree to enter into two separate contracts for such work i.e. one for sale of the goods that
would be used and second for the supply of services. However, in most cases, works
contracts are composite contracts of sale and services which are indivisible in nature.
Under CISG, such composite works contracts are governed by Article 3(2). The Convention
calls for valuation of the two components of the contract – if the services component forms a
preponderant part of the contract – the Convention does not apply to it. Otherwise, it applies
to the entirety of the contract.
Works contract has been defined in section 65B of the Finance Act, 1994 as a contract
wherein transfer of property in goods involved in the execution of such contract is leviable
to tax as sale of goods and such contract is for the purpose of carrying out construction,
erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation,
alteration of any moveable or immoveable property or for carrying out any other similar
activity or a part thereof in relation to such property.
1. Goods Contract v Services Contract
There are some distinct difference between a contract for sale of goods and a contract for
supply of labour and services. Various tests have also been created to distinguish between the
two in complex contracts.

 State of Rajasthan v. Man Industrial Corporation [(1969) 1 SCC 567]

25
When a person performs a “contract for work or service”, he/she does not have any property
in the thing produced as a whole. However, in “contract for sale of goods”, the property
produced has an individual existence that is owned by the party producing it and it is through
the agreement and the corresponding conditions for payment of consideration and delivery
terms that the property and it title gets transferred to the other party.
 Hindustan Shipyard Ltd. V. State of AP [(2000) 6 SCC 579] – Dominant Intention test
The following principles were laid down to make a distinction between these two contracts:
i. There can be no strait jacket formula to distinguish one contract from the other.
ii. Transfer of property of goods for money consideration is a distinguishing factor for
sale.
iii. The nature of contract can be extrapolated from the substance of the contract and
not the form. The main object of the parties to the contract, the terms of the
contract, circumstances of the contract and the customs of the trade can be
looked into. If the dominant character of the contract is for supply of services, it
will be contract for service even if there is incidental use and sale of goods
involved.

In a contract for construction, the nature of the work done by the manufacturer
under the contract must be analysed. If the manufacturer is contracting a building
by supplying bulk of the materials being used and the supply of labour and services
is incidental, then it can be held to be a contract for sale of goods.
iv. Whether the property in question has an individual existence whose title is held by
one and the contract facilitates the transfer of the same to the other party.
The Court categorised contracts into three kinds:
i. Contract for work to be done for renumeration and for the supply of materials used in
execution of the work: this a composite contract consisting of a contract for sale of
goods and contract for work and labour.
ii. Contract wherein the use of materials is ancilliary and incidental to the execution of
the work: this is a contract for work or services
iii. Contract wherein supply of skill and labour is ancilliary and incidental to the sale:
this is a contract for sale of goods.

 State of AP v. Kone Elevators

Another test to distinguish between the two kinds of contracts is the time and manner in
which delivery is made. If the property is transferred at the time of delivery, it is a sale. In
case of contract for work, the work done fuses with the property of the customer and the final
product gets acceded to the party.

2. Works Contract in India

 State of Madras v. Gannon Dunkerley [AIR 1958 SC 560] – Constitutionally

superseded
The issue was regarding the interpretation of Item 48 of List II of Schedule VII: “Taxes on
the sale”. The Court took a narrow view of the terms “sale of goods” to limit its definition to
what
26
is present in the Indian Sale of Goods Act. According to the bench, the pre-requisites for a
contract for sale of goods should be:
i. Capacity to contract
ii. Agreement for transfer of title of goods
iii. Money Consideration
iv. Transfer of property from one to the other as the end result.
Therefore, if there has been no agreement between competent parties to transfer property
from one to the other, even if the title gets transferred, it will not be “sale of goods”. It is
contrary to principles of law to enter into an agreement for some distinct object but expect the
sale of some other object. In a building contract, the agreement is to construct a building
according to certain specifications; this agreement does not forsee the sale of the materials
used in the construction and neither does it posit to allow for transfer of those materials as
moveables.
In conclusion, the bench suggested that building contracts and other work contracts - which
as a whole are an indivisible entity of contract for service and contract for sale of goods –
could be broken down into two separate contracts for services and goods. In this way, the
State would be able to levy tax on the sale of materials used in construction contracts.
 46th Amendment of the Constitution
In order to dilute the implications of Gannon Dunkerley, the 46th Amendment inserted Article
366(29A) mentioned herein.
Article 366(29A): tax on the sale or purchase of goods includes
(a) a tax on the transfer, otherwise than in pursuance of a contact, of property in any goods
for cash, deferred payment or other valuable consideration;
(b) a tax on the transfer of property in goods (whether as goods or in some other form)
invoked in the execution of a works contract;
(c) a tax on the delivery of goods on hire purchase or any system of payment by instalments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a
specified period) for cash, deferred payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated association or body of persons to a
member thereof for cash, deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever,
of goods, being food or any other article for human consumption or any drink (whether or not
intoxicating), where such supply or service, is for cash, deferred payment or other valuable
consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale
of those goods by the person making the transfer, delivery or supply and a purchase of those
goods by the person to whom such transfer, delivery or supply is made.
 Builders Association of India v. Union of India [(1989) 2 SCC 645]
This case supplements and elucidates the scope of the amendment. The tax on the sale and
purchase of goods is not to be levied on the total turnover from works contract but on the
transfer of property in goods – whether as goods or in some other form used in execution of a
works contract. This transfer of goods for the purpose of executing a works contract is
27
deemed

28
to be sale of goods such that the title gets transferred from one person to the other party of the
contract. This is a legal fiction created by the Article.
The goods transferred to the other party are the ones used in execution of the contract and this
has to be distinguished from the entire building so constructed by it. The Article does not
transfer the right in the immoveable property on which works contract is executed but it
applies to the goods used in such construction.
 Rainbow Colour Lab v. State of MP [(2000) 2 SCC 385] – Overruled
In this case, the dominant intention test was applied on the contract. Works Contract consists
of two contracts i.e. contract for sale of goods and contract for work or services. Article
366(29A) acts as a splitter of indivisible works contract into these two distinct contracts by
legal fiction. However, works contracts are subject to the dominant intention test i.e. if the
sale of goods is merely incidental to the contract for supply of labour and skills, then it will
continue to be a contract for service. These incidental use of materials cannot be expanded to
constitute real or deemed sale under Article 366(29A) and be charged service tax. Contract
with a photographer is only a contract for service and the use of film, etc is incidental and
will not constitute sale of goods.

 BSNL v. Union of India [(2006) 3 SCC 1] - Determination of “goods” and how

Gannon Dunkerley (1958) survives
Providing telephone connection can be judged to be a contract for sale and service. The
discernible sale element of the transaction must be extrapolated. The supply of handset or any
other accessory will be a taxable sale. Goods may be incorporeal, tangible or intangible as
long as they have the attributes of utility, capability of being bought or sold and capability of
being transmitted, transferred, delivered, stored and possessed. Electromagnetic waves do not
fulfil these criteria.
The legal fiction created by Article 366(29-A) is only applicable to those composite contract
of sale and services that have been mentioned in the Article. It does not allow for the splitting
of services contract not elucidated in the Article i.e. doctors, lawyers, other professionals.
The dominant nature test applies in cases of composite contracts not covered by the
clauses of Article 366(29-A).
46th Amendment acts a recourse for those contracts which are deemed to be sale despite not
fulfilling all the required characteristics of a sale. By introducing the separate concept of
deemed sale, the amendment does not alter the definition of “goods” and the legal
connotations of the other characteristics of sale. The Court may alter the definitions with
the contemporary developments of the time but the amendment does not allow for
investigations into whether something will be goods or not.
 Larsen and Toubro v. State of Karnataka [(2014) 1 SCC 708] – Ambit of “works
contract”
The meaning of the term “works contract” cannot be limited to a contract for supplying
labour or services. The term encompasses a wide range of contracts entered into for the
purpose of undertaking or bringing into existence some “works”. If the contract in
question fulfils the
29
definition of works contract under Article 366(29A) i.e. there is transfer of goods in
execution of the works contract, it will be subject to the Article. Any additional clauses added
to the contract will not change the nature of the contract.
The dominant intention test of analysing the substance of the contract and distinguishing
contracts as one of work or sale is a traditional test that has lost has efficacy on composite
contracts like works contract. Herein, no matter what the substance of the contract actually is,
if there has been transfer of goods for execution of the works contract, it will deemed to be a
sale and subsequently subject to sales tax. Even if the dominant intention of the contract is
for rendering of services or for the transfer of immoveable property, it will still be
subject to levy of sales tax if it fulfils the criteria of being a works contract. Rainbow
Labs overruled.
In contract between developer and flat purchaser for construction of flat that will be
transferred to the flat purchaser, there is a contract for the execution of some work i.e.
constructing the flat according to certain standards and dimensions. In case of construction
contracts, issues like the purchaser not having control over the type and standard over
the materials used for construction or not having any right to monitor or supervise the
construction activity or having no say over the layout or design of the building are not
of any significance and will not dilute the nature of the works contract.
In order to judge the goods deemed to be sold in a works contract which will be subject to
sales tax, three conditions must be fulfilled:
i. The contract must be works contract
ii. The goods must be involved in the execution of a works contract
iii. Property in those goods must be transferred to a third party either as goods or in
some other form.
There conditions are fully met in a construction contract and thus they are a species of works
contract.
The use of the term “in some other form” enlarges the ordinary understanding of
“goods” to include goods in the form of other goods. This would also include goods that were
moveables but have lost that character after its use and attachment to the earth or some
immoveable property. Therefore, States must levy their tax on the value of the goods at
the time of incorporation of the goods in the works and not on the transfer of
immoveable property. Even if the transfer of property takes place after the
incorporation of the goods in the works, its value will be taken from the point of
incorporation.
Via the 46th Amendment, the indivisible composite works contract has been brought on par
with a contract containing two separate agreements for sale and works and State may levy tax
on the value of the materials used in execution of the works contract. It serves to bring
transactions where the essential ingredients of sale defined in the SoGA are absent within the
ambit of sale or purchase for levy of sales tax.
 Kone Elevator India v. State of Tamil Nadu [(2014) 7 SCC 1]
Dominant intention test is no longer applicable and the SC judgements are constitutionally
superseded and no longer good law. Dissent by J. Kalifulia: if the dominant intention and
nature of the contract is for supply of goods only with incidental obligations to provide
services, it should not be held to be a works contract.
30
Contract for supply and installation of lift where labour and services will be provided. The
manufactured goods such as lift, car, motor, ropes, rails, etc are installed by the labour and
precise skill of the workmen to become permanent fixture of the building. The technical skill
involved is for rendering safe and satisfactory service and obligation to maintain lift in safe
and satisfactory working condition and is integral to the overall contract of supply and
installation of the lift. These two elements of sale and providing service are indivisible. The
supply and installation of the goods are not merely transferred as chattels to the other party or
made part of the chattel of the other party. These goods are being transferred in execution of a
works contract wherein labour and supply of services is also being provided along with sale
of goods. The dominant intention test will not apply to term the supply of services as merely
incidental.
Dissent by J Kalifulia: the terms of the contract are threadbare which show that the contract
was simply for supply and manufacture of lift and the supply of services was ancillary.
46th Amendment lead to the creation of four concepts:
i. Works contract being an indivisible contract which is split into two parts by legal
fiction; one for sale of goods and the other for supply of labour and services.
ii. Dominant nature test is not applicable.
iii. The term “works contract’ is wide sweeping and includes all genres of works
contracts. Not to be narrowly construed to include only one species of a contract
to provide labour and services alone.
iv. Additional obligations do not dilute the nature of the works contract.

3. Works Contract under GST

The Works Contracts has been defined in Section 2(119) of the CGST Act, 2017 as “works
contract” means a contract for building, construction, fabrication, completion, erection,
installation, fitting out, improvement, modification, repair, maintenance, renovation,
alteration or commissioning of any immovable property wherein transfer of property in
goods (whether as goods or in some other form) is involved in the execution of such
contract.”
Any such composite supply undertaken on goods say for example a fabrication or paint job
done in automotive body shop will not fall within the definition of term works contract per se
under GST. Such contracts would continue to remain composite supplies, but will not be
treated as a Works Contract for the purposes of GST. As per Para 6 (a) of Schedule II to the
CGST Act, 2017, works contracts as defined in section 2(119) of the CGST Act, 2017
shall be treated as a supply of services. Thus, there is a clear demarcation of a works
contract as a supply of service under GST.
Valuation of a works contract service is dependent upon whether the contract includes
transfer of property in land as a part of the works contract. In case of supply of service,
involving transfer of property in land or undivided share of land, as the case may be, the
value of supply of service and goods portion in such supply shall be equivalent to the total
amount charged for such supply less the value of land or undivided share of land, as the case
may be, and the value of land or undivided share of land, as the case may be, in such supply
shall be deemed to be one third of the total amount charged for such supply.
SECTION 12
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  Baldry v. Marshal, 1925 1KB 260
On 13th April, 1923, the plaintiff wrote to the defendants (motor car dealers) and asked that,
“Can you tell me if the Bugatti, 8 cylinder will be n the market this year, and will you be able
to send the particulars?” The defendants replied, that you’re already aware of this that we
specialise in the sale of parts, ad we will supply to you all necessary information. The
plaintiff had no idea about the car. He got in touch with the defendant and said that he wanted
a car which was fast, flexible, comfortable, and which is suitable for a tour. The seller agreed
to supply the car, which would be fully equipped. The seller said that the seller reserves the
right to make any alteration in design of the car, and that the product will come will a
guarantee, which is given to them by the manufacturers. This guarantee is for 12 months,
against the breakage of parts due to faulty material. However, rest all guarantee or warranty,
etc. is excluded. When the car was delivered by the defendants, it was found that the car
wasn’t comfortable and not suitable for touring purposes. The plaintiff brings an action that
he wants to reject this car and recover the purchase money/ he relies on a principle in
Wallace v. Pratt, and says that this condition was not excluded by the terms. The defendant
opposes this and says that this has no application. There was a complete absence of a quality
and possession of this contract. There was a total disconnect in the supply. We cannot
therefore apply the Wallace principle here.
The other contention was that in Sec. 16 (1) proviso, has to be read with sec. 12. It is
sometimes possible that you don’t mention it in the contract, it is implicit that you have made
known to the seller that this is the purpose for which you need the good, and you rely on the
sellers judgement. There is an implied condition that the good will be fit for that purpose. The
buyer relies on the sellers judgement for expert knowledge.
The 16(1) proviso says that if there will not be any implied condition for fitness of purpose, if
this good is sold under a particular trade name or patent. It is expected that the consumers
would have done their due diligence, and a thorough check.
The court in case rejected this. The mere fact that the article sold is described in the contract
by it’s trade name, does not make the sale a sale under the trade name. We have to look at the
related circumstances also. There could be 3 scenarios –
1. The buyer asks the seller for a particular article, to fulfil a particular purpose. The
seller sells the article by a well known trade name. He is relying on the skill and
judgement of the seller.
2. The buyer recommends a trade name of the article, and asks, if it will fulfil his
purpose. The seller sells it to the buyer after coming to know his purpose.
The court says that in these 2 scenarios, we will not apply the proviso. Because there is
extensive reliance of the buyer on the skill and judgement of the seller. Whether to not it is a
well known patent or trade name, it is of no use. The buyer has no knowledge trusts the
seller.
1. The buyer says to the seller that I have been recommended this product. This is
suitable for a particular purpose. Please sell it to me.
Here the proviso will apply. It is a positive assertion.
[missing notes from 9th to 14th]

 Difference between condition precedent and condition subsequent. -

https://www.srdlawnotes.com/2017/02/difference-distinction-between_1.html
32
ANSHUPAL NOTES
Condition and Warranties
 Condition defined under 12(2)- it is a stipulation that is essential to the main purpose of
the contract.
 If you change this stipulation, or not abiding by it, then the nature of the whole contract
changes.
 Also if there is a breach of this stipulation, remedy is the repudiation of contract, from
the point of view of the buyer.
 Both the parties have to be restored to the same position as they were previous to
entering the contract.
 Section 12(2) has to be read with 16(1) of SOGA
 The price will have to paid back if there is a breach of condition.
 Warranty defined under 12(3)- collateral to the main purpose of the contract.
 Ancillary imp, less imp that condition.
 Breach of warranty- you cannot ask for repudiation/cancellation becoz the gravity of
the breach is not high.
 Damages will be paid to you, but you cannot reject or repudiate the contract.
 12(4)- there is no particular form of a condition or warranty. It depends purely on the
construction of a contract.
 What you refer to a stipulation is irrelevant, the nature of the stipulation has to be
looked into.
 If it is essential, then condition. If not, then warranty.
 Eg- new watch- shopkeeper says warranty of 2 years that it will show you correct time.
But that does not make it a warranty. It is actually a condition as showing time is
fundamental to the contract.
 Difference between condition and warranty
Kingston v. Preston, 1773
o Condition is essential, warranty is collateral.
o Breach of condition then parties can have repudiation of contract and damages.
In warranty- only damages.
o Condition can be treated as a breach of warranty but breach of warranty cannot
be treated as a breach of condition. (Section 13)
o A contract of sale cannot be fulfilled unless condition are fulfilled. Whereas it
can be fulfilled without warranty.
 Section 12 must be read with section 13 & section 59.
 Read the entire explanations on stipulation above. Case: Ibert Simons and co. v.
dunclatt 1913. Justice Holt- an affirmation at the time of sale is warranty provided it
appears by evidence to have been so intended.
 Baldry case and Bramer case.
 Can condition be compelled to be treated as a warranty?
 Section 59.
 Case: Baldry v. Marshall, 1925 1 KB 260- the P wrote to the D(motor car dealers)
that can you tell me Bugatti 8 cylinder will be on the market? If yes will you send me the
particulars? The D sent the particulars and specifications. They said that you already
know that we specialise in these cars and will supply all the info you need. The P said that
he wanted a car that was fast, flexible, easily maintainable on a tour etc etc. The sellers
said that they will send the Bugatti. And said they reserve the rights to make alterations to
the design. and this product will come with the guarantee (by the manufacturer) of 12
months against breakage of parts on account of faulty material. Invocation of this
guarantee will exclude all other guarantees and warranties. After the car was delivered,
the P found it was
33
not comfortable and was not right for touring purposes. He wanted to repudiate the
contract. Volice v Pract said that condition was not excluded by the terms of the contract.
Only warranties were excluded. The D opposes this and Volice v. Pract has no application
here becoz the goods that were supplied there were completely different from the goods
that were actually asked. A total disconnect was present. But here the buyer did get what
he wanted. no change of brand. It was a question of degree of expectation of the buyer.
Also, the purpose 14(1) [acc to English law] a good is sold under particular patent or
tradename and the buyer mentiones this tradename then later on he cannot say that it does
not fulfil some purpose that he intended. If product enjoys intellectual property right, then
its goodwill is in the public domain. Then the buyer cannot say that it was not fit for the
purpose with which the buyer had bought it. No implied condition for fitness of purpose
even though the purpose was communicated to the seller. The benefit of doubt will be
given to the seller. No repudiation of contract available. The court said that a mere fact
that an article sold is defined by its tradename does not make it a sale under its tradename.
We have to look at the related circumstances. There can three scenarios.
o The buyer asks the seller for an article to fulfil some specific purpose and the
seller sells him a product under a tradename. The seller is relied upon for fulfilling
the purpose.
o The buyer says to the seller that he had been recommended this particular
product will satisfy this purpose. He mentions the tradename also but he is unsure.
And he asks the seller whether it will be suitable for his purpose? The seller says
yes and sells it to the buyer.
o In these two cases, we will not apply this implied proviso becoz there is high
reliance of the buyer on the seller.
o When the byer says to the seller that he had been recommended this tradename
product is suitable for my purpose. Please sell it to me, in this case implied
condition of fitness of purpose will not arise. Implied proviso can be employed
here.
 The court says that whether the buyer knew the product well will be judged by the way
he inquires about it from the seller. In the case the query was vague. He had only heard
about this brand. His knowledge was limited and asked the seller for his advice. We will
not apply implied proviso. Moreover the second exclusion clause speaks only about
warranties and not guarantees. Comfort and fit for touring was not present. Therefore, it a
breach of contract as it was unfit for the purpose for which it was brought. Though it is
not mentioned under the contract but it is an implied condition. And the non-fulfilment of
the implied condition will give him the right to repudiate the contract. The buyer relied on
the skill of judgement of the seller.
 First principle- implied condition or not.
 Innominate terms and intermediate terms- Section 66(e) there should be no strict
interpretation of the third
 Case: Hong Kong Phirr ltd v. KavasakiKissenKasa ltd, 1962 2QB page 26- lord Diplock
 Case: Kehave v. Bramer (Hansa Node case) 1976 QB page 44.
 These two cases talked about that it is not always possible that the stipulation can be
discerned as a condition or warranty. Too much reliance on intention of parties to the
contract to determine this. The breach will decide what it is. Third stipulation is
innominate and intermediate stipulation. It is neither a condition nor a warranty. It is not a
provision precedent but a provision subsequent. Subsequent conduct/breach of the parties
will decide whether it will be a condition or warranty.
 These lords were criticised their take and said that section 10 of British SOGA
o The breach test may override and express stipulation of the contract. If smth has
been expressly agreed by the parties, then nothing can change it. Here these Lords
34
 say that even after the express stipulation, the subsequent conduct has the power
to decide whether the stipulation
o Uncertainty wrt remedy- in the beginning it will not be clear that if the contract
is not performed then what will be remedy. The subsequent conduct will
determine the remedy whereas it is a thing that is of prime imp and should be
decided at the very beginning. Parties will have to wait for the conduct to discern
the type of remedy that they will receive. This is not accepting the very essence of
the contract
i.e. party autonomy. (how their intentions are expressed- written or oral)
 Case: Mihalis v. Anglos 1970 3WLR page 601- criticised the concept of innominate
terms. They said it is an aberration of the SOGA- only two stipulations- warranty and
condition.
 Section 13- those situations where a condition can be treated as a warranty. Smth
downgrades the stipulation to a warranty.
 As a result, the damages or the relief changes.
o 13 (1)- Waiver of condition- The buyer may waive this particular condition by
way of his conduct or expressly.
o He expresses his consent to the seller to pay the damages and does not repudiate
the contract. He says that he suffered some damages due to non-fulfillment of the
condition. He just wants the damages now and therefore converts the condition
into a warranty
o 13(2)- When the buyer has partially accepted the goods and the contract of sale
is not severable. And there is a breach of condition by the seller, it will treated as a
warranty because the buyer has accepted the goods or a part of goods. exception:
unless there is a term (expressed or implied) to the effect in the contract which
says that even after accepting the goods, the breach will be a breach of condition
only and not warranty.
 City and Industrial Development co. of Maharashtra Ltd. v. Nagpur Steel and Alloys
Pvt. Ltd. 1992- the seller sent consignments of steel bars of various sizes specified by the
buyer under a contract. There were 60 diff consignments. 58 were accepted and were paid
also. Remaining 2 were sent the seller but the buyer after accepting 58 consignments, the
buyer tells the seller that his consignments are not of correct size and that he wants the
refund for his goods. The court said even if you want a remedy under section 59, you
need to prove that you have accepted the goods acc to 13(2). The court said that 13(2) has
to be read with 13(1). This will be a breach of warranty only when you have fulfilled
requirements under 13(1). You could either waive the condition and have no remedy. Or
you can consume a part of goods and expressly send a letter of intention to the seller to
treat it as a breach of warranty. You have to fulfil conditions under 13(1) only then 13(2)
and 59 will be applicable.
Section 14
 Deals with those situations involving implied conditions and warranties.
 As sometimes, it is impossible for the parties to envisage the type of difficulties that
come up during the execution of the contract.
 1 implied condition and 2 implied warranties- weapons of the buyer
 Section 14(a) Condition- imposed on the seller. Condition is to the title. The seller
should possess the right to sell (ownership) the goods. he should not have stolen and there
should be no hassle for the buyer. If the buyers ends up in a problem dues to stolen goods,
then the seller is said to commit breach of implied condition. The buyer can repudiate the
contract and reject the goods.

35
 This section fixes absolute liability on the seller to have the ownership of goods. in
agreement to sell, he should acquire the ownership right when then property will transfer.
 No title- no transfer
 No exemptions for mistake or no knowledge.
 Bailee is not allowed, only owner is allowed
o Becoz he is not the owner- by Lord Atkin in Rolland v. Diwal, 1923 2KB page
500. Lord Atkinson: the buyer has not received any part of which he has
contracted to receive namely the property and the right to possession and that
being so there has been a total failure of consideration.
o The seller may be the owner, he may not have right to sell.
o Where the sale is illegal. Rajasthan govt declared that it is illegal to sell e-
cigarettes.
o without jurisdiction. Outside the permitted region- sale not allowed.
 Exception of Nemo dat quod non habet- section 27 to 30- there are certain situations
where there is no ownership yet the seller is allowed to sell the goods.
 Condition as to the description.(Section 15)
 Implied Condition as to sample (Section 15)
 Warranty- the buyer shall have an undisturbed possession of the goods. the buyer, if
ends up in a problem, then the buyer has to suffer damages due to court proceedings,
transportation costs thereby disturbing his quite possession. These damages can be sought
from the seller.
 Another warranty is that the goods sold by the buyer should not be under any
encumbrance and should not have used the goods as a security of some debt. This disturbs
the right of quite possession and damages can be sought from the seller.
 14 Case: Rowland v. Divall 1923, 2KB 500- the buyer had purchased a second hand
car from the seller and used it for few months. The car was seized by police as it was
stolen. Can the buyer recover the full price? Or less? As it was used for sometime. He
used it unknowingly and the seller did not have the right to sell. It was never a sale of
goods becoz the seller did not have a legitimate right to sell. Here the buyer did not
legitimately receive any part of the goods that he had legitimately wanted. the seller’s title
was in dispute and therefore it constitutes a total failure of consideration. There was a
disconnect and buyer and seller did not reach consensus ad idem. Even if the buyer has
used, he did so unknowingly and since the seller had no title to seller, we can allow the
buyer to repudiate the contract and restore the parties to initial positions. Lord Atkin in
Rolland v. Diwal, 1923 2KB page 500. Lord Atkinson: the buyer has not received any
part of which he has contracted to receive namely the property and the right to possession
and that being so there has been a total failure of consideration.
 Case: Niblet v. Confectioners Materials Co. 1921, 3KB 387-
Lord Atkinson, Banker and Scruton.
Imp becoz it lays down many concepts.
 Goods tendered must be the one which the seller has right to sell. (first instance when
right to sell defined; right to sell is a presumption- whenever goods sold, no need to
expressly mention that right to sell is there). In this case right was not there. Nissley
seller has no right to sell. Ownership there but someone’s better title infringed-
Implication of Trademarks Act.
 Merchantability: it includes state and condition of the goods. In this case state and
condition includes labelling of the product. (saleability at full cost). Here in this case,
labelling of Nestle was very much the part of contract.
 Section 2(12) defines merchantability.

36
 It is implied condition that the goods shall be of merchantable quality. In this case,
first time recognised merchantability as implied condition. (British Tramways v. Fiat
Motors, 1915 Forwelll propounded for the first time that merchantability is implied
condition).
 Intention of both the parties must be taken to be that it is sellable in the market under
the same denomination as mentioned under the contract by the parties only. (Gardener
v. Grey)
 The phrase means that the article is of such quality and in such condition where a
reasonable man acting after examination of goods, packaging includes goods.
 What is merchantability: Gardener v. Grey- In order to define the term
merchantability. Defined merchantability as reasonable man’s test; merchantable
quality is applicable primarily to the complicated machines but that will not prevent a
court to use it for consumer goods.
 Scruton: If the vendor is estopped by the process of law (trademarks act) from selling
goods, this implies that he does not have the right to sell.
 Atkinson: no right to sell the goods owing to the existence of a title superior to that of
the vendor. If any sale gets made, the vendee’s right will get disturbed (because
Nestle will try to interfere).
 Remedies to the buyer: repudiate the contract + damages.

 Case: Microbeds A.G. v. Vinhurst Road Markings 1975 IWLR 218 (patent
infringement)

 Article 41,42,43 of CISG explain the same situation- infringement of other IPR
rights will disallow you to sell the goods.

 The buyer is required to prove two thing once the goods are sold without a title:
o The fact the he was fraudulently induced by the seller to pay the sum by false
representation that he had good title to the property sold (Fraudulent inducement +
Misrepresentation)
 The fact that the seller warranted (promised) and covenanted (agreement) with the
purchaser that he had a good title. (TaramatiAnantraj Parekh v. GangaramRamdas,
1975 Maha LJ): page no 726. frivolous claim by a third party against the seller does
not give rise to an absence of marketable title 14(a)).
 \
 Section 14(b)-
 Section (b) and (c) cannot be read in isolation with (a) becoz if it is not permitted to the
seller to sell the goods then the question of encumbrances and warranties does not arise.
 Howell v. Richards, 1809 [Lord Ellenborough]: the implied warranty of quiet
possession, if the analogy of the covenants for quiet possession under lease be a sound
one is a warranty against disturbance and it is not broken unless and until
disturbance takes place.
 Buyer shall have and enjoy: first you have (right of possession) and then only enjoy its
possession. Right to possess only when seller has right to sell. If enjoying without right to
possession, that would amount to disturbance. No seller or third party has the right to
disturb the possession of the buyer.
 This case is the source of Section 14(b).
 14(c): Free from all charges and encumbrances, endures that he buyer’s position shall
not be disturbed by reason of existence of such encumbrances.
 Without (a), (b) and (c) have no existence.

37
  If there is a charge or encumbrance on the goods, it is the obligation of the seller to
disclose them to the buyer before or at the time of the contract.
 Difference between condition of title and warranty of quite possession:
o Distinction between condition of title and warranty of quite possession is the
former is a covenant
o The former is an assurance by the guarantor that he has every estate in the
quality and quantity that he purports to transfer and the latter is an assurance to the
guarantee against the consequence of a defective title.
o Case law concerned with this distinction is : Howell v. Richards, 1809. Lord
Ellenborough. Concerned section 14(1) and 14(2)

Section 15 (to be read with 17)

 Sale by description- provided a description. The goods should correspond to the
description even if there is no express condition that says that they should. Implied
condition of the buyer is that it should correspond to the description. Basically, any
qualitative and quantitative description. It also includes all statements substantial
ingredient of the identity of the goods sold. This is the only case where description has
been defined. (Couchman v Hill)
 Implied condition- the goods sold must correspond with the description at the time of
delivery and at the time of making the contract.
 Case: Bowes v. Shand, 1877- If you contract to sell peas, you cannot oblige the party
to buy beans. If the goods are different in any respect, it is not the article bargained for
then the other party is not bound to take it. This statement is made by Lord Blackburn.
 Sale by sample as well as by description- provided a sample to the buyer and also
provided the description. The seller cannot seek the defence that the buyer should have
inspected the goods given in the sample whether the bulk of the goods correspond to the
sample or not. The more importance is on the description. Compliance with the
description is a must and non-negotiable aspect. The bulk of the goods have to comply
with the description if they do not do so with the sample.
 Sale by sample takes place only when terms of the contract provide so, expressly or
impliedly.
 Difference between description and sample.
o Description is more apparent whereas the sample deals with the quality aspect
of the goods.
o Burden of proof lies on the party asserting the sale.
 Methods by which a sample is shown:
o Extracting a small quantity from larger bulk
o Sending a small representative quantity first
o Showing a pattern
o Showing a model
o Average sampling- where the average sample is taken from a larger number of
goods by taking a sample from every package. Therefore, the buyer cannot reject
goods because it represents the whole consignment. Eg- grains market and fruit
market.
 Section 17- Merely exhibiting does not imply sale by sample. Exhibition just means
showing the quality. It will become sale by sample only if it is truly representative of the
kinds of the goods and the subsequent agreement by the parties express or implied.

38
 17(2)- two aspects- qualitative and quantitative.
 Qualitative- bulk means the ultimate ordered goods. and sample means the
representative character. Both should match.
o (a)Bulk Goods should correspond with the sample in quality. It is an
undertaking by the seller that the subsequent goods have to be in conformity with
the sample. If this is not fulfilled, then buyer can repudiate the contract and seek
damages if suffered any. Section 13(2) if the buyer accepts the goods or part
thereof, then he can only claim damages.
o (c) Goods should be free from any defect rendering themunmerchantable
quality. In this regard, both latent and patent defects. Inherent defects that could
not be identified. Negative covenant, threshold is higher than 16(2).
o Goldey v. Perry 1960, 1 All ER page 36.
o (b)Proper examination- proper time (sufficient time should be given by the
seller to the buyer) and reasonable opportunity. This can be before the sale, at the
time of delivery, after the delivery. If the goods are at seller’s place, then the
examination will be done at the seller’s place only (ex-works contract a type of
inco-terms contract). He can reject the goods are not in conformity with the
sample. (to be read with section 41{1}) both these sections ensure that the buyer
will have a chance to examine the goods.
o This reasonable opportunity can be waived by express agreement or waiver as
well.
 Before the goods are getting ordered, the representative is to be sent before it.
 Letter of intent- conveyance of intention.
 Goods are of two types based on the nature of the goods.
o Definite or known goods
o Not known- Sugar, grain etc.
 Strict conformity rule- If the goods are definite/known then the exactness of the sample
with the bulk
 Substantial conformity in quality rule- when the nature of the goods is such that it is
impossible to be compared, then the goods are comparing the bulk with the sample. The
quantity refers to the customs prevailing in that market. (eg. 10 rotten mangoes in 500
mangoes will not render the contract void)
 Specific goods and other types of goods. read up on this.
 What is the meaning of the term substantial?
 What is preponderant part? (smth is provided in terms of specifications, design, etc.)
 If these implied conditions are not met, the party (buyer) can repudiate the contract
and can also receive damages.
 De minimus rule- 2-4% defect shall not render the contract void.
 Exclusion clause section 62- by introducing the negative covenant, test of reasonability.
 In consumer sale- exclusion clause is not permissible.
 Three inco terms (by ICC in Paris)- used in carriage of goods transactions. Ex works
contract- named place of destination the moment the goods are examined at the seller’s
place, the risks are transferred), FOB(the moment seller has ported the goods the risk
transfers) and CIF.
 Section 41(2)- ‘at the request’ why this is used? Section 35 will give the answer- the
buyer is supposed to ask for the delivery. It is the duty of the buyer to compare the bulk
with the sample.
 How to negotiate sale contract?
o It has to mentioned in the contract that it is contract by sample.

39
 To what extent written part is imp?
o Very imp as the first thing to be looked at in case of a dispute is the language of
the contract.
o Section 5(2)- read. Oral or written contracts. It is always advisable that contract
of sale should be in writing.
o Statute of frauds act 1677 which ensures there are 12 contracts which shall be
in writing. Eg- transfer of immovable property, arbitration contract, etc.
o UCC, 1951- mercantile contract shall be in writing only.
 Quantitative- suppose two sellers have given wrong quantity of the goods. section 37.
The buyer is obliged to accept only the correct amount. More or less is insufficient
amount.
 Section 34- if the goods are delivered in pursuance of the whole delivery, then the
buyer cannot reject the goods. it will be considered at part delivery. Some portion is
delivered. Instalment means goods will be delivered in different instalments specified in
contract. And every instalment is treated as a separate contract.
 Uberimafidie- business always works on good faith.
 Reasonable- it is a question of fact, always depends upon the case to case basis. It
means reasonable wrt to both the parties.
 Case: Grant v. Australian Knitting Mills, 1936- Dr. Grant was a resident of
Adelaide. He bought a woollen undergarment that he purchased. It was displayed on the
counter, he used this product and developed serious infection which was due to the
unremoved sulphites. He filed a suit against the manufacturer and retailer. Does this
amount to sale by description? Does this create an implied condition of merchantability of
the product? The R says that putting it at a counter means, the person will examine this
and then decide whether to buy it or not. Lord Atkin says that merchantability does not
mean that a product can be sold in the market just because it looks fine. There can be
defects unfitting this product. The defects were not reasonably visible to the buyer, and
were undiscernible. Putting it on a counter, amounts to sale by description as it is giving
the impression that the product is being described. Going by the description, these
products seem to be sellable, they were not merchantable.
 One more contention was that if it was washed properly then the defect would have
gone. The court said that it is irrelevant, what the buyer does after buying the product. It
was not merchantable when the buyer was buying the product. The latent effects were in
no way discoverable on an ordinary inspection. Placing on a counter amounts to sale by
description though it was not described in literal sense. Placing on the counter means the
buyer can go by the appearance of the product and that is equivalent to description.

 Goods can be accepted:

o Intimation
o Does not intimate, but adopting that particular transaction. (either by using or
done smth inconsistent with rights of his ownership. Eg- selling.)
o Silence not intimated and reasonable time has passed.
o Section 41- Examination.
o Section 42- acceptance.
o If after examination, the buyer finds, he can just communicate to the seller that
the goods do not match the description.

 Implied conditions- section 14-17

o Title section 14
o Description section 15
40
 o Sample 17
o Merchantable nature
o Wholesomeness
 Warranty-
o Quite possession section 14(b)
o No encumbrances 14(c)
o Disclosure as to the dangerous nature of the goods section 16 (inherent in
section 14 and 15) {absence of sea, road, rail worthiness)
o Warranty as to the quality and fitness of the product wrt customs and traditions
related to that market. Section 16
 How to discern whether it is a condition or a warranty?
o Intention of the parties
o Breach element dependency (Lord Diplock and Lord Denning case in Bramer
case)

Section 18

 When goods are transferred from the seller to the buyer? Section 11 read with 18, 19.
o When goods are ascertained
o At such time when the contract intended.
 What gets transferred?
 Proprietary rights
 When the subject matter of the contract is specific goods then TOP will take place 19,
20,21,22. Read with section 4. Specific goods arw defined under 2(14)
 When the subject matter is ascertained goods, then TOP will take place acc to Section
18,23,25. Read with section 4
 What is the difference between specific and unascertained goods?
o TOP- in specific goods- property is transferred by the contract itself. In
unascertained goods- No property will be transferred till the goods are not
unascertained. Section 18 and 23. It will be considered as an agreement to sell.
o Breach- in case of specific goods, the two remedies are specific performance
(section 58) and second, damages as well (section 55,56)
o Case: Hadley v. Baxendale, 1854-
o Perishability- section 7, 8, 54. In case of specific goods, the contract becomes
viod if the goods are perished before the contract or after the contract but before
passing the risk. In case of unascertained goods, there is no question of
perishability.
o Delivery of goods- while in specific goods, exactness of the goods delivered is
present. Only those goods as were agreed upon have to be delivered. In case of
unascertained goods, any goods that answer to the sample or description made by
the seller is okay if it is delivered acc to the stipulated time.
 Difference between Specific goods and ascertained goods
 Seath v. Moore- it is essential that goods should be specific or ascertained for transfer
of property.It is essential that the article should be specific and ascertained in a manner
binding on both parties for unless that be so the contract cannot be construed as a
contract to pass the property in that article”.
 In Re Wait case- Lord Atkin, 1927- he says that ascertained means which are
specified or identified acc to the terms of the agreement after the contract of sale is signed.
In specific goods, the goods are known and specified at the time of signing the contract.

41
  Specific goods are ascertained from the very beginning, those goods which are agreed
upon and specified later, then they are ascertained goods. for ascertainment, appropriation
of goods is a method of identifying and agreeing upon the goods wrt the terms of the
contract.
 Case: Tan Singh v. Janki Saran Kailash Chander 1981, Allahabad page 103.- reiterated
in this case.
 Future goods
 Defined under Section 2(6)
 Section 6 talks about subject matter of the contract
 Those goods which are acquired, produced or manufactured by the seller after the
contract is made.
 Can existing goods be considered as future goods?
 Yes. (acquired) there are goods which are in existence but will be acquired by the
seller in future.
 Acc to Benjamin, unascertained goods can be understood in three ways Section 23
o Generic goods- only name of the goods (500 tonnes of jute, 10 packages of
berries). Agreeing and identifying has not taken place while entering into the
contract.
o Certain type of future goods- if the seller has promised to acquire certain goods
in the future, they are treated as future goods.
o Quasi-specific goods- There may be times when goods are stored in go down
and both the parties know this. Some portion is ascertained but exactness of the
goods has not been discerned. Only location is specified.

Section 19
 Property passes when intended to pass
 For ascertaining the intention of the parties, regard shall be given to (Section 19(2)):
1. Terms of the contract
2. Conduct of the parties
3. Circumstances of the case
 Bhagwat Narayan Tendulkar v. Goa Cooperative Marketing and Supply
Federation Ltd. 1998 2 MR LJ 703
 Sacks v. Tilley 1915 32 TLR 148.
 Source of Section 19.
 For transfer of ownership, delivery is not important.
 For transfer of property, only possession is important.
 For eg.: BoE when accepted, transaction takes place.
 Section 19(2): Only applicable if all conditions of (1) are not fulfilled. They are to be
read together.
 Section 19(3): Talks about S.24 (Sale by approval)  Section 42 (intimation, adoption,
passing of reasonable time.

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Section 20
 Good must be specific.
 In deliverable state.
 Contract must be unconditional.
 Without payment and delivery, transfer of property takes place.
 Hence here, possession is not important, only transfer of ownership.
 “deliverable state”: seller’s duty is only to keep them in such a state whereas buyer’s
duty is to apply for delivery  Bankers LJ, in a case said deliverable doesn’t matter in all
its parts, it depends on the actual state of the goods at the date of contract and the state in
which they are to be delivered by terms of the contract. Not in terms of quality
 Deliverable State
1. Physical state
2. Seller has to inform buyer of deliverable state.
3. Buyer will apply for delivery.
4. Seller will deliver the goods according to specifications.
 Unconditional delivery
 Concurrent Conditions: Section 32
 At the time of delivery, buyer must be in a state of readiness to pay.
 Property
 Insolvency and Bankruptcy Code: Presidency Town Insolvency Act, 1909
 Any property over which and over profits of which any person has disposing power
which any person has a disposing power which he may exercise for his own benefit.
 Benami Transactions Act, 1988
 Property: property of any kind whether movable or immovable, tangible or
intangible, includes any right/interest in such property.
 Can any right or interest be transferred?  Complete power to own and transfer
 Ricardo 1st Best (absolute ownership right)- Right to Ownership; 2nd Best
(possessory right)- Right to Possession
Section 22
 Deliverable state only after everything in order to determine price has been done
 Who bears the cost of delivery will be determined by the terms of the contract.
 Agriculture Market Committee v. Shalimar Chemical Works 1997 5 SCC 516.-
Section 22 provides that the transfer of property in case of specific goods in deliverable
state takes place after the seller has completed all such acts as he is bound to perform in
order to determine price of the goods. However, this rule may be displaced if the intention
of the parties is that property must pass even before price is determined. - the default rule
will be applicable if intention, conduct and circumstances do not help us in reaching a
conclusion
 Methods of ascertainment- Appropriation.

MY NOTES AGAIN

Section 16
 The goods were sold in open market where the opportunity is given to the buyer and
seller. Buyer knows his conditions of using the goods, purpose of his goods.
 Concept has come from where the goods were sold in the fair. That is why buyer
should be made liable.
 Therefore, caveat emptor is nothing but the reiteration of common law principle.
 Lays down the principle of caveat emptor- let the buyer beware.

43
  This provision is subject to other acts like trademarks acts, protection of animal
welfare act i.eacc to the nature of the goods.
 Caveat emptor, qui ignorate no debuit quod jus alienum emit- Let a purchaser,
who ought not to be ignorant of the amount and nature of the interest which he is about to
buy, exercise proper caution.
 Only duty on part of the seller: Giving proper opportunity of
examination/investigation/inspection.
 Case: Priest v. Last. 1903- for the first time attacked the doctrine of caveat emptor.
Highlighted its diminishing value.
 Lord Write in Australian Knitting Mills put forward that the old rule of caveat
emptor has been superseded by caveat venditor now. And such change is necessary by the
conditions of modern commerce and trade.
 Ashington pigerees v. Christopher Hill Ltd, 1972 AC pg 441 - the pendulum has
shifted far too much, the time demands that the balance should be brought back
 Griffith v. Peter Canway Ltd. 1939 All ER 685 a person went to buy a coat and he had
a skin condition. He did not tell the buyer about his condition as a result of which he
suffers (seller need not deal with abnormality unless informed) seller is expected to sell
the goods to a ‘normal buyer’. The buyer is supposed to tell about his conditions to the
seller.
 Bengal corppvt ltd v. Commissioner for the port of Calcutta (see Mulla)
 A.R. muttho Krishna case.
 Two aspects: corresponds to the description and merchantability. Even if it matches the
description (physically and chemically) there may be situations when the goods are not
merchantable as they fail to serve the purpose for which they were bought.
 The exceptions are more heavily loaded than the rule itself. (Grant v. Australian
Knitting Mills). The rule says that seller cannot be made liable. But certain exceptions are
mentioned under which seller can be made liable.
 Exceptions- can be called as caveat venditor.
 Exception 1: where the buyer expressly or impliedly makes known to the seller the
purpose for which he is buying the product and relies on the seller’s skill or judgement
and the goods are of the description as in the seller’s course of business. Then there is an
implied condition that the goods should be fit for the purpose
 Exception 2 : Where goods are bought by description from a seller who deals in goods
of that description (whether he is the manufacturer or producer or not), there is an implied
condition that the goods shall be of merchantable quality. Provided that, if the buyer has
examined the goods, there shall be no implied conditions as regards defects which such
examination ought to have revealed. The goods should also be of merchantability. Further
extended by (4) -An express warranty or conditions does not negative a warranty or
condition implied by this Act unless inconsistent therewith.
 Tests to determine Merchantability
o Full knowledge test
o Usability test
o Merchantable quality test
o Satisfactory quality test
 The change from merchantable quality to satisfactory quality

Lord Denning’s interpretation of what constitutes Stipulation:

o Stipulation: Condition, Warranty, and Conduct of parties: It is not always a
pre- conceived notion, may be post conceived.
44
 o Third Stipulation: Statements involving legal labiality are of two types,
conditions and warranty. The third one is mere opinions, called ‘puffs’. These
do not create any legal liability. The third one is an innominate terms/
intermediate term.
o If the parties are not knowing the purpose and nature of goods from the very
beginning, then conduct will signify the purpose and need.
o These post-conceived notions, are innominate terms.
o Subsequent conduct is imp to know legal liability for innominate term. It is an
example of condition subsequent. It will not be determined from the very
beginning. The conduct of the party will determine.
o Simplex Commendatio Non Obligate [simple statements do not create any
legal liability]
o Innominate terms: Dehave v. Paymer [Case 5, module 2]
o Modern wisdom: 3 types of stipulations.
o Puff is a statement favourably describing or extolling goods, which by virtue
of it’s vagueness or extravagance will not be normally regarded as to be taken
seriously or as grounding any form of liability. They are made not with the
purpose of inviting legal liability.
o They are made by sellers, buyers, and third parties: Manufacturers, dealers, etc.
o The nature of goods may be anything, not always that seller is the
manufacturer. He might use manufacturers statements.
o Heibut Simons and Compony v. Buckleton [1930 AC 30]; Justice Halt said,
“An affirmation at the time of sale is a warranty provided it appears on
evidence to happen so intended.” That means, these stipulations are nothing
but statements. It will be determined by evidences, whether it is a condition or
warranty.

 Difference between conditions and warranty: Basis: Essential, construction and

remedy. [Section 12, with Sec. 13, Sec. 59]

o Condition is a stipulation essential to the main purpose of the contract. The

warranty is a stipulation subsidiary or collateral to the main purpose of the
contract.
o If a condition is vitiated 2 rights are violated, the remedies are repudiation and
damages. In case of warranty, only damages can be sought. [Sec. 12, 13 and
59]
o A breach of condition can be treated as breach of warranty. Breach of
warranty cannot be treated as breach of condition. [Sec. 13]
o Contract of sale cannot be fulfilled without fulfilment of conditions if any. The
main contract can be fulfilled even without fulfilment of warranty.
[Cases: Maldry v. Gransom, Cehave v. Bremer]
 Can condition be compelled to be treated as warranty? Yes. [Sec. 59, Case: ]
Section 14:
Implied Condition and Warranties:
o Implied conditions as to title [Sec. 14(a)]
o Seller cannot plead fault liability or knowledge under Sec. 14, as it fixes absolute
liability on the person.
o The seller cannot transfer the goods if he does not have the title/ general property.
45
o Person concerned is not allowed to sell in these cases as:

46
 1. Person is not the owner of the goods. Why person who is not owner is not
allowed to sell? [Ronald v. Diwal, 1923, Lord Atkin] “The buyer has not
recived any part of which he has contracted to receive, namely, the property
and the right to possession, and that being, there has been total failure of
consideration.” This means, since he has not paid, he is not the owner of the
goods.
2. The seller may be the owner, yet due to certain reasons, he may not have
right to sell. This is when the company name is [Niblet case, and the Indian
case Micro, 1975 1LR, 278] Person is the owner, but he infringes someone
else’s better title.
3. Where the sale is illegal. [“e-cigarettes”]
4. Without jurisdiction. [“This book can only be sold in India”]
o Even if he does not have the right to sell, but he sold it. the buyer has to prove:
1. Fact that he was fraudulently induced by the seller, to pay the sum by false
representation that he had a good title to the property sold.
2. The fact that the seller had entered into an agreement warranted [promised]
and covenanted [entered into an agreement] with the purchaser that he and a
good title. [Ronald v. Devil]
*(Taramati Anantrai Parekh v. Gangaram Ramdas, 1975 Maha LJ): frivolous claim by a third
party against the seller does not give rise to an absence of marketable title 14(a)). Marketable
title means right to sell the good.
If 14(a) is present, 14(b) and 14 (c) will automatically be present. Presence of 14(b) and 14(c)
does not mean 14(a) will be present. Without 14(a), (b) and (c) cannot be thought of. 14(b,c)
cannot be read in isolation.
Sec. 14(b)
o Implied warranty that the buyer shall have and enjoy the quiet possession of goods.
o Howell v. Richards, 1809 [Lord Ellenborough]: the implied warranty of quiet
possession, if the analogy of the covenants for quiet possession under lease be a sound
one “[implied warranty of quite possession] is a warranty against disturbance and it
is not broken unless and until disturbance takes place.” [Source of 14(b)]
o Buyer shall have and enjoy: first you have (right of possession) and then only enjoy
its possession. Right to possess only when seller has right to sell. If enjoying without
right to possession, that would amount to disturbance
o Lord Atkin in Niblet case had also said certain
things. Sec. 14(c)
o Goods are free from charge or encumbrance.
o It ensures that the buyers possession shall not be disturbed by any charge.
o The seller has an obligation to disclose any charge on good before or at the time of
the contract.
o You have the right of damages and repudiation.

[missing: 14th Sept.-28th Sept]

Section 23: Unconditional Appropriation in ascertained goods
o Romalpa Clause: Retention clause of reservation of right of title clause/disposal
clause.

47
 o Assent/consent of other party is required for appropriation.
o Assent may be subsequent or previously taken.
o 3 types of consent:
1. Subsequent Assent: Consent post goods are received.
2. Previous Assent: Waived of his right of inspection express mention in the
contract [exact mirror image: both parties decide framework at the same time]
3. By agent Delivery to the carrier: Section 23(2),
o Conformity to the contract: Not mentioned in Indian law in any provision, can
be gathered [sec. 16- quality and fitness; section-15, 17]. Under section 43-44,
the buyer has inherent right to reject goods if not in conformity with the contract.
Bonafide rejection.
o Under CISG, even if goods not in conformity, seller gets a cut off period to
rectify the mistakes, unless those defects are fundamental in nature. Contractus
hevery doctrine [law favours performance of the contract]. – part of Lex
Mercatoria
o Place of sale: Seller and buyers may be in 2 different places. Where has the
appropriation taken place, is the place of sale, unless otherwise agreed.
o Appropriation of future goods: Transfer of property will take place at the time
of delivery, therefore future goods.
o Wait v. Baker: [section 23(2)] Justice Park, the moment the goods which are
selected in pursuance of the contract, are delivered, the carrier becomes the agent
of the vendee, as the seller is not in the position to do anything to those goods. If
there is a binding contract between the vendor and the vendee, there is no doubt
that the property therein passes by such delivery to the vendee.
o Who pays for delivery under SOGA?: SOGA is silent, Sec. 36(5) says that
putting the goods in deliverable state will be borne by seller.
o Romalpa Clause alters the general legal presumption that the title of the goods
transfers upon sale. If the buyer defaults the payments, the seller may
regain/resuming the possession of the goods [not ownership].
o Buyers duty to accept and pay – 31 sec.
o 1976, Aluminium Industry v. Romalpa Aluminium Ltd., 1 WLR 676: Romalpa
clause has been used/ reservation of title clause.
o Section 55: Suit for price, if no Romalpa Clause.
4 types of Romalpa clause:
1. Romalpa Simple clause: the seller retains the title to unchanged goods, still
in buyers possession.
2. Romalpa Manufactured Goods Clause: Seller retains title even after they
have undergone manufacturing.
3. Romalpa Proceeds Clause: The seller is entitled to the proceeds of the sales
to third party. Sale is allowed, but profits will go to the seller.
4. Romalpa All Monies Clause: rights retained until all debts owed by the seller
to the buyer are extinguished.
o Article 61, 64 of CISG.
o Types of contracts in which Romalpa clause is mostly used: Building
contracts, when the moveable goods post buying are permanently fixed after
buying.
o Bulvinder Singh v. Jet Star Retail, 2011, EWCA, 459: There may be
limitations of Romalpa, how can it be minimised.

 Section 24: Goods sent on approval/ Contract of sale on trial/ Sale or return art of the
48
 If you approve, it is sale, if you do not, you return the goods.

49
  Sec. 24, read with 42 = Sale
 MODES: Intimidation, silence post reasonable time and
 Sultari Corp. v. Corp. Ltd; 1998, 1 ALL ER 10.

 Section 26 [combination of 2 latin maxims; Civil Law, Roman law and Common
Law]
o Financial risk:
o Buyers acceptance risk.
o Legal risk: How interpretation of the contract takes place, and how public
accepts it.
o Physical Risk pertaining to the goods. Whether the goods required to be
delivered to the same party as agreed in the contract.
o CISG: Article 66-71. Transportation Risk. – carrier rule, place rule,
appropriation rule, etc.
o Res perit domino: Risk prima facie passes with property. [long title of sec. 26]
o As a general rule the doctrine is an old civil law maxim. Meaning; when you can
show the property passed, the risk of the loss prima facie is in the person to
whom the property is. Therefore, dominus needs to be shown.
o Damnum ex casu sentit dominus: injury falls on the owner.
o Nemit commodum eies debet cius periculm ist: if injury falls on the owner, any
accruing benefits will also accrue to the owner. [Roman Law Maxim]
o ORIGIN: Martineau v. Kitching, 1870 [Res parito domino] : J Blackburn.
“As a general rule, the doctrine is the old civil law doctrine. The meaning is that
where you can show that the property has passed, the risk of loss also passes,
prima facie to the person in whom the property is.” Whoever has the ownership
of the property, irrespective of the contract, he will hold the losses. For passing
of risk, ownership is important, not possession, as the contract is conditional.
o Another origin: Sweeting v. turner, 1871. “Any calamity befalling the goods
after the sale is completed must be borne by the seller. Any benefit, must be his
benefit, and not the vendor.”
3 exceptions to this:
1. The concept of party autonomy/ freedom of contract recognition. (A. 6 of CISG
mother of party autonomy clauses- party autonomy in the context of bringing
modification in the law itself.) This section can be avoided by express provisions of
the contract, or conduct later on [section 5 – oral contract]. The contracting parties
have the freedom to modify this, as shown in the starting part of the section.
2. In case delay of delivery by an overt act of the parties, then section 26 will not apply.
[1st provision] Whoever has delayed, and is at fault, he will be liable. But conditions:
Loss must accrue to the goods, the proximate cause of the loss must be the delay in
the goods, and the delay does not throw the entire risk on the party, but only such risk
as is gradually attributable to his fault. – doctrine of proportionality.
3. Bailment rule will not affect this section, as he acts as a voluntary bailee. [2 nd proviso
of Sec. 26] [148-171,171-181 of ICA – Bailment, and pledge]
o Executory Contract: Property has not passed anything happening to the property
borne by the seller. Conditional contract, will be completely subsequently. No transfer
of ownership. Risk will pass, as and when the contract will get complete.

50
o Unconditional Contract Of Specific Goods: 4, 19 and 20 sections, buyer’s
responsibility. Transfer of property has taken place, ownership also. Risk has also
passed, irrespective of possession. Buyer’s risk.
o Risk Where Delivery is Contingent on Some Event; If those events can be easily
performed- section 26 can be applied; if those events are impossible to be performed-
Section 56 and 65 of ICA will come into picture.
o Risk when goods are in Transit: 3 contracts possible when goods are in transit:
between buyer and seller, between buyer/seller and carrier, insurance contract.
o This provision determines liability even when there is no contract, but only possession.
o Romalpa Clause: Sec. 23, 25, 26: Both the seller and the buyer have same rights,
except the right of disposal. Any loss taken place, then the buyer is required to pay the
damages as the buyer is in fact getting all proprietary rights, to use, to have custody,
possession, but to pass the property. Conduct regulated by seller. If those conditions
get extinguished, then the buyer has absolute right over property. Any damage taken
place, that particular buyer will bear the injury.
o Sec. 23, 25, 26, read with Section 3, 2(15) SOGA: Validity to Sec. 27 of ICA,
Romalpa cannot restrict the buyers right for unlimited time.
o Section 23 read with sec.26: Rule of Appropriation: The moment the goods have
been appropriated, the risk will pass at the time of appropriation. Article 67(2) of
CISG.
o Risk of deterioration during transit/transportation: Section: 4, 23, 25, 26, 51
 Express provision is contract: Present/ absent.
 Ownership of goods during transit
 Cause of such deterioration: deterioration of commercial value of goods.
 Nature and character of goods

o Risk where buyer may rescind the sale: Sec. 26 read with 24.
 Risk will be borne by the owner. It will also be shared by the buyer.
 Method of rescinding: intimation to seller that the goods have been rejected;
risk will shift to the seller.
 If the buyer approves, risk with him. If he rescind the sales, risk with the owner.
 During the possession of those particular goods, buyer’s responsibility will be
limited to that of a bailee. It is determined on the basis of facts and
circumstances of the case.
 Supervening impossibility (term for frustration usually used), commercial
hardship, force majeure. (Article 79 of CISG); Both parties exempted from
performance.
o Risk in relation to Rejected goods: Sec. 26 with 43, 44.
 First and foremost: Whether rejection done bona fidely (risk shifted to seller) or
mala fidely (risk with buyer). Reason for rejection, justified?
 Goods in non-conformity to the contract. Section 31: If the goods are there in
accordance to the contract, then buyers responsibility is to accept the goods.
 If the buyer has rejected the good justifiably, his only duty is to intimidate the
seller. Any loss will be borne by the seller. Buyers duty of bailor. Any extra
expenditure to buyer for keeping goods safely, it is to be paid by the seller to
the buyer.
 After bona fide rejection when goods are not taken back by seller within
reasonable time. Loss borne by the buyer can be recovered from seller.
 Three theories:
1. Time of passing off risk= time of concluding the contract:

51
 2. Passing off risk=passing of ownership:
3. Passing off risk=time of delivery of goods:

 Section 26 is based upon which theory?

 3 proviso in Section 26:

1. The loss must accrue to the goods.
2. The proximate cause of the loss must be delayed in delivery of the goods.
3. The delay must be attributable to the fault either of the buyer or the seller.

Section 27-30 [Nemo Dat Non Quod Habet]

o No one can give a better title than he himself possessor.

o Whistler v. Forester, 1863

 Principle adopted. No one can give a better title than he himself possesses.
o Who has the first ability to sell the goods? Owner. But it has exceptions. [Sec. 27-30]
also, it assumes that there are 3 parties.

1. Sale with the consent or authority of the owner: If the owner has given the
authority, or consent. [Sec. 27]
2. Title by estopple: [Sec. 27] Creating an impression or giving a representation that
the person who is selling the goods is the owner of the goods.
3. Sale by mercantile Agent: [Sec. 27, first proviso]
4. Sale by one of the joint owners: [Sec. 28, and 4], the person who is selling must
have the possession, and the seller is considered the owner.
5. Sale by a person in possession under a voidable contract: [Sec. 29]
6. Sale by seller in possession after sale: [Sec. 30(1)] the owner had sold the goods
to one person, sale is complete, subsequently he sold the same goods to another
buyer. The second contract will also be valid for the purpose of transfer of
property. But it is the buyers duty to put reasonable effort to find out who is the
original owner and buy in good faith.
7. Sale by buyer in possession before property has vested in him: [Sec. 30(2)]
Like in Romalpa clause, ownership is not transferred. If this is there, then the
person who subsequently buys, he will have valid title.
8. Sale by unpaid seller where he exercises his right of lien or stoppage in
transit: [Sec. 27, 54 and 25] If buyer has not made payment, and does not have
the ability also, and good are still there in his possession/ custody, then, the seller
may resell it. but, he has to issue a notice to the first buyer before, and those goods
must be perishable in nature. Notice is required, as for selling the good
subsequently, he may incur loss also, or get benefit as well. In that case, if there is
loss to the seller, then that loss will be borne by the buyer. If any profit, then the
seller will only take it. therefore, notice should be given. Notice mans information,
which may be oral or written or by conduct.
9. Sale in market overt: [recognized in Britain earlier, not India, Object clause,
Clause 3]. The person who is the real owner has given you the consent to sell,
therefore, the person who buys becomes the owner. Market overt means that
stolen goods are sold openly. When goods are sold in open, then the person selling
the goods has bonafide title as no one is objecting.

52
 o This concept is subjected to any other provisions, of ICA, 178 and 169, [Finder of the
goods concept]. Nemo Dat Non Quod Habet
o Whether sec. 27 is extended to mortgage, pledge, charge, security? No. [Purushottam
Das Banarasi Das v. Union of India.]
o Lord Denning in Bishopgate Motor Finance Corporation Ltd. v. Transport Brakes Ltd.
1949 1 KB 322: In the development of our law, 2 principles have striven for mastery:
1. Protection of Property: no one can give a better title than he himself
possesses. (nemo dat quod non habet)
2. Protection of Commercial Transactions: the person who take in good faith
and for value, without notice should get a good title. (protection of innocent
buyers)
o Vendors Duty to disclose if he has the ability to sale the goods.
o Buyer must try to find out whether the seller has effective or defective title.
o Buyer must buy in good faith.
o Remedies to the owner where property wrongfully transferred
1. Recover the possession.
2. Suit for right against wrongful interference.
3. Restitution in kind (money).
4. Trace and follow the goods.
5. If the goods have been mixed, and if they are severable, then right to severe the
goods.
o These are rights against the person who has misappropriated your goods, and the one
who has current possession. But the person having possession also has certain rights.
If he proves bona fide, and that he was innocent. Suit for damages will be there
against both the parties therefore.

SECTION 27, SALE BY REPRESENTATION

o Estopple can be made, by the fake owner, who makes the impression in the minds of
the buyer that the person selling is the real owner. But, he is not the true owner, but
only one by representation.
o The true owner voluntarily, by words or conduct voluntarily represents or permits it
to represent that another person is the owner of the goods.
o This representation must be clear and unequivocal.
o The representation must be by the true owner or his agent.

Tests For Damages:

1. The party made representation by words or act./ Whether a deceptive situation
was created by the true owner?
2. Party claiming representation acting on the faith of the representation./
Whether the situation, which was created by the true owner was relied upon
by the subsequent purchaser?
3. Whether the situation of the subsequent purchaser has been changed so that
he suffers damage if the goods are restored to the true owner?
o Merely delivering the document.
o Title does not create a deceptive situation. But, certain document create this
impression. Like, the Bill of Leading. The person having possession of such document
is considered owner, and mere transfer makes the other party the owner.
o Otherwise, mere possession is not sufficient enough, some more overt act is required,
then only the subsequent purchaser’s title will be valid.

53
Creating an impression or giving a representation that the person who is selling the goods is
the owner of the goods. Wherever one of the 2 innocent persons must suffer by acts of a
third, he who has enabled such third person to occasion the loss must sustain.

Conditions:
1. The representation must be clear and unequivocal.
2. It must induce the subsequent buyer to purchase it.
3. There must be reliance on the representation of the true owner by the buyer.

PROMISSORY ESTOPPEL ALSO TAKES 2 ROUTES:

a) Representation:
1) Person selling shouldn’t be the owner.
2) Representation induces the other person to believe in valid sale.
3) Buyer must be bona fide.
4) Not necessarily from owner, can be from agent as well.
5) Owner gives doc of title indicating ownership, nature of document taken into
consideration like BoL- the mere possession of which allows you to sell them.

b) Non est factum: Sometimes we sign certain documents, to transfer property.

Subsequently, can we deny that this is not the meaning I had understood? No, if you have
signed, you understand the meaning and the intention of the documents.

EXCEPTION: Fraud by the person who is getting your signature.

If you see the entire act, seller friendly or buyer friendly? The act can be divided into 2
parts. From section 4-44, most of time, it looks buyer friendly. But, 45-54, looks seller
friendly. 55-61, disputed [advocate friendly].
SALE BY MERCANTILE AGENT
o Sec. 2(9) defined mercantile agent.
o Mercantile agent represents the owner, therefore, any sale by such agent. Sec. 185 of
ICA.
o Combining 2(9) and second para of Sec. 29, any agent selling is as valid as the owner
himself. He works under the masters directions.
o The agent during the course, is required to have authority. Thereby, merely being such
an agent is not sufficient. Agent plus consent is required. Any disposition by the agent
in terms of goods, or transfer, will be considered as valid, as done by the true owner.
o The buyer has the onus of good faith and notice to that effect that the person selling
has the authority. Notice may be express or constructive (by conduct).
SALE BY JOINT OWNERS, SECTION 28
o If one of the several joint owners, with the consent of the other party is selling the
goods, it will be considered as a valid sale in law.
o Section 28 read with section 4 (second para).
o The person should however have the sole possession of the particular goods.
o The joint owner should have given the consent.
SECION 29-30.

54
 o Since the goods are in possession of the seller, if a deceptive situation is created by
the true owner, any sale is valid, if done in good faith and reasonable effort to find out
the true owner.
PERFORMANCE OF THE CONTRACT, CHAPTER 4
o Duty of the seller and the buyer are concurrent.
o Delivery: sec. 2(2) read with section 35.
o Section 35 talks about who will apply for delivery – the Buyer.
o Delivery is always a bilateral act, the buyer is required to as for the delivery.
o SOGA does not define possession.
o English Factors Act says delivery means custody.
Performance of the Contract
Section 2(2): Definition of delivery.
Section 31
Duties of the seller and the buyer. Section 31 to be read with Sections 35, 42 (buyer’s
conditional duty to apply and seller’s conditional duty to put goods in deliverable state).
Symbolic, constructive, fictitious, acknowledgement, atonement: Absolute control over
goods must be placed with the buyer. Absolute control lies with the owner. In fictitious,
acknowledgement or atonement delivery, position and possession of goods does not change.
SECTION 32
Delivery and payment are concurrent propositions. It is assumed that they are concurrent,
unless a clause to the same effect is there.
Claud Lila Parulkar v. Sakal Papers, 2005
Concurrent conditions can be contracted out through express mention in contract. If the
contract does not stipulate the time of payment, it will be at the time of delivery. However,
this is a concurrent condition. This is applicable only when the contract is silent on the
delivery- payment relationship.
Section 11 and Section 32 are mutually exclusive.
SECTION 33: MODE OF DELIVERY
SECTION 34: PART DELIVERY ALLOWED
Part delivery: In progress of the whole contract, if delivery is made. Done when delivery
cannot be made as a whole. Thus, part delivery and instalment delivery are different. Part
delivery is not considered to be the constructive delivery of the whole where the subsequent
part of the whole is defective or not delivered. The continued good faith rule requires the
seller to complete the delivery in accordance with the contract.
5. Cooper Case
Brett, LJ. Part delivery is a constructive delivery of the whole. If nature of contract such, that
whole delivery cannot be done, part means constructive. This case is the source of section 34.
SECTION 35: BUYER TO APPLY FOR DELIVERY
SECTION 36: RULES OF DELIVERY

55
 o The place of delivery- sellers place of business.
o Time of delivery: Reasonable time
o Delivery by Acknowledgement
o Expenses of delivery: SOGA is silent, only incidental charges are given.
o Expenses for preparing and receiving delivery, fall on buyer.
o Where by express mention, the time of payment is mentioned, will default lead to
repudiation? Readiness and willingness is the test for time of payment. Readiness and
willingness includes capacity to pay.
o Where buyer becomes insolvent, and refusal to accept goods. 2 grounds to understand
that the buyer does not have the reediness and the willingness.
Devi Dayal Sales v. State of Maharashtra
Absence of readiness and willingness to pay can be inferred from refusal to take delivery.
Penalty clause for default in payment can be enforced. That was stipulated that if goods not
delivered on time, damages.
The court held that purchaser justified to deduct.
The place of delivery is seller’s place of business. The time of delivery is a reasonable time.
Delivery by atonement (36(3)). Expenses of delivery to be decided in accordance with the
contract. Expenses to put goods in deliverable state to be borne by seller. Expenses of
preparing for receiving or accepting the goods to be borne by the buyer.
SECTION 37
Short delivery not allowed or excessive delivery also. Delivery in excessive quantity not
allowed. If accepted, not be paid for at contract rate. Buyer not allowed to accept mixed
goods, as it is also considered as delivery of wrong goods.
If goods are delivered mixed with other goods, the buyer may repudiate the contract. If
accepted, the cost of separation is borne by the seller.
De minimus variation in quality allowed, only in some cases, some variation depending on
the goods are valid. 2-5% rule is there for permissible variations. Benjamin says only
‘microscopic variation’ may be allowed.
Delivery of inferior quality is not allowed. Contract may be repudiated. Inferior quality
means that the contract is not in accordance with the terms of the contract [section 27 with
sec. 16]. Inferior quality is unmerchantable. Bonafide right to reject is given here. Intimation
to the seller must be done, and any expenses for re-delivery of gods will be borne by the
seller.
SECTION 38: INSTALMENT DELIVERY
Instalment delivery is not permissible unless provided for under the contract. If provided for
under the contract, each instalment will amount to a separate contract. Then default in one
instalments cannot lead to repudiation of the entire contract. However, if a fundamental
breach is present, repudiation can take place. Not expressly mentioned in SOGA, but can be
inferred. If default is recurrent, then repudiation can take place.
It is distinct from part delivery. There, the nature and necessity is such that all goods cannot
be delivered at one time. In installment, the buyer is not bound to accept delivery by
installments.
Each and every installment is considered to be a separate contract. If installment-based
contract, section 38 read with 32, after the delivery of every installment, payment is required.
56
Mere failure of one installment not deliver on time will not allow repudiation. Only recurrent
and continuous failure will allow repudiation.
 Union of India v. KH Rao
Section 38: Instalment delivery. In cases where the contract of instalment deliveries is such
that each instalment could have been treated as delivery under a separate contract, the
deliveries would be said to be severable. In such cases, generally, the breach in delivery or
payment of one instalment would not result in the repudiation of the contract. The entire
contract will be still enforceable, provided that compensation for damage resulting from the
particular breach is provided. However, where it can be shown that the breach result in
defeating the very soul of the contract, the breach would result in complete repudiation, and
not simply an action for damages. Whether the breach goes to the root of the contract is a
question to be decided on the facts and circumstances of the case. The non-performance must
amount to a fundamental breach of the contract.
ACCEPTANCE OF GOODS
Section 41: Buyer’s right of examination.
Section 42: Modes of acceptance: Intimation, adoption of transaction, silence. Reasonable
time is a question of fact.
Sections 43, 44: In case of rejection, the liability of the prospective buyer is to inform the
seller of the rejection, and asking him to lift the goods.
Section 24: Goods sent on approval or on sale or return.
Risk in relation to rejected goods: It must be seen whether justified rejection was present,
whether rejection was notified to the seller. While the goods are with the prospective buyer,
the duties of bailee will still be there.
A transaction is said to have been adopted if the goods have been put to use, consumed or
resold. Bona fide grounds of rejection include goods not matching description, not matching
quality or not fit for purpose.
Can a prospective buyer bail the goods further? Yes. In that case, the third party should have
accepted the good in good faith and should make reasonable efforts to find the real owner of
the goods.
 Head v. Tatar Salle
If goods get damaged in the period in which they are lying with the prospective buyer, the
fault must be determined (defined under S2(5)). The prospective buyer has the responsibility
to take reasonable care of the goods under the duties of the bailee (Sections 151, 159, ICA).
In Section 24 cases, the nature of the contract is that of a bailment contract, until approval is
granted, in which case it turns into sale. This means that one party is a prospective buyer.
True nature of the contract must be determined on the basis of the construction of the
contract.
Relationship between 24 and 42: Section 42 provides the modes of acceptance in general, for
all kinds of contracts. Section 24 deals with acceptance in case of goods sent on approval, or
on sale or return, or similar contracts. The difference is in the nature of contract. Further, the
provision of silence over a fixed period of time amounting to approval is specifically
provided in section 24.

57
SECTION 43
Rejection must be bona fide and intimation of rejection to seller must be made. Bona fide
rejection takes place when the goods are not in consonance with contract. The buyer must
take reasonable care of goods. The seller bears the expenses of re-delivery.
Unpaid Seller
Sections 45 - 54. The chapter deals with the rights of an unpaid seller (lien, stoppage in
transit, suit for price), after transfer of property to the buyer.
SECTION 45
Unpaid Seller defined.
Types of Lien
 Common law lien
 Statutory lien
 Equitable lien
 Possessory lien
 Maritime lien

Nature of payment by negotiable instruments and credit cards is conditional. Till the payment
is made absolute, the unpaid sellers’ rights are suspended. Sale on credit does not allow
exercise of right of lien. Right of lien, exercising lien does not terminate contract.
Suit for Breach of Contract
SECTION 55: SUIT FOR PRICE
SECTION 60: ANTICIPATORY BREACH
Burden of proving anticipatory breach is on the party alleging Anticipatory breach. Indicated
through facts and circumstances, conduct, parole evidence. Substantial facts will lead a
person to believe that contract will not be performed. Section 60 recognizes anticipatory
breach.

IMPORTANCE AND CONSEQUENCES OF DELIVERY

[NOTE: Absence of price clause will not invalidate the contract- Article 14 and 55 of
CISG]
Delivery signifies the performance of the contract in accordance to the contractual terms.
 That delivery which suffices to pass the title so that if the goods be destroyed the loss
falls upon the vendee. Transfer of property, if any damage, will be borne by the
vendee or the buyer. Not only the title, but physical possession also goes. Therefore,
the buyer will bear the loss.
 The delivery which suffices to destroy the lien of the vendor which consists in total
and unqualified surrender of possession and of a special claim to retain the goods by
the vendor. Once the possession goes, seller cannot exercise lien. Retain here means,
Romalpa Clause (retaining title till the time certain conditions are met).
 That delivery which requires not only an utter relinquishment of possession by the
vendor but also an absolute and final appropriation (identification, and agreeing to the
58
 exact nature of the contract; Section 10 and 23- term appropriation used) by the
vendee. Delivery, even though the contract is there for unascertained goods, delivery
indicates appropriation. Not only utter relinquishment of possession, but also absolute
final appropriation by the vendee. Absolute means that in accordance with the
contractual terms and identification of the goods by the vendee.
o Delivery means control and custody over the goods.

o Actual delivery: Manual transfer of the commodity and the goods sold to the vendee, and
operates to transfer of title in all cases, unless it be made upon a condition which prevents
such a consequence.

 Involves consideration of the person to whom goods are required to be

delivered (Section 32 and 39) Sec. 32 says payments and delivery of the goods
are concurrent, unless otherwise agreed;
 Place: seller’s place of business to place of delivery as per the contract [sec.
36(1)], Time: reasonable [sec. 36(2)].
 Delivery may be made to the buyer or the agent (carrier). The carrier must be
named by the buyer, only then the delivery will be considered that by the
buyer.

o Symbolic/Constructive/Fictitious/ Delivery- Putting the goods in absolute control of the

vendee. However, the actual delivery of those goods has not done. (example: keys of the
godown).
o Delivery by Attornment/Acknowledgement: This means that Section 36(3). Goods with
third person, having merely possession. Such third person acknowledges, that he is
holding the goods on behalf of the buyer. The actual position has not changed, but the
control has shifted.
o Proviso clause: If I had delivered the document of title, [BOL], unless otherwise agreed,
the person holding the bill will be considered to have the ownership. Delivery of the
document in this case means delivery of the goods itself.
o An entire agreement clause aims to ensure that all the terms and conditions governing
the rights and obligations of the parties are set out in a single contractual document,
superseding all prior negotiations and agreements. The goal of such a clause is to prevent
contracting parties from relying upon statements or representations made by them during
negotiations for the purposes of claiming that they had agreed to something different than
what is stated in the contract at the time of a dispute. No external reference will be useful
for interpretation. It also includes the pre-contractual negotiations and conduct of the
parties. This is a contrast to Parole Evidence rule. Plain meaning rule.
o Bill of Lading is a negotiable instrument, as it may be freely transferred. The regulating
law is the
o 4 instruments in Negotiable Instruments Act, 1881: Promissory notes (4), bill of exchange
(5), cheques (6), bank draft (85A). Negotiable means freely transferable.

SECTION 39, INCOTERMS

o Does not speaks of explicitly.
o Sections 12, 13, 59: once a condition, always a condition.
o Condition: Essential for the execution of the contract.
o If a clause talks about jurisdiction of a particular court for initiating suits- neither a
condition nor a warranty, simply a jurisdictional clause. Condition or warranty is
always in reference to good.
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o Performance, where contract conclude, where any of the parties reside, reasonable
nexus
o Scott v. evory clause; while determining jurisdiction, the term “only” ousts
jurisdiction of all the other courts and is invalid.
o Parallel Importation: right of the manufacturer gets over when the
manufacturing is completed within the country. If there is universal trademark, then
the product cannot be modified and sold.
Microbeads AG v. Vinhurst Road Makings (1975 JWLR 218)- case on patent
infringement.
o Grey market: no right to sell but still the exercise of selling is continued.
o Nature and complexities of commercial transactions, nature of goods
o Types of product liability: No fault liability test, merchantability test
o INTRATERMS (International Trade Terms): Not provided by the ICC.
o If you don’t specify, then it means that parties have adopted incoterms latest one.
o INCOTERMS (International Commercial Terms): Provided by ICC. These are
standard terms which get changed every 10 years. There are 11 INCOTERMS
currently. 4 categories: E-terms, F-terms, C-terms, D-terms.
o https://www.jus.uio.no/lm/icc.incoterms.1990/13.html
o Whether SOGA regulates international transactions? Yes, carriage of goods by sea.
o If we say that the applicable law is SOGA, then whatever amendment ICC does in
INCOTERMS will not have any bearing.
o If we say that this contract is regulated by INCOTERMS 2020, then in that case all
modifications will be regulating the contract.
o CISG does not recognize INCOTEMRS. Article 9 and 11 do talk of it, but not explicitly.
o The first 3 is departure, last- Arrival. Maximum obligations of seller in E.
o These are international usages in terms of contract of carriage by sea.
o It is assumed that there are certain pre-determined obligations. You may remove these
terms from the contract by express provisions. Silence means acceptance.
o The following INCOTERMS have been incorporated:

1. Ex works Contract: There is a named place of destination, or the collecting place

of the goods. There is absolute freedom to choose place, except public policy. The
overseas buyer must collect the contracted goods from the seller’s factory,
storehouse, etc. after collecting, whatever the transport facilities have to be used,
till the country of destination, all those arrangements will be made by the buyer.
Insurance of the goods must be done by the buyer. Sellers duty to supply the
goods as per the contract terms and supply all the relevant documents (In India
you need 40 documents). Seller has to ensure the delivery of goods to the buyer
and pay any costs incidental to placing the goods at the buyer’s disposal. And also
provide any assistance requested by the buyer. If no assistance, pay the money
required. Obtain appropriate license for the export of goods [Foreign Trade
Development Act, 1992]. Delivery to doorstep. Named place of destination. Ex
Works: Collection contracts. The duty of the buyer is to collect the goods from the
seller’s place of business. The buyer must provide the transport and insurance
facilities. Ex Store – Collect from store. Ex-Factory – Collect from factory. This is
the named place of destination. Obligations on the seller – To supply the goods
and while supplying, make those goods measured, weighed, checked, packaged,
i.e., deliver in a deliverable state; supply the documents, ensure the delivery of the
goods to the buyer, pay any cost incidental to placing the goods at the buyer’s
disposal, provide any assistance

60
 requested by the buyer. Obligations of the buyer – Accepting goods if in
conformity with the contract, pay for the goods, obtain appropriate license for
exportation of the goods.

2. FoB Contract: Free on Board. The moment the seller puts the goods on board, his
liability ends and the buyer’s/carrier’s liability begins. The seller has the
obligation to get export clearance. He has to bear the cost of delivering the goods
to the ship. He has to bear the costs of damage before loading them into the ship.
He has to deliver the goods at the vessel at the place designated by the buyer, he
also has to bear the cost involved. The costs of getting permissions from the
customs for exporting the goods. Liable to damage to the goods before loading
into the vessel. To inform to the buyer that the goods have been delivered to the
carrier. Responsible for the export clearance and relate costs.
Buyer’s Obligations: Give sufficient notice to the seller of the time and location of
shipping. Bear any risk of loss or damage from the time they pass over to the ship.
Obtain any licenses for importation. Comply with all customs formalities. Pay any
cost incidental to the importation of the goods. Bear the cost of any extra
assistance taken from the seller. Pay for the carriage of goods.

3. CIF: Cost, Insurance and Freight. Ships. The cost of carriage includes insurance.
The seller covers the cost of insurance and delivery. The seller has to ship goods
of the description contained in the contract. To procure a contract of carriage, at
which goods will be delivered at the destination agreed by the contract. Obtain the
Bill of Lading as an evidence of the Contract. To arrange insurance for the
contract. To arrange and deliver all documents to the buyer. Method of payment in
such contracts: Bank Guarantee.
Buyers duty: Accept all documents if they are in conformity with the contract. Pay
the contracted price. Receive the goods at the agreed destination. Pay all
unloading and transit charges. To bear all risks from the time the goods pass to the
buyer. To pay all charges incidental to transportation. To pay all charges for
importation. Get import licenses.

 Whether licenses can be sold like goods, and considered goods for the purpose of
SOGA? Vikas Sales v. Union of India, 1996, SC. Yes, as they are freely sold and
purchased in the market. Unraj, and Sunrise.
 Whether lottery tickets are goods? No. Actionable claims, sec. 2(7), SOGA.

RIGHTS OF UNPAID SELLER [ SECTION 45-54]

 Unpaid seller: when whole of the price has not been paid by the buyer. Section 45:
Unpaid Seller defined.
 The goods have been sold, but the price has been due.
 Full price has not been paid.
 The payment has been tendered through negotiable instruments, and those are
dishonoured.
 It also includes a mercantile agent and a consigner.

 Bank Draft can be dishonored, on the ground of non-acceptance by bank to the holder
[Sec. 91].

