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SEMESTER II BUSINESS, GOVERNMENT AND SOCIETY

VIII MODULE

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

SUBMITTED BY:
VAISHAK T P AJITH KUMAR ASHRAF GARRY FERNANDES MARIAN LEWIS JENIFER PINTO PRATHIBA TAURO SUPREETHA POOJARY SAIPRASAD DIVYA REGO WILFRED FURTADO RITHESH LEWIS KESHAV SHENOY GOLWIN PETER

SUBMITTED TO:
Mr. Chaco P J Asst Prof, Dept of Business Administration, SJEC, Mangalore.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

LAW OF CONTRACTS
INTRODUCTION
We enter into contracts day after day. Taking a seat in a bus amounts to entering into a contract. When you put a coin in the slot of a weighing machine, you have entered into a contract. You go to a restaurant and take snacks, you have entered into a contract. In such cases, we do not even realise that we are making a contract. In the case of people engaged in trade, commerce and industry, they carry on business by entering into contracts. The law relating to contracts is to be found in the Indian Contract Act, 1872. The law of contracts differs from other branches of law in a very important respect. It does not lay down so many precise rights and duties which the law will protect and enforce; it contains rather a number of limiting principles, subject to which the parties may create rights and duties for themselves and the law will uphold those rights and duties. Thus, we can say that the parties to a contract, in a sense make the law for themselves. So long as they do not transgress some legal prohibition, they can frame any rules they like in regard to the subject matter of their contract and the law will give effect to their contract. .

Meaning of Contract:
Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law. Section 2(e) defines agreement as every promise and every set of promises forming consideration for each other. Section 2(b) defines promise in these words: When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, becomes a promise. From the above definition of promise, it is obvious that an agreement is an accepted proposal. The two elements of an agreement are: (i) Offer or a proposal; and (ii) An acceptance of that offer or proposal. What agreements are contracts? All agreements are not studied under the Indian Contract Act, as some of them are not contracts. Only those agreements which are enforceable at law are contracts. The Contract Act is the law of those agreements which create obligations, and in case of a breach of a promise by one party to the agreement, the other has a legal remedy. Thus, a contract consists of two elements: (i) An agreement; and (ii) Legal obligation, i.e., it should be enforceable at law.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

However, there are some agreements which are not enforceable in a law court. Such agreements do not give rise to contractual obligations and are not contracts. Examples: (1) A invites B for dinner in a restaurant. B accepts the invitation. On the appointed day, B goes to the restaurant. To his utter surprise A is not there. Or A is there but refuses to entertain B. B has no remedy against A. In case A is present in the Restaurant but B fails to turn-up, then A has no remedy against B. (2) A gives a promise to his son to give him a pocket allowance of Rupees one hundred every month. In case A fails or refuses to give his son the promised amount, his son has no remedy against A. In the above examples promises are not enforceable at law as there was no intention to create legal obligations. Such agreements are social agreements which do not give rise to legal consequences. This shows that an agreement is a broader term than a contract. And, therefore, a contract is an agreement but an agreement is not necessarily a contract. What obligations are contractual in nature? We have seen above that the law of contracts is not the whole law of agreements. Similarly, all legal obligations are not contractual in nature. A legal obligation having its source in an agreement only will give rise to a contract. Example: A agrees to sell his motor bicycle to B for Rs. 5,000. The agreement gives rise to a legal obligation on the part of A to deliver the motor bicycle to B and on the part of B to pay Rs. 5,000 to A. The agreement is a contract. If A does not deliver the motor bicycle, then B can go to a court of law and file a suit against A for non-performance of the promise on the part of A. On the other hand, if A has already given the delivery of the motor bicycle and B refuses to make the payment of price, A can go to the court of law and file a suit against B for nonperformance of promise. Similarly, agreements to do an unlawful, immoral or illegal act, for example, smuggling or murdering a person cannot be enforceable at law. Besides, certain agreements have been specifically declared void or unenforceable under the Indian Contract Act. For instance, an agreement to bet (Wagering agreement) (S. 30), an agreement in restraint of trade (S. 27), an agreement to do an impossible act (S. 56).

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

An obligation which does not have its origin in an agreement does not give rise to a contract. Some of such obligations are 1. Torts or civil wrongs; 2. Quasi-contract; 3. Judgements of courts, i.e., Contracts of Records; 4. Relationship between husband and wife, trustee and beneficiary, i.e., status obligations. These obligations are not contractual in nature, but are enforceable in a court of law. Thus, Salmond has rightly observed: The law of Contracts is not the whole law of agreements nor is it the whole law of obligations. It is the law of those agreements which create obligations, and those obligations which have, their source in agreements. Law of Contracts creates rights in persona as distinguished from rights in rem. Rights in rem are generally in regard to some property as for instance to recover land in an action of ejectment. Such rights are available against the whole world. Rights in personam are against or in respect of a specific person and not against the world at large. Examples: (1) A owns a plot of land. He has a right to have quiet possession and enjoyment of the same. In other words every member of the public is under obligation not to disturb his quiet possession and enjoyment. This right of A against the whole world is known as right in rem. (2) A is indebted to B for Rs. 100. It is the right of B to recover the amount from A. This right of B against A is known as right in personam. It may be noted that no one else (except B) has a right to recover the amount from A. The law of contracts is concerned with rights in personam only and not with rights in rem. .

ESSENTIAL ELEMENTS OF A VALID CONTRACT:


We have seen above that the two elements of a contract are: (1) an agreement; (2) legal obligation. Section 10 of the Act provides for some more elements which are essential in order to constitute a valid contract. It reads as follows: All agreements are contracts if they are made by free consent of parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void. Thus, the essential elements of a valid contract can be summed up as follows: 1. Agreement. 2. Intention to create legal relationship. 3. Free and genuine consent. 4. Parties competent to contract.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

5. Lawful consideration. 6. Lawful object. 7. Agreements not declared void or illegal. 8. Certainty of meaning. 9. Possibility of performance. 10. Necessary Legal Formalities.

