Ambiguous Instruments

An instrument, which in form or terms is such that it may either be treated as a bill of exchange or as a promissory note, is an ambiguous instrument. In the following cases, the instrument is taken as ambiguous;

(a) Where drawer and drawee are the same person.

(b) Where drawee is a fictitious person

(c) Where drawee is a person incapable of entering into a contract

Inchoate Instruments

The term inchoate instruments means an incomplete instrument. According to Section-20, "when one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments either wholly blank or having written thereon an incomplete negotiable instrument he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument for any amount specified therein, and not exceeding the amount covered by the stamp. the person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount. Provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess the amount intended by him to be paid there-under".

Escrow

A bill, endorsed or delivered to a person subject to the understanding that it will be paid only if certain conditions are fulfilled, is called an Escrow. In case of such a bill there is no liability unless conditions agreed upon are fulfilled. However, the rights of a holder in due course will not be affected at all.

Double Entry Book Keeping

A system of book-keeping where transaction is divided into debit and credit. Both of these is recorded in the books of accounts. Each debit has a corresponding credit and vice-versa.

Different Types of Accounts and Garnishee Order

01. Joint Account : A joint account is one which is opened in the names of two or more persons. Such an account can be attached only when all the joint account holders are joint judgement debtors. However, in case of a joint debt, the individual accounts of the judgement debtors can be attached since their liability for a joint debts is joint as well as several.

Illustration : (i) A owes a sum of $3,000USD to B. A has a joint account with C with City Bank Ltd. The balance standing in the account cannot be attached for the above debt.
(ii) A and C jointly owe a sum of $ 3,000USD to B. Each one of them has separate accounts with City Bank Ltd. Their individual accounts can be attached for the above debt.

02. Partnership Accounts : The personal account of a partner can be attached for payment of a firms debt. But the firms account cannot be attached for the payment of a personal loan of a partner.

03. Trust Accounts : The money lying in a trust account though opened in the trustee's name cannot be attached for payment of personal liabilities of the trustees. The bank in such an eventuality should inform the court that the funds lying in the account are trust funds. 

Garnishee Order is issued by the Court is two parts:

01. Rule/Order Nishi.
(a) Asks the banker to freeze the debtor's account.
(b) Asks the banker to explain why the funds in the account, so freezed should not be used for payment of judgement creditor.
On receipt of such an  order the bank should immediately inform the customer so that he may make the necessary arrangements for payments of the debts due by him.


02. Absolute:
This order directs the banker to pay either the whole or a part of the funds lying in the account against which "Order Nishi" has been issued to the judgement creditor.

(i) The amount attached: The Garnishee Order may provide for the attachment of the whole or a part of the funds of the judgement debtor's account with the bank. The bank should not make payment out of the account so freezed in contravention of the court's order otherwise it will be liable for defying the order of the court.
Illustration: A fails to pay his creditor B a sum of $6000 usd, B brings a Garnishee Order against the bank where A has an account having a balance of $ 10000 usd prohibiting any payment out of this account. Inspite of this the banker subsequently honours A's cheque for $5000 usd. The banker is liable for defying court's order and will have to compensate B for any loss that he may suffer on account of non-recovery of the full amount due to him.

In case only a part of the sum standing to the credit of the judgement debtor's account has been attached on account of Garnishee Order, the banker may transfer that much of amount to a suspense account and the customer's account may be permitted  to be operated with the balance.

In case certain cheques drawn by the judgment debtor were certified as "good for payment" by banker before the receipt of Garnishee Order by the bank, they can be paid in spite of subsequent Garnishee Order.


(ii) Order applicable only against the debt due or accruing due: The banker is restrained by the Garnishee Order only to make payment of such debts which have already become to the customer or which are not at which at present payable but for the payment of which an obligation exists. An amount which is not a debt due by the banker cannot be attached by such an order. For example, a banker has agreed to allow an overdraft of $5000 usd to a customer, he has overdrawn only $3000 usd so far, remaining $2000 usd cannot be attached  by the Garnishee Order.


(iii) Banker's claim to Set Off: In case a banker has a definite claim against the debtor, it can claim the set off of such claim against the customer's balance with it in spite of the Garnishee Order.

(iv) Amounts not covered by the Garnishee Order: The Garnishee Order attaches only that balance which is lying in the judgement debtor's account at the time when the order is served on the banker. It, therefore, does not apply to :
(a) cheques, bill of exchange etc. deposited with the banker for collection but not yet collected.
(b) sale proceeds of securities etc. of the customer not yet collected.
(c) deposits made subsequent to the serving of the Garnishee Order.
(d) payments made by the banker before serving of the Garnishee Order.
(e) money held abroad by the judgement debtor.
(f) securities lying in safe custody with the banker.

(v)  Serving of Garnishee Order: Garnishee Order may be served on the Head Office of the Bank and it will serve as a notice to all branches where the judgement debtor may have his accounts. However, the Head Office will have to be given a reasonable time  so as to enable it to inform the branches. Any payment made by the branches before receipt of information regarding Garnishee Order, will be taken as a valid payment.



Garnishee Order:

In case a debtor fails to pay the money due to is creditor, the latter may apply to the court to issue a garnishee order, on the debtor's banker. As a result of this order the debtor's account with the bank is frozen and the bank cannot make any payment out of the account. The creditor, on whose request such an order is issued is called the judgement creditor, the debtor, whose account is frozen is called the judgement debtor and the banker who has the customer's account is called the Garnishee.

Effect of Material Alteration:

A material alteration shall discharge all parties who are liable on the instruments at the time of alteration and who do not consent to such alteration. But an alteration shall not affect the liability of persons becoming parties subsequent to the alteration. Besides this, section-89 provides that where a negotiable instruments has been materially altered but does not appear to have been so altered, payment thereof  (a) by a person or banker liable to pay (b) paying the same in good faith and (c) according to the apparent tenor thereof and without negligence, shall discharge such person or banker from all liability thereon.

Material Alteration:

Material alteration is that change in the negotiable instrument which causes it to speak a different language in legal effect from that which it had originally spoken. Change in order to be material  must alter the business effect to the instrument. These changes may relate to the legal identity or character of the instrument either in the terms or in the legal relation to the parties to it. All changes which alter the operation of the instrument or the rights and liabilities of the parties shall be material, it will be immaterial whether the alteration is for the detriment to any party to the instruments.

Once a Bearer Instruments Always a Bearer Instruments:

A bearer instruments means an instrument, the ownership in which can be transferred from one person to another by mere delivery of the instrument. The instrument can be made originally payable to the bearer or it may be made bearer subsequently by holder making a blank indorsement. The bearer character of the instrument will not be lost ever in those cases where a blank indorsement is followed by a full indorsement. The instrument continues to be transferable by mere delivery in all such cases. However, under Section-50, bearer instrument can legally be changed to an order one by a restrictive indorsement. In such a case the relations between indorser and indorsee are substantially those of principal and agent. The indorsee gets a right to receive payment of the instrument and to sue and party to the instrument that the indorser could have sued, but has no power to transfer his right to any other person unless he is expressly authorised to do so.