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  Sections 45 - 54. The chapter deals with the rights of an unpaid seller (lien,
stoppage in transit, suit for price), after transfer of property to the buyer.
 Paid or tendered seller: Tendered means that payment has been made through
negotiable instruments, as it takes time to get it cleared. Till that time, the seller has
waived his rights of being an unpaid seller.
 Rights of an unpaid seller:

A. Rights against the Goods

 Right to Lien (if goods have been delivered, section 47): Right to withhold the
property till the time payment is being made. CPC: A property lien is a legal claim on
assets that allows the holder to obtain access to the property if debts are not paid. A
property lien must be filed and approved by a county records office or state agency.
It is then delivered to the property holder with specific terms notifying them that
action has been taken to repossess a piece of property. 3 cases:
1. Where the goods have been sold without any stipulation as
to credit
2. When the goods have been sold on credit but the term has expired
3. When the buyer becomes insolvent.
Conditions of right of lien; Section 47:
1. The goods must be in actual possession of the seller. Once the possession is
lost, so it the lien.
2. When the goods have not been sold on credit, the buyer fails to pay the full
price, right of lien may be exercised.
3. When the goods have been sold on credit, but the credit period has expired.
4. When the buyer becomes insolvent, the seller may retain possession.
5. Can be exercised even if the goods are with the seller in any other capacity.
Ownership has been transferred, but still the goods are with the seller.
Therefore, he is the bailee.
6. In case the document of title have been delivered, but the goods are in actual
possession of the seller, the right of lien may be exercised.
7. It may be exercised only for the price, and not for other expenses like interest
or godown charges.
8. It is individual in nature. The seller may refuse to deliver the goods, or a part of
the goods proportionately, if part payment has been made.
9. Where unpaid seller has made part-delivery of the goods, he may exercise lien
on part goods, unless there is an agreement to the contrary.
10. It can be exercised it claim the price of the goods even though the seller
has obtained a decree.
When can lien be terminated: It is connected with possession. [SECTION 49]
1. When the goods are delivered to a named carrier for the purpose of transmitting to
buyer without reserving rights to the good. Contrary to that, if carrier has been named
by seller then he can ask if payment has not been made to the carrier to stop those
goods in transmission. But if the carrier has been named by the buyer and no
retention clause, then no right seller has other than suit for price.
2. When the buyer or his agent lawfully obtained possession of the goods. Lien
is intrinsically related to possession.
3. When the seller waves his right of lien.

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 4. When the buyer tenders the price, but the seller refuses to accept.
5. When the document of title of goods has been lawfully given to the buyer, and he
transfers the document to an innocent purchaser, who takes it in good faith that the
seller has assented to it, then that sale will be valid.

 Right to stoppage of goods in transit (if goods are with carrier)

1. The seller must be unpaid.
2. The property in goods must have passed to the buyer
3. The goods must be in transit with the carrier, neither in possession of seller nor the
buyer.
4. The buyer must have become insolvent, inability to pay the price.
5. Then, the goods can be stopped only for the payment of price.

DIFFERENCE BETWEEN LIEN AND TRANSIT

1. In lien, the goods must be in actual possession of the seller. In transit, neither in
possession of the seller, nor in buyer.
2. Lien may be exercised even if the buyer is solvent. Transit only if he is insolvent.
3. Lien comes to an end when the seller parts with the goods. Stoppage commences
when the seller delivers the goods to the carrier.
4. Lien is a right to retain the possession. In stoppage, it is the right to regain possession.
5. Lien can be exercised by the seller himself. stoppage may be exercised through the
carrier.

 Rights to Resale, subject to SECTION 54.

 Right to withhold delivery (if they have not passed to the buyer).

B. Rights against the Buyer

 Right to file a suit for price
 Right to file a suit for damages
 Right to file a suit for interest, must not be unconsiderable bargain. If not specified,
18% interest is presumptive [NIA].

 Whether advocates can exercise lien? No. since their files are not considered lien. If
payment has not been made, then they

Stoppage of goods in transit terminates [SECTION 51]

1. Where the buyer takes the delivery, the transit comes to an end.
2. Carriers acknowledgment to the buyer.
3. Carrier wrongfully refuses to deliver the goods to the buyer.
4. Delivery to the ship.
5. Part delivery of goods in certain conditions.

 2 Exceptions:

SECTION 53(1,2,3)
If goods have been sold to the 3rd party with consent of the seller, valid sale.
If the goods have been sold by transferring certain transferable documents, in good faith on
the original owner. Any subsalt will be valid.

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SECTION 54(1)
If the unpaid sellers right has been exercised, the contract cannot be rescinded. But,
exception: If the goods are perishable, where the seller expressly reserves right of sale.
[Section 54 1-4] But these 2 exceptions are subject to one condition: Where the unpaid seller
has given the notice to the buyer about his intention to resale, and the buyer has not still paid.

 Why notice is sine-qua-non for reselling goods? [section 54, subject to section 46,47]
1. The buyer is given another opportunity to perform the contract.
2. If the buyer is still unable to pay, he can supervise the sale and see that the goods are
sold in a proper price. He can therefore minimise his liability then.
3. If he does not serve the notice, any loss will be borne by the seller, and any profit will
go to the buyer.

DAMAGES
Chapter 2 of the Specific Relief Act, 1963.
o Damages for Non-acceptance: Buyer wrongfully neglecting qualitative goods.
o Damages for Non-Payment/Price
o Damages for non-delivery:
o Damages for Breach of warranty/ contractual terms:
o Anticipatory Breach: Section 60
o Special Damages: Section 61
o Exemption Clause: Section 62
o Auction Sale

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 II. NEGOTIABLE INSTRUMENTS ACT

o Items 45 and 46 of Union List, amendment to this act: Banking and BoE, Cheque,
Promissory Note or others.
o Amendments: 28 times; Latest- 2019.
o Negotiable means freely transferable document plus delivery. [Sec. 14 and 46 read
together]
o Instrument consists of Promissory notes, Cheques, Bank Draft [Sec. 85A] and Bill of
Exchange.
o For a negotiable instrument to be valid, it must be written in nature. [Hindi Version,
Sec. 4,5,6,85A]
o Certainty in all respects, as to the maker/drawer, receiver, the sum of money, the
person who has been asked to make the payment, the date on which the instrument
has been drawn, will become payable, the place of payment, the stamp, and the
signature.
o Inchoate Stamp Instrument: Even though the amount is not there, then also the
instrument is valid.
o If we write a negotiable instrument, there are certain presumptions: They are
rebuttable presumption.
o Criminal offences, arbitration cannot happen. Can it happen in Dishonour of cheques?
Yes, as it is a compoundable offence. [Section 138 read with 147]
o This is a hybrid piece of legislation. Predominantly civil, but chapter 17 [Section 138-
147] is criminal in nature. Only one chapter does not make the act criminal. It
however, continues to be a civil piece of legislation.
o To promote the investment climate in the country, they are decriminalising offences.
o Subjected to RBI Act, and Banking Regulation Act.
o United Nations Convention On International Bills Of Exchange And International
Promissory Norms. – Contemporaneous in nature.
o Amendments: 28 times; Latest- 2016: Dishonour of cheque
o Commencement of the Act: 9th December 1881.
o Implementation of the Act: 1st March, 1882.
o This act in no manner affects the local customs and usages prevailing. [Sec. 1]
SECTION 1 (Local Extent, Indian Paper Currency Act 1871, Local Usage)
I. Local Extent:
 Article 372: all legislations in force in the territory of India immediately before the
commencement of the Constitution shall continue to have effect, until altered or
repealed or amended by a competent legislature or other competitive authority.
 Art. 246 endows Parliament with the exclusive power to make laws with respect to
any of the matters enumerated in List I- Union List in the 7th Schedule. Entry 46 in the
union list comprises BoE, cheques, promissory notes and other like instruments. Entry
45 of the union list relates to banking. Thus the law pertaining to negotiable
instruments and banking falls under the exclusive jurisdiction of Parliament.
Parliament alone can alter or amend the Act.
 Question whether the state legislatures, while including law relating subjects within
their own list, had transgressed the jurisdiction of the federal subjects under the GoI
1935
 State of Bombay v. Narothamdas (Bombay City Civil Court Act 1935 enacted
by the provincial legislature was ultra vires the GoI Act as the subject of P.
notes was covered by Entry 53, List I of the 7th Schedule of the GoI Act,
1935.)
65
  Prafulla Kumar Mukherjee v Bank of Commerce Ltd., Khulna (The Bengal
Money Lenders Act enacted by the provincial legislature which restricted the
amount of loan and interest that may be recovered from the debtor with
retrospective effect was challenged being ultra vires the GoI Act, 1935 as the
subject of negotiable instruments and banking was covered by union list. It
was held that the impugned Act was in pith and substance, a law with respect
to a matter enumerated in List II dealing with money lenders and money
lending and for relief of debtors and hence not ultra vires. The fact that it
incidentally affected the matter enlisted in union list will not affects its
validity.)
II. Indian Paper Currency Act 1871
 The NI Act does not affect the provisions of Section 21 of the Indian Paper Currency
Act, 1871
 The Act of 1871 was followed by a series of paper currency regulations, the last one
being the Indian Paper Currency Act, 1923. The Act of 1923 was repealed by the RBI
Act, 1931.
 Now RBI Act.
 S. 21 of the Act of 1871 has been re-enacted as Section 31 of the RBI Act, 1931, with
slight modifications.
 The object of this regulation was to prevent banks and private persons from infringing
the government monopoly over issuance of paper currency in India. This monopoly
has now been vested in the RBI in certain cases and the Central Government in
others.

III. Local Usage

 Any instrument written in Anglo Oriental Language is outside the purview of NIA.
Any instrument that is indigenous or popular among communities are allowed and
NIA will not affect it. But now any language accepted.
 The Act applies to Promissory notes, bills of exchange, and cheques but where the
instrument is in an oriental language, eg. Hundi (means to collect): indigenous
negotiable instrument; inter-community instrument, used in north India; Khoka:
Maharashtra; Sahjoga: Punjab, any local usage related to such an instrument applies
notwithstanding the provisions of the NIA. Namjog, Dhanijog, Jokhmai, Jawabi,
Jikkri, Darshani, and Meeyadi.
 However, the saving clause does not render the Act completely inapplicable to such
instruments. Only when there is a local usage, contrary to the NIA, the local usage
overrides the provisions of the NIA. In the absence of proof as to any such usage, the
Act applies to instruments in oriental language also.
 Such local usage may be excluded by incorporating a specific clause in the body of
the instrument indicating an intention that legal relations of the parties shall be
governed by the NIA. In such a case the local usage will cease to operate.
 SECTION 3
 Incompetent: Banking Regulation Act, 1949; Sec. 5-6- definition used.
 This act does not define negotiable instruments properly. Section 14 [sec 15] and 13
says transferable. First time transfer, second time indorsement. Therefore, the
instruments must be freely transferable. Negotiability means free transferability.
Section 46 of the act talks about when negotiation is completed. Only when the
instrument is delivered to the person.
 Negotiable instrument is a piece of paper, which entitles a person to a sum of money,
and which is transferable to person by mere delivery or indorsability. The person to
66
 whom it is transferred, is entitled to the money or to further transfer it. Certainty is
very important here.

CHARACTERISTICS

1. Has to be in writing.
2. Singed by the maker/drawer.
3. Must contain an unconditional offer to pay some money.
4. Must contain a certain definite amount of money.
5. Must be freely transferable.
6. The transferee has the right to recover the money.
7. Transferability, infinitive times.
8. Right to sue in case of dishonour or non-payment.
9. Whoever has the possession can claim, even if the previous owner’s right is defective
(exception to nemo dat quod non habet).
10. They are subjected to certain presumptions, all of which are rebuttable.

SECTION 118
Presumptions:

o Consideration need not be in writing.

o Date: The first date on the bottom side is the date of drawing, and on the top, the date
of drawing. Date of maturity, if advance date is written.
o You can draw the cheque for any period of time. [Three months- default, and section
138].
o As to the order of endorsement: Further transfer by endorsement. It must however be
written in such a manner that it must be clearly shown who first endorsed, who
second, etc. any doubt in that, leads the instrument invalid.
o Subject to stamp: not applicable to cheque now. Subjected to Indian Stamp Act, 1889.
o Holder is holder in due course.

SECTION 4

o Bank notes and Govt. Promissory notes can only be issued by the govt.
o P-notes cannot be bearer instruments. The maker and the payee, two parties.
o Bearer promissory note can only be issued by the bank. [Subject to Sec. 31, RBI Act
that’s why]
o Source: Bill of Exchange Act, 1882: both the acts were getting passed together
(bills introduced together); NIA just got implemented first.

o 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 only to, or to the order of, a certain person, or to the bearer
of the instrument.
1. Shall always be in writing
2. It can be written with anything and can be written anywhere, it must
be decipherable.
3. It must be transferrable
4. Singed by the maker
5. Maker must be certain

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 6. Sum payable must be certain
7. Payee must be certain
8. Instrument must contain the promise to pay money
9. Must not be a bank note or currency note.

o This is an exhaustive definition. It includes all the things, and excludes whatever
is not promissory note.
o There is no manner or writing the promissory note. Even in the most casual manner,
it will do.
o 2 things important: Acknowledgement of debt, and unconditional undertaking to
pay. These are the sine-qua-non of a valid promissory note. And presumptions. These
are the basic ingredients. Certainty in all respects should also be there to make the
instrument valid.
o Intention of the parties is taken into consideration.
 INGREDIENTS OR REQUISITES OF A PROMISSORY NOTE:
- The instrument has to fulfil all the requisites of a promissory note to be called so
and merely because the parties describe it as a promissory note does not make it
so.
- Rangaswamy v. Govindaswamy: The description and language of the instrument
taken as a whole, the circumstances under which it came to be executed, the
intention of the parties manifest from the face of the instrument and the
surrounding circumstances would have a cumulative bearing on a proper
construction of the instrument as to whether it is a promissory note.
- Re Hamdard Dawakhana (Wakf), Delhi: A single instrument may embody
several purposes and the document is to be read as a whole to find out its
dominant purpose which is relevant for the purposes of the Act.

1. It must be in writing
 The object of this requirement is to exclude oral engagements to pay, from the
purview of the Act. As per Section 3(65) of the General Clauses Act 1897 the
writing maybe in pencil or ink, and it shall be construed to include printing,
lithography, and other modes of representing or reproducing words in a visible
form.
 It excludes oral agreements.
 May be written by a pencil too. any way which can be deciphered by other party.
 The writing may also consist of either printed or typewritten as well as
handwritten matter. There is also no such requirement that the writing should be
on a paper. It may be written on cloth, linen or any other thing that can be used
for such purposes.
2. It must contain an unconditional undertaking to pay
 An express promise to pay is an essential element of a promissory note. A mere
acknowledgement of indebtness without an express promise to pay the debt is
not a promissory note. Also, an implied undertaking inferred from the use of
word debt or pro-note is not sufficient, as was held in Bachan Singh v. Ram
Avadh.
 It was held by the Privy Council in Akbar Khan v. Attar Singh that the document
in the case was a receipt for money containing the terms on which it was to be
repaid, and being primarily a receipt, even if coupled with a promise to pay, it
was not a negotiable instrument within the meaning of Sections 4 and 13.

68
  Also the undertaking to pay must be unconditional. Therefore, notes that are
payable on a contingency are not negotiable as their actual payment is not
certain. An instrument must be valid ab initio and carry its own validity on its
face.
3. It must be signed by the maker
 The maker of a note, the drawer of a BoE or cheque or an indorser may, if unable
to write his name, sign by a mark in lieu of signature. The signature need not be
in any particular part of the instrument.
 The words “self of my own handwriting”, written at the foot of the instrument,
whereby the writer declares himself to be bound to pay, may be a sufficient
signature. It is also essential that the mind of the signatory should accompany the
signature, i.e., the executant should intend to subscribe to the terms of the
document.
 Mere marks and initials are also considered to be signatures if they are intended
as such. Those with pencil are also allowed, NI act read with IT Act.
 Art. 5(a) of the international convention defines signature. Explanation 3 of
section 6.
4. Maker must be certain
 Promissory note should give a clear indication of the person who enters into the
contract and undertakes to pay. A promissory note may be made by several
persons jointly or jointly and severally. A joint and several note though on one
piece of paper, comprises in reality and in legal effect, several notes. Thus, if A,
B, and C jointly make a joint and several promissory note, there are, in effect, 4
notes- joint note of the 3 makers and also several notes of each of the 3.
 No restriction on the number of makers. But their identity must be certain.
5. The sum payable must be certain and the instrument must contain a promise to
pay money and money only. If ambiguity in words and numbers, words will go
[sec. 18, earlier. Now- not allowed]. Contractus Favourous [Presumption of validity
of a contract]. Valid, unless proven contrary. Exception- Inchoate Stamp Instruments.
Valid as per section 20.
6. Payee must be certain.
 Expression “certain person” in both Sections 4 and 5 of the Act means a person
capable of being ascertained on the date on which the note is made or bill is
accepted.
 There must be a payee ascertained by name or designation.
 Section 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.”
 The person to whom payment is to be made may be a certain person within the
meaning of Section 4 even if he is misnamed or designated by description only.
 Someone who is entitled to receive money and whose name is mentioned in the
instrument.
 Demarcation of money distributed between payees is not important.
 Someone whose name is not mentioned but who is in possession of the
instrument (bearer).
 When payee’s name is mentioned but the name of the holder to whom it is to be
endorsed is left blank, such an instrument also becomes bearer’s instrument.
 Indorsee- subsequent payee.
 Bearer promissory note cannot be issued.
 A note in the form “I promise to pay myself” is not a promissory note. It is,
however, valid if it is indorsed by the maker because then it becomes payable to
the bearer, if indorsed in blank, or to the indorsee or order, if specifically
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indorsed.

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 Other statutes defining promissory notes:
 Limitation Act, 1963: Section 2(k) “promissory note means any instrument
whereby the maker engages absolutely to pay a specified sum of money to
another at a time therein limited, or on demand, or at sight” [promissory note
limitation, 3 years].
 Public Debt Act, 1944
 Stamp Act, 1899 (most important because NIA is subjected to it): Section
2(22) “promissory note means a promissory note as defined by the
Negotiable Instruments Act, 1881 (XXVI of 1881): It also includes a note
promising the payment of any sum of money out of any particular fund which
may or may not be available, or upon any condition or contingency which may
or may not be performed or happen.”
 UN Convention on Bills of Exchange and Promissory Notes, 1988 : does not
regulate cheques and India is not a party to it.
Article 2 (2)  “An international promissory note is a promissory note which
specifies at least two of the following places and indicates that any two so
specified are situated in different States:
(a) The place where the note is made;
(b) The place indicated next to the signature of the maker;
(c) The place indicated next to the name of the payee;
(d) The place of payment,
provided that the place of payment is specified on the note and that
such place is situated in a Contracting State.”
 Why are stamps fixed onto instruments? -
 To create evidentiary value (to make it a perfect evidence)
 Financial transactions are there and government involvement is also there.
 No fixed format for writing promissory notes. Only thing that is required is intention.
 2 essentials: Acknowledgement of debt and Unconditional undertaking to pay.
Therefore, I.O.U. is different from promissory notes as it involves only the first
element and not the second.
 Nawab Major Sir Mohammad Akbar v. Attar Singh (Akbar Khan case)-Privy
Council decision: - Ria and Riya distinction, 2 persons confusion.
 An agreement containing the terms that an amount would be “payable” is not
sufficient to amount to unconditional undertaking to pay. It was a very mild
direction, the direction must be assertive and strong.
 PC held that the document in the case was a receipt for money containing the
terms on which it has to be repaid; and being primarily a receipt, even if
coupled with a promise to pay, it was not a promissory note.
 The stamping of a document as a receipt reflects the parties’ intention not to
treat it as a note.
 When no rate of interest specified in the instrument, it must be calculated at the rate of
“eighteen per centum per annum”- Section 80 of NIA
 Cladon v. Bradley, 1987 1 All ER 522 (above case accepted in this case)
 Bachan Singh v. Ram Avadh AIR 1949 All 713 : Use of the terms “as and when
needed” is creating a problem, creating uncertainty. Thus such a phrase would make it
an invalid promissory note. It was also held that an implied undertaking inferred from
the use of word debt or pro-note is not sufficient.
 Cashorne v. Dutton: No requirement for using the word “promise” for the instrument
to be a promissory note, provided the language clearly shows an intention on the part
of the maker to give an unconditional undertaking to pay.

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 Kadorilal v. Sukhpal AIR 1968 MP 4
 Whole document is required to be seen to construe whether the document is a
promissory note.
 Apparent tenor of that particular instrument must be cleared. (payment in due
course- Section 10 of NIA  ‘payment in due course’ means payment in
accordance with the apparent tenor of the instrument in good faith and without
negligence to any person in possession thereof under circumstances which do
not afford a reasonable ground for believing that he is not entitled to receive
payment of the amount therein mentioned)
 The purpose for which the promissory note was executed as described on the
instrument is required to be seen.
 Thus after reviewing several authorities, it was held in this case that the whole
document, its tenor, the purpose for which it was executed, as described in the
document itself, should be considered for determining the nature of the
documents. Collateral circumstance, which may be contained in evidence,
cannot be looked into for ascertaining the purpose of validity of promissory
notes.
 Also, parole evidence is not acceptable for determinacy of promissory notes.
 Chhabildas Mangaldas v. Luhar Kohan Arya AIR 1967 Guj 7
 The incident of negotiability is not essential to the validity of the promissory
note, provided all the requirement of Section 4 are complied with.
Requirements of Section 4 of NIA are the foremost requirements for the
validity of promissory notes.
 Therefore, if an instrument satisfies the requirements of the definition under
Section 4, it must be held to be a promissory note, irrespective of whether it is
negotiable.
 Bahadurnisa Begum v. Basudev Nayak AIR 1967 AP 123
 Certainty as to maker
 Certainty as to payee
 Certainty as to amount
 Certainty as to unconditional undertaking
 Certainty as to date
 Certainty as to place of payment
 Jaka Gopal Reddy v. Neelkantam Venkata Krishna AR 2008 AP 255
 Whole document to be taken into consideration.
 Intention of the parties.
 Messrs Packing Papers v. Smt. Veena Lata Khosla
 Promissory notes shall be in writing.
 Unconditional undertaking by the maker of the document is an essential
requirement for it be considered as a valid promissory note.
 Such unconditional undertaking must be to pay certain sum of money to
certain person or to the order of that person or to the bearer of the instrument.
 Maker should sign it.
 The promise to pay must be the substance of the instrument.
 There must be nothing else inconsistent with the character of the document as
substantially a promise to pay.
 The instrument must be intended by the parties to be a promissory note.

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Bank note is a bill/draft or note, issued by any banker, for the payment of money to the
bearer, on demand, which entitles the bearer to the payment of the sum of money without any
endorsement.

Currency note is an undertaking by the government to pay the bearer any sum written on
it. They’re not include keeping in mind the sovereignty aspect.

CASE LAWS:
What is promissory note?
 Kadorilal v. Sukhpal AIR 1968 MP 4
 Whole document is required to be seen to construe whether the document is a
promissory note.
 Payment must be done according to the Apparent Tenor: [As per the direction]
of the bill. Apparent tenor of that particular instrument must be cleared.
(payment in due course- Section 10 of NIA  ‘payment in due course’ means
payment in accordance with the apparent tenor of the instrument in good faith
and without negligence to any person in possession thereof under
circumstances which do not afford a reasonable ground for believing that he is
not entitled to receive payment of the amount therein mentioned). AT means
payment in good faith and the direction in which it is to be made.
 To be considered as valid, the purpose is required to be the same as stated on
the instrument. The purpose for which the promissory note was executed as
described on the instrument is required to be seen.
 Thus after reviewing several authorities, it was held in this case that the whole
document, its tenor, the purpose for which it was executed, as described in the
document itself, should be considered for determining the nature of the
documents. Collateral circumstance, which may be contained in evidence,
cannot be looked into for ascertaining the purpose of validity of
promissory notes. Also, parol evidence is not acceptable for determinacy of
promissory notes.
 Chhabildas Mangaldas v. Luhar Kohan Arya AIR 1967 Guj 7
 Incident of negotiability must be mentioned. he incident of negotiability is not
essential to the validity of the promissory note, provided all the requirement of
Section 4 are complied with. Requirements of Section 4 of NIA are the
foremost requirements for the validity of promissory notes.
 Therefore, if an instrument satisfies the requirements of the definition under
Section 4, it must be held to be a promissory note, irrespective of whether it is
negotiable.
 Bahadurnisa Begum v. Basudev Nayak AIR 1967 AP 123
 Certainty as to maker
 Certainty as to payee
 Certainty as to amount
 Certainty as to unconditional undertaking
 Certainty as to date
 Certainty as to place of payment
 Jaka Gopal Reddy v. Neelkantam Venkata Krishna AR 2008 AP 255
 Whole document to be taken into consideration.
 Intention of the parties.
 Messrs Packing Papers v. Smt. Veena Lata Khosla
 Promissory notes shall be in writing.

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  Unconditional undertaking by the maker of the document is an essential
requirement for it be considered as a valid promissory note.
 Such unconditional undertaking must be to pay certain sum of money to
certain person or to the order of that person or to the bearer of the instrument.
 Maker should sign it.
 The promise to pay must be the substance of the instrument.
 There must be nothing else inconsistent with the character of the document as
substantially a promise to pay.
 The instrument must be intended by the parties to be a promissory note.

Cases
Kadori Lal v. Sukh Lal.
Incidence of negotiability - at least once the Instrumnet must be freely transferrable. After
that there can be restrictions there.
Reuquirements of sec 4 as discussed.

Bahaadur begum v vasudev nayak air 1967 ap 123

To determine validity of pn.
In this case, it was laid down that certainity is most important aspect of NI. Commonality of
6 basic ingredients like certainty as time etc.

Jakka Gopal Reddy v. Neelkantam Venkata Krishna AIR 2008 AP 255

Whole document is to be ready to form conclusion if PN is valid or not AND whole doc to be
ready to know intention of the parties to determine validity..

Messrs packing paper sales and another v srimati dina lata khosla Air 2007 Delhi 175
Comprehnsive case to understand promissory notes.
Certain ratios:
1, it shall be in writing.
2. Unconditional undertaking by maker of the document
3. Such unconditional undertaking must be to pay certain some of money to certain person
that is payee under sec. 7
4. Makers should sign it
5. Promise to pay must be the substance of the instrument.sine qua non of NI
6. There must be nothing else inconsistent with character of doc and substantially promise to
pay. Nothing contrary should come out about not paying.
7. Instrument must be intended by the parties to be a promissory note.

Refer to 3 books.. Khergamvala (lexis nexis) likemulla, bhashyam and adiga , Sharma and
Moga.

 How PN are written?

In Mohammad akbar khan and Clayden v Bradley.
The term ‘payable’ is not indicative of fact clearly that payment is required to be there. So
term has to be very very clear to convey certainity.

Certain Illustrations Of Sec 4

1st is valid PN because acknowledgement of debt is missing but it is considered valid as there
is assumption I am promising to make payment. Negotiability and intention is there.

74
2nd valid as acknowledgement is there
3rd it is merely acknowledgement. It is not unconditional undertaking to pay so not valid pn
4th all other sums is not clear so instrument is invalid.
5th uncertainity about deduction
6th my marriage will or will not take place so invalid
7th death is certain but "enough" is not certain and sufficient enough indicative of payment
8th black horse not certain

Why definition of banker in sec 2 is not sufficient? And which def of which act will be
sufficient?
It only provides an illustration. When will be bring in Sec. 1 subjected to RBI act and
Banking Regulation Act. Then what definition given in banking regulation under Sec. 5 will
be relevant.

3 things required:
1. Open current accounts
2. Pay checks drawn on himself as bank is drawee
3. Collect cheque for customers

Definition of banking given in case:

Now sec. 31 of RBI act has what implications for the purpose of promissory notes?
Bank note or currency note can be issued **

2. No person in India other than RBI or central govt can draw BOE payable to payer of
demand Bearer cheque can be issued by individual also but bearer PN or BOE can only be
issued by RBI or central govt

BILL OF EXCHANGE

SEC 5 of NI act.
Bill Of Exchange has 3 parties drawer, drawee and
payee. 5-6 requirements.
1. Boe must be in writing
2. Boe must have an order to pay
3. Order contained in the bill should be unconditional
4. Bills payable out of a particular fund ( controversial because many say when the
drawer is having some money with the drawer and then drawer asks drawee to make a
payment some courts says it is possible only if drawer has some money in advanced
with drawee. But this is not agreeable to so many high courts. They say particular
fund is not a necessity. Depending on person's reputation and respect from drawee
5. Boe must be signed by the drawer
6. Drawee must be certain.
7. Instrument must contain an order to pay money and money only.

Definition of Bill of Exchange under section 5 of NI act is exhaustive as it covers all aspects
at one place only. No need to look at other places, similar case to PN
 148 sections in NIA Act.

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CLASSIFICATION OF BILLS OF EXCHANGE
1. Usance Bill: Time fixed for the payment of bills drawn in one country and payable in
another. (Also known as Foreign Bills and Time Instrument (Section 12 of NIA)
2. Documentary Bill: When all the docs. relating to the sale transactions along with the
BoE is attached for the purposes of releasing the money by the bank. Manner in
which a BoE is used, not a type. Doctrine of Strict Compliance.
3. Claused bill: A BoE clause provided for payment at a specified rate of exchange or
adding to the sum payable, interest or specified charges.
4. Irregular Bill: If a BoE bears irregular indorsement, it is known as irregular bill. An
irregular indorsement makes the instrument void. It makes it incapable of making the
payment. The chronological order of endorsement must be clearly visible and
followed.
5. Avalised Bill of Exchange: drawer, drawee, payee + a fourth person- in case of non-
payment by drawee, such fourth person guarantees or backs payment. The term used
is “backing” the payment.
 Witness: not a necessary party.
6. Genuine trade bill: when the bank writes its acceptance in the banking language. Not
basically a type but a nomenclature given to the accepted bill of exchange given by
the bank. When the bill is made in a trade transaction.
7. Accommodation Bills: Bill which is drawn by one person and accepted by the other
without consideration, merely to enable the drawer to raise money on the bill by
discounting it. (Section 41)
8. Treasury Bill: issued by foreign government to another government.

Inland Bill of Exchange [Section 11]

a) Drawn in India, made in India, and payable in India.
b) Drawer, drawee, payee, all located in India. (agents appointed maybe located
outside)
c) Necessary parties must be located in India.
Foreign Instrument
a) Section 12 of NIA
b) Article 2 of UN Convention
c) If any one party is not Indian/ outside India.

BILL IN SETS
 Section 132 and 133
 A BoE in sets drawn in parts or sequenced is called bill in sets.
 Both the parties are located in different countries
 Purpose/ Advantage:
1. Convenience
2. If not all at least one document will be available to the other party so that they
can claim the goods from the warehouse.
 Bills of exchange may be drawn in parts. All the parts together make a set, but the whole
set constitutes only one bill. Bills are sometimes drawn in several parts. All the parts so
drawn are referred as bill ‘drawn in sets’. The drawer of the ‘bills in sets’ has to sign all
the parts and deliver all the parts but the acceptance should be written only on one part. If
the drawee accepts more than one part and if such separate accepted parts get into the
hands of different holders in due course, he and the subsequent endorsers of each part are
liable on every such part as if it were a separate bill.

76
 Documentary credit: It refers to docs related with sale transaction and letters of credit
that are attached.
 UCP (Uniform Commercial Practice) 600
 Each part is known by a term- via
 parts must be numbered (1 of 10, 2 of 10, etc.)
 can be presented with all parts or any one of them
 payment on one is considered as payment on all/many.
 it is always used in cross-border transactions or carriage transactions.
 What is the utility of bill in sets if acceptance/ payment of one is considered as that of all-
If one part of the goods or one part of documents needs to be transferred, during the
transmit if the owner wants to sell it to 3rd person, then that particular part only will be
indorsed.

 SECTION 34 AND 38 OF SOGA- part-delivery and instalment delivery.

CHEQUE
 A cheque is drawn by the banker, on a banker, and is paid without any days of grace, on
demand.
 No grace days of 3 days. Payment has to be done immediately.
 Validity period 3 months.
 The cheque requires no acceptance only payment. [Section 61 and 64]
 In no circumstances, the bank can take more than 48 hours.
 No privity of contract between banker and the payee. The payee can sue the drawer, and
not the bank.
 A cheque is supposed to be drawn on the funds in the hands of the banker. It is his legal
duty that once he has issued the cheque, he has sufficient money to honour the cheque.
 The drawer of the cheque is not discharged of liability in case of failure of the payee to
present the cheque/ cheque is lost, unless he attracts some liability/loss from non-
presentence. Subsequent cheque can be asked by the payee from the drawer.
 Cheque is not noted and protested for dishonour [section 99 and 100]. Generally, it is
inland only.

 SECTION 6: A “cheque” is a bill of exchange drawn on a 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 the electronic form.
Explanation I: For the purposes of this section, the expressions—
(a) “a cheque in the electronic form” means a cheque drawn in electronic form by
using any computer resource and signed in a secure system with digital signature
(with or without biometrics signature) and asymmetric crypto system or with
electronic signature, as the case may be;]
(b) “a truncated cheque” means a cheque which is truncated during the course of a
clearing cycle, either by the clearing house or by the bank whether paying or
receiving payment, immediately on generation of an electronic image for
transmission, substituting the further physical movement of the cheque in writing.
Explanation II: For the purposes of this section, the expression “clearing house”
means the clearing house managed by the Reserve Bank of India or a clearing house
recognised as such by the Reserve Bank of India.]
Explanation III: For the purposes of this section, the expressions “asymmetric crypto
system”, “computer resource”, “digital signature”, “electronic form” and
“electronic
77
 signature” shall have the same meanings respectively assigned to them in the
Information Technology Act, 2000.
 A cheque is a BoE drawn on a specified banker and payable only on demand. The
necessary parties to a cheque are same as those to a bill of exchange, except that the
drawee must be a banker. The banker does not become acceptor of the cheque, but there
is an implied contract between the banker and his customer that he will honour cheques
drawn upon him by his customer up to the amount of the funds of his customer which he
has in his hands or, where there is an agreement to let the customer overdraw, up to the
limits of the amount of the overdraft agreed on. The banker’s liability is to the drawer (his
customer) only; the mere dishonour of a cheque gives no right of action to anyone other
than the drawer.
 It is a species of BoE and thus it must be drawn in accordance with the requirements of
Section 5 of the Act.
DIFFERENCE BETWEEN BILLS OF EXCHANGE AND CHEQUES
Bill of Exchange Cheque
It must be accepted before the acceptor can It requires no acceptance and is intended for
be made liable upon it. immediate payment. (while it cannot be said
that a cheque can never be accepted, it is
only done in very unusual and special
circumstances, and would require strong
and unmistakable words. Thus, certification
of a cheque does not constitute an
acceptance
within the meaning of the Act.)
It is normally entitled to 3 days of grace, It is payable immediately on demand,
unless it is payable on demand. without any days of grace.
The drawee of a BoE may be anyone The drawee of a cheque is always a banker.
including a banker.
A bill must be duly presented for The drawer of a cheque is not discharged
payment or else the drawer will normally by the holder’s delay in presenting it for
be discharged. payment, unless the drawer has been injured
because of the delay.
In order to charge the drawer, of a BoE When a cheque is dishonoured, notice of
that has been dishonoured by non-payment, dishonour to the drawer may not be
notice of dishonour should be sent to him, necessary in a large number of cases, as the
except in certain circumstances. want of his funds in the hands of the
banker is sufficient notice.
Bills cannot be crossed. Cheques can be crossed.
No such statutory protection is available to Statutory protection is given to the drawee-
the drawee or acceptor of an ordinary banker with regard to payment of cheques in
BoE. certain circumstances.
Such a protection is not available Subject to certain conditions, statutory
while collecting bills. protection is available the collecting
banker against liability for conversion of
crossed
cheques.
Subject to Indian Stamp Act. No such requirement.
Not payable to the bearer on demand. Can be payable on demand.

78
Notice can be issues as per Section 91, both Notice of Dishonour is required, but only
oral or written in can of dishonour. [Section written, within 30 days. [Section 138(b)] –
93] – Civil Offence only damages. Criminal Offence, Damages and jail term.

79
 All cheques are bill of exchange, but all bill of exchanges are not cheques. Cheque is a
specified bill of exchange.
 Initially bank draft was not recognised as a negotiable instrument, but recognised later.
Section 85A recognises.
 Definition: A demand draft or bank draft is a BOE drawn by a bank (drawer) on
another bank or his own bank branch usually instructing the bank to pay a specified sum
of money to the named payee or his order on demand.
 Demand draft is a negotiable instrument similar to cheque: Freely transferable, and the
rule of crossing is applicable on the bank draft, payable on demand, countermanding
[section 97 maybe].
DIFFERENCE BETWEEN CHEQUE AND DEMAND DRFAT
 A demand draft cannot be dishonoured as the money is already paid to the bank, while
in the case of a cheque, it can bounce due to instructions to stop payment by the
drawer or due to insufficient funds in the account.
 While the bank issues a demand draft, a cheque is issued by the customer of the bank.
 A cheque payment can be stopped by the customer, however, payment done through a
DD cannot be stopped.
 A cheque book is available only to the account holder, while a DD can be
executed both by account holders as well as non-account holders.
 While the bank does not charge a fee on a cheque, a demand draft entails a bank fee.
 In a cheque transaction, there are three parties involved: the drawee, drawer, and
payee, while in a demand draft, only two parties are involved: drawer and
payee.

 Public Holiday: Section 25: When day of maturity is a holiday.—When the day on
which a promissory note or bill of exchange is at maturity is a public holiday, the
instrument shall be deemed to be due on the next preceding business day. Explanation.
—The expression “Public holiday” includes Sundays 1[***] and any other day
declared by the 2[Central Government], by notification in the Official Gazette, to be a
public holiday.

CLASSIFICATION OF NEGOTAIBLE INSTRUMENTS

1. Order instrument: Section 13 contemplates it. Holder’s name is mentioned.

a) Payable to a particular person – named payee.
b) Payable to a particular person on his order
c) Payable to the order of a particular person (person’s identity is there)
2. Bearer instrument: Section 13
a) Expressed to be payable to the bearer.
b) Last indorsement is in blank [where the endorsees name is not there]. (There
are two types of endorsement: General indorsement/ endorsement in blank-
can be given to anyone; which means that if a payee’s name is there but there
is an endorsement in blank it can go from an order instrument to a bearer
instrument): Explanation 2.
3. Full Endorsement: Complete direction of making payment is being mentioned.
4. Demand Instrument: Section 21
a) Cheque is always payable on demand within the period of its validity. The
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automatic period of validity is three months. This is written in S138 and S142.

81
 b) Time for payment is not specified.
c) The instrument is valid till its validity period.
d) If the instrument is a demand instrument, no grace period is given. Section 22-
25.
(difference in maturity and validity Section 22 and 138. Maturity- date when payment is due,
i.e. the date written on the top)
e) May be presented for payment at any time. (Within the period of its validity)
Does not have to be an exact date. There is no limitation on the number of
times an instrument can be presented.
f) Bank can say "refer to drawer" or "stop payment" or "account closed" or
"Insufficiency of funds" or "dormant account" (every bank has a different
policy as to what is a dormant account).
g) After dishonour a 30-day notice, then 15-day time to reply to it, then further
proceedings.
h) Since there must be debt and liability- and only then there can be an offence.
So even if you issue another cheque with insufficient funds, only for one will
you be prosecuted.

5. Inchoate stamped
instrument
a) Promissory notes only.
b) Inchoate means incomplete.
c) Section 20: incompleteness to the extent of amount to be filled. It is generally
expected that the holder will fill that amount which is in consonance with the
stamp to be fixed
d) Section 118 (f): talks about stamping but over the years stamping act is not
applicable to cheques. Thus cheques don’t come under the terms of Section
20.
e) Stamp fixes the maximum amount which can be there. The person who is in
the possession of the instrument may fill the amount.
f) Even though any excessive money is filled (previous holder’s right is
defective) and indorsed to someone else, indorsee has to look for 3
requirements to be fulfilled: (1) received in good faith, (2) before maturity
and for consideration
(3) Nothing suspicious in the instrument. If these 3 are cumulatively fulfilled
the indorsee becomes holder in due course. Stamp loses importance in such a
case. [Privilege to the Holder in Due Course] If these 3 things are there, the
rights of the Holder in Due course will not be affected, even f any of the
previous parties rights are defective. [Section 9 read with sec. 118(g)].
g) Received in good faith will be the amount as: Nemo Dat Qua Non Habit is
not applicable in Negotiable instruments. It must be proved beyond doubt.
h) Holder, and Holder in Due Course [section 20, last sentence].
2. Time Instrument- Section 21
a) Payable on specified date
b) Payable after specified period
c) Payable after certain period after presentation
d) On the happening of an event which is certain to happen. Example: marriage
is uncertain and death is certain.
3. Inland Bill of Exchange Section 11
a) Drawer, drawee, payee, all located in India. (agents appointed maybe located
outside)
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 b) Necessary parties must be located in India
4. Foreign Instrument

83
 a) Section 12 of NIA
b) Article 2 of UN Convention
5. Ambiguous Instrument
a) Section 17.
b) Drawer and the drawee is the same person.
c) The drawee is a fictitious person.
d) When the drawee is a person incapable of entering into the contract.
e) When ambiguity is removed, then it is a valid instrument.

Difference between ambiguous and inchoate instruments.

Truncated Cheque/ Bank Draft: Section 6, Exp 1. Payment has already been done; bank
keeps the cheque for records. It is a paid and negotiated instrument.

DISCHARGE OF NEGOTIATED NEGOTIABLE INSTRUMENT: (Section 82):

1. By payment
2. By cancellation
3. By release: of any of the parties; no restriction in endorsement, last person wants
that one person must be released from the liability, release can be done by the last
endorsee.
4. By material Alteration (Section 87)

Who can bring amendments? Central parliament but subject to RBI rules.
Electronic cheques: exact mirror image of paper cheques and is generated, written and
signed in a secure system ensuring minimum safety standards, digital signature, with or
without biometrics; drawer will use the digital signature and with the use of Assymetric
Crypto System [section 6, exp. 1, clause A] – IT Act, 2000.

MINORS-
 Can issue promissory notes, but cannot be held liable.
 Section 26.
 Cheque may be drawn in favour of the minor.
 If a cheque is drawn by the minor and dishonoured, no liability.
 In a promissory note, the maker cannot be a minor.
 Minor can issue a cheque, can be payee.
 Can make a negotiable instrument. Cannot be a drawer- since the drawer is the one
liable and minors can’t be held liable.
 Can be a drawee or a payee.
 Minor is not permitted to contract, but here it is allowed because it is a special law,
and special acts prevail over the general act. Therefore, the minor is competent to
make this instrument.
 The drawee cannot be the minor, section 7.

MINOR’S LIABILITY
In case of a cheque, it can be drawn by or in favour of the minor. But he cannot be drawee.
In case the cheque issued by the minor is dishonoured, he will not be held liable.

84
 Generally, minor is not allowed to contract. But this is a special law. (les specalisis)
A minor can make anyone liable except for himself.

Promissory Note
Maker and payee, two parties. Maker has not been defined; payee has been in section 7.
Minor cannot be the maker as he cannot have any liability [Section 26 with section 7].

Bill Of Exchange
Drawee in case of need.
In addition to the first drawee, if one more person’s name is mentioned, he will be drawee in
case of need. If Drawee in case of need is there, unless the two names are mentioned on the
instrument. If his name is not mentioned, but he is ready to pay, he is acceptor for honour.

In case of BOE, if you accept an invalid instrument, he will not be liable. Minor’s liability is
a secondary liability. In case of BOE, drawers liability will arise only when drawee does not
pay. Therefore, minor cannot be the drawee as he cannot have a primary liability. Section
115.

ACCEPTANCE FOR HONOUR

In addition to the first drawee, if one more person’s name is mentioned, he will be drawee in
case of need. If Drawee in case of need is there, unless the two names are mentioned on the
instrument. If his name is not mentioned, but he is ready to pay, he is acceptor for honour.

Acceptance is signification by the drawee of this accent to the order by the drawer.

Section 132 talks about if more than one set is there, read with section 7. [Bill in Sets], then
acceptance of one will be considered as acceptance of all.

Cheques payable on Demand: Section 19, only BOE need to the accepted, not cheques.

 Who may accept?

1. Only the drawee. [Sec. 33]. This is the only place where a strangers entry is permitted
in the negotiable instrument [Sec. 108 clarifies the rights of the acceptor for honour].
The drawee is the person directed to make the payment.
2. All or some of the several drawees may accept when the bill is addressed to more than
one drawee.
3. Drawee in case of need may accept, who is mentioned in the bill.
4. Acceptor for honour. [Section 7, paragraph 3 read with section 33].

 Conditional Acceptance: Section 86 rad with section 7 and 33. Conditional acceptance
is not permitted.

 Partnership Firm: Considered to be as the director of a firm for the purposes

of this act. Implied authority under section 19 of the IPA. They can draw BOE.
Partners are agents of each other.
 Insolvents: No contractual capacity to draw instruments.
85
  Agents: Have the authority.
 Section 15: Maker may also indorse.
 Company: Can make a Negotiable Instruments.
 Lunatic Person: Can do it in his sound intervals.
 Pardanasheen Women: Can make, no problem.
 Legal Representatives: Allowed.
 Alien Enemy: Not allowed, cannot be acknowledged even after peace has been
made.

 Requisite of a valid acceptance:

1. It must be written on the instrument.

 Dormant Account: Account which is not operational for a long time. Long time depends
upon the bank, one or two years, depending on your reputation with the bank.
 BASL Norms: BASL 3 norms applicable right now. They are international standards like
the ISI, for the banks.

DIFFERENT CONCEPTS – SAME LONG TITLE.

 Section 34, 48 Of Soga Also.
 Section 49: Conversion Of End In Blank
 Section 55: Conversion Of End Of Blank Into Full.

Importance Of Delivery In Negotiation.

Indorsement: 48 Read With 15.

Section 8 Read With Section 78: Holder’s Importance

Who Can Be A Holder?

1. The person whose name is mentioned as a payee.
2. The bearer of the instrument.
3. If the holder further transfers for consideration, and his indorsement is in full/blank,
indorsee when there is subsequent transfer. [general or special instrument]

Drawee in Case of Need: Bill of exchange only.

ESCROW INSTRUMENT/ ACCOUNT

When an NI is endorsed and delivered conditionally or for a special purpose only as collateral
security or for safe custody and not for the purpose of transferring absolute property therein is
called escrow.
PAYMENT IN DUE COURSE- SECTION 10 OF NIA
1. ‘Payment in due course’ means payment in accordance with the apparent tenor of the
instrument.

86
 2. In good faith and without negligence.
3. To any person in possession thereof under circumstances which do not afford a
reasonable ground for believing that he is not entitled to receive payment of the
amount therein mentioned.
4. Payment must be made only in money.

Acceptance in Section 7
American Express Bank Ltd. v. Kolkata Steel Co.
 Acceptance regarding BoE is a technical term and does not mean merely
taking or receiving.
 Acceptance of BoE is the signification by the drawee of his assent to the order
of the drawer.
 In commercial parlance, acceptance of BoE is the drawee’s signed
engagement to honour the BoE as presented.
 The contract of the acceptor is a new and independent one. It comes within the
rules as to consideration for a contract on NI and like every contract in NI, it is
incomplete and revocable until delivery of the instrument, for the purpose of
giving effect thereto.
 Normal manner of acceptance:
 Signed on the instrument – on the face or back, anywhere.
 Right accepted.
 All of this is on the instrument itself, always written. A mere signature is
enough to indicate that acceptance has been done.

 Why is acceptance necessary to fix liability

 If after accepting liability, payment is not made, the holder will serve notice,
and after serving the notice, legal proceedings will start.
 Primary liability of the drawee.

 Presentment to whom:
 Drawee
 Duly authorised agent
 In case of several drawees, to all
 In case of several drawees, if they are partners, then to any one of the partners.
 In case of dead drawee, to legal representative
 In case of drawee in case of need, the to the alternative drawee.

ACCEPTOR FOR HONOUR (SECTION 7)

Complete stranger. After noting and protesting if any stranger come forward, he fits into the
shoes of the drawee and then he is supposed to make payment within the period of maturity.
“When a bill of exchange has been noted or protested for non-acceptance or for better
security, and any person accepts it supra protest foer honour of the drawer or of any one of
the indorsers, such person is called an acceptor for honour.”

Acceptance here means acceptance for payment.

87
 Drawee in case of need (Section 7)- Alternate drawee whose mentioned on the instrument
itself. “When in the Bill or in any indorsement thereon the name of any person is given in
addition to the drawee to be resorted to in case of need, such person is called a drawee in
case of need.”

NOTING AND PROTESTING

 Chapter IX, Sec. 99-100.
 Both are optional.
 Noting and Protesting only on Promissory note and bill of exchange.
 Noting means the convenient method of authenticating the facts of dishonoured. It
means the minute recording by a Notary Public on a dishonoured bill. There is no
fixed format.
 Basic Ingredients of Noting:
1. Facts of dishonour.
2. Date of dishonour.
3. Reason, if any assigned for such dishonour.
4. If the instrument has not been expressly dishonoured, why the holder calls it
dishonoured.

 Noting Coverage: Promissory Note or BOE.

 Commonly done on foreign instruments.
 It is to be done within reasonable time. Limitation period is 3 months.
 Protesting is the process after noting, when the certificate is issued by the Notary public.
It is a formal process, where certificate is issued attesting the facts of the dishonourment.
 It gives authentic and satisfactory proof of dishonour to the drawer.
 Under section 119, in a suit on the dishonoured BOE, the court shall presume the facts of
dishonour on the proof of the Protest. It has that evidentiary value.
 Sine Pvt. Ltd. v. Dinesh International Pvt. Ltdt, 178 2010, 422: Noting case.
 Notice of Protest: Provided under sec. 102. It is simply a notice of dishonour and the
intimidation that the bill has been protested as required by law. It fixes liability. The
object is not the demand payment by the warn the parties liability. In case of drawer,
whenever he protests,

ACCEPTOR FOR HONOUR

 Sec. 7 read with sec. 108.
 The stranger makes the payment with the consent of the holder.
 The bill of exchange must be accepted to make the payment with the consent of the
drawer, but I take no liability.
 “Acceptor for honour” [Chapter XI]: When a BoE has been noted or protested for
non-acceptance or better security, and any person accepts it supra protest for honour
of the drawer or any one of the indorser, such a person is known as an acceptor for
honour.
 Role of strangers to the instrument is recognised Chapter XI (Sections 108 to 116)
 Chapter IX (Sections 99 to 104-A) of notice and protesting.
 Acceptor for Honour (Section 7)- complete stranger. After noting and protesting if
any stranger come forward, he fits into the shoes of the drawee and then he is
supposed to make payment within the period of maturity. “When a bill of exchange
has been noted or protested for non-acceptance or for better security, and any person
accepts it supra protest for honour of the drawer or of any one of the indorsers, such
person is called an acceptor for honour.”
88
HOLDER AND HOLDER IN DUE COURSE
Section 8: Holder is the person who is entitled to receive the money. Presumption in favour
of the holder (Sec. 138). He is the person in whose name the instrument has been drawn.
Therefore, the payee is considered to be the first holder. The indorsee will be the second
holder and the subsequent payee, named by the holder. The bearer may also be the holder if
there is no named payee.

If the instrument is lost, the holder will be still entitled to receive the payment. Therefore,
loss or destruction cannot change the persons entitlement to take the payment. However, the
maker has to be informed of such loss, as defective title may also be transferred [exception to
nemo dat qua..].

HOLDER AND HOLDER IN DUE COURSE- DIFFERENCE

HOLDER HOLDER IN DUE COURSE
No Consideration Consideration is mandatory
Holder can get payment after maturity Holder in due course is required to receive
instrument before maturity.
No good faith required Instrument is required to be accepted in
good faith
Notice of defect is required. No such notice required.
Does not enjoy any privilege. Enjoys many privileges.
Nature: Title may be defective. Title never defective.

HOLDER IN DUE COURSE/ PROTECTED HOLDER/ PRIVILEGED HOLDER: 4

Conditions [Section9].
1. Prove that you’re the holder.
2. Becomes holder for consideration.
3. Obtained the possession of the instrument before maturity. [Sec. 22-26]
4. Obtained the instrument in good faith.

Nature
Holder in due course- title can never be defective
Holder in due course is the indorsee
Notice of defect there with holder in due course- instrument continues to be valid
Privileges for holder in due course- protected holder.

PRIVILEGES OF HOLDER IN DUE COURSE

1. Every prior party to a negotiable instrument is liable for making a payment to holder
in due course and this is provided under Section 36.
2. Privilege in case of inchoate stamped instruments mentioned under Section 20. If the
named payee or the bearer had overwritten the amount [not permitted by the stamp],
then that further person, indorsee, who is the holder in due course, he can resort to any
person for getting the payment. He is entitled to the exceeded full amount, whatever
the money is written on the instrument.
3. A holder who derives the title from the holder in due course has the same rights as
that of the holder in due course. If he further transfer, the person to whom it is
transferred will become a holder in due course only, [Section 53].
4. No prior party can set up a defence that NI was drawn, made or indorsed by him
without any consideration, as under Section 43.

89
 5. No prior party can set up a defence that NI was lost or was obtained from him by an
offence or fraud or for unlawful consideration. Holder in due course gets a valid title
of the NI even though the title of the transferor was defective- under Section 58
6. No prior party can allege that NI was delivered conditionally or for special purpose
only and special purpose here refers to purpose other than payment- Section 46
7. Estoppel against denying original validity of the instrument- Section 120
8. Estoppel against denying the capacity of the indorsee- Section 121
9. Estoppel against denying signature or capacity of prior party- Section 122

*UN Convention uses the term “Protected Holder”

PROVISIONS OF LOST INSTRUMENT
 Section 45A, 81, 58, of NIA and Section 169 of the ICA.
 Finder of lost instrument:
 In case of bearer instrument, finder has the right.
 In case of order instrument, finder does not get the right.
 Cross Cheque.

 Cannot send mom dad to jail. Section 138, explanation.

 Dishonour of cheque is arbitrable, as section 147 makes them compoundable.

 Allonge: Paper attached for further indorsement. It must contain the signature of the
person who is transferring it.
 Alternate Drawee: When more than one drawee are there. Drawee in case of need.
 Article 10 of the UN Convention: Bill may be drawn by more than one markers/ more
than one payees, etc.
 The UN convention regulates BOE and Promissory notes.
 Self BOE is not regulated by third.
 A cheque does not become invalid by reason that it is ante-dated or post-dated [Section 4,
5, 6, 118].
 Till the date of maturity of a post-dated cheque, it may be used as a better security only.

DISCHARGE OF INSTRUMENTS
1. Payment being made
2. Cancellation
3. Release of the parties. (San recourse indorsement)
4. Material Alteration

MATERIAL ALTERATION- SECTION 87

 The term has not been defined.
 Alteration must be material, must be made after the instrument is negotiated (when it
has been delivered),
 Section 87 read with 82.
 Effect: alteration makes the instrument void.
 If any of the presumptions of Section 118 is altered, then it is material alteration.

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  What is the meaning of material alteration?
The term has not been defined. Sec 87 only talks about the effects of material alteration
that is discharge. There are 4 methods of discharge and those are mentioned in sec 82. We
can find definition of material alteration from Halsbury law of England.
 Halsbury was one of the famous judges in 1870s when codification of common law
started.
 This encyclopaedia provides 4 things but it is not fully satisfactory:
1. Alteration must be material
2. Alteration must be made after the NI is executed- means when its has been
negotiate or enforced. [S14 read with s46 and 47 that is negotiated. The ways through
which instrument is negotiated is- negotiation ab initio, assignment and endorsement.]
With consent if alteration is there then it is valid.
3. Absence of consent of a party liable under the instrument
4. Alteration does not incorporate the common intention of the original parties.

But this does not look like complete definition. They have not defined what is ‘material’.

Loon Karan Sethia v. Ivan E. John Air 1977 Scc 394.

 Pg 394- “material alteration is one which varied rights, liabilities, legal position of
party as ascertained by deed in its original state or otherwise varies the legal effects of
the instrument as originally expressed for which may otherwise prejudice the party
bound by the deed as originally executed. “
 This def by sc aptly describes meaning of material instrument for purposes of NIA.
Loon Karan Sethia v. Evan A. John (1977)
 Material alteration is the one which varies the rights, liabilities or legal
position of the parties as ascertained by the deed in its original form or
otherwise varies the legal effects of the instrument as originally expressed or
which may otherwise prejudice the party bound by the deed as originally
executed.
 Halsbury’s definition
 Alteration must be material
 Alternation must be after the NI is executed.
 Absence of consent of a party liable under the instrument.
 Alteration does not incorporate the common intention of the original party.
 Types of Material Alteration
1. Allowed Material Alteration
 Section 87 is inclusive
 Inchoate stamped instruments: considered material alteration but allowed.
 Converting indorsement in blank into indorsement in full. [Sections 16 and
49]
 Holder of un-crossed cheque may cross it or may convert it generally into
special crossing or to make it not negotiable. [allowed as per Section 125]
 Alteration made before the completion of the instrument.
 Alteration made with the consent of the parties liable on the instrument.
 Alteration made for the purpose of correcting a mistake or clerical error.
 Alteration made to carry out the common intention of the parties.
 Conversion of bearer cheque/ order cheque
 Making of a qualified acceptance. (S. 86, allowed)
 An alteration which is accidental, making the amount feasible. [HDFC v.
Lee Shi 1928 AC 181]
2. Prohibited Material Alteration
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  Alteration of the date of instrument.
 Alteration of the time of the instrument.
 Alteration of the place of payment.
 Alteration of the sum payable.
 Alteration by adding a new party to the instrument. (acceptor for
honour is an exception)
 Alteration of the rate of interest.
 Alteration by tearing material part of the instrument.
 Alteration by fixing stamp without the promisor’s knowledge. [Section
20]
EXCEPTIONS: When material alteration is permitted.
1. Inchoate Stamp Instruments.
2. Converting Indorsement in blank into indorsement in full [Sec. 49].
3. When the payee crosses a cheque, conversion of general crossing into special crossing:
Sec. 125.

EXAMPLES
 Alteration of the date of instrument: K. Subha Reddy, 1996, Andhra Pradesh.
 Alteration of the time of payment
 Alteration of the place of payment
 Alteration of the sun payable
 Alteration by adding new party to the instrument
 Alteration of the rate of interest
 Alteration by tearing material part of the instrument
 Alteration by affixing stamps without the promissors knowledge.
 Alteration by erasing account payee crossing.
 Alteration of an order cheque to a bearer cheque except with the consent of the drawer.

Alteration when allowed:

1. Alteration made for the purpose of correcting mistake.
2. Alteration with permission of the drawer.
3. Alteration made to carry out common intention.
4. Conversion of bearer cheque to order cheques.
5. Making a qualified acceptance. [As per sec. 86]
6. Hongkong and Sajia Banking Company v. Leeci, 1928, 2AC, 281: Court has
allowed washed cheques to be used, as it is accidental in nature.

CONDITIONS FOR ACCEPTOR FOR HONOUR – Sec. 118, 141,

RIGHTS AND LIABILITIES OF ACCEPTANCE FOR HONOUR [sec. 112]

 Bill should be presented at maturity to the drawee for payment [Sec. 25]
 Bills should be notes and protested on dishonour.
 The bill should be presented not later than the day next to maturity to the drawee.
 The acceptor for honour virtually takes the place of the person for whose honour he
had accepted. Both, against rights against buyer parties and liabilities to the
subsequent parties.
 Entitled to recover the amount from the party to whose honour he had accepted the
bill, and for all the prior parties.

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PAYMENT FOR HONOUR
 Any person liable for instrument will be payable on honour.
 Rights remain the same as acceptor for honour.

BILL IN SETS
 Section 132 and 133
 A BoE in sets drawn in parts or sequenced is called bill in sets.
 Reference of totality, or particular part, all will be considered as one. They are sets of
1/2/3/4/ etc.
 Both the parties are located in different countries
 Purpose/ Advantage:
1. To avoid undue delay to unnecessary inconvenience which may arise in course
of transportation.
2. To ensure safe transmission of at least one part of the bill. If not all at least one
document will be available to the other party so that they can claim the goods
from the warehouse.
 Documentary credit: It refers to docs related with sale transaction and letters of credit that
are attached
 UCP (Uniform Commercial Practice) 600
 Each part is known by a term- via
 parts must
 be numbered (1 of 10, 2 of 10, etc.)
 can be presented with all parts or any one of them
 payment on one is considered as payment on all/many.
 it is always used in cross-border transactions or carriage transactions.
 What is the utility of bill in sets if acceptance/ payment of one is considered as that of all-
If one part of the goods or one part of documents needs to be transferred, during the
transmit if the owner wants to sell it to 3rd person, then that particular part only will be
indorsed.
 Section 34 and 38 of SOGA- part-delivery and instalment delivery.
ESSENTIALS OF BILL IN SETS
1. BIS always drawn in parts and all the parts together make a set and the whole set
constitutes only one bill.
2. Each part of the bill in sets must be numbered and must contain a provision that it shall
continue to be payable only so long as the other parts remain unpaid.
3. Each part must contain a reference to the other parts.
4. If any part of the set omits reference to the other parts that part shall be construed as a
separate bill if it goes into the hands of a holder in due course.
5. The entire bill is extinguished or discharged when the payment is made on any other parts.
6. The drawer must sign each part of the bill and deliver all the parts to the payee.
7. A stamp is affixed on one part only and only one part of the whole set needs to be
accepted.
8. When a person accepts the bill and indorses different parts of the bill in favour of
different persons, he and the subsequent indorsers of each part are liable on such parts as
if these parts were separate bills. (For the purpose of further transfer, each part is
indorseable- most important feature)

93
 9. In international trade transactions, every time the whole consignment is not transferred.
If the consignee wants to transfer one part of the consignment only, then bill in sets
makes such transfer easy- advantage of convenience.
ACCEPTANCE OF BILL IN SETS
Acceptance of one amounts to acceptance of all.
DIFFERECE BETWEEN NEGOTIATION AND ASSIGNMENT
Sections 14, 46, 47 and 48- completed negotiation
Section 130 of Transfer of Property Act, 1972- Assignment of NI
https://keydifferences.com/difference-between-negotiation-and-
assignment.html#:~:text=Negotiation-
,Assignment,of%20receiving%20the%20debt%20payment.
1. Written Document: Negotiation of bearer instrument can be made by mere delivery-
Section 47. Negotiation of order instrument can be made by endorsement or delivery-
Section 46. Assignment has to be made by a separate written document signed by the
transferor and this procedure is required in case of both bearer and order instruments.
2. Presumption: When a negotiable instrument is negotiated there is presumption that
negotiation was there for consideration. There is no presumption in case of
assignment and the burden of proof lies on the transferee to show that the transfer was
for consideration
3. Notice: In the case of assignment notice is required to be given to the person who is to
make the payment. No such notice is required to be given in the case of negotiation.
4. Defective Title: The assignee of a debt takes the instrument subject to all the defects
and equities that may exist in the title of his assignor. But, in case of negotiation,
better title is given even though the title of the previous owner was defective.
5. Payment of Stamp Duty: Indorsement of a negotiable instrument does not require any
other formality and also does not require the payment of stamp duty. In case of
assignment, payment of stamp duty is required.

INDORSEMENT
 Section 15- It means writing in the front of it, or back of with the intention of
transferring the rights and liabilities therein. It mean further transfer of the instrument.
 Modes of Indorsement:
1. General Indorsement- When the holder merely puts a signature. When the
maker or holder of a negotiable instrument signs the same, otherwise than as
such maker, for the purpose of negotiation, on the back or face thereof or on a
slip of paper annexed thereto.
2. Partial endorsement is not applicable.
3. Special or Full Indorsement- When the maker or holder so signs for the same
purpose a stamped paper intended to be completed as a negotiable instrument,
he is said to indorse the same, and is called the “indorser”.

https://www.srdlawnotes.com/2018/01/kinds-types-of-endorsement.html
https://www.toppr.com/guides/business-laws-cs/negotiable-instruments-act/endorsement-of-
instruments/

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NOTE: Sections 49 and 55: Conversion of blank indorsement into full indorsement.
 Who can indorse:
 Section 8 (Holder)
 Section 15 (maker and holder)
 Section 51 (sole maker, drawer, payee or indorsee, or all of several joint
makers, drawers, payees or indorsees, of a negotiable instrument)
 Maker can indorse in the capacity of not as a maker, but as a principle. Or when there
is a negotiation back. Section 15: maker can indorse (2 Probabilities)
-
When instrument drawn by agent, then the maker is required to indorse it.
-
Negotiation back.
 Place of Instrument: Can be done anywhere on the instrument itself. If no place left
on the instrument a separate paper can be attached to the instrument.
 Effect of Indorsement: Further transfer- this means creation of a legal liability in
terms of payment (the PAYEE (FIRST TIME TRANSFER) or indorsee AND
HOLDER IN DUE COURSE will ask for the payment from immediate party and if
not immediate party, then any of the previous parties including the maker.
 Presumption as to NI as to order of indorsements- Section 188 (e): that the
indorsements appearing upon a negotiable instrument were made in the order in which
they appear then on the instrument.
 Whether Statutory requirements of giving a notice can be waived before initiation of
legal proceedings in case of dishonour of cheques?  Facultative Indorsement
 Types of Indorsement
1. Facultative Indorsement: the statutory requirement of giving notice before
initiation of legal proceedings can be waived. It must, however, be written on
the instrument.
NOTE: Amendments in case of dishonour of cheques- 1988, 2002, 2016

FEATURES OF INDORSEMENT
 Where two or more endorsement is done, it should be in order each indorsement is
presumed to be made in the same order, unless the contrary is proven.
 Indorsement may be read as a blank, but it may be converted into full.
TYPES OF INDORSEMENT
1. Conditional Indorsement.
2. Facultative Indorsement.
3. Partial Indorsement.
4. Restrictive Indorsement.
5. Conditional Indorsement.

Overdue: At maturity.

LOST BILL

RIGHTS/OBLIGATIONS OF THE HOLDER

1. The holder/payee can request issuance of a duplicate bill.

95
 2. The drawer can seek a written undertaking that in case the finder of then lost bill get
lost, then the holder is required to indemnify. [Sec. 123-124 of ICA].
3. The holder should inform all the parties on the instrument and should give public
notice in a local newspaper to caution everyone against the lost instrument.
4. If a duplicate bill is not getting issued by the drawer, the holder has the right to take
money. [Sec. 45A].
5. If the holder could not get a duplicate one before maturity, he should
6. Section 81: Indemnification to the holder if payment denied.
FINDERS RIGHTS IN CASE OF LOST INSTRUMENTS/STOLEN INSTRUMENTS
1. In case the finder encashes it, the true owner can recover from him, and the drawer is
absolved of liability.
2. The finder gets no right, the rightful owner will get it back.
3. Finder has no right to ask the maker to make payment.
4. The finder can indorse it further, as the indorsee becomes holder in due course, who
has the right. Therefore, the finder may create rights in favour of the HDC. Exception:
If he further transfers on consideration [section 58 and 82 read together].
5. Stolen instrument, thief has criminal provisions, finder does not: only different.

NEGOTIATION BACK
 If a negotiable instrument, negotiated by the holder, by the indorsement again becomes
the holder, such NI is called Negotiation Back.
 For NI, it can be endorsed infinite. [Sec. 14, 46, 51].
 Maker/Drawer cannot be Negotiation Back. The debt that is owed to someone, that he
cannot pay. He cannot have debt to himself. no legal value.
 The holder gets the instrument back in his possession by any subsequent indorsee.
 Effects Of Negotiation Back: [Sec. 15]
1. The holder cannot enforce the payment against an immediate party to whom he
was previously liable.
2. The holder can enforce the payment against all the parties to whom he was not
previously liable.
3. The holder can sue all the prior parties including all intermediate parties to whom
it was previously liable if he had made san recourse indorsement.
Section 1: Allows customs and usages.
The only limitation to Lex Mercatoria: Public Policy.
INDORSEMENT – 15, 16, 51, 54, 55, 56.
 It means further transfer, as defined in section 15.
 Purpose: Transfer the rights and the money in the particular instruments.
 Section 15: signature amounts to completeness. It may be made by the holder or any
other person (agent).
 When is indorsement complete? Merely putting the signature is not enough, delivery
also has to be taken place to whom it is indorse.
 Who can indorse? Any person entitled on that instrument can further indorse. Holder
or bearer can indorse it further. [Sec. 51]. Only the holder. Strangers cannot indorse.

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  “the purpose of negotiation, on the back or face thereof or on a slip of paper annexed
thereto, or so signs for the same purpose a stamped paper intended to be completed
as a negotiable instrument, he is said to indorse the same, and is called the
“indorser”.
 Genuine Indorsement: Indorsement must be genuine and not forced. Only bonafide.
 Irregular Indorsement: Whoever is the indorser is required to look it very clear who
had done first indorsement and subsequent indorsement.
 Indorsement in Blank: Sec. 16. The endorser signs it and on the face or back of it
from the purpose of negotiating and delivers the instrument, it is known in
indorsement in blank.
 Indorsement in Full; Signature of the holder and Complete Direction as to whom
payment is to be made, his name, address. Name the person for payment in due
course. ‘Apparent Tenor’: Section 10.
 Whether stranger can indorse? No.
Exception: A stranger who puts his signature on the instrument, his role will be considered
that of surety. So, in case of default, holder in due course can resort to that person who has
put his signature. [Backer in British terms/ Surety in American context/ Guarantee].
 Effect is to convert order instrument to bearer instrument.
 Explanation II:
 Indorsement in Full: When the indorsee puts in his signature and also writes the
name of the person to whom the particular instrument is transferred. Complete
direction of the particular instrument in terms of transferability is given. This is
followed by delivery, is indorsement in full.
 It is also called Special Indorsement.
 “Payable” and “Order” (Explanation i)
 As a result of NI (Amendment) Act 1919, where the instrument is made
payable to a particular person and does not contain any words prohibiting
transfer or indicating an intention that it should not be transferable, it should be
deemed to be an instrument, payable to order and negotiable. Thus the words
“order” or “bearer” is no longer necessary to render a bill, note or cheque
negotiable.
 Also the mere scoring off of the word “or bearer” appearing on a cheque does
not take away its negotiability.
 When a bill, note or cheque contains words prohibiting transfer or indicating an
intention to make it non-transferable, it will be valid between the parties but it
will not be an NI.
 “Payable to bearer” (explanation ii)
 The word “bearer” is not defined by the Act but it refers to the person in
possession of a bill or note payable to bearer.
 A bill, note or cheque is payable to bearer when expressed to be so payable or
when the only or last indorsement on it, is an indorsement in blank.
 “Payable to order” (explanation iii)
 It lays down that a bill “payable to the order of X” is in legal effect payable to
X or order, so that X can demand payment without giving a responsible
indorsement, but if X orders it to be paid to any other person, he must indorse
it.
 Effect of Indorsement: Blank is transferable in the same manner as if the instrument
was originally made a bearer instrument by the maker. In full: Whoever’s name is
mentioned on the instrument. [Sec. 54].
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 Restrictive Indorsement: Section 50.

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  Conditional Indorsement: Section 52.
 San Recourse Indorsement: Section 52 [excluding your own liability, whoever has
the instrument, he can take the money from any of the parties, but myself]. Previous
indorsers’ including the maker and the drawer, their liability will still be there.
 Facultative Indorsement: When the endorser expressly gives up some of his rights
under the negotiable instrument, the endorsement is called a ‘facultative’
endorsement. The indorser increases his liability other than what is permitted. Thus,
“Pay X or order, notice of dishonour waived” is a facultative endorsement. As a result
of such an endorsement the endorsee is relieved of his duty to give notice of
dishonour to the endorser and the latter remains liable to the endorsee for the non-
payment of the instrument, even though no notice of dishonour has been given to him.
 Consideration is presumed in indorsement. Nothing to be written by the indorser
on the instrument. If alleged subsequently, Burden of Proof lies on that person only.
 Sec. 15: Indorsement, signature either back or front. Exception: Govt. Securities: Back.
 Section 15 does not provide any dates pertaining to the date of indorsement. Section
118 (b) and (e). before the date on which he instruments falls due. [Sec. 15, 118 and
22]. Plus, three day grace period.

NOTICE OF DISHONOUR
Ways of Dishonour:
1. Section 91: Dishonour by non-acceptance
a) When the bill is properly or duly presented for acceptance and drawee makes a
default in accepting it. Applicable only for the purposes of BoE.
b) If there are several drawees, not being partners, the bill is said to be dishonoured
by non acceptance if any of them refuse to accept the bill.
c) When the presentment is excused and the bill is not accepted. (Section 61)
d) When the drawee is incompetent to contract the bill may be treated as
dishonoured. (Section 26: minor can be drawer, payee but not drawee)

2. Section 92: Dishonour by non-payment

a) Who indicates that promissory has not been paid- Maker
b) Who indicates that BoE has not been paid: Drawee and Acceptor (after maturity,
drawee becomes acceptor) in BoE
c) Who indicates that cheque has not been paid: Bank (drawee)
d) K Venkatasubbayya v. P.R. Rao Tobacco Co., AIR 1972 AP 72: non acceptance
by post amounts to dishonour of the instrument.

 Remedy for non-payment and dishonour

1. Gives the holder an immediate right to recourse against the drawers and
indorsees’.
2. Gives the right to the holder to give a notice for acceptance.

 Requirements of a notice- Section 93:

1. Notice is required to be given before any recourse.
2. Object of the notice is not to demand payment but to warn him aganist the
legal consequences.
3. Notice by whom: holder, by a person liable on the instrument, agent of the
holder, stranger to the instrument cannot give notice

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 4. Notice to whom: notice of dishonour must be given to all parties other than
maker, acceptor or drawee whom the holder seeks to make liable.
5. Notice of dishonour can be given to a duly authorised agent of the person to
whom it is required to be given.
6. Notice may be given to his legal representative when the drawer or the
indorser is dead.
7. Where there are 2 or more parties jointly liable as drawers or indorsers, notice
to one of them is sufficient to bind all.

 Effects of omission to give notice: Discharge from liabilities (Drawer: Section 30;
Indorser: Section 35)

 Mode of Notice: Section 94

1. Oral
2. Written
3. Partly written partly oral
4. Advisable to give written notice: evidence.

 Contents of the Notice

1. Instrument has been dishonoured.
2. The instrument should be identified in the notice.
3. Notice must state the way in which the notice has been dishonoured.
4. He will be held liable on the dishonoured instrument.
5. A mere demand for payment is not a sufficient notice. (the way it is presented and
the legal consequences of not paying must be there)
6. Time and place of notice: (1) reasonable time and (2) specified place, business
place, habitual notice
NOTE:
 Section 27 of General Clause Act: duly served notice (proper address [last known
address] and proper stamping [stamp duty paid] to registered post)- it doesn’t matter
whether it is received or not- deemed acceptance of notice.
 Barren notice: without stamp.

 When Notice Not Required- SECTION 98

 WHETHER NOTICES CAN BE VARIED?

 Speculative indorsement: at the time of the indorsement, the person writes
that in case of indorsement, no need to give notice.
 Can be varied
 Most of the time on the instrument itself but no law prohibits that the waiving
cannot be done subsequently
 If pure and simple contract, then there can be modification of the obligation
and this can easily be done subsequently.

SIR’S NOTES:
 Section 93, 94 and 138.
 No notice for Promissory note as he already knows of the dishonourment.

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  Valid Notice: Facts of dishonour, asking for payment, warning of legal consequences
of non payment.

 Section 49: No liability of the person who has converted. This is material alteration,
which is permitted. It puts the liability on a third person. Conversion is done by
merely putting someone else’s name. no person subsequent to him can claim the
money from the person who has converted the indorsement in blank to full. His name
is not there at all.
 Section 55 same long title, but no liability of the indorser is there. Merely talks about
the effects of conversion.
 Partial Indorsement: Invalid. Section 56.
 Restrictive Indorsement: Section 50.
 Conditional Indorsement: Allowed if it is clear.
 Minor can indorse, Section 26.
 Legal Representative: Section 57. For Indorsing it, he has to sign in his own
capacity, then only he can deliver. He is not presumed to be the agent of the
deceased person.

DISCHARGE OF INSTRUMENTS [Section 86]

1. Payment
2. Cancellation
3. Release of the parties. (San recourse indorsement)
4. Material Alteration

 Discharge of the Instrument itself: When the maker himself makes the payment.
 Discharge of one or more Parties from liability under the instrument: when the
holder makes the payment. Only the subsequent parties are discharged.
 Chapter VII of the NIA.

 Payment:
 When the party primarily liable makes the payment in due course to the holder
at or after maturity [within grace period], the instrument is discharged. Section
78 read with 82.
 Payment by a party who is secondarily liable does not discharge the
instrument as the person who had made payment holds it to indorse it to
against the prior indorser and the principal debtor.
 When a bill of exchange, which has been negotiation is at or after maturity
held by the acceptor in his own right, the instrument is discharged.
 When the drawee makes a payment, they are entitled to keep the instrument as
a matter of right, indication of the fact that articular instrument has been paid.

 When the party primarily liable becomes insolvent, then the liability of the
subsequent parties is discharged.
 An instrument is discharged when the primary party liable is discharged by
material alteration in the instrument by implications of section 87.

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  When the holder cancels the instrument with the intention to release the party
primarily liable, and cases to be negotiable.

 Cancelation:
 When the holder of a negotiable instrument deliberately cancels the name of
any of the party therein, to discharge him from payment, such party, and all
the subsequent indorser to whom such party is liable, are discharged of
payment thereon. But all the previous parties are still liable. Section 82A

 By release:
 If the holder of the instrument, releases any of the parties, by any other method
other then cancellation, by a separate agreement, then in that case, that party
who has been released, their discharge of liability has taken place. The
instrument will be as valid as earlier from other parties. It can be done of any
of the parties other than the maker or the drawer.
 If the holder of the BOE allows the drawee more than 48 hours, exclusive of
public holidays, for acceptance, all the previous parties not consulted for such
allowance, are discharged thereof. [Section 83]
 By not giving notice of discharge: Any party to the NI other than the drawer,
to whom notice of dishonour is not sent by the holder, is discharged. [Section
93 and 95 ]
 By non-presentment for acceptance: When the BOE is not presented for
acceptance, then Section 61 will discharge the drawee.
 Delay in presenting the BOE within the period [section 87].

 Material Alteration:
 Any material alteration discharges the instrument. [Section 87]

 Law Commission of India, chairmanship of C.T. Narsakaju and S.M. Sikir, 11th
report, 26th September 1968: Improvement of definition of Holder.
1. First problem: When you go to collect the cheque, as a bearer. The definition
does not include bearers of the instrument and servants of the master.
DISHONOUR OF THE INSTRUMENT
 Ways of Dishonour:

1. Section 91: Dishonour by non-acceptance [section 61 and 91]

a) When the bill is properly or duly presented for acceptance and drawee makes a
default in accepting it within 48 hours, the bill is said to be dishonoured.
Applicable only for the purposes of BoE, and promissory note is not required to
be accepted.
b) If there are several drawees, not being partners, the bill is said to be dishonoured
by non-acceptance if any of them refuse to accept the bill.
c) When the presentment is excused and the bill is not accepted. (Section 61)
d) When the drawee is incompetent to contract the bill may be treated as
dishonoured. (Section 26: minor can be drawer, payee but not drawee)
e) When the drawee gives qualified acceptance, the bill may be treated as
dishonoured. [section 86].

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 2. Section 92: Dishonour by non-payment
a) Who indicates that promissory has not been paid- Maker
b) Who indicates that BoE has not been paid: Drawee and Acceptor (after maturity,
drawee becomes acceptor) in BoE
c) Who indicates that cheque has not been paid: Bank (drawee)
d) K Venkatasubbayya v. P.R. Rao Tobacco Co., AIR 1972 AP 72: non-acceptance
by post amounts to dishonour of the instrument. Presentment by post is allowed,
by means of a registered post/letter [section 61]. Therefore, physical presentment
is not necessary.

 Remedy for non-payment and dishonour

1. Gives the holder an immediate right to recourse against the drawers and the
indorsers.
2. Dishonour by non-acceptance constitutes a material part of the course of
actions, and therefore, there is no need to wait till the maturity of the bill to
present it for payment. Gives the right to the holder to give a notice for
acceptance. [section 93]

 Requirements of a notice- Section 93:

1. Notice is required to be given before any recourse.
2. Object of the notice is not to demand payment but to warn him aganist the
legal consequences.
3. Notice by whom: holder, by a person liable on the instrument, agent of the
holder, stranger to the instrument cannot give notice
4. Notice to whom: notice of dishonour must be given to all parties other than
maker, acceptor or drawee whom the holder seeks to make liable.
5. Notice of dishonour can be given to a duly authorised agent of the person to
whom it is required to be given.
6. Notice may be given to his legal representative when the drawer or the
indorser is dead.
7. Where there are 2 or more parties jointly liable as drawers or indorsers, notice
to one of them is sufficient to bind all.

 Effects of omission to give notice: Discharge from liabilities (Drawer: Section 30;
Indorser: Section 35)

 Mode of Notice: Section 94

1. Oral
2. Written
3. Partly written partly oral
4. Advisable to give written notice: evidence. Notice does not mean knowledge, but
actual formal notification of dishonour.

 Contents of the Notice

1. Instrument has been dishonoured.
2. The instrument should be identified in the notice.
3. Notice must state the way in which the notice has been dishonoured. [non-
acceptance, non-payment or both].
4. The demand must be stated.

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 5. Statement regarding this must be there, failure to comply with the notice, your
liability will be there in case of dishonoured instrument. He will be held liable on
the dishonoured instrument.
6. Notice should be clear in the demand.
7. You have to claim costs, interest, damages, etc.
8. A mere demand for payment is not a sufficient notice. (the way it is presented and
the legal consequences of not paying must be there)
9. Time and place of notice: (1) reasonable time and (2) specified place, business
place, habitual notice.
10. Notice on the last known address.

Who can give notice?

1. Holder
2. Person liable on the instrument
3. Agent of the holder
4. Stranger to the instrument cannot give the notice.

Notice to whom?
1. To all the parties other than the maker/ acceptor/ drawee, whom the holder seeks to
make liable.
2. It may be given to a duly authorised agent of the person to whom it is required to be
given.
3. May be given to his legal representative when the drawer is dead.
4. Where two of more parties are jointly liable as drawers or indorsers, notice to one of
then is sufficient to bind all the parties.

NOTE:
 Section 27 of General Clause Act: duly served notice (proper address [last known
address] and proper stamping [stamp duty paid] to registered post)- it doesn’t matter
whether it is received or not- deemed acceptance of notice.
 Barren notice: without stamp.

 When Notice Not Required- SECTION 98

 Delay or miscarriage of notice does not render it invalid. If notice has been duly
posted, then in that case it is construed as a duly served notice. [duly register with the
last known address of the persons against whom lability is there]
 No special forms of notice is required.

 WHETHER NOTICES CAN BE VARIED?

 Speculative indorsement: at the time of the indorsement, the person writes
that in case of indorsement, no need to give notice.
 Can be varied
 Most of the time on the instrument itself but no law prohibits that the waiving
cannot be done subsequently
 If pure and simple contract, then there can be modification of the obligation
and this can easily be done subsequently.

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  Cheque: 15 days post notice. And Promissory notes, reasonable time.