These essential elements are explained briefly:


1. Agreement: As already mentioned, to constitute a contract there must be an agreement. An agreement is composed of two elementsoffer and acceptance. The party making the offer is known as the offeror, the party to whom the offer is made is known as the offeree. Thus, there are essentially to be two parties to an agreement. They both must be thinking of the same thing in the same sense. In other words, there must be consensus-ad-idem. Thus, where A who owns 2 cars x and y wishes to sell car x for Rs. 30,000. B, an acquaintance of A does not know that A owns car x also. He thinks that A owns only car y and is offering to sell the same for the stated price. He gives his acceptance to buy the same. There is no contract because the contracting parties have not agreed on the same thing at the same time, A offering to sell his car x and B agreeing to buy car y. There is no consensus-ad-idem. 2. Intention to create legal relationship: As already mentioned there should be an intention on the part of the parties to the agreement to create a legal relationship. An agreement of a purely social or domestic nature is not a contract. Example: A husband agreed to pay 30 to his wife every month while he was abroad. As he failed to pay the promised amount, his wife sued him for the recovery of the amount. Held: She could not recover as it was a social agreement and the parties did not intend to create any legal relations [Balfour v. Balfour (1919)2 K.B.571]. However, even in the case of agreements of purely social or domestic nature, there may be intention of the parties to create legal obligations. In that case, the social agreement is intended to have legal consequences and, therefore, becomes a contract. Whether or not such an agreement is intended to have legal consequences will be determined with reference to the facts of the case. In commercial and business agreements the law will presume that the parties entering into agreement intend those agreements to have legal consequences. However, this presumption may be negatived by express terms to the contrary. Similarly, in the case of agreements of purely domestic and social nature, the presumption is that they do not give rise

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

to legal consequences. However, this presumption is rebuttable by giving evidence to the contrary, i.e., by showing that the intention of the parties was to create legal obligations. Examples: (1) There was an agreement between Rose Company and Crompton Company, where of the former were appointed selling agents in North America for the latter. One of the clauses included in the agreement was: This arrangement is not... a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts. Held that: This agreement was not a legally binding contract as the parties intended not to have legal consequences [Rose and Frank Co. v. J.R. Crompton and Bros. Ltd. (1925) A.C. 445]. (2) An agreement contained a clause that it shall not give rise to any legal relationship s, or be legally enforceable, but binding in honour only. Held: The agreement did not give rise to legal relations and, therefore, was not a contract. [Jones v. Vernons Pools Ltd. (1938) 2 All E.R. 626].

(3) An aged couple (C and his wife) held out a promise by correspondence to their niece and her husband (Mrs. and Mr. P.) that C would leave them a portion of his estate in his will, if Mrs. and Mr. P would sell their cottage and come to live with the aged couple and to share the household and other expenses. The young couple sold their cottage and started living with the aged couple. But the two couples subsequently quaralled and the aged couple repudiated the agreement by requiring the young couple to stay somewhere else. The young couple filed a suit against the aged couple for the breach of promise. Held: That there was intention to create legal relations and the young couple could recover damages [Parker v. Clark (1960) 1 W.L.R. 286]. 3. Free and genuine consent: The consent of the parties to the agreement must be free and genuine. The consent of the parties should not be obtained by misrepresentation, fraud, undue influence, coercion or mistake. If the consent is obtained by any of these flaws, then the contract is not valid. 4. Parties competent to contract: The parties to a contract should be competent to enter into a contract. According to Section 11, every person is competent to contract if he (i) is of the age of majority, (ii) is of sound mind, and (iii) is not disqualified from contracting by any law to which he is subject. Thus, there may be a flaw in capacity of parties to the contract. The flaw in capacity may be due to minority, lunacy, idiocy, drunkenness or status. If a party to a contract suffers from any of these flaws, the contract is unenforceable except in certain exceptional circumstances. 5. Lawful consideration: The agreement must be supported by consideration on both sides. Each party to the agreement must give or promise something and receive something or a promise in return.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Consideration is the price for which the promise of the other is sought. However, this price need not be in terms of money. In case the promise is not supported by consideration, the promise will be nudum pactum (a bare promise) and is not enforceable at law. Moreover, the consideration must be real and lawful. 6. Lawful object: The object of the agreement must be lawful and not one which the law disapproves. 7. Agreements not declared illegal or void: There are certain agreements which have been expressly declared illegal or void by the law. In such cases, even if the agreement possesses all the elements of a valid agreement, the agreement will not be enforceable at law. 8. Certainty of meaning: The meaning of the agreement must be certain or capable of being made certain otherwise the agreement will not be enforceable at law. For instance, A agrees to sell 10 metres of cloth. There is nothing whatever to show what type of cloth was intended. The agreement is not enforceable for want of certainty of meaning. If, on the other hand, the special description of the cloth is expressly stated, say Terrycot (80 : 20), the agreement would be enforceable as there is no uncertainly as to its meaning. However, an agreement to agree is not a concluded contract [Punit Beriwala v. Suva Sanyal AIR 1998 Cal. 44]. 9. Possibility of performance: The terms of the agreement should be capable of performance. An agreement to do an act impossible in itself cannot be enforced. For instance, A agrees with B to discover treasure by magic. The agreement cannot be enforced. 10. Necessary legal formalities: A contract may be oral or in writing. If, however, a particular type of contract is required by law to be in writing, it must comply with the necessary formalities as to writing, registration and attestation, if necessary. If these legal formalities are not carried out, then the contract is not enforceable at law.

CLASSIFICATION OF CONTRACTS
Contracts may be classified in terms of their (1) validity or enforceability, (2) mode of formation, or (3) performance. 1. Classification according to validity or enforceability: Contracts may be classified according to their validity as (i) valid, (ii) voidable, (iii) void contracts or agreements, (iv) illegal, or (v) unenforceable.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

A contract to constitute a valid contract must have all the essential elements discussed earlier. If one or more of these elements is/are missing, the contract is voidable, void, illegal or unenforceable. As per Section 2 (i) a voidable contract is one which may be repudiated at the will of one of the parties, but until it is so repudiated it remains valid and binding. It is affected by a flaw (e.g., simple misrepresentation, fraud, coercion, undue influence), and the presence of anyone of these defects enables the party aggrieved to take steps to repudiate the contract. It shows that the consent of the party who has the discretion to repudiate it was not free. Example: A, a man enfeebled by disease or age, is induced by Bs influence over him as his medical attendant to agree to pay B an unreasonable sum for his professional services. B employs undue influence. As consent is not free; he can take steps to set the contract aside. An agreement which is not enforceable by either of the parties to it is void [Section 2(i)]. Such an agreement is without any legal effect ab initio (from the very beginning). Under the law, an agreement with a minor is void (Section 11). A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable [Section 2(i)]. Examples: (1) A and B contract to marry each other. Before the lime fixed for the marriage, A goes mad. The contract becomes void. (2) A contracts to take indigo for B to a foreign port. As government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared. In the above two examples, the contracts were valid at the time of formation. They became void afterwards. In example (1) the contract became void by subsequent impossibility. In example (2) the contract became void by subsequent illegality. It is misnomer to use a void contract as originally entered into. In fact, in that case there is no contract at all. It may be called a void agreement. However, a contract originally valid may become void later. An illegal agreement is one the consideration or object of which (1) is forbidden by law; or (2) defeats the provisions of any law; or (3) is fraudulent; or (4) involves or implies injury to the person or property of another; or (5) the court regards it as immoral, or opposed to public policy.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Examples: (1) A, B and C enter into an agreement for the division among them of gains acquired or to be acquired, by them by fraud. The agreement is illegal. (2) A promises to obtain for B an employment in the public service, and B promises to pay Rs. 1,000 to A. The agreement is illegal. Every agreement of which the object or consideration is unlawful is not only void as between immediate parties but also taints the collateral transactions with illegality. In Bombay, the wagering agreements have been declared unlawful by statute. Example: A bets with B in Bombay and loses; makes a request to C for a loan, who pays B in settlement of As losses. C cannot recover from A because this is money paid under or in respect of a wagering transaction which is illegal in Bombay. An unenforceable contract is neither void nor voidable, but it cannot be enforced in the court because it lacks some item of evidence such as writing, registration or stamping. For instance, an agreement which is required to be stamped will be unenforceable if the same is not stamped at all or is under-stamped. In such a case, if the stamp is required merely for revenue purposes, as in the case of a receipt for payment of cash, the required stamp may be affixed on payment of penalty and the defect is then cured and the contract becomes enforceable. If, however, the technical defect cannot be cured the contract remains unenforceable, e.g., in the case of an unstamped bill of exchange or promissory note. Contracts which must be in writing. The following must be in writing, a requirement laid down by statute in each case: (a) A negotiable instrument, such as a bill of exchange, cheque, promissory note (The Negotiable Instruments Act, 1881). (b) A Memorandum and Articles of Association of a company, an application for shares in a company; an application for transfer of shares in a company (The Companies Act, 1956). (c) A promise to pay a time-barred debt (Section 25 of the Indian Contract Act, 1872). (d) A lease, gift, sale or mortgage of immovable property (The Transfer of Property Act, 1882). Some of the contracts and documents evidencing contracts are, in addition to be in writing, required to be registered also. These are: 1. Documents coming within the purview of Section 17 of the Registration Act, 1908. 2. Transfer of immovable property under the Transfer of Property Act, 1882. 3. Contracts without consideration but made on account of natural love and affection between parties standing in a near relation to each other (Section 25, The Indian Contract Act, 1872). 4. Memorandum of Association, and Articles of Association of a Company, Mortgages and Charges (The Companies Act, 1956).

