NI_Act_Practical Problems_62

J, a shareholder of a co. purchased for his personal use goods from a mall on credit.He sent a cheque drawn on the co's A/c to the mall towards the full payment of bills.The cheque was dishounoured by the comapany's bank. J, the shareholder of comapny was neither a director nor a person incharge of the co. Examining the prov. of negotiable Act, state whether J has commited an offence under U/s 138 of the act and decide whether J can be held liable for the payment, for the goods purchased from the mall ?

NI Act_Practical Problems_61

A cheque is drawn payable to “B or order”. It is stolen and the thief forges B’s endorsement and endorses it to C. The banker pays the cheque in due course. Can B recover the money from the banker.

NI Act_Practical Problems_60

A draws a cheque for Rs. 100 and hands it over to B by way of gift. Is B a holder in due course?? Explain the nature of his title, interest and right to receive the proceeds of the cheque.

NI Act_Practical Problems_59

A promissory was made without mentioning any time for payment. The holder added the words “on demand” on the face of the instrument .Does this amount to material alteration?

NI Act_Practical Problems_58

A draws a cheque in favour of M ,a minor. M endorses the same in favour of X. The cheque is dishonoured by the bank on grounds of inadequate funds. Discuss the rights of X.

NI Act_Practical Problems_58

A cheque was issued by a company which bounced. A compliant under section 138 of the Negotiable Instruments Act, 1881 was lodged among others against the agent of the company. The magistrate took cognizance of the complaint and issued notice among others to the said agent of the company. Is the Magistrate right in issuing the summons to the agent of the company?

Practical Problems_Partnership Act_10

An unregistered partnership issued a cheque which bounced. On a complaint by the payee of the cheque the offence was taken cognizance of under section 138 of the Negotiable Instruments Act, 1881. The partnership assailed the summons before the High Court. Is the action of the unregistered partnership correct in law?

NI Act_Practical Problems_57

On a bill of exchange for Rs.10,000 Sumit’s acceptance to the bill is forged. Amit takes the bill from his customer in good faith and for consideration before the bill becomes payable. State with reasons whether Amit can receive the amount of the bill from Sumit.

Terminology of Negotiable Insturment (Commercial Paper)