NOTICE IN TERMS OF SECTION 138

 Notice for Promissory Note is not required to be in writing (section 93 intimation,
can be written or oral)
 Notice shall be writing for the purposes of Section 138.
 Notice by telegram is valid notice.
 Notice by fax is valid notice.
 Notice must be given within 30 days (period of notice) of the receipt of information
by the drawee to the holder indicating the facts of dishonour.
 If the amount mentioned in notice is bigger than that mentioned in the cheque, the
notice become illegal.
 If the notice contains the lump sum money, covering the money required to be paid,
interest and other expenses incurred, it will be a valid notice. However, there must be
clarification regarding the same.
 If instead of serving a legal notice, a registered letter is sent containing the same
information and details, it will be deemed to be a valid notice. (knowledge and
warning are the primary motives of a notice).
1. Notice must make a demand
2. Notice must warn regarding the legal consequences
3. Period of notice: within 30 days
4. Manner of delivery constructive delivery (Section 27 of GCA)
5. If the payment has been asked to be paid earlier in the notice, it will be valid
notice but the cause of action will arise after the expiry of 15 days.
6. No mens rea required (Section 140)
 Place of notice: Specified place, business place, normal habitual place.
 Restricting the day for making payment will not make the instrument invalid.
[section 142]

 V.G. Samant v. K.G. Traders

 Notice and its characteristics:
1. Legal consequence of refusal to pay
2. Constructive delivery
3. Period- Demand before 15 days is valid but cause of action arises after the
15- day period.

 Lalit Kumar Sharma v. State of UP [2008, 143 Company Case, SC p. 593]

 The second cheque was issued in terms of a compromise. It did not create
a new liability. As the compromise did not fructify, the same cannot be
said to have been issued towards payment of debt.
 In this case, the second cheque was issued by Manish Arora for the
purpose of arriving at a settlement. The said cheque was not issued in
discharge of the debt or liability of the Company of which the appellants
were said to be the directors. There was only one transaction between
Ashish Narula, Manish Arora, Directors of the Company and the
complainant, for which they had already been punished. Thus, the question
of entertaining the second complaint did not arise.

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  If the cheque has been issued for security, then also Section 138 will not
be applicable.

CROSSING OF CHEQUES
A crossed cheque is any cheque that is crossed with two parallel, traverse lines, either across
the whole check or through the top left-hand corner of the check [Lex Mercatoria]. This
symbol means that the cheque can only be deposited directly into a bank account and cannot
be immediately cashed by a bank or any other credit institution.
 It cannot be encashed at the counter of the bank, can only be credited to the account of
the payee.
 It is a permitted material alteration. It changes the mode of payment. [section 87 will not
be applicable here].

Types of crossing of cheques:

1. General Crossing - When a cheque bears two transverse parallel lines at the left
hand of its top corner, along with words such as 'and company' or any other
abbreviation (such as & co.) written between these two parallel lines, either with or
without words 'not negotiable', is called General Crossing. It is in Section 123.
Effect - Payment can be paid through bank account only, and should not be made at
counter of paying bank.

2. Special Crossing - When a cheque bears the name of the bank in between the two
parallel lines, with or without the words 'not negotiable' is called Special Crossing.
[section 124].
Effect - The bank will pay to the banker whose name is written in between the
crossing lines.

3. Restrictive Crossing / Account Payee Crossing - In this, crossing of cheques is

done by writing Account Payee in between the crossing lines. Only one time-
negotiation. Holder does not have right to further indorse.
Effect - Payment will be credited to the account of payee named in the cheque.

4. Double Crossing - When a cheque bears two special crossing, is called Double
Crossing. In this second bank act as agent of the first collecting banker. It is made
when the banker in whose favour the cheque is crossed does not have branch where
the cheque is paid.

 Sections 123-131A deal with this.

 Crossing of cheques also involves bank draft- Section 131A. When 85A was
introduced, 131A was also provided
 Purpose Of Crossing: Security and caution: security to payee (money will go as
per the direction) and caution to bank.
 General crossing: caution to bank, “non-negotiable”- general crossing but
restricted in nature
 Special crossing: presented for payment in that particular branch only, when the
bank’s name is mentioned
 Double special crossing: names of 2 banks are mentioned- 2nd bank is agent of the
first and there is an arrangement between the 2 banks. This implies that there an

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 arrangement the subsidiary bank. [section 127]. The bank who is collecting will be
the agent of the main bank.
 A cheque is said to be crossed when it bears across its face 2 parallel traverse lines.
 The lines are usually drawn upon the left side top corner of the cheque-
customary not mandatory.
 Crossing is a direction to the paying bank to pay the money generally to a bank
or to particular banks as the case maybe
 Crossing affects the mode of payment of the cheque-accounts crossing-alters the
direction how the cheques will be paid.
 Crossing generally does not affect transferability unless the cheque bears the
term “not negotiable”
 Who may cross: Drawer, Holder, Bank as well - Section 125.
 How will bank pay: bank liability -protection of the bank, good faith, without
negligence and payment is there according to payment in due course- Section
128

 Section 131- Protection available to the collector bank.

1. Payment must be received on behalf of, and for a customer. The bank
may verify on it’s own, your identity.
2. Before making a payment, the bank generally cross checks making
sure that the amount went to the right person’s bank account.
3. Bank is required to make the payment immediately.

 Situation when collector bank may be held liable:

1. Where the bank collects a cheque payable to order without verifying from the
indorser. [Central bank of India v. Gopinath, Kerala High Court].
2. Where the bank collects a cheque for a large sum of money where the balance
is generally in low water. [Brahm Shamshersingh Jung Bahadur v. Central
Bank of India, AIR 1926 Cal. 396].
3. Where the bank collects a cheque payable to an official for his private account.
4. Where the bank collects a cheque for an agent, is drawn by him on his
principles account.
5. When the bank collects a cheque on behalf of a partner which is payable to a
partnership firm.
6. When the banks collects a cheque payable to a company, for the private
account of the director or official of the company. [United Commercial Bank
Ltd. v. Reliable Hire Purchase Company, 1976]
7. Where the bank collects a cheque of crossed account payee, for the account of
a person, other than the payee [Anupama Stationery v. Vishnuvardhan
Enterprises, 1987 62 Company Cases 257].

DISHONOUR OF CHEQUES – Chapter 17

 This section got introduced in 1988. Before that, it was a civil offence.
 Arbitration is allowed as section 147 makes the offences compoundable. This has
been added in 2002.
 Only the drawer can be held liable for dishonourment.

 Ingredients Of Section 138- Only covers cheques, not BoE.

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 1. A person (drawer) must have drawn a cheque on an account maintained by him in a
bank for payment of certain amount of money to another person from out of that
account.
2. The cheque shall have been issued by the drawer for the discharge in whole or in
part of any debt or other liability. [Explanation I to Section 138: Cheque must be
issued for legal debt and liability– gift cheques or parents’ cheques will not be
covered. Legal debt and liability- legally enforceable debt or liability]
3. Cheque has been presented to the bank within the period of its validity (from the
date on which it is drawn or issued for a period of 3 months [was reduced to 3 from
6 in 2012, 4th Nov. 2011]) If nothing mentioned, 3 months, can be more also if
explicitly mentioned by the parties. [Sec. 138(a)]
4. Cheque should have been dishonoured for want of funds in the account of the drawer
– dormant account, account closed, insufficiency of funds, etc.
5. The cheque has been returned by the bank (drawee) unpaid. [Facts of dishonour are
always stated by the bank]
6. Notice: The payee or the holder makes a demand for the payment within 30 days,
and issues a notice in writing. This means that the notice to that effect is required to
be served by the holder or payee to the drawer within 30 days [138 (b)]. In 1988
notice period was 15 days, increase in 2002. No liability without notice.
7. The drawer must have failed to make payment within 15 days of the receipt of notice.

 What Bank writes? – It is rarely written by the bank that the cheque has been
dishonoured. “referred to the drawer”, “account closed”, “insufficiency of funds”,
“dormant account”, “stop payment” is most commonly used by the Bank.
 No notice does not mean that the drawer’s liability is over. You owe the burden of
proof then.
 Can have both civil and criminal proceedings. Civil for damages.
 Even if it is dishonoured twice, only one cause of action lies and it is not a second
offence. Supreme Court – Krishna Janardhan Bhatt v. Dattarai G. Hedge, 1987.
Second cheque issued in terms of a compromise does not create a new liability as it is
not issued towards the payment of a new debt.

 Section 27 of General Clause Act: ‘Duly served notice’ (proper address [last known
address] and proper stamping [stamp duty paid] to registered post)- it doesn’t matter
whether it is received or not- deemed acceptance of notice, proper address, proper pre-
paying, proper stamping.

 “Person” in Section 138: Both natural and juristic persons. The ‘person’ in the first
sentence, means natural person. But, in section 141, ‘person’ includes corporate
bodies. Then, partnership firms are also included in the word person, [explanation
to section 141].

 Anil Hada v. Indian Acrylic Ltd., 2001 Company Cases p. 36: dishonour of cheques
in case of company director’s liability, also discussed “person”. Offence under 138 is
committed by natural persons. But certain offences can be attributed to juristic
persons as well, like a company, as under Sec. 141.

 Aneeta Hadab v. Godfather Travels and Tours Pvt. Ltd., 2008 8 SCC 25.

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 Civil Law, but it has penalty of jail and fine as well. Punishment: imprisonment upto
the extent of 2 years or Fine: double the amount, or both. Earlier, only 1 year
imprisonment, amended in 2002 to 2 years.
VALIDITY OF S. 138

 Smt. Ramawati Sharma v. Union of India Air 1999 Allahbad 21

 Constitutional validity of Section 138 (reasonable differentia is there).
 Object clause of 138 -
1. To create investment climate in the country.
2. To prevent rampant dishonouring of cheques.
3. To provide stability to the economy.
4. To ensure credit-worthiness.
5. To provide credibility to commercial transactions.
 The court thus held that the Section is constitutionally valid and is not
violative of Article 14.
In this case, the constitutional validity was upheld. Cheque and promissory note
cannot be equated sense it simply creates a liability but while issuing a cheque, the
drawer desires that a certain payment be made to the holder.
 The provision was added to prevent postponement of liability to pay, while
discharging a debt.
 The malpractices in commercial transactions necessitated such a provision in
law, and that there was no arbitrariness in curtailment of the life and liberty of
any persons. Section 138 creates a due process of law, established by the
legislature. Therefore, no violation of article 21.

The object of bringing Section 138 on statute appears to be to inculcate faith in the efficacy
of banking operations and credibility in transacting business on negotiable instruments
In Vinay Nayak v. Seva Sahakari, the Court observed that despite civil remedy, Section 138
intended to prevent dishonesty on the part of the drawer of negotiable instrument to draw a
cheque without sufficient funds in his account maintained by him in a bank and induce the
payee or holder in due course to act upon it. It thus seeks to promote the efficacy of bank
operations and ensures credibility in transacting business through cheques.

https://indiankanoon.org/doc/1594211/

 Rajendra Steel Ltd v. Union of India, Criminal LJ 2000 p. 625 (Delhi)

 Challenged on the ground criminal law: It was contended that 138-142 takes
away the element of mens rea.
 Court said this ground cannot be considered.
 Since 139 says mens rea is not required and also after considering the object
clause, it can be said that mens rea is not required in case of dishonour of
cheques.
 Taking away an important defences of the accused.
 This has been there to put greater vigilance and the prevent the callous attitude of the
drawer. Exclusion of mens rea is for the larger public interest, to lend greater
credibility of the commercial transaction.

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Dalmia Cement Bharat Ltd. v. Ms. Galaxy Traders

 Sec. 138 makes a civil transaction to be an offence by fiction of law and has been
incorporated with a specified object by making a special provision by incorporation of
strict liability in case of discharge of cheque due to insufficiency of funds, etc.
 It provides special penalties and procedures in case the offences are not discharged.

Criminal intent
In 1988 vide Banking, Public Financial Institutions and Negotiable Instrument Laws
(Amendment) Act 1988 Chapter XVII (Section 138 to 142) was incorporated in the Act of
1981. Earlier to the said Amendment, no criminal charge could be brought against the drawer
of cheque unless the doctrine of mens rea was established as mandated under Section 415 and
420 of Indian Penal Code.

Mayuri Pulse Mills And Others v. Union Of India And Others. on 10 August, 1994
https://www.legalcrystal.com/case/335869/mayuri-pulse-mills-vs-union-india
Section 138 of the Negotiable Instruments Act, 1881, provides for an offence which is not
based on mens rea – The Bombay High Court in the case of Mayuri Pulse Mills v. Union of
India[1] remarked that Section 138 of the Negotiable Instruments Act, 1881, provides for an
offence which is not based on mens rea. Normally, in criminal law, existence of guilty intent
is an essential ingredient of a crime and the principle is expressed In the maxim actus non
facit reum nisi mens sit rea. This is a general principle. However, the Legislature can always
create an offence of absolute liability or strict liability where mens rea is not at all
necessary. Such a measure is resorted to in public interest and such laws of strict liability are
justified and cannot be said to be unreasonable.

Section 138 excludes mens rea by creating a Strict Liability- The wording of the
provision “such person shall be deemed to have committed an offence” indicates that the
statutory provision creates a strict liability. The returning of the cheque by the Bank for one
of the two reasons stated in the section is the necessary condition creating strict liability. If
the cheque is dishonored on any other ground, the offence u/ section 138 is not made out.

Noor Aga v. State Of Punjab & Anr on 9 July, 2008

POST DATED CHEQUE: VALID WHEN IT FALLS DUE.

 A cheque dated subsequent to the actual date on which it is drawn, is called a post-
dated cheque.
 Instrument issued directing a banker to make a payment happens in both, BOE and
Cheque. But the difference is that cheque is payable on demand. Therefore, the post-
dated cheque becomes a Cheque on the date of drawing, written on the cheque.

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  For an offence, it is mandatory that the cheque is presented to the bank within a
period of 3 moths/ period of validity. A post dated cheque becomes a cheque on the
date written, and it should be presented to the bank within 3 months. The offence will
be created when it is returned unpaid by the bank. Unless the mentioned date comes,
the cheque returning will never happen. Therefore, BOE provisions will be applicable
then. But the moment it is presented, and return unpaid, it becomes an offence under
Sec. 138, read with Sec. 142.
 A post dated cheque is not payable until the date written on the face of it.
 The burden of proof will be there on the person seeking the benefit.
 Instrument bears a date latter than it’s date of issuance is called a post-dated cheque.
 The BOE will become a cheque only when it is payable on demand, after it’s validity
date.

Anil Kumar Sawhney v. Gulshan Rai:

 An offence to be made out under the substantive provisions of Section 138 of the Act
it is mandatory that the cheque is presented to the bank within a period of six months
from the date on which it is drawn or within the period of its validity, whichever is
earlier.
 When a post-dated cheque is written or drawn it is only a bill of exchange and as
such the provisions of Section 138(a) are not applicable to the said instrument.
 The post-dated cheque becomes a cheque under the Act on the date which is written
on the said cheque and the six months period has to be calculated from this date for
the purposes of Section 138(a).
 One of the main ingredients of the offence under Section 138 of the Act is the return
of the cheque by the bank unpaid. Till the time the cheque is returned by the bank
unpaid, no offence under Section 138 is made out. A post-dated cheque cannot be
presented before the bank and as such the question of its return would not arise. It is
only when the post-dated cheque becomes a "cheque", with effect from the date
shown on the face of the said cheque, the provisions of Section 138 come into play.
 The net result is that a post-dated cheque remains a bill of exchange till the date
written on it. With effect from the date shown on the face of the said cheque it
becomes a “cheque” under the Act and the provisions of Section 138(a) would
squarely be attracted.

Aggrieved by the aforesaid order, the Appellant filed an appeal before the Apex Court and
placed reliance on the decisions of the Apex Court in Indus Airwarys (P.) Ltd. v. Magnum
Aviation (P.) Ltd. [2014] 12 SCC 539. The Supreme Court noted that the question therein
was whether post dated cheque issued by way of advance payment for a purchase order could
be considered for discharge of legally enforceable debt. The cheque was issued by way of
advance payment for the purchase order but the purchase order was cancelled and payment of
the cheque was stopped. Accordingly, this Court held that while the purchaser may be liable
for breach of the contract, when a contract provides that the purchaser has to pay in advance
and cheque towards advance payment is dishonoured, it will not give rise to criminal liability
under Section
138. Thus it was summarised that the issuance of cheque towards advance payment could not
be considered as discharge of any subsisting liability.

Goa Blast Pvt. Ltd. v. Shree Chico Urusla D’souza And Another, 2003 Sc 2035.

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The law seeks to protect the interests of the drawer of the post-dated cheque against any
harassment by the creditors in case the former is asked to furnish blank post-dated cheques;
as at the time it is drawn there is no liability due on him. But the law also seeks to protect the
interest of the creditors (who have accepted the post-dated cheques in good faith) if the
debtors misuse the post-cheque as a measure to defer the payment; as held by the Supreme
Court in Goaplast Pvt. Ltd. v. Shri Chiko Ursula D’Souza [26] where the debtor gave a stop-
payment order to the bank with a malafide intention of avoiding payment. In fact,
acceptance of a post-dated cheque is an accommodation given to the debtor by a creditor and
the former can’t be allowed to abuse this faith.

13. In the aforesaid case, the Apex Court held that once issuance of a cheque and signature
thereon are admitted, presumption of a legally enforceable debt in favour of the holder of
the cheque arises. It is for the accused to rebut the said presumption, though accused need
not adduce his own evidence and can rely upon the material submitted by the complainant.
However, mere statement of the accused may not be sufficient to rebut the said presumption.
A post dated cheque is a well recognized mode of payment. [Goaplast (P.) Ltd v. Chico
Ursula D’Souza [2003] 44 SCL 472 (SC)]
In Goa Plast (Pvt) Ltd. vs. Chico Ursula D’Souza, the apex court held that The court
should lean in favour of an interpretation which serves the object of the statute. A post-dated
cheque will lose its credibility and acceptability if its payment can be stopped routinely.

Indus Airways Pvt. Ltd. v. Magnum Aviation Pvt. Ltd.:

 Issue in this case was in dispute with Anil Kumar. The supreme court held that when
the date of the existing debt and liability arising, strict interpretations has been
inferred that “13. The explanation appended to Section 138 explains the meaning of
the expression ‘debt or other liability’ for the purpose of Section 138. This expression
means a legally enforceable debt or other liability. Section 138 treats dishonoured
cheque as an offence, if the cheque has been issued in discharge of any debt or other
liability. The explanation leaves no manner of doubt that to attract an offence
under Section 138, there should be legally enforceable debt or other liability
subsisting on the date of drawl of the cheque. In other words, drawl of the cheque in
discharge of existing or past adjudicated liability is sine qua non for bringing an
offence under Section 138. If a cheque is issued as an advance payment for purchase
of the goods and for any reason purchase order is not carried to its logical
conclusion either because of its cancellation or otherwise, and material or goods for
which purchase order was placed is not supplied, in our considered view, the cheque
cannot be held to have been drawn for an exiting debt or liability. The payment by
cheque in the nature of advance payment indicates that at the time of drawl of
cheque, there was no existing liability.”
 Only existing or past liability is covered. If advance payment cheque issued, and
purchase order is not carried because of cancellation or otherwise, cheque cannot be
held to have been drawn for an existing debt or liability. Such payment indicates that
there was no existing liability at the time of drawl of the cheque.
 This case looks like Anil Kumar has been over-ruled, but it has not because subsequent
judgements

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  The fine distinction between civil liability and criminal liability under Section 138 of
the N.I. Act must be kept in mind.
 If at the time of entering into a contract, it is one of the conditions of the contract that
the purchaser has to pay the amount in advance and if there is breach of such condition
then purchaser may have to make good the loss that might have occasioned to the
seller but that does not create a criminal liability under Section 138.
 For a criminal liability to be made out under Section 138, there should be legally
enforceable debt or other liability subsisting on the date of drawing of the cheque.
 If a cheque is issued as an advance payment for purchase of the goods and for any
reason purchase order is not carried to its logical conclusion either because of its
cancellation or otherwise and if material or goods for which purchase order was placed
is not supplied by the supplier, the cheque cannot be said to have been drawn for an
existing debt or liability.
 The SC held that post-dated cheque, Section 138 will not be applicable as not legal
liability as that time, therefore controversy.
 But subsequent cases use Anil Kumar only.

The question therein was whether post-dated cheque issued by way of advance payment for a
purchase order could be considered for discharge of legally enforceable debt The cheque was
issued by way of advance payment for the purchase order but the purchase order was
cancelled and payment of the cheque was stopped. This Court held that while the purchaser
may be liable for breach of the contract, when a contract provides that the purchaser has to
pay in advance and cheque towards advance payment is dishonoured, it will not give rise to
criminal liability under Section 138 of the Act. Issuance of cheque towards advance payment
could not be considered as discharge of any subsisting liability.

Oil Bank Of Scotland v. Totemham

Post dated cheque for repayment of loan

http://www.wbja.nic.in/wbja_adm/files/Title%20sc%20-1_4.pdf.

NOTICE
Full article with judgements http://jaassam.gov.in/pdf/article/Article-57.pdf

 Who will issue? Sec. 142(1)(a) – holder in due course and the payee.
 A notice: registry, proper address, payment of stamp duty. Whether notice has been
served or received is not the question. The notice is to be ‘Given’.
 Notice by telegram is valid notice.
 Notice by fax is valid notice.
 To Whom? Drawer (138(b)), or the person representing the company/ partner.
 Period of notice: 30 days, (1988- 15 days, 2002- 30 days).
 Period will be counted from the date of receipt of information.
 Manner: Register Post, 27 of General Clauses Act.
 Sec. 138: Maximum time of notice is 15 days, therefore, 11-5-7 days or any other
time period is also valid. It does not make the notice invalid.

 Contents of the Notice [Suman Sethi v. Ajay Kumar Dhuriwal, 2002 2SCC 380].
1. Instrument has been dishonoured.
2. The instrument should be identified in the notice.

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 3. Notice must state the way in which the notice has been dishonoured. [non-
acceptance, non-payment or both].
4. The demand must be stated.
5. Statement regarding this must be there, failure to comply with the notice, your
liability will be there in case of dishonoured instrument. He will be held liable on
the dishonoured instrument.
6. Notice should be clear in the demand.
7. You have to claim costs, interest, damages, litigant cost, etc.
8. A mere demand for payment is not a sufficient notice. (the way it is presented and
the legal consequences of not paying must be there)
9. Time and place of notice: (1) reasonable time and (2) specified place, business
place, habitual notice.
10. Notice on the last known address.
 If the amount mentioned in notice is bigger than that mentioned in the cheque, the
notice become illegal. If bigger amount, the you have to tell why is that amount there.
Intention is important here.
 If the notice contains the lump sum money, covering the money required to be paid,
interest and other expenses incurred, it will be a valid notice. However, there must be
clarification regarding the same.
 If instead of serving a legal notice, a registered is sent containing the same
information and details, it will be deemed to be a valid notice. (knowledge and
warning are the primary motives of a notice). Just 2 things: demanding the money and
giving legal repercussion.
1. Notice must make a demand
2. Notice must warn regarding the legal consequences
3. Period of notice: within 30 days
4. Manner of delivery constructive delivery (Section 27 of GCA)
5. If the payment has been asked to be paid earlier in the notice, it will be valid
notice but the CoA will arise after the expiry of 15 days.
6. No mens rea required (Section 140)
 If the addressee refuses to receive the notice, the knowledge of to the addressee will
be considered from the date of refusal, not dispatch.
 If the intention of the drawer is not receive notice, like locking the house, etc., then
deemed or constructive service of notice comes into play. Actual service of the notice
is not necessary.
 Notice is mandatory, not a mere formality. [Rahul Builders v. Arihant Fertilizers
and Chemicals, 2008 Cri. LJ 452 and B. Raja Kumari v. B. Subbarama Naidu, 2005
SC 109]
 Raja Kumari v. Subbarama Naidu: The payee has to make a demand by giving a
notice in writing. If the drawer fails within 15 days of such notice, then only the
offence will be considered.
 Nothing prevents giving the notice in hand, but evidentiary value is also important
[C.C. Alavi Haji v. Palapetty Muhammed, 2007].
 In case of refusal of receiving the notice, it is considered to be deemed service of
notice. If the proper address that has been written on the notice, sent by a registered
post, then refusal will not be considered for the purposes of Sec. 138(b). The only
requirement is properly addressed, registered or not.

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  D. Vinod Shivappa v. Nanda Belliappa, AIR 2006 SC 2179
 Refusal: Not a round
 Revived: No confusions.
 But is premises were locked, then the court has to look into it. Discretionary
power.
 “If a notice is issued and served upon the drawer of the cheque, no
controversy arises. Similarly, if the notice is refused by the addressee, it may
be presumed to have been served. This is also not disputed. This leaves us
with the third situation where the notice could not be served on the addressee
for one or the other reason, such as his non-availability at the time of
delivery, or premises remaining locked on account of his having gone
elsewhere etc. etc. If in each such case the law is understood to mean that
there has been no service of notice, it would completely defeat the very
purpose of the Act.”
 In D. VINOD SHIVAPPA –Vs. NANDA BELLIPPA. (2006) 6 SCC 456
decided on the 25th of May 2006 the Supreme court had again an occasion to
deal with the concept of deemed service. There the notices of demand in five
out of seven cases were returned with the endorsement “party not in station,
arrival not known”. In the other two cases the notices were returned with the
endorsement, “addressee always absent during delivery time. Hence returned
to the sender”. The Magistrate issued process. The recourse to Section 482
Cr.P.C. in the High Court failed. The Supreme Court reiterated the law as in
K. BHASKARAN (Supra) and V. RAJA KUMARI (Supra) and summed up
the law as to deemed service thus :- “The question as to whether there was
deemed service of notice, in the sense that the endorsement made on the
returned envelope was a manipulated and false endorsement, 11 is essentially
a question of fact and that must be considered in the light of evidence on
record.”

 K. Bhaskaran v. Sankaran Vaidhyan Balan, 1999.

“No doubt Section 138 of the Act does not require that the notice should be given only by
`post'. Nonetheless the principle incorporated in Section 27 (quoted above) can profitably be
imported in a case where the sender has despatched the notice by post with the correct
address written on it. Then it can be deemed to have been served on the sendee unless he
proves that it was not really served and that he was not responsible for such non-service. Any
other interpretation can lead to a very tenuous position as the drawer of the cheque who is
liable to pay the amount would resort to the strategy of subterfuge by successfully avoiding
the notice. Thus, when a notice is returned by the sendee as unclaimed such date would be the
commencing date in reckoning the period of 15 days contemplated in clause (c) to the proviso
of Section 138 of the Act. Of course such reckoning would be without prejudice to the right
of the drawer of the cheque to show that he had no knowledge that the notice was brought to
his address. In the present case the accused did not even attempt to discharge the burden to
rebut the aforesaid presumption.”
 Raja Kumari v. P. Subbarama Naidu, 2004
In V. RAJA KUMARI –Vs- P. SUBBARAMA NAIDU AND ANOTHER, (2004) 8 SCC 774
decided on the 2nd November 2004 the complaint contained the statement that the notice was
returned with an endorsement that the door of the house of the accused was locked. The Trial
Court holding that the mandatory notice was not served dismissed the complaint. The High
Court reversed the order. The Supreme Court reiterated the statement of law enunciated in K.
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BHASKARAN (Supra) as regards deemed service.

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  Dalmia Cement (Bharat) Ltd. v. M/S. Galaxy Trades & Agencies Ltd., 2001

REASON FOR DISHONOUR

 Section 138 reads:
 amount of money standing to the credit of that account is insufficient to
honour the cheque or
 that it exceeds the amount arranged to be paid from that account by an
agreement made with that bank.
 NEPC Micon Ltd. v. Magma Leasing Ltd., AIR 1999 SC 1952: Account
Closed also comes under the purview of Section 138. Sec. 138 read with 140
is interpreted in consonance with the legislative intent so as to supress
mischief. It could encourage dishonest person to issue cheques and then close
account. In such circustances, the cheque is returned not only because the
account was closed, but because the funds were nil. Therefore, closed account
could be covered by the phase “amount of money standing to the credit of that
account is insufficient to honour the cheque.”
 Stop Payment/ Payment Countermanded: When the drawer gives
instructions to the banker to refrain from clearing any cheques drawn on the
drawer’s account/ stop payment to the holder’s account. [Electronic Trade
and Technology Development Ltd. v. Indian Technologies and Trade
Engineers Ltd. 1993 2 SCC 379].
 Refer to the Drawer: Modi Cements Ltc. v. Kuchil Kumar: Refer to the
drawer is a very polite manner of saying that the cheque has been
dishonoured.
JURISDICTION

 Territorial Jurisdiction in terms of dishonour is there in Section 138, read with 142
and CrPR provisions.
 This is subject to controversy due to the conflicting opinions.
 If an offence is created at many places, where is that provided that all the courts
will have the jurisdiction: Section 178 of CrPC.

1. K. Bhasakaran v. Sankaran Vaidhyan Balan 1999 7 SCC p. 510

 Putting various conflicting views and interpretations at rest and thoroughly widening
the scope of territorial jurisdiction of the court to entertain a complaint under S. 138,
the SC held that the offence under S. 138 is not completed with the dishonour of
cheque and attains completion only with the failure of the drawer of the cheque to pay
the cheque amount within expiry of 15 days mentioned in clause (c) of the proviso to
S. 138.
 It is normally difficult to fix up a particular locality as the place of failure to pay the
amount covered by cheque. A place for that purpose would depend upon a variety of
factors. It can either be the place where the drawer resides or at the place where the
payee resides or at the place where either of them carries business.
 Then the case went on to hold that the offence under S. 138 can be completed only
with the concatenation of a number of acts:
1. Place of Drawing the cheque/Place where the holder is situated,
2. Presentation of the cheque to the bank,
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3. Returning of cheque unpaid by the drawee bank,

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 4. Giving notice in writing to the drawer of the cheque demanding
payment of the cheque amount,
5. Failure of the drawer to make payment within 15 days of receipt of
notice. Wherever the drawer is located.

 If the 5 different things were done in 5 different localities any one of the 5 localities
can become the place of trial for an offence under S. 138.

Judgement: “The offence under Section 138 can be completed only with the concatenation of
a number of acts. Following are the acts which are components of the said offence:
1. Drawing of the cheque,
2. Presentation of the cheque to the bank,
3. Returning the cheque unpaid by the drawee bank,
4. Giving notice in writing to the drawer of the cheque demanding payment of the cheque
amount,
5. Failure of the drawer to make payment within 15 days of the receipt of the notice.”

2. Shri Ishar Alloy Steels Ltd v. Jayaswals Neco Limited, 2001

 Where cheque has been presented, does not have the jurisdiction.
 Only the place where the bank on which it is drawn is located has the jurisdiction.
 Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd. (2001) 3 SCC 609, which
categorically held that for criminal liability to be attracted, the subject cheque has to be
presented to the bank on which it is drawn within the prescribed period. Ishar Alloy
case, as noted by the Apex Court has significantly whittled down the Bhaskaran
decision if not overruled. Further, it is observed that Bhaskaran has also been
drastically diluted by Harman inasmuch as it has given primacy to the service of a
notice on the Accused instead of its mere issuance by the Complainant.

3. Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd. 2009 1 SCC p.
720
 The ruling in Bhaskaran was diluted in Harman Electronics Pvt. Ltd. v. National
Panasonic India Pvt. Ltd. The Court addressed the issue of whether a Delhi Court
would have jurisdiction solely because the statutory notice under Section 138 of the
Act was issued from Delhi. The Court held that:

1. Issue of the statutory notice does not give rise to a cause of action. Only
receipt of the notice does;
2. Only the main provision of Section 138 constitutes an offence. The proviso
thereto merely enlisted the conditions necessary for taking cognizance of the
offence;
3. If mere presentation of the cheque or issue of notice would bestow upon a court
the territorial jurisdiction to try offences under Section 138 of the Act, it would
inevitably lead to harassment of the drawer.

 The judgments in Bhaskaran and Harman represent the liberal and the strict views,
respectively , on the issue of territorial jurisdiction for trial of the offence of dishonour
of cheques under Section 138 of the Act.

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 In Harman Electronics (P) Ltd (“Appellant”) v National Panasonic India Ltd
(“Respondent”) 4 , the apex court analyzed the question whether the cause of action
for section 138 cases arises by issuing demand notice or when the drawer receives
notice. In this case, the Appellant and Respondent entered into a business transaction
in Chandigarh. Appellant resided and carried on business in Chandigarh and issued a
cheque to the Respondent in Chandigarh which was presented for encashment in that
city. It was dishonored by the Appellant’s bank in Chandigarh. The Respondent issued
a legal notice under section 138 from Delhi. The question arose if a mere issue of
notice from Delhi will constitute as cause of action? The case went all the way to the
SC who took the view that if mere presentation of cheque or issue of notice bestows
territorial jurisdiction upon the courts to try section 138 matters, then it would
inevitably lead to harassment for a drawer. The SC held that only receipt of notice
will give rise to cause of action for section 138 matters. A distinction must be made
between the ingredients and commission of an offence. Issuance of notice under
section 138 NI is an ingredient for maintaining the complaint and failure by the drawer
to make payment within 15 days only give rise to cause of action.

4. Prem Chand Vijay Kumar v. Yashpal Singh

 When the one month period will start for taking cognizance.

5. Dashrath Roop Singh Rathore v. State of Maharashtra 2014 9 SCC p. 129

(Overruled by the Constitutional Amendment, 2018)
 Supreme Court held that a Complaint of Dis-honour of Cheque can be filed only to the
Court within whose local jurisdiction the offence was committed, which in the present
context is where the cheque is dishonoured by the bank on which it is drawn. The
Court clarified that the Complainant is statutorily bound to comply with Section 177
etc. of the CrPC and therefore the place or situs where the Section 138 Complaint is to
be filed is not of his choosing. The Supreme Court Overruled the two Judge Bench
Judgment in K. Bhaskaran.
 Wherever the drawee bank is located, that court only has jurisdiction. But this creates
hardships for the holder.
 The court accepted the view in Harman Electronics.
 Since it is a criminal piece of legislation and thus there must be strict application.
 Territorial Jurisdiction in case of dishonour of cheques  Section 138-147 is the stand
alone piece of legislation. No other legislation will be applicable in case of dishonour
of cheques.
 The SC held that the return of the cheque by the drawer bank only constitutes
commission of offence under section 138. Hence, the courts within which drawer
bank is located will only have the jurisdiction to try the case. Adopting a strict
approach, the SC wanted to rule out the unintended ramifications caused to the drawer
by the principles laid in Bhaskaran’s case. The flexibility given to the drawee so far
with respect to choosing the place for initiating action under section 138 NI had caused
severe hardships to the drawer as the places sometimes had no connection with the
drawer or with any facet of the transaction. With the Dashrath ruling, the judicial
inquiry or trial has been restricted to place of the commission of offence so as to
restrain abuse of section 138.

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CONDITIONS WHICH CAST A DUTY ON THE BANK TO PAY
1. The account must actually be in credit/ running situation.
2. There is no countermanding.
3. Cheque should be presented at the branch where the account is there.
4. Cheque should be presented in business hours, otherwise the bank is not in
the obligation to pay.
5. Funds should be for the whole amount of the cheque, no partial payment allowed. The
payee should demand whole f the amount.
6. There should be no ambiguity in the material part of the instrument, including
the defects resulting from crossing/indorsing.
7. Words and figures should indicate the same amount.
8. Cheque should not be carelessly drawn.
9. There should be no irregular indorsement, and it should not be forged
and unauthorised.
10. Cheque should not be mutilated.

 In case of death of the customer, the legal representative may claim money.
 Medical condition bad: Medical Reports, then thumb print.

DEFENCES IN CASE OF SECTION 138

 Defect in the notice/Absence of the contents of the notice/ Notice has not been served.
 No knowledge of notice, everyday my house was open.
 Absence of legally enforceable debt.
 Cheque was not returned unpaid. Banks instructions absent/ Information
regarding dishonour of cheque not provided by bank.
 Plea of limitation – one month has passed.
 Lack of jurisdiction.
 Holder did not receive the cheque in terms not section 139, but conditional
acceptance.
 No return of cheque to the payee.

SECTION 142: COGNIZANCE OF OFFENCE

 Cognizance: Taking judicial notice of the offence and becoming aware of it.
 Mandatory section: Court cannot take cognisance except complaint: MMTC v.
Medical Chemical Pharma Ltd, 2001.
 The word complaint is defined under Section 2(d) of CrPC, but the section opens with
the words “unless the context otherwise requires”
 No court inferior to metropolitan magistrate and judicial magistrate first class will try.
Therefore, a police officer has no jurisdiction. Magistrate on the basis of complaint
works.
 The complaint shall be in writing only.
 The complaint shall be against the drawer, in exchange of a legally enforceable liability.
 The cheque shall be presented by the bank, and within the period of it’s validity.
 Sil Import, USA v. Exim Aides Silk Exporters, Banlgore SC 312 1999.
 Section 142 is compulsory in nature.
 No court shall take cognizance of the offence except upon a complaint made
by the payee/holder in due course.
 No suo moto in case of dishonour of cheques.

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  The provisions contained in Section 142 are independent of the provisions of
CrPC. Non- obstante clause.
 The word complaint is defined under Section 2(d) of CrPC, but the section
opens with the words “unless the context otherwise requires”
 Section 190, 200, of CrPC applies however.
 Such complaints according to 142(b) is to be made within one month of the
date on which the CoA arises under clause (c) of the provisions of Section 138
 No court inferior to the metropolitan magistrate or judicial magistrate of the
first class shall try any offence punishable under Section 138.
 If the parties before or after the dispute refer the matter to arbitration, it should
be allowed. (Section 147 read with Section 7 of the Arbitration and
Conciliation Act).
 Meaning of “month”- section 3(35) of the General Clauses Act defines month and that
month is according to the British Calendar.

REQUIREMENTS OF COMPLAINT UNDER SEC. 142

(After requirements of Section 138 have been complied with; 142 cannot be applied
independent of Section 138)

1. The allegation must be in writing.

2. That allegation must be there against the drawer of the cheque. (no fault of
drawee)
3. The said cheque (“said cheque” – identification of cheque is required to be
mentioned, ambiguity on technical ground will lead to dismissal of the suit)
was issued in discharge of a legally enforceable debt of liability.
4. The cheques was presented to the bank on which it was drawn within the
period of it’s validity. (presentment of cheque – Sec. 21, 64 and 138 and RBI
circular)
5. The cheque has been dishonoured by the bank.
6. The endorsement by the bank while returning the cheque unpaid, directly or
indirectly, leads to the inference that the amount of money standing to the
credit of that account is insufficient to honour the cheque or it exceeds the
amount arranged to be paid from that account.
7. The return should provide the facts of dishonour.
8. A notice was sent to the drawer within 30 days of the receipt of information
from the bank about dishonour of cheque, demanding payment of the amount
covered by the cheque.
9. The drawer either actually received the said demand notice or intentionally
evaded the service of notice though properly directed and because of such
intentional evasion of the service of notice, the said notice must be deemed to
have been served upon the drawer.
10. The drawer did not make payment within 15 days from the date of actual
receipt of the notice or constructive service of the notice. There is no conduct
indicative of the fact that he is showing readiness and willingness to make a
payment against the drawn cheque.
11. The complaint is made within one month of the date on which the Cause of
Action arises under clause (c) of Section 138. [Declaration which is required].
12. The complaint is to filed before a metropolitan magistrate or judicial
magistrate of the first class having territorial jurisdiction to entertain such a
complaint.
13. Section 142 of the Act provides for only one mode of cognizance on a
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complaint in writing by the payee or holder in due course of the cheque.

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 Sections 7, 8 (holder’s rights), 78, 142 together: holder is the person who is
entitled to receive money (entitlement to receive payment in cash)

SECTION 141
 Company director’s liability in case of dishonour of cheque- vicarious liability
 Defence: no knowledge, or due diligence taken.

Anil Hada v. Indian Acrylic Ltd. 2001 Company Cases p. 36:

Dishonour of cheques in case of company director’s liability
Those in charge of cheque only will be held liable
Independent directors are ex officio, they do not participate in day to day
activities and thus they will not be liable for dishonour. Only those in charge
of affairs of the company dealing with cheques will be liable.
3 categories which may be held liable: The company, everyone who is in the
charge of the company, any other person who was a
director/secretory/manager/officer of the comply, due to whose neglect, the
offence was committed.

 For the purposes of dishonour of cheques, partner will be considered as

director of firm. (Explanation)
 Section 19: only those persons who get mandate by other partner regarding
financial matters.
 Deemed Directors: Of the PSU’s: Not be held liable [Provision II]
 Is dishonour of cheque a criminal wrong under IPC? Can the person sue on
both? No. Dishonour is a civil wrong, with criminal over tunes. Also, mens rea in
criminal law is taken away from the drawer in case of Dishonour. Here, mens rea is
not required [Sec. 138, 139 and 140]. Anything which takes away mens rea cannot be
criminal in nature. – Dashrath Roop Singh Rathore.
This is an addition to IPC remedies, why require this provision for multiple
jurisdiction? Court said, not in addition. This is a special law with special provisions.

 If an offence is created at many places, where is that provided that all the courts
will have the jurisdiction: Section 178 of CrPC.

 Complaint is of 3 types: By aggrieved party, by a police officer and by sue moto

information [Sec. 190 of CrPC]. However, under NIA, only the payee and holder in
due course can file a complaint against the drawer.

 When the offence is committed under Sec. 138(c), for the purpose of cognisance:
COA arises only when the drawer does not make payment on the 15 days expiry.

 Section 190 in The Code Of Criminal Procedure, 1973

190. Cognizance of offences by Magistrates.
(1) Subject to the provisions of this Chapter, any Magistrate of the first class, and any
Magistrate of the second class specially empowered in this behalf under sub- section (2), may
take cognizance of any offence-
(a) upon receiving a complaint of facts which constitute such offence;
(b) upon a police report of such facts;

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(c) upon information received from any person other than a police officer, or upon his own
knowledge, that such offence has been committed.
(2) The Chief Judicial Magistrate may empower any Magistrate of the second class to take
cognizance under sub- section (1) of such offences as are within his competence to inquire
into or try.
 https://www.mondaq.com/india/trials-appeals-compensation/433334/section-138-
negotiable-instruments-act-1881--an-in-depth-analysis

 Safeguards to honest drawers:

1. Cheque should have been issued in discharge of a legal liability.
2. Cheque should be presented within the period of it’s validity.
3. Notice is sent by the payee demanding payment within 30 days of receiving the
facts of dishonour.
4. The drawer was allowed to make payment within 15 days from the day of
receiving notice.
Agrees to pay the amount in those 15 days.
Offence is only made once he fails to pay in those 15 days too.
Notice is required to be served to him.
Can enter into compromise \ with the payee or holder in due course.
Readiness and willingness on his part, can pay in future.
The legislative intent is to protect the drawer. Offence only when he fails only after 15
days, not when there are insufficient funds. Therefore, even if it is dishonoured, and your
purpose is not to deceive, then you can still pay. [Committee on Banking Laws by Dr.
Rajamannar, submitted in 1975]

WHAT WILL THE MAGISTRATE DO AFTER RECEIVING THE COMPLAINT?

 Section 204 – Will issue a summon
Dr. Rajan Sanatkumar Joshi v. Rajnikant Govindlal Shah on 1 March, 2007.
 Guidance by the court:
1. The verification of complaint by complainant on oath is the first step in the
process of taking cognisance of the offence.
2. When it is by a company, the court should verify whether the person
representing the company, is duly authorised, or not.
3. Complaint should have specifically stated that the payee had issues a statutory
notice to the drawer, and the drawer had received it.
4. The complaint has been filed within the period of limitation as prescribed
under section 138 of NIA.
Paragraph 15:
1. The verification of a complaint on oath by the complainant is the first important step
in the process of taking cognizance by the Court upon the complaint. The verification
is not an empty formality but, when a complaint is verified by the complainant on
oath, then the verification would attach authenticity to the averments made in the
complaint, and if found or proved false, then even cost can be imposed upon such
complainant. Therefore, verification has to be in a proper manner, i.e. all the facts
necessary to constitute the offence must be borne out from the verification and the
factual aspect
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 should also be made very amply clear by the complainant, so that the Court may not
be misled by incomplete verification or incomplete details of facts necessary to take
cognizance upon the complaint.
2. If the complaint is by a Company, i.e. by a legal entity, then the Court should verify
as to whether the person representing the Company has been duly authorized or not.
On the date of the verification of the complaint itself, the Court should peruse the
authorization, empowering a particular person to file the complaint on behalf of the
legal entity.
3. Whether the complainant has supplied complete postal address of the complainant as
well as the complete postal address/s of the persons named as accused in the
complaint or not and whether the said addresses are correct or not.
4. Shall verify the statement of the complainant that all the accused persons who are
named in the complaint are Directors / Partners of the firm / Company in question as
on the date of the offence and / or the complaint and, as to whether they are liable
under the Negotiable Instruments Act or not. It shall also verify the status of the
accused person/s and the extent of involvement of the accused person/s in the
commission of the alleged offence. Before a person can be made vicariously liable
and is summoned before the Court, strict compliance of the statutory requirements
should be insisted. In terms of Section 200 of the Cr.P.C., the Court should take care
to see that the complainant makes a statement on oath as to how the offence has been
committed and as to how the accused persons are responsible therefor. On appropriate
verification of the complaint, ultimately, if it is found by the Court concerned that the
complaint is frivolous or otherwise mala fide, the same may be dismissed Under
Section 203 of the Cr.P.C.
5. Whether the accused is the signatory to the instrument in question or not.
6. There must be a specific averment in the complaint itself as regards the fact that the
Payee of the cheque had issued the statutory Notice to the Drawer and that the Drawer
has received the statutory Notice. The Court should insist for some formal proof in the
form of acknowledgment receipt, unless, the complainant, while verifying the
complaint on oath, states that the accused has deliberately evaded the service of
Notice or otherwise. In the absence of such averment in the complaint as well as the
statement on oath during the course of verification, the complaint can straightway be
dismissed Under Section 203 of the Cr.P.C.
7. Whether the concerned Firm / Company, Society / Institution, Partner / Director or
Proprietor are joined as parties or not.
8. Whether the complaint has been filed within the period of limitation as prescribed
under Section 138 of the Act.
9. Whether there are any specific allegations against each accused or not in accordance
with the ratio laid down in the cases of Sabitha Ramamurthy and Anr. v. R.B.S.
Channabasavaradhya and Saroj Kumar Poddar v. State (NCT of Delhi).
If all these are there, then only the court can issue a summon to the drawer.

 CrPC 204 (4): When by any law for the time being in force any process- fees or other
fees are payable, no process shall be issued until the fees are paid and, if such fees are
not paid within a reasonable time, the Magistrate may dismiss the complaint.
 Cause of action: one month [Sec. 142(b)].
 The complainant has the burden of proof for reasonable excuses for delay. If it was
genuine, then the complaint is allowed if it is satisfied. – Provision: Sec. 142(b). This

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 may be applied retrospectively also [R.K Chawla v. Goa Antibiotics and
Pharmaceuticals Ltd., 2006 2SCC Bom.].
SUMMON TRIAL/ SUMMARY TRIAL DIFFERENCE

Summary trial: 262-265 of CrPC, along with Section 143 of NIA.

Case: Rajesh Agarwal v. State, 2010 171 BLT 51 Delhi HC

5 steps for summary trial

“17. The summary trial procedure to be followed for offences u/s 138 N.I. Act would thus be
as under:
Step I : On the day complaint is presented, if the complaint is accompanied by affidavit of
complainant, the concerned MM shall scrutinize the complaint & documents and if
commission of offence is made out, take cognizance & direct issuance of summons of
accused, against whom case is made out.
Step II : If the accused appears, the MM shall ask him to furnish bail bond to ensure his
appearance during trial and ask him to take notice u/s 251 Cr. P.C. and enter his plea of
defence and fix the case for defence evidence, unless an application is made by an accused
under section 145(2) of N.I. Act for recalling a witness for cross examination on plea of
defence.
Step III : If there is an application u/s 145(2) of N.I. Act for recalling a witness of
complainant, the court shall decide the same, otherwise, it shall proceed to take defence
evidence on record and allow cross examination of defence witnesses by complainant.
Step IV : To hear arguments of both
sides. Step V : To pass order/judgment.”

COMPOUNDABILITY

Section 147 read with section 320 of CrPC: Offences under this part are compoundable
offence- court’s jurisdiction can be ousted- arbitration/ADR/negotiation.

Section 148: Temporary relief and injunction allowed.

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 CARRIAGE OF GOODS

2 Types Of Carriage Contract

 Unimodal (Carriage of Goods by Sea Act, 1925) and Multimodal (Multimodal
Transportation of Goods Act, 1993).

Private Carrier, Public Carrier, Common Carrier

 Private carrier refers to a company that owns the vehicles used to transport its own
goods. A private carrier does not transport goods as its primary business and, thus,
does not seek to transport the goods of other companies like a common carrier does.
In this sense, a private carrier is not a for-hire carrier and does not carry the goods of
other companies as its primary business.
 Private carrier is not available for all.
 Private carriers are governed by the Indian Contracts Act.
 A common carrier in common law countries (corresponding to a public carrier as it
may be presented in some civil law systems, usually called simply a carrier) is a
person or company that transports goods or people for any person or company and
that is responsible for any possible loss of the goods during transport. A common
carrier is a commercial entity that gets paid to transport goods or people. Some
common carriers transport goods for other businesses, some transport goods for the
general public and some transport members of the general public.
 Types of businesses that may be classified as common carriers include taxi services,
trucking companies, waste removal services, couriers, towing services and air freight
services, among many others.
 States may require common carriers to obtain a permit before they can operate legally
and to obtain special permission if they will be transporting hazardous materials.
 Definition of common carrier: Carriers Act, 1865 repealed now under
Carriage of Goods by Road Act, 2007: Section 2 (a) inspired by Ingate v.
Christie, 1863 - Everybody who undertakes to carry goods for anyone is a
common carrier. Available for all is a common carrier.
 Sec. 2(a): “common carrier” means a person engaged in the business of collecting,
storing, forwarding or distributing goods to be carried by goods carriages under a
goods receipt or transporting for hire of goods from place to place by motorised
transport on road, for all persons un-discriminatingly and includes a goods booking
company, contractor, agent, broker and courier agency engaged in the door-to-door
transportation of documents, goods or articles utilising the services of a person, either
directly or indirectly, to carry or accompany such documents, goods or articles, but
does not include the Government.
 Railways are not governed by this act busses are outside the purview as they don’t
carry goods.
 Do not apply to busses, as they are under motor vehicles act.
 Contract of bailment- carriage contract.
 “for all persons undiscriminatingly”
 Right to reject on certain grounds/ Grounds for refusal: Should be uniformly
practiced, reasonable.
1. Where the goods fall outside the categories specified by him as usual, in the
course of his business.
2. Where the goods are dangerous and exceptional in character/ expensive
goods.

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 3. Too large, exposing the carrier to undue risk.
4. Too valuable, disapprortionate to the safety measures.
5. Goods are tendered at unreasonable time before the carrier was ready for
journey.
6. Goods are inadequately packaged.
7. No room or place for the particular goods.
8. Consigner refuses to pay the price in advance when so requested.

 River Steam Navigation Co. Ltd. v. Shyam Sunder Tea and Co. (1962) 2 SCR p. 802
 Question regarding discrimination with respect to charging of freight.
 More freight cannot be charged but less can be charged.
 It will not amount to discrimination.

 “There was nothing in the common law to hinder a carrier from carrying for
favoured individuals at an unreasonably low rate, or even gratis. All that the law
required was, that he should “not charge any more than was reasonable.”

 Can duty to take care be contracted out?

Yes. The Bombay Steam Navigation Co. v. Vasudev Baburao Kamat, 1972. It is
open to a bailee to contract himself out of the obligations imposed on him under Sec.
151 of the Contracts Act.
No express mention of including of contracting out as now a days, the goods are so
nicely packaged.

 The firm or the company, or registration under the act is important to run the business.

 Characteristics of Common carrier:

1. It may be a company.
2. It should be engaged in the business of transporting goods, not passengers. If it
carrier goods only occasionally with passengers, it is not a carrier.
3. It should transport goods for money. Free of charge is not a carrier.
4. The goods may be transported overland or inland, but not by air. Waterways
also allowed.
5. It has to carry goods of any person without discrimination, on reasonable
grounds, like not falling in route.

 Duties of Common Carrier:

1. To carry the goods for every person who chooses to employ them.
2. To carry the goods safely, if they are damaged, he will be responsible.
3. To follow the customary and usual route if no route is agreed by the consigner.
4. To deliver the goods in time, reasonable time if not time is fixed.
5. To deliver the goods according to the instructions of the consigner.

 Liabilities of Common Carrier:

Carriage by Road Rules, 2001. [Sec-12]
1.

 Rights of a common carrier:

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 1. To get the agreed renumeration/ consideration or reasonable renumeration if
not agreed. [The freight is fixed as per the act, if the freight is not fixed, the
reasonable freight].
2. He has a right of lien which can be imposed against the consigner who has to
pay the charges before he delivers the goods.
3. He has a right to recover damage from the consigner from the goods if they
are hazardous in nature. But this does not mean that dangerous goods cannot
be transported. There is a duty to disclose the nature of the goods.
4. Right to refuse to carry on bonafide grounds.
5. To recover reasonable expenses, for example if the consignee refuses to take
the delivery, expenses to keep those goods. Carriage contract is a bailment
contract. Therefore the duty of care is there. If any extra expenditure to the
carrier due to the negligence of the consignee, including duty to cooperate, can
be recovered.
6. Limiting the liability, Reasonable Liability and Increased Liability. Liability
may be computed based on insurance, nature of goods, duration, etc.
CARRIAGE OF GOODS BY SEA
1. Carriage of Goods by Sea Act
2. Merchant Shipping Act
3. Marine Insurance Act
4. Bill of Lading Act

Contract Of Affreightment
 Freight is the consideration.
 The moment the goods have been handed over to the carrier/buyer, possession passes.
Risk passes with possession.
 Sec. 2 and 3 Marine Insurance Act, 1963: When a ship owner, or a person having
for the time being as against the ship owner the right to make such an agreement,
agrees to carry goods by sea or to furnish the ship for the purpose of carrying goods in
return for a sum of money to be paid to him, such a contract is called the contract of
affreightment or contract of carriage of goods by sea and the sum to be paid is usually
called freight.
 Time is always the essence in order to:
1. Provide the ship time on the dock
2. Load the goods on time
3. Unload the goods on time
 Penalty of demurrage in case the above 3 are not abided by.
 Captain signs on behalf of the ship owner. Captain is the agent and vicarious liability
applies.
 2 types: Charter Party Contract [CHP] and BOL. Depending on the manner in which
the ship is employed, the contract of affreightment may be contained in a charter party
or contained in or evidenced by a Bill of Lading.
 Differences:
1. Bill of Lading is a receipt of goods on load of the ship, as well as an evidence
for the contract. Charter Party Contract is only a contract of hiring the entire
ship of a part thereof.
2. Bill of Lading is a document of title of the goods [documentary transaction],
and Charter Party Contract is not a document of title.

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 3. Bill of Lading can be transferred by indorsement. However, it is a NI due to
transferability. Charter Party Contract cannot be transported.
4. Bill Of Lading does not amount to lease of the ship. Charter Party Contract
amounts to lease of the ship or part thereof.
5. Bill Of Lading is always for carriage of goods to a particular destination.
Charter Party Contract it may be for a particular place or for a particular period
also.
 Bill Of Lading has been recognised in 1794 in Lick Barrow v. Banson.
19% of GDP is used in logistics development.
India’s counterpart to OBOD is BBIN.
Trade Facilitation Agreement, 2017.
CARRIAGE OF GOODS BY ROAD ACT, 2007:
Purpose
1. Regulation of common carriers
2. Limiting their liability
3. Determining their liability

 What is Goods Forwarding Note, Form 7 under Road Act. It will be filled by the
consigner. It is a declaration about the kind of goods there, value, particles, weight,
origin, etc.
 Goods Receipt: Prepared by the common carrier in 3 copies. It is there in Form 8.
 The consigner will bear the cost of the consignment in case of prohibited goods being
carried: Section 12.
 Dangerous goods: In the Motor Vehicles Act.
 Duty of the consigner to declare the goods dangerous under Sec. 13.
 No ex parte hearing in absence of Common Carrier. [Sec. 16]
 Liability of common carrier is strict
liability. Exceptions in Section 17.
(a) act of God; (b) act of war or public enemy; (c) riots and civil commotion; (d) arrest,
restraint or seizure under legal process; (e) order or restriction or prohibition imposed by
the Central Government or a State Government or by an officer or authority subordinate
to the Central Government or a State Government authorised by it in this behalf
Duty of common carrier to employ due diligence.
 Carrier cannot deviate from the route because it is deemed to displace the contract,
increases the risk, the carrier cannot plead any exemption clause if he has not fulfilled the
condition precedent to non-deviation. In case of disturbance, protection of property or
human beings, etc. he can deviate. Otherwise, any deviation is a breach of contract.
 Condition of road worthiness cannot be exempted: Can sustain all the wear and tear of
the road.
 Why are countries trying to consolidate their carriage laws? The transportation now a
days is multi-modal. The nature of the transactions is such that it is cross-border,
therefore countries want to make sure that their laws protect all 3 parties. Harmonization
is required to make the laws uniform. Security and predictability in terms of liabilities and
damages is required in a transparent manner. Ease of doing business is very important.
Market access is secured and trade liberalisation is achieved through this. The purpose of
this is to reduce
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 transactional cost. The world is now multipolar and not unipolar. The WTO using
GATTS is putting pressure to do such consolidation.
 Section 5 of the carriage of goods by sea act: If carriage is to India, the law is not applicable.
 How does the act show that India is a party to conventions? The first [Hague], third
[Whisby and Hamburg] recital preamble of the Act. Not the most modern as Rotterdam
Convention not ratified by India.
 Why did India not ratify the Rotterdam Convention? INCOTERMS is more secure,
controlled. What is the need then? The carriage transactions are private in nature, and
private people determine their liabilities by their own private laws, which gives them
more freedom. So many leading companies are private, and their persuasive skills are too
high for India to implement it. Not only India, a lot of countries did not ratify.
 2 Conventions:
1956, 1975. EMR Convention
 India follows PPP model for logistics development.

 When will the goods be unclaimed? Unclaimed Goods

 In case of normal goods, if the consignee does not take the delivery of those
goods, under Sec. 15, after expiry of 30 days, the goods will be unclaimed.
 In case of perishable goods, within 24 hours of receipt of notice of delivery.
 Common carrier has the right to resale.
CARRIAGE OF GOODS BY SEA
 International Maritime Organization and Law Commission : Hague Convention 1922-
Brussels Convention Carriage of Goods by Sea Act was passed as a result of this.

o Liner Shipping Service:

The liner ship has the following features:

1. Liner ship is designed to carry a variety of cargo, with spaces for bales, bundles,
boxes, barrels, drums, etc, as well as for reefer (refrigerated) cargo. The designs of the
holds and number of decks in cargo will be different from those of a tramp. With the
increased share of containerized cargo, specially designed container ships for carrying
different categories of containers operate.
2. The cargo handling equipment on a liner will be varied and sophisticated for quick
loading and unloading of cargo to ensure a quick turnaround. A quick turnaround
means that the ship spends the least possible time in the port and most of its time in
transit.
3. Liner ships frequently operate between fixed ports and normally loads in several
ports. It serves a number of discharging ports along a pre-determined route.
4. In order to ensure speedier carriage, liner ship is fitted with sophisticated and
expensive propelling machinery.
5. Liner shipping service provides pre-announced scheduled services on given terms and
conditions of carriage. These conditions in the receipt mostly relate to the
responsibilities and liabilities of the shipowners, carriage, and delivery of cargo.
6. Liner shipping generally offers carriage on fixed and stable freight rates.

o Tramp Shipping Service:

The tramp carrier has the following characteristics features:

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 1. Tramp carrier is primarily designed to carry the more simple and homogeneous cargo
in huge quantity. It is, therefore, designed to completely utilize its carrying capacity
for carriage of one type of cargo.
2. Since one kind of homogeneous cargo is to be handled, a tramp will have the
comparatively simple equipment. Bulk cargos are normally loaded and discharged by
mechanical equipment, elevators, pumps, etc.
3. Because of the comparatively low unit value of commodities carried, a tramp will be
operated at the lowest possible cost. This objective can be achieved by operating ships
having relatively less speed by fitting less expensive propelling machinery.
4. A tramp generally carries cargos of one or two ship users. Hence, loading and
discharging are confined to a few ports.
5. Tramp carriers do not have a fixed route and predetermined schedule of departure
as it is to be engaged by one/two users as and when their need arises.
6. Tramp carrier offers services at terms and conditions, including freight/hire charges,
which are not fixed and given but are negotiable.

CHARTER PARTY CONTRACT

 Governed by the Indian Contract Act, 1872.
 3 parties: Shipper, Carrier, Seller.
 Domicile state of the ship and registered place of the ship. Registered state will be
fixing the liability.
 A type of contract of affreightment  Point of difference: The whole ship is hired by
one person to carry the goods to the place of destination
 The term Charter Party stands for a contract between the owner of the vessel and the
charterer which is the one which takes over the vessel for a certain amount of time or
voyage when there is an agreement or contract to carry some goods or provide a ship
for carrying the same document called charter party. The ship owner, under this
document, lets the ship for the purpose of carrying the cargo or undertakes to carry the
full cargo on the ship. The Charter Party document contains the contract of
affreightment. – Halsbury Law of England.
 The first case where Charter Party contract was recognised in common law jurisdiction:
Paradine v. Jane, 1647 Absolute liability of the seller.

 Facts: The plaintiff, Paradine, brought an action against the defendant, Jane,
for the rent arrears for the lands that Paradine had leased to Jane. The
defendant acknowledge that he owed the money for the rent. However, the
reason why he did not pay it was because the land was invaded by the enemy
of the King, his cattle was driven away and he was expelled from the land, so
effectively, he could not enjoy it.
 Issue: Should a lessee who was expelled from his land be liable for rent for a
period in which he has been expelled from the land.
 Held: (1) Where a party creates a duty or charge upon himself by virtue of a
contract, he is bound to perform the duty or pay the charge, notwithstanding
any accident. The reason why this is so, is because the party could have
inserted a clause in the contract, which prescribes what is to be done with the
rent in case of an accident.
(2) In the absence of an express covenant, the lessee is equally liable as the
rent is an obligation created upon the reservation.

DUTIES OF THE CARRIER: Schedule, Art. 3

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  Due diligence in sea worthiness. To make refrigerating and cool chambers, and all
other part of good carriage fit for their carriage, preservation and the journey.
 The carrier must properly and carefully load, handle, store, carry and discharge the
gods.
 The ship owner has to issue the Bill of Lading after the goods have been received.
Proper documentation needs to be done.

LIABILITY OF THE CARRIER: Schedule Art. 3

 Liable for loss or damage arising from negligence, fault or failure arsing from the
duties provide in the act. The carrier cannot limit or lessen his liability arising from
negligence and failure of duties.
 If at the time of carriage, the cargo owner had misstated the value of carrier, no
liability of the carrier. The Forwarding Note must clearly state the value, nature, and
other requirements of goods.
 The limitation to proceed a dispute against the carrier is within one year of the
deliver of the goods.
 If expensive and hazardous goods are there, they must be disclosed, else no lability.

Ship Owner’s lien: Right of the ship owner that maritime lien is available against the ship,
cargo and the freight.

Respondentia Bond: When cargo is given as a security for urgent repair of the ship for the
continuance of the journey. This power is given to the captain to get the ship repaired and
start the journey.

Bottomry Bond: If this is not sufficient, then the master is allowed to hypothecate the ship,
cargo and the freight as well. this is known as bottomry bond.

 TYPES OF CHARTER PARTY CONTRACT

1. Voyage Charter Party

 It is a charter under which there is one-time hiring of the ship and the ship
owner provides the ship, the fuel and the crew and places the ship on the
disposal of the charterer for the carriage of the cargo to a designated port.
Once the ship is hired and there is subsequent delivery of the goods, the
contract is terminated.
 Reasonable profit is also included.
 Lay time is fixed here. That means, loading and unloading times are foxed.
Else penalty: demurrage.
 2 types:
a. Consecutive Voyage Charter Party: there can be consecutive voyages
it is required to be specified how many time they are transported.
b. Specific Time Period Voyage Charter Party: Specific goods, one time

 Lay time (placing the goods on board) is fixed and fuel and crew will be
provided by the ship owner and if the goods are not loaded on time, the
penalty is prescribed. The penalty is known as demurrage. Thus time is the
essence of the contract.
 Specific goods are defined in the contract which are to be transported.

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  Freight is calculated depending upon the quantity of the cargo loaded.
 In a CPC, the consignee/seller is required to give an undertaking that he is
having full/ complete cargo for the ship.
 Freight is paid in advance.
 If currency is not specified, to be done in dollars.

 CLAUSES UNDER VOYAGE CHARTER PARTY CONTRACTS

a. Introductory clause: identifying the name of the parties, the name of
the vessel and agreed voyage.
b. Cargo capacity clause: also known as dead weight clause, maximum
limit of the particular cargo is provided. If more than the prescribed
deadweight is loaded, it will undermine the cargo-worthiness.
c. Cargo clause: the description, type and quantity of the cargo and also
charterer’s liability are specified.
d. Freight clause: amount of freight is specified and who will pay it (the
person nominating the carrier pays the freight [usually the seller], also
it is usually paid in advance) and the time and place of freight.
e. Cancellation clause: If the lay time is not respected, the Contract may
be terminated unilaterally, with or without notice depending on the
contract conditions.

2. Time Charter Party Contracts

 Contract for hiring the ship only for a particular period.
 Charterer pays for the bunker, fuel, port charges, etc. in addition to the
consideration for which the ship has been hired.
 Also known as demise charter party (when the goods are loaded and
transported to the destination, the contract is terminated, which means as
soon as goods are unloaded, contract is over)
 It is also known as catch time charter party contracts.
 The moment that time period is over, the contract will be presumed to be
terminated. No need to have a notice unless otherwise agreed.

3. Port/ Dock/ Berth Charter Party

 If the ship owner is required to provide the ship on a particular port/dock, then
that contract is called port/dock/berth charter party contract.
 The charterer simply states the port at which the ship shall be made available,
is called a Port CPC.
 The liability of the party will be determined on the basis of the contract
clauses mentioned in the CPC.

4. Consecutive Voyage Charter Party:

5. Bare Boat Charter Party

 It is a contract in which the crew, fuel, etc. is not provided, only the ship is
provided by the charterer. He only hires the ship. The charter will have the
commercial and technical responsibility of the vessel, and will pay for the
maintenance and insurance. The charterer bears all such cost. The owners
only duty is to provide the boat.

6. Bare Boat Charter Party with purchase option:

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  Bear Boat Charter Party with purchase option: like hire purchase; payment
will be there on instalments and on the last instalment there will be
completion of the contract.
 One of the clauses mentions some requirements after which the consignee can
buy the ship.
 The technical and personal management is required to be done by the charter
only.
 If the option is not exercises, the charterer continues to be the owner.

7. Slot/Place Charter Party: when whole of the ship is hired, there could be a
situation that the party does not have that much cargo to fill the hole ship, but he
does not want to have a BILL OF LADING. Some space is left and that can be
used. Charterer gives that space/slot to other party on hire. Kind of CPC BILL OF
LADING. It is a combination of BILL OF LADING and Charter Party contracts.

 CLAUSES UNDER CHATER PARTY CONTRACT

 Ready to Load Clause: This means that, at the time of possession of the ship,
the ship owner is required to give an undertaking that the ship is in perfect
status and the goods can now be loaded for transportation. He gives an
undertaking that everything has been checked and the ship is ready to load.
 Fit for voyage clause: Sea-worthiness (ability of ship to sustain the perils of
the sea), cargo-worthiness (ability of the ship to sustain the goods), sea-
worthiness at all stages (ocean BILL OF LADING) etc. Technical cargo-
worthiness concept.
 Full and complete cargo: Charterer is required to give an undertaking that
when he hires the ship, he will have the full and complete cargo for
transportation. In absence, the charter is not duty bound to provide full cargo.
 King’s Enemies and Restraint of Prince/Princess clause: An undertaking
that you cannot do anything that is contrary to the interests of the flag-state.
You cannot carry anyone who is waging a war or has something against the
King. (doctrine of frustration) the ship is not required to restraint princes and
princesses in the ship. No liability would arise if the goods are lost due to th
act of god or national enemy’s.
 Perils of the sea clause: Liability is determined. The ship owner will be liable
for the perils only to a certain extent. Section 2(c) of Marine Insurance Act,
1963. It is required to be made clear what perils can the ship sustain.
 Lawful Trades and Safe Ports clause: Only those goods which can legally
be transported or are normal goods must be carried. Declaration by the
Charterer that the goods transported are lawful in nature, not counterfeit/
illegal.
 Indemnity clause: In case any damage takes place, the party at fault must
indemnify the other party. [Sections 124-125 of ICA talk about indemnity]
 Paramount clause: mandatory clause which talks about the applicable law.
(choice of law clause when two persons from different nations enter into
contract, laws of both nations will be applicable). When paramount clause is
not added, rules of private international law are applicable.
 It mentions the governing act of the contract.
 In the absence of the paramount clause what has to be looked into
where the contract is to be performed, where the parties are located,
where the business h.q. are located, where the parties reside, etc.
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  Here the closest connection test is applied, and ease of doing business
is an important factor taken into consideration.
 Cancellation clause: it details the conditions on which both parties can cancel
the contract.
 Dispute clause: which court has jurisdiction. It can be an arbitration
agreement (defined under S. 7 of Arbitration and Conciliation Act, 1996) or
submission agreement.
 Frustration of Charter Party clause: how will frustration be there? Because
of commercial hardship/ act of god/ impossibility, required to be put whether
ipso facto frustration clause is there or notice is required?
 Discharge Port clause: The name of the discharged/destination port must be
mentioned in this clause.

 According to some jurisdictions, without signature also Charter Party Contract is valid.

NOTE: Hague/Brussels convention: liability were frivolous, too many exceptions for
carrier almost no use; consignee had no compensation. Hague Visby exceptions reduced,
Hamburg rules BILL OF LADING, Liability of the carrier was fixed in terms of Special
Drawing Rights (SDR). Rotterdam  liability of carrier increased.
Frustration under Charter Party Contracts
 The Indian SC has recently decided that there is no commercial hardship under
Indian law.
 Frustration would not apply in case of commercial hardship.

SPECIAL CHARTER PARTY CONTRACTS/ STANDARD FORMS OF CHARTER

PARTY CONTRACT
(depending upon the nature of goods)
1. Shell Time 4: time charter party of oil tankers and actors.
2. NYPE, 1993: Time charter party for dry cargo
3. BARE CON, 2001: Bare boat charter party for ships of any type.
4. BOX TIME 2004: Time charter party of container vessels.
5. Inter Tank Time 80: Time Charter Party for tankers.
6. BPVOY 4: voyage charter party for crude oil tankers.
7. GASVOY 2005: voyage charter party for gas.
8. INCO Charter Party Contract:

NOTE: Shipping cartels are allowed worldwide: Because shipping market is not developed,
regulation can be there only once the market has developed.
 Hardcore cartel is presumed to be prohibited.
 Softcore cartel is allowed.
 Shipping cartels are permitted.

 Most Popular Reasons For Disputes

1. Premature termination of contract: The contract is required to be performed as
per the terms. If the party terminates the contract, it becomes a contagious issue in
the dispute pertaining to Charter Party.
2. Demurrage claims: Penalty prescribed for lay time/ loading and unloading.
Because of the conditions, fault of one party, etc., the penalty is considered to be
an area of dispute.

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 3. Commencement or computation of lay time: When you require to load and
deload the goods. These specifications play a significant role.
4. Delay due to port congestions: Port congestions are out of control of parties.
5. Breach for payment terms: If you have long standing contractual relations, the
specification like currency, time, etc. for payments are pre-decided. This is
sometimes an area of dispute later.
These are settled matters (settled law is there)

 Unsettled Matters- New Challenges to Charter Party:

1. Piracy: dealt with in UNCLOS, 1973- Article 100, 101, 102, 107. Generally,
contracts do not have such clauses. Who will bear the loss?
2. Use of Armed Forces: Contract does not talk about who will maintain security.
Security-worthiness is not talked about in contracts.
3. Delays and off-hire clauses for detention by pirates: Detention by pirates results
in delays and since time is an essence in such contracts, this is a huge issue
4. Environmental and Pollution Control Regulations: Some countries are very
relaxed in terms of environmental regulations, while some have very stringent
environment protection regulations. E.g. REACH 2007- EU Regulation which
disallows animal testing. Certain kinds of environment regulations, however,
cannot be enforced. If ship is delayed due to these conditions, who will bear the
cost?

SHIPPING DOCUMENTS

1. Freight Contracts
2. Mate Certificate: Document that the goods have been received for the purposes of
navigation. It has limited purpose. It is a non-negotiable contract, and cannot be
transferred. Only given to the seller for the purpose of acknowledgment that the goods
have been received.
3. Sea Way Bills under types of Bill Of Lading
4. Ship’s Delivery Order
 It is a document containing an undertaking from the carrier in respect of the delivery
of goods and is generally employed to split bulk cargoes shipped under one bill of
adding. In this case, the Bill of Lading will be surrendered in exchange for the issue of
a number of ship delivery orders.
 These may be originally drawn up by the carrier, or by the holder of the Bill of Lading
and addressed to adopted by the carrier.

FOR A BILL OF LADING TO BE VALID, IT MUST INCLUDE THE FOLLOWING

INFORMATION:
1. Name and address of shipper.
2. Name and address of carrier.
3. Name and nationality of vessel.
4. Loading and unloading port/final destination (“orders”).
5. Name and address of the person or entity to be notified upon the goods’ arrival
6. Nature and condition of the goods (number of packages or pieces, quantity or
weight, and identifying marks)
7. Apparent condition of the cargo

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 8. INCOTERMS as per agreement and place of payment (If already paid, it
will state “pre-paid” and if not, it will read “collect”)
9. Number of original copies submitted
10. Place, date, and signature of either the carrier, shipping company,
vessel operator or captain of the ship

IMPLIED UNDERTAKING BY THE CARRIER

Sea-worthiness- fit for journey

 At common law a ship owner by contracting to carry goods on a voyage in a ship,
in the absence of express stipulation, impliedly undertakes that his ship is
seaworthy.
 In case of Charter Party Contracts sea-worthiness is absolute there are no
exceptions.
 Under Bill of Lading, the absolute undertaking of sea worthiness is replaced by an
undertaking that the ship owner will before and at the beginning of the voyage
exercise due diligence to make the ship sea worthy as it is governed by the Carriage
of Goods by Sea Act, 1925 and Article 3 of the Act provides this.
 The implied undertaking of sea-worthiness is an innominate term.
 Sea worthiness at every stage: 2 types of shipping- linear (fixed route- from one
particular port of arrival to a particular place) and tramp shipping (operation
wherever the cargo passes)
This is related with tramp shipping and through bill of lading.
 Non-exclusion of sea-worthiness: As per, Section 151 read with 159 of ICA, 1872,
sea-worthiness cannot be excluded even with an express provision in the contract
between the parties.

 3 types:
1. Technical sea-worthiness: relating to the vessel’s design, condition of her hull
and machinery, and her stability, etc.
2. Cargo-worthiness- fit for particular cargo competent crew, requisite
equipment (mandatory under cargo sea-worthiness)
3. Sea-worthiness for intended voyage relating to her equipment (including
charts), manning, bunkering and stores for the voyage.

 Reasonable dispatch
 The ship owner impliedly undertakes that his vessel shall be ready to
commence the voyage agreed on and to load the cargo to be carried, and shall
proceed upon and complete the voyage agreed upon, with all reasonable
dispatch.
 This is also an innominate term.
 Any unreasonable delay leads to vitiation of contract.

 Cehave N.V. v. Bremer (Lord Denning):

“Conditions” If the promisor breaks a condition in any respect, however

slight, the other party can, if he wishes, by intimation to the party in breach,
elect to be released from performance of his obligation under the contract,
claiming damages for any loss he has suffered although he can, if he prefers,
elect to maintain the contract in existence and content himself with proceeding
for damages in respect of his loss.
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 
“Warranties” if the promisor breaks a warranty in any respect,
however serious, the other party does not have a right to be released
from his further obligations, but has only the right to recover damages.
 “Innominate or intermediate terms” These are neither conditions nor
warranties. When an obligation of this type is broken, the right of the
promisee to treat himself as discharged depends on whether the breach
is sufficiently serious to go to the root of the contract.
 Reasonable dispatch is not a condition

 No deviation
 It is a rule unless in case of exigencies.
 Also involves undertaking to proceed the voyage by a usual and reasonable
route and without unjustifiable departure/deviation form that route. A
departure will be justifiable if it is necessary to save life or to communicate
with a ship in distress as the distress may involve danger to life.
 Perils of the sea: Certain perils are expected. Only in case of abnormal perils,
there can be deviation.
 Not to load those goods which are liable to cause danger or delay to the ship.

2020 NOTES
Sec.
1. Sea – worthiness: Fit for the journey, cargo and competent equipment’s. can
fight the perils of the sea. Sea-worthiness is required at each stage of the
process where the ship has to run through several stages with several stops.
Cannot be excluded even by express mention of the sae in the contract.
2. Reasonable Dispatch: In such contracts, time is the essence. Time of loading,
unloading, etc. are important. The may time [loading time] and de-loading
time must be respected by the parties.
Mc Andrew v. Adamson, 1884 case.

“Similarly to a time charter, the master is expected to prosecute each voyage within the
‘utmost dispatch’.85 Moreover, not only the voyage should be completed without dispatch
but also must be commenced within a reasonable time. Thus, in M’ Andrew v Adams86, the
Court held that the vessel must proceed on the voyage with reasonable dispatch. The case
summary is that, by the terms of a charter party dated on 20 October 1832, a ship was to
proceed from Portsmouth where she was then lying to St. Michaels (in the Azores) and there
load a cargo of fruits and return to London. However, on 7 November, instead of proceeding
direct to St. Michaels, she went on an intermediate voyage to Oporto, and return later to
Portsmouth, from where she finally sailed for St. Michaels on 6 December. As a result, the
Court of Common pleas held that the shipowner was liable to the charterer for breach of the
implied undertaking that the voyage should be commenced within a reasonable time.
Undertaking of this duty is judged, not on a strictly objective basis, but with regard to what
can reasonably be expected from the shipowner under the actual circumstances existing at the
time of performance.87

Where the charter party makes it a condition precedent that the vessel must leave for or arrive
at the port of loading by a given date, that deadline must be strictly adhered to.88 If it is failed
to fulfilled the condition precedent, then the charterer is entitled to damages and may refuse
to load his goods onto the vessel. For instance, in Glaholm v Hays89, the charter party
provided that the ship was to sail from England for the port of loading ‘on or before 4
February next’. Nonetheless, she did not leave for that port until 22 February. In
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consequence, it was held that

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the charterers were entitled to refuse to load their goods onto her. Moreover, a shipowner
whose vessel has met the deadline for arriving at the port of loading may still be in breach if
after considering the agreed voyage and the terms of the charter party, it could be seen that his
vessel should have arrived at the port of loading at an earlier time. Again, in M’ Andrew v
Adams90, the vessel was chartered for a voyage from St. Michaels to London. It was agreed
that the charterer was to have the option of refusing to load the goods onto her, if the vessel
was not ready to load by 31 January. In face, the vessel was dispatched on an intermediate
voyage but, nonetheless, reached St. Michaels well before the deadline. Despite this arrival
before deadline, the shipowner was held to be liable in damages for his delay in dispatching
the ship to St. Michaels.”

3. No Deviation: Article 4: There are no deviations permitted unless there is a

case of emergency. Otherwise, it will be a fundamental breach of contract. 2
exceptions: Deviations to save life, and deviation to save property. Also,
reasonable deviations are permitted. Fundamental breach gives the other party
to rescind the contract after serving notice [Article 49 CISG].
Photo Production Ltd v. Securicor Transport Ltd, 1920 SC 827 [Deviations
in what circumstances can be considered permitted].

House of Lords held that the doctrine of fundamental breach is a rule of construction based
on presumed intention of the parties. Whether and to what extent an exclusion clause was to
apply doesn’t depend on kind of breach committed rather on the construction of the contract.
Parties should be free to expressly define, exclude or modify their primary and secondary
obligations under the contract—to the extent of exemption clauses serving as the basis of
apportion of the risks as they think fit—unless they offend equitable rules against penalties or
are unjust and unfair.
4. Not to load goods liable to cause danger to the ship/sea.

Prohibitted goods: Customs Act, (33) "prohibited goods" means any goods the import or
export of which is subject to any prohibition under this Act or any other law for the time
being in force but does not include any such goods in respect of which the conditions subject
to which the goods are permitted to be imported or exported have been complied with;

BILL OF LADING- “Key to open the dock”

 Governed by Carriage of Goods by Sea Act, 1925
 Most important document in case of contract of carriage.
 Purpose of Bill of Lading:

 It is a formal receipt of the goods that has been issued by the Captain of the
Ship acknowledging the goods to be shipped, specifying it’s details, quantity,
condition, type, destination, origin, etc.
 It is an evidence of the contract of sale.
 It is a document of title indicating that it is a contract of carriage.

 Derived from “bile”  a written document/receipt/instrument; laden goods are

getting loaded.
 Literally meaning: Key to unlock the Wearhouse.

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 Doc indicating that goods are getting loaded in the ship

 First time recognised in 1794  Lickbarrow v. Mason (Judge- Laugh Borough)

 In the above case judicial recognition was granted to the custom and practice
of merchants that a shipped, negotiable bill of lading was a “document of
title”, so that a transfer of the bill effected a transfer of property in the goods
covered by the bill. It is however, clear that the reference to property must be
understood as denoting such proprietary or possessory rights as it is intended
shall be transferred, it does not recognise transfer of property.

 Bill of Lading is a written evidence of contract if carriage and delivery of

goods are sent by sea for certain freight and the contract in legal language is a
contract of bailment. In no manner whatsoever it recognises transfer of
property. It is only a contract of carriage and the nature is contract of bailment.

 COGSA, 1925 regulates only bill of lading transactions

 International Regulation (only Rotterdam rules have not been implemented in India):
1. Hague Rules 1924
2. Hague Wisby Rule 1968
3. Hamburg Rules, 1978 (UN Convention on Carriage of Goods by Sea, 1978)
4. Rotterdam Rules 2009

 Article 1 (7) of UN Convention on Carriage of Good by Sea, 1978 defines Bill of

Lading
“A document that evidences a contract of carriage by sea and the taking over or
loading of the goods by the carrier and by which the carrier undertakes to deliver the
goods against the surrender of the documents, a provision in the document that the
goods are to be delivered to the order of a named person or to the order, or to the
bearer constitutes such an undertaking.”

 Problems: Who will issue not mentioned, no signature, what do you mean by
carriage? 1(e) of our act – transportation, loading and unloading.

 Halsbury Law of England (Vol 5): A BILL OF LADING is a document signed by the
ship owner or by the master or the agent of the ship owner which states that certain
specified goods have been shipped in a particular ship and which purports to set out
the terms on which goods have been delivered and received by the ship; after
signature, it is handed over to the shipper (seller) who may either retain it or transfer
it to a third person. The person may be named as a person to whom the delivery of the
goods is to be made at arrival at their destination in which case he is known as the
consignee. If he is not named in the bill, he is usually known as the holder or indorsee
of the BILL OF LADING.
Cases: Malabar Steam Ship Co. v. Central Bank of India.