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

2. Classification according to mode of formation: There are different modes of formation of a contract. The terms of a contract may be stated in words (written or spoken). This is an express contract. Also the terms of a contract may be inferred from the conduct of the parties or from the circumstances of the case. This is an implied contract (Section 9). Example: If A enters into a bus for going to his destination and takes a seat, the law will imply a contract from the very nature of the circumstances, and the commuter will be obliged to pay for the journey. We have seen that the essence of a valid contract is that it is based on agreement of the parties. Sometimes, however, obligations are created by law (regardless of agreement) whereby an obligation is imposed on a party and an action is allowed to be brought by another party. These obligations are known as quasi-contracts. The Indian Contract Act, 1872 (Chapter V Sections 6872) describes them as certain relations resembling those created by contract. Examples: (1) A supplies B, a minor, with necessaries suitable to his condition in life. A is entitled to be reimbursed from Bs property. (2) A supplies the wife and children of B, a minor, with necessaries suitable to their condition in life. A is entitled to be reimbursed from Bs property. (3) A, a tradesman, leaves goods at Bs house by mistake. B treats the goods as his own. B is bound to pay A for them. In all the above cases, the law implies a contract and a person who has got benefit is under an obligation to reimburse the other.

3. Classification according to performance: Another method of classifying contracts is in terms of the extent to which they have been performed. Accordingly, contracts are: (1) executed, and (2) executory or (1) unilateral, and (2) bilateral. An executed contract is one wholly performed. Nothing remains to be done in terms of the contract. Example: A contracts to buy a bicycle from B for cash. A pays cash. B delivers the bicycle. An executory contract is one which is wholly unperformed, or in which there remains something further to be done.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Example: On June 1, A agrees to buy a bicycle from B. The contract is to be performed on June 15. The executory contract becomes an executed one when completely performed. For instance, in the above example, if both A and B perform their obligations on June 15, the contract becomes executed. However, if in terms of the contract performance of promise by one party is to precede performance by another party then the contract is still executory, though it has been performed by one party. Example: On June 1, A agrees to buy a bicycle from B. B has to deliver the bicycle on June 15 and A has to pay price on July 1. B delivers the bicycle on June 15. The contract is executory as something remains to be done in terms of the contract. Unilateral Contracts: A Unilateral Contract is one wherein at the time the contract is concluded there is an obligation to perform on the part of one party only. Example: A makes payment for bus fare for his journey from Bombay to Pune. He has performed his promise. It is now for the transport company to perform the promise. Bilateral Contracts: A Bilateral Contract is one wherein there is an obligation on the part of both to do or to refrain from doing a particular thing. In this sense, Bilateral contracts are similar to executory contracts. An important corollary can be deduced from the distinction between Executed and Executory Contracts and between Unilateral and Bilateral contracts. It is that a contract is a contract from the time it is made and not from the time its performance is due. The performance of the contract can be made at the time when the contract is made or it can be postponed also. See examples above under Executory Contract.

OFFER AND ACCEPTANCE:


[Sections 39 of the Indian Contract Act, 1872] OFFER/PROPOSAL A proposal is defined as when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. [Section 2 (a)]. An offer is synonymous with proposal. The offeror or proposer expresses his willingness to do or not to do (i.e., abstain from doing) something with a view to obtain acceptance of the other party to such act or
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

abstinence. Thus, there may be positive or negative acts which the proposer is willing to do. Examples: (1) A offers to sell his book to B. A is making an offer to do something, i.e., to sell his book. It is a positive act on the part of the proposer. (2) A offers not to file a suit against B, if the latter pays A the amount of Rs. 200 outstanding. Here the act of A is a negative one, i.e., he is offering to abstain from filing a suit. . HOW AN OFFER IS MADE? An offer can be made by (a) any act or (b) omission of the party proposing by which he intends to communicate such proposal or which has the effect of communicating it to the other (Section 3). An offer can be made by an act in the following ways: (a) by words (whether written or oral). The written offer can be made by letters, telegrams, telex messages, advertisements, etc. The oral offer can be made either in person or over telephone. (b) by conduct. The offer may be made by positive acts or signs so that the person acting or making signs means to say or convey. However silence of a party can in no case amount to offer by conduct. An offer can also be made by a party by omission (to do something). This includes such conduct or forbearance on ones part that the other person takes it as his willingness or assent. An offer implied from the conduct of the parties or from the circumstances of the case is known as implied offer. Examples: (1) A proposes, by letter, to sell a house to B at a certain price. This is an offer by an act by written words (i.e., letter). This is also an express offer. (2) A proposes, over telephone, to sell a house to B at a certain price. This is an offer by act (by oral words). This is an express offer. (3) A owns a motor boat for taking people from Bombay to Goa. The boat is in the waters at the Gateway of India. This is an offer by conduct to take passengers from Bombay to Goa. He need not speak or call the passengers. The very fact that his motor boat is in the waters near Gateway of India signifies his willingness to do an act with a view to obtaining the assent of the other. This is an example of an implied offer. (4) A offers not to file a suit against B, if the latter pays A the amount of Rs. 200 outstanding. This is an offer by abstinence or omission to do something.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Specific and General Offer : An offer can be made either: 1. to a definite person or a group of persons, or 2. to the public at large. The first mode of making offer is known as specific offer and the second is known as a general offer. In case of the specific offer, it may be accepted by that person or group of persons to whom the same has been made. The general offer may be accepted by any one by complying with the terms of the offer. The celebrated case of Carlill v. Carbolic Smoke Ball Co., (1813) 1 Q.B. 256 is an excellent example of a general offer and is explained below. Examples: (1) A offers to sell his house to B at a certain price. The offer has been made to a definite person, i.e., B. It is only B who can accept it [Boulton v. Jones (1857) 2H. and N. 564].* (2) In Carbolic Smoke Ball Co.s case (supra), the patent-medicine company advertised that it would give a reward of 100 to anyone who contracted influenza after using the smoke balls of the company for a certain period according to the printed directions. Mrs. Carlill purchased the advertised smoke ball and contracted influenza in spite of using the smoke ball according to the printed instructions. She claimed the reward of 100. The claim was resisted by the company on the ground that offer was not made to her and that in any case she had not communicated her acceptance of the offer. She filed a suit for the recovery of the reward. Held: She could recover the reward as she had accepted the offer by complying with the terms of the offer. The general offer creates for the offeror liability in favour of any person who happens to fulfil the conditions of the offer. It is not at all necessary for the offeree to be known to the offeror at the time when the offer is made. He may be a stranger, but by complying with the conditions of the offer, he is deemed to have accepted the offer.