allonge—A separate piece of paper attached to the instrument on which the indorsement is written.
assignee—The party to whom the right has been transferred.
assignment—The transfer of contractual rights by the obligee to another party.
assignor—The party who transfers the right.
bearer paper—Bearer paper is negotiated by delivery: indorsement is not necessary.
blank indorsement—An indorsement that does not specify a particular indorsee. It creates bearer paper.
certificate of deposit (CD)—A two-party negotiable instrument that is a special form of note created when a depositor deposits money at a financial institution in exchange for the institution's promise to pay back the amount of the deposit plus and agreed-upon rate of interest upon the expiration of a set time period agreed upon by the parties.
check—An order by the drawer to the drawee bank to pay a specified sum of money from the drawer's checking accounting to the named payee (or holder).
collateral—Security against repayment of the note that lenders sometimes require; can be a car, a house, or other property.
demand instrument—An instrument payable on demand.
demand note—A note payable on demand.
draft—A three-party instrument that is an unconditional written order by one party that orders the second party to pay money to a third party.
drawee of a check—The financial institution where the drawer has his or her account.
drawee of a draft—The party who must pay the money stated in the draft. Also called the acceptor of a draft.
drawer of a check—The checking account holder and writer of the check.
drawer of a draft—The party who writes the order for a draft.
drawer's negligence—The drawer is liable if his or her negligence led to his or her forged signature or the alteration of a check. The payor bank is not liable in such circumstances.
fictitious payee rule—A rule that says a drawer or maker is liable on a forged or unauthorized indorsement of a fictitious payee.
fixed amount—A requirement of a negotiable instrument that ensures that the value of the instrument can be determined with certainty.
fixed amount of money—A negotiable instrument must contain a promise or order to pay a fixed amount of money.
forged indorsement—The forged signature of a payee or holder on a negotiable instrument.
holder—A person who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or his order, or to bearer, or in blank.
imposter—A person who impersonates a payee and induces a maker or drawer to issue an instrument in the payee's name and to give it to the imposter.
imposter rule—A rule that says if an imposter forges the indorsement of the named payee, the drawer or maker is liable on the instrument and bears the loss.
indorsee—The person to whom negotiable instrument is indorsed.
indorsement for deposit or collection—An indorsement that makes the indorsee the indorser's collecting agent (e.g. for deposit only)
indorsement—The signature (and other directions) written by or on behalf of the holder somewhere on the instrument.
indorser—The person who indorses a negotiable instrument.
instrument—Term that means negotiable instrument.
maker of a CD—The bank (borrower).
maker of a note—The party who makes the promise to pay (borrower).
money—A "medium of exchange authorized or adopted by a domestic or foreign government."
negotiable instrument—A special form of contract that satisfies the requirements established by Article 3 of the UCC. Also called commercial paper.
negotiation—Transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes a holder.
nonnegotiable contract—Fails to meet the requirements of a negotiable instrument and, therefore, is not subject to the provisions of UCC Article 3.
nonrestrictive indorsement—An indorsement that has no instructions or conditions attached to the payment of the funds.
order paper—Order paper is negotiated by (1) delivery and (2) indorsement.
order to pay—A drawer's unconditional order to a drawee to pay a payee.
payable on demand or at a definite time requirement—A negotiable instrument must be payable either on demand or at a definite time.
payee of a CD—The depositor (lender).
payee of a check—The party to whom the check is written.
payee of a draft—The party who receives the money from a draft.
payee of a note—The party to whom the promise to pay is made (lender).
permanency requirement—A requirement of negotiable instruments that says they must be in permanent state, such as written on ordinary paper.
portability requirement—A requirement of negotiable instruments that says they must be able to be easily transported between areas.
promise to pay—A maker's (borrower's) unconditional and affirmative undertaking to repay a debt to a payee (lender).
promissory note—A two-party negotiable instrument that is an unconditional written promise by one party to pay money to another party.
restrictive indorsement—An indorsement that contains some sort of instruction from the indorser.
sight draft—A draft payable on sight. Also called a demand draft.
signature requirement—A negotiable instrument must be signed by the drawer or maker. Any symbol executed or adopted by a party with a present intent to authenticate a writing qualifies as his or her signature.
special indorsement—An indorsement that contains the signature of the indorser and specifies the person (indorsee) to whom the indorser intends the instrument to be payable. Creates order paper.
time draft—A draft payable at a designated future date.
time instrument—An instrument payable (1) at a fixed date, (2) on or before a stated date, (3) at a fixed period after sight, or (4) at a time readily ascertainable when the promise or order is issued.
time note—A note payable at a specific time.
trade acceptance—A sight draft that arises when credit is extended (by a seller to a buyer) with the sale of goods. The seller is both the drawer and the payee, and the buyer is the drawee.
unconditional—Promises to pay and orders to pay must be unconditional in order for them to be negotiable.
unconditional promise or order to pay requirement—A negotiable instrument must contain either an unconditional promise to pay (note or CD) or an unconditional order to pay (draft or check).
unqualified indorsement—An indorsement whereby the indorser promises to pay the holder or any subsequent indorser the amount of the instrument if the maker, drawer, or acceptor defaults on it.
unqualified indorser—An indorser who signs an unqualified indorsement to an instrument.

NI Act_Practical Problems_56

P owes money to Q. Therefore, he makes a promissory note for the amount in favour of Q, for safety of transmission he cuts the note in half and posts one half to Q. He then changes his mind and calls upon Q to return the half of the note which he had sent. Q requires P to send the other half of the promissory note. Decide how a rights of the parties are to be adjusted.

The question arising in this problem is whether the making of promissory note is complete when one half of the note was delivered to Q. Under Section 46 of the N.I. Act, 1881, the making of a P/N is completed by delivery, actual or constructive. Delivery refers to the whole of the instrument and not merely a part of it. Delivery of half instrument cannot be treated as constructive delivery of the whole. So the claim of Q to have the other half the P/N sent to him is not maintainable. P is justified in demanding the return of the first half sent by him. He can change his mind and refuse to send the other half of the P/N.

NI Act_Practical problems_55

A promoter who has borrowed a loan on behalf of company, who is neither a director nor a person-in-charge, sent a cheque from the companies account to discharge its legal liability. Subsequently the cheque was dishonoured and the compliant was lodged against him. Does he liable for an offence under section 138?

According to Section 138 of the Negotiable Instruments Act, 1881 where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for discharging any debt or liability, and if it is dishonoured by banker on sufficient grounds, such person shall be deemed to have committed an offence and shall be liable. However, in this case, the promoter is neither a director nor a person-in-charge of the company and is not connected with the day-to-day affairs of the company and had neither opened nor is operating the bank account of the company. Further, the cheque, which was dishonoured, was also not drawn on an account maintained by him but was drawn on an account maintained by the company. Therefore, he has not committed an offence under section 138.