Problem: If he retains, what will the consigner show to the port authorities? How
many copies? Not mentioned. Shipped and received have unclear meaning. Similarity
to Mates certificate, no distinction.

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  Halsbury Law of India, Vol. 23, Para 45: Defines BILL OF LADING as an
instrument signed by the master of the ship in his capacity of the carrier
acknowledging the receipt of the merchant’s goods. They are usually in 3 parts. One
is retained by the consigner of the goods, one is sent to the consignee and the other is
preserved by the master of the ship.

 As regards the term 'bill of lading', the Hon’ble Supreme Court of India, in the case
of J.V.Gokal & Company (Private) Ltd. v. Asst. Collector of Sales Tax, reported in
AIR 1960 SC 595, held as under: “A bill of lading is "a writing signed on behalf of
the owner of the ship in which goods are embarked, acknowledging the receipt of the
goods and undertaking to deliver them at the end of the voyage subject to such
conditions as may be mentioned in the bill of lading". It is well-settled in commercial
world that a bill of lading represents the goods and the transfer of it operates as a
transfer of the goods.”

 All 3 copies are original. It means bill of Lading is issued in sets.

 Bill of Lading is a document issued by or on behalf of the person

 Definition of Bill of Lading taking into consideration all these conventions and
acts:

 A carrier that issues a Bill of Lading assumes a fundamental obligation to deliver the
goods at destination only against presentation of the bill.

 CONTENTS OF BILL OF LADING:

Article 1(b) and 3(3). But it says, among other things. Therefore, not exhaustive. Has to be
read with the UN Convention or Hamburg Rules, 1978, Article 1(7) and 15.
Article 15 of Hamburg Rules states the requirement of Bill of Lading.
Schedule 1, Art. 3(3) also provides the written contents.

 General nature of the goods

1. Marks necessary for identification of the goods
2. Dangerous nature of the goods.
3. Number of packages/ pieces
4. Weight/quantity
5. All such particulars are required to be there
 Apparent conditions of the goods, to make sure how much the document will
have consideration if the parties want to sell the goods when the goods are in
transit.
 Name and principle place of the business of the carrier.
 The name of the shipper.
 The consigner, if named by the shipper. [otherwise, bearers BILL OF LADING]
 Port of loading.
 Date on which the goods were taken over by the carrier at the date of loading.
 Port of discharge under the contract of carriage.
 Number of originals of the bill, if the bill is issued in sets or parts.
 Place of issuance of the BILL OF LADING

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  Signature of the carrier or the person acting on his behalf.
 Freight to the extent payable and who will be paying the freight?
 Date or period of delivery of the goods at the port of discharge if agreed by the
parties/ if time is of essence.

Article 73: Implementation of international treaties in India. The executive has the power.

 Carriage of goods by sea act only regulates Bill of Lading transactions.

LEGAL NATURE OF BILL OF LADING:

1. Formal receipt by the ship owner acknowledging the goods have been
received by the carrier.
2. It is an evidence of contract of carriage basic transport document. It serves
as evidence of the terms of the contract of affreightment. As between the
immediate parties to the contract, namely the carrier and the shipper, the
evidence provided by the bill is not conclusive and may be supplemented or
even overridden by extraneous evidence. However, once the bill has been
transferred, the bill provides conclusive evidence as between the carrier and
the new holder as to the terms of the contract of affreightment. In this sense
the bill maybe said to “contain” the contract (Leduc & Co. v. Ward, 1888).
3. It is document of title indicating the ownership of that particular good as
specified under Section 2 (4) of SOGA, 1930.

 Bill of Lading lies with the buyer so that he can claim the goods from the port
authorities. Mate Certificate lies with the seller (it is only an acknowledgment of
receipt of goods by the ship owner). Bill of Lading has evidentiary value.

 WHETHER BILL OF LADING IS A NEGOTIABLE INSTRUMENT?

 It is considered a negotiable instrument because it is a freely transferable
instrument of title, which can be transferred from one party to another, but it is
not governed by NIA. It is by mere deliverance that it completes the process.
 Bill of Lading is a negotiable instrument:
 Lickbarrow v Mason: Bill of Lading is a written evidence of contract
of carriage and delivery of goods sent by sea for certain freight and the
contract in legal language is a contract of bailment.
 The special verdict in Lickbarrow uses the word “negotiable” and
“transferable” in case of Bill Of Lading.
 Bill Of Lading is merely a delivery contract.
 When the first time goods are being carried it is merely a contract of
carriage, no question of transferability comes into picture. This
question comes only when goods are getting sold during transit by the
one who possesses the goods. Such a sale can be made through
indorsement. In this case Bill Of Lading gets transferability.
 Ab initio it is only a receipt. When goods are in carrier’s possession
and then goods are sold in transit, Bill Of Lading attains
transferability.

 Bill Of Lading not a negotiable instrument

 Patten v. Thompson
 Sargent v. Morris
 Straight BILL OF LADING and Seaway Bills
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  Negotiable as term of art describes an instrument which can give to a
transferee a better title than that possessed by the transferor. A Bill Of
Lading is not negotiable in this sense as the indorsee does not get a
better title than his assignor (Gurney v Behrend, 1854). Indeed, a Bill
Of Lading is negotiable only in a popular sense and not in a technical
sense (Kum v Wah Tat Bank, 1971).

 UTILITY OF BILL OF LADING:

 Most preferred mode of transport is carriage by sea in international trade.
 Containerisation prevents damage of good

 RULE OF INTERPRETATION IN CASE OF BILL OF LADING

 Mode of payment Letters of credit or bank guarantee; documentary credit
 Because it is a financial document, the interpretation will be strict in nature.

 Clean Bill Of Lading: All the clauses mentioned in Bill Of Lading are clear and
beyond doubt. Everything is in order without the extent of damage. It is a bill of
lading that notes the loading of goods in apparent good order and condition.
 Documents are sold rather than goods: most of the times, goods are sold when they
are getting transported.
 PARTIES: Shipper (seller), consignee (buyer), carrier (ship owner).

PROBLEMS WITH BILL OF LADING

1. Dirty/ Claused Bill Of Lading

 Claused BILL OF LADING does not clearly reflect the standard of the
product being transported. It is bill of lading that contains adverse remarks
as to the apparent order and condition of the goods to which it refers, or a
bill of lading which contains qualifications as to the weight or quantity of
the goods loaded thereunder. It also indicates the extent of damage and
involves overlapping
 A claused bill of lading is used when shipped products deviate from the
delivery specifications or expected quality. Also called a "dirty bill of
lading" or "foul bill of lading."
 If an individual receiver issues a Claused bill of lading, the exporter may
face future difficulty. For example, if the goods arrive and the receiver
deems them damaged or determines some of the goods went missing, the
exporter may experience trouble receiving payment. When shipping goods,
purchasers rely on letters of credit for payment. However, most banks refuse
to accept any Claused bills of lading. Thus, if a receiver files a Claused bill
of lading and the exporter relies on letters of credit to pay for the goods
originally, they will not receive repayment for the goods, and thus will
experience a loss.
 When a dispute comes before the Court, it will not be able to decide beyond
doubt. There will be issues regarding interpretations.
2. BILL OF LADING is most of the times bearer BILL OF LADING. There are
chances that an unauthorised person may claim goods.
3. Sometimes goods be claimed without BILL OF LADING and this can create a
problem. There can be case where because of delay in the transportation or
communication, BILL OF LADING does not reach buyer. In case the cargo

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 arrives, the port authorities, sometimes, release the goods without a BILL OF
LADING. This may result in an issue in terms of damages to the goods.
4. Forged BILL OF LADING: 2 parties located in 2 different countries and many
a times parties forge the documents and claim the goods.

DIFFERENCE BETWWEN MATE CERTIFICATE, RECEIPT, COMMERCIAL

INVOICE AND BILL OF LADING

 Difference in terms of detailing.

 Receipts only has the goods name and price, very less detailed.
 CI: more detailed. – seller, buyer, more details.
 MC is similar to BILL OF LADING but it has no negotiability.
 MATE CERTIFICATE is similar to BILL OF LADING but MC is for the
purpose of the seller, has no negotiability, and is merely an evidence that the
goods have been received from the seller. BILL OF LADING is for the
purpose of buyer.
 Invoice/Commercial Invoice (difference between these two is in terms of
detailing- CI has complete details) is non-negotiable, it is merely a document
of title.
 BILL OF LADING is the most comprehensive of all.
 BILL OF LADING is a document of title. MC has only evidentiary value.
BILL OF LADING also has evidentiary value.
 You cannot sell the goods on the basis of MC, but for BILL OF LADING you
can even if you don’t have the physical goods.
 No difference at all, only the purpose is the difference. The BILL OF
LADING is prepared on the basis of MC.

 How much compatible is BILL OF LADING and MC? No difference at all, only
the purpose is the difference. The BILL OF LADING is prepared on the basis of MC.

 Sales Contract involves the principle of Privity of contract and thus it cannot be used
to claim the goods from the port authorities.

 NOTE: Parole Evidence: CISG Article 8. (filling the gap approach- conduct, customs
and usages)

 CLAUSES
1. [From Hamburg Rules, 1978] General nature of the goods. (all of this information is
provided by the shipper/seller to the carrier/captain of the ship/agent of the captain of
the ship)
a) The leading marks necessary for the identification of the goods (most of the
times goods are unascertained goods in sale transactions, thus leading marks
are necessary for identification).
b) An express agreement, if applicable, as to the dangerous character of the goods.
c) Number of packages or pieces
d) The weight of the goods or quantity, whichever is applicable.
2. Apparent Conditions of the goods.
3. Name and principal place of business of the carrier.  for the purpose of jurisdiction.
[principal place  Tramp shipment Flag state and domicile state
4. Name of the shipper

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 5. Name of the consignee/buyer, if named by the shipper (order BILL OF LADING),
otherwise it must be considered as bearer BILL OF LADING.
6. Name of the port of loading under the contract of carriage of goods by sea and the
date on which goods were taken over by the ship owner/carrier for the purposes of
loading. (time is the essence and penalty of demurrage)
7. Name of port of discharge under the contract of carriage of goods by sea
8. The number of originals of the BILL OF LADING, if issued more than once.
9. The place of issuance of the BILL OF LADING.
10. Signature of the captain of the ship/carrier or a person acting on his behalf.
11. Freight to the extent payable by the consignee (freight paid by the shipper or
indication that the freight will be payable by the consignee) most of the times
freight is already paid by the seller. (whosoever names the carrier pays the freight
Section 23 of SOGA)

NOTE: Open Price Contract: Art. 14 read with Art. 5 of CISG (Price is determined
subsequently)

 TYPES OF BILL OF LADING

1. Order interment: BILL OF LADING made out in favour of a named

consignee or order.
2. Bearer Instrument: A BILL OF LADING made out without naming the
consignee and in favour of simply the “bearer” or “holder” or in blank.
 Thus a BILL OF LADING made out either without naming the
consignee but in favour of “bearer” or “holder” or in blank (bearer
BILL OF LADING) or in favour of a named consignee or order is said
to be “negotiable”. This denotes that the bill and various rights in
respect of the goods covered by the bill are transferable simply by the
physical transfer of the bill, accompanied by, in case of an order bill,
by endorsement in favour of the new holder or in blank.

3. Charter Party BILL OF LADING:

 The CPC BILL OF LADING is a bill which incorporates by reference,

certain clauses of a charter party is considered to be a charter party
BILL OF LADING.
 3 parties: ship owner, charterer, cargo company.
 Charterer in this case is the seller.
 Whole ship is hired and some space is left, others may be allowed to
load their goods.
 Ship owner enters into the contract and so the liability is absolute.
 Doctrine of substantial reliance.
 Problems: In case the CPC are incorporated in the BILL OF LADING,
to what extent, the incorporation of the CPC will be effective? Because
primarily, it is a BILL OF LADING contract. // Who to sue? The ship
owner or the charterer? Because all three parties are equal parties.
 Article 1(b) “issued under or pursuant to a charterparty from the
moment at which such bill of lading or similar document of title
regulates the relations between a carrier and a holder of the same”

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4. Electronic BILL OF LADING: Electric. India lagging behind to recognise
this.
5. Charterer’s BILL OF LADING.: BILL OF LADING issued by the Charterer.
6. Clean BILL OF LADING: One which does not contain any reservation as to
the apparent goods order of the goods, packaging or description. The goods
are therefore in good condition. Nothing is damaged.
7. Claused BILL OF LADING: State the facts, as to the description/ actual
status of the goods being bad. A clause is put forward about their condition.
This is a Claused BILL OF LADING.
8. Liner BILL OF LADING: A bill of lading under which the carrier is
responsible for loading, stowing and discharging the cargo.

9. Negotiable and Non-negotiable BILL OF LADING

 A negotiable bill of lading can be transferred by one of its consignees
to a third-party, when the consignee signs, or endorses the document
and delivers it to the new consignee (the third party). To transfer the
negotiable bill of lading, the consignor (the person or business shipping
the goods) must stamp and sign the bill and the carrier must deliver it.
A negotiable bill of lading must be written to the order of the
consignee, and it must be clean bill of lading.
 A clean bill of lading is a bill of lading issued by a carrier declaring
that goods have been received in the appropriate condition, without
defects. The product carrier issues a clean bill of lading after
inspecting the goods.
 A straight or uniform bill of lading, in contrast, may not by transferred
and is only deliverable to the named consignee (recipient). Like any
bill of lading, the negotiable bill of lading also lists the goods being
transported and serves as a contract of the terms of the shipment.
 Also known as an order bill of lading, the negotiable bill of lading
transfers control (title) of the goods to the order of the entity named on
the document.
 “deliver goods to X only” – non negotiable.
 Negotiable is used mostly in commodity trade. Arms, strategic goods,
costly goods – non negotiable BILL OF LADING issued.

10. Shipped and Received BILL OF LADING

 Article 3(7).
 Shipped BILL OF LADING acknowledges/ records goods that
have been loaded on board the carrying vessel in apparent good
order and condition.
 A received or “received for shipment” bill records goods received
into the carrier’s care and custody before loading. An on board
notation may be added to a received bill to record the fact and date
of subsequent shipment.
 Shipped will be more expensive because certainty is there that
goods will be delivered to the consignee on a specified date.
Received: ambiguity when the navigation will start; more time.
 High chance of misappropriation of BILL OF LADING.

11. Through BILL OF LADING

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  A document of multi-modal transportation, including many stages of the
journey, but necessarily, one of the stages have to be goods carried
through sea transactions.
 A bill of lading will sometimes only cover one part, or one aspect of the
shipping process. A through bill of lading is more involved. It allows
the transportation of goods both within domestic borders and through
international shipment.
 The bill is often required in order to export goods, and serve as a legal
certificate authorizing a party to be in possession of and transporting a
particular good. This is because a through bill of lading allows for the
shipping carrier to pass the cargo through several different modes of
transportation, and several different distribution centres.
 A transporter can move products both within a country and export them,
often by air, with a through bill of lading. The through bill must contain
an “inland bill of lading”, which is the documentation required for
domestic transportation. If the shipper wants to move the goods across
the ocean, the "inland bill of lading" will not be suffice; the through bill
of lading will require an "ocean bill of lading" will be required for any
goods moving across the ocean.
 As per A. 194 under Scrutton on Bill of Laing, it is an expression used
to mean a document containing a document containing a contract for the
carriage of goods from one place to another in separate stages, of which
at least one stage is a conventional sea transit. The sea transit may itself
by divided into separate stages to be performed by different ship owners
by a process of transhipment.
 The sea transit is often coupled with a stage of transit by some other
means, for e.g. by road, rail or air, in which case the through bill of
lading is sometimes called a “combined transport BILL OF LADING”.

12. Combined Transport BILL OF LADING: like multimodal transport BILL

OF LADING. A combined transport BILL OF LADING providing for
carriage partly by sea and partly by some other means of transport is not a
valid tender under a CIF contract, in the absence of agreement or usage to that
effect; if the express terms of the contract provide for carriage by sea,
evidence of such a usage will not be admitted. If there is no agreed or
customary or usual route at the time of shipment, that route must be chosen
which is reasonable.

13. Ocean BILL OF LADING

 An ocean bill of lading is a document required for the transportation of
goods overseas. An ocean bill of lading serves as both the carrier's
receipt to the shipper and as collection document or an invoice.
 An ocean bill of lading allows the shipper to move goods across
international waters. If the goods are to be initially shipped over land,
an additional document, known as an "inland bill of lading", will be
required. The inland bill only allows the materials to reach the shore,
while the ocean bill allows them to be transported overseas.

14. Ocean Through BILL OF LADING: (above)

15. House BILL OF LADING:

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  A House Bill of Lading (HBL) is a document created by an Ocean
Transport Intermediary (OTI) such as a freight forwarder or non-vessel
operating company (NVOCC). The document is an acknowledgment
of the receipt of goods that are to be shipped. It is issued to the supplier
once the cargo has been received and may be used in lieu Letter of
Credit or in lieu of a Master Bill of Lading (MBL). HBL includes the
name and address of the supplier, who delivers the shipment to the
freight forwarder, and the consignee, who the freight forwarder
delivers the shipment to. The document also includes specific
information about the items shipped and the value of the shipping
contract.
 A house BILL OF LADING issued by a forwarding agent acting solely
in the capacity of an agent to arrange carriage is not a BILL OF
LADING at all, but at most a receipt for the goods coupled with an
authority to enter into a contract of carriage on behalf of the shipper. It
is not a document of title, nor within the COGSA, 1992, and it is
unlikely that it would ever be regarded as a good tender under a C.I.F.
contract.

16. Master BILL OF LADING:

 A Master Bill of Lading (MBL) is a document created for shipping
companies by their carriers as a receipt of transfer. A MBL summarizes the
contents of a shipment including the bill of lading numbers assigned to the
various items within the shipment, as well as a description of the freight
under each bill of lading. The document also includes the terms for
transporting the freight and the name and address of the consignor, or the
shipper, and the consignee, the person whom possess the goods.

17. Groupage BILL OF LADING: A group of people ask for the BILL OF
LADING covers consignments from various shippers for the same
destination which have been consolidated into one consignment by the
forwarding agent; same as House BILL OF LADING.

18. Switch BILL OF LADING: “Switch” bills of lading are a second set of bills
of lading issued by the carrier (or by the carrier’s agent) in substitution for the
bills of lading issued at the time of shipment. The agent who is asked to issue
the second set is often at a port other than the load port. The holder of the bills
may decide (for one reason or another) that the first set of bills is unsuitable,
and the carrier is requested to issue switch bills to satisfy the new
requirements of the bill of lading holder.
The carrier issues in exchange of the original set, with certain altered details.
After passing 2 stages, the goods become damaged, then the captain will issue
modified BILL OF LADING.

19. Freight Prepaid BILL OF LADING

 Under United States law, “freight prepaid” means that the carrier must
attempt to obtain the freight from the shipper rather than from the
consignee (C.P. Ships v. Les Industries Lyon, 1983) and does not mean
that the freight has actually been paid in advance. The words “freight
prepaid” are common in bills of lading issued by carriers because this
format is demanded by the shippers. The words are traditional and do not
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indicate that the freight has actually been paid. This form of bill of lading
is especially common where

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 freight forwarders’ services are used. The shipper is still responsible for
payment of the freight. However, if the shipper has paid the freight to the
freight forwarder who has not paid it to the carrier, the shipper may not be
required to pay the freight again to the carrier.

20. Freight Forwarder’s BILL OF LADING

 Freight forwarder's bill of lading (FBL) is a transport document, which is
used in sea shipments and multimodal shipments, issued and signed by a
freight forwarder, generally on a freight forwarder's bill of lading format,
evidences the terms and conditions of the carriage of goods as specified by
the freight forwarder.

21. Straight BILL OF LADING: [NOT NEGOTIABLE]

 A straight BILL OF LADING is made out in favour of a named
consignee without contemplation of negotiation. It is issued to a
particular consignee and it is written in the bill that it is not negotiable.
 Such a bill is transferable by simple delivery from the shipper to the
named consignee, but not otherwise.
 Because it is issued to particular consignee’s name, it is not negotiable.
Even if it is not written that it is not negotiable, it will be assumed that
it is not negotiable.
 Some awkwardness is occasioned by straight BILL OF LADING. By
definition non-negotiable, but it is clear that it constitutes a BILL OF
LADING as was held by the House of Lords in 2005 (Mac William
Co. Ltd. v. Mediterranean Shipping Co.).

22. Ship owner’s BILL OF LADING

23. Long form BILL OF LADING

 B/L with the terms and conditions of carriage (the rights,
responsibilities and liabilities of the carrier and the shipper) printed on
its back. These terms are governed generally either by the older Hague
rules or the more recent Hague-Visby rules.

24. Short Form BILL OF LADING

 B/L without the terms and conditions of carriage (the rights,
responsibilities and liabilities of the carrier and the shipper) printed on
its back. Otherwise, in size, it is no different from the long form B/L.
The shipper and the carrier are bound by the conditions of carriage
(governed generally by the older Hague rules or by the more recent
Hague-Visby Rules) whether printed on the B/L or not.

25. Seaway Bills: [NOT NEGOTIABLE]

 Usually, issued from one company to itself thus the very nature is
that it is not meant for negotiability.
 These are generally used for short journeys, where it is not
contemplated that the goods will be sold in transit and where time is
short to transmit the document to the intended receiver of cargo for
presentation to take delivery.

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  A seaway bill functions as receipt for goods and evidences the terms of
the contract of carriage.
 It is non-negotiable and is not a document of title. It may identify the
beneficiary of the carrier’s delivery obligation or may provide for the
beneficiary to be nominated by the shipper. Even where the beneficiary
is named, the seaway bill may entitle the shipper to issue fresh delivery
instructions to the carrier, nominating a new consignee.
 In any event, a seaway bill is not a presentation document: it is
generally retained by the shipper, and the carrier is entitled to deliver
the goods against production of proof of identity as the beneficiary of
the delivery obligation as originally nominated in the document or as
subsequently nominated by the shipper in accordance with the terms of
the contract as evidenced by the document.

26. Stale BILL OF LADING (similar to truncated cheque [short, cut and
negotiated/discharged])
 Used in banking transactions. In order to claim bank guarantee, this is
sued. A negotiated BILL OF LADING is known as stale BILL OF
LADING in banking terms.
 A Bill of Lading can be treated as ‘Stale’, if it is presented long after
sailing of vessel pertaining to a shipment at port of loading. Such
presentation of Bill of Lading could be with the Supplier’s Bank,
Discounting Bank, Negotiating Bank, Buyer’s Bank or buyer.
 The term ‘Stale Bill of Lading’ is also used when a bill of lading is
presented with a bank after expiry date of credit. B/L presented to its
consignee, or at a bank, after the last date specified in the relevant
letter of credit and which, therefore, is not acceptable as a valid
document.
 According to the uniform commercial code (UCC), a B/L may be
rejected if presented more than 21 days after the date of arrival of the
shipment. In some cases, the Importer may indicate the number of days
within which the documents are to be presented from the date of
shipment. Exporter has to comply with the stipulation period of time
indicated. Otherwise, the Bill of Lading becomes stale and is not
accepted by the bank for payment.
 Payment is done through bank guarantee or letter of credit. In such a
case the banking circle uses the term, “Stale BILL OF LADING”.
[NOTE: UN Convention on Bank Guarantee and Standby Letters of
Credit; Bank guarantee is independent from the main contract even
if main contract not performed, bank will release the money]

 BROAD CATEGORIES OF BILL OF LADING

1. Nominate BILL OF LADING
 Same as straight BILL OF LADING
 requires the delivery of goods to a named party ad is a non-negotiable
BILL OF LADING.
2. Order BILL OF LADING
 Goods are required to be delivered to the order of a specified person and
maybe negotiated by indorsement or indorsement in blank
 Can be negotiated further and it can be both full and in blank.

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 3. Bearer BILL OF LADING
 It can be negotiated by delivery.

 Nomination clause in the contract

 Cargos which normally are bulky, contract prevailing is – Charter party Contract.
 Contract of affreightment of 2 types: CPC and BILL OF LADING
 BIFFEX, 1985: Organization of people in the Maritime industry. SENSEX also
has biotic freight index.
 Forward Freight Agreement: Today we enter into the contrct with the charter to
hire the ship, whatever freight is today, will be in the future too.
 In CPC, brokers play significant roles. The consignee and consigner negotiate the
CPC will the help of the two nominated brokers. This is known as Ship Brokers.
 Freight Broker: Engages the other party in terms of determining the freight. They fix
it.
 Charter Party Broker: The broker will contract at the actual market level and help
both parties to come to certain agreement of CPC.
 Brokerage: Collection of clauses, from which you can pick up and put in your contract.
 Registration and nationality are different concepts. Nationals do not have a
significant role. Registration has: close nexus test.
 UNCLOS: Implemented. Very fascinating area of Maritime law.

MULTIMODAL TRANSPORTATION ACT, 1993

 Multimodal Convention, 1980: India is a party to it. the Indian Act is derived from
here.
 It means that at least two modes of transportation must be used, and the starting point
of goods must be in India, and delivery must be outside India. Sec. 2(a) of the
Multimodal Transportation of Goods Act, 1993.
 Multimodal Contract: An operator will become multimodal transport operator
undertakes to perform or procure the performance of multimodal transportation
against payment of freight. Section 2(l) of 1993 act.
 Multimodal transport documents: negotiable [bearer of order instrument which can be
further transferred, section 2(n)] and non-negotiable.
 Who is a multimodal transporter? He may be a person or company, by there is a
threshold provided. Registration must be there as a multimodal operator, under Sec. 3
of the 1993 act. Annual turnover must not be less than 50 lakh Rs., that you earn
annually from the business. Your operation should not be less than your country, and
2 more countries. [Sec. 4].
 First multi-modal port in 2006. Due to laxity on part of officers and people to register.
 Generally, the multimodal transportation document contains certain things: [Sec. 9,
exactly similar to the Hamburg Rules]
1. General nature
2. Marks on the good
3. Quantity
4. Apparent conditions
5. Time and principle place of business
 Section 11 talks of the evidentiary value.

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  Basis of liability same as sea act. Any loss/ damage/ delay, etc.
 It can be assigned and transferred from one party to another.

Hague/Hague Visby Rules, whereby

 “2. Neither the carrier nor the ship shall be responsible for loss or damage arising
or resulting from
 (a) Act, neglect, or default of the master, mariner, pilot, or the servants of the
carrier in the navigation or in the management of the ship.”

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CT CA2 DOC NOTES
SEC. 6
What are specific goods? What are ascertained goods? What are unascertained goods?
What are future goods?
There is a difference in all these 4 terms, they cannot be used interchangeably.
S. 6 to be read with S. 2(7) of SoGA and s3(26) and s of general clause act, 1897 and
article 366 29-A of constitution of India.
Specific goods v ascertained goods?
Can existing goods be considered as future goods, for the purpose of COS under s.4,5,
and 6?
S.7 and S.8- Perishability of goods
S.7 covers mistake in terms of good and s8 covers if goods have been mistaken, it
deals with frustration. HOW?
What is the criteria for determining perishability?
‘Perishability’ whether stolen car can be considered as perishable goods or not? What to
do you mean BY perishability?
s. 10 and s.8 there is lot of debate
s9 and s10 used the term ‘contract is hereby avoided’
similar term used in s10, “agreement is thereby avoided”
now question is what does “avoided” mean? What is the legislative intent of using
“avoidable” instead of void or voidable?
What is exactly ‘reasonable’?
S.10 is not getting used anymore, even though still valid. Why? Basically, why 3rd parties
are not asked to determine prices?
9/10 times process are fixed subsequently. Then why no 3rd parties?
S. 11 Conditions and warranty?
Conditions as to time is mentioned in s11. (it all depends on intention of parties if it is of
essence but it does not include WHAT is condition and what is warranty- basically not
deifying) But ‘condition and warranty’ is defined instead in S.12? WHY?
What is a stipulation? And can we say stipulation is nothing but the basic features of the
contract?
S146 and 45 of ICA say time is not of the essence but this is contrary to s11. Then how
do we resolve this?
2 ways to resolve
1. wherever there is conflict b/w special and general law, special law prevails [that
is soga here.]
2. the law that is subsequently passed prevailed so again SOGA prevails.

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 Time of essence generally revers to time of payment AND time of delivery
But even if parties have decided this prior, subsequent through communications. Exp-
when not possible to deliver on X day, it is said we will deliver after 10 days and you
agree to this by written or implied or through consent. Then in that case whether time is
of the essence of the contract or not?
Time factor is determined in terms of duration, limit, period within which contract has to
be performed, and whether extended time is to be consider as of essence?
For the performance of contract, ‘reasonable’ time will be given. As parties want to
engage in business only, not in conflicting situations. “BUSINESSMAN ONLY WANTS
PROFTS” they do not want conflict. That is what they pay to do highly to their solicitors.
S 44 and 46 deals with part of delivery
What do you mean by deliver? Does it mean possession? If yes, then why is possession
not defined in SoGA?
What is the diff b/w conditions and warranty?
Once a condition, always a condition. Elucidate. refer in terms of s12 and s13.
S.11 V IMP
CONTARRY INTENTION: S11” unless a different intention appears”. How can a
different intention be discerned by the parties?
Contrary intention discerned by 3 condition:
1. Language of contract- the written instrument or document.
2. Nature of property sold (goods are perishable or not)
3. Conduct of parties, surrounding circumstances at pr before the contract
most imp case as time of essence is Orissa textile mills v. Ganesh patna 107 air 1
pakkhar singh v. Krishna singh air 1974 raj 112
after these 2 cases there are plethora of judgements which talk about ratio of these 2 cases
only.
That only these 3 in a combined manner to determine of time is of essence or not.
Whether punctual payment is required to be there?
S 32 and 31- It is duty of seller to deliver and for buyer to pay and accept.. and payment and
delivery of goods are concurrent conditions.
S11 read with s31 and s32 we can say- punctual payment is not a rule under soga. But then
again what do you mean by ‘punctual’?
Punctual means readiness and willingness to pay. Latest lex mercatoria round world is
regarding time of payment- even if time of payment is written in contract, then also seller is
required to deliver in reasonable time- contrary provision.
There is no strait jacketed formula here. Conduct of business man is a dynamic process.

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In a contract it is deicide that payment will be done today on 14th. You as a seller reached
shop at 10 o clock and buyer says right now I can’t manage money, you please come at 6 o
clock. Now whether contract is repudiated or not?
If the payment is due on a certain date, how you will discern certain ‘date’? is there any law
to define day or night?
Yes, under general clauses act 1897. If a certain date is there, then whole day of 24 hours
will be considered as date. It will be determined in terms of business to business. some
businesses start in night only, for them day is considered 8pm to 6am, while for some it
10am to 6pm.
Generally arbitrators look into the whole day. In civil law, interpretation is done
in harmonious manner.
If a contract is there and it is stipulated that payment will be done in instalments, then how
time will be discerned?
S11 +s38- each instalment payment will be considered as a separate contract itself. Liberty to
specify time pf payment according to their convenience.
15 th September, 2020. Tuesday.
WHAT is a stipulation? And its types?
S.11, s.12(additional definitional clause that defines condition and warranty and liabilities in
each case…)
…12(4) limiting provision on freedom of contract of parties: It talks about that it is not that
the statement made by seller or buyer will determined if it’s a condition or warranty. When
you are drafting contract for sale even if you name certain things as conditions, that alone is
not enough. Keeping up sense of party autonomy- Construction of contract and purpose of
good will eventually determine if it is condition or warranty
When you decide this is the purpose for which you are buying the goods- before buying
goods. Then condition is always a pre determine agreement between the parties.
The prominent must remain intention of parties, as this intention determined if it is a
condition or a warranty. Mostly it can be expressed by written agreement, and if written
agreement is not there then by conduct of parties
Now, is this a pre-condition or post condition? What is diff b/w stipulation and warranty
essentially?
Conventional wisdoms say most of the time buyer and seller know the purpose of goods.
Jurists around the world say- stipulations are of 2 types. The most imp promises will be
known as condition, lesser imp statements are called warranties. Statements including
legal liability v. statements involving no legal liabilities. Now involving legal liability are
of 2 types- condition or warranty. There may be statement that are ‘puffs’ which are mere
opinions not involving legal liability.
Lord Denning says this is a very conventional method. Lord Denning says extending
definition of stipulation- there cannot be only 2 stipulations as s10 of British SoGA suggests.
There is a third stipulation innominate terms or intermediate term- a concept introduced by
Lord Denning and now accepted around the world- meaning from the very beginning if
parties are not knowing purpose and nature of goods, then conduct will dignify purpose and
need of goods subsequently. Party will not be having pre-determined
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Stipulation maybe ore conceived or post conceived.
Conventionally, pre conceived ones are condition now conventional wisdom is replaced by
modern convention and now we say stipulations are of 3 types. Post conceived are
innominate terms. They also invite legal liability. Only imp point is that conduct of parties
post contract is important- “condition subsequent”
The case is cehave v bremer case 5 topic 2. Should read it.
Define puff- is a statement favourably describing which by virtue of its vagueness or
extravagance could not be normally regarded as something to be taken seriously or assigning
liability, these statements are made not to be made binding at tie of entering into contract.
These opinions which don’t create any legal liability are called buffs.
So, in one line we can say- stipulations are statements.
These statements are made by whom? By seller and buyer and third party (meaning
manufacture or dealer). They are third parties because the nature of goods being sol is such
that not always swill the seller be manufacturer. Manufactures statement on goods should
hence also be considered as stipulation. Dealer can be in hire purchase transaction also
[Is dealer and distributor same? Yes]
Herbert simmons and compamy v. duckleton 1913
Justice Holt: “An affirmation at the time of a sale is a warranty or a condition provided it
appears on evidence to have been so intended.”
This means that this statement is nothing but an affirmation made at time of contract of sale,
and will be based on intention of seller or buyer or third party.
What is the difference b/w Condition and Warranty:
1. Condition is stipulation imp to main purpose
2. In case condition gets breached, then it is repudiation + damages. In warranty, breach
only leads to damages. [ by express consent of parties, condition can be waived and be
accepted as breach of warranty only and attract only damages, no repudiations.
3. Condition can be treated as a breach of warranty, but warranty breach cannot be
treated as breach of condition
4. Contract of sale [sale + agreement of sale] cannot be fulfilled unless conditions, if
any, can be fulfilled. In warranty, main contract of sale can be fulfilled even if
warranty is not fulfilled.
s.12 must be read with s.13 and while writing answers we must invoke such legal
framework in writing style. S. 59 is also v imp. Whenever we talk about repudiation or
damages, we have to talk about- se. 12,13, and 59.
Baldry v marshall and
cehave v bremer
Can condition be compelled by either parties to be treated as warranty? [s. 59] find a case
for this.
In cos, condition and warranty do not have to be always expressly written they can be
implied as well. Like quality and fitness of product is also implied.

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S 15 and s17 to be read together- sale by description and sale by sample.
16 th September, 2020. Wednesday.
S14-17 is an important unit. There are certain implied conditions prescribed here.
14-17 in a superficial manner it looks like it only cover implied conditions, not implied
warranties?
But no, it should be clear it covers both
Implied conditions
1. IC as to Title- s.14
2. IC as to Description- S. 15
3. IC as to Sample- S.17
4. IC as to Quality and fitness of product – S16.
2 implied warranties mentioned under 14 c and 14 b
1. Quiet possession of good- 14 b
2. Good free from all charges and encumbrances 14 c.
S. 14 IMPLIED UNDERTAKING AS TO TITLE, ETC
S. 14-A
At time of sale or ats, seller must have right to sell that particular goods, meaning must have
ownership. Nemo dat quad non habet
\- s27-30- there are certain situations that when a person who is in possession of goods who is
not the owner, is allowed to sell the goods.
What do you mean by right to sell exactly? Negative covenant is if a person is not owner of
good, he cannot sell that particular goods.
NO TITLE, NO TRANSFER- easiest way to understand s14
Whether s14 included that seller can take plea of dual liability or knowledge aspect?
No. because s14 fixes absolute liability to have right to sell.
Bailee is not allowed to sell goods, only the owner.
In 3 circumstances, even if person is in possession of goods he is not allowed to sell goods
1. Person is not owner
2. Seller may be owner, but may not have right to sell for certain reasons
3. Sale is illegal or
4. without jurisdiction.
For 1 reason provide by lord takin in Rownald v Diwal. 1923 2 KB 500
“The buyer has not received any part of which he has contracted to receive namely the
property and right to possession and that being to, there has been TOTAL FAILURE OF
CONSIDERATION. Since total failure ether, person not owner of particular good, does not
have title to transfer goods under s. 14 A.”

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This case is the source of section 14-A in fact. Lex Mercatoria recognised by courts and
subsequently found place in legislation. So these things were practices earlier and these
things were put forward.
For 2nd point-
Adidas becomes abibas etc. these people are bonafide owner of the particular good, but
the are violating/infringing someone’s better right over that particular good. Even
though you are manufacturer, you are not allowed to sell
Nibleet v confectioner case 1924 3 KB
Microbed v Weinhurst Road market 1975 1 WLR 218
Indian cases are also there
CISG- ART 41, 42, 43 are counterparts for these. Interesting section for GI and industrial
designs- IPR basically
3rd reason- self explanatory
Sale is illegal- e cigarettes selling is illegal according to central and raj govt. Also, Marijuana
is illegal. Contrary to that, in certain countries, it is still allowed keeping in mind scientific
benefits.
4: Without jurisdiction- goods are indicative of fact you can sell in a particular country or
region only. Like- “to not be sold outside of India”
What if even not having rts he has sold it? Then what will happen with buyer? Some other
person will try to interfere to those who goods belong. This 3rd person is required to do what
now?
1. The fact he was fraudulently induced by seller to pay the sum by false
representation that he had a good title to the property sold.
2. The fact that the seller warranted and covenanted with the purchaser that he had
a good title.
These 2 come from Rowland v diwal and even Niblett case
Frivolous claim by 3rd party against seller does not give right to absence of a marketable title-
Taramati anand raj praksh v ganga rama ram das
[Marketable title means you have it when you have right to sell particular good.]
Can we say 14(b) and 14(c ) can be read in isolation to 14(a)?
14(B)
The source is Howell v Richards
This is very old 1809 case and is source of 14(b)
Here Judge Ellenbrough had propounded a v imp theory, subsequent 1893 act of Britain and
SoGA was developed..
“Implied warranty of quite possession is a warranty against disturbance and is not broken
unless and until a disturbance takes place. the warranty is that the buyer shall ‘have and
enjoy’.”

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the word have includes that the buyer shall have right to have possession of particular goods
and enjoy means without any disturbance; no 3rd person has right to disturb these goods.
For claiming of damages, I have to prove my quiet possession has been disturbed.
Lord atkin in Niblett also propounded certain things.
14 (C )
1. Ensures buyer’s possession shall not be disturbed by reason of existence of
such encumbrances.
2. If there is a charge or encumbrance on goods, it is obligation of seller to disclose
this to the buyer, before or at the time of the contract.
14(a) is repudiation + damages, but (c ) has only right to damages.
RTS is very well described by Lord Atkin and Scruton LJ in Niblett case.
Does implied undertaking to title (S.14) include merchantability? – read Niblett case
Has merchantability been defined in S.2?
Which section deals with merchantability? S.16
17 th September, 2019. Thursday.
Howell v. Richards 1809
What is the difference b/w implied conditions as to title and implied warranty of quiet
possession?
S14(1) v. s14(b)
Lord Ellenbrough pointed out 2 distinctions:
1. The distinction is similar to that b/w a covenant for title and quite possession. One
for transferring and second is for possession
2. The former is an assurance by the guarantor that he has every state in quantity and
quality that he purports to transfer, later is the an assurance to the guaranteed
against the consequence of a defective title [ that someone else had a better title and
might disturb quite possession]
Niblett
Justice banker, Justice Atkin, justice Scruton
1. First time idea of merchantability was discussed and
2. Remedies available to buyer are repudiation as well as damage
3. Process of law restricting you not to sell it then assumed vendor does not have right to
sell.
4. If someone has superior title, seller does not possess right to sell. Atkin said rts means
when you have ability to transfer full and complete rights to the buyer. If you transfer
incomplete/objectionable title, then you do not have rts.
5. Merchantability: sec 2(12) of our SoGA “quality of goods” includes their state or
condition; if we read this section with Niblett case, we come to conclusion that
merchantability includes the state or condition in which the goods are located at time
of transfer. Hence, 2(12) most of time conveys meaning of merchantability, though
not expressly mentioned.

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 Goods tendered must be the one that the seller had rts. In this case nisley brand, seller did
not have rts
Merchantability- it includes the state or conditions of the goods. State of condensed milk
was it was packed in tins with labels, which were as much part of the state/condition of
good as the tins were. Label was also inclusive of the goods. Removing them would read
to substantial price differentiation.
It is implied condition that the good shall be of merchantable quality.
“Intention of both parties must be taken to the that it shall be sellable in the market under
the denomination mentioned in the contract b/w them, the purchaser cannot be supposed
to buy them to lay the goods on a dunghill.” Nestle- nisley is infringing here. [taken by
lord banker from Gardnar v grey, quoting lord ellenrbough] [if you are buying the goods
either you will use it or you will sell. Nobody buys good to lay them on a dunghill]
Imp- The phrase merchantable quality in courts opinion means article is of such quality
and in such condition that reasonable mand acting after full inspection accepts it under the
circumstances of case in performance of his offer to buy the article whether he buys it on
his own use or to sell it again.
The packaging also includes in the description of good. Packaging v imp as part and
parcel of goods. It includes state and condition in which the goods are located.

SEC. 15
SALE BY DECSRIPTION AND SALE BY SAMPLE
Define description:
Douchman v Hill 1947 KB 554 (?)
Description usually means a particular class or kind of goods, but it also includes any
statement which constitutes a substantial ingredient of the identity of the goods sold. The
only case where description has been defined perhaps
2 things required in terms of implied undertaking:
1. Goods sold must be by sale by description
2. At time of delivery, the goods should correspond with the description.
Bowes v shand 1877
If you contract to sell peas you cannot oblige a party to take beans. If the descriptions of the
article tendered is different in any respect, it is not the article bargained for and the other
party is not bound to accept it.
This statement made by Lord Blackburn. It aptly describes basic essentials of S. 15
Examples:

If the good are displayed on the counter, whether that will be considered as sale by
description or not?
[Are privy council judgements binding on India? - art 377 of constitution]
Description includes many things. The goods, even if shown on the table, then also it can be a
part of description.
Lord Wright: in Grant v. Australian Knitting Mills, AIR 1937 PC 100

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  Moor and Co. case also talks about packaging forming part of description.
Intl packaging co.s:
Indian packaging standards- UFLEX. FSSAI
 Time and place of arrival also forms part of description
 When goods have not been seen by buyer (in some cases), then goods have been sent
by seller- buyer is required to examine goods within a reasonable amount of time.
The buyer can either accept or reject.
Acceptance can be by 3 types:
1. By intimation or
2. By adopting that particular transaction – either he started using these goods or
he has done something inconsistent with ownership of that goods meaning he
has started selling
3. Silence is an art of conversation. If you have not intimated and
reasonable time ahs passed, it will be assumed you have accepted the
goods.
[S41- examination
S42- acceptance
S - Rejection]
He may also reject after examination. He is required to only “intimation” on the part of a
bona fide buyer.
19 th September, 2020. Saturday.
Sec 17(2) A- there are 2 types of goods
1. Definite and non-objective, or specific goods
2. Cotton sugar etc
How conformity rule happens? Strict rule applies in terms of conformation- specific goods-
If the goods are in fact known or definite, the exactness of the particular good and
comparing sample with bulk should be thorough.
When goods are like grains, fruits, etc, the rule is substantial conformity in quality. Sample
and bulk is impossible to get compared- cannot compare one rice to another rice.
[What do we mean by
substantial? Ganon dunkerley
case.
If I as a buyer provide you all material for which you will be constructing goods, whether this
will be contract of sale of good or contract of service?
“Preponderant part” means something that has been provide in term of design,
specification, etc by buyer at time of entering into contract. Will that amount to sale of
goods or contract for service? Relates with s 4 and 5 and 6]
Substantial ain conformity rules.
De minimis rule- 2 to 4% defects are consider not to be taken into consideration usually.
Exclusion clause- se c62. By putting negative covenant, they can exempt liability
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But then again these exemption clauses are not absolute. Reasonable test has to be taken into
account.
Article 17 2 b read with art 41(1)- that is the right of getting reasonable opportunity to
examine goods after delivery for conformity of bulk with samples.
Whether reasonable opportunity in terms of examining the goods can be waived off or not?
Yes. Exclusion of right of inspection can be waived by express agreement or by conduct.
They can be waived only by express inclusion clause. Silence doesn’t count as art of
conversation
If provision in contract about reasonable opportunity is not there, then it is ASSUMED buyer
has right of examination.
Buyer may examine the goods before delivery as well- wherever the goods are located at
seller’s place of business.
Ex works contract- a type of INCOTERMS contract [ by ICC, Paris]. Mentioned under sec
39- mentions 3 types of incoterms. One of them is CIF contract- cost insurance and freight
kind of contract. In ex works contract- the moment buyer inspects goods at seller’s place, risk
transfers from seller to buyer. [ jan ramburg book writes a lot about INCOTERMS]
GOODS SHALL BE FREE FROM ANY DEFECTS
Unmerchantability used in sec. 17- larger threshold- not only quality, but ensure
merchantable quality. Whatever the test of merchantability, in case of Niblett, one of the tests
was given.

To what extent is the written requirement of contract?

UCC provides that mercantile contract shall be in writing. In Britain, statute of fraud- 1677-
ensured 12 categories of contracts that shall be in written. Currently this act is repealed but
still in India there are certain contracts that should eb in writing- like transfer of land/
immovable property has to be compulsorily registered; power of attorney contract;
Guarantee contract ahs to be in written in Britain but in India can be oral also,
It is advisable to have dale contract in writing for certainty of performance and enforcement
Std form of contract also called pre printed contract. How concept of party autonomy will be
saved in std form of contract?

Full Knowledge test to ascertain merchantability- Justice Dickson

2nd test for merchantability is Feasibility test
Propounded by Lord Reid in Kendall & Sons. V Lillyco & Sons Ltd. 1969 2 AC 31
Merchantable quality is that goods are in form that goods were tendered are in any use that is
normally for the use that goods are used, if that use Is being satisfied, it will help us
determine merchantable quality
The term merchantability is not in definitional clause- 2(1) only talks about quality of gods.
Some author do use this infer merchantable quality, but these people are few
3rd test is

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Niblett case- whatever def used- reasonable man acting reasonable… that is merchantable
quality.
4th test is Satisfactory Quality test.
Famous author Benjamin says- the changeover from merchantable to satisfactory quality is a
circular one. It is not well spent out. They can eb sued interchangeable
Some legislations have been enacted in world- instead of using merchantable quality, they
started using satisfactory quality
By Halsbury law if England, there have been 5-6 points in satisfactory quality.
S 17 is unmerchantable and s. 16 talked about merchantable quality, now it turns to
satisfactory quality.
The 5-6 ingredients are:
1. Fitness for all purposes for which the goods in kind in question are
commonly supplied.
2. Appearance and finishing is proper. [better designs products get charged
more consideration therefore]
3. Freedom from all defects, that includes even minor defects.[ freedom
from hidden/latent as well as visible/patent defects]
4. It must ensure safety of the particular product. [ sometimes certain quality of
cosmetics from certain countries, looks nice but causes damage to eyes and skill.
Some jurisdictions use the term product liability- goods of that kind must serve all
purposes for good of that kind are b served- must be free from defects and ensure
safety]
[ in WTO law, the treaty is Technical Barrier to Trade- helps understand how safety is
ensured in terms of manufacturing industrial goods- those goods that we do not consume
but use. Those goods which we eat and use on skin, the treaty is Sanitary and
Phytosanitary Treaty. India has ISO and other things; India also follows both these
treaties.]
5. Durability of product
6. If buyer deals as a consumer [a person who last buys that particular good and
consumes it] [ particularly in labelling and advertising of good, if any statement has
come up on goods about specific characteristics, then on those things also
satisfactory test will be applicable. Any statements about conditionality, fitness,
special characteristics of goods [ like fair and lovely- 4days will make you fair] might
induce so many people to by the goods, then such public statements come under 6th
ingredient
The difference in all 4 tests is in terms of degree. Maximum degree covered in satisfactory
tests for consumer goods, if usually goods are to be sold further, then full knowledge test
usually used, or even merchantable quality test.

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SOGA 1
SECTION 1: Short Title, extent and commencement
 The Sale of Goods Act, 1930: movable goods (Act 33 of 1963: “Indian” removed The
Indian Sale of Goods Act, 1930)
 The Act came into force on 1st July, 1930.
 Legislative Competence: The subject of contracts is placed at entry 7 of the
Concurrent List in the 7th Schedule of the Constitution of India. The subject of
transfer of property other than agricultural land falls in the Concurrent List at item 6.
Therefore, both the Parliament and the State Legislatures are competent to make
laws with respect to contract of sale of goods.
 History of the Act: The Act repeals and replaces sections 76 to 123 (chapter 7) of the
Indian Contract Act, 1872. The Act is based upon and largely reproduces, the
English Sale of Goods Act, 1893. The law relating to sale of goods in the UK is
consolidated by the Sale of Goods Act, 1979, which replaced the Act of 1893.
 Nature and Scope of SOGA, 1930:
 The provision of the ICA, 1872 unrepealed by this Act, continues to apply to
contracts for sale of goods (Section 3) and any rule of law not consistent with
this Act is saved (Section 66 (1)(e)).
 Section 62: maintains the traditional freedom of parties to a contract to fix
the terms of their own bargain. In addition to this general provision,
particular sections affirm the right of the parties to vary or negate their effect.
 However, in certain case this freedom is severely restricted or negative:
 Section 18: no property can pass in goods which are unascertained.
 Section 6(3): purported present sale of future goods operates only
as an agreement to sell.
 The rights of 3rd pa. rties to get good title under Sections 27 to 30
cannot be abrogated or restricted by any agreement between the
parties.
 Section 27: conditions under which a buyer gets good title from
the seller who is not the owner of the goods.
 Section 28: sale by one of the joint owners protects the buyer if he
buys in good faith and without notice that the seller has no authority
to sell.
 Section 29: (shows its comprehensive nature) A person obtaining
possession under a voidable contract under Section 19 or 19A of the
ICA, 1872, can acquire a good title to the good if the buyer acts in
good faith.
 Section 30(1) takes care of the interest of a person, who buys goods a
seller who had contracted to sell and who is in possession of the
same without notice of the previous sale, and in good faith. Section
30(2) safeguards the possession of a person in respect of goods
bought by him in good faith and without any notice of any lien or
right.
 The Act contains no penal provisions nor does it lay down any special rules of
evidence or procedure. As a measure of consumer protection, various statutes
and regulations impose some form of criminal penalty for breach of duties
imposed.
 The Act Contains No Illustrations:

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  The Legislature has not used the method of attempting to guide the courts in
interpreting a section by giving illustrations of it, and has left it to the Courts
to construe each section as it stands.
 Lex Mercatoria: Law of the Merchants (Party Autonomy).
 15th March, 1930: The Act came into being.
 The Uniform Laws on International Sales:
 The International Law for the Unification of Private Law, an organization
of 40 nations (including, USA) with headquarters at Rome, sponsored the
drafting of a uniform law for the international sale of goods.
 In a diplomatic conference at The Hague, 2 international conventions were
signed in 1964, governing contracts for the sale of goods entered into
between parties whose places of business or habitual residences are in the
territories of different contracting states. Measure: uniform law on the
international sale of goods and uniform law on the formation of contracts for
the international sale of goods. These provisions are implemented as part of
domestic law of England and appear as schedules 1 and 2 of the Uniform
Laws on the International Sales Act, 1967 (ULIS). The uniform laws came
into operation in 1972 on receiving the requisite number of ratifications.
 A Convention on Contracts for the International Sale of Goods was adopted
at the United Nations Conference on Contracts for the International Sale of
Goods held at Vienna. The CISG came into force from 1st January, 1988. It is
a comprehensive code on the law governing sale of goods in the international
market and in due course may replace ULIS.

SECTION 2: DEFINITIONS (refer bare act)

 Transfer of Property Act: immovable goods

 General Clause Act, 1897
 Definitions of movable and immovable property:
1. S. 3 Cl. 26: "immovable property" shall include land, benefits to arise out
of land, and things attached to the earth, or permanently fastened to
anything attached to the earth;
2. S. 3 Cl. 36: "movable property" shall mean property of every
description, except immovable property;
 No illustrations in Partnership Act and Sale of Goods Act.
 Lex Meratoria: law of merchants
 Elements of Commercial Transactions:
1. Transfer of movable goods
2. Negotiable Instruments Act, 1881: payment of movable goods
3. Carriage: modes of transportation of goods
 Hire Purchase Act, 1972
Repealed by Parliament in 2005; Contracts Act covers it; Bailment + Option to Buy: Lee v.
Butler
2014: Supreme Court revived Hire Purchase Act
 Contracts that shall be in writing: Frauds Act 1677 (12
categories) 1.
2. Transfer of immovable property

 Parole evidence: reason for such contracts to be in writing.

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  Advocate’s lien
 Advocate’s Act
 S. 46 of Contract Act: Time is generally the essence of a
contract Sale of Goods Act: Time is generally not the essence of a
contract.
S. 3
S. 66
 M.C. Setalvad Committee: term Indian removed from Sale of Goods Act
 Amendment made in 1963

[Mulla: Sale of Goods Act]

[Khargam Bala: Negotiable Instruments Act]

 UNGA: 1984 - COPRA

SECTION 4
 Conditions for Contract of Sale:
 There must be a contract. The contract must be bilateral.
 Purpose of contract: transfer.
 Property in movable goods is transferred.
 There must be money consideration (price).
 Definition of Goods: Section 2 (7); Money is not goods. Money not in circulation
can be called goods.
 Definition of property: Section 2 (11)
 Romalpa clause-
 Reservation of Right of Disposal.
 Aluminium Industries v. Romalpa, 1975 [decided by House of Lords]:
seller retains some control; without seller’s permission, buyer cannot
dispose the goods further)
 Legal principle associated with Romalpa clause is based upon Sections 23
and 25; Common law doctrine.
 Absolute transfer and Conditional transfer.
 TCS v. State of Andhra Pradesh, 2005:
 ISSUE: Whether the canned software sold by the Appellants can be termed
to be "goods" and as such assessable to sales tax under the said Act?
 In India the test, to determine whether a property is "goods", for purposes of
sales tax, is not whether the property is tangible or intangible or incorporeal. It
would become goods provided it has the attributes thereof having regard to (a)
its utility; (b) capable of being bought and sold; and (c) capable of
transmitted, transferred, delivered, stored and possessed. The test is whether
the concerned item is capable of abstraction, consumption and use and
whether it can be transmitted, transferred, delivered, stored, possessed etc.
Admittedly, in the case of software, both canned (customised) and uncanned,
all of these are possible.
 St. Albans City and District Council v. International Computers:
In both the Sale of Goods Act, 1979 and the Supply of Goods and Services Act 1982 the
definition of goods includes 'all personal chattels other than things in action and money'.
Took an example of an instruction manual on the maintenance and repair of a particular
make of car. The instructions form an important part of the manual and would fall under the
definition of “goods”. If this is correct, then a computer disk, onto which a program designed
and intended to instruct or enable a computer to achieve particular functions has been
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encoded, must also be “goods”. If the disk is sold or hired by the computer manufacturer, but
the program is defective, there would prima facie be breach of the terms as to quality and
fitness for purpose implied by the 1979 Act or the 1982 Act.
 Information stored in CDs in a customised form is good. Transfer of
information from one computer to another computer: question not raised in
this particular case, so it wasn’t answered. Tangibility and intangibility is
not the criteria for goods. Goods must be marketable in nature. Therefore,
no question of tangibility in India. A software program on a CD/floppy disc
is ‘good’ and as such, is assessable to sales tax.
 It was held that canned software sold by the Appellants can be termed to be
"goods" and are assessable to sales tax under the said Act and hence the appeal
was dismissed.
 BSNL v. Union of India, 2007
 Tracing the history of definition of sale, the court held that the 46th
Constitutional Amendment introducing Article 366 (29-A) serves to bring
such transactions within the ambit of purchase and sales for the purposes of
levy of sales tax, where one or more of the essential ingredients of sale as
defined in the Sale of Goods Act, 1930 are absent.
 On the issue at hand the Court held that:
1. Electromagnetic waves are not goods within the meaning of the word,
either in Article 366(12) or in the state legislations.
2. A telephone service is nothing but a service. There is no sales element
apart from the obvious one relation to handset, if any. That and any
other accessory supplied by the service provider can be under the state
sales tax laws.
3. As regards sim cards, the issue was left for determination by
the assessing parties.
 I Magic v. Union of India, 2009
 H. Anraj v. Government of Tamil Nadu, 1986
 Issue: Whether sales tax can be levied by states on the sale of lottery tickets?
 The Supreme Court held that a lottery ticket involved (i) the right to
participate in the lottery draw; (ii) the right to win the prize, depending
on chance.
 It was opined that while the second right was a chose in action and therefore
not “goods” for the purposes of the levy of sales tax, the first was a transfer
of beneficial interest in movable goods and was a sale within the meaning of
A. 366 (29-A) (d) of the Constitution of India and consequently subject to
sales tax.
 The above decision was agreed by a 3 judge bench of the SC in Vikas
Sales Corporation v CCT.
 The decision was referred to a larger bench and reconsidered by a Constitution
Bench of the Supreme Court in the case of Sunrise Associates v.
Government of NCT of Delhi, 2006:
 The SC held that H. Anraj incorrectly held that a sale of lottery ticket
involved a sale of goods. There is no sale of goods but at the highest a transfer
of an actionable claim. It therefor overruled Anraj to that extent.
 The court also held that there is no value in the mere right to participate in
the draw and the purchaser does not pay for the right to participate. The
consideration is paid for the chance to win. There is therefore no distinction

171
 between the two rights. The right to participate being an inseparable part of the
chance to win is therefore part of an actionable claim.
 The Court in H. Anraj sought to draw the distinction between the chance
to win and the right to participate by describing the former as a right in
futuro and the latter as right in praesenti. Both the rights are in fact in
futuro.
 This judgement was followed in State of Kerala v. Prabhavathy.
 Advocate’s files are not considered goods. Advocate cannot exercise lien

 Father of Mercantile Law: Lord Mansfield

 HE DID NOT TELL US ISKE ANSWERS

 Sale of goods and Assignment:
 Sale of goods and Mortgage:
 Sale of goods and Barter:
 Sale of goods and Contract for Work and material supplied:
 Sale of goods and Hire Purchase Agreement:
 Sale of goods and Gift transactions:
 Father of Contract Law: McKinsey Chalmers
 Mercantile law: Law of Contract is the primary role of mercantile law.
 Chalmers drafted 3 laws:
1. Sale of Goods Act.
2. Bill of Exchange Act, 1882. (Inspired from 2nd edition of “Bills” by Byles)
3. Marine Insurance Act, 1906
Therefore Father of Commercial Law in
Britian.
 4 instruments in Negotiable Instruments Act 1881: Promissory notes (4), bill of
exchange (5), cheques (6), bank draft (85A)
 Source of NIA 1881: 1st edition of “Bills” by Byles.
 STATUTORY TRANSACTIONS/ COMPULSORY ACQUISITIONS:
Consent not required for contract. [HE HAS NOT DISCUSSED THIS THO HE
HAD MENTIONED IT AND KAHA THA NEXT CLASS ME]
 Party Autonomy essential in a contract of sale but is not essential in case of
statutory transactions.
 Contact of Sale: contract + bargain
 New Sugar India Mills v Commissioner of Sales Tax
 Salarjung Sugar Mills Ltd.
 Bishnu Agencies
 Coffee Board Karnataka
 J. Hidayatullah’s dissenting opinion in New Sugar India Mills case.

 CASE LAWS

o New Sugar India Mills v. Commissioner of Sales Tax

Facts: Sugar and Sugar Products Control Order, 1946, it was intimated to the Sugar
Controller of India by the consuming states their requirements of sugar. The Controller made
allotments and addressed orders to the factory owners directing them to supply sugar to the
consuming states. The assesses, the sugar factory in Bihar, under these order, dispatched
sugar to State of Madras. The State of Bihar treated this transaction as sales and levied sales
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tax. The State of Madras contended that it did not amount to sale.

173
Held: It did not amount to sale as a contract of sale is a prerequisite to a sale and there was
absence of any offer by the assesses to State of Madras and no acceptance by the latter. The
assesses were under the Control Order which compelled them to carry on the transaction.

Dissenting Opinion (Hidayatullah): It is a sale there was an implied contract of sale. The
controller permitted the assesses to supply sugar of a stated quality and quantity to the State
of Madras. Thereafter the 2 parties agreed to sell and purchase the sugar. So long as the
parties trade under controls at fixed price they must have deemed to have agreed to such
price. There was an implied contract with an implied offer and implied acceptance. The same
is the position w.r.t quality and quantity fixed by the Controller.

o Salar Jung Sugar Mills Ltd. v State of Mysore

ISSUE: Levy of tax on purchase of sugarcane was challenged on the ground that on account
of the Central and State Control Orders applicable to the transactions, there was no mutual
consent between the purchasers and growers of sugarcane in regard to the transaction and
therefore, they did not amount to sales.
HELD:
 It was held that it was established that statutory orders regulating the supply
and distribution of goods by and between the parties under the Control Orders
do not absolutely impinge on freedom to enter into contract. Legislative
measures or statutory provisions regulating the price, delivery and supply
restricting areas for transactions are all within the realm of planning economic
needs, ensuring production and distribution of essential commodities and
basic need of the commodity.
 In spite of the fact that under the relevant Control Orders the parties, the
minimum price and the minimum quantity of supply were determined or
regulated, the Court held that the Control Orders left to the parties the option
in regard to a higher quantity than was stipulated in orders, higher price than
the minimum for which the growers can bargain, as also the mode of
delivery and the form and manner of payment.
 A factory could reject goods after inspection which indicated not only freedom
in formation but also in the performance of the contract.
 These features indicated with unerring accuracy that parties entered into an
agreement with mutual consent and with volition for transfer of goods in
consideration of price. The transaction therefore amounted to sales within
the Mysore Sales Tax Act.

o Vishnu Agencies Pvt. Ltd. v. Commercial Tax Officer and ors. (pg. 8 of Dukki)

o Coffee Board, Karnataka v. Commissioner of Commercial Taxes

Facts: The appellant Coffee Board filed writ petitions in the High Court praying for a
declaration that the mandatory delivery of the Coffee under section 25(i) of the Coffee Act,
1942, was not sale and that section 2(t) of the Karnataka Sales Tax Act, 1957 required to be
struck down if the same encompassed compulsory acquisition also. The appellant Coffee
Board had contended that the compulsory delivery of Coffee under the Coffee Act, 1942
extinguishing all the marketing rights of the growers was 'compulsory acquisition' and
not sale or purchase to attract levy of purchase-tax and that the appellant was only a 'trustee'
or agent of the growers not eligible to purchase tax.

174
Held: In the nature of transactions contemplated under the Act, mutual assent either express
or implied is not totally absent in this case in the transactions under the Act. Coffee growers
have a volition or option, though minimal or nominal to enter into the coffee growing trade. If
anyone decides to grow coffee, he must transact in terms of the regulation imposed for the
benefit of the coffee growing industry. Section 25 of the Act provides the Board with the
right to reject coffee if it is not up to the standard. Value to be paid as contemplated by the
Act is the price of the coffee. There is no time fixed for delivery of coffee either to the Board
or the curer. These indicate consensuality not totally absent in the transaction.
The High Court had rightly observed that the Board has been chosen as the instrumentality
for the administration of the Act. It cannot be said in the Act, there is any compulsory
acquisition. In essence, the scheme envisages sale and not compulsory acquisition. The
terms 'sale’ and 'purchase' have been used in some of the provisions and that is indicative that
no compulsory acquisition was intended.

Difference Between Sale and Agreement to Sell  pg. 7 of Dukki

o Legal framework is Section
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 is 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.

o 1st difference: Sale contract = Contract + Conveyance; Agreement to sell- purely a

contract.
o 2nd difference: Transfer of property has taken place in case of sale contract.
Agreement to sell-transfer has not taken place.
o 3rd difference: risk parito domino; Sale contract- executed contract, absolute contract,
risk is transferred; Agreement to sell- executory contract, risk will pass subsequently
[Physical Risk (perishable, theft), Financial Risk, ].
o 4th difference in terms of remedies. Sale Contact: if price not paid, suit for price will
take place; Agreement to sell: if price not paid, damages will be required to be paid.
o 5th difference: Sale- jus in rem (title against the whole world); Agreement- jus in
personam (title against a person).
o CASE LAW:
2. Instalment Supply Pvt. Ltd. Case (hire purchase agreement)
 A hire purchase agreement partakes of the nature of a contract of
bailment with an element of sale added to it.
 A hirer may not be bound to purchase the things hired, but where there is
an obligation or an option to buy on the terms that the hirer on payment of
premium as also the number of instalments, shall enjoy the goods which
ultimately may become his property, the transaction amounts to one of
hire-purchase, thought the title to the goods would remain with the owner
till all the instalments are paid or the hirer has exercised his option to
finalise the purchase on payment of a sum nominal or otherwise.

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 3. Ganon Dunkerley (1959)  pg 17 of Dukki
 Section 26: Risk
1. Physical risk: goods
2. Financial risk: price
3. Risk of credit worthiness: ability to pay
4. Buyer’s acceptance risk: performance of contract [Doctrine of conformity
of contract]
5. Legal
6. Political
 Section 9: Ascertainment of price (4 methods)
1. Fixed by the contract
2. Left to be fixed in manner thereby agreed
3. Determined by the course of dealings
4. Fixed by third parties.
 Reasonable price: question of fact; comes into picture only when the above 4
are absent.
 Section 10: Agreement to sell at valuation
 Because of third parties fixing price, section 10 is being used lesser and lesser.
 Price fluctuations only in case of international contracts.
 Article 79 of CISG/ Section 39 of ICA, 1872: Frustration/ Commercial Hardship

General and Special Property

A property right or qualified interest in property (such as the interest of a bailee, pledgee,
lawful possessor, a conditional vendee prior to full payment, or a lienholder) subordinate to
the absolute, unconditional or general property or ownership.

Deemed Sale [MENTIONED THIS TO BE DISCUSSED IN NEXT CLASS, KARA NAI

THA BECAUSE PROJECT TOPICS]
 It is assumed that there is a sale even if the basic ingredients of a sale are absent.
 46th Constitutional Amendment: Article 366 (29-A)- for the purpose of tax
imposition, it is deemed to be a sale.
 Hire Purchase Agreement
5. Hirer and hiree.
6. Shall be in writing.
7. Payment must be made in instalments.
8. There must always be option to buy that particular good.
 Lee v Butler (Bailment + option to buy) carriage law doc.
 Delhi Caterers Case (Northern India Caterers v. Government of Delhi pg
21 of Dukki)- Where food is supplied in an eating house or restaurant and
the substance of the transaction, evidenced by its dominant object, is a sale of
food and the rendering of services is merely incidental, the transaction would
amount to sale.
 Another transaction involving option to buy: Section 24, Sale of Goods Act.

CHANGES BROUGHT ABOUT BY THE ACT

 Objective of Section 13 (a, b, c)
Overreliance on intention tried to be
removed.
 “Time as the essence” depends on this and hence is not there in Sale of Goods Act,
1930 (Section 11).
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  The transfer of property will take place when the parties intended (Section 19).
 Section 27-30: When the sale is done by ostensible owner (disputed owner).
 DIFFERENCES:
1. Earlier no distinction between sale and agreement to sell, but now it is there
in Section 4.
2. Offer and acceptance led to a contract (Section 5).
3. Earlier warranty was not defined in the act, now it is defined in Section 12.
 Innominate Terms: coined in Cehave NV v. Bremer.  carriage law doc
 Intermediate Terms
 Rules related with (1) carriers, (2) stoppage of goods in transit [Section 51],
(3) auction sale have been clarified.
 Carriage of Goods By Sea Act 1936 governs Bill of Lading (document of title)
 Charter Party Contract (CHP)
 It has forgone illustrations. New lex mercaturia was developed. Lex
mercaturia agencies: ICC (Paris), FICCI, ASSOCHAM, CII)
 International Commercial Terms (INCOTERMS):It has been recognised by India in
Section 39 of Sale of Goods Act, 1930. The exact names are not there in the Act but
there exists explanation.
1. Ex-works contract: named place of destination; certain obligation on part of
the buyer and certain other on part of the seller, party not required to negotiate.
2. Free on Board (FOB)
3. Cost, Insurance and Freight (CIF)
 Negotiation prior to the making of contract is generally not binding. In certain
circumstances when ambiguity prevails then it can be binding: Doctrine of
Substantial Reliance.
 Conflict of Form. Resolving in 3 ways: (1) First short Rule (2) Last short (3) Best
short

 Negotiations binding or not:

Binding if other party has substantially relied on that negotiation for entering
Doctrine of Substantial Reliance (Section 115 of Indian Evidence Act- promissory estoppel)
Reasonable time period passes.  Ganon Dunkerley and BSNL case
 Bona fide Rejection
1. Merchantibility (India, Section 164)
2. ‘Satisfactory’ quality (Britain, Section 14)
3. Product Liability (America, Article 2 of Uniform Commercial Code)
Goods are not in conformity with the contract. (Qualitative and Quantitative aspect is not
met)
Section 37.
Section 38. Unless specified in contract, delivery of goods cannot be made in instalments.
Each instalment is a separate contract.
Section 34. Effect of part delivery
[Average sampling]
Section 44
Section 35: Seller not bound to deliver goods unless buyer applies for delivery.
Sale of goods is silent as to who will bear the cost of delivery. Section 36 (5): Seller will bear
the cost of putting the goods in a deliverable state.
 Whether Bill of Lading is a negotiable instrument or not?

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  Basic Requirements for Negotiations:
1. Fixing the terms of the contract including conditions of sale
2. Terms of payment. (Time of payment, mode of payment, currency of
payment, place of payment); Instalments; Punctual payment is not the rule,
readiness and willingness must be there (Sections 4, 11, 32, 45)
3. Name, address of the seller’s bank and account number.
4. Whether insurance is arranged and if arranged, what kind of insurance.
5. Method of shipment.
6. Product or goods description.
7. Quantity, packaging, size and code number. [WCO (World Customs
Organization) located in Brussels: HS (Harmonised system of
preference) classification- 8 digit]

 All negotiations must be done in good faith. (Article 2 of UCC defines what is good
faith)

CONDITIONS FOR SALE OF GOODS:

 Movable goods
 Money Consideration
 There must be 2 parties:
1. Agriculture Market Co. v. Shalimar Chemical Works Co. Ltd. AIR 1997 SC
2502).
2. R v England 1864 (Selling goods to own firm is a sale under SOGA).
3. CIT v Hind Constructions Ltd AIR 1972 4SCC 460.
 Transfer of property: absolute or conditional
1. Absolute transfer
 Assignment contract: permanent transfer of software.
 Copyleft: Owner of open source software. There is free and unrestricted
use of software until any change is made. The moment dynamics of this
software are changed. This concept is a misnomer.
 Gift.
2. Conditional transfer: Section 4(2)
 For example: Delivery of good only on payment.
 Conditions related to payment, delivery, time, etc.
3. Temporary Transfer
 For example: Bailment, lease agreement, mortgage.
 Allowed under Contract Act not under SOGA.

 Sale of Goods Act is not pre-emptive, systematic, and comprehensive.

 Not a complete displacement from the previous arrangement.
 Ambiguous.
 Not comprehensive as for sale of drugs there is NDPS Act, for sale of cars
there is Indian Patent Act. SOGA is subjected to other legislations and
hence not comprehensive.
 Predatory pricing:
 Dominant position in the market.
 Selling the goods below normal cost of products.
 Intention to eliminate competition.
 If the competitors are eliminated, raise the price.
 Esso Petroleum Case, 1967

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SECTION 5: CONTRACT OF SALE HOW MADE

SUBJECT MATTER OF SALE (S. 6) -> GOODS -> MOVABLES -> TYPES:
 Specific Goods [S. 2(14)]: goods identified and agreed upon at the time a contract
sale is made
 Un/ascertained goods [S. 18]: exactness of a particular good agreed
and identified at the time when the contract is made.
Ascertained goods:
 Not defined
 In re wait 1927; Lord Atkin; Goods identified and agreed upon
Unascertained goods:
 Section 23
 Future goods [S. 2(6)]: goods to be manufactured or produced or acquired
by the seller after the making of the contract of sale.
 Quasi specific goods
 Generic goods: Benjamin- when merely name is mentioned.
 RIGHTS:
1. Examination (S. 41)
2. Goods must be of the same description
3. If sample is there, the good should be the same.
4. Marketable quality must be there.

GOODS for the Purposes of SOGA

Section 2(7): ‘goods’ means every kind of movable property other than actionable claims and
money; and includes stock and shares, growi0ng crops, grass and things attached to or
forming part of the land which are agreed to be severed before sale or under the contract of

(Section 29 of RBI Act)

Section 2 (7)  movable goods  inclusive  money actionable claim

(Section 3 of TPA)

sale.
 Chose in possession (A chose in possession is a phrase referring to a bundle of
rights and remedies of an object of tangible personal property that can be physically
possessed by the owner and can be transferred by delivery.)
 Chose in action (right to sue; It has been made trite law, since Torkington v
Magee, that a chose in action is a legal expression used to describe all personal
rights of property which can only be claimed or enforced by action.)
 Parole Evidence: Gathered evidence or collected evidence. Under common
law, parole evidence is allowed.
 Section 61 of British Sale of Goods Act: “goods” includes all personal chattel,
other than action and money.

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  In our law we have general and special property.
 Safe-deposit locker in a bank: It is embedded in the ground and is not intended to be
used by severing it from the ground and is therefore, not a good. (Oriental Bank of
Commerce v. State of U.P.)
 Plant and machinery: fixed to the floor in a building  immovable  not goods.
(Karthik Engineering Works v. State of Karnataka).
 Computer Disks (Software): Took an example of an instruction manual on the
maintenance and repair of a particular make of car. The instructions form an
important part of the manual and would fall under the definition of “goods”. If this is
correct, then a computer disk, onto which a program designed and intended to
instruct or enable a computer to achieve particular functions has been encoded, must
also be “goods”. If the disk is sold or hired by the computer manufacturer, but the
program is defective, there would prima facie be breach of the terms as to quality and
fitness for purpose implied by the 1979 Act or the 1982 Act. (St. Albans City and
District Council v. International Computers Ltd.)
Tata Consultancy Services v. State of Andhra Pradesh: A software program on a CD/floppy
disc is ‘good’ and as such, is assessable to sales tax.
 Bharati Airtel Ltd. v. State of Karnataka and ors.: held that artificially created light
energy carrying data through optic fibre cables is distinct from electromagnetic
waves and falls within the definition of “goods”.
 Ships and Aircrafts: Ships are considered to be goods but not aircrafts/ over crafts
in common law jurisdiction because special laws have been enacted for the sale of
these goods. Not goods as per Section 2 of CISG.
 Differentiation cannot be there on the basis of tangible and intangible
goods. Marketability must be the criterion. (TCS v. State of Andhra
Pradesh, 2005)
 Vithaldas v Jagjivan AIR 1939 Bom 84: Sale of decree is a sale of goods.
 Bank Note Press, Devas v. Additional Assistant Commissioner of Commercial
Tax and ors.: Bank note becomes currency only when it is issued as such by RBI
under Section 26 of RBI Act. Before such issuance, it is mere goods at the hands of
the printing press. The activity of printing and selling such bank notes by the
printing press to RBI would therefore attract the levy of VAT.
 Gas, electricity, oil and water: Not goods as per Section 2 of CISG (electricity) and
as per its jurisprudence (gas and water).
 Whether water can be sold
 Whether rivers can be sold; Madhya Pradesh
 Madhya Pradesh Electricity Control Board case 1963.
 SBI V Neeta Ashok Naik AIR 2000 Bom 151: FD receipts are goods
 BSNL v. Union of India AIR 2003 SCC 1: Electromagnetic waves and
radio frequencies are not goods.
 Human organs generally are not considered to be good: Though the law does not
recognise property in dead body, different considerations may arise in context in
human organs and blood and tissues being increasingly in demand for transplant,
transfusion and grafting.
There is a need for the establishment of a regulatory body with expert know how and
recording and supervision of such dealings would become essential and the matter cannot be
left to the realm of the law of contract.
 Belle Bonfils Memorial Blood Bank v. Hansen 1978: Blood supplied by a blood
bank is considered to be “goods”.
 Dead body not considered goods.
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  ISO certified classrooms.
 Gopal Krishna Pillai v K.M. Mani AIR 1984 SC 216: Animals are considered to be
goods, excluding wild animals.
 H. Anraj v. Government of Tamil Nadu (1986) 1 SCC 414: whether sales tax can
be levied on the sale of lottery tickets. Held: lottery tickets are goods.
Vikas Sale Corp v. CCT (1996) 4 SCC 433: above decision agreed to. Overruled to the
extent of RIP license (export import licenses
Sunrise Associates v. Government of NCT Delhi: SC held that H Anraj incorrectly held
that a sale of lottery tickets involved a sale of goods. There is no sale of goods but at the
highest a transfer of an actionable claim.
 R.D. Goyal v. Reliance Industries Ltd.: Once share certificate issued, it will be
considered as specific goods or else they are future goods.
In Britain stocks and shares are not considered to be goods.
Debenture are not considered to be goods. They would constitute actionable claims
except where they are secured by mortgage or immovable property or hypothecation or
pledge of immovable property.
 R.D. Saxena v. Balram Prasad: advocate’s files are not considered to be goods.
A.K. Saxena v. Union of India: (same as above)
Cliford v Harris: advocates files are goods; lien can be exercised.

PERISHABILITY
 Section 7: Goods perishing before making of contract.
 Ingredients:
1. Subject matter must be specific goods.
2. Perished or so much damaged as no longer to answer their description in
the contract at the time of making of the contract.
3. The goods must have been perished or damaged without the knowledge of
the seller.
4. Contract will be declared to be void (result of above 3).
5. Mistake as to the specificity of the product by the seller.
 Section 8: Goods perishing before sale but after agreement to sell
 Ingredients:
1. Contract must be an agreement to sell
2. Goods agreed to be sold must be specific.
3. Goods perished or were so damaged that no longer answered to
their description in the agreement.
4. Goods must perish before the risk passes to the buyer.
5. The loss must not be caused by the wrongful act or default of either party.
6. If there is a fault of a party, then the party at fault/default is liable for no-
delivery or for payments.
7. Result: contract is hereby avoided. (void as per common law)

NOTE: Avoided and Void: same in common law system; Avoided: voidable in Indian

law CASES:
1. Barrow, Lanes Bollard Ltd. v. Philip Philips & Co. 1 KB 574 (1929)
Stolen goods are considered to be perished. Goods already sold by a party and then
resold: perishable. Goods perished in part: Doctrine of Severability; if easily severed, rest
of the

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goods bona fide/ specific goods and in case not severable, all the goods are considered
perishable.

“SALE IN MARKET OVERT”: Was applicable in Britain, not in India.

Boroline case: damage and deterioration are not same

Horn v. Minister of Food, New Zealand: Potato got deteriorated to such an extent that it
wasn’t fit for human consumption; hence declared perishable.
Randall v Turnbull: Date- perishable.
Deterioration to the extent of damaging the value of the good

BRITISH CASES:
1. Malone v. Construction Works: spoken words as such have no value, and so must not
be considered as goods.
2. Oxford v Moss: information not good.
3. Cental balms case (1996; referred in TCS case): Software not goods.

TIME IS THE ESSENCE

SECTION 11: Stipulation as to time pg. 24 of Dukki

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
stipulation as to time is of the essence of the contract or not depends on the terms of the
contract.
 Two types of stipulation: condition and warranty.
 Recognition to the concept of party autonomy.
 Stipulation as to the time of delivery
 Stipulation as to the time of payment.
 Last line: depends upon the intention of the parties.

If payment is due on a certain date, the whole day, unless contrary provided for, is considered
as the stipulated time.
[General Clauses Act: time]
If payment done in instalment, each payment considered as a contract.
Delayed payment is not allowed.
Section 32: payment and delivery are concurrent conditions
Time will not be the essence of the contract if not specified in the contract.

Orissa Textiles v. Ganesh Das, 1961:

 Contracts where time is the essence:
1. Mercantile
2. Labour
3. Procurement
4. Infrastructural
5. Joint Venture
6. Defence contracts.

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  Where parties have expressly treated as the essence, delay operates as an
injury, where the nature and necessity of the contract require it to be so
construed, for example: labour contracts, procurement contracts.
 If goods are delivered in advance, the essence is vitiated.
 Extended date will also be considered as essence but it must be bilaterally
construed. Extension must be at least twice but it must not be recurring (British
paints Ltd. v UoIcase).
 If it is declared that time is the essence and the other party is not performing, then
the party has the right to repudiate the contract (Section 13 (1)).
 If the party wishes to not repudiate but seek damages, it can also be done. Once
a condition, always a condition but that condition can be waived.
 Treat breach of condition as breach of warranty (condition will remain condition,
but for purpose of remedy in the form of damages, it will be treated as warranty.)
 Ways to waive: Sections 11, 42, 63.
 Merely mentioning the clause saying time is the essence doesn’t make any
difference. (4 conditions need to be satisfied).

Pakkhar Singh v. Krishna Singh AIR 1974, Rajasthan 112:

Criteria to determine whether time is the essence of the contract:
1. Language of the agreement
2. Nature of the property sold
3. Conduct of the parties
4. Surrounding circumstances at or before the contract

Bhagwat Narayan Tendulkar v Goa Cooeperative Marketing and Supply Federation Ltd.
(Pollock and Mulla)

[NOTE: Till Section 44, SOGA is pro-buyer, and after that it is pro-seller to an extent.]

 Time is essence: Condition (main essence for which goods are being bought)
 Complainant required to prove that time is the essence.
 Anticipatory breach when time is the essence of the contract: “substantive basis”;
It needs to be proved on a substantive basis that the performance of the contract
can never be done.
 Repudiation of contract before due date: Section 40.
 Sections 46 to 50 and 55: regarding time is the essence; to decide whether time is
the essence of the contract, SOGA will prevail (Section 3).
 Nachfrist: additional time for performance [Honnold- commentary on CISG]

Leela Parulkar v. Sakal Papers Pvt. Ltd. AIR 2005 SC 4075

 Time is the essence of contract.

Black’s Law Dictionary

Time is the essence as the performance by one party at a time or within a period specified in
the contract is essential to enable him to require performance by the other party.

Hartley v. Hymans, 1920 (Mccardi J.)

In mercantile contracts, stipulation as to the time is usually the essence of the contract except
the time of payment.

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“Simplex comme litz non obligat”
1. General opinion: mere representations (mere puffs)
2. Legal opinion: involve legal liability (conditions and warranty)- Section 12.

Section 12: Condition and warranty.— pg 23 of DUKKI

(1) A stipulation in a contract of sale with reference to goods which are the subject
thereof may be a condition or a warranty.
(2) 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.
(3) 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.
(4) 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.