Essential requirements of a valid offer:


An offer must have certain essentials in order to constitute it a valid offer. These are: 1. The offer must be made with a view to obtain acceptance [Section 2(a)]. 2. The offer must be made with the intention of creating legal relations. [Balfour v. Balfour (1919) 2 K.B. 571.] 3. The terms of offer must be definite, unambiguous and certain or capable of being made certain (Section 29). The terms of the offer must not be loose, vague or ambiguous.

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Examples: (1) A offers to sell to B a hundred quintals of oil. There is nothing whatever to show what kind of oil was intended. The offer is not capable of being accepted for want of certainty. (2) A who is a dealer in coconut oil only, offers to sell to B one hundred quintals of oil. The nature of As trade affords an indication of the meaning of the words, and there is a valid offer. 4. An offer must be distinguished from (a) a mere declaration of intention or (b) an invitation to offer or to treat. Offer vis-a-vis declaration of intention to offer: A person may make a statement without any intention of creating a binding obligation. It may amount to a mere declaration of intention and not to a proposal. Examples: (1) An auctioneer, N advertised that a sale of office furniture would take place at a particular place. H travelled down about 100 Km to attend the sale but found the furniture was withdrawn from the sale. H sued the auctioneer for his loss of time and expenses. Held: N was not liable [Harris v. Lickerson. (1875) L.R.S. Q.B. 286.]. (2) A father wrote to his would-be son-in-law that his daughter would have a share of what he would leave at the time of his death. At the time of death, the son-in-law staked his claim in the property left by the deceased. Held: The son-in-laws claim must fail as there was no offer from his father-in-law creating a binding obligation. It was just a declaration of intention and nothing more [Re Ficus (1900) 1. Ch. 331.]. Offer vis-a-vis invitation to offer : An offer must be distinguished from invitation to offer. A prospectus issued by a college for admission to various courses is not an offer. It is only an invitation to offer. A prospective student by filling up an application form attached to the prospectus is making the offer. An auctioneer, at the time of auction, invites offers from the would-be-bidders. He is not making a proposal. A display of goods with a price on them in a shop window is construed an invitation to offer and not an offer to sell. Example: In a departmental store, there is a self-service. The customers picking up articles and take them to the cashiers desk to pay. The customers action in picking up particular goods is
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an offer to buy. As soon as the cashier accepts the payment a contract is entered into [Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd. (1953) 1 Q.B. 401]. Likewise, prospectus issued by a company for subscription of its shares by the members of the public, the price lists, catalogues and quotations are mere invitations to offer. On the basis of the above, we may say that an offer is the final expression of willingness by the offeror to be bound by his offer should the other party choose to accept it. Where a party, without expressing his final willingness, proposes certain terms on which he is willing to negotiate, he does not make an offer, he only invites the other party to make an offer on those terms. This is perhaps the basic distinction between an offer and an invitation to offer. In Harvey v. Facie, the plaintiffs (Harvey) telegraphed to the defendants (Facie), writing: Will you sell us Bumper Hall Pen?* Telegraph lowest cash price. The defendants replied also by a telegram, Lowest price for Bumper Hall Pen 900. The plaintiffs immediately sent their last telegram stating: We agree to buy Bumper Hall Pen for 900 asked by you. The defendants refused to sell the plot of land (Bumper Hall Pen) at that price. The plaintiffs contention that by quoting their minimum price in response to the inquiry, the defendants had made an offer to sell at that price, was turned down by the Judicial Committee. Their Lordship pointed out that in their first telegram, the plaintiffs had asked two questions, first as to the willingness to sell and second, as to the lowest price. They reserved their answer as to the willingness to sell. Thus, they had made no offer. The last telegram of the plaintiffs was an offer to buy, but that was never accepted by the defendants. 5. The offer must be communicated to the offeree: An offer must be communicated to the offeree before it can be accepted. This is true of specific as well as general offer. Example: G sent S, his servant, to trace his missing nephew. Subsequently, G announced a reward for information relating to the boy. S, traced the boy in ignorance of the announcement regarding reward and informed G. Later, when S came to know of the reward, he claimed it. Held, he was not entitled to the reward on the ground that he could not accept the offer unless he had knowledge of it [Lalman Shukla v. Gauri Dutt, II, A.L.J. 489]. 6. The offer must not contain a term the non-compliance of which may be assumed to amount to acceptance. Thus, the offeror cannot say that if the offeree does not accept the offer within wo days, the offer would be deemed to have been accepted. Example: A tells B I offer to sell my dog to you for Rs. 45. If you do not send in your reply, I shall assume that you have accepted my offer. The offer is not a valid one.
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7. A tender is an offer as it is in response to an invitation to offer: Tenders commonly arise where, for example, a hospital invites offers to supply eatables or medicines. The persons filling up the tenders are giving offers. However, a tender may be either: (a) specific or definite; where the offer is to supply a definite quantity of goods, or (b) standing; where the offer is to supply goods periodically or in accordance with the requirements of the offeree. In the case of a definite tender, the suppliers submit their offers for the supply of specified goods and services. The offeree may accept any tender (generally the lowest one). This will result in a contract. Example: A invites tenders for the supply of 10 quintals of sugar. B, C, and D submit their tenders. Bs tender is accepted. The contract is formed immediately the tender is accepted. In the case of standing offers, the offeror gives an open offer whereby he offers to supply goods or services as required by the offeree. A separate acceptance is made each time an order is placed. Thus, there are as many contracts as are the acts of acceptance. Example: The G.N. Railway Co. invited tenders for the supply of stores. W made a tender and the terms of the tender were as follows: To supply the company for 12 months with such quantities of specified articles as the company may order from time to time. The company accepted the tender and placed the orders. W executed the orders as placed from time to time but later refused to execute a particular order. Held: W was bound to supply goods within the terms of the tender [Great Northern Railway v. Witham (1873) L.R. 9 C.P. 16]. The Supreme Court of India in this regard has observed: As soon as an order was placed a contract arose and until then there was no contract. Also each separate order and acceptance constituted a different and distinct contract [Chatturbhuj Vithaldas v. Moreshover Parashram AIR 1954 SC 326]. It is to be noted that if the offeree gives no order or fails to order the full quantity of goods set out in a tender there is no breach of contract. Revocation or Withdrawal of a tender. A tenderer can withdraw his tender before its final acceptance by a work or supply order. This right of withdrawal shall not be affected even if there is a clause in the tender restricting his right to withdraw. A tender will, however, be irrevocable where the tenderer has, on some consideration, promised not to withdraw it or where there is a statutory prohibition against withdrawal [The Secretary of State for India v. Bhaskar Krishnaji Samani AIR 1925 Bom 485].

