Banking Law - Producer Ltd - Essay Example

1. Here in this case we see that the bill was raised by Producer Ltd after an arrangement with Banker Ltd who in this case is the bank. After the bill was completely done it was used as a negotiable instrument by the Manager who drew the bill in favour of Financer. The Financer be became the holder of the bill in due course as it satisfied all the condition. The Financer took the bill from the Manager for a consideration. The Financer who had the instrument at this time was a legal holder and the procedure was complete and it was true. The other reason was that the Financer took the bill from the Manager in good faith and the bill was also free from error. Thus the Financer became the owner of the bill and it was valid. Later, the Financer drew this bill on the Investor but this became a conditional order as he wrote on the bill “Pay Investor”. It cannot be negotiated further as the bill at this stage was a conditional bill and the holder can be the Investor only. The investor became the holder of the bill in due course as the bill satisfied all the condition. It was received by the Investor for some consideration. The bill was true on its face and the most important was that the bill was received in good faith. Thus the Investor became the holder of the bill and would have received the money from the bank on the maturity of the instrument as he was the legal holder. Then, the Investor lost the bill and was picked by a Student. Since the Student didn’t receive the bill in due course and it was without any consideration so he cannot be the holder of the instrument. Further, since the bill was also not received in good faith he was not the holder of the bill in due course. The other reason is that since the bill can further be non-negotiated as it has become a conditional bill as the word “Pay Order” is missing so he cannot be further endorsed to anyone. The Student then picked the bill and gave it to his girl friend Model. Since she received the bill which was non-negotiable further so she was not the legal holder. Further, the Model was also not the holder in due course as the bill didn’t satisfy the conditions. This had led to the bill being non-negotiable. Then, the bill passed on to the Dealer who took the bill for consideration as he gave her a car and also refunded the remaining amount of $5000 in cheque. He had received the bill in good faith but since the bill is further non-negotiable as it has become a conditional bill which says that the bill can only be presented for payment by the party concerned who in our case is Investor. The bank did the correct thing by not honouring the bill as the holder of the bill was not correct. The bill should have been presented by Investor as he was the legal holder of the bill. The bill at that stage had become a conditional bill and couldn’t be endorsed further. Since the word “Pay Order” was missing so all the parties after Investor cannot become the holder in due course. As the bill became an unconditional order and could be presented for payment only by the Investor and he was the legal holder of the bill all the other parties after that are not the correct holder of the bill. The bank has no liability to pay the Dealer as he is not the true holder of the bill so the Dealer will have to suffer a loss of $ 1, 00,000. The dealer can of course sue Model as she had manipulated the bill but since we are not allowed to consider forgery this situation does not need to be dealt with. The liability of the bill when we not consider forgery ends at the Investor. All the parties after that are at fault and are not the legal holder of the bill. This makes it a loss for the Dealer in spite of the fact that he had accepted the bill in good faith. This is so because the bill has been endorsed to the Investor and can no further be endorsed so the process after that doesn’t satisfy the conditions of the negotiable instrument act. 2. Mortgage is when a person who is in need of money goes to a lender and takes the money from him by giving his assets as security. It is when a person transfers the interest to the lender on the condition that he will receive back whatever he has given as mortgage after he pays back his dues or when the conditions on which the agreement was made is fulfilled. It is different from a home loan as here the borrower have a property in his procession and he takes the required sum from the lender on the basis of the property he has by giving it as a security. This method helps people especially businessman to raise money and they can use it for further development. Mortgage are usually done on immovable property or to be said real estate like house, shop etc. But nowadays land is also used because it has a good marketable value and doesn’t usually depreciate. The parties involved in mortgage are lender, borrower and a few other participants like lawyer. A mortgage is created when the borrower gives his property to the lender as a security for the money raised. The person who needs money and uses his real estate to raise the money creates a mortgage on that property. This helps him to raise easy money but he has to pay interest on the sum borrowed. In the traditional times this method was employed simply to get money. The needful would go the lender and give his property as security and take the required sum. He had to pay regular interest and the final amount after a certain period which was decided at the time of taking money. This was easy and helped the borrower to get the required sum and make him use the money for the needed purpose. In today’s time the meaning has expanded. Banks and other institutes who had taken property as security have issued securities backed on this mortgage. With the asset bubble burst the prices of real estate especially land which hardly depreciates fell and caused worldwide economic recession which the world is facing now. Charge on the other hand is very similar to mortgage. To define charge would be the right the lender who has lend money to the borrower gets for the property which has been used as security by the borrower. He has the right till the borrower pays back the debt. A charge is usually created on immovable property. A charge can also be created on other property like shares, stocks etc which are readily traded. Charges are of two types. One is fixed and other is floating. Here also the same law as in mortgage is followed and the borrower cannot dispose of the mortgaged property till he pays back the lender. Since, he has transferred the rights he has to fulfil the obligation and can then take back his property. A mortgage is created on property. A businessman in need of money can approach the bank and get a loan by mortgaging the property. He can also mortgage his land for that. This is helping builders as they raise the money through this way to build homes and need not invest all their personal money. Charge on the other hand can also be created in the same way. Nowadays, even big business houses who need money creates a charge on the tradable property like stocks, debtors etc. This helps the organisation to raise money. In this process firms agree to maintain certain amount say stock at a specified level. They trade in those stocks but see that they maintain that limit. They get loan on the limit and they use it for further business. Mortgage is not done on property like stock and debtors whereas charge can be created on it. The other difference is that the amount the borrower gets in case he gives his property as security is higher than the amount he gets when he creates a charge on his stock or debtor. The reason is that it is difficult to measure the correct value and there are different method to measure like the historical method and market value method. Mortgage is usually taken when the loan required is used to finance another fixed asset or for long duration. Whereas charge is created to meet the short term requirements like the working capital requirement. Most organisations uses both this method to raise the necessary funds but charge is usually used when the organisation is in urgent need of money as it can apart from property be created on stock, debtors etc. Read More