Differences between Condition and Warranty (w.r.t. Essentials, Construction and

Remedy)
A stipulation in a contract of sale with reference to goods which are the subject thereof
maybe a condition or a warranty.
1. A condition is a stipulation essential to the main purpose of the contract while a
warranty is a stipulation collateral/ subsidiary to the main purpose of the
contract.
2. In the case of vitiation of condition: Repudiation + damages (consequential
damages). In the case of vitiation of warranty: claim for damages may rise but the
right to reject the good and the right to treat the contract as repudiated do not arise.
3. A stipulation maybe a condition, though called a warranty in the contract
(party autonomy). However, a warranty cannot be treated as a condition.
4. A contract of sale cannot be fulfilled unless conditions, if any, are fulfilled.
Main contract can be fulfilled even if the warranty is not fulfilled.
Whether a stipulation in a contract of sale is a condition or a warranty depends in each case
on the construction of the contract.
Condition given by: seller, buyer, mercantile agent [Section 2(9)]

Cehave N.V. v. Bremer 1976 (HoL) Lord Denning

Kingston v. Preston, 1773; Lord Mansfield (first time expounded the differentiation between
condition and warranty)

5 methods in order to discern whther it is a condition or a warranty (Ramanath Iyer)

FUNDAMENTAL BREACH OF CONTRACT

1. National Insurance Company Ltd. v Bharatamma and ors. AIR 2008 SC 484
 Concept of “fundamental breach of contract” recognized.
 One consolidated law and there is no bifurcation
2. Loon Karan Sethia v. Evan B. John, 1976 (Supreme Court)
 Meaning of the term “Material alteration”.
 Those things which materially alter the position of the parties.

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LEGAL FRAMEWORK OF IMPLIED CONDITIONS/WARRANTY (Sections 14 to
17)  (pg 29 of Dukki)

 Section 14:
i. Right to sell = ownership + not infringing somebody’s better title (non-
interference).
ii. When goods sold by description, the goods must correspond with the
description. [Method of selling: Sale by sample (Section 17) and sale by
description (Section 15: talks about both)].
iii. When goods sold by sample, the goods sold must correspond with the
sample in quality.
iv. 2 parts of Section 16: Opening sentence- Caveat emptor; 4 exceptions given-
Caveat Venditor
[ CASES: Jones v Just 1868, Priest v. Late 1903, Grant v Australian Knitting Wear (end of
caveat emptor), Ashington Pery case]
v. Implied warranty: (1) after goods are bought, buyer must have quiet
possession non-interference from any party including seller; (2) Goods
must be free from all charges and encumbrances: a third party has no claim
with respect to the goods, buyer doesn’t have to pay anything to the 3rd party.

Couchman v. Hill (first case where term “description” defined)

 Description usually means a particular class or kind of goods but it also includes
any statement which constitutes a substantial ingredient of the identity of the goods
sold.

Lord Blackburn in Bowes v. Shand, 1877

 If you contract to sell peas you cannot oblige a party to take beans. If the
descriptions of the article tendered is different in any respect, it is not the article
bargained for and the other party is not bound to accept it.

Lord Wright: in Grant v. Australian Knitting Mills, AIR 1937 PC 100

 Description includes many things. The goods, even if shown on the table, then also
it can be a part of description.
 Time (time of manufacturing) as part of description.
 Packaging can be part of description.
 Place of delivery will also be considered as description.

Esso Petroleum case:

Whether there is free consideration or not is not clear.

Halsbury Law of England- how can samples be given

1. Extracting a small quantity from a larger bulk.
2. Sending a small representative quantity in advance.
3. Showing a pattern.
4. Showing a model.
5. Average sampling (not in Halsbury): commonly used in grain market;

SECTION 14: Implied undertaking as to title, etc.

 Trappings of ownership
 Contrary intention terms rarely used, cannot have situation where seller
selling without title.
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  Market overt; common law principle- selling in open market; In India market
overt not allowed since the beginning.
 Contract law will be applicable to finders, pawnor, pawnee, etc.
 This section is not subject to exclusion clause.
 Person selling the goods must have right to sell
 Section 14(a): implied condition.
 Explanation of Mulla on the opening of Section 14(a)
 3 situations in which seller doesn’t have right to sell
1. When the seller is not the owner of the particular goods. (laid down in Rolland
v. Diwal (Lord Atkinson: the buyer has not received any part of which he
has contracted to receive namely the property and the right to possession and
that being so there has been a total failure of consideration source of
Section 14(a).)
2. Seller maybe the owner, yet due to certain reason he may not have the right
to sell. (Niblet v. Confectioners Pvt. Ltd., 1921 [first time concept of
merchantability]; Nestle- “Nissley”; objection to bona fide title)
3. Where is sale has been declared illegal or without jurisdiction.
 Situations when the seller did not have title and what the buyer would do:
1. The fact the he was fraudulently induced by the seller to pay the sum by
false representation that he had good title to the property sold (Fraudulent
inducement + Misrepresentation)
2. The fact that the seller warranted and covenanted with the purchaser that he
had a good title. (Taramati Anantrai Parekh v. Gangaram Shamdas, 1975
Maha LJ): frivolous claim by a third party against the seller does not give
rise to an absence of marketable title 14(a)).
 Section 14(b): Implied warranty that the buyer shall have and enjoy the
quiet possession of goods.
 Howell v. Richards, 1809 [Lord Ellenborough]: the implied warranty of quiet
possession, if the analogy of the covenants for quiet possession under lease
be a sound one is a warranty against disturbance and it is not broken
unless and until disturbance takes place.
 Buyer shall have and enjoy: first you have (right of possession) and then
only enjoy its possession. Right to possess only when seller has right to sell.
If enjoying without right to possession, that would amount to disturbance

NOTE:
1. Pollock and Mulla is an important source of law, not just subsidiary. Article 38 of
ICJ clause.
2. Article 31 of VCLT (Vienna Convention on Law of
Treaties). Vellore citizens case: customary principles of international
law.

Section 14 involves both sale and agreement to sell.

Ronald v. Diwal 1923 2KB 5: No title, No transfer

 14(c): Free from all charges and encumbrances, endures that he buyer’s position
shall not be disturbed by reason of existence of such encumbrances.
 Without (a), (b) and (c) have no existence.
 If there is a charge or encumbrance on the goods, it is the obligation of the seller
to disclose them to the buyer before or at the time of the contract.
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Niblet v. Confectioners Pvt. Ltd., 1921
 Lord Atkinson, Banker and Scruton.
 Goods tendered must be the one which the seller has right to sell. (first instance
when right to sell defined; right to sell is a presumption- whenever goods sold, no
need to expressly mention that right to sell is there). In this case right was not there.
Ownership there but someone’s better title infringed- Implication of Trademarks
Act.
 Merchantability: it includes state and condition of the goods. In this case state
and condition includes labelling of the product. (saleability at full cost)
 It is implied condition that the goods shall be of merchantable quality. In this case,
first time recognised merchantability as implied condition. (British Tramways v.
Fiat Motors, 1915 Forwelll propounded for the first time that merchantability is
implied condition).
 What is merchantability: Gardener v. Grey- In order to define the term
merchantability. Defined merchantability as reasonable man’s test; merchantable
quality is applicable primarily to the complicated machines but that will not prevent
a court to use it for consumer goods.
 Scruton: If the vendor is estopped by the process of law (trademarks act) from
selling goods, this implies that he does not have the right to sell.
 Atkinson: no right to sell the goods owing to the existence of a title superior to that of
the vendor. If any sale gets made, the vendee’s right will get disturbed (because
Nestle will try to interfere).
 Remedies to the buyer: repudiate the contract + damages.

 References of Niblet case taken by India:

1. Joseph Mayor v. Pani Bhushan Ghose AIR 1939 (Cal) 210
2. Ranbir Singh v Gurubaksh Singh 1979 (Pun and Har HC) pg. 170

 Microbeds A.G. v. Vinhurst Road Markings 1975 IWLR 218 (patent infringement)

NOTE: G.I. is nothing but recognition of specific talents that are present in specific
community.

4 TESTS OF MERCHANTABILITY
1. Full knowledge test.
2. Usability test.
3. Satisfactory quality test
4. Reasonable man’s test
Benjamin’s Pendulum test: additional
test
 The test is to ensure that the goods in question fulfil all the purposes possible.
Benjamin in his theory finds a consistent fallacy in the 4 tests of merchantability
since they focus on only one purpose that the goods are bought for.
 The pendulum is swinging towards CV from CE.

MERCHANTABLE QUALITY 1, JOHN LEVERMORE, JBL Article

MERCHANTABLE QUALITY 2

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Difference between arbitration and valuation

188
  Adjudication of the dispute in case of arbitration while fixing the price in case
of valuation.
 Ad hoc arbitrators, institutional arbitrators.
 In case of 2 valuators, if only one evaluator decides the price, it will not be a
valid valuation.

Justice Dixen in Australian Knotting Case AIR 1837 PC 187: Full Knowledge test
Lord Reed in Kendall and Sons v. Lillico and Sons Ltd.: Usability Test
Niblet: merchantability test or reasonableness test
Satisfactory quality test
1. Fitness for all purposes for which the goods of the kind in question are
commonly supplied.
2. It refers to appearance and finishing of the products.
3. Freedom from all defects, and all defects involve latent as well as patent defects.
4. Safety of that particular good.
BIS; ISI norms
Sanitary and Phyto-sanitary (SPS) measures
Society for epijotic; standards
5. Durability
6. If the buyer deals as a consumer, any public statement on the specific
characteristics of the goods made about them by the seller, the producer or his
representative, particularly in advertising or on labelling.

1979 amendment: satisfactory quality in place of merchantability, meaning becomes

satisfactory quality but name remains the same.

Foreign Manufacturer’s Legal Liability Act, 2010

SECTION 17: Sale by Sample pg 45 of DUKKI

 Sale by sample takes place only when terms of the contract provide so, expressly
or impliedly.
 Mere exhibition is not sale by sample.
 Always refers to quality in question
 3 implied conditions:
a) The bulk shall correspond with the sample in quality.
b) The buyer shall have a reasonable opportunity of comparing the bulk with
the sample to satisfy himself that the goods supplied are in accordance with
the sample.
 Before delivery
 At the time of delivery
 After the goods have been delivered
 If opportunity not give: repudiation + damages
c) The goods shall be free from any defect, rendering them
unmerchantable, which would not be apparent on reasonable
examination of the sample.

Innominate and Intermediate terms (Innominate: contract of carriage)

Hong Kong Fur Shipping Co. Ltd v. Kawasaki Kasem Kaisha Ltd. 1962 2QB 26

Lord Dipplock
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 Shiv Singh Contractor v. UoI

Four Terms Determining Contractual Relations Between the Buyer and the Seller
1. Description of the goods in terms of type, quality and quantity. Alternatively,
sample of the goods.
2. Time of delivery
3. Price
4. Time and means of payment

Sorabji Hormusha and Co. v. V.M. Ismail & Anr. AIR 1960 Mad 570
 Finally accepted reasonable man’s test/

Raghav Menon v. Katappan Nair AIR 1962 Kerala HC 318

 Reasonable man’s test accepted

Board of Trustees of the Port of Calcutta v. Bengal Corporation Pvt. Ltd. AIR 1979
Kol 142
 Referred Niblet and accepted merchantable quality test.

Commercial Automobiles v. Sri Maharaja Singh Bhatia and ors. (2011) MPJR
 Accepted satisfactory quality test.

Term satisfactory was missing earlier, was not there in any statute. It came in the statute
for the first time 1979. It is getting more popular now after the 1994 amendment in British
Sale of Goods Act.
By implications and approach followed, the Indian Courts have tilted towards satisfactory
quality test.

CAVEAT EMPTOR pg 43 of DUKKI

 Section 16: Initial part: caveat emptor; 4 points: caveat venditor
 Jones v. Just, 1868: Importance of caveat emptor.
 Criteria for determining whether caveat emptor or caveat venditor
1. Nature of goods.
2. Mode of payment.
3. Knowledge and skill of the buyer and seller.
4. Examination. (reasonable opportunity given to buyer to examine the goods)
5. Fitness and particular purpose of the goods.
 Caveat emptor: Reiteration of common law principle.
 “KHAYER-AL-AIB”?????
 New interpretation: merchantability will be there in both the cases of caveat
emptor and caveat venditor.

[EC-SEAL case of WTO: one particular method of cutting meat- morality aspect; importing
such meat can be banned as it may hurt the religious sentiments of the people.]

 18- 25: transfer of property (23 and 25: Retention of title- Romallappa/ Reservation of Right
of Disposal)
 26: res perit domino- risk prima facie passes with property.

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 27-30: title transfer- nemo dat quod non habet
 Absolute right and Possessory right
 Possessory title
 TITLE

MARKETABLE TITLE
 Sale by approval and Hire-purchase agreement (buyer is absent, Option to buy)
 19 (for transfer of any property), 20, 21 and 22: transfer of specific goods
 Section 2 (14)
 Transfer of unascertained goods- 18, 23 and 25.
 Section 18 based upon Seath v. Moore, 1886 (J. Lord Blackburn- whenever transfer of
property takes place, the goods must be ascertained)
 Dan Singh v. Janki Sharan Kailash Chandra AIR 1981 All HC 103.
 Austin’s definition for property
 Anson’s definition for property
 Benjamin- 5 categories of future goods
 Absolute transfer and Derivative transfer (Section 27)
 General Finance Act, 2017: procurement contracts; based upon government procurement
agreement of WTO; India is an observer to GPA.
 BSNL and Ganon Dunkerley (composite transactions)
 UCC: method of fixing price- formula
 Agriculture Market Committee case
 Bhagwat Narayan Tendulkar case
 Implications of transfer
 Seller’s right if buyer becomes insolvent
 Sale of Goods Act deals only with legal rights and not equitable rights (S. 169 of ICA) over
goods.

Caveat emptor, qui ignorate no debuit quod jus alienum emit

 Let a purchaser, who ought not to be ignorant of the amount and nature of the interest
which he is about to buy, exercise proper caution.
 Only duty on part of the seller: Giving proper opportunity of
examination/investigation/inspection.
 Chandelor v. Lupos 1603 (first case which recognised the concept of caveat emptor)
 Priest v. Last (caveat emptor started to diminish): starting point of Section 16 (1), (2),
(3), (4).
 Caveat venditor started getting accepted.
 Ingredients of Section 16 or situations where caveat emptor applies:
1. The seller is under an obligation to allow the buyer to inspect the goods so as to
ensure that they are free from any defect before the conclusion of the sale and
purchase contract.
2. The seller is under no obligation to disclose to the buyer any existing defect on
his goods and thus seller has the right to remain silent.

191
 3. The buyer has no right to return the good or seek damages for any defect found in
the goods after the conclusion of the said sale and purchase agreement.
4. The seller is also under no duty to inform the buyer of his mistake in his
inspection of the quality of the goods to be sold.
 Right of inspection even though given and buyer had examined then also it is seller’s
duty to ensure merchantable quality of goods.
 If the goods are so inherently dangerous, it is the duty of the seller to inform.
 Knowledge and skill, nature of goods, complexities of trade, etc will determine whether
caveat emptor will be applicable or caveat venditor.
 Over reliance on caveat venditor.
 Seller deals with normal buyer. Extra ordinary problem need not be accounted for unless
informed.
SECTIONS 16 (1) AND 16 (2)
 Griffith v. Peter Canway Ltd. 1939 All ER 685 (seller need not deal with abnormality
unless informed)
 Medway Oil and Storage Company Ltd. v Silica Gel Corporation 1928 33 CC 195.
 The buyer’s reliance is a question of fact
 The reliance must be substantial and effective inducement which leads to the
buyer to agree to the purchase.
 Proviso of Section 16 (1) does not say “merchantable quality” but Section 16 (2) does.
Merchantable quality aspect is inherent in the entire section.
SECTIONS 16 (3) AND
(4) KHIYAR AL AIB
 Basic Ingredients:
1. Existence of a defect in the goods should be before or at delivery of the goods.
2. The purchaser/buyer should not have been aware of the defect at the time of the
agreement.
3. There should not be any stipulation by the seller for waiving the liability of the
seller for the defect.
4. The defect must have existed and been proven at the time when the purchaser
wishes to exercise the option either to accept the goods or reject them.
5. There should not any agreement by the buyer to take all responsibility for the
defects in the goods thus exempting the seller from any liability arising from that
defect.
 Caveat Emptor v. Khiyar Al Aib- A Dichotomy by Mohd Masum Bilah Arab Law
Quarterly Vol 3, 1998, pg. 278-299

TRANSFER OF PROPERTY  pg 48 of Dukki

 Ownership
 Right to possess
 Inspired either from economics or IPR.
 Property is a bundle of exclusive rights: Ownership and Possessory right.

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 Lord Denning: Transfer of Property and Protection of Bona Fide Buyer (Printed Notices
Are Given)
 Atiya demarcates difference between property and title: subsequent authors have rejected
his proposal.
 Essentials of Transfer of Property:
1. Risk attached with the property transfer.
2. The buyer can exercise proprietary rights over the goods. Proprietary rights: can
resell and create rights in rem.
3. Seller cannot sue for the price unless the goods have become the property of the
buyer.
4. If the buyer becomes insolvent, the seller can exercise right in lien if the goods
are still in the possession of the seller.
5. If the possession of the seller has been terminated and the goods have been
passed to the buyer, the seller cannot exercise lien but can initiate suit for price.
6. If the buyer mala fidely doesn’t accept the goods, the seller can sue for non-
acceptance.
7. If the seller becomes insolvent and the buyer has been enjoying possession of
goods even before the contract of sale, contract is not terminated of the goods are
normal goods. If the goods are perishable, then he can sell them by giving a
notice and can recover losses incurred from the buyer and retain profits. In case
notice not given, any loss incurred will be of the seller.
 General Property: Ownership (no requirement of possession, all-encompassing rights)
 Special Property: Right of pledgee/bailee/mortgagee or right in lien. (possessory and
custodial rights but not ownership rights)
 Section 18: Goods must be ascertained
 Seath v Moore, 1886 (Lord Blackburn): “It is essential that the article should be specific
and ascertained in a manner binding on both parties for unless that be so the contract
cannot be construed as a contract to pass the property in that article”.
 Second subject matter: unascertained- Section 14: transfer won’t take place unless the
goods are
 Section 23: method for converting unascertained into specific goods: Appropriation-
identification with the consent of both the parties
 In re Wait 1CH 606 (Lord Atkin defines) : ascertained probably means identified in
accordance with the agreement after the time a contract of sale is mad and I shall assume
that be the meaning,
 Dan Singh v. Janki Saran Kailash Chandra differentiated between specific and
unascertained goods (followed in re Wait case).
 Section 19: Property passes when intended to pass
For ascertaining the intention of the parties, regard shall be given to (Section 19(2)):
1. Terms of the contract
2. Conduct of the parties
3. Circumstances of the case
 Agriculture Market Committee v. Shalimar Chemical Works 1997 5 SCC 516.

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  Bhagwat Narayan Tendulkar v. Goa Cooperative Marketing and Supply
Federation Ltd. 1998 2 MR LJ 703
 Sacks v. Tilley 1915 32 TLR 148.
 For transfer of ownership, delivery is not important.
 For transfer of property, only possession is important.
 For eg.: BoE when accepted, transaction takes place.
 Section 19(2): Only applicable if all conditions of (1) are not fulfilled. They are
to be read together.
 Section 19(3): Talks about S.24 (Sale by approval)  Section 42 (intimation,
adoption, passing of reasonable time.
 Section 20
 Good must be specific.
 In deliverable state.
 Contract must be unconditional.
 Without payment and delivery, transfer of property takes place.
 Hence here, possession is not important, only transfer of ownership.
 “deliverable state”: seller’s duty is only to keep them in such a state whereas
buyer’s duty is to apply for delivery  Bankers LJ, in a case said deliverable
doesn’t matter in all its parts, it depends on the actual state of the goods at the
date of contract and the state in which they are to be delivered by terms of the
contract. Not in terms of quality
 Deliverable State
1. Physical state
2. Seller has to inform buyer of deliverable state.
3. Buyer will apply for delivery.
4. Seller will deliver the goods according to specifications.
 Unconditional delivery
 Concurrent Conditions: Section 32
 At the time of delivery, buyer must be in a state of readiness to pay.
 Property
 Insolvency and Bankruptcy Code: Presidency Town Insolvency Act, 1909
 Any property over which and over profits of which any person has disposing
power which any person has a disposing power which he may exercise for his
own benefit.
 Benami Transactions Act, 1988
 Property: property of any kind whether movable or immovable, tangible or
intangible, includes any right/interest in such property.
 Can any right or interest be transferred?  Complete power to own and transfer
 Ricardo 1st Best (absolute ownership right)- Right to Ownership; 2nd Best
(possessory right)- Right to Possession
OWNERSHIP DEFINITION
 Black’s law dictionary

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(INTRA WEEK NOTES: Ishrita whatsapp)

SECTION 23
 Wait v. Baker 1948: The moment the goods which have been selected in pursuance of
the contract are delivered to the carrier, the carrier become the agent of the vendee and if
there is a binding contract between the vendor and the vendee, then there is no doubt that
the property passes by such delivery to the carrier.
 Buyer had nominated the carrier.
 The goods are not in control of the seller, cannot exercise lien also.
 Section 26 [combination of 2 latin maxims; Civil Law, Roman law and Common
Law]
o Financial risk:
o Buyers acceptance risk.
o Legal risk: How interpretation of the contract takes place, and how public
accepts it.
o Physical Risk pertaining to the goods. Whether the goods required to be
delivered to the same party as agreed in the contract.
o CISG: Article 66-71. Transportation Risk. – carrier rule, place rule,
appropriation rule, etc.
o Res perit domino: Risk prima facie passes with property. [long title of sec. 26]
o As a general rule the doctrine is an old civil law maxim. Meaning; when you can
show the property passed, the risk of the loss prima facie is in the person to
whom the property is. Therefore, dominus needs to be shown.
o Damnum ex casu sentit dominus: injury falls on the owner.
o Nemit commodum eies debet cius periculm ist: if injury falls on the owner, any
accruing benefits will also accrue to the owner. [Roman Law Maxim]
o ORIGIN: Martineau v. Kitching, 1870 [Res parito domino] : J Blackburn.
“As a general rule, the doctrine is the old civil law doctrine. The meaning is that
where you can show that the property has passed, the risk of loss also passes,
prima facie to the person in whom the property is.” Whoever has the ownership
of the property, irrespective of the contract, he will hold the losses. For passing
of risk, ownership is important, not possession, as the contract is conditional.
o Another origin: Sweeting v. turner, 1871. “Any calamity befalling the goods
after the sale is completed must be borne by the seller. Any benefit, must be his
benefit, and not the vendor.”
o 3 exceptions to this:
4. The concept of party autonomy/ freedom of contract recognition. (A. 6 of
CISG mother of party autonomy clauses- party autonomy in the context
of bringing modification in the law itself.) This section can be avoided by
express provisions of the contract, or conduct later on [section 5 – oral
contract]. The contracting parties have the freedom to modify this, as
shown in the starting part of the section.
5. In case delay of delivery by an overt act of the parties, then section 26
will not apply. [1st provision] Whoever has delayed, and is at fault, he
will be
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 liable. But conditions: Loss must accrue to the goods, the proximate
cause of the loss must be the delay in the goods, and the delay does not
throw the entire risk on the party, but only such risk as is gradually
attributable to his fault. – doctrine of proportionality.
6. Bailment rule will not affect this section, as he acts as a voluntary bailee.
[2nd proviso of Sec. 26] [148-171,171-181 of ICA – Bailment, and
pledge]
o Executory Contract: Property has not passed anything happening to the property
borne by the seller. Conditional contract, will be completely subsequently. No transfer
of ownership. Risk will pass, as and when the contract will get complete.
o Unconditional Contract Of Specific Goods: 4, 19 and 20 sections, buyer’s
responsibility. Transfer of property has taken place, ownership also. Risk has also
passed, irrespective of possession. Buyer’s risk.
o Risk Where Delivery is Contingent on Some Event; If those events can be easily
performed- section 26 can be applied; if those events are impossible to be performed-
Section 56 and 65 of ICA will come into picture.
o Risk when goods are in Transit: 3 contracts possible when goods are in transit:
between buyer and seller, between buyer/seller and carrier, insurance contract.
o This provision determines liability even when there is no contract, but only possession.
o Romalpa Clause: Sec. 23, 25, 26: Both the seller and the buyer have same rights,
except the right of disposal. Any loss taken place, then the buyer is required to pay the
damages as the buyer is in fact getting all proprietary rights, to use, to have custody,
possession, but to pass the property. Conduct regulated by seller. If those conditions
get extinguished, then the buyer has absolute right over property. Any damage taken
place, that particular buyer will bear the injury.
o Sec. 23, 25, 26, read with Section 3, 2(15) SOGA: Validity to Sec. 27 of ICA,
Romalpa cannot restrict the buyers right for unlimited time.
o Section 23 read with sec.26: Rule of Appropriation: The moment the goods have
been appropriated, the risk will pass at the time of appropriation. Article 67(2) of
CISG.
o Risk of deterioration during transit/transportation: Section: 4, 23, 25, 26, 51
 Express provision is contract: Present/ absent.
 Ownership of goods during transit
 Cause of such deterioration: deterioration of commercial value of goods.
 Nature and character of goods
o Risk where buyer may rescind the sale: Sec. 26 read with 24.
 Risk will be borne by the owner. It will also be shared by the buyer.
 Method of rescinding: intimation to seller that the goods have been rejected;
risk will shift to the seller.
 If the buyer approves, risk with him. If he rescind the sales, risk with the owner.
 During the possession of those particular goods, buyer’s responsibility will be
limited to that of a bailee. It is determined on the basis of facts and
circumstances of the case.

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  Supervening impossibility (term for frustration usually used), commercial
hardship, force majeure. (Article 79 of CISG); Both parties exempted from
performance.
o Risk in relation to Rejected goods: Sec. 26 with 43, 44.
 First and foremost: Whether rejection done bona fidely (risk shifted to seller) or
mala fidely (risk with buyer). Reason for rejection, justified?
 Goods in non-conformity to the contract. Section 31: If the goods are there in
accordance to the contract, then buyers responsibility is to accept the goods.
 If the buyer has rejected the good justifiably, his only duty is to intimidate the
seller. Any loss will be borne by the seller. Buyers duty of bailor. Any extra
expenditure to buyer for keeping goods safely, it is to be paid by the seller to
the buyer.
 After bona fide rejection when goods are not taken back by seller within
reasonable time. Loss borne by the buyer can be recovered from seller.
 Three theories:
4. Time of passing off risk= time of concluding the contract:
5. Passing off risk=passing of ownership:
6. Passing of risk=time of delivery of goods:
 Section 26 is based upon which theory?
 Conduct of State government:
 Conduct of Foreign Govt.:
 3 proviso in Section 26:
4. The loss must accrue to the goods.
5. The proximate cause of the loss must be delayed in delivery of the goods.
6. The delay must be attributable to the fault either of the buyer or the seller.
o Section 27-30 [Nemo Dat Non Quod Habet]
o No one can give a better title than he himself possesser
o Whistler v. Forester, 1863
 Principle adopted. No one can give a better title than he himself possesses.
o Exceptions to the doctrine: 27-30 of SOGA plus sections 54, 169 (finder of goods), 178
of ICA.
1. Sale with consent or authority of owner [Sec. 27]
2.
o Sale in market overt: The person who is the real owner has given you the consent to sell,
therefore, the person who buys becomes the owner.
Creating an impression or giving a representation that the person who is selling the goods is
the owner of the goods.
Wherever one of the 2 innocent persons must suffer by acts of a third, he who has enabled
such third person to occasion the loss must sustain.
Conditions:

1. The representation must be clear and unequivocal.

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2. It must induce the subsequent buyer to purchase it.
3. There must be reliance on the representation of the true owner by the
buyer. Promissory estoppel also takes 2 routes:
a) Representation:

1) Person selling shouldn’t be the owner

2) Representation induces the other person to believe in valid sale.

3) Buyer must be bona fide

4) Not necessarily from owner, can be from agent as well

5) Owner gives doc of title indicating ownership, nature of document taken into
consideration like BoL- the mere possession of which allows you to sell them.
b) Negligence

1. Non est factum

2. Sale by mercantile agent (S. 2(9) in possession of goods of title with
consent of the owner)
3. Sale by one of the join owners (S. 28)
4. Sale by person in possession under a voidable contract (S. 29)
5. Sale by seller in possession after sale. [S. 30(1)]
6. Sale by buyer in possession before property has vested in him. [S. 30(2)]
(Romalpa and Agreement to Sell)
7. Sale by unpaid seller where he exercises his right of lien or stoppage in transit.
[S. 54]
8. The sale in market overt. (recognized in Britain, not in India, Object clause, cl.
3)
9. Sections 169 (Finder of thing after looking owner not found can sell it), 178
(Pledge by Mercantile Agent), ICA
 Parties: Owner, seller, buyer, subsequent buyer.
 In the absence of a better title, rights of the original owner:
 Recovery of the possession of the goods- suit for possession (comes out of
contract).
 Right against wrongful interference
 When goods have not been mixed up or have been mixed up (doctrine of
severability applies)
 Right of restitution.
 Right to trace and follow the goods. [ICLQ Right to Trace and Follow the
Goods 1989]
 Ownership
 Contractual Liability
 Tortious Liability (Right to follow and Restitutio)

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  Exceptions:
1. Sale with consent
2. Sale with estoppel (Bona fide buyer’s rights will not be affected)
 CISG- Article 7.2 (Good Faith)
 CISG- Articles16.2, 20 and 39 (Contractual good faith)
 UCC- honesty in conduct is good faith- Article 2.
 Title by Estoppel: Creating an impression or giving a representation that the person
who is selling the goods is the owner of the goods.
Lick Barrow v. Mason, 1787 (Ashrust J.)
 For estoppel to be applied in nemo dat quod no habet, the following 2
conditions need to be fulfilled:
1. Representation made by the true owner that the seller is the owner of
the particular goods.
2. By negligence on the part of the true owner which enable the seller to
create an appearance of ownership.
 Wherever one of the 2 innocent persons must suffer by the acts of the third, he
who has enabled such third person to occasion the loss must sustain.
o CONDITIONS:
1. The representation must be clear and unequivocal.
2. It must induce the subsequent buyer to purchase it.
3. There must be reliance on the representation of the true owner by the buyer.
o Indorsing of documents such as bill of lading, railway receipts, etc. indicate ownership.
o Indorsement of 2 types: General/Blank Indorsement and Full/Special Indorsement
o Bill of Lading is not a negotiable instrument
o Post-dated cheque is a bill of exchange and Section 138 of NIA will apply- Anil
Sawhney v. Union of India, Indus Airways case
o Lord Denning:
 In the development of our law, 2 principles have striven for mastery:
3. Protection of Property: no one can give a better title than he himself
possesses. (nemo dat quod non habet)
4. Protection of Commercial Transactions; the person who take in good faith
and for value, without notice should get a good title. (protection of
innocent buyers)
 Bishop gate Motor Finance Corporation Ltd. v. Transport Brakes Ltd. 1 KB pg. 49
322: nemo dat, all the exception, bona fide
 Section 2(2): meaning of delivery; Section 33: ways/modes of delivery.
 Section 2(2) can be read with Section 35.
 English Factors Act, 1889: possession means custody, Indian jurisprudence has
incorporated this meaning.
 ‘Possession’ by Pollock and Wright: in all cases the essence of delivery is that the
deliverer by some apt or manifest act put the delivereree in the same position of
control over the thing either directly or through a custodian (mercantile agent) which
he held himself immediately before the act.

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  Delivery done to: Buyer, agent, carrier
 Forwarder or Forwarding Agent: when the agent has only the role of consigner of the
goods.
 Sections 23(2) and 39 of SOGA: delivery to carrier recognised
 Section 32: Payment and delivery are concurrent conditions
 Party Autonomy: modify the rule (except public policy), provisions, applicable law,
court which will have jurisdiction, or ousting the jurisdiction of a court
 Article 6 of CISG: Party Autonomy
 Claude Leela Parulkar v. Sakal Papers Pvt. Ltd. 2005 11 SCC 73: concurrent
conditions: readiness and willingness to pay on the specified date. Readiness and
willingness to pay involve capacity to pay. 2 things required to be taken into
consideration: Insolvency (requires Section 45: unpaid seller’s right to exercise lien)
and refusal to accept delivery (suit for acceptance of the particular goods can be there;
bona fide or mala fide refusal needs to considered).
 Devi Dayal Sales Pvt. Ltd. v. State of Maharashtra AIR 2006 Bombay 37: Penalty
clause: if goods not delivered on specified date, penalty of the specified amount will
be imposed
 Part Delivery: Section 34, [48 (for lien)]; Constructive delivery of the whole.
 Instalment Delivery: Section 38; it must be mentioned in the contract that goods will
be delivered in instalments, otherwise it will not be allowed.
 Bret L.J. in Cooper case: recognises the concept of part delivery.
 Section 36: Rules as to Delivery
1) Place of delivery: Seller’s place of business.
2) Time of delivery: reasonable time- business hours
3) Delivery by Attornment (physical possession of goods has not changed,
control over the particular goods has changed) acknowledgement:
Fictitious/Symbolic/Constructive delivery
4) Expenses of Delivery: Act is silent.
5) Expenses of an incidental to putting the goods into a deliverable state: on seller
6) Expense for preparing for or receiving delivery: on buyer
7) Delivery in wrong quantity: Section 37 (both quantity in short and excessive
quantity)
Repudiation of contract in both cases.
Section 39 of ICA- Commercial
hardship
8) If good delivered are mixed- doctrine of severability;
9) Delivery in inferior quantity- not acceptable because goods become
unmercantible (Section 2(12)).
 How do we determine goods are of deliverable quantity? - de minimis
rule (Benjamin- microscopic variations will not be considered as
delivery of inferior quality; 2% variation in delivered goods is allowed
globally; not in case of gold, diamonds and other precious goods)
 Suresh Kumar v. K. Assan Koya and Sons AIR 1990 Kerala 20.
 For rejection of goods in case of non-conformity, intimation or notice is required.
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  In case of contract in instalments, if one instalment not given, can the entire contract
be repudiated?
If one instalment not delivered, generally contract is not rescinded; for rescinding there
must be recurrence (continuing contract)

IMPORTANCE OF DELIVERY
[NOTE: Absence of price clause will not invalidate the contract- Article 14 and 55 of CISG]
 That delivery which suffices to pass the title so that if the goods be destroyed the loss
falls upon the vendee.
 The delivery which suffices to destroy the lien of the vendor which consists in total
and unqualified surrender of possession and of a special claim to retain the goods by
the vendor.
 That delivery which requires not only an utter relinquishment of possession by the
vendor but also an absolute and final appropriation (examination; Section 10 and 23-
term appropriation used) by the vendee.
 Actual delivery: involves consideration of the person to whom goods are to be
delivered (Section 32 and 39); Place: seller’s place of business, Time: reasonable
 Symbolic/Constructive/ Fictitious/Attornment/Acknowledgement- Section 36(3):
putting the goods in absolute control of the vendee.
INCOTERMS
o Sections 12, 13, 59: once a condition, always a condition.
o Condition: Essential for the execution of the contract.
o If a clause talks about jurisdiction of a particular court for initiating suits- neither a
condition nor a warranty, simply a jurisdictional clause. Condition or warranty is
always in reference to good.
o Performance, where contract conclude, where any of the parties reside, reasonable
nexus
o Scott v. evory clause; while determining jurisdiction, the term “only” ousts
jurisdiction of all the other courts and is invalid.
o Parallel Importation: right of the manufacturer gets over when the manufacturing is
completed within the country. If there is universal trademark, then the product cannot
be modified and sold.
Microbeads AG v Vinhurst Road Makings (1975 JWLR 218)- case on patent infringement.
o Grey market: no right to sell but still the exercise of selling is continued.
o Nature and complexities of commercial transactions, nature of goods
o Types of product liability:
o No fault liability test, merchantability test

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SOGA 2

Section 12: Condition and warranty.—

(1) A stipulation in a contract of sale with reference to goods which are the subject
thereof may be a condition or a warranty.
(2) 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.
(3) 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.
(4) 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.

Differences between Condition and Warranty (w.r.t. Essentials, Construction and

Remedy)
A stipulation in a contract of sale with reference to goods which are the subject thereof
maybe a condition or a warranty.
5. A condition is a stipulation essential to the main purpose of the contract while a
warranty is a stipulation collateral/ subsidiary to the main purpose of the
contract.
6. In the case of vitiation of condition: Repudiation + damages (consequential
damages). In the case of vitiation of warranty: claim for damages may rise but the
right to reject the good and the right to treat the contract as repudiated do not arise.
7. A stipulation maybe a condition, though called a warranty in the contract
(party autonomy). However, a warranty cannot be treated as a condition.
8. A contract of sale cannot be fulfilled unless conditions, if any, are fulfilled. Main
contract can be fulfilled even if the warranty is not fulfilled.
Whether a stipulation in a contract of sale is a condition or a warranty depends in each case
on the construction of the contract.
Condition given by: seller, buyer, mercantile agent [Section 2(9)]

Cehave N.V. v. Bremer 1976 (HoL) Lord Denning

Kingston v. Preston, 1773; Lord Mansfield (first time expounded the differentiation between
condition and warranty)

5 methods in order to discern whther it is a condition or a warranty (Ramanath

Iyer) FUNDAMENTAL BREACH OF CONTRACT

3. National Insurance Company Ltd. v Bharatamma and ors. AIR 2008 SC 484
 Concept of “fundamental breach of contract” recognized.
 One consolidated law and there is no bifurcation
4. Loon Karan Sethia v. Evan B. John, 1976 (Supreme Court)
 Meaning of the term “Material alteration”.
 Those things which materially alter the position of the parties.

LEGAL FRAMEWORK OF IMPLIED CONDITIONS/WARRANTY (Sections 14 to

17)

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  Section 14:
vi. Right to sell = ownership + not infringing somebody’s better title (non-
interference).
vii. When goods sold by description, the goods must correspond with the
description. [Method of selling: Sale by sample (Section 17) and sale
by description (Section 15: talks about both)].
viii. When goods sold by sample, the goods sold must correspond with the
sample in quality.
ix. 2 parts of Section 16: Opening sentence- Caveat emptor; 4 exceptions given-
Caveat Venditor
[ CASES: Jones v Just 1868, Priest v. Late 1903, Grant v Australian Knitting
Wear (end of caveat emptor), Ashington Pery case]
x. Implied warranty: (1) after goods are bought, buyer must have quiet
possession non-interference from any party including seller; (2) Goods
must be free from all charges and encumbrances: a third party has no claim
with respect to the goods, buyer doesn’t have to pay anything to the 3rd party.

Couchman v. Hill (first case where term “description” defined)

 Description usually means a particular class or kind of goods but it also includes
any statement which constitutes a substantial ingredient of the identity of the goods
sold.

Lord Blackburn in Bowes v. Shand, 1877

 If you contract to sell peas you cannot oblige a party to take beans. If the
descriptions of the article tendered is different in any respect, it is not the article
bargained for and the other party is not bound to accept it.

Lord Wright: in Grant v. Australian Knitting Mills, AIR 1937 PC 100

 Description includes many things. The goods, even if shown on the table, then also
it can be a part of description.
 Time (time of manufacturing) as part of description.
 Packaging can be part of description.
 Place of delivery will also be considered as description.

Esso Petroleum case:

Whether there is free consideration or not is not clear.

Halsbury Law of England- how can samples be given

6. Extracting a small quantity from a larger bulk.
7. Sending a small representative quantity in advance.
8. Showing a pattern.
9. Showing a model.
10. Average sampling (not in Halsbury): commonly used in grain market;

SECTION 14: Implied undertaking as to title, etc.

 Trappings of ownership
 Contrary intention terms rarely used, cannot have situation where seller
selling without title.
 Market overt; common law principle- selling in open market; In India market
overt not allowed since the beginning.

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  Contract law will be applicable to finders, pawnor, pawnee, etc.
 This section is not subject to exclusion clause.
 Person selling the goods must have right to sell
 Section 14(a): implied condition.
 Explanation of Mulla on the opening of Section 14(a)
 3 situations in which seller doesn’t have right to sell
4. When the seller is not the owner of the particular goods. (laid down in Rolland
v. Diwal (Lord Atkinson: the buyer has not received any part of which he
has contracted to receive namely the property and the right to possession and
that being so there has been a total failure of consideration source of
Section 14(a).)
5. Seller maybe the owner, yet due to certain reason he may not have the right
to sell. (Niblet v. Confectioners Pvt. Ltd., 1921 [first time concept of
merchantability]; Nestle- “Nissley”; objection to bona fide title)
6. Where is sale has been declared illegal or without jurisdiction.
 Situations when the seller did not have title and what the buyer would do:
3. The fact the he was fraudulently induced by the seller to pay the sum by
false representation that he had good title to the property sold (Fraudulent
inducement + Misrepresentation)
4. The fact that the seller warranted and covenanted with the purchaser that he
had a good title. (Taramati Anantrai Parekh v. Gangaram Shamdas, 1975
Maha LJ): frivolous claim by a third party against the seller does not give
rise to an absence of marketable title 14(a)).
 Section 14(b): Implied warranty that the buyer shall have and enjoy the
quiet possession of goods.
 Howell v. Richards, 1809 [Lord Ellenborough]: the implied warranty of quiet
possession, if the analogy of the covenants for quiet possession under lease
be a sound one is a warranty against disturbance and it is not broken
unless and until disturbance takes place.
 Buyer shall have and enjoy: first you have (right of possession) and then only
enjoy its possession. Right to possess only when seller has right to sell. If
enjoying without right to possession, that would amount to disturbance

NOTE:
3. Pollock and Mulla is an important source of law, not just subsidiary. Article 38 of ICJ
clause.
4. Article 31 of VCLT (Vienna Convention on Law of Treaties).
Vellore citizens case: customary principles of international
law.

Section 14 involves both sale and agreement to sell.

Ronald v. Diwal 1923 2KB 5: No title, No transfer

 14(c): Free from all charges and encumbrances, endures that he buyer’s position
shall not be disturbed by reason of existence of such encumbrances.
 Without (a), (b) and (c) have no existence.
 If there is a charge or encumbrance on the goods, it is the obligation of the seller to
disclose them to the buyer before or at the time of the contract.

Niblet v. Confectioners Pvt. Ltd., 1921

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  Lord Atkinson, Banker and Scruton.
 Goods tendered must be the one which the seller has right to sell. (first instance
when right to sell defined; right to sell is a presumption- whenever goods sold, no
need to expressly mention that right to sell is there). In this case right was not there.
Ownership there but someone’s better title infringed- Implication of Trademarks
Act.
 Merchantability: it includes state and condition of the goods. In this case state
and condition includes labelling of the product. (saleability at full cost)
 It is implied condition that the goods shall be of merchantable quality. In this case,
first time recognised merchantability as implied condition. (British Tramways v.
Fiat Motors, 1915 Forwelll propounded for the first time that merchantability is
implied condition).
 What is merchantability: Gardener v. Grey- In order to define the term
merchantability. Defined merchantability as reasonable man’s test; merchantable
quality is applicable primarily to the complicated machines but that will not prevent
a court to use it for consumer goods.
 Scruton: If the vendor is estopped by the process of law (trademarks act) from
selling goods, this implies that he does not have the right to sell.
 Atkinson: no right to sell the goods owing to the existence of a title superior to that of
the vendor. If any sale gets made, the vendee’s right will get disturbed (because
Nestle will try to interfere).
 Remedies to the buyer: repudiate the contract + damages.

 References of Niblet case taken by India:

3. Joseph Mayor v. Pani Bhushan Ghose AIR 1939 (Cal) 210
4. Ranbir Singh v Gurubaksh Singh 1979 (Pun and Har HC) pg. 170

 Microbeds A.G. v. Vinhurst Road Markings 1975 IWLR 218 (patent infringement)

NOTE: G.I. is nothing but recognition of specific talents that are present in specific
community.

4 TESTS OF MERCHANTABILITY
5. Full knowledge test.
6. Usability test.
7. Satisfactory quality test
8. Reasonable man’s test
Benjamin’s Pendulum test: additional
test

MERCHANTABLE QUALITY 1, JOHN LEVERMORE, JBL Article

MERCHANTABLE QUALITY 2

Difference between arbitration and valuation

 Adjudication of the dispute in case of arbitration while fixing the price in case of
valuation.
 Ad hoc arbitrators, institutional arbitrators.
 In case of 2 valuators, if only one evaluator decides the price, it will not be a
valid valuation.
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Whether price clause can be considered confidence?


Justice Dixen in Australian Knotting Case AIR 1837 PC 187: Full Knowledge test
Lord Reed in Kendall and Sons v. Lillico and Sons Ltd.: Usability Test
Niblet: merchantability test or reasonableness test
Satisfactory quality test
7. Fitness for all purposes for which the goods of the kind in question are commonly
supplied.
8. It refers to appearance and finishing of the products.
9. Freedom from all defects, and all defects involve latent as well as patent defects.
10. Safety of that particular good.
BIS; ISI norms
Sanitary and Phyto-sanitary (SPS) measures
Society for epijotic; standards
11. Durability
12. If the buyer deals as a consumer, any public statement on the specific
characteristics of the goods made about them by the seller, the producer or his
representative, particularly in advertising or on labelling.

1979 amendment: satisfactory quality in place of merchantability, meaning becomes

satisfactory quality but name remains the same.

Foreign Manufacturer’s Legal Liability Act, 2010

SECTION 17: Sale by Sample

 Sale by sample takes place only when terms of the contract provide so, expressly
or impliedly.
 Mere exhibition is not sale by sample.
 Always refers to quality in question
 3 implied conditions:
d) The bulk shall correspond with the sample in quality.
e) The buyer shall have a reasonable opportunity of comparing the bulk with
the sample to satisfy himself that the goods supplied are in accordance with
the sample.
 Before delivery
 At the time of delivery
 After the goods have been delivered
 If opportunity not give: repudiation + damages
f) The goods shall be free from any defect, rendering them
unmerchantable, which would not be apparent on reasonable
examination of the sample.

Innominate and Intermediate terms (Innominate: contract of carriage)

Hong Kong Fur Shipping Co. Ltd v. Kawasaki Kasem Kaisha Ltd. 1962 2QB 26

Lord Dipplock

Shiv Singh Contractor v. UoI

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Four Terms Determining Contractual Relations Between the Buyer and the Seller
5. Description of the goods in terms of type, quality and quantity. Alternatively,
sample of the goods.
6. Time of delivery
7. Price
8. Time and means of payment

Sorabji Hormusha and Co. v. V.M. Ismail & Anr. AIR 1960 Mad 570
 Finally accepted reasonable man’s test/

Raghav Menon v. Katappan Nair AIR 1962 Kerala HC 318

 Reasonable man’s test accepted

Board of Trustees of the Port of Calcutta v. Bengal Corporation Pvt. Ltd. AIR 1979
Kol 142
 Referred Niblet and accepted merchantable quality test.

Commercial Automobiles v. Sri Maharaja Singh Bhatia and ors. (2011) MPJR
 Accepted satisfactory quality test.

Term satisfactory was missing earlier, was not there in any statute. It came in the statute
for the first time 1979. It is getting more popular now after the 1994 amendment in British
Sale of Goods Act.
By implications and approach followed, the Indian Courts have tilted towards satisfactory
quality test.

CAVEAT EMPTOR
 Section 16: Initial part: caveat emptor; 4 points: caveat venditor
 Jones v. Just, 1868: Importance of caveat emptor.
 Criteria for determining whether caveat emptor or caveat venditor
6. Nature of goods.
7. Mode of payment.
8. Knowledge and skill of the buyer and seller.
9. Examination. (reasonable opportunity given to buyer to examine the goods)
10. Fitness and particular purpose of the goods.
 Caveat emptor: Reiteration of common law principle.
 “KHAYER-AL-AIB”?????
 New interpretation: merchantability will be there in both the cases of caveat
emptor and caveat venditor.

[EC-SEAL case of WTO: one particular method of cutting meat- morality aspect;
importing such meat can be banned as it may hurt the religious sentiments of the people.]

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 SOGA 3

 18- 25: transfer of property (23 and 25: Retention of title- Romallappa/ Reservation of Right
of Disposal)
 26: res perit domino- risk prima facie passes with property.
 27-30: title transfer- nemo dat quod non habet
 Absolute right and Possessory right
 Possessory title
 TITLE
 MARKETABLE TITLE
 Sale by approval and Hire-purchase agreement (buyer is absent, Option to buy)
 19 (for transfer of any property), 20, 21 and 22: transfer of specific goods
 Section 2 (14)
 Transfer of unascertained goods- 18, 23 and 25.
 Section 18 based upon Seath v. Moore, 1886 (J. Lord Blackburn- whenever transfer of
property takes place, the goods must be ascertained)
 Dan Singh v. Janki Sharan Kailash Chandra AIR 1981 All HC 103.
 Austin’s definition for property
 Anson’s definition for property
 Benjamin- 5 categories of future goods
 Absolute transfer and Derivative transfer (Section 27)
 General Finance Act, 2017: procurement contracts; based upon government procurement
agreement of WTO; India is an observer to GPA.
 BSNL and Ganon Dunkerley (composite transactions)
 UCC: method of fixing price- formula
 Agriculture Market Committee case
 Bhagwat Narayan Tendulkar case
 Implications of transfer
 Seller’s right if buyer becomes insolvent
 Sale of Goods Act deals only with legal rights and not equitable rights (S. 169 of ICA)over
goods.

Caveat emptor, qui ignorate no debuit quod jus alienum emit

 Let a purchaser, who ought not to be ignorant of the amount and nature of the interest
which he is about to buy, exercise proper caution.
 Only duty on part of the seller: Giving proper opportunity of
examination/investigation/inspection.
 Chandelor v. Lupos 1603 (first case which recognised the concept of caveat emptor)
 Priest v. Last (caveat emptor started to diminish): starting point of Section 16 (1), (2),
(3), (4).
 Caveat venditor started getting accepted.
 Ingredients of Section 16 or situations where caveat emptor applies:

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 5. The seller is under an obligation to allow the buyer to inspect the goods so as to
ensure that they are free from any defect before the conclusion of the sale and
purchase contract.
6. The seller is under no obligation to disclose to the buyer any existing defect on
his goods and thus seller has the right to remain silent.
7. The buyer has no right to return the good or seek damages for any defect found in
the goods after the conclusion of the said sale and purchase agreement.
8. The seller is also under no duty to inform the buyer of his mistake in his
inspection of the quality of the goods to be sold.
 Right of inspection even though given and buyer had examined then also it is seller’s
duty to ensure merchantable quality of goods.
 If the goods are so inherently dangerous, it is the duty of the seller to inform.
 Knowledge and skill, nature of goods, complexities of trade, etc will determine whether
caveat emptor will be applicable or caveat venditor.
 Over reliance on caveat venditor.
 Seller deals with normal buyer. Extra ordinary problem need not be accounted for unless
informed.
SECTIONS 16 (1) AND 16 (2)

 Griffith v. Peter Canway Ltd. 1939 All ER 685 (seller need not deal with abnormality
unless informed)
 Medway Oil and Storage Company Ltd. v Silica Gel Corporation 1928 33 CC 195.
 The buyer’s reliance is a question of fact
 The reliance must be substantial and effective inducement which leads to the
buyer to agree to the purchase.
 Proviso of Section 16 (1) does not say “merchantable quality” but Section 16 (2) does.
Merchantable quality aspect is inherent in the entire section.
SECTIONS 16 (3) AND
(4) KHIYAR AL AIB

 Basic Ingredients:
6. Existence of a defect in the goods should be before or at delivery of the goods.
7. The purchaser/buyer should not have been aware of the defect at the time of the
agreement.
8. There should not be any stipulation by the seller for waiving the liability of the
seller for the defect.
9. The defect must have existed and been proven at the time when the purchaser
wishes to exercise the option either to accept the goods or reject them.
10. There should not any agreement by the buyer to take all responsibility for the
defects in the goods thus exempting the seller from any liability arising from that
defect.
 Caveat Emptor v. Khiyar Al Aib- A Dichotomy by Mohd Masum Bilah Arab Law
Quarterly Vol 3, 1998, pg. 278-299

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TRANSFER OF PROPERTY

 Ownership
 Right to possess
 Inspired either from economics or IPR.
 Property is a bundle of exclusive rights: Ownership and Possessory right.
 Lord Denning: Transfer of Property and Protection of Bona Fide Buyer (Printed Notices
Are Given)
 Atiya demarcates difference between property and title: subsequent authors have rejected
his proposal.
 Essentials of Transfer of Property:
8. Risk attached with the property transfer.
9. The buyer can exercise proprietary rights over the goods. Proprietary rights: can
resell and create rights in rem.
10. Seller cannot sue for the price unless the goods have become the property of the
buyer.
11. If the buyer becomes insolvent, the seller can exercise right in lien if the goods
are still in the possession of the seller.
12. If the possession of the seller has been terminated and the goods have been
passed to the buyer, the seller cannot exercise lien but can initiate suit for price.
13. If the buyer mala fidely doesn’t accept the goods, the seller can sue for non-
acceptance.
14. If the seller becomes insolvent and the buyer has been enjoying possession of
goods even before the contract of sale, contract is not terminated of the goods are
normal goods. If the goods are perishable, then he can sell them by giving a
notice and can recover losses incurred from the buyer and retain profits. In case
notice not given, any loss incurred will be of the seller.
 General Property: Ownership (no requirement of possession, all-encompassing rights)
 Special Property: Right of pledgee/bailee/mortgagee or right in lien. (possessory and
custodial rights but not ownership rights)
 Section 18: Goods must be ascertained
 Seath v Moore, 1886 (Lord Blackburn): “It is essential that the article should be specific
and ascertained in a manner binding on both parties for unless that be so the contract
cannot be construed as a contract to pass the property in that article”.
 Second subject matter: unascertained- Section 14: transfer won’t take place unless the
goods are
 Section 23: method for converting unascertained into specific goods: Appropriation-
identification with the consent of both the parties
 In re Wait 1CH 606 (Lord Atkin defines) : ascertained probably means identified in
accordance with the agreement after the time a contract of sale is mad and I shall assume
that be the meaning,
 Dan Singh v. Janki Saran Kailash Chandra differentiated between specific and
unascertained goods (followed in re Wait case).

210
 Section 19: Property passes when intended to pass
For ascertaining the intention of the parties, regard shall be given to (Section 19(2)):
4. Terms of the contract
5. Conduct of the parties
6. Circumstances of the case
 Agriculture Market Committee v. Shalimar Chemical Works 1997 5 SCC 516.
 Bhagwat Narayan Tendulkar v. Goa Cooperative Marketing and Supply
Federation Ltd. 1998 2 MR LJ 703
 Sacks v. Tilley 1915 32 TLR 148.
 For transfer of ownership, delivery is not important.
 For transfer of property, only possession is important.
 For eg.: BoE when accepted, transaction takes place.
 Section 19(2): Only applicable if all conditions of (1) are not fulfilled. They are
to be read together.
 Section 19(3): Talks about S.24 (Sale by approval)  Section 42 (intimation,
adoption, passing of reasonable time.
 Section 20
 Good must be specific.
 In deliverable state.
 Contract must be unconditional.
 Without payment and delivery, transfer of property takes place.
 Hence here, possession is not important, only transfer of ownership.
 “deliverable state”: seller’s duty is only to keep them in such a state whereas
buyer’s duty is to apply for delivery  Bankers LJ, in a case said deliverable
doesn’t matter in all its parts, it depends on the actual state of the goods at the
date of contract and the state in which they are to be delivered by terms of the
contract. Not in terms of quality
 Deliverable State
5. Physical state
6. Seller has to inform buyer of deliverable state.
7. Buyer will apply for delivery.
8. Seller will deliver the goods according to specifications.
 Unconditional delivery
 Concurrent Conditions: Section 32
 At the time of delivery, buyer must be in a state of readiness to pay.
 Property
 Insolvency and Bankruptcy Code: Presidency Town Insolvency Act, 1909
 Any property over which and over profits of which any person has disposing
power which any person has a disposing power which he may exercise for his
own benefit.
 Benami Transactions Act, 1988
 Property: property of any kind whether movable or immovable, tangible or
intangible, includes any right/interest in such property.

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  Can any right or interest be transferred?  Complete power to own and transfer
 Ricardo 1st Best (absolute ownership right)- Right to Ownership; 2nd Best
(possessory right)- Right to Possession
OWNERSHIP DEFINITION

 Black’s law dictionary

(INTRA WEEK NOTES?????????)

SECTION 23

 Wait v. Baker 1948: The moment the goods which have been selected in pursuance of
the contract are delivered to the carrier, the carrier become the agent of the vendee and if
there is a binding contract between the vendor and the vendee, then there is no doubt that
the property passes by such delivery to the carrier.
 Buyer had nominated the carrier.
 The goods are not in control of the seller, cannot exercise lien also.
SECTION 26

 Res perit domino (dominus and domino)

 A s a general rule the doctrine is an old civil law maxim. Meaning; when you can show
the property passed, the risk of the loss prima facie is in the person to whom the property
is. Therefore, dominus needs to be shown.
 Dominum es casu sentit dominus; injury falls on the owner.
 Combination of common law, civil law and roman law
 3 exceptions;
1. The concept of party autonomy recognition. (A. 6 of CISG mother of party
autonomy clauses- party autonomy in the context of bringing modification in the
law itself.)
2. In case delay of delivery by an overt act of the parties, then section 26 will not
apply.
3. Bailment rule will not affect this section.
 Executory Contract: Property has not passed anything happening to the property borne
by the seller
 Unconditional Contract Of Specific Goods: 4, 19 and 20 sections, buyer’s responsibility
 Risk Where Delivery is Contingent on Some Event; if those events can be easily
performed- section 26 can be applied; if those events are impossible to be performed-
Section 56 of ICA will come into picture.
 Risk when goods are in Transit: 3 contracts possible when goods are in transit: between
buyer and seller, between buyer/seller and carrier, insurance contract.
Risk of deterionation during transit:

 Express provision is contract

 Ownership of goods during transit

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  Cause of such deterioration: deterioration of commercial value of goods.
 Nature and character of goods.
Risk where buyer may rescind the sale

 Risk will be borne by the owner. It will also be shared by the buyer.
 Method of rescinding: intimation to seller that the goods have been rejected; risk will
shift to the seller.
 During the possession of those particular goods, buyer’s responsibility will be limited
to that of a bailee. It is determined on the basis of facts and circumstances of the case.
 Supervening impossibility (term for frustration usually used), commercial hardship,
force majeure. (Article 79 of CISG).
Risk in relation to Rejected goods

 First and foremost: whether rejection done bona fidely (risk shifted to seller) or mala
fidely (risk with buyer).
 Goods in non-conformity to the contract.
 After bona fide rejection when goods are not taken back by seller within reasonable
time. Loss borne by the buyer can be recovered from seller.
 3 proviso in Section 26:
7. The loss must accrue to the goods.
8. The proximate cause of the loss must be delayed in delivery of the goods.
9. The delay must be attributable to the fault either of the buyer or the seller.
Nemo dat non quod habet: no one can give a better title than he himself possesses.
o Whistler v. Forester, 1863
o Exceptions to the doctrine: 27-30 of SOGA plus sections 54, 169 (finder of goods),
178 of ICA.
o Exceptions:
10. Sale with consent or authority of the owner.
11. Transfer of title by estoppel. (S. 27)
12. Non est factum
13. Sale by mercantile agent (S. 2(9))
14. Sale by person in possession under a voidable contract (S. 29)
15. Sale by seller in possession after sale. (S. 30(1))
16. Sale by buyer in possession before property has vested in him.
17. Sale by unpaid seller where he exercises his right of lien or stoppage in transit.
18. The sale in market overt.
 Parties: Owner, seller, buyer, subsequent buyer.
 In the absence of a better title, rights of the original owner:
 Recovery of the possession of the goods- suit for possession (comes out of
contract).
 Right against wrongful interference
 When goods have not been mixed up or have been mixed up (doctrine of
severability applies)

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  Right of restitution.
 Right to trace and follow the goods. [ICLQ Right to Trace and Follow the
Goods 1989]
 Ownership
 Contractual Liability
 Tortious Liability (Right to follow and Restitutio)
 Exceptions:
3. Sale with consent
4. Sale with estoppel (Bona fide buyer’s rights will not be affected)
 CISG- Article 7.2 (Good Faith)
 CISG- Articles16.2, 20 and 39 (Contractual good faith)
 UCC- honesty in conduct is good faith- Article 2.
 Title by Estoppel: Creating an impression or giving a representation that the person
who is selling the goods is the owner of the goods.
Lick Barrow v. Mason, 1787 (Ashrust J.)
 For estoppel to be applied in nemo dat quod no habet, the following 2
conditions need to be fulfilled:
3. Representation made by the true owner that the seller is the owner of
the particular goods.
4. By negligence on the part of the true owner which enable the seller to
create an appearance of ownership.
 Wherever one of the 2 innocent persons must suffer by the acts of the third, he
who has enabled such third person to occasion the loss must sustain.
o CONDITIONS:
4. The representation must be clear and unequivocal.
5. It must induce the subsequent buyer to purchase it.
6. There must be reliance on the representation of the true owner by the buyer.
o Indorsing of documents such as bill of lading, railway receipts, etc. indicate ownership.
o Indorsement of 2 types: General/Blank Indorsement and Full/Special Indorsement
o Bill of Lading is not a negotiable instrument
o Post-dated cheque is a bill of exchange and Section 138 of NIA will apply- Anil
Sawhney v. Union of India, Indus Airways case
o Lord Denning:
 In the development of our law, 2 principles have striven for mastery:
5. Protection of Property: no one can give a better title than he himself
possesses. (nemo dat quod non habet)
6. Protection of Commercial Transactions; the person who take in good faith
and for value, without notice should get a good title. (protection of
innocent buyers)
 Bishop gate Motor Finance Corporation Ltd. v. Transport Brakes Ltd. 1 KB pg. 49
322: nemo dat, all the exception, bona fide
 Section 2(2): meaning of delivery; Section 33: ways/modes of delivery.
 Section 2(2) can be read with Section 35.

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 English Factors Act, 1889: possession means custody, Indian jurisprudence has
incorporated this meaning.
 ‘Possession’ by Pollock and Wright: in all cases the essence of delivery is that the
deliverer by some apt or manifest act put the delivereree in the same position of
control over the thing either directly or through a custodian (mercantile agent) which
he held himself immediately before the act.
 Delivery done to: Buyer, agent, carrier
 Forwarder or Forwarding Agent: when the agent has only the role of consigner of the
goods.
 Sections 23(2) and 39 of SOGA: delivery to carrier recognised
 Section 32: Payment and delivery are concurrent conditions
 Party Autonomy: modify the rule (except public policy), provisions, applicable law,
court which will have jurisdiction, or ousting the jurisdiction of a court
 Article 6 of CISG: Party Autonomy
 Claude Leela Parulkar v. Sakal Papers Pvt. Ltd. 2005 11 SCC 73: concurrent
conditions: readiness and willingness to pay on the specified date. Readiness and
willingness to pay involve capacity to pay. 2 things required to be taken into
consideration: Insolvency (requires Section 45: unpaid seller’s right to exercise lien)
and refusal to accept delivery (suit for acceptance of the particular goods can be there;
bona fide or mala fide refusal needs to considered).
 Devi Dayal Sales Pvt. Ltd. v. State of Maharashtra AIR 2006 Bombay 37: Penalty
clause: if goods not delivered on specified date, penalty of the specified amount will
be imposed
 Part Delivery: Section 34, [48 (for lien)]; Constructive delivery of the whole.
 Instalment Delivery: Section 38; it must be mentioned in the contract that goods will
be delivered in instalments, otherwise it will not be allowed.
 Bret L.J. in Cooper case: recognises the concept of part delivery.
 Section 36: Rules as to Delivery
10) Place of delivery: Seller’s place of business.
11) Time of delivery: reasonable time- business hours
12) Delivery by Attornment (physical possession of goods has not changed,
control over the particular goods has changed) acknowledgement:
Fictitious/Symbolic/Constructive delivery
13) Expenses of Delivery: Act is silent.
14) Expenses of an incidental to putting the goods into a deliverable state: on seller
15) Expense for preparing for or receiving delivery: on buyer
16) Delivery in wrong quantity: Section 37 (both quantity in short and excessive
quantity)
Repudiation of contract in both cases.
Section 39 of ICA- Commercial
hardship
17) If good delivered are mixed- doctrine of severability;
18) Delivery in inferior quantity- not acceptable because goods become
unmercantible (Section 2(12)).
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 How do we determine goods are of deliverable quantity? - de minimis
rule (Benjamin- microscopic variations will not be considered as
delivery of inferior quality; 2% variation in delivered goods is allowed
globally; not in case of gold, diamonds and other precious goods)
 Suresh Kumar v. K. Assan Koya and Sons AIR 1990 Kerala 20.
 For rejection of goods in case of non-conformity, intimation or notice is required.
 In case of contract in instalments, if one instalment not given, can the entire contract
be repudiated?
If one instalment not delivered, generally contract is not rescinded; for rescinding
there must be recurrence (continuing contract)
IMPORTANCE OF DELIVERY
[NOTE: Absence of price clause will not invalidate the contract- Article 14 and 55 of CISG]

 That delivery which suffices to pass the title so that if the goods be destroyed the loss
falls upon the vendee.
 The delivery which suffices to destroy the lien of the vendor which consists in total
and unqualified surrender of possession and of a special claim to retain the goods by
the vendor.
 That delivery which requires not only an utter relinquishment of possession by the
vendor but also an absolute and final appropriation (examination; Section 10 and 23-
term appropriation used) by the vendee.
 Actual delivery: involves consideration of the person to whom goods are to be
delivered (Section 32 and 39); Place: seller’s place of business, Time: reasonable
 Symbolic/Constructive/ Fictitious/Attornment/Acknowledgement- Section 36(3):
putting the goods in absolute control of the vendee.
INCO TERMS
o Sections 12, 13, 59: once a condition, always a condition.
o Condition: Essential for the execution of the contract.
o If a clause talks about jurisdiction of a particular court for initiating suits- neither a
condition nor a warranty, simply a jurisdictional clause. Condition or warranty is
always in reference to good.
o Performance, where contract conclude, where any of the parties reside, reasonable
nexus
o Scott v. evory clause; while determining jurisdiction, the term “only” ousts
jurisdiction of all the other courts and is invalid.
o Parallel Importation: right of the manufacturer gets over when the manufacturing is
completed within the country. If there is universal trademark, then the product cannot
be modified and sold.
Microbeads AG v Vinhurst Road Makings (1975 JWLR 218)- case on patent
infringement.
o Grey market: no right to sell but still the exercise of selling is continued.
o Nature and complexities of commercial transactions, nature of goods
o Types of product liability:

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o No fault liability test, merchantability test

217
NIA

NEGOTIABLE INSTRUMENTS ACT

 Items 45 and 46 of Union List

 Section 85A: Included bank draft as a negotiable instrument.
 Amendments: 28 times; Latest- 2016: Dishonour of cheques
 Most important chapter: Chapter 17 of NIA (Dishonour of Cheques)
 8th Latest Law Commission Report: 48 lakh cases pending in the field of dishonour of
cheques.
 Commencement of the Act: 9th December 1881.
 Implementation of the Act: 1st March, 1882
 Source: Bill of Exchange Act, 1882: both the acts were getting passed together (bills
introduced together); NIA just got implemented first.
 NIA is subjected to Indian Paper Currency Act, 1871 (Now, RBI Act, 1934)
 Section 3: talks about banker’s definition; NIA subjected to Banking Regulations Act,
1949
 Section 31 of RBI Act: Government BoE, government promissory notes
 Rupee one notes issued by government only because of the reason of sovereignty and
maintaining monopoly.
 Rupee 1 note always issued by government; issued in the name of Finance Secretary.
 Sedition: not accepting Rupee one paper currency; rejection of Government mandate;
person can be hanged.

Section 4: Promissory Note

Section 5: Bill of

Exchange Section 6:

Cheque

Section 85A: Bank draft

Section 14 of NIA: Negotiable means freely transferable

Section 13: Negotiable instrument means a promissory note, BoE, and cheques. It only gives
away the types, cannot be considered the meaning of negotiable instruments.

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SECTION 1 (Local Extent, Indian Paper Currency Act 1871, Local Usage)

IV. Local Extent:

 Article 372: all legislations in force in the territory of India immediately before the
commencement of the Constitution shall continue to have effect, until altered or
repealed or amended by a competent legislature or other competitive authority.
 Art. 246 endows Parliament with the exclusive power to make laws with respect to
any of the matters enumerated in List I- Union List in the 7th Schedule. Entry 46 in the
union list comprises BoE, cheques, promissory notes and other like instruments. Entry
45 of the union list relates to banking. Thus the law pertaining to negotiable
instruments and banking falls under the exclusive jurisdiction of Parliament.
Parliament alone can alter or amend the Act.
 Question whether the state legislatures, while including law relating subjects within
their own list, had transgressed the jurisdiction of the federal subjects under the GoI
1935
 State of Bombay v. Narothamdas (Bombay City Civil Court Act 1935 enacted
by the provincial legislature was ultra vires the GoI Act as the subject of P.
notes was covered by Entry 53, List I of the 7th Schedule of the GoI Act,
1935.)
 Prafulla Kumar Mukherjee v Bank of Commerce Ltd., Khulna (The Bengal
Money Lenders Act enacted by the provincial legislature which restricted the
amount of loan and interest that may be recovered from the debtor with
retrospective effect was challenged being ultra vires the GoI Act, 1935 as the
subject of negotiable instruments and banking was covered by union list. It
was held that the impugned Act was in pith and substance, a law with respect
to a matter enumerated in List II dealing with money lenders and money
lending and for relief of debtors and hence not ultra vires. The fact that it
incidentally affected the matter enlisted in union list will not affects its
validity.)
V. Indian Paper Currency Act 1871
 The NI Act does not affect the provisions of Section 21 of the Indian Paper Currency
Act, 1871
 The Act of 1871 was followed by a series of paper currency regulations, the last one
being the Indian Paper Currency Act, 1923. The Act of 1923 was repealed by the RBI
Act, 1931.
219
  S. 21 of the Act of 1871 has been re-enacted as Section 31 of the RBI Act, 1931, with
slight modifications.
 The object of this regulation was to prevent banks and private persons from infringing
the government monopoly over issuance of paper currency in India. This monopoly
has now been vested in the RBI in certain cases and the Central Government in
others.
VI. Local Usage
 Any instrument written in Anglo Oriental Language is outside the purview of NIA.
Any instrument that is indigenous or popular among communities are allowed and
NIA will not affect it. But now any language accepted.
 The Act applies to P. notes, bills of exchange, and cheques but where the instrument
is in an oriental language, eg. Hundi (means to collect): indigenous negotiable
instrument; inter-community instrument, used in north India; Khoka: Maharashtra;
Sahjoga: Punjab, any local usage related to such an instrument applies
notwithstanding the provisions of the NIA.
 However, the saving clause does not render the Act completely inapplicable to such
instruments. Only when there is a local usage, contrary to the NIA, the local usage
overrides the provisions of the NIA. In the absence of proof as to any such usage, the
Act applies to instruments in oriental language also.
 Such local usage may be excluded by incorporating a specific clause in the body of
the instrument indicating an intention that legal relations of the parties shall be
governed by the NIA. In such a case the local usage will cease to operate.
SECTION 3: INTERPRETATION CLAUSE- BANKER

 Banker includes any person acting as a banker and any post office savings bank.
 Section 5(b) and 6 of Banking Regulation Act, 1949- Banking means the accepting,
for the purpose of lending or investment, of deposits of money from the public,
repayable on demand or otherwise, and withdrawable by cheque, draft, order or
otherwise.
CERTAINTY

1. Maker or Drawer: promissory note: maker; drawer: cheques

2. Payee/ Bearer (Exception; payee’s name is not mentioned)
3. Amount/ Inchoate stamped instruments (Exception; even when amount not
mentioned, it is valid)

220
 4. Date: Instrument when payable (on the top of cheque) and instrument when drawn
(along with signature)
5. Place of Payment: where the instrument will be encashed
6. Condition of liability/payment: if instrument subjected to any condition: whether that
condition is bound to take place or certain to take place
NOTE:

1. A cheque does not become invalid by reason that it is ante-dated or post-dated.

 Anil Kumar Sawhney v. Gulshan Rai:
 An offence to be made out under the substantive provisions of Section
138 of the Act it is mandatory that the cheque is presented to the bank
within a period of six months from the date on which it is drawn or
within the period of its validity, whichever is earlier.
 When a post-dated cheque is written or drawn it is only a bill of
exchange and as such the provisions of Section 138(a) are not
applicable to the said instrument.
 The post-dated cheque becomes a cheque under the Act on the date
which is written on the said cheque and the six months period has to be
calculated from this date for the purposes of Section 138(a).
 One of the main ingredients of the offence under Section 138 of the
Act is the return of the cheque by the bank unpaid. Till the time the
cheque is returned by the bank unpaid, no offence under Section 138 is
made out. A post-dated cheque cannot be presented before the bank
and as such the question of its return would not arise. It is only when
the post- dated cheque becomes a "cheque", with effect from the date
shown on the face of the said cheque, the provisions of Section 138
come into play.
 The net result is that a post-dated cheque remains a bill of exchange till
the date written on it. With effect from the date shown on the face of
the said cheque it becomes a "cheque" under the Act and the
provisions of Section 138(a) would squarely be attracted.
 Indus Airways Pvt. Ltd. v. Magnum Aviation Pvt. Ltd.:
 The fine distinction between civil liability and criminal liability
under Section 138 of the N.I. Act must be kept in mind.

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  If at the time of entering into a contract, it is one of the conditions of
the contract that the purchaser has to pay the amount in advance and if
there is breach of such condition then purchaser may have to make
good the loss that might have occasioned to the seller but that does not
create a criminal liability under Section 138.
 For a criminal liability to be made out under Section 138, there should
be legally enforceable debt or other liability subsisting on the date of
drawing of the cheque.
 If a cheque is issued as an advance payment for purchase of the goods
and for any reason purchase order is not carried to its logical
conclusion either because of its cancellation or otherwise and if
material or goods for which purchase order was placed is not supplied
by the supplier, the cheque cannot be said to have been drawn for an
existing debt or liability.
2. Section 5: errors in names would not make it invalid.  “The person to whom it is
clear that the direction is given or that payment is to be made may be a “certain
person”, within the meaning of this section and section 4, although he is mis-named
or designated by description only.”
3. Section 18: Amount written in word would prevail over amount in figures. (more
careful while writing in words). The main purpose of this is to ensure protection of
interests of trading communities.
“If the amount undertaken or ordered to be paid is stated differently in figures and in words,
the amount stated in words shall be the amount undertaken or ordered to be paid.”
4. Instruments subjected to certain presumptions: Section 118 of NIA [Consideration,
Date, Time of Acceptance, Time of Transfer, Order of endorsements, Stamps, Every
holder is a holder in due course]  NIA subjected to Indian Stamp Act, 1899: only
promissory notes and BoE
 These assumptions are rebuttable.
5. Bearer promissory notes will only be issued by the government
6. STRCITLY LEGAL INSTRUMENTS: Promissory notes and Bills of Exchange.
7. Promissory Notes: Maker and Payee | Bills of Exchange: Drawer and Drawee/Payee
8. Offences under Chapter 17 (Dishonour of Cheques)
 Section 147: Offences under this part are compoundable offence- court’s
jurisdiction can be ousted- arbitration/ADR/negotiation.

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PROMISSORY NOTES/ P. NOTES: SECTION 4

 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 only to, or to the order of, a certain person, or to the bearer
of the instrument.
 Shall always be in writing
 It can be written with anything and can be written anywhere, it must be decipherable.
 It must be transferrable
 Statute of Frauds Act, 1677: 12 categories of contracts that shall be in writing
 INGREDIENTS OR REQUISITES OF A PROMISSORY NOTE:
- The instrument has to fulfil all the requisites of a promissory note to be called so
and merely because the parties describe it as a promissory note does not make it
so.
- Rangaswamy v. Govindaswamy: The description and language of the instrument
taken as a whole, the circumstances under which it came to be executed, the
intention of the parties manifest from the face of the instrument and the
surrounding circumstances would have a cumulative bearing on a proper
construction of the instrument as to whether it is a promissory note.
- Re Hamdard Dawakhana (Wakf), Delhi: A single instrument may embody
several purposes and the document is to be read as a whole to find out its
dominant purpose which is relevant for the purposes of the Act.
7. It must be in writing
 The object of this requirement is to exclude oral engagements to pay,
from the purview of the Act. As per Section 3(65) of the General
Clauses Act 1897 the writing maybe in pencil or ink, and it shall be
construed to include printing, lithography, and other modes of
representing or reproducing words in a visible form.
 The writing may also consist of either printed or typewritten as well as
handwritten matter. There is also no such requirement that the writing
should be on a paper. It may be written on cloth, linen or any other
thing that can be used for such purposes.
8. It must contain an unconditional undertaking to pay

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  An express promise to pay is an essential element of a promissory
note. A mere acknowledgement of indebtness without an express
promise to pay the debt is not a promissory note. Also, an implied
undertaking inferred from the use of word debt or pro-note is not
sufficient, as was held in Bachan Singh v. Ram Avadh.
 It was held by the Privy Council in Akbar Khan v. Attar Singh that the
document in the case was a receipt for money containing the terms on
which it was to be repaid, and being primarily a receipt, even if
coupled with a promise to pay, it was not a negotiable instrument
within the meaning of Sections 4 and 13.
 Also the undertaking to pay must be unconditional. Therefore, notes
that are payable on a contingency are not negotiable as their actual
payment is not certain. An instrument must be valid ab initio and carry
its own validity on its face.
9. It must be signed by the maker
 The maker of a note, the drawer of a BoE or cheque or an indorser
may, if unable to write his name, sign by a mark in lieu of signature.
The signature ned not be in any particular part of the instrument.
 The words “self of my own handwriting”, written at the foot of the
instrument, whereby the writer declares himself to be bound to pay,
may be a sufficient signature. It is also essential that the mid of the
signatory should accompany the signature, i.e., the executant should
intend to subscribe to the terms of the document.
10. Maker must be certain
 Promissory note should give a clear indication of the person who
enters into the contract and undertakes to pay. A promissory note may
be made by several persons jointly or jointly and severally. A joint and
several note though on one piece of paper, comprises in reality and in
legal effect, several notes. Thus, if A.B. and C jointly make a joint and
several promissory note, there are, in effect, 4 notes- joint note of the 3
makers and also several notes of each of the 3.
11. The sum payable must be certain and the instrument must contain a promise to
pay money and money only
12. Payee must be certain.

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  Expression “certain person” in both Sections 4 and 5 of the Act means
a person capable of being ascertained on the date on which the note is
made or bill is accepted.
 There must be a payee ascertained by name or designation.
 Section 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.”
 The person to whom payment is to be made may be a certain person
within the meaning of Section 4 even if he is misnamed or designated
by description only.
 Someone who is entitled to receive money and whose name is
mentioned in the instrument
 Someone whose name is not mentioned but who is in possession of the
instrument (bearer)
 When payee’s name is mentioned but the name of the holder to whom
it is to be endorsed is left blank, such an instrument also becomes
bearer’s instrument.
 Indorsee-subsequent payee.
 A note in the form “I promise to pay myself” is not a promissory note.
It is, however, valid if it is indorsed by the maker because then it
becomes payable to the bearer, if indorsed in blank, or to the indorsee
or order, if specifically indorsed.
 Other statutes defining promissory notes:
 Limitation Act. 1963: Section 2(k) “promissory note means any instrument
whereby the maker engages absolutely to pay a specified sum of money to
another at a time therein limited, or on demand, or at sight”
 Public Debt Act, 1944
 Stamp Act, 1899 (most important because NIA is subjected to it): Section
2(22) “promissory note means a promissory note as defined by the
Negotiable Instruments Act, 1881 (XXVI of 1881): It also includes a note
promising the payment of any sum of money out of any particular fund which
may or may not be available, or upon any condition or contingency which
may or may not be performed or happen.”