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Special terms in a contract: The special terms, forming part of the offer, must be duly brought to the notice of the offeree at the time the offer is made. If it is not done, then there is no valid offer and if offer is accepted, and the contract is formed, the offeree is not bound by the special terms which were not brought to his notice. The terms may be brought to his notice either: (a) by drawing his attention to them specifically, or (b) by inferring that a man of ordinary prudence could find them by exercising ordinary intelligence. (a) the examples of the first case are where certain conditions are written on the back of a ticket for a journey or deposit of luggage in a cloak room and the words. For conditions see back are printed on the face of it. In such a case, the person buying the ticket is bound by whatever conditions are written on the back of the ticket whether he has read them or not. Examples: (1) P, a passenger deposited a bag in the cloakroom at a Railway Station. The acknowledgement receipt given to him bore, on the face of it, the words See back. One of the conditions printed on the back limited the liability of the Railways for any package to 10. The bag was lost, and P claimed 24. 10s, its value, pleading that he had not read the conditions on the back of the receipt. Held : P was bound by the conditions printed on the back as the company gave reasonable notice on the face of the receipt as to the conditions at the back of the document [Parker v. South Eastern Rly. Co. (1877) 2 C.P.D. 416]. (2) A lady, L, the owner of a cafe, agreed to purchase a machine and signed the agreement without reading its terms. There was an exemption clause excluding liability of the seller under certain circumstances. The machine proved faulty and she purported to terminate the contract. Held : That she could not do so, as the exemption clause protected the seller from the liability [LEstrange v. Grancob Ltd. (1934) 2 R.B. 394]. (3) T purchased a railway ticket, on the face of which the words: For conditions see back were written. One of the conditions excluded liability for injury, however caused. T was illiterate and could not read. She was injured and sued for damages. Held : That the railway company had properly communicated the conditions to her who had constructive notice of the conditions whether she read them or not. The company was not bound to pay any damages [Thompson v. LM. and L. Rly. (1930) 1 KB. 417]. (b) The same rule holds good even where the conditions forming part of the offer are printed in a language not understood by the acceptor provided his attention has been drawn to them in a reasonable manner. In such a situation, it is his duty to ask for the translation, of the conditions and if he does not do so, he will be presumed to have a constructive notice of the terms of the conditions [Mackillingan v. Campagine de Massangeres Maritimes (1897) 6 Cal. 227 J].
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If conditions limiting or defining the rights of the acceptor are not brought to his notice, then they will not become part of the offer and he is not bound by them. Example: A passenger was travelling with luggage from Dublin to Whitehaven on a ticket, on the back of which there was a term which exempted the shipping company from liability for the loss of luggage. He never looked at the back of the ticket and there was nothing on the face of it to draw his attention to the terms on its back. He lost his luggage and sued for damages. Held : He was entitled to damages as he was not bound by something which was not communicated to him [Henderson v. Stevenson (1875) 2 H.L.S.C. 470]. Also, if the conditions are contained in a document which is delivered after the contract is complete, then the offeree is not bound by them. Such a document is considered a non-contractual document as it is not supposed to contain the conditions of the contract. For instance, if a tourist driving into Mussoorie, receives a ticket upon paying toll-tax, he might reasonably assume that the object of the ticket was that by producing it he might be free from paying toll at some other toll-tax barrier, and might put in his pocket without reading the same. The ticket is just a receipt or a voucher. Example: C hired a chair from the Municipal Council in order to sit on the beach. He paid the rent and received a ticket from an attendant. On the back of the ticket, there was a clause exempting the Council for any accident or damage arising from hire of chairs. C sustained personal injuries as the chair broke down while he was sitting therein. He sued for damages. Held : That the Council was liable [Chapleton v. Barry U.D.C. (1940) 1 K.B. 532]. From the illustrations given it may be concluded that whether the offeree will be bound by the special conditions or not will depend on whether or not he had or could have had notice by exercising ordinary diligence. Detailed observations with respect to printed conditions on a receipt were made by the Bombay High Court in R.S. Deboo v. M. V. Hindlekar, AIR 1995 Bom. 68. These observations are: 1. Terms and conditions printed on the reverse of a receipt issued by the owner of the laundry or any other bailee do not necessarily form part of the contract of bailment in the absence of the signature of the bailor (customer) on the document relied upon. The onus is on the bailee to prove that the attention of the bailor was drawn to the special conditions before contract was concluded and the bailor had consented to them as contractual terms.
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2. It cannot be just assumed that the printed conditions appearing on the reverse of the receipt automatically become contractual terms or part of the contract of bailment. 3. In certain situations, the receipt cannot be considered as a contractual document as such, it is a mere acknowledgement of entrustment of certain articles. Cross Offers : Where two parties make identical offers to each other, in ignorance of each other s offer, the offers are known as cross-offers and neither of the two can be called an acceptance of the other and, therefore, there is no contract. Example: H wrote to T offering to sell him 800 tons of iron at 69s. per ton. On the same day T wrote to H offering to buy 800 tons at 69s. Their letters crossed in the post. T contended that there was a good contract. Held: that there was no contract. [Tinn v. Hoffman & Co. (1873) 29 L.T. Exa. 271.]. Termination or Lapse of an Offer : An offer is made with a view to obtain assent thereto. As soon as the offer is accepted it becomes a contract. But before it is accepted, it may lapse, or may be revoked. Also, the offeree may reject the offer. In these cases, the offer will come to an end. 1. The offer lapses after stipulated or reasonable time. [Section 6(2)] The offer must be accepted by the offeree within the time mentioned in the offer and if no time is mentioned, then within a reasonable time. The offer lapses after the time stipulated in the offer expires if by that time offer has not been accepted. If no time is specified, then the offer lapses within a reasonable time. What is a reasonable time is a question of fact and would depend upon the circumstances of each case. Example: M offered to purchase shares in a company by writing a letter on June 8. The company allotted the shares on 23rd November. M refused the shares. Held : That the offer lapsed as it was not accepted within a reasonable time [Ramsgate Victoria Hotel Co. v. Montefiore (1860) L.R.I. Ex. 109]. 2. An offer lapses by the death or insanity of the offerer or the offeree before acceptance. Section 6(4) provides that a proposal is revoked by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance. Therefore, if the acceptance is made in ignorance of the death, or insanity of offerer, there would be a valid contract. Similarly, in the case of the death of offeree before acceptance, the offer is terminated. 3. An offer terminates when rejected by the offeree. 4. An offer terminates when revoked by the offerer before acceptance. 5. An offer terminates by not being accepted in the mode prescribed, or if no mode is prescribed, in some usual and reasonable manner.
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6. A conditional offer terminates when the condition is not accepted by the offeree. Example: A proposes to B I can sell my house to you for Rs. 12,000 provided you lease out your land to me. If B refuses to lease out the land, the offer would be terminated. 7. Counter offer. An offer terminates by counter-offer by the offeree. When in place of accepting the terms of an offer as they are, the offeree accepts the same subject to certain condition or qualification, he is said to make a counter-offer. The following have been held to be counter-offers: (i) Where an offer to purchase a house with a condition that possession shall be given on a particular day was accepted varying the date for possession [Routledge v. Grant (1828) 130 E.R. 920]. (ii) An offer to buy a property was accepted upon a condition that the buyer signed an agreement which contained special terms as to payment of deposit, making out title completion date, the agreement having been returned unsigned by the buyer [Jones v. Daniel (1894) 2 Ch. 332]. (iii) An offer to sell rice was accepted with an endorsement on the sold and bought note that yellow and wet grain will not be accepted [All Shain v. Moothia Chetty, 2 Bom L.R. 556]. (iv) Where an acceptance of a proposal for insurance was accepted in all its terms subject to the condition that there shall be no assurance till the first premium was paid [Sir Mohamed Yusuf v. S. of S. for India 22 Bom. L.R. 872].

