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negotiable-instruments:note:foreign

Foreign Negotiable Instrument

It has been noticed before that the maker, drawer, acceptor and indorser of a negotiable instrument all enter into distinct and separate contracts by their respective actions and, therefore, a negotiable instrument is not one single contract but embodies a senes of different contracts entered in one place and to be performed in the same or in a different place. The question, that, therefore, necessarily arises is the law of which country, the place where the contract is entered into or the place where it is to be performed, will apply in such a case?

Law governing liability of maker, acceptor or indorser of foreign instrument

Section 134 of the Negotiable Instruments Act,1881.

In the absence of a contract to the contrary, the liability of the maker of drawer of a foreign promissory note, bill of exchange or cheque is regulated in all essential matters by the law of the place where he made the instrument, and the respective liabilities of the acceptor and indorser by the law of the place where the instrument is made payable.

Illustration. A bill of exchange was drawn by A in California where the rate of interest is 25 per cent. and accepted by B, payable in Washington where the rate of interest is 6 per cent. The bill is indorsed in India, and is dishonoured. An action on the bill is brought against B in India. He is liable to pay interest at the rate of 6 per cent. only; but if A is charged as drawer, A is liable to pay interest at the rate of 25 per cent.

Ordinarily the law of one country has no application beyond its own territorial limit. But as the negotiable instrument plays an important part in the development of international trade, one country cannot altogether ignore but must recognise the law of another in the matter of such contract as a matter of necessity. This application of foreign law is, however, subject to its not being inconsistent with any statute intended to have extra territorial jurisdiction or with the policy of the land where the action is brought or with the maintenance of political institutions of that land It shall not also involve interference with the authority of a sovereign right of a foreign sovereign in his country. The present section lays down, what law will be applicable here in such cases.

In the absence of contract

Under this section it is always permissible to the parties to stipulate expressly that their rights and obligations under the contract will be governed by a particular law. But when they do not make any such stipulation the liability of the maker or drawer of a foreign promissory note or a bill of exchange or cheque is regulated in all essential matters by the law of the place where the instrument was made, and the respective liabilities of the acceptor and the endorser are regulated by the law of the place where instrument is made payable. It is to be noted that where a contract is entered into by letters, the place of acceptance of the proposal is deemed to be the place where the contract is made. The application of the international law may be considered under the following heads e.g.

  1. The formality of the contract.
  2. The capacity of the parties to enter into the contract.
  3. Liability of the parties under the contract.
  4. Procedure to be adopted for enforcing the contract.

Form

The formality of a document i.e. the form of drawing, acceptance or endorsement is governed by the law of the place where the contract is made i.e. lex loci contractus. Therefore, where an unstamped instrument is void under the law of the foreign country where it is made or drawn a suit will not lie in India on that instrument. But if the instrument instead of being void for want of stamp becomes merely inadmissible in evidence under the law of the place where it is made or drawn a suit will lie. Where a promissory note, to be valid and binding, does not require a stamp under the law of land where it is made, it can be sued upon in India where such notes do require stamps.

Capacity

There is a conflict of opinions with respect to the capacity of the parties to enter into a contracts. According to some the law of domicile of a person governs his capacity to enter into a contract. But in a recent decision. But for others it is not the law of domicile that governs the capacity of the party to enter a mercantile contract but it is the law of the place where such contracts are made. The latter view is recommended by the conference of International jurists.

Liability of the Parties

The liability of a party under a contract is ordinarily governed by the law of the place where the contract is to be performed or what is known as the lex loci solutionis. But under the Indian law the liability of the maker of a foreign promissory note is governed by the law of the place where the contract is made, i.e., the lex loci contractus.1) This decision given prior to the passing of this Act has been embodied in the present section. Again, the liability of an acceptor or an endorser is determined by the law of the place where it is made payable. Therefore, in case of a bill drawn in a foreign country and made payable in India, neither protest nor dishonour was held necessary to charge the acceptor. It is to be noticed that under the international law the liability of the endorser is governed by the law of the place where the indorsement is made.

Procedure

Rules of procedure are determined by the law of the place where the suit is instituted. It is lex fori i.e., the law of the place of the suit that determines the remedies that are open to the party and the procedure that has to be adopted by him for the enforcement of his right but not defences as set off or discharge.