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  UN Convention on Bills of Exchange and Promissory Notes, 1988 : does not
regulate cheques and India is not a party to it.
Article 2 (2)  “An international promissory note is a promissory note which specifies at
least two of the following places and indicates that any two so specified are situated in
different States:
(e) The place where the note is made;
(f) The place indicated next to the signature of the maker;
(g) The place indicated next to the name of the payee;
(h) The place of payment,
provided that the place of payment is specified on the note and that such place is situated in a
Contracting State.”
 Why are stamps fixed onto instruments? -
 To create evidentiary value (to make it a perfect evidence)
 Financial transactions are there and government involvement is also there.
 No fixed format for writing promissory notes. Only thing that is required is intention.
 2 essentials: Acknowledgement of debt and Unconditional undertaking to pay.
Therefore, I.O.U. is different from promissory notes as it involves only the first
element and not the second.
 Nawab Major Sir Mohammad Akbar v. Attar Singh (Akbar Khan case)-Privy
Council decision:
 An agreement containing the terms that an amount would be “payable” is not
sufficient to amount to unconditional undertaking to pay. It was a very mild
direction, the direction must be assertive and strong.
 PC held that the document in the case was a receipt for money containing the
terms on which it has to be repaid; and being primarily a receipt, even if
coupled with a promise to pay, it was not a promissory note.
 The stamping of a document as a receipt reflects the parties’ intention not to
treat it as a note.
 When no rate of interest specified in the instrument, it must be calculated at the rate of
“eighteen per centum per annum”- Section 80 of NIA
 Cladon v. Bradley, 1987 1 All ER 522 (above case accepted in this case)
 Bachan Singh v. Ram Avadh AIR 1949 All 713 : Use of the terms “as and when
needed” is creating a problem, creating uncertainty. Thus such a phrase would make it

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 an invalid promissory note. It was also held that an implied undertaking inferred from
the use of word debt or pro-note is not sufficient.
 Cashorne v. Dutton: No requirement for using the word “promise” for the instrument
to be a promissory note, provided the language clearly shows an intention on the part
of the maker to give an unconditional undertaking to pay.
 Kadorilal v. Sukhpal AIR 1968 MP 4
 Whole document is required to be seen to construe whether the document is a
promissory note.
 Apparent tenor of that particular instrument must be cleared. (payment in due
course- Section 10 of NIA  ‘payment in due course’ means payment in
accordance with the apparent tenor of the instrument in good faith and without
negligence to any person in possession thereof under circumstances which do
not afford a reasonable ground for believing that he is not entitled to receive
payment of the amount therein mentioned)
 The purpose for which the promissory note was executed as described on the
instrument is required to be seen.
 Thus after reviewing several authorities, it was held in this case that the whole
document, its tenor, the purpose for which it was executed, as described in the
document itself, should be considered for determining the nature of the
documents. Collateral circumstance, which may be contained in evidence,
cannot be looked into for ascertaining the purpose of validity of promissory
notes. Also, parol evidence is not acceptable for determinacy of promissory
notes.
 Chhabildas Mangaldas v. Luhar Kohan Arya AIR 1967 Guj 7
 The incident of negotiability is not essential to the validity of the promissory
note, provided all the requirement of Section 4 are complied with.
Requirements of Section 4 of NIA are the foremost requirements for the
validity of promissory notes.
 Therefore, if an instrument satisfies the requirements of the definition under
Section 4, it must be held to be a promissory note, irrespective of whether it is
negotiable.
 Bahadurnisa Begum v. Basudev Nayak AIR 1967 AP 123
 Certainty as to maker

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  Certainty as to payee
 Certainty as to amount
 Certainty as to unconditional undertaking
 Certainty as to date
 Certainty as to place of payment
 Jaka Gopal Reddy v. Neelkantam Venkata Krishna AR 2008 AP 255
 Whole document to be taken into consideration.
 Intention of the parties.
 Messrs Packing Papers v. Smt. Veena Lata Khosla
 Promissory notes shall be in writing.
 Unconditional undertaking by the maker of the document is an essential
requirement for it be considered as a valid promissory note.
 Such unconditional undertaking must be to pay certain sum of money to
certain person or to the order of that person or to the bearer of the instrument.
 Maker should sign it.
 The promise to pay must be the substance of the instrument.
 There must be nothing else inconsistent with the character of the document as
substantially a promise to pay.
 The instrument must be intended by the parties to be a promissory note.
SECTIONS 21-25

 Section 21: ‘at sight’, ‘on presentment’, ‘after sight’  At sight and on presentment
mean on demand. After sight means after presentment for sight in the case of a
promissory note and, after acceptance, or noting for non-acceptance, or protesting for
non-acceptance in the case of a bill of exchange.
 Section 22: ‘Maturity’ the maturity of a promissory note or bill of exchange is the
date at which it falls due. ‘Days of grace’ every p. note or BoE which is not
expressed to be payable on demand, at sight or on presentment is at maturity on the
third day after the day on which it is expressed to be payable.
 Section 23: Calculating maturity of bill or note payable so many months after date or
sight
 In case of bills not accepted for honour, the period of payment terminates on
the day of the month that corresponds to the date of the instrument, or the
day on

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 which it is presented for acceptance, or noted/protested for non-acceptance, as
the case may be.
 Where a note or a bill is expressed to be payable at a certain period after sight,
or after a certain event, the period of payment terminates on the date of the
month that corresponds to the date of the instrument, or with the day of
acceptance if the bill is accepted, or presented for sight, or noted/protested for
non-acceptance.
 Where a BoE is expressed to be payable at a stated period after sight, and has
been accepted for honour, the rule is that the period stated should terminate on
the day of the month that correspond with the day on which it was accepted
for honour.
 The last sentence of the section indicates that the term ‘month’ in a note or a
BoE means a calendar month and not a lunar month.
 Under S. 24 of the Limitation Act, 1963, all instruments should be deemed to
be made with reference to the Gregorian Calendar for the purpose of the
Limitation Act.
 USANCES: Continental bills are sometimes drawn at usances. A usance is the
time that is fixed by the custom of countries, for payment of bills drawn in one
country and made payable in another. The length of the usance varies in
different countries. In commercial parlance, the term ‘usance bill’ is used to
denote a bill payable at a future date.
 Section 24: Calculating maturity f bill or note payable so many days after date or sight
 Where a bill or note is payable after date or after sight, or after the happening
of a specified event, the time of payment is determined by excluding the day
from which the time begins to run. Where a bill drawn payable at a fixed
period after date is not dated, the date of its maturity is calculated by
computing the time from the date on which it was made.
 Section 25: When the date on which a promissory note or BoE is at maturity is a
public holiday, the instrument shall be deemed to be due on the next preceding
business day. Explanation: the expression “public holiday” includes Sundays, and any
other day declared by the Central Government, by notification in the Official Gazette,
to be a public holiday.
 Section 138: validity period in case of cheques- 3 months (RBI Circular Banking
Regulation Act)

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NOTE:

1. “Maker” defined under Article 4 of CISG.

2. “Fundamental Breach” of contract of sale of goods- delivery in wrong quantity
(Section 37, 38 of SOGA). Any non-performance of contractual duty which is vital
for the performance of the contract amounts to fundamental breach; Article 25 of
CISG.
3. “Substantial deprivation”
BILLS OF EXCHANGE- live blood of trade

 SECTION 5: 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.
 INGREDIENTS:
1. BoE must be in writing
2. It must contain an order to pay
3. The order contained in the bill should be unconditional.
 The drawer’s order to the drawee must be unconditional, and should
not make payment of the bill dependent upon some contingency. When
an instrument is payable on a contingency, it does not become valid by
the happening of the event before the expiry of the period fixed for the
performance of the obligation, as the instrument must be valid ab
initio, and carry its validity on its face.
4. Bills payable out of a particular fund (becoming controversial, SC says no
need to draw a particular fund already with the drawee)
 A bill or note expressed to be payable out of a particular fund is
conditional and invalid, because it is uncertain whether the fund will be
in existence or prove sufficient when the bill becomes payable.
 However, an unqualified order to pay, coupled with an indication of
the particular fund, out of which the drawee is to reimburse himself, or
of a particular account to be debited with the amount, is not conditional
and therefore valid.
5. BoE must be signed by the drawer.
 If drawer has not signed it, no action can be maintained against the

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acceptor or any other party who has affixed signature thereto. If the

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 drawer is unable to write his name, he can sign by a mark in lieu of his
signature.
 However, the signature may be added at any time after the issue of the
bill but, until it is so added, the instrument remains inchoate and
ineffectual.
 A document in the form of a bill signed by the acceptor but not by the
drawer is not a bill, but maybe valid as an acknowledgement of debt.
6. The drawee must be certain.
 In the interest of all parties, it is absolutely indispensable that the
drawee must be indicated in the bill with reasonable certainty, so that
the payee knows the person to whom he should present the instrument
for acceptance and payment.
 Thus where an instrument is drawn in the form of a bill, and is
addressed to no one in particular, it is not a valid bill, even though a
person writes his acceptance on it. However, such an instrument may
be treated as a promise to pay, the acceptor being liable as the maker
of the note.
7. The sum payable must be certain.
8. The instrument must contain an order to pay money and money only.
9. The payee must be certain.
 3 parties: Drawer (maker of the bill, drawee (person who is directed to pay the bill
and who on affixing his signature becomes the acceptor), payee (to whom or to whose
order the amount of the instrument is payable, unless the bill is payable to the bearer)
 Section 7:
 “Drawer”, “Drawee” the maker of a BoE or cheque is called the drawer; the
person thereby directed to pay is called the drawee.
 “Drawee in case of need” when in the bill or in any indorsement thereon the
name of any person is given in addition to the drawee to be resorted to in case
of need, such person is called “drawee in case of need”
 “Acceptor” after the drawee of a bill has signed his assent upon the bill, or
if there are more parts thereof than one, upon one of such parts, and delivered
the same, or given notice of such signing to the holder or to some person on is
behalf, he is called the acceptor.

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  “Acceptor for honour” [Chapter XI]: When a BoE has been noted or protested
for non-acceptance or better security, and any person accepts it supra protest
for honour of the drawer or any one of the indorsers, such a person is known
as an acceptor for honour.
 Role of strangers to the instrument is recognised Chapter XI
(Sections 108 to 116)
 Chapter IX (Sections 99 to 104-A) of notice and protesting
 Documentary bill: along with the goods and other documents, if BoE is also attached
then it is known as documentary BoE.
No fixed no. of drawers, drawees and payees. The no. of payees, however, must be properly
distinguished.

CHEQUES

SECTION 6: A “cheque” is a bill of exchange drawn on a 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 the electronic form.
Explanation I: For the purposes of this section, the expressions—
(a) “a cheque in the electronic form” means a cheque drawn in electronic form by using any
computer resource and signed in a secure system with digital signature (with or without
biometrics signature) and asymmetric crypto system or with electronic signature, as the case
may be;]
(b) “a truncated cheque” means a cheque which is truncated during the course of a clearing
cycle, either by the clearing house or by the bank whether paying or receiving payment,
immediately on generation of an electronic image for transmission, substituting the further
physical movement of the cheque in writing.
Explanation II: For the purposes of this section, the expression “clearing house” means the
clearing house managed by the Reserve Bank of India or a clearing house recognised as such
by the Reserve Bank of India.]
Explanation III: For the purposes of this section, the expressions “asymmetric crypto
system”, “computer resource”, “digital signature”, “electronic form” and “electronic
signature” shall have the same meanings respectively assigned to them in the Information
Technology Act, 2000.

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  A cheque is a BoE drawn on a specified banker and payable only on demand. The
necessary parties to a cheque are same as those to a bill of exchange, except that the
drawee must be a banker. The banker does not become acceptor of the cheque, but
there is an implied contract between the banker and his customer that he will honour
cheques drawn upon him by his customer up to the amount of the funds of his
customer which he has in his hands or, where there is an agreement to let the customer
overdraw, up to the limits of the amount of the overdraft agreed on. The banker’s
liability is to the drawer (his customer) only; the mere dishonour of a cheque gives no
right of action to anyone other than the drawer.
 It is a species of BoE and thus it must be drawn in accordance with the requirements
of Section 5 of the Act.
NEGOTIABLE INSTRUMENTS

SECTION 13. “Negotiable instrument”

(1) A “negotiable instrument” means a promissory note, bill of exchange or cheque payable
either to order or to bearer.
Explanation (i)—A promissory note, bill of exchange or cheque is payable to order which 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 (ii)—A promissory note, bill of exchange or cheque is payable to bearer which is
expressed to be so payable or on which the only or last indorsement is an indorsement in
blank. Explanation (iii)—Where a promissory note, bill of exchange or cheque, either
originally or by indorsement, is expressed to be payable to the order of a specified person,
and not to him or his order, it is nevertheless payable to him or his order at his option.
(2) A negotiable instrument may be made payable to two or more payees jointly, or it may be
made payable in the alternative to one of two, or one or some of several payees.

 Ne mod at qoud no habet a person cannot give a better title than he myself
possesses (exception: by virtue of a statute or custom prevailing among merchants)
Bills, notes and cheques are made negotiable by law merchant.
 An NI differs from ordinary chattels in the following 3 important aspects:

234
 i. The property in it, i.e., the complete right of ownership, passes by delivery and
not merely the possession, i.e., the right to retain it as against anyone except
the true owner.
ii. The holder in due course is not in any way affected by any defect of title of his
transferor or of any prior party.
iii. The holder in due course can sue upon it in his own name.
 “Payable” and “Order” (Explanation i)
 As a result of NI (Amendment) Act 1919, where the instrument is made
payable to a particular person and does not contain any words prohibiting
transfer or indicating an intention that it should not be transferable, it should
be deemed to be an instrument, payable to order and negotiable. Thus the
words “order” or “bearer” is no longer necessary to render a bill, note or
cheque negotiable. Also the mere scoring off of the word “or bearer”
appearing on a cheque does not take away its negotiability.
 When a bill, note or cheque contains words prohibiting transfer or indicating
an intention to make it non-transferable, it will be valid between the parties
but it will not be an NI.
 “Payable to bearer” (explanation ii)
 The word “bearer” is not defined by the Act but it refers to the person in
possession of a bill or note payable to bearer.
 A bill, note or cheque is payable to bearer when expressed to be so payable or
when the only or last indorsement on it, is an indorsement in blank.
 “Payable to order” (explanation iii)
 It lays down that a bill “payable to the order of X” is in legal effect payable to
X or order, so that X can demand payment without giving a responsible
indorsement, but if X orders it to be paid to any other person, he must indorse
it.
1. Transferable
2. Must be in writing
3. Can be endorsed freely
4. Whoever has the possession can claim, even if the previous owner’s right is defective
(exception to nemo dat quod non habet)
5. Contemplates transfer of money only

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 6. There must be certainty in all aspects
7. Presumption as to NI (Section 118)
 NI BY USAGE OR CUSTOM: The NI Act mentions 3 kind of instruments, however,
usage may endow other instruments with incident of negotiability and the Indian
Legislature has indicated that courts in India may follow the practice of English
Courts in extending the character of negotiability to other instruments. Section 137 of
the Transfer of Property Act 1882 recognises the negotiability of instruments ‘by law
or custom’. Thus in India government promissory notes, Shah Jog Hundis (hundi
which is payable only to a respective holder), and delivery orders for goods have been
held to be negotiable by usage or custom.
 All cheques are BoE. Electronic cheques: exact mirror image of cheques; digital
signature, with or without biometrics; drawer will use the digital signature.
 Lex mercatoria applicable: electronic BoE will also be applicable but the law does not
provide for the same.
 Truncated Cheque (Section 6 (b)): not BoE, not p. note. [“making short”]
 Difference between truncated and electronic cheques:
 Truncated is an evidence of payment indicating that cheque has been
negotiated (clearing houses appointed by government and banks keep these
cheques) while electronic cheques are exact mirror image of cheques.
 Electronic cheque is negotiable while truncated is already negotiated and
discharged.
 Digital Signature in case of electronic cheques. No need of digitalization in
case of truncated cheques.
 Negotiated negotiable instrument: discharged (Section 82):
5. By payment
6. By cancellation
7. By release: of any of the parties; no restriction in endorsement, last person
wants that one person must be released from the liability, release can be done
by the last endorsee.
8. By material alteration (Section 87)
 Bank draft and demand draft: these two are the same. Drawer is the bank and drawee
is again the bank and payee can be any person.
NOTE: Generalised System of Preference (GSP)- expired in 2017, India wants renewal

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CLASSIFICATION OF BILLS OF EXCHANGE

9. Genuine Trade Bill: When the bill is made in a trade transaction.

10. Usance Bill: Time fixed for the payment of bills drawn in one country and payable in
another. (Also known as Foreign Bills and Time Instrument (Section 12 of NIA)
11. Documentary Bill: When all the docs. relating to the sale transactions along with the
BoE is attached for the purposes of releasing the money by the bank. Manner in which
a BoE is used, not a type.
12. Claused bill: A BoE clause provided for payment at a specified rate of exchange or
adding to the sum payable, interest or specified charges.
13. Irregular Bill: If a BoE bears irregular indorsement, it is known as irregular bill. An
irregular indorsement makes the instrument void.
14. Avalized Bill of Exchange: drawer, drawee, payee + a fourth person- in case of non-
payment by drawee, such fourth person guarantees or backs payment. The term used
is “backing” the payment.
 Witness: not a necessary party.
15. Fine trade bill: when the bank writes its acceptance in the banking language. Not
basically a type but a nomenclature given to the accepted bill of exchange given by
the bank.
16. Accommodation Bills: Bill which is drawn by one person and accepted by the other
without consideration, merely to enable the drawer to raise money on the bill by
discounting it. (Section 41)
17. Treasury Bill: issued by foreign government to another government.
NOTE: There are only two circumstances in which a stranger would be involved in a bill of
exchange-

1. Avalized bill of exchange

2. Acceptance for honour

CLASSIFICATION OF NEGOTAIBLE INSTRUMENTS

3. Order instrument: Section 13 contemplates it. Holder’s name is mentioned.

d) Payable to a particular person
e) Payable to a particular person on his order
f) Payable to the order of a particular person (person’s identity is there)
g) Payable by the order of payee. (payee’s name is specific)

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 4. Bearer instrument: Section 13
c) Expressed to be payable to the bearer.
d) Last indorsement is in blank. (There are two types of endorsement: General
indorsement/ endorsement in blank- can be given to anyone; which means that
if a payee’s name is there but there is an endorsement in blank it can go from
an order instrument to a bearer instrument)
3. Demand Instrument

a) Cheque is always payable on demand within the period of its validity. The
automatic period of validity is three months. This is written in S138 and S142.
b) Time for payment is not specified.
c) The instrument is valid till its validity period.
d) If the instrument is a demand instrument, no grace period is given. Section 22.
(difference in maturity and validity Section 22 and 138. Maturity- date when payment is due,
i.e. the date written on the top)
e) May be presented for payment at any time. (Within the period of its validity)
Does not have to be an exact date. There is no limitation on the number of
times an instrument can be presented.
f) Bank can say "refer to drawer" or "stop payment" or "account closed" or
"Insufficiency of funds" or "dormant account" (every bank has a different
policy as to what is a dormant account). After dishonour a 30-day notice, then
15-day time to reply to it, then further proceedings. Since there must be debt
and liability- and only then there can be an offence. So even if you issue
another cheque with insufficient funds, only for one will you be prosecuted.
4. Inchoate stamped instrument
i) Section 20: incompleteness to the extent of amount to be filled. It is generally
expected that the holder will fill that amount which is in consonance with the
stamp to be fixed
j) Section 118 (f): talks about stamping but over the years stamping act is not
applicable to cheques. Thus cheques don’t come under the terms of Section
20.
k) Stamp fixes the maximum amount which can be there.
l) Even though any excessive money is filled (previous holder’s right is
defective) and indorsed to someone else, indorsee has to look for 3
requirements to be fulfilled: (1) received in good faith, (2) before maturity
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and for consideration.

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 If these 3 are cumulatively fulfilled the indorsee becomes holder in due
course. Stamp loses importance in such a case. [Privilege]
5. Time Instrument- Section 21
e) Payable on specified date
f) Payable after specified period
g) Payable after certain period after presentation
h) On the happening of an event which is certain to happen. Example: marriage
is uncertain and death is certain.
6. Inland Bill of Exchange
c) Drawer, drawee, payee, all located in India. (agents appointed maybe located
outside)
d) Necessary parties must be located in India
7. Foreign Instrument
c) Section 12 of NIA
d) Article 2 of UN Convention
8. Ambiguous Instrument
f) Section 17
g) Difference between ambiguous and inchoate instruments.

FIRST TRANSFER IS NEGOTIATION, SUBSEQUENT ONES ARE

INDORSEMENTS.

 San recourse indorsement-

 Section 52: Indorser who excludes his own liability or makes it conditional.
The indorser of a negotiable instrument may, by express words in the
indorsement, exclude his own liability thereon, or make such liability or the
right of the indorsee to receive the amount due thereon depend upon the
happening of a specified event, although such event may never happen. Where
an indorser so excludes his liability and afterwards becomes the holder of the
instrument, all intermediate indorsers are liable to him.
 Can ask anyone except himself.
 In case of a cheque, constructive possession is required.
 S8 para 2.

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  Holder and holder in due course (also known as protected holder)- British bills
of exchange law has been our law.
 Restrictive endorsement: cannot be indorsed further
MINORS-

 Can make a negotiable instrument. Cannot be a drawer- since the drawer is the one
liable and minors can’t be held liable.
 Can be a drawee or a payee.
MODES OF TRANSFER OF PAYMENT

 Negotiation
 Role of delivery in negotiation (Section 14 read with 46 and 47)
 Delivery is essential part of negotiation
 Who may negotiate- Section 51
 Negotiation back: maker can indorse
 Fixing liability of directors in case of dishonour (Section 141), otherwise
Companies Act, 2013 will be governing BoE drawn by a
company/corporation.
 Escrow account
 Section 15: maker can indorse (2 Probabilities)
- When instrument drawn by agent, then the maker is required to indorse
it.
- Negotiation back
 Assignment
 Section 130 of Transfer of Property Act
DIFFERENC BETWEEN PROMISSORY NOTE AND BILL OF EXCHANGE

For most purposes, the rules that apply to BoE are, in general, applicable to promissory notes.
However, there are the following points of difference.

Basis Promissory Note Bill of Exchange

Drawn by Debtor Creditor
No. of Parties 2 Parties (maker and payee) 3 Parties (drawer, drawee and
payee)

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Promise/order to a Unconditional undertaking by the Unconditional order by the drawer
person/third party maker to pay the amount to the to the drawee to pay the money to
payee. the payee or his order.
Acceptance P. notes do not require BoE do require acceptance.
acceptance. ( only 2 parties)
Liability of Liability of the maker of a Liability of the drawer of a BoE is
the promissory note is primary and secondary and conditional as there
maker/drawer absolute. (single liability) can be resort to the drawer when
the drawee does not pay.
Immediate The maker of the promissory The drawer of an accepted BoE
relation of the note stands in immediate relation stand in an immediate relation
maker with with the payee. with the acceptor and not the
payee/acceptor payee.
Bearer instrument Bearer p. note cannot be passed Bearer BoE can be passed by an
by an individual. individual.
The maker of a promissory note corresponds, generally, to the acceptor. (Section 32: in the
absence of a contract to the contrary, the maker of a promissory note and the acceptor
before maturity of a BoE are bound to pay the amount thereof at maturity according to the
apparent tenor of the note or acceptance respectively, and the acceptor of a BoE at or after
maturity is
bound to pay the amount thereof to the holder on demand.)
Presentment and Presentment is not necessary to Presentment is necessary and
notice of make him liable, and notice of notice of dishonour is required to
dishonour dishonour is not required, unless be given to the drawer.
a promissory note is expressed
to
be payable at a certain place.
Condition A note cannot be made A BoE can be accepted
conditionally. Here, the maker of conditionally because here, the
the note originates the instrument acceptor of the bill is not the
and thus it differs from BoE in originator of the bill and his
terms of this. contract is supplementary, bring
superimposed on that of the
drawer.

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A promissory note indorsed by the payee corresponds with an accepted BoE payable to the
drawer’s order, the payee of the promissory note having the same rights and responsibilities
as the drawer of an accepted bill.
Applicability of Provision such as presentment for Bills are subjected to the
certain provisions acceptance, acceptance, provisions of presentment for
acceptance supra protest and bills acceptance, acceptance,
in sets do not apply here. acceptance supra protest and bills
in sets.

DIFFERENCE BETWEEN BILLS OF EXCHANGE AND CHEQUES

Bill of Exchange Cheque

It must be accepted before the acceptor can It requires no acceptance and is intended for
be made liable upon it. immediate payment. (while it cannot be said
that a cheque can never be accepted, it is
only done in very unusual and special
circumstances, and would require strong and
unmistakable words. Thus, certification of a
cheque does not constitute an acceptance
within the meaning of the Act.)
It is normally entitled to 3 days of grace, It is payable immediately on demand,
unless it is payable on demand. without any days of grace.
The drawee of a BoE may be anyone The drawee of a cheque is always a banker.
including a banker.
A bill must be duly presented for payment The drawer of a cheque is not discharged by
or else the drawer will normally be the holder’s delay in presenting it for
discharged. payment, unless the drawer has been injured
because of the delay.
In order to charge the drawer, of a BoE that When a cheque is dishonoured, notice of
has been dishonoured by non-payment, dishonour to the drawer may not be
notice of dishonour should be sent to him, necessary in a large number of cases, as the
except in certain circumstances. want of his funds in the hands of the banker
is sufficient notice.

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 Bills cannot be crossed. Cheques can be crossed.
No such statutory protection is available to Statutory protection is given to the drawee-
the drawee or acceptor of an ordinary BoE. banker with regard to payment of cheques in
certain circumstances.
Such a protection is not available while Subject to certain conditions, statutory
collecting bills. protection is available the collecting banker
against liability for conversion of crossed
cheques.

 Payable on demand, Specified banker, Section 138

NOTE: spelling mistake provision- not material mistake (Section 5), numerical mistake
provision- words will prevail over number (Section 18)

Sections 7, 8 (holder’s rights), 78, 142 together: holder is the person who is entitled to receive
money (entitlement to receive payment in cash)

Holder has:

2. Right to possess instrument- 8 talks about de jure possession.

3. Right to recover the amount.
By operation of law, if the person has died, his legal representative will be considered holder
of the instrument.

Beneficial Owner:

If instrument drawn in favour of some person and that instrument has been stolen, the person
does not become holder but if it is further transferred to a bona fide holder, he will be
considered a valid holder.

Beneficial owner in case of holder: Section 8- only whose name is mentioned in the
instrument is entitled to recover the money

All Courts accept Section 8 but 2 groups have different interpretation.

One group of courts: beneficial owners are entitled to receive money. Reasoning: 14 th Law
Commission Report, Bill of Exchange Act of Britain (British law for definition of holder in
India)

No SC judgement on this issue.

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HOLDER AND HOLDER IN DUE COURSE- DIFFERENCE (??????????)

HOLDER HOLDER IN DUE COURSE

No Consideration Consideration is mandatory
Holder can get payment after maturity Holder in due course is required to receive
instrument before maturity.
No good faith required Instrument is required to be accepted in good
faith
Nature

Holder in due course- title can never be defective

Holder in due course is the indorsee

Notice of defect there with holder in due course- instrument continues to be valid

Privileges for holder in due course- protected holder.

PRIVILEGES OF HOLDER IN DUE COURSE

10. Every prior party to a negotiable instrument is liable to holder in due course and this
is provided under Section 36.
11. Privilege in case of inchoate stamped instruments mentioned under Section 20.
12. A holder who derives the title from the holder in due course has the same rights as
that of the holder in due course. If he further transfer, the person to whom it is
transferred will become a holder in due course only- Section 53
13. No prior party can set up a defence that NI was drawn, made or indorsed by him
without any consideration- under Section 43
14. No prior party can set up a defence that NI was lost or was obtained from him by an
offence or fraud or for unlawful consideration. Holder in due course gets a valid title
of the NI even though the title of the transferor was defective- under Section 58
15. No prior party can allege that NI was delivered conditionally or for special purpose
only and special purpose here refers to purpose other than payment- Section 46
16. Estoppel against denying original validity of the instrument- Section 120
17. Estoppel against denying the capacity of the indorsee- Section 121
18. Estoppel against denying signature or capacity of prior party- Section 122
UN Convention uses the term “Protected Holder”

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PROVISIONS OF LOST INSTRUMENT

 Sections 8, 45A, 81, 58

 Finder of lost instrument:
 In case of bearer instrument, finder has the right.
 In case of order instrument, finder does not get the right.
 Cross Cheque
INDORSEMENT

 Section 15- further transfer of the instrument.

 Modes of Indorsement:
1. General Indorsement- When the holder merely puts a signature. When the
maker or holder of a negotiable instrument signs the same, otherwise than as
such maker, for the purpose of negotiation, on the back or face thereof or on a
slip of paper annexed thereto
2. Special or Full Indorsement- When the maker or holder so signs for the same
purpose a stamped paper intended to be completed as a negotiable instrument,
he is said to indorse the same, and is called the “indorser”.
NOTE: Sections 49 and 55: Conversion of blank indorsement into full indorsement.

 Who can indorse:

 Section 8 (Holder)
 Section 15 (maker and holder)
 Section 51 (sole maker, drawer, payee or indorsee, or all of several joint
makers, drawers, payees or indorsees, of a negotiable instrument)
 Place of Instrument: Can be done anywhere on the instrument itself. If no place left on
the instrument a separate paper can be attached to the instrument.
 Effect of Indorsement: Further transfer- this means creation of a legal liability in
terms of payment (the PAYEE (FIRST TIME TRANSFER) or indorsee AND
HOLDER IN DUE COURSE will ask for the payment from immediate party and if
not immediate party, then any of the previous parties including the maker.
 Presumption as to NI as to order of indorsements- Section 188 (e): that the
indorsements appearing upon a negotiable instrument were made in the order in which
they appear then on

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  Whether Statutory requirements of giving a notice can be waived before initiation of
legal proceedings in case of dishonour of cheques?  Facultative Indorsement
 Types of Indorsement
2. Facultative Indorsement: the statutory requirement of giving notice before
initiation of legal proceedings can be waived. It must, however, be written on
the instrument.
NOTE: Amendments in case of dishonour of cheques- 1988, 2002, 2016

DIFFERECE BETWEEN NEGOTIATION AND ASSIGNMENT

Sections 14, 46, 47 and 48- completed negotiation

Section 130 of Transfer of Property Act, 1972- assignment

6. Written Document: Negotiation of bearer instrument can be made by mere delivery-

Section 47. Negotiation of order instrument can be made by endorsement or delivery-
Section 46. Assignment has to be made by a separate written document signed by the
transferor and this procedure is required in case of both bearer and order instruments.
7. Presumption: When a negotiable instrument is negotiated there is presumption that
negotiation was there for consideration. There is no presumption in case of
assignment and the burden of proof lies on the transferee to show that the transfer was
for consideration
8. Notice: In the case of assignment notice is required to be given to the person who is to
make the payment. No such notice is required to be given in the case of negotiation.
9. Defective Title: The assignee of a debt takes the instrument subject to all the defects
and equities that may exist in the title of his assignor. But, in case of negotiation,
better title is given even though the title of the previous owner was defective.
10. Payment of Stamp Duty: Indorsement of a negotiable instrument does not require any
other formality and also does not require the payment of stamp duty. In case of
assignment, payment of stamp duty is required.
CHAPTER III PARTIES TO NOTES, BILLS AND CHEQUES

SECTION 26
 Section 11 of ICA does not apply
here SECTION 27
 Agent’s role- can be maker- in this case the principal is required to indorse.

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  Agent under ICA: empowered to do whatever they want; Agent under NIA: no power
to make indorsement.
 Mercantile agent can accept instrument, but his liability must be understood by
reading Section 27 with 28.
 Mercantile agent merely collects the instrument. It does not imply acceptance.
Acceptance can be done only by the drawee.
 Mercantile is considered to be a stranger (if making of instrument maker in the
capacity of the indorser
SECTION 28
 Agent signs without indicating that he is signing as an agent- personally held liable
 If he indicates- principal vicariously
liable (7, 15, 27, 28- role of agent)

SECTION 29
 Held liable personally in case he
signs. SECTION 30
 Liability of the drawer always secondary.
 Drawee’s liability is primary.
 When read with 82- drawee’s liability is always there till the instrument is discharged.
 Notice to that effect must be issued by the holder to the drawer, not to the drawee
because drawee already knows the facts of dishonour.
 If instrument has been dishonoured by drawee, drawee will indicate this dishonour. In
this case drawer’s liability will arise.
 Holder or holder in due course can apply Section 30.
 Drawee can do 2 things- accepts in case of BoE and pay within maturity period, in
cheques specified banker is the drawee.
 Notice requirement is foremost- holder or holder in due course
SECTION 31
 Must be having sufficient funds on behalf of the drawer. The drawee of a cheque
having sufficient funds of the drawer in his hands properly applicable to the payment
of such cheque must pay the cheque when duly required so to do
 In case of default of such payment, he must compensate the drawer for any loss or
damage caused by such default.
SECTION 32

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  Liability of maker of note and acceptor of bill.
 Liability of maker
 Liability of acceptor arises in case of BoE- once instrument accepted, within maturity
period, as per apparen tenor, he must make payment.
NOTE:
 Acceptor for Honour (Section 7)- complete stranger. After noting and protesting if
any stranger come forward, he fits into the shoes of the drawee and then he is
supposed to make payment within the period of maturity. “When a bill of exchange
has been noted or protested for non-acceptance or for better security, and any person
accepts it supra protest foer honour of the drawer or of any one of the indorsers, such
person is called an acceptor for honour.”
Acceptance here means acceptance for payment
 Drawee in case of need (Section 7)- Alternate drawee whose mentioned on the
instrument itself. “When in the Bill or in any indorsement thereon the name of any
person is given in addition to the drawee to be resorted to in case of need, such
person is called a drawee in case of need.”
SECTION 33
 Only drawee can be acceptor except in need or for honour
 “No person except the drawee of a bill exchange, or all or some of several drawees,
or a person named therein as a drawee in case of need, or an acceptor for honour,
can bind himself by an acceptance.”
SECTION 34
 Acceptance by several drawees not partners
 “Where there are several drawees of a bill of exchange who are not partners, each of
them can accept it for himself, but none of them can accept it for another without his
authority.”
 Read with Section 19 of Partnership Act- financial transactions are not normal
transactions. Authorisation for accepting the instrument is required. A partner cannot
simply accept on behalf of all.
 Section 141- partners considered directors of the
partnership. SECTION 35
 Liability of indorser. (holder is indorser, holder in due course is the indorsee)
 Payment to holder in due course is the liability of the indorser.

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  Indorsee (last holder or holder in due course) will go to the immediate (previous)
indorser for seeking payment. If immediate indorser doesn’t make payment, then he
can approach the previous parties.
SECTION 37
 Maker, drawer and acceptor principals.
 The maker of a promissory note or cheque, the drawer of a bill of exchange until
acceptance, and the acceptor are, in the absence of a contract to the contrary,
respectively liable thereon as principal debtors, and the other parties thereto are liable
thereon as sureties for the maker, drawer or acceptor, as the case may be.
 Chain from whom payment is required to be received.
 Debt starts from principal or drawer. Last person or indorsee will seek payment from
the immediate party
 If chain not followed, validity of the instrument becomes questionable [Section 118 (e)]
DISCHARGE OF INSTRUMENTS

5. Payment
6. Cancellation
7. Release of the parties. (San recourse indorsement)
8. Material Alteration
MATERIAL ALTERATION- SECTION 87

 Section 87 read with 82.

 Effect: alteration makes the instrument void.
 If any of the presumptions of Section 118 is altered, then it is material alteration. But
this
 Loon Karan Sethia v. Evan A. John (1977)
 Material alteration is the one which varies the rights, liabilities or legal
position of the parties as ascertained by the deed in its original form or
otherwise varies the legal effects of the instrument as originally expressed or
which may otherwise prejudice the party bound by the deed as originally
executed.
 Halsbury’s definition
 Alteration must be material
 Alternation must be after the NI is executed.
 Absence of consent of a party liable under the instrument.

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 Alteration does not incorporate the common intention of the original party.

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  Types of Material Alteration
3. Allowed Material Alteration
 Section 87 is inclusive
 Inchoate stamped instruments: considered material alteration but
allowed.
 Converting indorsement in blank into indorsement in full. [Sections 16
and 49]
 Holder of un-crossed cheque may cross it or may convert it generally
into special crossing or to make it not negotiable. [allowed as per
Section 125]
 Alteration made before the completion of the instrument.
 Alteration made with the consent of the parties liable on the instrument.
 Alteration made for the purpose of correcting a mistake or clerical error.
 Alteration made to carry out the common intention of the parties.
 Conversion of bearer cheque/ order cheque
 Making of a qualified acceptance. (S. 86, allowed)
 An alteration which is accidental, making the amount feasible. [HDFC
v. Lee Shi 1928 AC 181]
4. Prohibited Material Alteration
 Alteration of the date of instrument.
 Alteration of the time of the instrument.
 Alteration of the place of payment.
 Alteration of the sum payable.
 Alteration by adding a new party to the instrument. (acceptor for
honour is an exception)
 Alteration of the rate of interest.
 Alteration by tearing material part of the instrument.
 Alteration by fixing stamp without the promisor’s knowledge. [Section
20]
NOTICE OF DISHONOUR

 Ways of Dishonour:
3. Section 91: Dishonour by non-acceptance

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 f) When the bill is properly or duly presented for acceptance and drawee makes a
default in accepting it within 48 hours. Applicable only for the purposes of
BoE.
g) If there are several drawees, not being partners, the bill is said to be
dishonoured by no acceptance if any of them refuse to accept the bill.
h) When the presentment is excused and the bill is not accepted. (Section 61)
i) When the drawee is incompetent to contract the bill may be treated as
dishonoured. (Section 26: minor can be drawer, payee but not drawee)
4. Section 92: Dishonour by non-payment
e) Who indicates that promissory has not been paid- Maker
f) Who indicates that BoE has not been paid: Drawee and Acceptor (after
maturity, drawee becomes acceptor) in BoE
g) Who indicates that cheque has not been paid: Bank (drawee)
h) K Venkatasubbayya v. P.R. Rao Tobacco Co., AIR 1972 AP 72: non
acceptance by post amounts to dishonour of the instrument.
 Remedy for non-payment and dishonour
3. Gives the holder an immediate right to recourse against the drawers and indorsees.
4. Gives the right to the holder to give a notice for acceptance.
 Requirements of a notice- Section 93:
8. Notice is required to be given before any recourse.
9. Object of the notice is not to demand payment but to warn him aganist the legal
consequences.
10. Notice by whom: holder, by a person liable on the instrument, agent of the holder,
stranger to the instrument cannot give notice
11. Notice to whom: notice of dishonour must be given to all parties other than maker,
acceptor or drawee whom the holder seeks to make liable.
12. Notice of dishonour can be given to a duly authorised agent of the person to
whom it is required to be given.
13. Notice may be given to his legal representative when the drawer or the indorser is
dead.
14. Where there are 2 or more parties jointly liable as drawers or indorsers, notice to
one of them is sufficient to bind all.
 Effects of omission to give notice: Discharge from liabilities (Drawer: Section 30;
Indorser: Section 35)
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  Mode of Notice: Section 94
5. Oral
6. Written
7. Partly written partly oral
8. Advisable to give written notice: evidence.
 Contents of the Notice
11. Instrument has been dishonoured.
12. The instrument should be identified in the notice.
13. Notice must state the way in which the notice has been dishonoured.
14. He will be held liable on the dishonoured instrument.
15. A mere demand for payment is not a sufficient notice. (the way it is presented and
the legal consequences of not paying must be there)
16. Time and place of notice: (1) reasonable time and (2) specified place, business
place, habitual notice
NOTE:

 Section 27 of General Clause Act: duly served notice (proper address [last known
address] and proper stamping [stamp duty paid] to registered post)- it doesn’t matter
whether it is received or not- deemed acceptance of notice.
 Barren notice: without stamp.

 When Notice Not Required- SECTION 98

 WHETHER NOTICES CAN BE VARIED?

 Speculative indorsement: at the time of the indorsement, the person writes
that in case of indorsement, no need to give notice.
 Can be varied
 Most of the time on the instrument itself but no law prohibits that the waiving
cannot be done subsequently
 If pure and simple contract, then there can be modification of the obligation
and this can easily be done subsequently.
PRESENTMENT
 SECTIONS 61-77 (SECTION 21- at sight and after sight)
 Meaning: nothing but asking for money: the payee is required to present it to the
maker and then required to pay off the instrument.
 There are 2 types:
2. For ACCEPTANCE [Section 61]
3. For PAYMENT [Section 64]
 Deliberation time: 48 hours [S. 63]
 Jagjiwan Mavji Mithlani v. Ranchoddas Meghji (1955)

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  Talks about the 2 types.
 Talks about the meaning of “on sight” and “after sight”
 American Express Bank Ltd. v. Kolkata Steel Co.
 Acceptance regarding BoE is a technical term and does not mean merely
taking or receiving.
 Acceptance of BoE is the signification by the drawee of his assent to the order
of the drawer.
 In commercial parlance, acceptance of BoE is the drawee’s signed
engagement to honour the BoE as presented.
 The contract of the acceptor is a new and independent one. It comes within the
rules as to consideration for a contract on NI and like every contract in NI, it is
incomplete and revocable until delivery of the instrument, for the purpose of
giving effect thereto.
 Normal manner of acceptance:
 Signed on the instrument
 Right accepted.
 All of this is on the instrument itself, always written. A mere signature is
enough to indicate that acceptance has been done.
 Why is acceptance necessary to fix liability
 If after accepting liability, payment is not made, the holder will serve notice,
and after serving the notice, legal proceedings will start.
 Presentment to whom:
 Drawee
 Duly authorised agent
 In case of several drawees, to all
 In case of several drawees, if they are partners, then to any one of the partners.
 In case of dead drawee, to legal representative
 In case of drawee in case of need, the to the alternative drawee.
 No fixed format as to how to write NI
 What is important is the intention of the parties
 Even if it is not mentioned to whom it is to presented, even then the BoE will be valid.
 In case of BoE, presentment for acceptance is done first and then there is presentment
for payment. It can be done simultaneously also.
 What will happen, if the drawee is untraceable?  Section 61 read with Section 91:
after reasonable efforts by the holder and the drawee is still not traceable, then it shall
be presumed that the instrument has been dishonoured
 Whether presentment for acceptance can be done via post?  Yes: Section 61, last
para.
 How an instrument is presented/ PROCEDURE FOR PRESENTMENT?
 Actual exhibition (showing) of the BoE.
 Merely giving notice is sufficient.
 BoE given for acceptance, the demand for payment must be clear and
unequivocal at both the stages- for acceptance and for payment.
 Presentation for whom?  holder/payee OR holder in due course
 Section 118- holder is holder in due course in this section only. Provided for
consideration.
 Section 8- 2 rights of payee; in the 2nd para- de jure possession. Even if it is lost, only
the person whose name is on the instrument, is entitled to receive money.
 Section 8 and 78- to recover money, only holder has the right to claim.

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DISHONOUR OF CHEQUE IS A CIVIL WRONG WITH CRIMINAL OVERTUNES

I. VALIDITY OF S. 138
 Ramawati Sharma v. UoI Air 1929 All 21-
 Constitutional validity of Section 138 (reasonable differentia is there).
 Object clause of 138-
6. To create investment climate in the country.
7. To prevent rampant dishonouring of cheques.
8. To provide stability to the economy.
9. To ensure credit-worthiness.
 The court thus held that the Section is constitutionally valid and is not
violative of Article 14
 Rajendra Steel Ltd v. UoI Criminal LJ 2000 p. 625 (Delhi)
 Challenged on the ground criminal law: It was contended that 138-142 takes
away the element of mens rea.
 Court said this ground cannot be considered.
 Since 139 says mens rea is not required and also after considering the object
clause, it can be said that mens rea is not required in case of dishonour of
cheques.
NOTE:

 Portfolio investment: investment in securities.

 FDI: Investment for development
 Investment Climate: The prevailing climate to inculcate FDI
 1988: Chapter 17- Dishonour of Cheques- Compoundable offence (Section 147)-
Outside Court Settlement is allowed, although it is a criminal offence- Legislation
itself states that compoundability is there.
 Single jurisdiction in case of dishonour of cheques (K. Bhaskaran )
 Current law in case of jurisdiction- multiple jurisdiction (wherever the necessary
parties are located)
 Section 142  2 Court Jurisdiction
 Multiplicity cheques: can be presented in any city where
 Basel Convention- India is a signatory- reforms in case of banking sector.

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INGREDIENTS OF SECTION 138- Only covers cheques, not BoE.

1. A person (drawer) must have drawn a cheque on an account maintained by him in a

bank for payment of certain amount of money to another person from out of that
account.
2. The cheque shall have been issued by the drawer for the discharge in whole or in part
of any debt or other liability. (explanation to Section 138: Cheque must be issued for
legal debt and liability– gift cheques or parents’ cheques will not be covered. Legal
debt and liability- legally enforceable debt or liability
3. Cheque has been presented to the bank within the period of its validity (from the date
on which it is drawn or issued for a period of 3 months [was reduced to 3 from 6 in
2012]) If nothing mentioned, 3 months, can be more also if explicitly mentioned by
the parties.
4. The cheque has been returned by the bank (drawee) unpaid. [Facts of dishonour are
always stated by the bank]
5. What Bank writes? – It is rarely written by the bank that the cheque has been
dishonoured. “referred to the drawer”, “account closed”, “insufficiency of funds”,
“dormant account”, “stop payment” is most commonly used by the Bank.
6. Notice: The payee or the holder makes a demand for the payment within 30 days. This
means that the notice to that effect is required to be served by the holder or payee to
the drawer within 30 days (time for payment- 15 days)
ESCROW ACCOUNT

 When an NI is endorsed and delivered conditionally or for a special purpose only as

collateral security or for safe custody and not for the purpose of transferring absolute
property therein is called escrow.
PAYEMENT IN DUE COURSE

 The payment must be made according to the apparent tenor of the instrument
(direction of payment)- by maker in prom note, by drawer in BoE and cheques
 The payment must be made in good faith and without negligence
 The payment must be made to a person in possession of the instrument (holder)-
Section 78
 The payment must be made in money and money only- Sections 4, 5, 6 and 85 A.
PAYMENT OF INTEREST

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  The rate that is specified by the parties.
 If not specified, 18 % as specified in Section 80.
 Interest Act, 1878 will not be applicable because for NI, Section 80 is appropriate.
SECTION 138-142

 SECTION 139
 Presumption in case of holder: reverse burden of proof- When the cheque is
presented by the holder to drawee that cheques is there because of debt and
liability. Other person has to prove there is no legal debt or liability. (Section
138 explanation)
 Presumption in favour of holder that the instrument drawn is for legal debt and
liability
 SECTION 140
 Takes away an important provision in criminal law, i.e. mens rea
 Whenever a drawer issues a cheques he cannot take a defence that he wasn’t
aware that the cheque will get dishonoured. - thus actus reus nisi men sit rea
cannot be pleaded.
 Presumption: there is sufficient amount in the account
 “PERSON” in Section 138
 Both natural and juristic persons.
 Anil Hada v. Indian Acrylic Ltd. 2001 Company Cases p. 36 : dishonour of
cheques in case of company director’s liability, also discussed “person”.
 SECTION 141
 Company director’s liability in case of dishonour of cheque- vicarious liability
 Anil Hada v. Indian Acrylic Ltd. 2001 Company Cases p. 36 : dishonour of
cheques in case of company director’s liability
Those in charge of cheque only will be held liable
Independent directors are ex officio, they do not participate in day to day activities and thus
they will not be liable for dishonour. Only those in charge of affairs of the company dealing
with cheques will be liable.
 For the purposes of dishonour of cheques, partner will be considered as
director of firm. (Explanation)
 Section 19: only those persons who get mandate by other partner regarding
financial matters

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  SECTION 142
 From cognizance of offence to summary procedures
 Where is the forum, how case can be registered, which court has jurisdiction.
 For the offence of dishonour- Chapter 17 of NIA: complete code on dishonour
of cheque
 CPC not applicable
 Compoundability has been provided for.
 ARTICLE 138
Punishment: imprisonment upto the extent of 2 years
Fine: double the amount
 138- 147: Civil in nature
 NOTICE
NOTE: SCOTT V. AVERY CLAUSE- An express and clear provision in a contract that
defers any dispute first to arbitration before any litigation is commenced.

 BILL IN SETS
 Section 132 and 133
 A BoE in sets drawn in parts or sequenced is called bill in sets.
 Both the parties are located in different countries
 Purpose/ Advantage:
3. Convenience
4. If not all at least one document will be available to the other party so that
they can claim the goods from the warehouse.
 Documentary credit: It refers to docs related with sale transaction and letters
of credit that are attached
 UCP (Uniform Commercial Practice) 600
 Each part is known by a term- via
 parts must be numbered (1 of 10, 2 of 10, etc.)
 can be presented with all parts or any one of them
 payment on one is considered as payment on all/many.
 it is always used in cross-border transactions or carriage transactions.
 What is the utility of bill in sets if acceptance/ payment of one is considered as
that of all- If one part of the goods or one part of documents needs to be

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 transferred, during the transmit if the owner wants to sell it to 3rd person, then
that particular part only will be indorsed.
 Section 34 and 38 of SOGA- part-delivery and instalment delivery.
 ESSENTIALS OF BILL IN SETS
1. BIS always drawn in parts and all the parts together make a set and the
whole set constitutes only one bill.
2. Each part of the bill in sets must be numbered and must contain a
provision that it shall continue to be payable only so long as the other
parts remain unpaid.
3. Each part must contain a reference to the other parts.
4. If any part of the set omits reference to the other parts that part shall be
construed as a separate bill if it goes into the hands of a holder in due
course.
5. The entire bill is extinguished or discharged when the payment is made
on any other parts.
6. The drawer must sign each part of the bill and deliver all the parts to
the payee.
7. A stamp is affixed on one part only and only one part of the whole set
needs to be accepted.
8. When a person accepts the bill and indorses different parts of the bill in
favour of different persons, he and the subsequent indorsers of each
part are liable on such parts as if these parts were separate bills. (for
the purpose of further transfer, each part is indorseable- most important
feature) In international trade transactions, every time the whole
consignment is not transferred. If the consignee wants to transfer one
part of the consignment only, then bill in sets makes such transfer
easy- advantage of convenience.
 ACCEPTANCE OF BILL IN SETS
 Acceptance of one amounts to acceptance of all.
 Performance bond: related with bank guarantee as well as overall performance of the
contract.
 Mate Certificate: issued by the captain of the ship as an indication that the carrier has
received the goods.

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  Bill of Lading Act 1855 replaced by Carriage of Goods by sea act, 1925 – BoL:
evidence that the goods have been transferred, freely transferable- considered to be
negotiable instrument
 Ex-works contract: [Section 39 of SOGA] named place of destination; when the
buyer goes to the place of business of the seller to collect the goods. Ex-warehouse,
ex- factory- synonymous terms.
Minimum liability of the seller in this case
Goods manufactured by the seller  Delivery order by seller  Section 35: buyer will ask
for delivery  duty of buyer to collect the goods  After buyer’s examination  conformity
of the goods 
E category- minimum liability of
sellers F category- FOB
C category- CIF
D category- maximum liability of sellers
CROSSING OF CHEQUES

A crossed check is any check that is crossed with two parallel lines, either across the
whole check or through the top left-hand corner of the check. This symbol means that
the check can only be deposited directly into a bank account and cannot be immediately
cashed by a bank or any other credit institution.

 It cannot be encashed at the counter of the bank, can only be credited

to the account of the payee.
 Three types of cross cheques:
5. GENERAL CROSSING - When a cheque bears two transverse
parallel lines at the left hand of its top corner. Words such as 'and
company' or any other abbreviation (such as & co.) may be written
between these two parallel lines, either with or without words 'not
negotiable', is called General Crossing.
Effect - Payment can be paid through bank account only, and should not be made at counter
of paying bank.
6. SPECIAL CROSSING - When a cheque bears the name of the
bank in between the two parallel lines, with or without the words
'not negotiable' is called Special Crossing.
Effect - The bank will pay to the banker whose name is written in between the crossing lines.

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 7. RESTRICTIVE CROSSING / ACCOUNT PAYEE CROSSING -
In this, crossing of cheques is done by writing Account Payee or
Account Payee only in between the crossing lines.
Only one time- negotiation. Holder does not have right to further indorse
Effect - Payment will be credited to the account of payee named in the
cheque.
8. DOUBLE CROSSING - When a cheque bears two special
crossing, is called Double Crossing. In this second bank act as
agent of the first collecting banker. It is made when the banker in
whose favour the cheque is crossed does not have branch where the
cheque is paid.
 Sections 123-131A deal with this.
 Crossing of cheques also involves bank draft- Section 131A. when
85A was introduced, 131A was also provided
 PURPOSE OF CROSSING: Security and caution: security to payee
(money will go as per the direction and caution to bank
 General crossing: caution to bank, “non-negotiable”- general crossing
but restricted in nature
 Special crossing: presented for payment in that particular branch only,
when the bank’s name is mentioned
 Double special crossing: names of 2 banks are mentioned- 2 nd bank is
agent of the first and there is an arrangement between the 2 banks. This
implies that there an arrangement the subsidiary bank
 A cheque is said to be crossed when it bears across its face 2 parallel traverse
lines.
 The lines are usually drawn upon the left side top corner of the cheque-
customary not mandatory.
 Crossing is a direction to the paying bank to pay the money generally to a
bank or to particular banks as the case maybe
 Crossing affects the mode of payment of the cheque-accounts crossing-alters
the direction how the cheques will be paid
 Crossing generally does not affect transferability unless the cheque bears the
term “not negotiable”
 Material alteration is allowed material alteration
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 Who may cross: Drawer, Holder, Holder in due Course, Indorser- Section 125.

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  How will bank pay: bank’liability -protection of the bank, good faith, without
negligence and payment is there according to payment in due course- Section
128
 Section 131- protection available to the bank
SECTION 142: COGNIZANCE OF OFFENCE

 Sil Import USA v. Exim Aides Silk Manu/SC 312 199

 Section 142 is compulsory in nature.
 No court shall take cognizance of the offence except upon a complaint made
by the payee/holder in due course.
 No suo moto in case of dishonour of cheques.
 The provisions contained in Section 142 are independent of the provisions of
CrPC.
 The word complaint is defined under Section 2 (d) of CrPC, but the section
opens with the words “unless the context otherwise requires”
 Such complaints according to 142(b) is to be made within one month of the
date on which the CoA arises under clause (c) of the provisions of Section 138
 No court inferior to the metropolitan magistrate or judicial magistrate of the
first class shall try any offence punishable under Section 138.
 If the parties before or after the dispute refer the matter to arbitration, it should
be allowed. (Section 147 read with Section 7 of the Arbitration and
Conciliation Act).
 Meaning of “month”- section 3 (35) defines month and that month is according to the
British Calendar.
 Requirements of complaint under S. 142 (After requirements of Section 138 have
been complied with; 142 cannot be applied independent of Section 138)
14. The allegation must be in writing.
15. That allegation must be there against the drawer of the cheque. (no fault of
drawee)
16. The said cheque (“said cheque” identification of cheque is required to be
mentioned, ambiguity on technical ground will lead to dismissal of the suit)
was issued in discharge of a legally enforceable debt of liability.
17. The cheques was presented to the bank on which it was drawn within the
period of tis validity. (presentment of cheque 21, 64 and 138 and RBI
circular)
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 18. The cheque has been dishonoured by the bank.
19. The endorsement by the bank while returning the cheque unpaid, directly or
indirectly, leads to the inference that the amount of money standing to the
credit of that account is insufficient to honour the cheque or it exceeds the
amount arranged to be paid from that account.
20. A notice was sent to the drawer within 15 days of the receipt of information
from the bank about dishonour of cheque, demanding payment of the amount
covered by the cheque.
21. The drawer either actually received the said demand notice or intentionally
evaded the service of notice though properly directed and because of such
intentional evasion of the service of notice, the said notice must be deemed to
have been served upon the drawer.
22. The drawer did not make payment within 15 days from the date of actual
receipt of the notice or constructive service of the notice.
23. The complaint is made within one month of the date on which the CoA arises
under clause (c) of Section 138.
24. The complaint is to filed before a metropolitan magistrate or judicial
magistrate of the first class having territorial jurisdiction to entertain such a
complaint.
25. Section 142 of the Act provides for only one mode of cognizance on a
complaint in writing by the payee or holder in due course of the cheque.
Sections 7, 8 (holder’s rights), 78, 142 together: holder is the person who is entitled to receive
money (entitlement to receive payment in cash)

Constructive service of the notice: Section 27 of General Clause Act duly addressed,
stamped and registered

NOTICE IN TERMS OF SECTION 138

 Notice for P. Note is not required to be in writing (section 93 intimation, can be
written or oral)
 Notice shall be writing for the purposes of Section 138.
 Notice by telegram is valid notice.
 Notice by fax is valid notice.
 Notice must be given within 30 days (period of notice) of the receipt of information
by the drawee to the holder indicating the facts of dishonour.
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 If the amount mentioned in notice is bigger than that mentioned in the cheque, the
notice become illegal.
 If the notice contains the lump sum money, covering the money required to be paid,
interest and other expenses incurred, it will be a valid notice. However, there must be
clarification regarding the same.
 If instead of serving a legal notice, a registered is sent containing the same
information and details, it will be deemed to be a valid notice. (knowledge and
warning are the primary motives of a notice).
7. Notice must make a demand
8. Notice must warn regarding the legal consequences
9. Period of notice: within 30 days
10. Manner of delivery constructive delivery (Section 27 of GCA)
11. If the payment has been asked to be paid earlier in the notice, it will be valid
notice but the CoA will arise after the expiry of 15 days.
12. No mens rea required (Section 140)
 V.G. Samant v. K.G. Traders
 Notice and its characteristics:
4. Legal consequence of refusal to pay
5. Constructive delivery
6. Period- Demand before 15 days is valid but cause of action arises after
the 15-day period.
 Lalit Kumar Sharma v. State of UP [2008, 143 Company Case, SC p. 593]
 The second cheque was issued in terms of a compromise. It did not create
a new liability. As the compromise did not fructify, the same cannot be
said to have been issued towards payment of debt.
 In this case, the second cheque was issued by Manish Arora for the
purpose of arriving at a settlement. The said cheque was not issued in
discharge of the debt or liability of the Company of which the appellants
were said to be the directors. There was only one transaction between
Ashish Narula, Manish Arora, Directors of the Company and the
complainant, for which they had already been punished. Thus, the question
of entertaining the second complaint did not arise.

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  If the cheque has been issued for security, then also Section 138 will not
be applicable.
5 TYPES OF TERRITORIAL JURISDICTION AS PER K. BHASKARAN CASE

 Territorial Jurisdiction in terms of dishonour is there in Section 138.

 K. Bhasakaran v. Sankaran Vaidhyan Balan 1999 7 SCC p. 510
 Putting various conflicting views and interpretations at rest and thoroughly
widening the scope of territorial jurisdiction of the court to entertain a
complaint under S. 138, the SC held that the offence under S. 138 is not
completed with the dishonour of cheque and attains completion only with the
failure of the drawer of the cheque to pay the cheque amount within expiry of
15 days mentioned in clause (c) of the proviso to S. 138.
 It is normally difficult to fix up a particular locality as the place of failure to
pay the amount covered by cheque. A place for that purpose would depend
upon a variety of factors. It can either be the place where the drawer resides or
at the place where the payee resides or at the place where either of them
carries business.
 Then the case went on to hold that the offence under S. 138 can be completed
only with the concatenation of a number of acts:
6. Drawing of cheque,
7. Presentation of the cheque to the bank,
8. Returning of cheque unpaid by the drawee bank,
9. Giving notice in writing to the drawer of the cheque demanding
payment of the cheque amount,
10. Failure of the drawer to make payment within 15 days of receipt of
notice.
 If the 5 different things were done in 5 different localities any one of the 5
localities can become the place of trial for an offence under S. 138.
 Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd. 2009 1 SCC p.
720
 The ruling in Bhaskaran was diluted in Harman Electronics Pvt. Ltd. v.
National Panasonic India Pvt. Ltd.3 ("Harman"). The Court addressed the
issue of whether a Delhi Court would have jurisdiction solely because the
statutory notice under Section 138 of the Act was issued from Delhi. The
Court held that:
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 1. Issue of the statutory notice does not give rise to a cause of action.
Only receipt of the notice does;
2. Only the main provision of Section 138 constitutes an offence. The
proviso thereto merely enlisted the conditions necessary for taking
cognizance of the offence;
3. If mere presentation of the cheque or issue of notice would bestow
upon a court the territorial jurisdiction to try offences under Section
138 of the Act, it would inevitably lead to harassment of the drawer.
 The judgments in Bhaskaran and Harman represent the liberal and the strict
views, respectively, on the issue of territorial jurisdiction for trial of the
offence of dishonour of cheques under Section 138 of the Act.
 Dashrath Roop Singh Rathore v. State of Maharashtra 2014 9 SCC p. 129
(Overruled Bhaskaran)
 Supreme Court held that a Complaint of Dis-honour of Cheque can be filed
only to the Court within whose local jurisdiction the offence was committed,
which in the present context is where the cheque is dishonoured by the bank
on which it is drawn. The Court clarified that the Complainant
is statutorily bound to comply with Section 177 etc. of the CrPC and
therefore the place or situs where the Section 138 Complaint is to be filed is
not of his choosing. The Supreme Court Overruled the two Judge Bench
Judgment in K. Bhaskaran.
 The court accepted the view in Harman Electronics.
 Since it is a criminal piece of legislation and thus there must be strict
application.
 Territorial Jurisdiction in case of dishonour of cheques  Section 138-147 is
the stand alone piece of legislation. No other legislation will be applicable in
case of dishonour of cheques

BURDEN OF PROOF IN CASE OF DISHONOUR OF CHEQUE

 Section 139: 2 types of Burden of Proof

1. person who is alleging is required to prove by presentation of the documents
(cheques itself is the most important document)

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 2. once all the document are there, the second step is Reverse Burden of Proof
Court will initially presume it is legal debt under Section 138 Explanation.
Then arise rebuttable presumptions (the other party will try to prove that the
cheque was not for a legally enforceable debt)
SUCCESSIVE PRESENTATION OF CHEQUES

 No bar prescribed under Chapter 17 regarding how many time cheque can be presented.
 It can be presented any number of times within the period of its validity.
 If the bank has indicated facts of dishonour before the validity period is over, it can be
presented again, even though that will have no use.
 Cause of action arises only when notice is served and the payment is not made within
15 days.
 Krishna Janardan Bhatt v Dutta Rai G. Hegde AIR 2008 SC 1325
 Can be presented any no. of times
 CoA arises only when notice has been served and payment has not been made
within 15 days.
STOP PAYMENT UNDER DISHONOUR: Indirect sufficiency

 Drawer has instructed the drawee bank to not make payment

 This provision is not mentioned exclusively
 It is a judicial construct: Modi Cements Ltd. v. Kuchil Kumar Nandi AIR 1998 SC
1057  stopped payment also comes under the purview of dishonour of cheques
because it is for prevention of dishonesty. This position was reiterated in MMTC ltd.
v. Medical Chemicals and Pharma Pvt. Ltd 2002 Criminal LJ 266 SC.
ACCOUNT CLOSED

 NEPC Micon Ltd. v. Magma Leasing Ltd. AIR 1999 SC 1952: account closed also
comes under the purview of Section 138
NOTE: No fixed format for indicating that there has been a dishonour of cheques: anything
that is sufficiently indicative of dishonour works

SECTION 143: SUMMARY TRIAL

 Discretion of Court for speedier justice in case of day to day hearings.
CT: CA4

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(a) If you prove consideration under 118 (a), you have right to claim property. Section 9,
46, 118(g),78
(b) Section 8 (read with 78) de jure possession; S. 56 blank indorsement cannot be
there, special endorsement can be there
(c) Privileges (section 118(g)
(d) Section 46: Fictitious title.

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CLASS NOTES SOGA

INTRODUCTION
Statutes governing different
laws.
 Payments in India: The Negotiable Instruments Act, 1881.
Types of instruments covered: Promissory notes, bills of exchange, cheques (type of
bill of exchange), bank drafts (type of bill of exchange).
 Transfer of movable property: Sale of Goods Act, 1930. (Movable property: Goods
which can be moved easily).
Sale of Goods Act 1893: British Act (Parent Act).
CT, including SOG, in US: Uniform Commercial Code.
International Sale of Goods: Convention on International Sale of Goods, 1980 (UK
and India are not parties). This is a very simple, clear law. It has encouraged trade.
 Transfer of immovable property: Transfer of Property Act, 1882. (Immovable
property: Goods which are permanently attached to the ground).
 Bill of Lading: Indian Bill of Lading Act, 1856. Replaced by Carriage of Goods by
Sea Act, 1925.

General Clauses Act, 1897. Section 3(26): Immovable property defined. Section 3(36):
Movable property defined.

Lex Mercatoria: Law of the merchants. Customs and usages keep developing. It is contained
of two categories of laws: Lex Mercatoria which has already been developed and laws which
are still in development. Agencies in India regulating and developing the customs and usages
of private trade: CII, ASSOCHAM, FICCI. Agencies around the world developing the
customs and usages of private trade: UNIDROIT (International Institute for the Unification of
Private Law), International Chamber of Commerce, UNCITRAL.

INTRATERMS (International Trade Terms): Not provided by the ICC.

INCOTERMS (International Commercial Terms): Provided by ICC. These are standard
terms which get changed every 10 years.
 Ex works: Delivery to doorstep. Named place of destination. Ex Works: Collection
contracts. The duty of the buyer is to collect the goods from the seller’s place of
business. The buyer must provide the transport and insurance facilities. Ex Store –
Collect from store. Ex Factory – Collect from factory. This is the named place of

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 destination. Obligations on the seller – To supply the goods and while supplying,
make those goods measured, weighed, checked, packaged, i.e., deliver in a deliverable
state; supply the documents, ensure the delivery of the goods to the buyer, pay any
cost incidental to placing the goods at the buyer’s disposal, provide any assistance
requested by the buyer. Obligations of the buyer – Accepting goods if in conformity
with the contract, pay for the goods, obtain appropriate license for exportation of the
goods,
 FoB: Free on Board. The moment the seller puts the goods on board, his liability ends
and the buyer’s/carrier’s liability begins.
 CIF: Cost, Insurance and Freight. Ships. The seller covers the cost of insurance and
delivery.

SALE OF GOODS ACT, 1930

Section 2: Definitions in ICA are applicable to SOGA. Doctrine of incorporation by
reference. Section 2(15).

Section 3 of SOGA provides that in cases of conflict, the provisions of SOGA will take
precedence over those of ICA. Generally, Act passed subsequently and which is special will
prevail. Section 66(1)(e) of SOGA provides that the Act does not affect any rule of law not
inconsistent with the Act. The limitation of this clause is that all rules consistent with SOGA
is already present. Thus, there exists no scope for rules not inconsistent.

Deemed Sale
An agreement where most provisions do not form a contract of sale, but for the purposes of
taxation, it would be considered to be contract of sale.

Northern India Caterers v. Governor of Delhi

Held, some transactions are contracts of service, while some are contracts of sale.

This judgement led to the problem of tax evasion. Article 366(29A) introduced by 46th
Constitutional Amendment, introduced the concept of deemed sale in order to resolve this
situation.

By express provisions in the contract, all provisions of SOGA can be excluded: Exclusion
Clause: Section 62. Things which cannot be excluded: merchantable quality, reasonability
test and limitation period.

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Definition of Commercial Transactions.
 UNGA: An agreement between two parties for the purposes of the transfer of property
in exchange of money transaction.
 Sale of Goods Act, 1930: A contract whereby the seller transfers or agrees to transfer
the property in goods to the buyer for a price.

HIRE-PURCHASE CONTRACT
At any point of time, if the parties had subsequently agreed to turn the hire agreement, into a
purchase agreement, it is a hire-purchase contract. Provided, for purposes of transactions, it is
a sales contract. Generally considered as a bailment contract.

Differences - Contract of Sale and Hire-Purchase Contract

9. In COS, the seller transfers or agrees to transfer the property in the goods to the buyer
at a price, whether paid at once or through instalments. Whereas, in HP, there is no
such agreement. It is a contract of hire, though it may eventually ripen into a sale.
10. In COS, there is an agreement to buy, whereas, in HP, the hirer is not a buyer, who
has agreed to buy. He simply has an option to buy.
11. In COS, ownership is transferred immediately from the seller to buyer. In HP,
ownership transfers only when certain number of instalments are paid at the option of
the hirer.
12. In COS, the buyer becomes the owner of the goods and has all rights of the owner. In
HP, the hirer is only a bailee.
13. In COS, the buyer cannot terminate a contract and is bound to pay the price at the
contract terms. In HP, hiree cannot be compelled to buy.
14. In COS, if the seller or the buyer sells the goods to a third party, then the third party 1.
Must have bought in good faith and 2. Must exercise reasonable care to find out the
owner. Then any transfer from the first party to third party will be valid sale (Section
29, 30). The hiree cannot transfer goods to a third party.
15. A COS is sales per se. In COS sales tax is imposed from the beginning. HP is deemed
to be sale only for the purposes of taxation.
16. A HP has to be in writing.

The most important distinction is that of the option to buy, under hire-purchase.

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  Lee v. Butler
Where the hirer does not have the option to return, it will be an agreement to buy, and
not a hire-purchase, even if the price is payable in instalments and the seller has the
power to seize the goods on default of payment.

State of Andhra Pradesh v. Kone Elevators (India) Ltd.

Differentiates between sale and hire-purchase agreements.

GOODS
Software is not considered to be goods in UK and the US.

TCS v. State of Andhra Pradesh

Tangibility or intangibility is not the criterion for determining what qualifies as
‘goods’. Goods are determined on the basis of marketability. Tests: Goods must be
marketable and goods must be sold freely in the market.

Software stored on CDs is goods. SC did not determine whether information passing
through the internet is goods. Canned, branded or customized software is considered
to be goods. SC did not determine whether unbranded software is goods.

BSNL v. Union of India

If goods and services are not distinguished, then the taxing authority determines
whether the commodity is a goods or service.

St. Albans City and District Council v. International Computer Co. Ltd.
Software is not goods.

Are the files of a client considered to be goods?

RD Saxena v. Balram Prasad

The files of a client, held by an attorney, are not goods. Thus, attorneys cannot
exercise lien. It is the duty of attorneys to return client files even if the fees are not
paid. Not returning files amounts to professional misconduct, which forms grounds
for prosecution by the Bar Council of India. Clients are allowed to choose legal
professionals of their choice under Article 21 and 22 of the Constitution. Lien will not
allow this.

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 ICA provides that attorneys of the HC can exercise lien. However, Advocates Act,
1961 provides that they cannot. The latter, and more specific legislation takes
precedence.

Clifford Harris v. Solland International Ltd.

House of Lords held that advocates have rights of lien.

Is currency in circulation considered to be goods?

Section 29, RBI Act, 1934: Money can only be printed by the RBI. This is a sovereign
function. Thus, currency notes are not goods. However, antique currency comes within the
ambit of goods.

R v. Grims; R v. Leigh
Since value of currency keeps fluctuating, foreign currency cannot be considered to be
goods.

Since value of currency keeps fluctuating, foreign currency cannot be considered to

be goods.

Export/import (Exim licenses/REP licenses) licenses are regulated by Foreign Trade

Development Regulation Act, 1992. They are issued by the Directorate General of Foreign
Trade, which was constituted under this Act.

H Anraj
Export/import license are goods, since these are freely traded in the market. Similarly,
lottery tickets are also goods.

Vikas Sales Corporation v. CCT

Partly overruled H Amraj. Lottery tickets, held, not to be goods.

Sunrise Associates v. State of TN

Lottery tickets are actionable claim, and not goods. They are freely sold and
purchased, but are regulated.

Are ships, aircrafts and hovercrafts goods?

Article 2, CISG: Aircrafts, hovercrafts, electricity, gas are not goods. Since private
individuals cannot sell these to foreign entities.

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In India, electricity, gas is goods within India, not when exchanged between countries. Others
are governed by specific regulations.

Commissioner of Sales Tax, MP v. MP Electricity Board, Jabalpur

It was argued that electricity is not goods, since it cannot be touched or stored. The
SC rejected this argument. Since gas and electricity are sold, they are goods.

Section 2, Competition Act, 2002: Shares are goods if shares certificates have been allotted.

State of Madras v. Gannon Dunkerley & Co.

Construction contract is not a contract of sale. The construction materials are not
passed on under a sale of goods. A construction contract is one whole and indivisible.
It is made in order to construct the building and pass it on not as movables. There is
no contract for transfer of the construction materials.

CONTRACT OF SALE
Contract of sale includes two types of contracts. Both sale (executed) and agreements to sell
(executeree). Contract of sale is of 3 types: absolute, conditional and temporary. Absolute and
conditional are covered under SOGA. Temporary under bailment.

Ingredients of a Contract of Sale. Section 4

1. Contract
2. Transfer of ownership
3. Goods, which are movable in nature (Section 2(7))
4. Price consideration (Section 2(10))

Transfer of ownership is of general property, not of special property. General property:

Ownership rights exist. Special property: Rights of possession and custody exist. Even where
only part consideration is in the form of money, the contract will be considered to be a
contract of sale.

Party Autonomy
Section 62, British SOGA: A contract of sale is sale plus bargain. Parties must be free to
determine the price of goods. Party autonomy must be present.

Freedom to determine the party, manner of transfer or price for the contract.

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Section 2, UCC: Product liability: Standard of the goods.
Section 16, SOGA: Merchantability: Standard of goods.
Parties must be free to determine this for party autonomy to be present.

A statutory transaction is a transaction regulated by a specific law of the state for a purpose. It
is similar to compulsory acquisition. It is a mandatory contract with the State. No real party
autonomy is present on any ground. In Britain, statutory transactions are not seen as contract,
due to want of party autonomy.

iv. New India Sugar Mills v. Commissioner of Sales Tax, Bihar

4:1 ratio. Held, statutory transactions are not contracts. However, Justice
Hidayatullah’s minority opinion, which later became the ratio (in the following 3
cases) said that these were contracts. Parties had minimal consent and knowledge of
the conditions at the stage of entering into contract. Thus, it is seen as a contract of
sale with certain restrictions imposed in public interest.

Salar Jung v. State of Mysore

Vishnu Agencies v. Commercial Tax Officer
Coffee Board Karnataka v. Commissioner of Commercial Taxes

Differences – Contract of Sale and Agreement to Sell

1. Agreement to sell is merely a contract whereas contract of sale is contract plus
conveyance. Conveyance refers to transfer of property, i.e., transfer of ownership.
2. Agreement to sell is conditional, not absolute (executeree). Sale contract is executed,
absolute.
3. In sale contract, the risk passes immediately. Section 20: Transfer of property takes
place with conclusion of contract, whether payment and transfer of possession has
taken place or not. In agreement to sell, risk will pass subsequently. In an agreement
of sale, transfer takes place subsequently.

 State of Uttaranchal v. Khurana Bros.

Differentiates between sale and agreement to sell.

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Negotiations
Negotiations must be made in good faith and must be confidential. Pacta Sund Servanda:
Defined under VCLT (US and India are not parties). Good faith, utmost good faith: Defined
under the General Clauses Act and UCC. UCC S2-103 (1)(b): "Good faith" in the case of a
merchant means honesty in fact and the observance of reasonable commercial standards of
fair dealing in the trade.

Negotiations generally are not binding. However, if a party places substantial reliance on
whatever negotiations have taken place, and has committed certain acts in pursuance of them,
then the negotiations can be binding (doctrine of substantial reliance). Promissory Estoppel:
Section 115, IEA. Onus of proof is on the person who committed the act.

Negotiations take place in the following.

 Terms of sale
 Conditions of sale
 Terms of payment
 Country of origin of goods (in case of international transactions)
 Name, address of the seller’s bank and account no.
 Name, address of the buyer’s bank and account no.
 Whether insurance is required and who must pay the insurance premium
 Methods of transportation (unimodal or multimodal)
 Product or goods description (merchantable quality/satisfactory quality/product
liability)

Parole Evidence/Gathered Evidence

Evidence to prove that the conduct of the other party was wrongful or that own conduct was
bonafide. Not taken into consideration in the US. May be taken into consideration in India. It
may be included in the contract, that the parole evidence may not be taken into consideration.

Conditional Sale
When transfer of property takes place on the fulfilment of a condition. Normally accepted
conditions: time of delivery and payment or tender of price.

TYPES OF GOODS
Future Goods: Section 2(6)

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Specific Goods: Section 2(14)
Perishable Goods: Sections 7, 8 and 54(2).
Ascertained Goods: Section 18

Perishable Goods
Section 7 deals with mistakes while Section 8 deals with frustration. In both situations,
contract is declared to be void.

Essentials of Section 7
1. The contract must be of specific goods.
2. The contract is of sale.
3. The goods must have perished or must have suffered such damage that they do not fit
the description in the contract, before contract was made.
4. This happened without the knowledge of the seller.
5. The contract is declared to be void.

Essentials of Section 8
1. The contract must be of specific goods.
2. The contract must be an agreement to sell.
3. The goods must have perished or must have suffered such damage that they do not fit
the description in the contract, subsequent to the contract but before passage of
property.
4. This happened without fault of either party.
5. The contract is avoided. The intention of the parties decides the fate of the contract.

Test for determining “not fitting the description”: Whether commercial loss has been
suffered. It is determined on the basis of the nature of the goods and de minimus principle:
Negligible loss (Up to 5%).

When part of goods get perished: If the perished part can be severed, then the goods, entirely,
will not be perished. If expenses are required during severance, the seller will bear the
burden.

3. Barrow, Lane & Vollard v. Phillip Clips Co.

Stolen goods are perished goods.

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Fixation of Price
Sections 9: Four methods; and 10: 1 method. Section 10 is generally not used, because it
provides unfettered power to third party.
“Avoided”: Depends upon the intention of the parties (Indian opinion). Statute will not
determine the validity of the contract. Differing opinion: without the price, the contract is
void (British opinion). No concrete answer.

Reasonable price, under Section 10, is fixed on the basis of the following factors.
 Cost of production
 Administrative costs (duties, charges etc.)
 Transaction costs (transport, carriage etc.)
 Reasonable profits (Depends of the market. Generally, 10% is kept as the minimum.)

STIPULATIONS: CONDITIONS AND WARRANTY

Section 12 onwards, stipulations are with reference to goods. In Section 11, the stipulation is
with reference to contract.

Stipulations of Time
Section 46 and Section 55 of the ICA provide that time is of the essence in contracts. Section
11 of the SOGA provides that time generally, is not of the essence in contracts. Section 11:
Elements: Party autonomy (parties can freely determine performance wrt time), stipulations
of time of payment are not of the essence of the contract, stipulations wrt delivery whether of
the essence or not, will depend on the terms of the contract. Parties have been given the
freedom to make time of the essence or to not. Under CISG too, the position is the same.

Failure of punctual payment does not generally, give the right to the seller to repudiate the
contract. However, it is possible for him to withhold delivery until payment and also has the
right to resell if price is not paid within reasonable time (Section 47: Seller’s lien and Section
54: Seller’s right to resell during exercise of lien).

Time is not of the essence, when the contract does not specify the time of payment. Parties
may provide in the contract for the time of payment to be of the essence. Where contract is
for delivery in instalments, each instalment to be paid for on delivery, failure to pay for one
instalment may entitle the seller to repudiate the contract.

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 o Orissa Textiles v. Ganesh Das
If you show or prove that the contract is a mercantile contract, time will generally be
of the essence.

When you are alleging that the time is of the essence and you are claiming damages, it
must be proven that: 1. The parties have agreed expressly to treat time as of the
essence, or 2. The delay operates as an injury, or 3. The nature and necessity of the
contract require it to be so construed.

Extended time, with consent, will also be of the essence. Time is extended either by
express mention or by conduct.

Pakkhar Singh v. Krishna Singh

Time will be determined by 3 aspects: language of the contract, nature of the property
sold and the conduct of the parties and surrounding circumstances at or before the
contract.

British Paints v. Union of India

Army. Sovereign functions. Burden of proving time of delivery to be not of the
essence is heavy.

China Cotton Exporters v. Beharilal Ramcharan Cotton Mills

In mercantile contracts, stipulations as to time, apart from time of payment, are
usually of the essence. The seller cannot take the defence that default in time of
delivery was due to default on part of his suppliers or due to circumstances beyond his
control. He must show that he has done everything to ensure timely supply.

If payment must be made on a specific day, it must take place during the whole day or during
business hours.

Time of payment is the time (specified date) mentioned in the contract. Test to determine
whether payment is being done: Readiness and willingness. If date is not mentioned or delay
is present, the party must be ready and willing to pay. Sometimes, payment takes place after
the goods/documents are delivered. If date is extended with mutual consent, it becomes the
essence of the contract. If payment requires examination, it will take place after examination.
(Section 41).

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Place of Payment
At a specified place, as mentioned in the contract. If not mentioned, seller’s place of
business. If exchange of documents or goods are specified for a particular place, that place
will also be the place of payment. Change in place of business: expenses borne incidentally
by the seller.

Can payment or delivery in installments be made? Installment payments are allowed. Status
of stipulations of time, apart from time of payment, usually depend on the nature of contract
and the character of goods dealt with, under common law. these stipulations are usually of the
essence. However, it is possible for a party to prove that time was intended to not be of the
essence. The burden lies on this party and the burden is heavy.

Condition and Warranty

Stipulations with reference to goods are of two kinds: Conditions and warranty. When
condition is vitiated, the remedy is repudiation. When warranty is vitiated, the remedy is
damages.

3 kinds of statements can be made by the parties.

 Conditions: Statements which create serious legal obligations, without which goods
cannot be bought and sold. This provides the main purpose for which goods are being
bought.
 Warranty: Statements with less consequence but creating legal obligations.
 Puffs: Simple opinions which are made at the time of entering into contracts and
which do not create any obligations.

Once a condition, always a condition. The condition will always remain a condition, but by
treating the condition as warranty, the remedy may be changed/waived. Instead of
repudiation, damages may be asked for. Waiver can be either express or implied. A condition
cannot be changed into a warranty. However, the remedy may be changed. Section 13: A
condition can be waived. In this case, all remedies are waived. Or a condition may be elected
to be treated as warranty. In this case, damages can be asked for. Whether seller can compel
the buyer to accept the condition as warranty? Section 13 and 59 read together.

Difference between conditions and warranty:

 Condition is a stipulation essential to the main purpose of the contract. The warranty
is a stipulation subsidiary or collateral to the main purpose of the contract.
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  If a condition is vitiated, the remedies are repudiation and damages. In case of
warranty, only damages can be sought.
 A breach of condition can be treated as breach of warranty. Breach of warranty cannot
be treated as breach of condition.
 Contract of sale cannot be fulfilled without fulfilment of condition. The main contract
can be fulfilled even without fulfillment of warranty.

Section 12: Two stipulations: condition or warranty (Indian position). Lord Denning,
however, says innominate term is the third stipulation. This is not valid in India.

o Cehave v. Bremer
Deals with Section 12(4): Whether a stipulation is a condition or warranty depends on
the terms of the contract. Stipulating a mere technical point as a condition should not
allow the parties to repudiate the contract. Similarly, when a flexible term, such as
merchantable quality, is mentioned as a condition, courts have held only substantial
breach to constitute vitiation of the stipulation. Thus, here, ‘shipment to be made in
good condition’ was held not to be a condition. The goods, though in part defective,
had not been rendered unmerchantable. Even the affected goods could be used for the
intended purpose.

Lord Denning talks about a third stipulation also. This is the innominate/intermediate
term. (British position). Breach of the contract will determine whether it is a condition
or warranty.

This was the first case to give the classical/common law difference between condition
and warranty. It also talked about the modern differentiation of condition and
warranty. The modern law definitions were adopted. The case also talked about the
vitiation of a warranty as the vitiation of condition for the first time.

City and Industrial Development Corp. of Maharashtra v. Nagpur Steel and Alloys
Section 13(1) and Section 59. The buyer, CIDCO contracted with the seller, NSA, to
procure steel rods of certain specifications. It was mentioned that goods not in
accordance with specifications will be rejected. The rods were delivered to the buyer
in 60 instalments over 3 months. The price consideration for the first 58 instalments
were paid. However, the price was withheld for the last two instalments on the
ground that
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 the rods did not meet the specifications. The seller argued that the buyer had waived
the condition by not raising an objection and instead going for unconditional
acceptance in the case of the first 58 instalments and thus, could not refuse to accept
the last two. Even the breach of condition could not be treated as breach of warranty,
since such intention was never communicated. There was no proof of actual damage
to the buyer. These arguments were accepted by the court.

IMPLIED CONDITIONS

Section 14
Section 14 relates to transfer of title by owner. If it is being transferred by someone other
than the owner, Sections 27-30 shall apply. 4 situations in which the seller cannot sell the
goods.

 When seller is not the owner.

 Seller is the owner but he is transferring a defective title.
 Where the sale is illegal.
 Where the sale is without jurisdiction.

If such sale is made, the buyer must prove that he was fraudulently induced by the seller to
pay the sum by a false representation that he had a good title to the property sold. The fact
that the seller warranted and covenanted with the purchaser that he had a good title.

3. Howell v. Richards
Lord Ellenborough said “The implied warranty of quiet possession is a warranty
against disturbance and it is not broken unless and until a disturbance takes place.”
‘Have and enjoy’ refers to a person having actual possession coupled with enjoyment,
which leads to quiet possession.

Distinction Between Implied Condition as to Title (14(1)) and Implied Warranty of

Quiet Possession (14(2)).

 The distinction between the conditions of title and warranty of quiet possession is
similar to that between a covenant for title (right to transfer) and covenant for quiet
enjoyment (no right to transfer).

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  The former is an assurance by the guarantor that he has every estate in quality and
quantity of the goods which he purports to convey to. The latter is an assurance
against the consequence of a defective title.

14(c) ensures that the buyer’s possession shall not be disturbed by reason of existence of any
charges or encumbrances. In such cases, the seller must pay the charges and encumbrances.
14(c) ensures that it is the legal duty of the seller to inform the buyer of the existence of such
charges or encumbrances if present. This is vital in order to constitute complete
consideration. If information is present, the buyer will be liable to pay.

o Niblett v. Confectioners Materials

Lord Atkin said that this warranty (14(c)) is given to protect the purchaser against the
lawful acts of third persons against the breaches of the contract of sale and tortious
acts of the vendor himself.