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NEGOTIABLE INSTRUMENTS ACT, 1881


The Negotiable Instruments Act was enacted, in India, in 1881. Prior to its enactment, the provision of the English Negotiable Instrument Act were applicable in India, and the present Act is also based on the English Act with certain modifications. It extends to the whole of India except the State of Jammu and Kashmir. The Act operates subject to the provisions of Sections 31 and 32 of the Reserve Bank of India Act, 1934. MEANING OF NEGOTIABLE INSTRUMENTS According to Section 13 (a) of the Act, Negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer, whether the word order or bearer appear on the instrument or not. In the words of Justice, Willis, A negotiable instrument is one, the property in which is acquired by anyone who takes it bonafide and for value notwithstanding any defects of the title in the person from whom he took it. Thus, the term, negotiable instrument means a written document which creates a right in favour of some person and which is freely transferable. Although the Act mentions only these three instruments (such as a promissory note, a bill of exchange and cheque), it does not exclude the possibility of adding any other instrument which satisfies the following two conditions of negotiability: 1. the instrument should be freely transferable (by delivery or by endorsement. and delivery) by the custom of the trade; and 2. the person who obtains it in good faith and for value should get it free from all defects, and be entitled to recover the money of the instrument in his own name. As such, documents like share warrants payable to bearer, debentures payable to bearer and dividend warrants are negotiable instruments. But the money orders and postal orders, deposit receipts, share certificates, bill of lading, dock warrant, etc. are not negotiable instruments. Although they are transferable by delivery and endorsements, yet they are not able to give better title to the bonafide transferee for value than what the transferor has. CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT A negotiable instrument has the following characteristics: 1. Property: The prossessor of the negotiable instrument is presumed to be the owner of the property contained therein. A negotiable instrument does not merely give possession of the instrument but right to property also. The property in a negotiable instrument can be transferred without any formality. In the case of bearer instrument, the property passes by