Law of place of payment governs dishonour.

Section 135 of the Negotiable Instruments Act,1881.

Where a promissory note, bill of exchange or cheque is made payable in a different place from that in which it is made or indorsed, the law of the place where it is made payable determines what constitutes dishonour and what notice of dishonour is sufficient.

Illustration. A bill of exchange drawn and indorsed in India, but accepted payable in France, is dishonoured. The indorsee causes it to be protested for such dishonour, and gives notice thereof in accordance with the law of France though not in accordance with the rules herein contained in respect of bills which are not foreign. The notice is sufficient.

The section applies only where the place of payment of the instrument is different from the place of its making or indorsement. For where the place of making or indorsement and payment is the same no difficulty arises. Under this section what is dishonour and what notice of dishonour is sufficient will be governed by the law of the place where the instrument is made payable i.e., by the lex loci solutionis. Although the section mentions only dishonour and notice of dishonour the section applies to rules of maturity, demand and protest as well. Thus, where a bill is drawn in London on a person in Bombay who made it payable in Bombay no protest is necessary. Similarly, where a bill was drawn in London and made payable in Paris 90 days after date the maturity of the bill was determined by the French law under which days of grace were not allowed. The duties of the holder are also regulated by the lex loci, solutionis, i.e., the law of place where the contract is to be performed.

The defendants shipped goods to London before the War, in an enemy vessel destined to enemy ports and the goods were covered by bills of exchange which drawn in Calcutta on London firms were discounted with and endorsed to the plaintiffs in Calcutta. The bills reached London, one on the day war was declared and the others on a subsequent day. The endorsees duly presented the bills for acceptance but they were returned dishonoured by the drawees. Held, that the further performance of the contract became impossible owing to war and there being no obligation of the drawees to accept, the plaintiffs were not bound to give notice of dishonour.2)

Instrument made, etc., out of India, but in accordance with the law of India

Section 136 of the Negotiable Instruments Act,1881.

If a negotiable instrument is made, drawn accepted or indorsed outside India, but in accordance with the law of India, the circumstance that any agreement evidenced by such instrument is invalid according to the law of the country wherein it was entered into does not invalidate any subsequent acceptance or indorsement made thereon within India.

Under section 134 the law of the country where the contract is entered into determines the formal and essential validity of the contract. The present section is an exception to that rule. Under this section in spite of the invalidity of the foreign instrument, according to the law of the place where it is made, a subsequent contract by acceptance and endorsement may be valid in India if the same conforms to the Indian laws and such subsequent agreement between the parties will be enforceable in the courts. The subsequent parties to the contract created by the acceptance and endorsement in India will be bound by it for the simple reason that a negotiable instrument embodies in it a senes of contracts and that the invalidity of the first part will not affect the subsequent part. Under the English law a bill issued out of the United Kingdom will not be invalid only for want of stamp in accordance with the law of the place of issue. Indian Courts also recognise the same rule. There is no provision of law which requires a promissory notes executed out of India to be stamped before it is sued on or used in court where the holder of the note has not done any of the acts referred to in sections 5 and 18 of the Stamp Act. Therefore, an unstamped instrument must be stamped before negotiation in India but an action will lie on such an unstamped instrument without affixing a stamp if it is not negotiated in India.

Presumption as to foreign law

Section 137 of the Negotiable Instruments Act,1881.

The law of any foreign country regarding promissory notes, bills of exchange and cheques shall be presumed to be the same as that of India, unless and until the contrary is proved.

A party relying on foreign law, as distinct from Indian law, must prove what it is. This may be done by the production of the law books or by the opinion of foreign courts or by the statements of experts. The ordinary presumption is that foreign laws are similar to the Indian laws. The difference must be proved by him who alleges it. Under section 57 of the Indian Evidence Act courts are empowered to take judicial notice of all Acts passed by the British Parliament and can therefore, take judicial notice of the Bills of Exchange Act.

1)
Mathappa v Chellappa, 1 Mad 196
2)
Sukhlal vs Eastern Bank, 46 Cal 554

Created on 2021/03/06 21:59 by LawPage • Last modified on 2021/04/09 22:26 (external edit)