If 14(a) is present, 14(b) and 14 (c) will automatically be present. Presence of 14(b) and 14(c)
does not mean 14(a) will be present.

Niblett v. Confectioners Materials

Justice Banker.
1. The goods tendered must be the one which the seller has right to sell. In this case,
since the subsequent seller had admitted that he would not sell the goods under Nislee
brand, it implied that he has no right to sell the goods.
2. Merchantability includes the state and condition of the goods. The state of the
condensed milk was that it was packaged in tins bearing labels. The labels were as
much part of the state and condition of the goods as the tins.
3. It is implied condition that goods are of merchantable quality. Banker relied on
Bristol Tramways Co. v. Fiat Motors.
4. Banker relied on Gardiner v. Grey. The intention of both parties must be taken to
be that it shall be sellable in the market under the denomination mentioned in the
contract between them. The purchaser cannot be supposed to buy the goods and lay
them on dunghill.
5. the phrase merchantable quality, in the courts opinion, means that the article is of
such quality and in such condition that a reasonable man acting, where after a full
examination, accepts it under the circumstances of the case in performance of his
offer
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 to buy that article, whether he buys it for his own use or to sell it again. (Ratio not
applicable now). India follows the satisfactory quality test.
6. In warranty that the goods shall be of merchantable quality applied to a
complicated machine, it applies equally to the packing in which the goods are
presented which may and do in this case, form the most important feature of the
goods as delivered.

Section 15
Three ingredients
 Sale of specific goods
 Sale by description
 Description must be adhered to

Sale by Description: Sections 15, 41, 42 are read together.

o Couchman v. Hill
Description usually means a particular class or kind of goods but it also includes any
statement which constitutes a substantial ingredient of the identity of the goods sold.

Bowes v. Shand
Lord Blackburn said that if you contract to sell peas, you cannot oblige a party to take
beans. If the description of the article tendered is different in any respect, it is not the
article bargained for, and the other party is not bound to take it.

Grant v. Australia Knitting Mills

Lord Wright. When goods have been displayed at a counter, it is sale by description.
There is a sale by description even though the buyer is buying something displayed
before him on the counter. A thing is sold by description though it is specific so long
as it is sold not merely as the specific goods but as a thing corresponding to the
description.

Cehave v. Bremer
Time and place of delivery can form part of the description.

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 Nicholson v. Marriot
Time may form part of description. The subject matter of the contract was a 17th
Century tablecloth.

Niblett v. Confectioners Materials

Packaging may form part of the description.

Section 16
Does merchantable quality also form part of caveat emptor? Yes. Forms part of both caveat
emptor and caveat vendetor. Section 16 reiterates the common law principle of caveat
emptor. Seller’s responsibilities in caveat emptor is to provide the buyer with the reasonable
opportunity of examination of the goods.

Reasons for caveat emptor: Nature of transaction, place of selling the goods, nature of the
goods, buyer’s knowledge of the purpose for buying the goods. The buyer must also get the
opportunity of examining the goods. This is the reason why the onus is kept on the buyer.
However, the effects of the factors have changed. Now caveat vendetor is present.
Complexities have emerged. Section 16 opening: Emptor. Exceptions: Vendetor.

Section 16(1): 3 conditions

 Buyer expressly or by implication made know to the seller that he required the goods
for a particular purpose.
 Buyer relied on seller’s skill and judgement.
 The goods are of that description which are in the course of sellers’ business to
supply. (Not an occasional seller).

16(1) applies to persons who had opted to deal with the particular goods, i.e., manufacturers,
producers and dealers. Exception for the exception: Sale of specified good under trade name
or patent name. Exact goods: When buyer demands goods of exact specifications (patented or
trademarked goods), the liability of the buyer is present and that of the seller is absent. The
duty of the seller is to provide that good. The seller is not liable for that good. Patented goods
are mechanical goods under a patent recognized by the patent office, under the patent name.

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 4. Jones v. Just
Turned caveat emptor into caveat vendetor for the first time ever, but only on certain
grounds.

Griffiths v. Peter Conway Ltd.

Seller deals with normal buyers and not abnormal buyers. If the seller deals with an
unusual disease, it is the buyer’s responsibility to inform the seller, or be responsible.

Medway Oil and Storage Company Ltd. v. Silica Gel Corporation

The buyer’s reliance is a question of fact. The reliance must be substantial and
effective inducement which leads to the buyer to agree to the purchase.

Aswan Engineering Establishment v. Lupdine Ltd.

Related to Section 16(1) and merchantable quality. It was held that goods are said to
be of merchantable quality even if they were suitable to be used for one or more
purposes for which such goods were normally bought, even if not suitable for a
particular purpose intended by the buyer.

Grant v. Australian Knitting Wear

Sale of dangerous goods. Not defined. It is the duty of the seller to make the buyer aware of
the nature of these. If knowledge not provided, liability in torts and contracts may both lie,
following damage.

Prohibited goods. Eco-labelling required in manufacture of some classes of goods. If these

standards are not followed, the goods will be prohibited. For example, manufacture of
aircrafts, motor vehicles etc.

Age criteria. Intoxicating liquor, tobacco or cigarette papers, firearms or ammunitions,

explosives, pets, video recordings, old metals, publications harmful to children or young
persons, certain categories of spirits and paints.

Section 17
Sale by sample and implied conditions thereof. Average sampling: Extracting a small
quantity from a larger bulk, sending a small representative quantity in advance, showing a
pattern, showing a model. Latent defect and patent defect: Both defects covered.

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TRANSFER OF PROPERTY
Austin defines property as the right residing in a person called the owner availing against
other persons generally (jus in rem) to use and to deal with the thing the subject of the right in
a manner and to an extent limited only by the general rules of law and not by any particular
right over the same subject residing in another person.

Presidency Towns Insolvency Act, 1909 repealed by IBC. Even repealed acts can be referred
to for definitions. This act defines property under Section 2(e): Property includes any
property over which or the profits of which any person has a disposing power which he may
exercise for his own benefit. Section 2(i): Transfer of property includes the transfer of any
interest therein and any charge created thereon. Right of disposal: SOGA Sections 23 and 25.

What is property? Section 2(11): Not sufficient. It simply differentiates between two types of
property: general and special. General property: ownership. Special property: limited rights.
Proprietary rights consist of two things: the right to resell and jus in rem (right against whole
word).

Title/Proprietary Rights
Transfer of property gives 3 rights: ownership rights (can be transferred only by owner or his
mercantile agent), possessory rights (control over the goods; ability to possess, not sell or
change dynamics) and custodial rights (not sell, right to restrict others from wrongful
interference). Ownership rights cannot flow from possession rights or custodial rights.

Merchantable title: Title + Whatever additional rights are prescribed for by law.

Implications of Transfer of Property

1. If the property in those goods has passed, the buyer acquires a perfect title (shifting of
ownership).
2. Sections 27-30 (nemo dat quad non habet: no one can transfer a better title than the
one one has). Exceptions to the maxim also given here. Other exceptions (SOGA
54(2) AND ICA).
3. Risk prima facie passes with property (Section 26: risk parito domino).
4. The seller can sue for price only after transfer of property.
5. If the goods are delivered subject to reservation of title or property by the seller, the
seller may get a good title of the goods if the buyer becomes insolvent (conditional

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 transfer of property, on payment; Romalpa clause, sections 23 and 25, the buyer
cannot further transfer it, Aluminum Industries Case).
6. The right to sue a third party for damages to or loss of the goods depends upon who is
having property in those goods.

Source of Transfer of Property: Section 19

Property in specific and ascertained goods passes when the parties intend for it to pass.
Source of Section 19 is Sax v. Tilley.

5. Sax v. Tilley
First time, the transfer of property can be shown. By terms of contract, subsequent
conduct of parties and circumstances of the case.

Agriculture Market Committee v. Shalimar Chemical Works

Reiteration of Sax.

Bhagwat Narayan Tendulkar v. Goa Cooperative Marketing and Supply Federation

Ltd.
Reiteration of same.

Usha Beltron Ltd. v. State of Punjab

The contract indicated that the property in this case, would pass after delivery of
goods, successful testing and issuance of take over certificate. Thus, transfer was held
to not have taken place when the goods where the transferred into the buyer
(government) municipality as the testing and issuance had not taken place.

When Transfer of Property Can Take Place

 Specific goods: At the time, the contract is entered into. When all 4 essentials of
section 4 are satisfied. Sections 2(14), 4, 19, 20, 21, 22.
 Ascertained goods: When the goods get ascertained. 4, 18, 23.
 Unascertained/Generic goods: When the goods get appropriated (identifying and
agreeing upon under the contract; legal art which helps us identify the goods). When
goods are determined/agreed upon in accordance with the terms of the contract
subsequent to the contract. Consent of both the parties is required. This consent may
be given by both the parties either at the same time, or separately. Sections 4, 18, 23,
25.
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  Quasi-Specific goods.

Whether transfer of property in the following cases amounts to sale?

 In pursuance of award.
 On payment of indemnity.
 Under compulsory transaction.
 For supply of goods under public duty.
No. the nature of the transactions indicates that these are not sale.

o Badri Prasad v. State of Madhya

Pradesh https://indiankanoon.org/doc/1069919/
Transfer of property wrt timber discussed. Section 2(7) defines goods which are
movable in nature. Timber comes under the ambit of movable goods. In order to
certify severance, Boundary Certificates are issued by the forest officer. Before
issuance, the goods are said to be ascertained goods. After issuance, they become
specific.

2 JUDGE BENCH COURT

When a contractor is deemed to have paid in full the price there could be no occasion for
the Government to reserve a right of disposal of the property even when its delivery had
been made to the purchaser. As already stated, it is s. 20 of the Sale 'of Goods Act which
will apply to this case. This section provides that 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
price or the time of delivery of the goods or both is postponed. The contract was
unconditional, the goods sold were specific. They were in a deliverable state and
therefore the property in the goods did pass at the time when the contract was made. This
section would have applied even if the time of payment of price hand been postponed. In
the present case, as already stated, the payment allowed by instalments is to be deemed
payment in full at the time of the delivery of the goods sold.
SUPREME COURT
Action which the Divisional Forest Officer can take for stopping the removal of the forest
produce sold is in pursuance of the statutory authority conferred on him and not in
pursuance of any terms of the contract between respondent No. 2 and the Government.
When a contractor is deemed to have paid in full the price there could be no occasion for
the Government to reserve a right of disposal of the property even when its delivery had
been made to the purchaser. As already stated, it is s. 20 of the Sale 'of Goods Act which
will apply to this case. This section provides that where there is an unconditional contract
for the sale of specific goods in a deliverable state, the property in the goods passes to the
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buyer when the contract is made and it is immaterial whether the time of payment 'of
price

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or the time of delivery of the goods or both is postponed. The contract was unconditional,
the goods sold were specific. They were in a deliverable state and therefore the property
in the goods did pass at the time when the contract was made. This section would have
applied even if the time of payment of price hand been postponed. In the present case, as
already stated, the payment allowed by instalments is to be deemed payment in full at the
time of the delivery of the goods sold.
ISSUE: Whether the property was vested in the state by the Act or transferred to the
Appellant?

CONTENTIONS (A)

1. The forest and trees did not vest in the State under the Act
2. Even if they vested, the standing timber, having been sold to A,
did .not vest in the State
3. In any event, a new contract was completed on February 5, 1955,
and the appellant was entitled to its specific performance.
HELD:

Trial Court: Favoured the Appellant, A

High Court (MP): Allowed the appeal of the State and dismissed the suit brought by A.

SUPREME COURT (SIKRI, J.) (favored the State)

1. The forest and trees vested in the State under the Act.
2. Under the contract, A had not become the owner of the trees as
goods. The property in the timber could pass to A only when the trees
are felled, but before they were felled, the trees had vested in the
State.
3. Under the terms of the contract, there was no sale of the whole of the
trees[3], and, it had to be ascertained which trees fell within the
description of trees which the appellant was entitled to cut.[4] Till
that was done they were not ‘ascertained goods’ within s. 19 of the
Sale of Goods Act 1930.
4. Even if the letter of Feb 1 could be treated as an offer, there was no
unconditional acceptance of the offer, because, there was a reservation
by the appellant of his right to claim a refund in his letter dated 5th
Feb and hence there was no concluded contract.

2nd respondent purchased on 24th December 1956, at a public auction sale held by the
Divisional Forest Officer, the cut timber of a coupe and paid the first installment of the
purchase price immediately. The appellant stood surety for the payment of the remaining
three instalments. The coupe was divided into 4 sections according to the rules which were
deemed to be part of the contract and the boundary certificates was furnished to the 2nd
respondent on 5th February 1957. He began operations in the 1st section on the last week of
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February, but

294
defaulted in the payment of the 2nd instalment which was due on 1st March 1957, and so, on
25th April the appellant and 2nd respondent were informed by the forest authorities, that no
further removal of the timber would be allowed, as the value of timber already removed
exceeded the amount paid. On 28th April a fire broke cut and the timber sold to the 2nd
respondent ceased to exist. On 3rd May 1957, the formal deed of contract, which was signed
by the 2nd respondent and the Divisional Forest Officer on 24th December, was signed by the
Chief Conservator of Forests, as required by the rules. Since the 2nd respondent had not paid
the later instalments proceedings were commenced by the 1st respondent against the
appellant, whereupon he filed a suit for restraining the 1st respondent from continuing the
proceedings. The suit was decreed by the trial court, but dismissed on appeal, by the High
Court.

In his appeal to this Court, the appellant contended that the 2nd respondent had not been put
in possession of the timber sold, except the portion in the 1st section of the coupe, that there
was no transfer of property in the timber and therefore he was not liable to pay the amounts
due on the other 3 instalments, the transfer of property in the timber being a condition
precedent to his liability.

Hon’ble Supreme Court held that Section 20 of the Sale of Goods Act, 1930 which will apply
to this case. This section provides that 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 price or the time of
delivery of the goods or both is postponed. The contract was unconditional, the goods sold
were specific. They were in a deliverable state and therefore the property in the goods did
pass at the time when the contract was made. This section would have applied even if the
time of payment of price hand been postponed. In the present case, as already stated, the
payment allowed by instalments is to be deemed payment in full at the time of the delivery of
the goods sold.

Hon’ble Supreme Court held that the loss of such goods by reason of fire therefore does not
in any way give support to the claim of the appellant. Therefore Hon’ble SC was of the
opinion that the appellant's suit has been rightly dismissed by the High Court, and
accordingly dismissed the appeal before them too.

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Section 20
Section 20 talks about sale of specific goods. Deliverable state is defined in Section 2(3).
Completeness of the product on the date for which it was contemplated, the physical
condition and notice to the buyer about the completeness and state for the purpose of
allowing the buyer to apply for delivery.

 Niblett v. Confectioners Materials

Banker LJ. Deliverable state does not depend upon the mere completeness of the
subject matter in all its parts. It depends upon the actual state of the goods at the date
of the contract and the state in which the goods are to be delivered by the terms of the
contract. The goods must, therefore, be in a physical condition in which the buyer can
take delivery and in which it has been agreed that he shall take delivery under the
contract.

Section 22

o Agricultural Market Committee v. Shalimar Chemical Works Ltd.

Section 22 provides that the transfer of property in specific goods in a deliverable
state takes place after the seller has completed all such acts as he is bound to perform
in order to determine the price of the goods. However, this rule may be displaced if the
intention of the parties is that property must pass even before price is determined.

Sections 18, 23 and 25

7. In Re Wait
Lord Atkin: Ascertained goods: Transfer takes place when the goods get ascertained.

Wait v. Baker
Justice Parke. Source of Section 23. The word ’appropriated’ has been said to be a
term of legal art which has ascertain definite meaning. Appropriated means a selection
on part of the vendor where he has the right to choose the article which he has to
supply in performance of the contract.

The moment the goods which had been selected in pursuance of the contract are
delivered to the carrier, the carrier becomes the agent of the vendee. If there is a
binding contract between the vendor and the vendee, then there is no doubt that the
property passes by such delivery to the carrier.

296
 (Discrepancy with J Park’s statement. Section 35 provides that the buyer applies for the
delivery. Thus, the buyer would generally name the carrier, and the carrier would become
his agent. However, this is not always the case. The carrier is not always the agent of the
vendee. In two situations, the carrier might be named by the seller, and hence, become his
agent.
 Where the seller does not have trust in the buyer’s ability to pay.
 Where the seller anticipates that the buyer may be declared insolvent.

In this situation, the seller will be able to exercise lien over the goods: Stoppage in transit:
Section 50.)

3 types of unascertained goods.

 Generic goods are those goods which have been ordered without identification.
Example, 5000 kg of sugar. The transfer takes place after appropriation.
 Certain type of future goods. Transfer takes place subsequently.
 Unascertained part of large quantity of ascertained goods. Example, 500 tons of sugar
from the sugar in the conference hall.

Two types of appropriation: Conditional and unconditional. Section 23 refers to

unconditional appropriation. This means that the goods must be irrevocable earmarked and
attached to the contract. There must be no further condition needing to be fulfilled in order to
make transfer possible. For unconditional appropriation, assent of the other party is required.
Assent can be given by buyer, seller, mercantile agent or any party appointed for the same.
The assent can be either express or implied. Seller’s part of appropriation is done at the
seller’s place of business after he appropriates and sends it to the buyer. The buyer’s
appropriation takes place at the buyer’s place of business once the goods reaches the buyer
and after examination, assent is given. If the appropriation matches, conformity is present.
For assent to get completed, simultaneous assent is not necessary. Section 23(2).
Appropriation can be given separately as well.

CIT v. Mysore Chromite Ltd.

The appropriation envisaged under Section 23 must be unconditional. On the other
hand, the appropriation envisaged under Section 25 is conditional. The seller can
reserve the right of disposal of goods until certain conditions are fulfilled, until which
time, transfer of property will not be said to have taken place.

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 Aluminium Industrie Vaassen BV v. Romalpa Aluminium Ltd
Introduced the concept of the Romalpa clause in English law.

A Romalpa clause, or a retention of title clause, allows the seller to put a limitation of the
buyer’s rights to further transfer, despite the buyer having all the proprietary rights over the
goods. The basis of the reservation of right of transfer comes from a combined reading of
Sections 23 and 25. Thus, Romalpa clause is valid also in India. Tests for validity of the
Romalpa clause.
 The restriction must be reasonable
 The restriction must be temporary
 The restriction must not be unconscionable

Section 26: Res Parito Domino

o Martineau v. Kitching
J Blackburn. As a general rule, the doctrine is the old civil law doctrine. The meaning
is that where you can show that the property has passed, the risk of loss also passes,
prima facie to the person in whom the property is.

Sweeting v. Turner
J Blackburn. Benefit falls on the owner. Roman law maxim adopted. Any calamity
befalling the goods after the sale is completed must be borne by the purchaser and by
a parity of reasoning, any benefit to them is his benefit and not that of the vendor.

Factors Act, 1889: Possession means custody. Risk.

 Conditional contract/executeree contract/agreement to sell: Seller

 Unconditional sale: Buyer
 Delivery is contingent on some event, if event is fulfilled: Buyer, if not: Seller
 Romalpa: Buyer
 Where goods are in transit: In absence of express agreement, ownership of goods,
cause of such deterioration, nature and character of the goods are factors which must
be considered.

Who has insurable interest while goods are in transit? Whoever is bearing the risk. Multiple
insurance possible. Contract, nature of goods, ownership and insurable interest will
determine.
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Three exceptions to res parito domino
 Exclusion
 Where there is delay in delivery due to some party’s fault, then that party will be liable
 This section does not affect the bailee’s right

Sections 27-30: Nemo Dat Quod Non Habet

 Whistler v. Forester
Nemo dat quod non habet adopted. No one can give a better title than he himself
possesses.

Exceptions to this rule

 Sale with the consent or authority of the owner (27)

 Title by estoppel (27)
 Sale by mercantile agent (27)
 Sale by one of the joint owners (28)
 Sale by a person in possession under a voidable contract (29)
 Sale by seller in possession after sale (30(1))
 Sale by buyer in possession before property has vested in him (30(2))
 Sale by unpaid seller where he exercises his right of lien or stoppage in transit (54)
 Sale in market overt (recognized in Britain, not India, Object clause, Clause 3)
 Sections 169, 171, ICA

Remedies to the owner where property wrongfully transferred

6. Recovery of property
7. Suit for wrongful interference
8. Restitution
9. Trace and follow

PERFORMANCE OF THE CONTRACT

Section 2(2): Definition of delivery.

Section 31
Duties of the seller and the buyer. Section 31 to be read with Sections 35, 42 (buyer’s
conditional duty to apply and seller’s conditional duty to put goods in deliverable state).

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Symbolic, constructive, fictitious, acknowledgement, atonement: Absolute control over goods
must be placed with the buyer. Absolute control lies with the owner. In fictitious,
acknowledgement or atonement delivery, position and possession of goods does not change.

Section 32
10. Lila Parulkar v. Sakal Papers
Concurrent conditions can be contracted out through express mention in contract. If
the contract does not stipulate the time of payment, it will be at the time of delivery.
However, this is a concurrent condition. This is applicable only when the contract is
silent on the delivery-payment relationship.

Section 11 and Section 32 are mutually exclusive.

Section 33: Mode of Delivery

Section 34: Part Delivery Allowed

Part delivery: In progress of the whole contract, if delivery is made. Done when delivery
cannot be made as a whole. Thus, part delivery and instalment delivery are different. Part
delivery is not considered to be the constructive delivery of the whole where the subsequent
part of the whole is defective or not delivered. The continued good faith rule requires the
seller to complete the delivery in accordance with the contract.

6. Cooper Case
Brett, LJ. Part delivery is constructive delivery of the whole.

Section 35: Buyer to Apply for Delivery

Section 36: Rules of Delivery

Where by express mention, the time of payment is mentioned, will default lead to
repudiation? Readiness and willingness is the test for time of payment. Readiness and
willingness includes capacity to pay.

o Devi Dayal Sales v. State of Maharashtra

Absence of readiness and willingness to pay can be inferred from refusal to take
delivery. Penalty clause for default in payment can be enforced.

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The place of delivery is seller’s place of business. The time of delivery is a reasonable time.
Delivery by atonement (36(3)). Expenses of delivery to be decided in accordance with the
contract. Expenses to put goods in deliverable state to be borne by seller. Expenses of
preparing for receiving or accepting the goods to be borne by the buyer.

Section 37
Short delivery not allowed. Delivery in excessive quantity not allowed. If accepted, not be
paid for at contract rate.

If goods are delivered mixed with other goods, the buyer may repudiate the contract. If
accepted, the cost of separation is borne by the seller.

Delivery of inferior quality is not allowed. Contract may be repudiated. De minimus variation
in quality allowed. Inferior quality means that the contract is not in accordance with the terms
of the contract.

Section 38: Instalment Delivery

Instalment delivery is not permissible unless provided for under the contract. If provided for
under the contract, each instalment will amount to a separate contract. Then default in one
instalments cannot lead to repudiation of the entire contract. However, if a fundamental
breach is present, repudiation can take place. Not expressly mentioned in SOGA, but can be
inferred. If default is recurrent, then repudiation can take place.

 Union of India v. KH Rao

Section 38: Instalment delivery. In cases where the contract of instalment deliveries is
such that each instalment could have been treated as delivery under a separate
contract, the deliveries would be said to be severable. In such cases, generally, the
breach in delivery or payment of one instalment would not result in the repudiation of
the contract. The entire contract will be still enforceable, provided that compensation
for damage resulting from the particular breach is provided. However, where it can be
shown that the breach result in defeating the very soul of the contract, the breach
would result in complete repudiation, and not simply an action for damages. Whether
the breach goes to the root of the contract is a question to be decided on the facts and
circumstances of the case. The non-performance must amount to a fundamental
breach of the contract.

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Acceptance of Goods
Section 41: Buyer’s right of examination. Section 42: Modes of acceptance: Intimation,
adoption of transaction, silence. Reasonable time is a question of fact. Sections 43, 44: In
case of rejection, the liability of the prospective buyer is to inform the seller of the rejection,
and asking him to lift the goods. Section 24: Goods sent on approval or on sale or return.

Risk in relation to rejected goods: It must be seen whether justified rejection was present,
whether rejection was notified to the seller. While the goods are with the prospective buyer,
the duties of bailee will still be there.

A transaction is said to have been adopted if the goods have been put to use, consumed or
resold. Bona fide grounds of rejection include goods not matching description, not matching
quality or not fit for purpose. Can a prospective buyer bail the goods further? Yes. In that
case, the third party should have accepted the good in good faith and should make reasonable
efforts to find the real owner of the goods.

 Head v. Tatar Salle

If goods get damaged in the period in which they are lying with the prospective buyer,
the fault must be determined (defined under S2(5)). The prospective buyer has the
responsibility to take reasonable care of the goods under the duties of the bailee
(Sections 151, 159, ICA).

In Section 24 cases, the nature of the contract is that of a bailment contract, until approval is
granted, in which case it turns into sale. This means that one party is a prospective buyer.
True nature of the contract must be determined on the basis of the construction of the
contract.

Relationship between 24 and 42. Section 42 provides the modes of acceptance in general, for
all kinds of contracts. Section 24 deals with acceptance in case of goods sent on approval, or
on sale or return, or similar contracts. The difference is in the nature of contract. Further, the
provision of silence over a fixed period of time amounting to approval is specifically
provided in section 24.

Section 43
Rejection must be bona fide and intimation of rejection to seller must be made. Bona fide
rejection takes place when the goods are not in consonance with contract. The buyer must

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take reasonable care of goods. The seller bears the expenses of re-delivery.

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UNPAID SELLER
Sections 45 - 54. The chapter deals with the rights of an unpaid seller (lien, stoppage in
transit, suit for price), after transfer of property to the buyer. Section 45: Unpaid Seller
defined.

Types of Lien
 Common law lien
 Statutory lien
 Equitable lien
 Possessory lien
 Maritime lien

Nature of payment by negotiable instruments and credit cards is conditional. Till the payment
is made absolute, the unpaid sellers’ rights are suspended. Sale on credit does not allow
exercise of right of lien. Right of lien, exercising lien does not terminate contract.

SUIT FOR BREACH OF CONTRACT

Section 55: Suit for Price

Section 60: Anticipatory Breach

Burden of proving anticipatory breach is on the party alleging. Anticipatory breach. Indicated
through facts and circumstances, conduct, parole evidence. Substantial facts will lead a
person to believe that contract will not be performed. Section 60 recognizes anticipatory
breach.

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NIA VARUN
NEGOTIABLE INSTRUMENT

Q. Whether our sale of goods act recognizes the regulation of the international sales?
A. Yes
Q. Why in SOGA and in municipal contracts also standard form of contract is used?
1. Time saving
2. Brings certainty to the contract
3. It is secured. It is an internationally used term and therefore there is a revision taking place
and hence the terms.
Q. What are the benefits of the standard form of contract?
Incoterms are of three types:-
A. Free On Board( moment the goods are on ship, the liability of the seller is over)-
certain things are assumed for the seller and same for the buyer.
The obligations on the part of the seller are:-
1. Supply conforming goods packed appropriately in accordance with the contract any
documents conforming (Bill of lading, receipt and commercial invoice) the
conformity which has been agreed1 supply commercial invoice or its equivalent
electronic version
2. Deliver the goods to the buyer by placing them onboard at a time agreed and without
delay give the buyer sufficient notice of fact.
3. Pay any costs incidental to the delivery of the goods.
4. Obtain the export licence2.
5. Provide proof of delivery in the manner agreed.
6. Provide any assistance for getting any document facilitating the export.3
S.26 source.
There are four implied conditions mentioned but not exclusive:-
Buyers having quite possession of multiple goods (Niblet V Pvt confectioners)

1
Q what is the difference between receipt, commercial invoice and bill of lading?

A Bill of Lading is a document indicating the title or the ownership. The difference is that of the negotiable
nature and the information given. (Reciept<commercial invoice<bill of lading). Overlapping is not allowed
in bill of lading. Whenever a overlapping is done in a bill of lading, it is known as claused bill of lading or a
dirty bill of lading. In receipt there is information regarding the nature and the price of the goods, in a
commercial invoice there is information regarding the ownership of the goods whereby in a bill of lading
contains the details which can be transferred further by the buyer . A bill of lading is a negotiable
document while the others are not.
2
Which law in India governs Export liscence? Foreign trade development(regulation) act, 1992
A.Ministiry of Commerce imposes and ministry of finance collect, and a liscence can be considered to be goods
3
Q. What are the rules of official document?
305
 Apparent ownership

Negotiable instruments Act

Article 372 of the constitution of India provides the old law and Indian Independence act
1947, provide for the legislative competence for the Negotiable Instruments act.
Negotiable Instruments fall under the Union list under item 46 (Bill of Exchange,
Cheques, Promissory notes and other instruments) and item 45 (Banking). It regulates the
payment of money not in hard currency but in other forms by which the payment is done
subsequently. It is a piece of paper ensuring payments from one party to another freely on
which the essential credentials are written. Any party capable of contracting can issue a
N.I and this includes a minor also but the minor in this case will not be held liable. If a
corporation issues a N.I, then such an issuance will be governed by the Companies Act.
Therefore, the N.I Act governs the issuance of such Negotiable instruments by the
individuals.
S.2 of NI act holds a definition of banking taking into account Section 5(b) of the banking
regulation act, 1949 and RBI act, 1934. According to it, banking means the accepting, for
the purpose of lending or investments, of deposits of money from the public, repayable on
demand or otherwise, and withdrawal by cheque, draft, order or otherwise. 133 years have
been completed and 27 amendments have been made and the latest amendments had been
made regarding the jurisdiction following the Dasrath Roop Singh Rathore Judgement.
The Negotiable instruments act commenced on 9/12/1881 and it was enforced on 1st
March 1882. The source of NI act is the Bill of Exchange act, 1882. Both the acts were
getting passed together the 13th Law Commission report gives a realistic explanation of
such questions, that why the bill of exchange act was passed in 1882 and how the
Negotiable Act was drafter in 1881. The American Law that regulates N.I. is the U.C.C.,
or in other words Uniform Commercial Rules. Negotiable Instruments recognize all the
equatorial rights.4
Purpose and objective of the Negotiable Instruments Act, 1881
Object clause of NI act, mentions about the history of N.I. act and in two cases the
purpose of NI act has been mentioned.
One is the Shri Ishwar Alloy Steel Ltd. V Dayawala Nico Ltd.2001 3 SCC 609 “the main
object of the act is to legalize the system by the virtue of which the instruments
contemplate by it passes from one hand to other hand by negotiations like another act.
The purpose of this act is to present an orderly and authoritative statement of the legal
principles of law. The act recognizes lex mercatoria dealing with negotiable instruments”
Another case is the case of Amen Chand Pyarelal 1999 3 SCC 35 which stated that “The
interpretation and application of the act, the court should see that the technicalities of the
law and procedural wrangles should not erode the faith of the people particularly of the
business communities and also those dealing with mercantile and engaged in trade. This
is, thus also, talks about Lex Mercatoria. The ratio of the case is given below:-

4
The UN Convention on Bill of Exchange and International Promissory notes, 1988. (Indira Carr,
International Trade Convention).

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 1. Whenever we have a hard currency, then always carrying money is not possible.
Hence NI came into existence.
2. Negotiable Instruments act is an exception to the principle of “Nemo Lex”. Even if
the person who has received the NI in good faith.
3. Purpose of NI act is to transfer money and money only from one hand to another like
any other act through negotiations.

Trade by banking practices of post dated cheques:-

Basel Convention talks about the regulation of trade by banking practices of post dated
cheque. The date on which when the day falls, the cheque becomes valid.
The case of Indus Airways Pvt. Ltd. and others V. Magnum Aviation Pvt. Ltd. Cr App
no 830/2014. Talks about the liability of post dated cheques. Its ration is described below:-
“For issuing of cheque, present consideration is required , existing date and liability in a
post dated cheque is not available and hence S. 138 does not apply and hence the civil
liability will be present and Criminal liability will not be present and thus the cheque will
be invalid. For the purposes of S.138, cheque is present only for the purposes of existing
debt and liability”.
Transferability of the Negotiable instrument
Section 13(2) of the act says that a negotiable instrument can be transferred. There is no
as such limit to the transferring of the Negotiable Instruments
Bearer promissory notes and bearer bill of exchange can only be issued by the
Government and not by the Pvt individuals.

On a NI, anything which is lithographed which can be deciphered and is transparent for
nature. This is the only criteria that the writing must be clear and transferrable.
Definition:-
Smith Leading cases on NI, says that “where by the custom of trade, an instrument which is
transferrable like cash, by delivery and is capable of being sued upon by the person holding
for the time being, it is entitled to the name Negotiable Instrument and the property in it
passes to a bona-fide transferee for value.”

Ingredients of the definition:-

Negotiable Instrument is recognized in a custom
Recognised as cash
By delivery
Criticism:-
There is no fixed time for transfer and if you transfer in subsequently (Endorsement and
delivery), the second time transfer is not mentioned in the definition

The presumption required for NI in S.138 of the NI act (consideration) is not mentioned

307
The person who is entitled to get the money is not mentioned, although the word of the
holder is mentioned in the definition. The holder of the NI has the right to file the suit against
the person.
Legal Framework:-
S.13, S.46, S.8
Thomas Principle of Banking “A NI is one which is by a legally recognized custom of trade
or law transferrable by delivery or by endorsement and delivery in such circumstances that
the holder of it for the time being may sue on it in his own name and the property in it passes
free from equities to a bona-fide transferee for value notwithstanding any defect in the title of
the transferor” It is an exception to Nemo debt…..”. It is a bit more comprehensive
There are three types of instruments.
Promissory notes: not required to be
accepted.
Bill of exchange: S 33 read with section 7 makes it clear that there should be a drawee of a
bill and the first person who shall be required to accept the instrument and if more than one
drawee is present then all or some of them are required to accept that instrument. The third
person, mentioned in the instrument is the drawee in case of need and the fourth person, who
is a stranger to the instrument is acceptor for honour.
Acceptor for honor and liabilities for acceptor for honor:-
In section 7,
In section 99 and 100
In section 111 and 112, liabilities are defined for the acceptor for honor.
There is no provision for mode of acceptance. Acceptance shall always be in writing
according to the nature of the instrument and oral acceptance is not valid.
Cheques: A cheque is always payable immediately on demand and therefore there is no
acceptance in the
Bagota’s Law of Banking
Willis Law of Negotiable Securities “A Negotiable instrument is one, the property in which is
acquired by anyone who would take it for bona-fide and for value notwithstanding any defect
of title in the person from whom he took it from which to follows that an instrument cannot
be negotiable unless it is such and in such state that the true owner could transfer the contract
or the engagement contained therein by simple delivery of the instrument”.
Special features of Negotiable instrument:-
1. Transferability
2. Right to sue
3. Independent title
4. Presumptions
Corpus-Juris Vol. 10 Para 82 Pg. 519 The definition is based on certainty of
transferability (to the maker if it promissory notes and bill of exchange is to the
buyer), entitlement, presumptions
Certainty:-
Certainty as to the Payee
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 Certainty as to the Draweer
Certainty as to the maker
Certainty as to the Buyer
Certainty as to how much amount is to be paid
Certainty in terms of the period in which the particular instrument is to be honored or
cleared
Certainty as to the place of payment
Certainty as to the place of jurisdiction
Certainty as to the signature of the person
Presumptions:-
S.118 talks about it and says that on the basis on consideration is based the first
assumption
Types of N.I:-
There are 4 types of N.I.:-

1. Promissory notes
2. Bill of Exchange
3. Cheques
4. Bank Draft
5. Hundis (it is an indigenous N.I used commonly in a particular community based
trading where people or the parties to the contract know each other very well, it has
been removed from the purview of N.I.)
Only Promissory notes and Bill of Exchange are considered to be Negotiable
Instrument in the strict legal sense
Characteristics of NI:-
1. Negotiable instruments shall be in writing.
2. Negotiable Instruments must be Payable to a person or a bearer.
3. It should be freely transferrable from one person to another.
4. It is an exception to “Nemo debt……”.
5. Holder is presumed to be the owner of the particular instrument.
6. It may have various parties.
What are the name of the parties:-
Maker and Drawer and Drawer and Payee:-
1. Maker is referred to in the case of Promissory Notes.
2. Drawer is referred to in the case of Bill of Exchange and Cheque.
3. Payer is a person who is entitled to get money.

This definition of Promissory notes in section 4 is exhaustive and bank notes and currency
notes are not considered to be promissory note.
Messer’s Packing Papers Cells and Anr. V Smt. Bina Lata Khosla deals with the essential
requirements of the Promissory notes. Some of the essentials have been discussed over here
and the ratio has been
1. It must be in writing. Writing can be in any form, as far as it is decipherable
2. It must be an unconditional undertaking to pay. There should be no strings attached to
the payment. Unconditional here means that the conditions must be certain to have.
There can be conditions but they must be ascertainable S.5 Para 2. In any manner
certainty can be brought up as there is no format mentioned or written. Mohammad
Akbar Khan. An acknowledgement of a debt is not considered to be a promissory
note.
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 There must be an unconditional undertaking with respect to the payment of money
and money only. In an unconditional undertaking, there is always a presumption of
payment in favour of the payee.
3. Signed by the maker.
4. Maker must be certain in these cases5
5. Sum Payable must be certain
6. Payee must be certain
7. The instrument must contain a promise to pay money and money only
8. The instrument must not be a bank note or a currency note, bearer instrument cannot
be issued by any individual.
The definition of Promissory notes is exhaustive and no particular format is given, although
some particular illustrations are given. The intention to transfer, as far as promissory notes
are concerned, and the intention to pay to whom, must be clear. If the name is spelt wrongly,
that will not be criteria to determine the validity of the Promissory note. If the interest is not
mentioned in the note, then 18% interest should be paid.
Chabil Das Mangal Das V Luhar Kohan Arya AIR 1967 Guj 7 and the ration of the case is 2
fold. There are two things which come up:-
1. Incident of Negotiability must be mentioned
2. Requirements of S.4 must be complied with
Kadori Lal V Sukhlal AIR 1968 MP 4. There are 4 conditions to comply with in the case of
1. To consider a promissory note as valid, whole document has to be taken into
consideration
2. Apparent tenor6 of the instrument must be taken into consideration
3. Purpose for which it was executed as described on the instrument.
4. Collateral circumstances7 which may be contained in evidence cannot be looked for
the purpose of determination of validity of Promissory notes.
In the case of Bahadur Nisa Begum V Vasudev Naik AIR 1967 AP 123 “ certainty is the
most important criteria to determine the validity of Promissory Notes refers to the purposes
of Maker, Payee, Amount, Unconditional undertaking to pay, Date, Place of Payment”.
Jakka Gopal Reddy4 V NeelaKantam Venkatakrishna AIR 2008 AP 255 “whole document
and intention of parties must be taken into consideration while determining the validity of
Promissory notes”.
Bachchan Singh V Ram Awadh “ Express unconditional undertaking to pay is considered to
be a valid promissory note.
This receipt is hereby executed by B for Rs 43900 received form the firm of K, the amount to
be payable after 2 years, interest on the rate of X% and the date on which the note is payable
is Y,
Reciept, acknowledgment of the debt, payee,

5
Can two makers to a Promissory notes? There is no restriction to the number of parties as far as they are
ascertainable.
6
S.10, Payment in due course, direction by the maker for the mode of payment in good faith without
negligence

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Mohammad Akbar Khan case, this case has been relied by Claydon V Bradley 1987 case.
Since the term payable is not certain, and certain definite direction must be there to pay and
there is therefore no direction to pay and hence it is not a valid promissory note.
A parole evidence is a coverted evidence which is adduced from the contract. Parole evidence
cannot be taken into consideration because all the N.I shall be in writing.

What is international promissory note and what is international bill of exchange

UN Convention on Promissory note and exchange
Whether any other Indian Law defines Promissory notes, Bill of Exchange and other
Negotiable Instruments?
The Limitation Act, 1963 defines Ni, because the cause of action may also arise under the
Limitation Act. There is a cause of action for Promissory notes, Bill of Exchange, Cheques
(10 days to 3 years is the max and min limit in the limitation period) 10 days to 90 years, was
the time period in UN Convention on determination of Limitation Period,1974 is considered
to be the sister convention to CISG and most of the countries are following such limitation
period for all such practical purposes.
The ratio of the case of M/S Packing Paper sales and Anr. V Smt. Bina Lata Khosla
1. It must be in writing
2. Unconditional undertaking by the maker of the document
3. Such unconditional undertaking must be to pay certain sum of money to certain
person or to the order of that person or to the bearer of the instrument.
4. Maker must sign it.
5. The promise to pay must be the substance of the instrument.
6. There must be nothing else inconsistent with the character of the document as
substantially a promise to pay.
7. The instrument must be intended by the parties to be a Promissory note only
Rupees 1000 Balance due to you and I am still indebted and do promise to pay, is this a
valid promissory note or not?
Yes

I Promise to pay A Rs. 1000 and all other sums which may be due to it?
Only debt is not significant and there is an undertaking of the debt and an unconditional
undertaking to pay which are indispensable.
Letter of continuity:-

S. 5 of NI act defines Bill of Exchange

The essential ingredients of the Bill of Exchange
1. It shall be in writing.
2. Bill of exchange must contain an order to pay.

3. Order contained in the bill should be unconditional

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4. BOE must be payable out of a particular fund. It is required because8
5. BOE must be signed by the drawer.
6. Drawee must be certain.
7. Payee must be certain.

8. Instrument must contain an order to pay money and money only.

Difference between a bill of exchange and Promissory notes
 Number of parties .
 A promissory notes contains unconditional promise by the maker to pay the promisee,
in the bill of exchange there is unconditional order to pay the drawee by the payee.
 A promissory does not require any acceptance as it contains the promise by the maker
whereas, in BOE being order by the drawer upon the drawee to pay is not binding
upon him unless he accepts.
Whether acceptance is required for valid bill of exchange? No.
Two methods of dishonouring- non acceptance and non payment [section 91]
 Liability- The liability of the make of a promissory note is primary and absolute and
the liability of drawer of a BOE is secondary and conditional.
What are the ways of discharging the instruments? Payment, Cancellation, Material
alteration [section 87] and Release under [section 82].
 Promissory note cannot be made payable to a bearer in case of bill of exchange there
are certain provisions subject to RBI Act BOE can be bearer.
 Promissory note is not subjected to protest whereas BOE must be protested.
 Notice of dishonour- Notice required for BOE but No such notice is required for
Promissory note.

Difference between bill of exchange and Cheque

1. Bll of exchange can be drawn on any person whereas cheque is always drawn on a
specified banker.
2. Bill of exchange is not always repayable on demand whereas cheque is always
payable on demand only.
3. Bill of exchange cannot be payable to a bearer on demand whereas cheque can be
payable to the bearer on demand.
4. Bill of exchange requires acceptance by drawee, whereas in case of cheque there is no
requirement of acceptance.
5. Bill of exchange is subjected to Indian stamp act whereas cheque is not required as
such.
6. Bill of exchange cannot be crossed except bank drafts whereas cheque can be crossed.
S.123-121 are the provisions for crossing.
8
S.91 talks about two types of dishonors: non-payment and non-acceptance are the two grounds
Whether bank draft is dishonored or not?
Bank draft can also be dishonored by the non acceptance by the bank as bank is the drawee in this case S.92
Bank Draft is a valid negotiable instrument which is a bill of exchange
Whether acceptance can be oral or not?
It must be in writing. The drawee when accepts the document(bill of Exchange and cheque) becomes the
acceptor (S.7). Therefore acceptance is only given in writing only in the case of Bill of Exchange and Cheque.
Item no. 45 of the Union List talks about the NI

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 7. In case of bill of exchange, a notice is required, whether in oral or in writing, whereas
in case of the cheque only written statement of notice (S.94) is required. If the
instrument is a foreign instrument, then the noting and protesting of the instrument is
required before the sending of the notice to the party and in case of an inland
instrument, noting and protesting is not required as such. S.123 crossing of cheques,
defines the term “better security” in S. 7 that the guarantee or authentication of
dishonor of cheques by the Notary Public Offices. It is also called noting and
protesting.
8.
Types of negotiable instrument for the purposes of payment
1. Order instrument: S.13 talks about it. According to it, an order instrument is one
through which money is payable to a particular person (named payee) only or is
paid according to his order to pay money to some other person.
2. Bearer instrument: According to section 13, in an instrument where the payee
name is not mentioned or where the words pay to bearer is mentioned or where the
last endorsement is in blank is a bearer document. An endorsement means further
transfer. There are two types of endorsement (General/Endorsement in blank or
Special/Full Endorsement). Where the holder signs it, and delivers the instrument
to the bearer, then the instrument becomes a bearer instrument.
3. Demand instrument: Where time of payment is not specified and time over here
means that the particular date is not specified. A cheque is a demand instrument
because no specific time is specified over here. Cheque is always payable on
demand.
Discharge of liabilities from the instrument is talked about in Loon Karan Sethia
Case 1975 SC. There are 5 ways of discharge of liabilities in a cheque:-
a. Release
b. Material alteration
c. Payment
d. Operation of law
e. cancellation
4. Time instruments:
a. Payable on a specified date
b. Payable after a specified period
c. Payable on the happening of an event which is certain to happen.
5. Inland BOE instruments: Drawn or made in India/ Payable in India or is drawn
on a person resident in India.
6. Foreign BOE instruments: S.12 of NI Act defines it as the instruments drawn or
made or Payable in India or a person not a resident of India is a foreign
instrument.
7. Ambiguous Instrument: S.17. Where the drawer and drawee is the same person,
or, if the drawee is a fictitious person, or, if it is a person incapable of entering
into a contract. When such ambiguity is removed, it becomes a valid instrument.
8. Inchoate stamped instrument (Incomplete instrument): If sign and stamp are
both there, it is not an inchoate instrument.
9. Truncated Cheque: Negotiated cheque where the payment is already done and the
instrument is kept by the bank for keeping records.

Types of bill of
exchange:- Usance bills:-

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 Foreign bills issued in favour of India (Basket of currencies by IMF and INR is not accepted
as a currency because first of all out gold stock with IMF is not up to the mark and secondly
it is not fully convertible).
Accomodation Bills:-
Section 47. It is drawn by one person and accepted by another person without consideration
merely to enable the drawer to raise money by discounting is known as accommodation bill.
Treasury bills:-
Indian bills issued in favour of India
Documentary bill:-
Along with other documents Bill of Exchange is also attached

Claused Bill:-
Where the amount or rate of interest is specified in the instrument, the instrument is a claused
bill of exchange
Irregular bill:-
BOE which contains irregular indorsement is considered to be irregular and hence making it
void.
Availised bill of exchange:-
Where the witness to a bill of exchange gurantees the payment in cases of non payment of the
instrument.
Allonge:-
It is the stamp paper attached to the NI to add another party
Fine trade bills:-
They are nothing but the bill of exchange which are cleared.

BILL IN SETS: S.132-133 talk about it. Payment on one makes the payment on all
automatically. Two amounts are about to be mentioned i.e., for the particular transaction and
second for the whole transaction. S.5 talks about bill of exchange. Bill in sets is bill of
exchange, and is drawn in parts or sequence or in numbered. It is used always when the two
parties are located in different countries. Bill in sets serve the purpose of the payment in a
particular installment. If the third party comes into picture, all the bill in sets are considered
to be separate.
The reason it is used is:-
a. To avoid undue delay and unnecessary inconvenience that may arise due to the
loss or miscarriage of the bill in transit.
b. To ensure the safe transmission of at least one part of the bill to the drawee and its
acceptance by him as early as possible. The term ‘via’ is used in as the mercantile
term for the parties to the contract.
Requirement of a bill in sets:-
a. A bill in sets may be drawn in parts, all the parts together make a set and whole
sets constitute one bill only
b. Each part of the bill in set must be numbered and must contain a provision that it
shall continue to be payable only so long as the other parts remain unpaid.

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 c. Each part must contain a reference to the other parts.
d. If any part of the set omits reference of the other part then that part is considered
as a separate bill and if it gets in the hands of another person then that other
person will be considered as a person in due course
e. The entire bill is extinguished when payment is made on one of the parts by the
holder.
f. The drawer must sign each part of the bill and deliver all the parts.
g. A stamp is affixed on one part only and only one part of the whole set needs to be
accepted.
h. When a person accepts or endorses different parts of the bill in favour of different
persons, he and the subsequent endorser of each part are liable on such parts as if
these parts were separate bills.
i. Where two or more parts of the bill are negotiated…………….

Holder and holder in due course-

S.8 and S.9 talk about holder and holder in due course.
Holder:-
Holder is entitled to get money, or whosoever is in the possession of the instrument is a
holder according to Section 8 read with S 78 of the act. The first holder is Payee according to
Section
7. Second holder is bearer, or the person who is in the possession of that particular
instrument. As per Section 13 read with S 78 state that bearer is the holder of the instrument.
The third person is endorsee. A payment as per the direction is the payment in due course.
Rights of the holder:-
Right to possession

Right to recover and receive the amount from the party

Drawee in case of need:-

De facto possession and de-jure possession:-

Section 8 read with section 78 of the act talk about two types of possession. De facto position
is generally not important in term of the holder, only de jure position is important for
determining the holder of the instrument. If the last endorsement is blank in the cheque, then
whoever is in the possession of the instrument is considered to be the holder of the cheque
and it does not matter, only de facto possession can do much.
Holder in due course:-
Section 9 read with section 78 talks about the same. It defines holder in due course means a
holder who has taken the instrument in good faith and for value and also before maturity.
Difference between holder and holder in due course
1. A holder means any person entitled in his own name to the possession of the
instrument and to recover or receive the amount due thereon from the parties. Holder
in due course means a holder who has taken the instrument in good faith and for value
and also before maturity. (possessory right)
2. In case of holder, consideration is not necessary. An instrument can be given to the
holder in the form of a gift also. In case of holder in due course, the consideration is a
must.
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 3. A holder does not get a good title if the title of any proper party is defective. A holder
in due course gets a title free from any of the defects of the other party.
4. A holder may acquire the instrument after maturity but a holder in due course must
acquire the instrument before maturity.
5. A holder of an instrument can recover the amount from the person who has signed it
and also from the transferor from whom he obtained.., i.e., from the maker and the
drawer. The holder in due course can recover the amount from any of the prior parties
unless the instrument is discharged i.e.., a holder cannot enforce his rights against all
the prior parties but holder in due course can enforce his rights against all or any of
the previous parties. Joint and several parties can be held liable in case of the holder
in due course and only a single party is liable in case of a holder.
6. A holder does not enjoy any special privileges and a holder in due course enjoys
certain privileges

Privileges of holder in due course:-

1. According to section 36, every prior party to a negotiable instrument is liable to
holder in due course
2. According to section 20, a holder in due course is having privileges in case of
inchoate stamp instruments. Inchoate instruments are such instruments where there is
an incomplete information given with respect of the amount given which is further
ascertained by the stamp. Holder completes the instruments and then it is given to the
holder in due course by the holder. It is a privilege because if the amount given is
more than the stamp, then the holder in due course can recover the amount which has
been put forward by the holder by the holder itself or by the drawer. Since he has paid
consideration for the instrument which he has received before maturity, therefore he is
entitled to enjoy some benefits or privileges.
3. A holder who derives the title from a holder in due course has the same rights as of
the holder in due course. These rights as given to the holder in due course, according
to section 53, are the rights which can be transferred with the transfer of the
instrument. According to section 15, a maker can endorse a instrument. He puts his
signature and gives it to the payee. So when an instrument is made by an agent of a
particular person, then maker is required to be the endorsee. Another circumstance in
which he can be considered to be a endorser is that when there is a subsequent series
of the endorsement and then it reaches to the maker again (negotiation back) , then in
such a case the capacity of the maker for the purpose of endorsing the cheque is the
endorser capacity.
4. No prior party can set up a defense that N.I was drawn, made or endorsed by him
without any consideration.
5. No prior party can set up a defense that N.I was lost or was obtained by him by any
offense of fraud or for unlawful consideration.
6. No prior party can allege that N.I was delivered conditionally or for a special
purpose only (S.46). Negotiable Instruments can also be drawn for the purposes of
guarantee.
7. No Estoppels against denying the original validity of the document.
8. Estoppels against denying the capacity of endorsee (S.121)
9. Estoppels against denying the signature or capacity or prior party (S.122)

Difference between a truncated cheque and an electronic cheque

A cheque which is truncated is evidence created by the clearing house or the appointed bank
proving that the electronic image of the cheque is cleared and the cheque cannot be
316
negotiated further. An electronic cheque is the exact mirror image of a paper cheque and is
generated,

317
written and signed in a secured system ensuring the minimum safety standards with the use of
digital signature (with or without biometric signature) and asymmetric cryptosystem. When
electronic cheque is cleared, it becomes a truncated cheque. Digital signature is brought by
the banks for which the banks require some money.
Electronic cheque is a drawn cheque by the drawer for the purpose of the payment to the
payee and truncated cheque is drawn by the bank.
Sovereignty is present in the trading system.
Endorsement:-
Section 16 read with section 54 give the complete definition of endorsement in full. In section
118,

Endorsements shall always be in order, since the money is paid by the endorser
There are two types of liability in the Primary liability or the immediate liability of the
endorser and the secondary liability or the liability of the maker
A maker can be an endorser
Material alteration:-
Any alteration changing the nature of the instrument and changing the liability of the party
for example change of date. According to section 87 of the N.I act, a material alteration
renders the agreement as null and void. In the 8th paragraph of case of Loon Karan Sethi v.
Ivan E John, AIR 1977 3 SCC 394, the most commonly used definition of material alteration
was given as:
“A material alteration is one which varies the rights, liabilities or the legal position of the
parties as ascertained by the deed in its original state or otherwise varies the legal effects of
the instruments as originally expressed or which may otherwise prejudice the party, bound
by the deed as originally executed”.
This definition is inspired by Halsbury Laws of England, which prescribes the ingredients of
material alteration as given hereunder:-
1. Alteration must be material.
2. Alteration must be made after the N.I is executed.
3. Absence of consent of a party liable under the instrument.
4. Alteration does not incorporate the common intention of the original parties. Material
alteration has to be done with the consent of all the parties and not unilaterally.

Types of material alterations which are not allowed:-

1. Change of date – This alteration is not valid material alteration. In the case of A
Subba Reddy V Neelappa Reddy Ramanna Reddy AIR 1966 AP 267, it was held that
“There are two types of dates i.e., date of maturity and date of drawing. If you are
altering the date of the instrument on which the instrument matures, then that will
amount to be a material alteration and according to section 87 of the N.I act, a
material alteration renders the agreement as null and void.”
2. Alteration of the time of payment
3. Alteration of the place of the payment
4. Alteration of the sum payable

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 5. Alteration of adding a new party to the agreement (exception to such a material
alteration is endorsement)
6. Alteration of the rate of interest (S.80- according to which it is 18%)
7. Alteration by tearing material part of the instrument.(if any material part of the
instrument is teared then it is not allowed and hence the instrument is rendered null)
8. Alteration by affixing stamp without the promisors knowledge.
9. Alteration by erasing account payee crossing.
10. Alteration of an order cheque to bearer cheque except by or with the consent of the
drawer. (Order cheque is for a particular person and you cannot be entitled to pay the
bearer of the instrument and hence this material alteration from order instrument to a
bearer instrument is not allowed in such a case and hence is rejected by the bank).

Types of material alteration which is allowed:-

1. Inchoate stamp document as mentioned in section 20.
2. Converting endorsement in blank into endorsement into full endorsement, which is
mentioned in Section 49. If the payee’s name is not mentioned then the instrument is a
bearer instrument. In section 60, blank endorsement and full endorsement are the two
types of endorsement. Such a conversion is allowed.
3. Holder of an uncrossed cheque may cross it or may convert general crossing in to a
special crossing and make it non negotiable by writing ‘not negotiable’ as provided
under section 125.
4. Alteration made before the completion of the instrument. A negotiation is said to be
completed when the transfer of the instrument according to section 14 of the act is
completed and a transfer is completed when the delivery takes place according to
section 46 of the act (it includes actual and constructive delivery).
5. Alteration made with the consent of the parties liable for the instrument.
6. Alteration made for the purposes of correcting a mistake or a clerical error.9 The
controversy here is as to what extent the liberty of rectifying the clerical error is done.
7. Alteration made to carry out the common intention of the parties. A material
alteration with consent of the parties, is called a material modification.
8. Conversion of a bearer instrument into an order instrument.
9. An alteration which is accidental. Accidental here means removing the visibility. This
is sometimes allowed, but not in the strict legal sense. In the case of HSBC V LeeShi
1928 AC 181, it was held that “an alteration which is accidental making the amount
visible is allowed”. If the vital portion of the instrument is damaged, then the holder
of the instrument is allowed to change it in order to revive it.

If there are two amounts mentioned on a promissory note, one in the words and other in the
numbers, then according to section 18, the amount which is written in words will prevail.

Meaning of noting:-
Noting is optional as it is commonly used on the instrument of Foreign bill of exchange and
the timing of the noting shall be reasonable.
Noting means a convenient method of authenticating the fact of dishonor. It means the
minute recording by a notary public on a dishonored bill of promissory notes

9
Judicial pronouncement on the definition and instances of a clerical error?

319
Such noting may be made upon a dishonored document or upon a paper attached to or partly
on the instrument or partly on the paper attached. In cases where there is a paper attached to
the instrument, then there should be a stamp on the paper
Ingredients of noting:-
1. Fact of dishonor (refused to accept the particular instrument, and the instrument must
have been validly presented to him and consistent neglect to not to accept that
particular instrument, the grounds on which you are showing the bill of exchange and
that the instrument has been issued in favour)
2. Date of dishonor- When the bill of exchange is returned (any action on the NI is
initiated by the holder, payee etc)
3. The reason, if any assigned for such dishonor.
4. If the instrument has not been expressly dishonored, the reasons why the holder treat
it as a dishonor.
5. The notary changes must be mentioned.
Protest: meaning and ingredients:-
Protest is mentioned in section 100 as the formal notorial certificate attesting the dishonor of
bill and is based upon noting. All the basic ingredients of noting are present in protesting.
The purpose of noting and protesting is better security.
In the case of Sineximco Pvt Ltd V Dinesh International Pvt. ltd
(2010). Ingredients of protest:-
1. Protest must contain either on the instrument itself or literal transcript of the
instrument and of everything written or printed thereon.
2. The name of the person for whom and against the instrument has been protested.
3. A statement that payment or acceptance or better security as the case may be
demanded of such person by the notary public and if the answer has been given or if
the acceptance has been given or done or not has been done is to be mentioned
specifically.
4. When the note or the bill has been dishonored, the place and time of dishonor.
5. The subscription of the notary public making the protest.
6. Signature of the notary public.
Notice of protest: (102):-
The purpose of notice of protest is to provide a warning and there is no dual purpose, and the
main purpose is to warn of the consequences of non-payment to the parties. There are
basically three purposes:-
1. To fix the liability of the parties on the instrument that is required to be protested.
2. The object of the notice is not to demand payment but to warn the party of any liability.
3. In case of drawer to enable him to protest as against the drawee or the acceptor who
has dishonored.
Dishonor:-
It happens in two manners

1. Non acceptance (S.91) – In this case 5 possibilities are present:-

a. When a bill is duly or properly accepted and drawee makes a default in accepting it
within 48 hours. The meaning of “duly presented” or “properly presented” is that the
bill is presented before maturity in good faith or before time to the drawee.
b. If there are several drawees not being partners, the bill is said to be dishonored by non
acceptance if any of them refuses to accept the bill. If any of the drawee refuses to
accept in case they are not partners, it amounts to a refusal and not non-acceptance.
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 c. When the presentment is excused and the bill is not accepted (S.61).
d. A minor can be drawer, or a maker but a minor cannot be a drawee. When the drawee
is incompetent to the contract, the bill cannot be accepted and thus stands dishonored
(S.26 and for the purposes of minor, S.27 is being used here).
e. When the drawee gives a qualified acceptance, the bill may be treated as non accepted
2. Non- payment (S.92):-
It happens in the case of promissory notes, where the maker does not pay for the instrument.
If the drawee or acceptor does not pay for the bill of exchange or cheque, the instrument
stands dishonored.
In the case of K Venkat Suvaiya V B.R Rao AIR 1972 AP 72, Promissory note have been sent
by the payer to the maker by post and the maker refused to accept the post and it was held
that there is no need for the same.
Remedies for non-payment of the instrument
A. Gives the holder an immediate right to take a recourse against the drawer, makers
or the endorsers.
B. The maker is not required to wait till the period of maturity is over because there
is an immediate action and the instrument stands dishonored for that point of time.
If the payment has been refused or has not been given, then there is a immediate
right of cause of action against the holder.
Requirement of the notice:-
1. Notice is required to be given before taking any recourse. This clause cannot be
excluded because it is a statutory requirement. Object of the notice is to not demand
the payment right over there but to warn the maker against the consequences of non-
payment. First person is the maker, second person are the endorsers liable on the
instruments. Third person are the agents to the holder and make the instruments on
behalf of the holder. A stranger cannot give a notice.
2. Notice of dishonor must be given to all parties except maker in case of promissory
notes or drawer in case of bill of exchange.
3. Notice of dishonor can be given to duly authorized agent.
4. Notice of dishonor may be given to legal representative when the drawer or the
representative is dead.
5. Where there are two or more parties jointly liable as drawees or endorsers, notice to
one of them is sufficient to bind all.
Effects of omission to give notice:-
It results in discharge of liability (S.30 in case of drawer and S.35 in case of maker)
Mode of notice:-
1. It can be oral.
2. It can be written.
3. It can be in partly oral or partly written.
Notice does not mean knowledge but actual formal notification.
It may be given in person also and in cases where it as sent by post, the last known address is
required to be given.
Delay or miscarriage of the notice does not render the notice invalid.
There is no special form of words.

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What is to be written in a notice:-
1. The instrument has been dishonored.
2. The instrument has to be identified in the notice.
3. Notice must state the way the instrument has been dishonored.
4. Fixation of liability in case of dishonor.
5. A mere demand of payment is not sufficient for notice, the warning of legal
consequences is a must and therefore should be mentioned.
Time and place of notice:-
There must be a reasonable time and a reasonable place of a notice to be delivered and for
replied to. There must be a specified place or a business place or the place of residence.
Indorsement:-
According to S.15, the meaning of endorsement is transfer and the holder, maker, sole maker,
drawers, Payee or endorsee, all of several joint makers, drawers, payee or endorsee. This has
been said in accordance with combined reading of S.8, S.15 and S.51.
Place of endorsement:-
The place of endorsement is either on the face of it, back of it or the paper attached to it
known as the allongee
Type of endorsement:-
There are two types of endorsement
Endorsement in blank-
It is also known as the general endorsement or the bearer endorsement. The name of the
bearer is not mentioned here. A holder in due course, is a holder for consideration, or a bearer
Endorsement in full-
Also known as the special endorsement
Difference between a general endorsement and a special endorsement:-
In general endorsement there is no direction to the bearer as to the payment of the instrument
is not mentioned and the payee has just put a signature and delivered the instrument. In a
special endorsement, there is a direction as to the payee or the bearer of the instrument and
the name of the bearer of the instrument as to the payment of the amount in the instrument is
mentioned along-with the signature of the payee.
Effect of the endorsement:-
The effect of the endorsement, according to section 54 is the further transfer of the instrument
and the change in the bearer of the instrument. The benefit of conversion of an instrument
from the endorsement in blank to endorsement in full is to bring the certainty to the
document
Partial endorsement:-
A partial endorsement, according to section 56, is not allowed but if some portion of the
money is already paid and then some amount is left before the drafting of the instrument, then
the amount to be paid will considered to be an extension of the previous payment and
therefore not considered as a partial payment.
Restrictive endorsement:-
It means putting restriction on the further transfer of the instrument or the transfer to a
particular bearer of the instrument. It is allowed according to section .

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Conditional endorsement:-
Conditional endorsement is allowed. When, while endorsing an endorsement there exist a
condition as to the exclusion of liability, making liability based upon happening of a
contingent contract or making the right of the endorsee based upon happening of a contingent
event.
Sans Recourse agreement indorsement:-
It is given in section 52 and its other name is without recourse.
According to section 57, a legal representative is not allowed in an endorsement. In a general
endorsement, when the legal representative of the deceased person endorses in his own
capacity, and is required to put his own name, then it will be valid. He has to first convert the
instrument in a full endorsement according to section 48 and then he can endorse it.
Facultative endorsement:-
It is not mentioned in the act. ‘Facultative’ endorsement means increasing the liability by
putting certain things on the instrument for example- taking the burden of payment in case of
default in the payment of the instrument.
Crossing of cheques:-
According to section 131 A, for one purposes of crossing of cheques, a bank draft is
considered to be a cheque. Crossing of cheques means making a cross line with certain
details. Crossing is a caution given to the bank to ensure that the money is going either to the
bank and the money will not go into a person’s hand but to a particular account. There are
two types of crossing:-
1. General crossing-If within the line only something is written such as account name,
number, then it is known as a general crossing.
2. Specific crossing-If the name of the bank is also mentioned along-with the account
name and the account number, then it is a specific crossing.
The purpose of crossing is “better security”. Better security means that there is a payment is
done from the bank into the account of a particular person directly with no intermediaries in
between.

Crossing of a cheque has 6 ingredients.

1. A cheque is to be crossed when it bears two parallel transverse lines.
2. Lines are usually drawn upon the left end corner of the cheque.
3. It is a direction to the paying banker to pay the money generally to a bank or to a
particular bank, as the case may be.
4. Crossing affects the mode of payment of a cheque.
5. It does not affect the transferability of the cheque.
6. Crossing is a material alteration but it is
permitted. There are two objectives of crossing of
cheques:-
1. Better security
2. Operates as a caution to the
bank Payment of cross cheques:-
In case of general crossing, direction to the drawee bank, no
In case of a special crossing, the duty of the drawee bank to pay it only to that bank which it
is crossed or its agent for collection.

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1. Protection to the bank
2. Payment to be made in good faith.

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 3.
4. Payment to be made in accordance with the provisions of section 126
According to section 127, if the second bank is an agent of the first bank and the second bank
has a work of collecting the money only, then double crossing of the cheques is allowed.
Auction sale:-
The definition of goods- stocks and shares are not considered to be goods in their act but are
considered to be goods in our act. The definition of perishable goods has not been defined
Legal framework of selling of perishable goods:-

S.7, 8 and 54(2) talk about the selling of perishable goods.

CARRIAGE BY SEA

CARRIAGE BY SEA

2 TYPES OF CARRIAGE CONTRACT

 Unimodal (Carriage of Goods by Sea Act, 1925) and Multimodal (Multimodal
Transportation of Goods Act, 1993).
CONTRACT OF AFFREIGHTMENT
 Freight is the consideration.
 The moment the goods have been handed over to the carrier/buyer, possession passes.
Risk passes with possession.
 When a ship owner, or a person having for the time being as against the ship owner
the right to make such an agreement, agrees to carry goods by sea or to furnish the
ship for the purpose of carrying goods in return for a sum of money to be paid to him,
such a contract is called the contract of affreightment or contract of carriage of goods
by sea and the sum to be paid is usually called freight.
 Time is always the essence in order to:
4. Provide the ship on time on the dock
5. Load the goods on time
6. Unload the goods on time
 Penalty of demurrage in case the above 3 are not abided by.
 Captain signs on behalf of the ship owner. Captain is the agent and vicarious liability
applies.

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  2 types: Charter Party Contract and BOL. Depending on the manner in which the ship
is employed, the contract of affreightment may be contained in a charter party or
contained in or evidenced by a Bill of Lading.
IMPLIED UNDERTAKING BY THE CARRIER
 Sea-worthiness- fit for journey
 At common law a ship owner by contracting to carry goods on a voyage in a
ship, in the absence of express stipulation, impliedly undertakes that his ship is
seaworthy.
 In case of charter party contracts sea-worthiness is absolute there are no
exceptions. Under BOL, the absolute undertaking of sea worthiness is replaced
by an undertaking that the ship owner will before and at the beginning of the
voyage exercise due diligence to make the ship sea worthy as it is governed by
the Carriage of Goods by Sea Act, 1925 and Article 3 of the Act provides this.
 The implied undertaking of sea-worthiness is an innominate term.
 Sea worthiness at every stage: 2 types of shipping- linear (fixed route- from
one particular port of arrival to a particular place) and tramp shipping
(operation wherever the cargo passes)
This is related with tramp shipping and thorough bill of lading
 Non-exclusion of sea-worthiness: As per, Section 151 read with 159 of ICA,
1872, sea-worthiness cannot be excluded even with an express provision in the
contract between the parties.
 3 types:
4. Technical sea-worthiness: relating to the vessel’s design, condition of her hull
and machinery, and her stability, etc.
5. Cargo-worthiness- fit for particular cargo competent crew, requisite
equipment (mandatory under cargo sea-worthiness)
6. Sea-worthiness for intended voyage relating to her equipment (including
charts), manning, bunkering and stores for the voyage.
 Reasonable dispatch
 The ship owner impliedly undertakes that his vessel shall be ready to
commence the voyage agreed on and to load the cargo to be carried, and shall
proceed upon and complete the voyage agreed upon, with all reasonable
dispatch.
 This is also an innominate term.

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  Any unreasonable delay leads to vitiation of contract
 Cehave N.V. v. Bremer (Lord Denning):
 “Conditions” If the promisor breaks a condition in any respect,
however slight, the other party can, if he wishes, by intimation to the
party in breach, elect to be released from performance of his obligation
under the contract, claiming damages for any loss he has suffered
although he can, if he prefers, elect to maintain the contract in
existence and content himself with proceeding for damages in respect
of his loss.
 “Warranties” if the promisor breaks a warranty in any respect,
however serious, the other party does not have a right to be released
from his further obligations, but has only the right to recover damages.
 “Innominate or intermediate terms” These are neither conditions nor
warranties. When an obligation of this type is broken, the right of the
promisee to treat himself as discharged depends on whether the breach
is sufficiently serious to go to the root of the contract.
 Reasonable dispatch is not a condition
 No deviation
 It is a rule unless in case of exigencies
 Also involves undertaking to proceed the voyage by a usual and reasonable
route and without unjustifiable departure/deviation form that route. A
departure will be justifiable if it is necessary to save life or to communicate
with a ship in distress as the distress may involve danger to life.
 Perils of the sea: Certain perils are expected. Only in case of abnormal perils,
there can be deviation.
 Not to load those goods which are liable to cause danger or delay to the ship.

o Liner Shipping Service:

The liner ship has the following features:

7. Liner ship is designed to carry a variety of cargo, with spaces for bales, bundles, boxes, barrels,
drums, etc, as well as for reefer (refrigerated) cargo. The designs of the holds and number of decks
in cargo will be different from those of a tramp. With the increased share of containerized cargo,
specially designed container ships for carrying different categories of containers operate.
8. The cargo handling equipment on a liner will be varied and sophisticated for quick loading and
unloading of cargo to ensure a quick turnaround. A quick turnaround means that the ship spends the
least possible time in the port and most of its time in transit.

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 9. Liner ships frequently operate between fixed ports and normally loads in several ports. It serves
a number of discharging ports along a pre-determined route.
10. In order to ensure speedier carriage, liner ship is fitted with sophisticated and expensive propelling
machinery.
11. Liner shipping service provides pre-announced scheduled services on given terms and conditions of
carriage. These conditions in the receipt mostly relate to the responsibilities and liabilities of the
shipowners, carriage, and delivery of cargo.
12. Liner shipping generally offers carriage on fixed and stable freight rates.

o Tramp Shipping Service:

The tramp carrier has the following characteristics features:

7. Tramp carrier is primarily designed to carry the more simple and homogeneous cargo in huge
quantity. It is, therefore, designed to completely utilize its carrying capacity for carriage of one type
of cargo.
8. Since one kind of homogeneous cargo is to be handled, a tramp will have the comparatively simple
equipment. Bulk cargos are normally loaded and discharged by mechanical equipment, elevators,
pumps, etc.
9. Because of the comparatively low unit value of commodities carried, a tramp will be operated at the
lowest possible cost. This objective can be achieved by operating ships having relatively less speed
by fitting less expensive propelling machinery.
10. A tramp generally carries cargos of one or two ship users. Hence, loading and discharging are
confined to a few ports.
11. Tramp carriers do not have a fixed route and predetermined schedule of departure as it is to be
engaged by one/two users as and when their need arises.
12. Tramp carrier offers services at terms and conditions, including freight/hire charges, which are not
fixed and given but are negotiable.

SHIP BROKERS, CHARTER PARTY BROKERS, FREIGHT BROKERS

 a standard form of rules and regulation dealing with brokers.
 The fixed charge is known as brokerage.
 Ship brokers: bill of lading as well as for charter parry contracts
 Charter party brokers: exclusively there for charter party contracts only
 Freight broker: fixing of freight
NOTE: Shipping cartels are allowed worldwide  Because shipping market is not
developed, regulation can be there only once the market has developed
SHIPPING DOCUMENTS
FREIGHT CONTRACTS
MATE CERTIFICATE
SEA WAY BILLS under types of BOL
SHIP’S DELIVERY ORDER
 It is a document containing an undertaking from the carrier in respect of the delivery
of goods and is generally employed to split bulk cargoes shipped under one bill of
adding.
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 In this case, the BOL will be surrendered in exchange for the issue of a number of
ship delivery orders.
 These may be originally drawn up by the carrier, or by the holder of the BOL and
addressed to adopted by the carrier.
BILL OF LADING
BILL OF LADING- “Key to open the dock”
 Governed by Carriage of Goods by Sea Act, 1925
 Most important document in case of contract of carriage.
 It is a receipt of the goods that has been issued by the Captain of the Ship
 It is a contract of sale
 It is an evidence indicating that it is a contract of carriage.
 Derived from “bile”  a written document/receipt/instrument ; laden goods are
getting loaded
 Doc indicating that goods are getting loaded in the ship
 First time recognised in 1794  Lickbarrow v. Mason (Judge- Laugh Borough)
 In the above case judicial recognition was granted to the custom and practice
of merchants that a shipped, negotiable bill of lading was a “document of
title”, so that a transfer of the bill effected a transfer of property in the goods
covered by the bill. It is however, clear that the reference to property must be
understood as denoting such proprietary or possessory rights as it is intended
shall be transferred, it does not recognise transfer of property.
 BOL is a written evidence of contract if carriage and delivery of goods are
sent by sea for certain freight and the contract in legal language is a contract of
bailment. In no manner whatsoever it recognises transfer of property. It is only
a contract of carriage and the nature is contract of bailment.
 COGSA, 1925 regulates only bill of lading transactions
 International Regulation (only Rotterdam rules have not been implemented in India):
5. Hague Rules 1924
6. Hague Wisby Rule 1968
7. Hamburg Rules, 1978 (UN Convention on Carriage of Goods by Sea, 1978)
8. Rotterdam Rules 2009
 Article 1 (7) of UN Convention on Carriage of Good by Sea, 1978 defines BOL

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“A document that evidences a contract of carriage by sea and the taking over or loading of
the goods by the carrier and by which the carrier undertakes to deliver the goods against the
surrender of the documents, a provision in the document that the goods are to be delivered to
the order of a named person or to the order, or to the bearer constitutes such an undertaking.”
 Halsbury Law of England (Vol 7): A BOL is a document signed by the ship owner or
by the master or the agent of the ship owner which states that certain specified goods
have been shipped in a particular ship and which purports to set out the terms on
which goods have been delivered and received by the ship; after signature, it is
handed over to the shipper (seller) who may either retain it or transfer it to a third
person. The person may be named as a person to whom the delivery of the goods is to
be made at arrival at their destination in which case he is known as the consignee. If
he is not named in the bill, he is usually known as the holder or indorsee of the BOL.
 Halsbury Law of India defines BOL as an instrument signed by the master of the ship
in his capacity of the carrier acknowledging the receipt of the merchant’s goods. They
are usually in 3 parts. One is retained by the consigner of the goods, one is sent to the
consignee and the other is preserved by the master of the ship.
 A carrier that issues a BOL assumes a fundamental obligation to deliver the goods at
destination only against presentation of the bill.
 LEGAL NATURE OF BOL:
4. Formal receipt by the ship owner acknowledging the goods have been
received by the carrier
5. It is an evidence of contract of carriage basic transport document. It serves
as evidence of the terms of the contract of affreightment. As between the
immediate parties to the contract, namely the carrier and the shipper, the
evidence provided by the bill is not conclusive and may be supplemented or
even overridden by extraneous evidence. However, once the bill has been
transferred, the bill provides conclusive evidence as between the carrier and
the new holder as to the terms of the contract of affreightment. In this sense
the bill maybe said to “contain” the contract (Leduc & Co. v. Ward, 1888).
6. It is document of title indicating the ownership of that particular good as
specified under Section 2 (4) of SOGA, 1930.

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 BOL lies with the buyer so that he can claim the goods from the port authorities. Mate
Certificate lies with the seller (it is only an acknowledgment of receipt of goods by the
ship owner). BOL has evidentiary value.
 WHETHER BOL IS A NEGOTIABLE INSTRUMENT?
 It is considered a negotiable instrument because it is a freely transferable
instrument of title, which can be transferred from one party to another, but it is
not governed by NIA. It is by mere deliverance that it completes the process.
 BOL is a negotiable instrument:
 Lickbarrow v Mason: BOL is a written evidence of contract of
carriage and delivery of goods sent by sea for certain freight and the
contract in legal language is a contract of bailment.
 The special verdict in Lickbarrow uses the word “negotiable” and
“transferable” in case of BOL.
 BOL is merely a delivery contract.
 When the first time goods are being carried it is merely a contract of
carriage, no question of transferability comes into picture. This
question comes only when goods are getting sold during transit by the
one who possesses the goods. Such a sale can be made through
indorsement. In this case BOL gets transferability.
 Ab initio it is only a receipt. When goods are in carrier’s possession
and then goods are sold in transit, BOL attains transferability.
 BOL not a negotiable instrument
 Patten v. Thompson
 Sargent v. Morris
 Straight BOL and Seaway Bills
 Negotiable as term of art describes an instrument which can give to a
transferee a better title than that possessed by the transferor. A BOL is
not negotiable in this sense as the indorsee does not get a better title
than his assignor (Gurney v Behrend, 1854). Indeed, a BOL is
negotiable only in a popular sense and not in a technical sense (Kum v
Wah Tat Bank, 1971).
 UTILITY OF BOL:
 Most preferred mode of transport is carriage by sea in international trade.

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  Containerisation prevents damage of good
 RULE OF INTERPRETATION IN CASE OF BOL
 Mode of payment Letters of credit or bank guarantee; documentary credit
 Because it is a financial document, the interpretation will be strict in nature.
 Clean BOL: All the clauses mentioned in BOL are clear and beyond doubt.
Everything is in order without the extent of damage. It is a bill of lading that notes the
loading of goods in apparent good order and condition.
 Clause/Dirty BOL: (below)
 Documents are sold rather than goods: most of the times, goods are sold when they
are getting transported.
 PARTIES: Shipper (seller), consignee (buyer), carrier (ship owner).

 PROBLEMS WITH BOL

5. Claused BOL
 Claused BOL does not clearly reflect the standard of the product being
transported. It is bill of lading that contains adverse remarks as to the
apparent order and condition of the goods to which it refers, or a bill of
lading which contains qualifications as to the weight or quantity of the
goods loaded thereunder. It also indicates the extent of damage and
involves overlapping
 A claused bill of lading is used when shipped products deviate from
the delivery specifications or expected quality. Also called a "dirty bill
of lading" or "foul bill of lading."
 If an individual receiver issues a claused bill of lading, the exporter
may face future difficulty. For example, if the goods arrive and the
receiver deems them damaged or determines some of the goods went
missing, the exporter may experience trouble receiving payment. When
shipping goods, purchasers rely on letters of credit for payment.
However, most banks refuse to accept any claused bills of lading.
Thus, if a receiver files a claused bill of lading and the exporter relies
on letters of credit to

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 pay for the goods originally, they will not receive repayment for the
goods, and thus will experience a loss.
 When a dispute comes before the Court, it will not be able to decide
beyond doubt. There will be issues regarding interpretations.
6. BOL is most of the times bearer BOL. There are chances that an unauthorised
person may claim goods.
7. Sometimes goods be claimed without BOL and this can create a problem.
There can be case where because of delay in the transportation or
communication, BOL does not reach buyer. In case the cargo arrives, the port
authorities, sometimes, release the goods without a BOL. This may result in an
issue in terms of damages to the goods.
8. Forged BOL: 2 parties located in 2 different countries and many a times
parties forge the documents and claim the goods.
 DIFFERENCE BETWWEN MATE CERTIFICATE, INVOICE, COMMERCIAL
INVOICE AND BOL
 MC is similar to BOL but it has no negotiability.
 MATE CERTIFICATE is similar to BOL but MC is for the purpose of the
seller, has no negotiability, and is merely an evidence that the goods have been
received from the seller. BOL is for the purpose of buyer.
 Invoice/Commercial Invoice (difference between these two is in terms of
detailing- CI has complete details) is non-negotiable, it is merely a document
of title.
 BOL is the most comprehensive of all.
 Sales Contract involves the principle of Privity of contract and thus it cannot be used
to claim the goods from the port authorities.
 NOTE: Parol Evidence: CISG Article 8. (filling the gap approach- conduct, customs
and usages)
 CLAUSES
12. [From Hamburg Rules, 1978] General nature of the goods. (all of this information is
provided by the shipper/seller to the carrier/captain of the ship/agent of the captain of
the ship)

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 e) The leading marks necessary for the identification of the goods (most of the
times goods are unascertained goods in sale transactions, thus leading marks
are necessary for identification).
f) An express agreement, if applicable, as to the dangerous character of the goods.
g) Number of packages or pieces
h) The weight of the goods or quantity, whichever is applicable.
13. Apparent Conditions of the goods.
14. Name and principal place of business of the carrier.  for the purpose of jurisdiction.
[principal place  Tramp shipment Flag state and domicile state
15. Name of the shipper
16. Name of the consignee/buyer, if named by the shipper (order BOL), otherwise it must
be considered as bearer BOL.
17. Name of the port of loading under the contract of carriage of goods by sea and the
date on which goods were taken over by the ship owner/carrier for the purposes of
loading. (time is the essence and penalty of demurrage)
18. Name of port of discharge under the contract of carriage of goods by sea
19. The number of originals of the BOL, if issued more than once.
20. The place of issuance of the BOL.
21. Signature of the captain of the ship/carrier or a person acting on his behalf.
22. Freight to the extent payable by the consignee (freight paid by the shipper or
indication that the freight will be payable by the consignee) most of the times
freight is already paid by the seller. (whosoever names the carrier pays the freight
Section 23 of SOGA)
NOTE: Open Price Contract: Art. 14 read with Art. 5 of CISG (Price is determined
subsequently)
 TYPES OF BOL
27. Order interment: BOL made out in favour of a named consignee or order.
28. Bearer Instrument: A BOL made out without naming the consignee and in
favour of simply the “bearer” or “holder” or in blank.
 Thus a BOL made out either without naming the consignee but in
favour of “bearer” or “holder” or in blank (bearer BOL) or in favour of
a named consignee or order is said to be “negotiable”. This denotes
that the bill and various rights in respect of the goods covered by the
bill are transferable simply by the physical transfer of the bill,

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accompanied by,

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 in case of an order bill, by endorsement in favour of the new holder or
in blank.
29. Charter Party BOL: (explained in detail later)
 Whole ship is hired and some space is left, others may be allowed to
load their goods.
 Ship owner enters into the contract and so the liability is absolute.
 Doctrine of substantial reliance.
30. Charterer’s BOL.: BOL issued by the Charterer.
31. Clean BOL: (explained above)
32. Claused BOL: (explained above)
33. Liner BOL: A bill of lading under which the carrier is responsible for
loading, stowing and discharging the cargo.
34. Negotiable and Non-negotiable BOL
 A negotiable bill of lading can be transferred by one of its cosignees to
a third-party, when the cosignee signs, or endoses the document and
delivers it to the new cosignee (the third party). To transfer the
negotiable bill of lading, the consignor (the person or business
shipping the goods) must stamp and sign the bill and the carrier must
deliver it. A negotiable bill of lading must be written to the order of the
cosignee, and it must be clean bill of lading.
 A clean bill of lading is a bill of lading issued by a carrier declaring
that goods have been received in the appropriate condition, without
defects. The product carrier issues a clean bill of lading after
inspecting the goods.
 A straight or uniform bill of lading, in contrast, may not by transferred
and is only deliverable to the named consignee (recipient). Like any
bill of lading, the negotiable bill of lading also lists the goods being
transported and serves as a contract of the terms of the shipment.
 Also known as an order bill of lading, the negotiable bill of lading
transfers control (title) of the goods to the order of the entity named on
the document.
35. Shipped and Received BOL
 Shipped BOL records goods that have been loaded on board the
carrying vessel.