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mere delivery to the transferee. In the case of an order instrument, endorsement and delivery are required for the transfer of property. 2. Title: The transferee of a negotiable instrument is known as holder in due course. A bona fide transferee for value is not affected by any defect of title on the part of the transferor or of any of the previous holders of the instrument. 3. Rights: The transferee of the negotiable instrument can sue in his own name, in case of dishonour. A negotiable instrument can be transferred any number of times till it is at maturity. The holder of the instrument need not give notice of transfer to the party liable on the instrument to pay. 4. Presumptions: Certain presumptions apply to all negotiable instruments e.g., a presumption that consideration has been paid under it. It is not necessary to write in a promissory note the words for value received or similar expressions because the payment of consideration is presumed. The words are usually included to create additional evidence of consideration. 5. Prompt payment: A negotiable instrument enables the holder to expect prompt payment because a dishonour means the ruin of the credit of all persons who are parties to the instrument. TYPES OF NEGOTIABLE INSTRUMENT Section 13 of the Negotiable Instruments Act states that a negotiable instrument is a promissory note, bill of exchange or a cheque payable either to order or to bearer. Negotiable instruments recognised by statute are: (i) Promissory notes (ii) Bills of exchange (iii) Cheques. Promissory notes: Section 4 of the Act defines, A promissory note is an instrument in writing (note being a bank-note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments. Essential elements: An instrument to be a promissory note must possess the following elements: 1. It must be in writing: A mere verbal promise to pay is not a promissory note. The method of writing (either in ink or pencil or printing, etc.) is unimportant, but it must be in any form that cannot be altered easily. 2. It must certainly an express promise or clear understanding to pay: There must be an express undertaking to pay. A mere acknowledgment is not enough. The following are not promissory notes as there is no promise to pay. If A writes:
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(a) Mr. B, I.O.U. (I owe you) Rs. 500 (b) I am liable to pay you Rs. 500. (c) I have taken from you Rs. 100, whenever you ask for it have to pay . The following will be taken as promissory notes because there is an express promise to pay: If A writes: (a) I promise to pay B or order Rs. 500 (b) I acknowledge myself to be indebted to B in Rs. 1000 to be paid on demand, for the value received. (3) Promise to pay must be unconditional: A conditional undertaking destroys the negotiable character of an otherwise negotiable instrument. Therefore, the promise to pay must not depend upon the happening of some outside contingency or event. It must be payable absolutely. (4) It should be signed by the maker: The person who promise to pay must sign the instrument even though it might have been written by the promisor himself. There are no restrictions regarding the form or place of signatures in the instrument. It may be in any part of the instrument. It may be in pencil or ink, a thumb mark or initials. The pronote can be signed by the authorised agent of the maker, but the agent must expressly state as to on whose behalf he is signing, otherwise he himself may be held liable as a maker. The only legal requirement is that it should indicate with certainty the identity of the person and his intention to be bound by the terms of the agreement. (5) The maker must be certain: The note self must show clearly who is the person agreeing to undertake the liability to pay the amount. In case a person signs in an assumed name, he is liable as a maker because a maker is taken as certain if from his description sufficient indication follows about his identity. In case two or more persons promise to pay, they may bind themselves jointly or jointly and severally, but their liability cannot be in the alternative. (6) The payee must be certain: The instrument must point out with certainty the person to whom the promise has been made. The payee may be ascertained by name or by designation. A note payable to the maker himself is not pronate unless it is indorsed by him. In case, there is a mistake in the name of the payee or his designation; the note is valid, if the payee can be ascertained by evidence. Even where the name of a dead person is entered as payee in ignorance of his death, his legal representative can enforce payment. (7) The promise should be to pay money and money only: Money means legal tender money and not old and rare coins. A promise to deliver paddy either in the alternative or in addition to money does not constitute a promissory note.
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(8) The amount should be certain: One of the important characteristics of a promissory note is certaintynot only regarding the person to whom or by whom payment is to be made but also regarding the amount. However, paragraph 3 of Section 5 provides that the sum does not become indefinite merely because (a) there is a promise to pay amount with interest at a specified rate. (b) the amount is to be paid at an indicated rate of exchange. (c) the amount is payable by instalments with a condition that the whole balance shall fall due for payment on a default being committed in the payment of anyone instalment. (9) Other formalities: The other formalities regarding number, place, date, consideration etc. though usually found given in the promissory notes but are not essential in law. The date of instrument is not material unless the amount is made payable at a certain time after date. Even in such a case, omission of date does not invalidate the instrument and the date of execution can be independently ascertained and proved. On demand (or six month after date) I promise to pay Peter or order the sum of rupees one thousand with interest at 8 per cent per annum until payment. Bill of exchange: Section 5 of the Act defines, 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. A bill of exchange, therefore, is a written acknowledgement of the debt, written by the creditor and accepted by the debtor. There are usually three parties to a bill of exchange drawer, acceptor or drawee and payee. Drawer himself may be the payee. Essential conditions of a bill of exchange: (1) It must be in writing. (2) It must be signed by the drawer. (3) The drawer, drawee and payee must be certain. (4) The sum payable must also be certain. (5) It should be properly stamped. (6) It must contain an express order to pay money and money alone. For example, In the following cases, there is no order to pay, but only a request to pay. Therefore, none can be considered as a bill of exchange:
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(a) I shall be highly obliged if you make it convenient to pay Rs. 1000 to Suresh. (b) Mr. Ramesh, please let the bearer have one thousand rupees, and place it to my account and oblige However, there is an order to pay, though it is politely made, in the following examples: (a) Please pay Rs. 500 to the order of A. (b) Mr. A will oblige Mr. C, by paying to the order of P. (7) The order must be unconditional. 12 Distinction Between Bill of Exchange and Promissory Note: 1. Number of parties: In a promissory note there are only two parties the maker (debtor) and the payee (creditor). In a bill of exchange, there are three parties; drawer, drawee and payee; although any two out of the three may be filled by one and the same person, 2. Payment to the maker: A promissory note cannot be made payable the maker himself, while in a bill of exchange to the drawer and payee or drawee and payee may be same person. 3. Unconditional promise: A promissory note contains an unconditional promise by the maker to pay to the payee or his order, whereas in a bill of exchange, there is an unconditional order to the drawee to pay according to the direction of the drawer. 4. Prior acceptance: A note is presented for payment without any prior acceptance by the maker. A bill of exchange is payable after sight must be accepted by the drawee or someone else on his behalf, before it can be presented for payment. 5. Primary or absolute liability: The liability of the maker of a promissory note is primary and absolute, but the liability of the drawer of a bill of exchange is secondary and conditional. 6. Relation: The maker of the promissory note stands in immediate relation with the payee, while the maker or drawer of an accepted bill stands in immediate relations with the acceptor and not the payee. 7. Protest for dishonour: Foreign bill of exchange must be protested for dishonour when such protest is required to be made by the law of the country where they are drawn, but no such protest is needed in the case of a promissory note. 8. Notice of dishonour: When a bill is dishonoured, due notice of dishonour is to be given by the holder to the drawer and the intermediate endorsers, but no such notice need be given in the case of a note. Cheques : Section 6 of the Act defines A cheque is a bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand.
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A cheque is bill of exchange with two more qualifications, namely, (i) it is always drawn on a specified banker, and (ii) it is always payable on demand. Consequently, all cheque are bill of exchange, but all bills are not cheque. A cheque must satisfy all the requirements of a bill of exchange; that is, it must be signed by the drawer, and must contain an unconditional order on a specified banker to pay a certain sum of money to or to the order of a certain person or to the bearer of the cheque. It does not require acceptance. Distinction Between Bills of Exchange and Cheque: 1. A bill of exchange is usually drawn on some person or firm, while a cheque is always drawn on a bank. 2. It is essential that a bill of exchange must be accepted before its payment can be claimed A cheque does not require any such acceptance. 3. A cheque can only be drawn payable on demand, a bill may be also drawn payable on demand, or on the expiry of a certain period after date or sight. 4. A grace of three days is allowed in the case of time bills while no grace is given in the case of a cheque. 5. The drawer of the bill is discharged from his liability, if it is not presented for payment, but the drawer of a cheque is discharged only if he suffers any damage by delay in presenting the cheque for payment. 6. Notice of dishonour of a bill is necessary, but no such notice is necessary in the case of cheque. 7. A cheque may be crossed, but not needed in the case of bill. 8. A bill of exchange must be properly stamped, while a cheque does not require any stamp. 9. A cheque drawn to bearer payable on demand shall be valid but a bill payable on demand can never be drawn to bearer. 10. Unlike cheques, the payment of a bill cannot be countermanded by the drawer. Hundis: A Hundi is a negotiable instrument written in an oriental language. The term hundi includes all indigenous negotiable instrument whether they be in the form of notes or bills. The word hundi is said to be derived from the Sanskrit word hundi, which means to collect. They are quite popular among the Indian merchants from very old days. They are used to finance trade and commerce and provide a fascile and sound medium of currency and credit. Hundis are governed by the custom and usage of the locality in which they are intended to be used and not by the provision of the Negotiable Instruments Act. In case there
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is no customary rule known as to a certain point, the court may apply the provisions of the Negotiable Instruments Act. It is also open to the parties to expressly exclude the applicability of any custom relating to hundis by agreement (lndur Chandra vs. Lachhmi Bibi, 7 B.I.R. 682).