Contract Act_Practicle Problems_72

C, the holder of an over due bill of exchange drawn by A as surety for B, and accepted by B, contract with X to give time to B, Is A discharged from his liability?

Where a contract to give time to the principal debtor is made by the creditor with a third person, and not with the principal debtor, the surely is not discharged. Accordingly, A is not discharged from his liability.

NI Act_Practicle Problems_54

State whether a holder can refuse to take the following acceptance or not:

a. Accepted payable when in funds.

b. Accepted payable when a cargo consigned to me is sold.

c. A bill drawn for Rs 5,000 but accepted for the 4,000 only.

d. Accepted payable at Delhi when no place of payment is specified in the order.

e. Accepted payable at Delhi only when no place of payment is specified in the order.

f. Accepted payable at Delhi when place of payment specified in the order was Bombay.

g. A bill drawn payable three months after date but accepted payable two months after date.

h. A bill drawn on X, Y, and Z (who are not partners) but accepted by X only.A bill drawn on X, Y and Z (who are partners) but accepted by X.

NI Act_Practicle Problems_53

Find out date of maturity in the following cases under NI Act :

a. A bill dated 1st January 1993 is made payable four months after date.

b. A bill, dated 30th January 1993, is made payable one month after date.

c. A bill, dated 31st July, 1993, is made payable two months after date.

d. A bill dated 1st January 1993 is payable 60 days after date.

e. A bill is payable on 28th February 1993.

f. A bill is payable thirty days after sight is presented for sight on 1st March, 1993.

g. A bill, dated 15 January, 1993, is payable three months after date.

NI Act_Practical Problems_52

A cheque is drawn upon Dena Bank. It is stolen by X who hands it over to Y who takes in good faith for valuable consideration. Y deposits the cheque into his own account in Canara Bank who presents it and obtains payment from Dena Bank. Discuss the legal position of paying banker, collecting banker, Y and true owner in each of the following alternative cases:

a. If the cheque is payable to bearer.

b. If the cheque is payable to bearer and is crossed generally.

c. If the cheque is payable to bearer and is crossed generally with words 'not negotiable’.

d. If the cheque is payable to bearer and is crossed specially with words 'Canara Bank'.

e. If the cheque is payable to bearer and is crossed specially with words 'Allahabad Bank’.

f. If the cheque is payable to B or order and X forges B's endorsement.

g. If the drawer's signatures were forged.

NI Act_Practical Problems_51

State with reasons whether each of the following instrument is an Ambiguous Instrument or Fictitious Instrument:

a. A bill is drawn by A, an agent, acting within the scope of his authority, upon his principle P.

b. X draws a bill on Y who is a fictitious person and negotiates it himself.

c. X draws a bill on Y who is a minor.

d. A bill is drawn by Delhi branch of Dena Bank upon its Bombay branch.

e. A bill is drawn upon Y who is a major person payable to Z who is a fictitious person.

f. A bill is drawn upon Y as payable to Z. The drawer is a fictitious person.

NI Act_Practicle Problems_50

B signs the following endorsements on different negotiable instruments pay­able to bearer. Classify the endorsements with reasons as Blank Endorsement or Full Endorsement or Restrictive Endorsement or Partial Endorsement or Conditional Endorsement. Also, state whether the following Endorsements are valid or invalid.

a. No other words except B's signature.
b. Pay C.
c. Pay C or order.
d. Pay C only.
e. Pay C or order for the account of B.
f. Pay C or order Rs 500 out of Rs.1,000.
g. Pay C or order being the unpaid residue of the bill.
h. Pay C or order on safe receipt of goods.
i. Pay C sans Recourse.
j. Pay C sans Frais.
k. Pay C, notice of dishonour dispensed with.

NI Act_Practicle Problems_49

P, the holder of a bill of exchange, transfers it to Q without consideration. Q also transfers it to R without consideration. R transfers it to X for consideration. X transfers it to Y without consideration. State whether Y can recover the amount of such instrument from X or P.

NI Act_Practicle Problems_48

X obtains Y’s acceptance to bill by fraud. X endorses it to Z who takes it as holder in due course. Z endorses the bill to F who knows of the fraud. Can F recover from X?

NI Act_Practicle Problems_47

H is the holder in due course of a bill of which A is the acceptor. D, the drawer of the bill, is fictitious. Can A escape from his liability to H?