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  A received or “received for shipment” bill records goods received
into the carrier’s care and custody before loading. An on board
notation may be added to a received bill to record the fact and date
of subsequent shipment.
 Shipped will be more expensive because certainty is there.
Received: ambiguity when the navigation will start.
 High chance of misappropriation of BOL.

36. Through BOL

 A bill of lading will sometimes only cover one part, or one aspect of
the shipping process. A through bill of lading is more involved. It
allows the transportation of goods both within domestic borders and
through international shipment.
 The bill is often required in order to export goods, and serve as a legal
certificate authorizing a party to be in possession of and transporting a
particular good. This is because a through bill of lading allows for the
shipping carrier to pass the cargo through several different modes of
transportation, and several different distribution centers.
 A transporter can move products both within a country and export
them, often by air, with a through bill of lading. The through bill must
contain an "inland bill of lading", which is the documentation required
for domestic transportation. If the shipper wants to move the goods
across the ocean, the "inland bill of lading" will not be suffice; the
through bill of lading will require an "ocean bill of lading" will be
required for any goods moving across the ocean.
 As per A. 194 under Scrutton on Bill of Laing, it is an expression used
to mean a document containing a document containing a contract for
the carriage of goods from one place to another in separate stages, of
which at least one stage is a conventional sea transit. The sea transit
may itself by divided into separate stages to be performed by different
ship owners by a process of transhipment.

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  The sea transit is often coupled with a stage of transit by some other
means, for eg. by road, rail or air, in which case the through bill of
lading is sometimes called a “combined transport BOL”.
37. Combined Transport BOL: like multimodal transport BOL. A combined
transport BOL providing for carriage partly by sea and partly by some other
means of transport is not a valid tender under a CIF contract, in the absence of
agreement or usage to that effect; if the express terms of the contract provide
for carriage by sea, evidence of such a usage will not be admitted. If there is
no agreed or customary or usual route at the time of shipment, that route must
be chosen which is reasonable.
38. Ocean BOL
 An ocean bill of lading is a document required for the transportation of
goods overseas. An ocean bill of lading serves as both the carrier's
receipt to the shipper and as collection document or an invoice.
 An ocean bill of lading allows the shipper to move goods across
international waters. If the goods are to be initially shipped over land,
an additional document, known as an "inland bill of lading", will be
required. The inland bill only allows the materials to reach the shore,
while the ocean bill allows them to be transported overseas.
39. Ocean Through BOL: (above)
40. House BOL:
 A House Bill of Lading (HBL) is a document created by an Ocean
Transport Intermediary (OTI) such as a freight forwarder or non-vessel
operating company (NVOCC). The document is an acknowledgment of
the receipt of goods that are to be shipped. It is issued to the supplier
once the cargo has been received and may be used in lieu Letter of
Credit or in lieu of a Master Bill of Lading (MBL). HBL includes the
name and address of the supplier, who delivers the shipment to the
freight forwarder, and the consignee, who the freight forwarder
delivers the shipment to. The document also includes specific
information about the items shipped and the value of the shipping
contract.
 A house BOL issued by a forwarding agent acting solely in the
capacity of an agent to arrange carriage is not a BOL at all, but at most

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a receipt for the goods coupled with an authority to enter into a
contract of

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 carriage on behalf of the shipper. It is not a document of title, nor
within the COGSA, 1992, and it is unlikely that it would ever be
regarded as a good tender under a C.I.F. contract.
41. Master BOL:
 A Master Bill of Lading (MBL) is a document created for shipping
companies by their carriers as a receipt of transfer. A MBL
summarizes the contents of a shipment including the bill of lading
numbers assigned to the various items within the shipment, as well as a
description of the freight under each bill of lading. The document also
includes the terms for transporting the freight and the name and
address of the consignor, or the shipper, and the consignee, the person
whom possess the goods.
42. Groupage BOL: A group of people ask for the BOL covers consignments
from various shippers for the same destination which have been consolidated
into one consignment by the forwarding agent; same as House BOL
43. Switch BOL: “Switch” bills of lading are a second set of bills of lading issued
by the carrier (or by the carrier’s agent) in substitution for the bills of lading
issued at the time of shipment. The agent who is asked to issue the second set
is often at a port other than the load port. The holder of the bills may decide
(for one reason or another) that the first set of bills is unsuitable, and the
carrier is requested to issue switch bills to satisfy the new requirements of the
bill of lading holder.
44. Freight Prepaid BOL
 Under United States law, “freight prepaid” means that the carrier must
attempt to obtain the freight from the shipper rather than from the
consignee (C.P. Ships v. Les Industries Lyon, 1983) and does not mean
that the freight has actually been paid in advance. The words “freight
prepaid” are common in bills of lading issued by carriers because this
format is demanded by the shippers. The words are traditional and do
not indicate that the freight has actually been paid. This form of bill of
lading is especially common where freight forwarders’ services are
used. The shipper is still responsible for payment of the freight.
However, if the shipper has paid the freight to the freight forwarder
who has not paid it to the carrier, the shipper may not be required to

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pay the freight again to the carrier.

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45. Freight Forwarder’s BOL
 Freight forwarder's bill of lading (FBL) is a transport document, which
is used in sea shipments and multimodal shipments, issued and signed
by a freight forwarder, generally on a freight forwarder's bill of lading
format, evidences the terms and conditions of the carriage of goods as
specified by the freight forwarder.
46. Straight BOL: [NOT NEGOTIABLE]
 A straight BOL is made out in favour of a named consignee without
contemplation of negotiation. It is issued to a particular consignee and
it is written in the bill that it is not negotiable.
 Such a bill is transferable by simple delivery from the shipper to the
named consignee, but not otherwise.
 Because it is issued to particular consignee’s name, it is not negotiable.
Even if it is not written that it is not negotiable, it will be assumed that
it is not negotiable.
 Some awkwardness is occasioned by straight BOL. By definition non-
negotiable, but it is clear that it constitutes a BOL as was held by the
House of Lords in 2005 (Mac William Co. Ltd. v. Mediterranean
Shipping Co.).
47. Ship owner’s BOL
48. Long form BOL
 B/L with the terms and conditions of carriage (the rights,
responsibilities and liabilities of the carrier and the shipper) printed on
its back. These terms are governed generally either by the older Hague
rules or the more recent Hague-Visby rules.
49. Short Form BOL
 B/L without the terms and conditions of carriage (the rights,
responsibilities and liabilities of the carrier and the shipper) printed on
its back. Otherwise, in size, it is no different from the long form B/L.
The shipper and the carrier are bound by the conditions of carriage
(governed generally by the older Hague rules or by the more recent
Hague-Visby Rules) whether printed on the B/L or not.
50. Seaway Bills: [NOT NEGOTIABLE]

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  Usually, issued from one company to itself thus the very nature is
that it is not meant for negotiability.
 These are generally used for short journeys, where it is not
contemplated that the goods will be sold in transit and where time is
short to transmit the document to the intended receiver of cargo for
presentation to take delivery.
 A seaway bill functions as receipt for goods and evidences the terms of
the contract of carriage.
 It is non-negotiable and is not a document of title. It may identify the
beneficiary of the carrier’s delivery obligation or may provide for the
beneficiary to be nominated by the shipper. Even where the beneficiary
is named, the seaway bill may entitle the shipper to issue fresh delivery
instructions to the carrier, nominating a new consignee.
 In any event, a seaway bill is not a presentation document: it is
generally retained by the shipper, and the carrier is entitled to deliver
the goods against production of proof of identity as the beneficiary of
the delivery obligation as originally nominated in the document or as
subsequently nominated by the shipper in accordance with the terms of
the contract as evidenced by the document.
51. Stale BOL (similar to truncated cheque [short, cut and negotiated/discharged])
 A Bill of Lading can be treated as ‘Stale’, if it is presented long after
sailing of vessel pertaining to a shipment at port of loading. Such
presentation of Bill of Lading could be with the Supplier’s Bank,
Discounting Bank, Negotiating Bank, Buyer’s Bank or buyer.
 The term ‘Stale Bill of Lading’ is also used when a bill of lading is
presented with a bank after expiry date of credit. B/L presented to its
consignee, or at a bank, after the last date specified in the relevant
letter of credit and which, therefore, is not acceptable as a valid
document.
 According to the uniform commercial code (UCC), a B/L may be
rejected if presented more than 21 days after the date of arrival of the
shipment. In some cases, the Importer may indicate the number of days
within which the documents are to be presented from the date of
shipment. Exporter has to comply with the stipulation period of time

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 indicated. Otherwise, the Bill of Lading becomes stale and is not
accepted by the bank for payment.
 Payment is done through bank guarantee or letter of credit. In such a
case the banking circle uses the term, “Stale BOL”. [NOTE: UN
Convention on Bank Guarantee and Standby Letters of Credit; Bank
guarantee is independent from the main contract even if main
contract not performed, bank will release the money]
 BROAD CATEGORIES OF BOL
4. Nominate BOL
 Same as straight BOL
 requires the delivery of goods to a named party ad is a non-negotiable
BOL.
5. Order BOL
 Goods are required to be delivered to the order of a specified person and
maybe negotiated by indorsement or indorsement in blank
 Can be negotiated further and it can be both full and in blank
6. Bearer BOL
 It can be negotiated by delivery.

NOTE
 Buyers, sellers, forwarders/factors (pay a role in financing), carrier, banker, lender,
insurers, regulatory authorities.
 Limit fixed in 2003 with respect to withdrawal of money  Harshat Mehta scam
 Validity of cheques
 International Maritime Organization and Law Commission : Hague Convention 1922-
Brussels Convention Carriage of Goods by Sea Act was passed as a result of this
SECTION 39 OF SOGA, 1930:

Standard Form of Contracts

 Saves time- no negotiation.

 Certainty to contract in terms of obligation as well as interpretation.
 Pre-printed contracts/ Take it or leave it contract.

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  Perfect example in terms of business or carriage INCOTRMS 2010 (developed in
England and that why merchants had developed INCOTERMS as part of lex
mercatoria and restricted it to carriage by sea, but 2010 onwards- any mode of
transport)
 Good faith: A. 7 of CISG Uniformity, Gap theory (not governed by municipal
laws), Rule of Private International Law, Good Faith.
 Carriage by sea, air and multimodal transport lawsOnly if carriage starts from India
then these will be the applicable law
 INCOTEMRS ICC Official Rules for the Interpretation of Trade Terms
 E-terms Ex-Works(Indian law) “named place of destination” (minimum liability
of seller- deliver goods at seller’s work place only and other things have to be taken
care of by the buyer)
Ex-warehouse, Ex-Factory
F-terms FOB (Indian
law) C-terms CIF (Indian
law)
D-terms (does not find place in Indian law) Maximum liability of seller
 By express mentioning in the contract any clause can be modified
 CISG: Party Autonomy- Article 6, Modification- Article 29
 Dominance of Developed Countries Old World Economic Order
 Dominance of Developing Countries New World Economic Order
 INTRATERMS: International Trade Terms provided by some regional agencies
which are binding locally only
EX WORKS- Duties of Seller (Section 39 of SOGA)

 Minimum liability of the seller.

 To supply the goods at the seller’s place of business or any designated place as
specified by the contract but that necessarily must be there in the seller’s country.
 Goods must be weighed, checked, measured and properly packaged.
 Supply the conforming goods (description (15), sample (16), fitness (17), quantitative)
 Supply all conforming documents
 BOL is the primary document
 All regulatory practice docs- Rules of origin certificate, pre-shipment
inspection certificate (at the time of shipment, private agencies appointed

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by government give a certificate in terms of quality, quantity and

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 international prevailing price [unreasonable price prevention, balance of
payment]) customs clearance certificate
 RTA route- that certificate is also required
 Buyer obtains export license.
 Ensure delivery of goods to the buyer
F CATEGORY

 FOB: Free on Board

 Parties: Consigner/Shipper, Carrier and Consignee
 SELLERS OBLIGATIONS:
1. Supply conforming goods packed appropriately or in accordance with the
contract.
2. Supply all documents (commercial invoice, BOL and regulatory
documents) conforming to the contract. Electronic version of these
documents must be provided if the buyer asks for it.
3. Deliver the goods to the buyer by placing them on board. As soon as the
goods are passed on to the carrier, the liability of the seller. [A. 66 of
CISG] When the goods are given to the carrier, whatever place the goods
are required to be transported, the carrier must abide by the same. Goods
must be shipped in a proper condition Condition under Section 12 of
SOGA.
4. Place the goods on vessel in the position and the manner required
5. Pay any costs incidental to delivery of the goods. [Deliverable state in
SOGA- Section 2(3) and Section 36(5)]
6. Obtain export licence (Foreign Trade Development Regulation Act 1992
DGFT (Director General of Foreign Trade) in every state)
7. Provide proof of delivery in the manner agreed (Mate Certificate)
8. Provide any assistance for getting any documents facilitating the export.
 BUYERS OBLIGATIONS
1. Give sufficient notice to the seller of the time and location of delivery
(naming of the port of shipment and name of the ship) Section 35 of
SOGA
2. Bear any risk of loss or damage of the goods from the time of loading of
the goods to the ship

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 3. Obtain any license for importation [automatic licensing (most goods come
to India under this; obtaining of license not required) and non-automatic
licensing
4. Compliance with all customs formalities.
5. Pay any cost incidental to the importation of goods
6. Bear the cost of any assistance
7. Pay for the goods.
8. Insurance by buyer.
C CATEGORY

 Liability ends on carriage

 CIF: Cost, Insurance, Freight
 3 contracts: sale contract, insurance contract, contract of Carriage
 Most comprehensive all 3 aspects of commercial transactions
 Insurance can be removed party autonomy
 SELLER’S OBLIGATIONS (Given in CISG, A 30 and 53)
1. Ship goods of description contained in the contractsupply conforming
goods
2. To procure a contract of carriage by sea under which goods will be
delivered at the destination agreed by the contract.
3. Obtain the BOL as an evidence of contract of carriage and send it to the
buyer through a speedier mode (before the goods arrive).
4. To arrange insurance for the contract.
5. To arrange all documents not only prepare contract but also BOL,
clearances, permits, etc.
6. To deliver all the documents to the buyer.
 BUYER’S OBLIGATIONS
1. Accept goods and documents if they are in conformity with the contract
2. Pay according to the contracted price (S. 9 and 10 of SOGA)
3. To receive the goods at the agreed port of destination.
4. Pay all charges including unloading and any unloading during transit.
5. To bear all risk from the time goods pass to the buyer.
6. To pay all the charges incidental to transportation (rules of origin
certificate and other certificates)

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 7. To pay all charges for importation and to get import license
NOTE:

 Article 5 of GATT freedom of goods in transit

 Counterfeited goods: ACTA
D CATEGORY

 Maximum liability of the seller.

 Regulatory documents are also required to be taken by the seller
 Does not find place in SOGA.
PRIVATE CARRIER, PUBLIC CARRIER, COMMON CARRIER
 Private carrier refers to a company that owns the vehicles used to transport its own
goods. A private carrier does not transport goods as its primary business and, thus,
does not seek to transport the goods of other companies like a common carrier does.
In this sense, a private carrier is not a for-hire carrier and does not carry the goods of
other companies as its primary business.
 A common carrier in common law countries (corresponding to a public carrier as it
may be presented in some civil law systems, usually called simply a carrier) is a
person or company that transports goods or people for any person or company and
that is responsible for any possible loss of the goods during transport. A common
carrier is a commercial entity that gets paid to transport goods or people. Some
common carriers transport goods for other businesses, some transport goods for the
general public and some transport members of the general public. Types of businesses
that may be classified as common carriers include taxi services, trucking companies,
waste removal services, couriers, towing services and air freight services, among
many others. States may require common carriers to obtain a permit before they can
operate legally and to obtain special permission if they will be transporting hazardous
materials.
 Definition of common carrier: Carriers Act, 1865 repealed now under Carriage of
Goods by Road Act, 2007: Section 2 (a) inspired by Ingate v. Christie, 1863
 "common carrier" means a person engaged in the business of collecting,
storing, forwarding or distributing goods to be carried by goods carriages
under a goods receipt or transporting for hire of goods from place to place by
motorised transport on road, for all persons un-discriminatingly and includes a
goods booking company, contractor, agent, broker and courier agency

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engaged in the

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 door-to-door transportation of documents, goods or articles utilising the
services of a person, either directly or indirectly, to carry or accompany such
documents, goods or articles, but does not include the Government.
 Contract of bailment- carriage contract
 “for all persons undiscriminatingly”
 Right to reject on certain grounds
 River Steam Navigation Co. Ltd. v. Shyam Sunder Tea and Co. (1962) 2 SCR p. 280
 Question regarding discrimination with respect to charging of freight.
 More freight cannot be charged but less can be charged.

CHARTER PARTY CONTRACT

 governed by Contract Act, 1872
 3 parties: Shipper, Carrier, Seller
 Domicile state of the ship and registered place of the ship. Registered state will be
fixing the liability
 A type of contract of affreightment  Point of difference: The whole ship is hired by
one person to carry the goods to the place of destination
 The term CP stands for a contract between the owner of the vessel and the charterer
which is the one which takes over the vessel for a certain amount of time or voyage
when there is an agreement or contract to carry some goods or provide a ship for
carrying the same document called charter party. The ship owner, under this
document, lets the ship for the purpose of carrying the cargo or undertakes to carry the
full cargo on the ship.
 The first case where Charter Party contract was recognised in common law jurisdiction:
Paradine v. Jane, 1647 Absolute liability of the seller.
 Facts: The plaintiff, Paradine, brought an action against the defendant, Jane,
for the rent arrears for the lands that Paradine had leased to Jane. The
defendant acknowledge that he owed the money for the rent. However, the
reason why he did not pay it was because the land was invaded by the enemy
of the King, his cattle was driven away and he was expelled from the land, so
effectively, he could not enjoy it.
 Issue: Should a lessee who was expelled from his land be liable for rent for a
period in which he has been expelled from the land.

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  Held: (1) Where a party creates a duty or charge upon himself by virtue of a
contract, he is bound to perform the duty or pay the charge, notwithstanding
any accident. The reason why this is so, is because the party could have
inserted a clause in the contract, which prescribes what is to be done with the
rent in case of an accident.
(2) In the absence of an express covenant, the lessee is equally liable as the rent is an
obligation created upon the reservation.
 TYPES OF CHARTER PARTY CONTRACT
8. Voyage Charter Party
 It is a charter under which there is one-time hiring of the ship and the ship
owner provides the ship, the fuel and the crew and places the ship on the
disposal of the charterer for the carriage of the cargo to a designated port.
Once the ship is hired and there is subsequent delivery of the goods, the
contract is terminated.
 2 types:
c. Consecutive Voyage Charter Party: there can be consecutive voyages
it is required to be specified how many time they are transported.
d. Specific Time Period Voyage Charter Party: Specific goods, one time
 Lay time (placing the goods on board) is fixed and fuel and crew will be
provided by the ship owner and if the goods are not loaded on time, the
penalty is prescribed. The penalty is known as demurrage. Thus time is the
essence of the contract.
 CLAUSES UNDER VOYAGE CHARTER PARTY CONTRACTS
f. Introductory clause: the name of the parties, the name of the vessel and
agreed voyage
g. Cargo capacity clause: also known as dead weight clause, maximum
limit of the particular cargo is provided. If more than the prescribed
deadweight is loaded, it will undermine the cargo-worthiness.
h. Cargo clause: the description, type and quantity of the cargo and also
charterer’s liability are specified.
i. Freight clause: amount of freight is specified and who will pay it (the
person nominating the carrier pays the freight [usually the seller], also
it is usually paid in advance)
9. Time Charter Party Contracts

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  Ship has been hired only for a particular period.
 Also known as demise charter party (when the goods are loaded and
transported to the destination, the contract is terminated, which means as
soon as goods are unloaded, contract is over)
 It is also known as catch time charter party contracts.
10. Port/ Dock/ Berth Charter Party
 If the ship owner is required to provide the ship on a particular port/dock,
then that contract is called port/dock/berth charter party contract.
11. Bare Boat Charter Party
 Crew, fuel, etc. is not provided, only the ship is provided.
12. Bare Boat Charter Party with purchase option
 Bear Boat Charter Party with purchase option: like hire purchase; payment
will be there on instalments and on the last instalment there will be
completion of the contract.
13. Slot/Place Charter Party: Some space is left and that can be used. It is a
combination of BOL and Charter Party contracts.
 CLAUSES UNDER CHATER PARTY CONTRACT
 Ready to Load Clause: this means that, at the time of possession of the ship,
the ship owner is required to give an undertaking that the ship is in perfect
status and the goods can now be loaded for transportation.
 Fit for voyage clause: sea-worthiness (ability of ship to sustain the perils of the
sea), cargo-worthiness (ability of the ship to sustain the goods), sea-worthiness
at all stages (ocean BOL) etc.
 Full and complete cargo: Charterer is required to give an undertaking that
when he hires the ship, he will have the full and complete cargo for
transportation.
 King’s Enemies and Restraint of Prince/Princess clause: An undertaking that
you cannot do anything that is contrary to the interests of the flag-state. You
cannot carry anyone who is waging a war or has something against the King.
(doctrine of frustration) the ship is not required to restraint princes and
princesses in the ship.
 Perils of the sea clause: liability is determined. The ship owner will be liable
for the perils only to a certain extent.
 Lawful Trades and Safe Ports clause: only those goods which can legally be

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transported or are normal goods must be carried.

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  Indemnity clause: in case any damage takes place, the party at fault must
indemnify the other party. [Sections 124-125 of ICA talk about indemnity]
 Paramount clause: mandatory clause which talks about the applicable law.
(choice of law clause when two persons from different nations enter into
contract, laws of both nations will be applicable). When paramount clause is
not added, rules of private international law are applicable.
 In the absence of the paramount clause what has to be looked into
where the contract is to be performed, where the parties are located,
where the business h.q. are located, where the parties reside, etc.
 Here the closest connection test is applied, and ease of doing business
is an important factor taken into consideration.
 Cancellation clause: it details the conditions on which both parties can cancel
the contract.
 Dispute clause: which court has jurisdiction. It can be an arbitration agreement
(defined under S. 7 of Arbitration and Conciliation Act, 1996) or submission
agreement.
 Frustration of Charter Party clause: there cannot be a frustration clause.
 Discharge Port clause: the name of the discharged port must be mentioned.
 According to some jurisdictions, without signature also Charter Party Contract is
valid. NOTE: Hague/Brussels convention: liability were frivolous, too many exceptions for
carrier almost no use; consignee had no compensation. Hague Visby exceptions reduced,
Hamburg rules BOL, Liability of the carrier was fixed in terms of Special Drawing Rights
(SDR). Rotterdam  liability of carrier increased.

 Frustration under Charter Party Contracts

 The Indian SC has recently decided that there is no commercial hardship
under Indian law.
 Frustration would not apply in case of commercial hardship.
 Special Charter Party Contracts/ Standard forms of Charter Party Contract (depending
upon the nature of goods)
9. SHELL TIME 4: time charter party of oil tankers.
10. NYPE 1993: Time charter party for dry cargo
11. BARE CON 2001: Bare boat charter party of any type.
12. BOX TIME 2004: Time charter party of container vessels.

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 13. INTER TANK TIME 80: Time Charter Party for tankers.
14. BPVOY 4: voyage charter party for tankers.
15. GASVOY 2005: voyage charter party for gas.
 MOST POPULAR REASONS FOR DISPUTES
6. Premature termination of contract
7. Demurrage claims: penalty for lay time/ loading and unloading
8. Commencement or computation of lay time
9. Delay due to port congestions
10. Breach for payment terms
These are settled matters (settled law is there)
 Unsettled Matters- New Challenges to Charter Party:
5. Piracy: dealt with in UNCLOS- Article 100, 101, 102, 107
6. Use of Armed Guards: contract does not talk about who will maintain security.
7. Delays and off-hire clauses for detention by pirates detention by pirates results
in delays and since time is an essence in such contracts, this is a huge issue
8. Environmental and Pollution Control Regulations some countries are very
relaxed in terms of environmental regulations, while some have very stringent
environment protection regulations. Eg. REACH 2007- EU Regulation which
disallows animal testing. Certain kinds of environment regulations, however,
cannot be enforced.

HIRE PURCHASE AGREEEMENT

 Hire Purchase transactions are governed by:
1. Sale of Goods Act
2. Indian Contract Act
3. Hire Purchase Act, 1972: repealed by Hire Purchase Repealment Act, 2005
 Hicken Botham v. Groves, 1826  first time hire purchase agreement was
recognised (it is not necessary to sell the goods directly, it can be first hired)
 Lee v Butler case defines hire purchase transactions.
 A lady hired certain furniture from the plaintiff, the price to be paid in two
instalments, and the plaintiff having the right to take back the furniture if an
instalment was not paid. Before the last instalment was paid, the lady sold the
furniture to the defendant.

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  It was held that the defendant had acquired a good title, the lady being in
possession of the furniture under an agreement to buy. She did not have the
option to return, but was compellable to buy.
 It was established that where the hirer does not have the option to return, it
will be an agreement to buy and not a hire purchase, even if the price is
payable in instalments and the seller has the power to seize the goods on
default.
 Parties: Supplier of the goods, Owner of the goods/ Finance Company, Hiree
 Bailment Sections 148 to 179 of ICA
 Element of bailment + Option to buy
 Definition: Section 2(c) of HPA 1972 The agreement under which the goods are let
on hire where hirer has an option to purchase them subsequently.
 Possession of the goods is delivered by the owner to the hirer on condition that on
failure of payment of any instalment the hirer will return the goods to the owner.
 On exercise of option to buy and the payment of last instalment, property in the goods
will pass to the hirer.
 Such person has right to terminate the contract at any time before the property passes.
 Special Characteristics:
1. Payment is always done by instalments.
2. Option to buy can always be exercised.
3. Availability of the commodity and possession must be there with the person who
had hired (actual possession must take place)
4. HP agreement shall always be in writing
5. Ownership of the asset passes to the hiree after the payment of the last instalment
if the hiree exercises the option to purchase the good.
6. The hirer and the hiree enter into a legal contract for this purposes of transfer of
property in those goods which also stipulates the amount of the instalments
required to be paid.
7. In case of failure to pay the instalment, the owner has the right to reclaim the goods.
8. There may be a provision in the agreement that the hirer can return the goods to
hiree after the payment of instalment if the agreement so envisages.
 History of HPA, 1972
 Passed in 1972
 First notified in 1973 but that notification continued for two months
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  Again in 1987 for 2 months
(Reason: amendments needed; In 1979, British HPA merged with Consumer Credit Act.
Source of our Act is 1888 HPA of Britain. When they merged it, it was realized that we also
don’t need a separate HPA)
 2005: purchasing power had increased manifold and so Parliament repealed it.
(however, certain high-price goods are still subjected to hire purchase
mechanism, mismatch bw the market and understanding of the government)
 Financing Cos. Will always prefer HP agreements (direct action in case of
failure to pay instalment)
 K.L. Johar and Co. v. Deputy Commercial Tax Officer, Coimbatore
 Facts: the appellant company, a financing firm, carried on the business of
advancing money by entering into hire-purchase agreements with those willing
to buy motor vehicles. The appellant paid the price to the dealer and the car
was handed over to the hirer. The latter paid the price by monthly instalments.
He had the option to determine the agreement at any time by paying rent up-
to-date and returning the machine.
 The Madras HC held that the transaction amounted to an immediate sale. But
on appeal to the Supreme Court Wanchoo J held that the transaction would
amount to sale only when the option is exercised.
 He explained the distinction between sale and hire-purchase as follows:
The essence of a sale is that the property is transferred from the seller to the buyer for a price,
whether paid at once or paid later in instalments. On the other hand, a hire-purchase
agreement, as its very nature implies, has two aspects. There is first an aspect of bailment of
goods subjected to the hire-purchase agreement, and there is next, an element of sale which
fructifies when the option to purchase is exercised by the intending purchaser. Thus the
intending purchaser is known as the hirer so long as the option to purchase is not exercised.
The essence of the agreement is that the property in the goods does not pass at the time of the
agreement but remains in the intending seller, and only passes later when the option is
exercised by the intending purchaser.
Where the hirer does not have the option to return, it will be an agreement to buy and not a
hire purchase, even if the price is payable in instalments and the seller has the option, on
default, either to seize the goods or sue the buyer for the price.

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 Sundaram Finance Ltd. v. State of Kerala, 1967 : position that was now, exists today.
Thus important case.
 K.L. Johar was followed in this case.
 The short question is whether the hire-purchase agreements entered into by the
appellant with its customers are transactions of sale of goods or are only
documents securing the return of the loans advanced by it to its customers.
 The appellants were financiers; they were not dealing in motor vehicles. The
motor vehicles purchased by 'the customer was registered in the name of the
customer and remained at all material times so registered in his name.
In the letter taken from the customer under which he agreed to keep the vehicle
insured, it was expressly recited that the vehicle had been given on security for
the loan advanced by the appellants. As a security for repayment of the loan,
the customers executed a promissory note for the amount paid by the
appellants to the dealer of the vehicle. The so-called 'sale-letter' was a
formal document which was not made effective by registering the vehicle in
the name of the appellants and even the insurance of the vehicle had to be
effected as if the customer was the owner.
 The appellants' 'right to seize the vehicle was merely a licence to ensure
compliance with the terms of the hire-purchase agreement. The customer
remained qua the world at large the owner, and remained in possession, and on
condition of performing the convenants had a right to continue to remain
in possession. The right of the appellants may be extinguished by payment of
the amount due to them under the terms of the hire- purchase
agreement even before the date fixed for payment. The agreements
undoubtedly contained several onerous covenants but they were all intended
to secure to the appellants recovery of the amounts advanced. The
intention of the appellants in obtaining hire-purchase and allied
agreements was to secure the return of loans advanced to their
customers. The transactions were merely financial transactions.
 Anup Sarmah v Bhola Nath Sharma and ors., 2013 1 SCC 400 repealed act can
be looked into (meaning, format, obligations are dealt with in HPA, 1972)
 Suryapal Singh v. Siddhi Vinayak Motors & anr., 2012 12 SCC 535 referred to
the repealed act.

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  DIFFERENCE BETWEEN HIRE PURCHSE AGREEMENT AND AGREEMENT
TO SELL (pg. 12 of Dukki)

Agreement to Sell Hire Purchase Agreement

Property in the goods is transferred to the The property in the goods passes to the hiree
buyer immediately at the time of the contract upon payment of the last instalment
The position of the buyer is that of the owner The position of the hiree is that of the bailee
of the goods. till he pays the last instalment.
The buyer cannot terminate the contract and The hiree may if he so likes, terminate the
is bound to pay the price of the goods. contract by retuning the goods to the owner
without any liability to pay the remaining
instalments.
In the case of sale, seller takes the risk of The owner takes no risk. If the hiree fails to
any loss resulting from the insolvency of pay an instalment the owner has the right to
the take back the goods.
buyer
The buyer can pass a good title to a bona The hirer gets entitles only to the possession
fide purchaser. of the goods. He cannot pass any title even
to
the bona fide owner (initially).
Benefit of implied conditions and warranties A hirer cannot claim the benefit of implied
can be claimed conditions and warranties created by the Act
unless it becomes a sale.
Sales tax is leviable. Sales tax is not leviable unless it becomes a
sale.

 366 (29)(2): 46th Amendment: deemed sale sales tax to be paid in case of hire
purchase agreements also.
IMPLIED CONDITIONS
1. The person who is letting the goods on hire, must have the right let them on hire.
2. Goods must be of merchantable
quality. TEMRINATION
1. Automatic termination
2. Termination by notice: in case a clause is there in a contract. Notice from either side.
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 3. When due care not taken
4. Frustration

BOOKS
Scrutton on Bill of lading
Carber on BOL
EBC Book: BOL in National and International (Xerox section)

Specific performance can now be claimed by parties [S. 10, Specific Relief Act, A.28, 46, 52
of CISG)]

2017 case: increase in price will not be recognised as unforeseeable (Satyavrat Singh v Mangi
Ram Bangur)

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ANSHUPAL CARRIAGE NOTES
CARRIAGE BY SEA

2 TYPES OF CARRIAGE CONTRACT

 Unimodal (Carriage of Goods by Sea Act, 1925) and Multimodal (Multimodal
Transportation of Goods Act, 1993.
CONTRACT OF AFFREIGHTMENT
 Freight is the consideration.
 The moment the goods have been handed over to the carrier/buyer, possession passes.
Risk passes with possession
 When a ship owner, or a person having for the time being as against the ship owner
the right to make such an agreement, agrees to carry goods by sea or to furnish the
ship for the purpose of carrying goods in return for a sum of money to be paid to him,
such a contract is called the contract of affreightment or contract of carriage of goods
by sea and the sum to be paid is usually called freight.
 Time is always the essence in order to:
7. Provide the ship on time on the dock
8. Load the goods on time
9. Unload the goods on time
 Penalty of demurrage in case the above 3 are not abided by.
 Captain signs on behalf of the ship owner. Captain is the agent and vicarious liability
applies.
 2 types: Charter Party Contract and BOL. Depending on the manner in which the ship
is employed, the contract of affreightment may be contained in a charter party or
contained in or evidenced by a Bill of Lading.
IMPLIED UNDERTAKING BY THE CARRIER
 Sea-worthiness- fit for journey
 At common law a ship owner by contracting to carry goods on a voyage in a
ship, in the absence of express stipulation, impliedly undertakes that his ship is
seaworthy.
 In case of charter party contracts sea-worthiness is absolute there are no
exceptions. Under BOL, the absolute undertaking of sea worthiness is replaced
by an undertaking that the ship owner will before and at the beginning of the

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 voyage exercise due diligence to make the ship sea worthy as it is governed by
the Carriage of Goods by Sea Act, 1925 and Article 3 of the Act provides this.
 The implied undertaking of sea-worthiness is an innominate term.
 Sea worthiness at every stage: 2 types of shipping- linear (fixed route- from
one particular port of arrival to a particular place) and tramp shipping
(operation wherever the cargo passes)
This is related with tramp shipping and thorough bill of lading
 Non-exclusion of sea-worthiness: As per, Section 151 read with 159 of ICA,
1872, sea-worthiness cannot be excluded even with an express provision in the
contract between the parties.
 3 types:
7. Technical sea-worthiness: relating to the vessel’s design, condition of her hull
and machinery, and her stability, etc.
8. Cargo-worthiness- fit for particular cargo competent crew, requisite
equipment (mandatory under cargo sea-worthiness)
9. Sea-worthiness for intended voyage relating to her equipment (including
charts), manning, bunkering and stores for the voyage.
 Reasonable dispatch
 The ship owner impliedly undertakes that his vessel shall be ready to
commence the voyage agreed on and to load the cargo to be carried, and shall
proceed upon and complete the voyage agreed upon, with all reasonable
dispatch.
 This is also an innominate term.
 Any unreasonable delay leads to vitiation of contract
 Cehave N.V. v. Bremer (Lord Denning):
 “Conditions” If the promisor breaks a condition in any respect,
however slight, the other party can, if he wishes, by intimation to the
party in breach, elect to be released from performance of his obligation
under the contract, claiming damages for any loss he has suffered
although he can, if he prefers, elect to maintain the contract in
existence and content himself with proceeding for damages in respect
of his loss.
 “Warranties” if the promisor breaks a warranty in any respect,
however serious, the other party does not have a right to be released

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from his further obligations, but has only the right to recover damages.

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  “Innominate or intermediate terms” These are neither conditions nor
warranties. When an obligation of this type is broken, the right of the
promisee to treat himself as discharged depends on whether the breach
is sufficiently serious to go to the root of the contract.
 Reasonable dispatch is not a condition
 No deviation
 It is a rule unless in case of exigencies
 Also involves undertaking to proceed the voyage by a usual and reasonable
route and without unjustifiable departure/deviation form that route. A
departure will be justifiable if it is necessary to save life or to communicate
with a ship in distress as the distress may involve danger to life.
 Perils of the sea: Certain perils are expected. Only in case of abnormal perils,
there can be deviation.
 Not to load those goods which are liable to cause danger or delay to the ship.

o Liner Shipping Service:

The liner ship has the following features:

13. Liner ship is designed to carry a variety of cargo, with spaces for bales, bundles, boxes, barrels,
drums, etc, as well as for reefer (refrigerated) cargo. The designs of the holds and number of decks
in cargo will be different from those of a tramp. With the increased share of containerized cargo,
specially designed container ships for carrying different categories of containers operate.
14. The cargo handling equipment on a liner will be varied and sophisticated for quick loading and
unloading of cargo to ensure a quick turnaround. A quick turnaround means that the ship spends the
least possible time in the port and most of its time in transit.
15. Liner ships frequently operate between fixed ports and normally loads in several ports. It serves
a number of discharging ports along a pre-determined route.
16. In order to ensure speedier carriage, liner ship is fitted with sophisticated and expensive propelling
machinery.
17. Liner shipping service provides pre-announced scheduled services on given terms and conditions of
carriage. These conditions in the receipt mostly relate to the responsibilities and liabilities of the
shipowners, carriage, and delivery of cargo.
18. Liner shipping generally offers carriage on fixed and stable freight rates.

o Tramp Shipping Service:

The tramp carrier has the following characteristics features:

13. Tramp carrier is primarily designed to carry the more simple and homogeneous cargo in huge
quantity. It is, therefore, designed to completely utilize its carrying capacity for carriage of one type
of cargo.

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 14. Since one kind of homogeneous cargo is to be handled, a tramp will have the comparatively simple
equipment. Bulk cargos are normally loaded and discharged by mechanical equipment, elevators,
pumps, etc.
15. Because of the comparatively low unit value of commodities carried, a tramp will be operated at the
lowest possible cost. This objective can be achieved by operating ships having relatively less speed
by fitting less expensive propelling machinery.
16. A tramp generally carries cargos of one or two ship users. Hence, loading and discharging are
confined to a few ports.
17. Tramp carriers do not have a fixed route and predetermined schedule of departure as it is to be
engaged by one/two users as and when their need arises.
18. Tramp carrier offers services at terms and conditions, including freight/hire charges, which are not
fixed and given but are negotiable.

SHIP BROKERS, CHARTER PARTY BROKERS, FREIGHT BROKERS

 a standard form of rules and regulation dealing with brokers.
 The fixed charge is known as brokerage.
 Ship brokers: bill of lading as well as for charter parry contracts
 Charter party brokers: exclusively there for charter party contracts only
 Freight broker: fixing of freight
NOTE: Shipping cartels are allowed worldwide  Because shipping market is not
developed, regulation can be there only once the market has developed
SHIPPING DOCUMENTS
FREIGHT CONTRACTS
MATE CERTIFICATE
SEA WAY BILLS under types of BOL
SHIP’S DELIVERY ORDER
 It is a document containing an undertaking from the carrier in respect of the delivery
of goods and is generally employed to split bulk cargoes shipped under one bill of
adding. In this case, the BOL will be surrendered in exchange for the issue of a
number of ship delivery orders.
 These may be originally drawn up by the carrier, or by the holder of the BOL and
addressed to adopted by the carrier.
BILL OF LADING
BILL OF LADING- “Key to open the dock”
 Governed by Carriage of Goods by Sea Act, 1925
 Most important document in case of contract of carriage.
 It is a receipt of the goods that has been issued by the Captain of the Ship
 It is a contract of sale

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  It is an evidence indicating that it is a contract of carriage.
 Derived from “bile”  a written document/receipt/instrument ; laden goods are
getting loaded
 Doc indicating that goods are getting loaded in the ship
 First time recognised in 1794  Lickbarrow v. Mason (Judge- Laugh Borough)
 In the above case judicial recognition was granted to the custom and practice
of merchants that a shipped, negotiable bill of lading was a “document of
title”, so that a transfer of the bill effected a transfer of property in the goods
covered by the bill. It is however, clear that the reference to property must be
understood as denoting such proprietary or possessory rights as it is intended
shall be transferred, it does not recognise transfer of property.
 BOL is a written evidence of contract if carriage and delivery of goods are
sent by sea for certain freight and the contract in legal language is a contract of
bailment. In no manner whatsoever it recognises transfer of property. It is only
a contract of carriage and the nature is contract of bailment.
 COGSA, 1925 regulates only bill of lading transactions
 International Regulation (only Rotterdam rules have not been implemented in India):
9. Hague Rules 1924
10. Hague Wisby Rule 1968
11. Hamburg Rules, 1978 (UN Convention on Carriage of Goods by Sea, 1978)
12. Rotterdam Rules 2009
 Article 1 (7) of UN Convention on Carriage of Good by Sea, 1978 defines BOL
“A document that evidences a contract of carriage by sea and the taking over or loading of the
goods by the carrier and by which the carrier undertakes to deliver the goods against the
surrender of the documents, a provision in the document that the goods are to be delivered to
the order of a named person or to the order, or to the bearer constitutes such an undertaking.”
 Halsbury Law of England (Vol 7): A BOL is a document signed by the ship owner or
by the master or the agent of the ship owner which states that certain specified goods
have been shipped in a particular ship and which purports to set out the terms on
which goods have been delivered and received by the ship; after signature, it is
handed over to the shipper (seller) who may either retain it or transfer it to a third
person. The person may be named as a person to whom the delivery of the goods is to
be made at arrival at

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 their destination in which case he is known as the consignee. If he is not named in the
bill, he is usually known as the holder or indorsee of the BOL.
 Halsbury Law of India defines BOL as an instrument signed by the master of the ship
in his capacity of the carrier acknowledging the receipt of the merchant’s goods. They
are usually in 3 parts. One is retained by the consigner of the goods, one is sent to the
consignee and the other is preserved by the master of the ship.
 A carrier that issues a BOL assumes a fundamental obligation to deliver the goods at
destination only against presentation of the bill.
 LEGAL NATURE OF BOL:
7. Formal receipt by the ship owner acknowledging the goods have been
received by the carrier
8. It is an evidence of contract of carriage basic transport document. It serves
as evidence of the terms of the contract of affreightment. As between the
immediate parties to the contract, namely the carrier and the shipper, the
evidence provided by the bill is not conclusive and may be supplemented or
even overridden by extraneous evidence. However, once the bill has been
transferred, the bill provides conclusive evidence as between the carrier and
the new holder as to the terms of the contract of affreightment. In this sense
the bill maybe said to “contain” the contract (Leduc & Co. v. Ward, 1888).
9. It is document of title indicating the ownership of that particular good as
specified under Section 2 (4) of SOGA, 1930.
 BOL lies with the buyer so that he can claim the goods from the port authorities. Mate
Certificate lies with the seller (it is only an acknowledgment of receipt of goods by the
ship owner). BOL has evidentiary value.
 WHETHER BOL IS A NEGOTIABLE INSTRUMENT?
 It is considered a negotiable instrument because it is a freely transferable
instrument of title, which can be transferred from one party to another, but it is
not governed by NIA. It is by mere deliverance that it completes the process.
 BOL is a negotiable instrument:
 Lickbarrow v Mason: BOL is a written evidence of contract of
carriage and delivery of goods sent by sea for certain freight and the
contract in legal language is a contract of bailment.

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  The special verdict in Lickbarrow uses the word “negotiable” and
“transferable” in case of BOL.
 BOL is merely a delivery contract.
 When the first time goods are being carried it is merely a contract of
carriage, no question of transferability comes into picture. This
question comes only when goods are getting sold during transit by the
one who possesses the goods. Such a sale can be made through
indorsement. In this case BOL gets transferability.
 Ab initio it is only a receipt. When goods are in carrier’s possession
and then goods are sold in transit, BOL attains transferability.
 BOL not a negotiable instrument
 Patten v. Thompson
 Sargent v. Morris
 Straight BOL and Seaway Bills
 Negotiable as term of art describes an instrument which can give to a
transferee a better title than that possessed by the transferor. A BOL is
not negotiable in this sense as the indorsee does not get a better title
than his assignor (Gurney v Behrend, 1854). Indeed, a BOL is
negotiable only in a popular sense and not in a technical sense (Kum v
Wah Tat Bank, 1971).
 UTILITY OF BOL:
 Most preferred mode of transport is carriage by sea in international trade.
 Containerisation prevents damage of good
 RULE OF INTERPRETATION IN CASE OF BOL
 Mode of payment Letters of credit or bank guarantee; documentary credit
 Because it is a financial document, the interpretation will be strict in nature.
 Clean BOL: All the clauses mentioned in BOL are clear and beyond doubt.
Everything is in order without the extent of damage. It is a bill of lading that notes the
loading of goods in apparent good order and condition.
 Clause/Dirty BOL: (below)
 Documents are sold rather than goods: most of the times, goods are sold when they
are getting transported.
 PARTIES: Shipper (seller), consignee (buyer), carrier (ship owner).

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 PROBLEMS WITH BOL
9. Claused BOL
 Claused BOL does not clearly reflect the standard of the product being
transported. It is bill of lading that contains adverse remarks as to the
apparent order and condition of the goods to which it refers, or a bill of
lading which contains qualifications as to the weight or quantity of the
goods loaded thereunder. It also indicates the extent of damage and
involves overlapping
 A claused bill of lading is used when shipped products deviate from
the delivery specifications or expected quality. Also called a "dirty bill
of lading" or "foul bill of lading."
 If an individual receiver issues a claused bill of lading, the exporter
may face future difficulty. For example, if the goods arrive and the
receiver deems them damaged or determines some of the goods went
missing, the exporter may experience trouble receiving payment. When
shipping goods, purchasers rely on letters of credit for payment.
However, most banks refuse to accept any claused bills of lading.
Thus, if a receiver files a claused bill of lading and the exporter relies
on letters of credit to pay for the goods originally, they will not receive
repayment for the goods, and thus will experience a loss.
 When a dispute comes before the Court, it will not be able to decide
beyond doubt. There will be issues regarding interpretations.
10. BOL is most of the times bearer BOL. There are chances that an unauthorised
person may claim goods.
11. Sometimes goods be claimed without BOL and this can create a problem.
There can be case where because of delay in the transportation or
communication, BOL does not reach buyer. In case the cargo arrives, the port
authorities, sometimes, release the goods without a BOL. This may result in an
issue in terms of damages to the goods.
12. Forged BOL: 2 parties located in 2 different countries and many a times
parties forge the documents and claim the goods.

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 DIFFERENCE BETWWEN MATE CERTIFICATE, INVOICE, COMMERCIAL
INVOICE AND BOL
 MC is similar to BOL but it has no negotiability.
 MATE CERTIFICATE is similar to BOL but MC is for the purpose of the
seller, has no negotiability, and is merely an evidence that the goods have been
received from the seller. BOL is for the purpose of buyer.
 Invoice/Commercial Invoice (difference between these two is in terms of
detailing- CI has complete details) is non-negotiable, it is merely a document
of title.
 BOL is the most comprehensive of all.
 Sales Contract involves the principle of Privity of contract and thus it cannot be used
to claim the goods from the port authorities.
 NOTE: Parol Evidence: CISG Article 8. (filling the gap approach- conduct, customs
and usages)
 CLAUSES
23. [From Hamburg Rules, 1978] General nature of the goods. (all of this information is
provided by the shipper/seller to the carrier/captain of the ship/agent of the captain of
the ship)
i) The leading marks necessary for the identification of the goods (most of the
times goods are unascertained goods in sale transactions, thus leading marks
are necessary for identification).
j) An express agreement, if applicable, as to the dangerous character of the goods.
k) Number of packages or pieces
l) The weight of the goods or quantity, whichever is applicable.
24. Apparent Conditions of the goods.
25. Name and principal place of business of the carrier.  for the purpose of jurisdiction.
[principal place  Tramp shipment Flag state and domicile state
26. Name of the shipper
27. Name of the consignee/buyer, if named by the shipper (order BOL), otherwise it must
be considered as bearer BOL.
28. Name of the port of loading under the contract of carriage of goods by sea and the
date on which goods were taken over by the ship owner/carrier for the purposes of
loading. (time is the essence and penalty of demurrage)

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 29. Name of port of discharge under the contract of carriage of goods by sea
30. The number of originals of the BOL, if issued more than once.
31. The place of issuance of the BOL.
32. Signature of the captain of the ship/carrier or a person acting on his behalf.
33. Freight to the extent payable by the consignee (freight paid by the shipper or
indication that the freight will be payable by the consignee) most of the times
freight is already paid by the seller. (whosoever names the carrier pays the freight
Section 23 of SOGA)
NOTE: Open Price Contract: Art. 14 read with Art. 5 of CISG (Price is determined
subsequently)
 TYPES OF BOL
52. Order interment: BOL made out in favour of a named consignee or order.
53. Bearer Instrument: A BOL made out without naming the consignee and in
favour of simply the “bearer” or “holder” or in blank.
 Thus a BOL made out either without naming the consignee but in
favour of “bearer” or “holder” or in blank (bearer BOL) or in favour of
a named consignee or order is said to be “negotiable”. This denotes
that the bill and various rights in respect of the goods covered by the
bill are transferable simply by the physical transfer of the bill,
accompanied by, in case of an order bill, by endorsement in favour of
the new holder or in blank.
54. Charter Party BOL: (explained in detail later)
 Whole ship is hired and some space is left, others may be allowed to
load their goods.
 Ship owner enters into the contract and so the liability is absolute.
 Doctrine of substantial reliance.
55. Charterer’s BOL.: BOL issued by the Charterer.
56. Clean BOL: (explained above)
57. Claused BOL: (explained above)
58. Liner BOL: A bill of lading under which the carrier is responsible for
loading, stowing and discharging the cargo.
59. Negotiable and Non-negotiable BOL
 A negotiable bill of lading can be transferred by one of its cosignees to
a third-party, when the cosignee signs, or endoses the document and

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 delivers it to the new cosignee (the third party). To transfer the
negotiable bill of lading, the consignor (the person or business
shipping the goods) must stamp and sign the bill and the carrier must
deliver it. A negotiable bill of lading must be written to the order of the
cosignee, and it must be clean bill of lading.
 A clean bill of lading is a bill of lading issued by a carrier declaring
that goods have been received in the appropriate condition, without
defects. The product carrier issues a clean bill of lading after inspecting
the goods.
 A straight or uniform bill of lading, in contrast, may not by transferred
and is only deliverable to the named consignee (recipient). Like any
bill of lading, the negotiable bill of lading also lists the goods being
transported and serves as a contract of the terms of the shipment.
 Also known as an order bill of lading, the negotiable bill of lading
transfers control (title) of the goods to the order of the entity named on
the document.
60. Shipped and Received BOL
 Shipped BOL records goods that have been loaded on board the
carrying vessel.
 A received or “received for shipment” bill records goods received
into the carrier’s care and custody before loading. An on board
notation may be added to a received bill to record the fact and date
of subsequent shipment.
 Shipped will be more expensive because certainty is there.
Received: ambiguity when the navigation will start.
 High chance of misappropriation of BOL.

61. Through BOL

 A bill of lading will sometimes only cover one part, or one aspect of
the shipping process. A through bill of lading is more involved. It
allows the transportation of goods both within domestic borders and
through international shipment.

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  The bill is often required in order to export goods, and serve as a legal
certificate authorizing a party to be in possession of and transporting a
particular good. This is because a through bill of lading allows for the
shipping carrier to pass the cargo through several different modes of
transportation, and several different distribution centers.
 A transporter can move products both within a country and export
them, often by air, with a through bill of lading. The through bill must
contain an "inland bill of lading", which is the documentation required
for domestic transportation. If the shipper wants to move the goods
across the ocean, the "inland bill of lading" will not be suffice; the
through bill of lading will require an "ocean bill of lading" will be
required for any goods moving across the ocean.
 As per A. 194 under Scrutton on Bill of Laing, it is an expression used
to mean a document containing a document containing a contract for
the carriage of goods from one place to another in separate stages, of
which at least one stage is a conventional sea transit. The sea transit
may itself by divided into separate stages to be performed by different
ship owners by a process of transhipment.
 The sea transit is often coupled with a stage of transit by some other
means, for eg. by road, rail or air, in which case the through bill of
lading is sometimes called a “combined transport BOL”.
62. Combined Transport BOL: like multimodal transport BOL. A combined
transport BOL providing for carriage partly by sea and partly by some other
means of transport is not a valid tender under a CIF contract, in the absence of
agreement or usage to that effect; if the express terms of the contract provide
for carriage by sea, evidence of such a usage will not be admitted. If there is
no agreed or customary or usual route at the time of shipment, that route must
be chosen which is reasonable.
63. Ocean BOL
 An ocean bill of lading is a document required for the transportation of
goods overseas. An ocean bill of lading serves as both the carrier's
receipt to the shipper and as collection document or an invoice.
 An ocean bill of lading allows the shipper to move goods across
international waters. If the goods are to be initially shipped over land,

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 an additional document, known as an "inland bill of lading", will be
required. The inland bill only allows the materials to reach the shore,
while the ocean bill allows them to be transported overseas.
64. Ocean Through BOL: (above)
65. House BOL:
 A House Bill of Lading (HBL) is a document created by an Ocean
Transport Intermediary (OTI) such as a freight forwarder or non-vessel
operating company (NVOCC). The document is an acknowledgment of
the receipt of goods that are to be shipped. It is issued to the supplier
once the cargo has been received and may be used in lieu Letter of
Credit or in lieu of a Master Bill of Lading (MBL). HBL includes the
name and address of the supplier, who delivers the shipment to the
freight forwarder, and the consignee, who the freight forwarder
delivers the shipment to. The document also includes specific
information about the items shipped and the value of the shipping
contract.
 A house BOL issued by a forwarding agent acting solely in the
capacity of an agent to arrange carriage is not a BOL at all, but at most
a receipt for the goods coupled with an authority to enter into a
contract of carriage on behalf of the shipper. It is not a document of
title, nor within the COGSA, 1992, and it is unlikely that it would ever
be regarded as a good tender under a C.I.F. contract.
66. Master BOL:
 A Master Bill of Lading (MBL) is a document created for shipping
companies by their carriers as a receipt of transfer. A MBL
summarizes the contents of a shipment including the bill of lading
numbers assigned to the various items within the shipment, as well as a
description of the freight under each bill of lading. The document also
includes the terms for transporting the freight and the name and
address of the consignor, or the shipper, and the consignee, the person
whom possess the goods.
67. Groupage BOL: A group of people ask for the BOL covers consignments
from various shippers for the same destination which have been consolidated
into one consignment by the forwarding agent; same as House BOL

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68. Switch BOL: “Switch” bills of lading are a second set of bills of lading issued
by the carrier (or by the carrier’s agent) in substitution for the bills of lading

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 issued at the time of shipment. The agent who is asked to issue the second set
is often at a port other than the load port. The holder of the bills may decide
(for one reason or another) that the first set of bills is unsuitable, and the
carrier is requested to issue switch bills to satisfy the new requirements of the
bill of lading holder.
69. Freight Prepaid BOL
 Under United States law, “freight prepaid” means that the carrier must
attempt to obtain the freight from the shipper rather than from the
consignee (C.P. Ships v. Les Industries Lyon, 1983) and does not mean
that the freight has actually been paid in advance. The words “freight
prepaid” are common in bills of lading issued by carriers because this
format is demanded by the shippers. The words are traditional and do
not indicate that the freight has actually been paid. This form of bill of
lading is especially common where freight forwarders’ services are
used. The shipper is still responsible for payment of the freight.
However, if the shipper has paid the freight to the freight forwarder
who has not paid it to the carrier, the shipper may not be required to
pay the freight again to the carrier.
70. Freight Forwarder’s BOL
 Freight forwarder's bill of lading (FBL) is a transport document, which
is used in sea shipments and multimodal shipments, issued and signed
by a freight forwarder, generally on a freight forwarder's bill of lading
format, evidences the terms and conditions of the carriage of goods as
specified by the freight forwarder.
71. Straight BOL: [NOT NEGOTIABLE]
 A straight BOL is made out in favour of a named consignee without
contemplation of negotiation. It is issued to a particular consignee and
it is written in the bill that it is not negotiable.
 Such a bill is transferable by simple delivery from the shipper to the
named consignee, but not otherwise.
 Because it is issued to particular consignee’s name, it is not negotiable.
Even if it is not written that it is not negotiable, it will be assumed that
it is not negotiable.

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  Some awkwardness is occasioned by straight BOL. By definition non-
negotiable, but it is clear that it constitutes a BOL as was held by the
House of Lords in 2005 (Mac William Co. Ltd. v. Mediterranean
Shipping Co.).
72. Ship owner’s BOL
73. Long form BOL
 B/L with the terms and conditions of carriage (the rights,
responsibilities and liabilities of the carrier and the shipper) printed on
its back. These terms are governed generally either by the older Hague
rules or the more recent Hague-Visby rules.
74. Short Form BOL
 B/L without the terms and conditions of carriage (the rights,
responsibilities and liabilities of the carrier and the shipper) printed on
its back. Otherwise, in size, it is no different from the long form B/L.
The shipper and the carrier are bound by the conditions of carriage
(governed generally by the older Hague rules or by the more recent
Hague-Visby Rules) whether printed on the B/L or not.
75. Seaway Bills: [NOT NEGOTIABLE]
 Usually, issued from one company to itself thus the very nature is
that it is not meant for negotiability.
 These are generally used for short journeys, where it is not
contemplated that the goods will be sold in transit and where time is
short to transmit the document to the intended receiver of cargo for
presentation to take delivery.
 A seaway bill functions as receipt for goods and evidences the terms of
the contract of carriage.
 It is non-negotiable and is not a document of title. It may identify the
beneficiary of the carrier’s delivery obligation or may provide for the
beneficiary to be nominated by the shipper. Even where the beneficiary
is named, the seaway bill may entitle the shipper to issue fresh delivery
instructions to the carrier, nominating a new consignee.
 In any event, a seaway bill is not a presentation document: it is
generally retained by the shipper, and the carrier is entitled to deliver
the goods against production of proof of identity as the beneficiary of

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the delivery

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 obligation as originally nominated in the document or as subsequently
nominated by the shipper in accordance with the terms of the contract
as evidenced by the document.
76. Stale BOL (similar to truncated cheque [short, cut and negotiated/discharged])
 A Bill of Lading can be treated as ‘Stale’, if it is presented long after
sailing of vessel pertaining to a shipment at port of loading. Such
presentation of Bill of Lading could be with the Supplier’s Bank,
Discounting Bank, Negotiating Bank, Buyer’s Bank or buyer.
 The term ‘Stale Bill of Lading’ is also used when a bill of lading is
presented with a bank after expiry date of credit. B/L presented to its
consignee, or at a bank, after the last date specified in the relevant
letter of credit and which, therefore, is not acceptable as a valid
document.
 According to the uniform commercial code (UCC), a B/L may be
rejected if presented more than 21 days after the date of arrival of the
shipment. In some cases, the Importer may indicate the number of days
within which the documents are to be presented from the date of
shipment. Exporter has to comply with the stipulation period of time
indicated. Otherwise, the Bill of Lading becomes stale and is not
accepted by the bank for payment.
 Payment is done through bank guarantee or letter of credit. In such a
case the banking circle uses the term, “Stale BOL”. [NOTE: UN
Convention on Bank Guarantee and Standby Letters of Credit; Bank
guarantee is independent from the main contract even if main
contract not performed, bank will release the money]
 BROAD CATEGORIES OF BOL
7. Nominate BOL
 Same as straight BOL
 requires the delivery of goods to a named party ad is a non-negotiable
BOL.
8. Order BOL
 Goods are required to be delivered to the order of a specified person and
maybe negotiated by indorsement or indorsement in blank
 Can be negotiated further and it can be both full and in blank

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9. Bearer BOL

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  It can be negotiated by delivery.

NOTE
 Buyers, sellers, forwarders/factors (pay a role in financing), carrier, banker, lender,
insurers, regulatory authorities.
 Limit fixed in 2003 with respect to withdrawal of money  Harshat Mehta scam
 Validity of cheques
 International Maritime Organization and Law Commission : Hague Convention 1922-
Brussels Convention Carriage of Goods by Sea Act was passed as a result of this
SECTION 39 OF SOGA, 1930:

Standard Form of Contracts

 Saves time- no negotiation.

 Certainty to contract in terms of obligation as well as interpretation.
 Pre-printed contracts/ Take it or leave it contract.
 Perfect example in terms of business or carriage INCOTRMS 2010 (developed in
England and that why merchants had developed INCOTERMS as part of lex
mercatoria and restricted it to carriage by sea, but 2010 onwards- any mode of
transport)
 Good faith: A. 7 of CISG Uniformity, Gap theory (not governed by municipal
laws), Rule of Private International Law, Good Faith.
 Carriage by sea, air and multimodal transport lawsOnly if carriage starts from India
then these will be the applicable law
 INCOTEMRS ICC Official Rules for the Interpretation of Trade Terms
 E-terms Ex-Works(Indian law) “named place of destination” (minimum liability
of seller- deliver goods at seller’s work place only and other things have to be taken
care of by the buyer)
Ex-warehouse, Ex-Factory
F-terms FOB (Indian
law) C-terms CIF (Indian
law)
D-terms (does not find place in Indian law) Maximum liability of seller
 By express mentioning in the contract any clause can be modified
 CISG: Party Autonomy- Article 6, Modification- Article 29
382
 Dominance of Developed Countries Old World Economic Order

383
  Dominance of Developing Countries New World Economic Order
 INTRATERMS: International Trade Terms provided by some regional agencies
which are binding locally only
EX WORKS- Duties of Seller (Section 39 of SOGA)

 Minimum liability of the seller.

 To supply the goods at the seller’s place of business or any designated place as
specified by the contract but that necessarily must be there in the seller’s country.
 Goods must be weighed, checked, measured and properly packaged.
 Supply the conforming goods (description (15), sample (16), fitness (17), quantitative)
 Supply all conforming documents
 BOL is the primary document
 All regulatory practice docs- Rules of origin certificate, pre-shipment
inspection certificate (at the time of shipment, private agencies appointed
by government give a certificate in terms of quality, quantity and
international prevailing price [unreasonable price prevention, balance of
payment]) customs clearance certificate
 RTA route- that certificate is also required
 Buyer obtains export license.
 Ensure delivery of goods to the buyer
F CATEGORY

 FOB: Free on Board

 Parties: Consigner/Shipper, Carrier and Consignee
 SELLERS OBLIGATIONS:
9. Supply conforming goods packed appropriately or in accordance with the
contract.
10. Supply all documents (commercial invoice, BOL and regulatory
documents) conforming to the contract. Electronic version of these
documents must be provided if the buyer asks for it.
11. Deliver the goods to the buyer by placing them on board. As soon as the
goods are passed on to the carrier, the liability of the seller. [A. 66 of
CISG] When the goods are given to the carrier, whatever place the
goods are

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 required to be transported, the carrier must abide by the same. Goods must
be shipped in a proper condition Condition under Section 12 of SOGA.
12. Place the goods on vessel in the position and the manner required
13. Pay any costs incidental to delivery of the goods. [Deliverable state in
SOGA- Section 2(3) and Section 36(5)]
14. Obtain export licence (Foreign Trade Development Regulation Act 1992
DGFT (Director General of Foreign Trade) in every state)
15. Provide proof of delivery in the manner agreed (Mate Certificate)
16. Provide any assistance for getting any documents facilitating the export.
 BUYERS OBLIGATIONS
9. Give sufficient notice to the seller of the time and location of delivery
(naming of the port of shipment and name of the ship) Section 35 of
SOGA
10. Bear any risk of loss or damage of the goods from the time of loading of
the goods to the ship
11. Obtain any license for importation [automatic licensing (most goods come
to India under this; obtaining of license not required) and non-automatic
licensing
12. Compliance with all customs formalities.
13. Pay any cost incidental to the importation of goods
14. Bear the cost of any assistance
15. Pay for the goods.
16. Insurance by buyer.
C CATEGORY

 Liability ends on carriage

 CIF: Cost, Insurance, Freight
 3 contracts: sale contract, insurance contract, contract of Carriage
 Most comprehensive all 3 aspects of commercial transactions
 Insurance can be removed party autonomy
 SELLER’S OBLIGATIONS (Given in CISG, A 30 and 53)
7. Ship goods of description contained in the contractsupply conforming
goods

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 8. To procure a contract of carriage by sea under which goods will be
delivered at the destination agreed by the contract.
9. Obtain the BOL as an evidence of contract of carriage and send it to the
buyer through a speedier mode (before the goods arrive).
10. To arrange insurance for the contract.
11. To arrange all documents not only prepare contract but also BOL,
clearances, permits, etc.
12. To deliver all the documents to the buyer.
 BUYER’S OBLIGATIONS
8. Accept goods and documents if they are in conformity with the contract
9. Pay according to the contracted price (S. 9 and 10 of SOGA)
10. To receive the goods at the agreed port of destination.
11. Pay all charges including unloading and any unloading during transit.
12. To bear all risk from the time goods pass to the buyer.
13. To pay all the charges incidental to transportation (rules of origin
certificate and other certificates)
14. To pay all charges for importation and to get import license
NOTE:

 Article 5 of GATT freedom of goods in transit

 Counterfeited goods: ACTA
D CATEGORY

 Maximum liability of the seller.

 Regulatory documents are also required to be taken by the seller
 Does not find place in SOGA.
PRIVATE CARRIER, PUBLIC CARRIER, COMMON CARRIER
 Private carrier refers to a company that owns the vehicles used to transport its own
goods. A private carrier does not transport goods as its primary business and, thus,
does not seek to transport the goods of other companies like a common carrier does.
In this sense, a private carrier is not a for-hire carrier and does not carry the goods of
other companies as its primary business.
 A common carrier in common law countries (corresponding to a public carrier as it
may be presented in some civil law systems, usually called simply a carrier) is a
person

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 or company that transports goods or people for any person or company and that is
responsible for any possible loss of the goods during transport. A common carrier is
a commercial entity that gets paid to transport goods or people. Some common
carriers transport goods for other businesses, some transport goods for the general
public and some transport members of the general public. Types of businesses that
may be classified as common carriers include taxi services, trucking companies, waste
removal services, couriers, towing services and air freight services, among many
others. States may require common carriers to obtain a permit before they can operate
legally and to obtain special permission if they will be transporting hazardous
materials.
 Definition of common carrier: Carriers Act, 1865 repealed now under Carriage of
Goods by Road Act, 2007: Section 2 (a) inspired by Ingate v. Christie, 1863
 "common carrier" means a person engaged in the business of collecting,
storing, forwarding or distributing goods to be carried by goods carriages
under a goods receipt or transporting for hire of goods from place to place by
motorised transport on road, for all persons un-discriminatingly and includes a
goods booking company, contractor, agent, broker and courier agency engaged
in the door-to-door transportation of documents, goods or articles utilising the
services of a person, either directly or indirectly, to carry or accompany such
documents, goods or articles, but does not include the Government.
 Contract of bailment- carriage contract
 “for all persons undiscriminatingly”
 Right to reject on certain grounds
 River Steam Navigation Co. Ltd. v. Shyam Sunder Tea and Co. (1962) 2 SCR p. 280
 Question regarding discrimination with respect to charging of freight.
 More freight cannot be charged but less can be charged.

CHARTER PARTY CONTRACT

 governed by Contract Act, 1872
 3 parties: Shipper, Carrier, Seller
 Domicile state of the ship and registered place of the ship. Registered state will be
fixing the liability
 A type of contract of affreightment  Point of difference: The whole ship is hired by
one person to carry the goods to the place of destination
387
  The term CP stands for a contract between the owner of the vessel and the charterer
which is the one which takes over the vessel for a certain amount of time or voyage
when there is an agreement or contract to carry some goods or provide a ship for
carrying the same document called charter party. The ship owner, under this
document, lets the ship for the purpose of carrying the cargo or undertakes to carry the
full cargo on the ship.
 The first case where Charter Party contract was recognised in common law jurisdiction:
Paradine v. Jane, 1647 Absolute liability of the seller.
 Facts: The plaintiff, Paradine, brought an action against the defendant, Jane,
for the rent arrears for the lands that Paradine had leased to Jane. The
defendant acknowledge that he owed the money for the rent. However, the
reason why he did not pay it was because the land was invaded by the enemy
of the King, his cattle was driven away and he was expelled from the land, so
effectively, he could not enjoy it.
 Issue: Should a lessee who was expelled from his land be liable for rent for a
period in which he has been expelled from the land.
 Held: (1) Where a party creates a duty or charge upon himself by virtue of a
contract, he is bound to perform the duty or pay the charge, notwithstanding
any accident. The reason why this is so, is because the party could have
inserted a clause in the contract, which prescribes what is to be done with the
rent in case of an accident.
(2) In the absence of an express covenant, the lessee is equally liable as the rent is an
obligation created upon the reservation.
 TYPES OF CHARTER PARTY CONTRACT
14. Voyage Charter Party
 It is a charter under which there is one-time hiring of the ship and the ship
owner provides the ship, the fuel and the crew and places the ship on the
disposal of the charterer for the carriage of the cargo to a designated port.
Once the ship is hired and there is subsequent delivery of the goods, the
contract is terminated.
 2 types:
e. Consecutive Voyage Charter Party: there can be consecutive voyages
it is required to be specified how many time they are transported.

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 f. Specific Time Period Voyage Charter Party: Specific goods, one time
 Lay time (placing the goods on board) is fixed and fuel and crew will be
provided by the ship owner and if the goods are not loaded on time, the
penalty is prescribed. The penalty is known as demurrage. Thus time is the
essence of the contract.
 CLAUSES UNDER VOYAGE CHARTER PARTY CONTRACTS
j. Introductory clause: the name of the parties, the name of the vessel and
agreed voyage
k. Cargo capacity clause: also known as dead weight clause, maximum
limit of the particular cargo is provided. If more than the prescribed
deadweight is loaded, it will undermine the cargo-worthiness.
l. Cargo clause: the description, type and quantity of the cargo and also
charterer’s liability are specified.
m. Freight clause: amount of freight is specified and who will pay it (the
person nominating the carrier pays the freight [usually the seller], also
it is usually paid in advance)
15. Time Charter Party Contracts
 Ship has been hired only for a particular period.
 Also known as demise charter party (when the goods are loaded and
transported to the destination, the contract is terminated, which means as
soon as goods are unloaded, contract is over)
 It is also known as catch time charter party contracts.
16. Port/ Dock/ Berth Charter Party
 If the ship owner is required to provide the ship on a particular port/dock,
then that contract is called port/dock/berth charter party contract.
17. Bare Boat Charter Party
 Crew, fuel, etc. is not provided, only the ship is provided.
18. Bare Boat Charter Party with purchase option
 Bear Boat Charter Party with purchase option: like hire purchase; payment
will be there on instalments and on the last instalment there will be
completion of the contract.
19. Slot/Place Charter Party: Some space is left and that can be used. It is a
combination of BOL and Charter Party contracts.
 CLAUSES UNDER CHATER PARTY CONTRACT

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 Ready to Load Clause: this means that, at the time of possession of the ship,
the ship owner is required to give an undertaking that the ship is in perfect
status and the goods can now be loaded for transportation.
 Fit for voyage clause: sea-worthiness (ability of ship to sustain the perils of the
sea), cargo-worthiness (ability of the ship to sustain the goods), sea-worthiness
at all stages (ocean BOL) etc.
 Full and complete cargo: Charterer is required to give an undertaking that
when he hires the ship, he will have the full and complete cargo for
transportation.
 King’s Enemies and Restraint of Prince/Princess clause: An undertaking that
you cannot do anything that is contrary to the interests of the flag-state. You
cannot carry anyone who is waging a war or has something against the King.
(doctrine of frustration) the ship is not required to restraint princes and
princesses in the ship.
 Perils of the sea clause: liability is determined. The ship owner will be liable
for the perils only to a certain extent.
 Lawful Trades and Safe Ports clause: only those goods which can legally be
transported or are normal goods must be carried.
 Indemnity clause: in case any damage takes place, the party at fault must
indemnify the other party. [Sections 124-125 of ICA talk about indemnity]
 Paramount clause: mandatory clause which talks about the applicable law.
(choice of law clause when two persons from different nations enter into
contract, laws of both nations will be applicable). When paramount clause is
not added, rules of private international law are applicable.
 In the absence of the paramount clause what has to be looked into
where the contract is to be performed, where the parties are located,
where the business h.q. are located, where the parties reside, etc.
 Here the closest connection test is applied, and ease of doing business
is an important factor taken into consideration.
 Cancellation clause: it details the conditions on which both parties can cancel
the contract.
 Dispute clause: which court has jurisdiction. It can be an arbitration agreement
(defined under S. 7 of Arbitration and Conciliation Act, 1996) or submission
agreement.

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 Frustration of Charter Party clause: there cannot be a frustration clause.

391
  Discharge Port clause: the name of the discharged port must be mentioned.
 According to some jurisdictions, without signature also Charter Party Contract is
valid. NOTE: Hague/Brussels convention: liability were frivolous, too many exceptions for
carrier almost no use; consignee had no compensation. Hague Visby exceptions reduced,
Hamburg rules BOL, Liability of the carrier was fixed in terms of Special Drawing Rights
(SDR). Rotterdam  liability of carrier increased.

 Frustration under Charter Party Contracts

 The Indian SC has recently decided that there is no commercial hardship
under Indian law.
 Frustration would not apply in case of commercial hardship.
 Special Charter Party Contracts/ Standard forms of Charter Party Contract (depending
upon the nature of goods)
16. SHELL TIME 4: time charter party of oil tankers.
17. NYPE 1993: Time charter party for dry cargo
18. BARE CON 2001: Bare boat charter party of any type.
19. BOX TIME 2004: Time charter party of container vessels.
20. INTER TANK TIME 80: Time Charter Party for tankers.
21. BPVOY 4: voyage charter party for tankers.
22. GASVOY 2005: voyage charter party for gas.
 MOST POPULAR REASONS FOR DISPUTES
11. Premature termination of contract
12. Demurrage claims: penalty for lay time/ loading and unloading
13. Commencement or computation of lay time
14. Delay due to port congestions
15. Breach for payment terms
These are settled matters (settled law is there)
 Unsettled Matters- New Challenges to Charter Party:
9. Piracy: dealt with in UNCLOS- Article 100, 101, 102, 107
10. Use of Armed Guards: contract does not talk about who will maintain security.
11. Delays and off-hire clauses for detention by pirates detention by pirates results
in delays and since time is an essence in such contracts, this is a huge issue
12. Environmental and Pollution Control Regulations some countries are very
relaxed in terms of environmental regulations, while some have very stringent

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 environment protection regulations. Eg. REACH 2007- EU Regulation which
disallows animal testing. Certain kinds of environment regulations, however,
cannot be enforced.

HIRE PURCHASE AGREEEMENT

 Hire Purchase transactions are governed by:
4. Sale of Goods Act
5. Indian Contract Act
6. Hire Purchase Act, 1972: repealed by Hire Purchase Repealment Act, 2005
 Hicken Botham v. Groves, 1826  first time hire purchase agreement was
recognised (it is not necessary to sell the goods directly, it can be first hired)
 Lee v Butler case defines hire purchase transactions.
 A lady hired certain furniture from the plaintiff, the price to be paid in two
instalments, and the plaintiff having the right to take back the furniture if an
instalment was not paid. Before the last instalment was paid, the lady sold the
furniture to the defendant.
 It was held that the defendant had acquired a good title, the lady being in
possession of the furniture under an agreement to buy. She did not have the
option to return, but was compellable to buy.
 It was established that where the hirer does not have the option to return, it
will be an agreement to buy and not a hire purchase, even if the price is
payable in instalments and the seller has the power to seize the goods on
default.
 Parties: Supplier of the goods, Owner of the goods/ Finance Company, Hiree
 Bailment Sections 148 to 179 of ICA
 Element of bailment + Option to buy
 Definition: Section 2(c) of HPA 1972 The agreement under which the goods are let
on hire where hirer has an option to purchase them subsequently.
 Possession of the goods is delivered by the owner to the hirer on condition that on
failure of payment of any instalment the hirer will return the goods to the owner.
 On exercise of option to buy and the payment of last instalment, property in the goods
will pass to the hirer.
 Such person has right to terminate the contract at any time before the property passes.
 Special Characteristics:
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 9. Payment is always done by instalments.
10. Option to buy can always be exercised.
11. Availability of the commodity and possession must be there with the person who
had hired (actual possession must take place)
12. HP agreement shall always be in writing
13. Ownership of the asset passes to the hiree after the payment of the last instalment
if the hiree exercises the option to purchase the good.
14. The hirer and the hiree enter into a legal contract for this purposes of transfer of
property in those goods which also stipulates the amount of the instalments
required to be paid.
15. In case of failure to pay the instalment, the owner has the right to reclaim the goods.
16. There may be a provision in the agreement that the hirer can return the goods to
hiree after the payment of instalment if the agreement so envisages.
 History of HPA, 1972
 Passed in 1972
 First notified in 1973 but that notification continued for two months
 Again in 1987 for 2 months
(Reason: amendments needed; In 1979, British HPA merged with Consumer Credit Act.
Source of our Act is 1888 HPA of Britain. When they merged it, it was realized that we also
don’t need a separate HPA)
 2005: purchasing power had increased manifold and so Parliament repealed it.
(however, certain high-price goods are still subjected to hire purchase
mechanism, mismatch bw the market and understanding of the government)
 Financing Cos. Will always prefer HP agreements (direct action in case of
failure to pay instalment)
 K.L. Johar and Co. v. Deputy Commercial Tax Officer, Coimbatore
 Facts: the appellant company, a financing firm, carried on the business of
advancing money by entering into hire-purchase agreements with those willing
to buy motor vehicles. The appellant paid the price to the dealer and the car
was handed over to the hirer. The latter paid the price by monthly instalments.
He had the option to determine the agreement at any time by paying rent up-
to-date and returning the machine.

394
  The Madras HC held that the transaction amounted to an immediate sale. But
on appeal to the Supreme Court Wanchoo J held that the transaction would
amount to sale only when the option is exercised.
 He explained the distinction between sale and hire-purchase as follows:
The essence of a sale is that the property is transferred from the seller to the buyer for a price,
whether paid at once or paid later in instalments. On the other hand, a hire-purchase
agreement, as its very nature implies, has two aspects. There is first an aspect of bailment of
goods subjected to the hire-purchase agreement, and there is next, an element of sale which
fructifies when the option to purchase is exercised by the intending purchaser. Thus the
intending purchaser is known as the hirer so long as the option to purchase is not exercised.
The essence of the agreement is that the property in the goods does not pass at the time of the
agreement but remains in the intending seller, and only passes later when the option is
exercised by the intending purchaser.
Where the hirer does not have the option to return, it will be an agreement to buy and not a
hire purchase, even if the price is payable in instalments and the seller has the option, on
default, either to seize the goods or sue the buyer for the price.
 Sundaram Finance Ltd. v. State of Kerala, 1967 : position that was now, exists today.
Thus important case.
 K.L. Johar was followed in this case.
 The short question is whether the hire-purchase agreements entered into by the
appellant with its customers are transactions of sale of goods or are only
documents securing the return of the loans advanced by it to its customers.
 The appellants were financiers; they were not dealing in motor vehicles. The
motor vehicles purchased by 'the customer was registered in the name of the
customer and remained at all material times so registered in his name.
In the letter taken from the customer under which he agreed to keep the vehicle
insured, it was expressly recited that the vehicle had been given on security for
the loan advanced by the appellants. As a security for repayment of the loan,
the customers executed a promissory note for the amount paid by the
appellants to the dealer of the vehicle. The so-called 'sale-letter' was a
formal document which was not made effective by registering the vehicle in
the name of the appellants and even the insurance of the vehicle had to be
effected as if the customer was the owner.

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  The appellants' 'right to seize the vehicle was merely a licence to ensure
compliance with the terms of the hire-purchase agreement. The customer
remained qua the world at large the owner, and remained in possession, and on
condition of performing the convenants had a right to continue to remain
in possession. The right of the appellants may be extinguished by payment of
the amount due to them under the terms of the hire- purchase
agreement even before the date fixed for payment. The agreements
undoubtedly contained several onerous covenants but they were all intended
to secure to the appellants recovery of the amounts advanced. The
intention of the appellants in obtaining hire-purchase and allied
agreements was to secure the return of loans advanced to their
customers. The transactions were merely financial transactions.
 Anup Sarmah v Bhola Nath Sharma and ors., 2013 1 SCC 400 repealed act can
be looked into (meaning, format, obligations are dealt with in HPA, 1972)
 Suryapal Singh v. Siddhi Vinayak Motors & anr., 2012 12 SCC 535 referred to
the repealed act.

 DIFFERENCE BETWEEN HIRE PURCHSE AGREEMENT AND AGREEMENT

TO SELL (pg. 12 of Dukki)

Agreement to Sell Hire Purchase Agreement

Property in the goods is transferred to the The property in the goods passes to the hiree
buyer immediately at the time of the contract upon payment of the last instalment
The position of the buyer is that of the owner The position of the hiree is that of the bailee
of the goods. till he pays the last instalment.
The buyer cannot terminate the contract and The hiree may if he so likes, terminate the
is bound to pay the price of the goods. contract by retuning the goods to the owner
without any liability to pay the remaining
instalments.
In the case of sale, seller takes the risk of The owner takes no risk. If the hiree fails to
any loss resulting from the insolvency of pay an instalment the owner has the right to
the take back the goods.
buyer

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 The buyer can pass a good title to a bona The hirer gets entitles only to the possession
fide purchaser. of the goods. He cannot pass any title even
to
the bona fide owner (initially).
Benefit of implied conditions and warranties A hirer cannot claim the benefit of implied
can be claimed conditions and warranties created by the Act
unless it becomes a sale.
Sales tax is leviable. Sales tax is not leviable unless it becomes a
sale.

 366 (29)(2): 46th Amendment: deemed sale sales tax to be paid in case of hire
purchase agreements also.
IMPLIED CONDITIONS
3. The person who is letting the goods on hire, must have the right let them on hire.
4. Goods must be of merchantable
quality. TEMRINATION
5. Automatic termination
6. Termination by notice: in case a clause is there in a contract. Notice from either side.
7. When due care not taken
8. Frustration

BOOKS
Scrutton on Bill of lading
Carber on BOL
EBC Book: BOL in National and International (Xerox section)

Specific performance can now be claimed by parties [S. 10, Specific Relief Act, A.28, 46, 52
of CISG)]

2017 case: increase in price will not be recognised as unforeseeable (Satyavrat Singh v Mangi
Ram Bangur)

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