PARTIES TO NEGOTIABLE INSTRUMENTS


Parties to Bill of Exchange : 1. Drawer: The maker of a bill of exchange is called the drawer. 2. Drawee: The person directed to pay the money by the drawer is called the drawee, 3. Acceptor: After a drawee of a bill has signed his assent upon the bill, or if there are more parts than one, upon one of such pares and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the acceptor. 4. Payee: The person named in the instrument, to whom or to whose order the money is directed to be paid by the instrument is called the payee. He is the real beneficiary under the instrument. Where he signs his name and makes the instrument payable to some other person, that other person does not become the payee. 5. Indorser: When the holder transfers or indorses the instrument to anyone else, the holder becomes the indorser. 6. Indorsee: The person to whom the bill is indorsed is called an indorsee. 7. Holder: A person who is legally entitled to the possession of the negotiable instrument in his own name and to receive the amount thereof, is called a holder. He is either the original payee, or the indorsee. In case the bill is payable to the bearer, the person in possession of the negotiable instrument is called the holder. 8. Drawee in case of need: When in the bill or in any endorsement, the name of any person is given, in addition to the drawee, to be resorted to in case of need, such a person is called drawee in case of need. In such a case it is obligatory on the part of the holder to present the bill to such a drawee in case the original drawee refuses to accept the bill. The bill is taken to be dishonoured by non-acceptance or for non payment, only when such a drawee refuses to accept or pay the bill. 9. Acceptor for honour: In case the original drawee refuses to accept the bill or to furnish better security when demanded by the notary, any person who is not liable on the bill, may accept it with the consent of the holder, for the honour of any party liable on the bill. Such an acceptor is called acceptor for honour.

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Parties to a Promissory Note : 1. Maker. He is the person who promises to pay the amount stated in the note. He is the debtor. 2. Payee. He is the person to whom the amount is payable i.e. the creditor. 3. Holder. He is the payee or the person to whom the note might have been indorsed. 4. The indorser and indorsee (the same as in the case of a bill). Parties to a Cheque : 1. Drawer. He is the person who draws the cheque, i.e., the depositor of money in the bank. 2. Drawee. It is the drawers banker on whom the cheque has been drawn. 3. Payee. He is the person who is entitled to receive the payment of the cheque. 4. The holder, indorser and indorsee (the same as in the case of a bill or note).

NEGOTIATION:
Negotiation may be defined as the process by which a third party is constituted the holder of the instrument so as to entitle him to the possession of the same and to receive the amount due thereon in his own name. According to section 14 of the Act, when a promissory note, bill of exchange or cheque is transferred to any person so as to constitute that person the holder thereof, the instrument is said to be negotiated. The main purpose and essence of negotiation is to make the transferee of a promissory note, a bill of exchange or a cheque the holder there of. Negotiation thus requires two conditions to be fulfilled, namely: 1. There must be a transfer of the instrument to another person; and 2. The transfer must be made in such a manner as to constitute the transferee the holder of the instrument. Handing over a negotiable instrument to a servant for safe custody is not negotiation; there must be a transfer with an intention to pass title.

Modes of negotiation
Negotiation may be effected in the following two ways:

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1. Negotiation by delivery (Sec. 47): Where a promissory note or a bill of exchange or a cheque is payable to a bearer, it may be negotiated by delivery thereof. Example: A, the holder of a negotiable instrument payable to bearer, delivers it to Bs agen t to keep it for B. The instrument has been negotiated. 2. Negotiation by endorsement and delivery (Sec. 48): A promissory note, a cheque or a bill of exchange payable to order can be negotiated only be endorsement and delivery. Unless the holder signs his endorsement on the instrument and delivers it, the transferee does not become a holder. If there are more payees than one, all must endorse it.

Presentment:
(a) "Presentment" means a demand made by or on behalf of a person entitled to enforce an instrument (i) to pay the instrument made to the drawee or a party obliged to pay the instrument or, in the case of a note or accepted draft payable at a bank, to the bank, or (ii) to accept a draft made to the drawee. (b) The following rules are subject to Article 4, agreement of the parties, and clearing-house rules and the like: (1) Presentment may be made at the place of payment of the instrument and must be made at the place of payment if the instrument is payable at a bank in the United States; may be made by any commercially reasonable means, including an oral, written, or electronic communication; is effective when the demand for payment or acceptance is received by the person to whom presentment is made; and is effective if made to any one of two or more makers, acceptors, drawees, or other payors. (2) Upon demand of the person to whom presentment is made, the person making presentment must (i) exhibit the instrument, (ii) give reasonable identification and, if presentment is made on behalf of another person, reasonable evidence of authority to do so, and (iii) sign a receipt on the instrument for any payment made or surrender the instrument if full payment is made. (3) Without dishonoring the instrument, the party to whom presentment is made may (i) return the instrument for lack of a necessary indorsement, or (ii) refuse payment or acceptance for failure of the presentment to comply with the terms of the instrument, an agreement of the parties, or other applicable law or rule. (4) The party to whom presentment is made may treat presentment as occurring on the next business day after the day of presentment if the party to whom presentment is made has established a cut-off hour not earlier than 2 p.m. for the receipt and processing of instruments presented for payment or acceptance and presentment is made after the cut-off hour.

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DISCHARGE OF NEGOTIABLE INSTRUMENT


The term 'discharge' in relation to negotiable instruments is used in two senses: (1) discharge of an instrument, and (2) discharge of one or more parties. 1. Discharge of an instrument: An instrument is discharged when all the rights under it are extinguished so that the instrument ceases to be negotiable. For example, when the party primarily liable on the instrument, i.e. the maker or the acceptor is discharged, the instrument is also discharged. After an instrument is discharged all the parties are also discharged from their liabilities even holder in due course cannot claim the amount of the instrument from any party to the instrument. 2. Discharge of one or more parties: When one or more parties are discharged, the instrument continues to be liable and the undercharged parties remain liable on the instrument. For example when the name of the indorser is cancelled, the drawer and acceptor continue to be liable. It may be pointed out that the term 'discharge of instrument' is wider than the term 'discharge of party(ies).' When an instrument is discharged, all the parties to the instrument are also discharged automatically. However, discharge of one or more parties does not necessarily discharge the instrument. Discharge of an Instrument : An instrument is discharged in the following ways: 1. By payment in due course [Sec. 10 and 82(c)]: Perhaps this is the most natural and usual mode of discharge of an instrument. All parties to an instrument are discharged by payment made in due course. Essential Rules Regarding Payment : 1. The payment should be made by the party primarily liable, i.e. the maker of a note or the acceptor of a bill and the drawee of a cheque. If the payment is made by any indorser, the instrument will not be discharged; only that indorser and subsequent parties will be discharged. 2. The payment of the instrument should be made at or after maturity. If the payment is made before maturity, it will not discharge the instrument unless the instrument is cancelled. If it is not cancelled, it is likely to reach again in the hands of a holder in due course who can enforce payment [Burbridge v. Manners]. 3. Payment should be made to the holder, otherwise it will not discharge the party liable to pay (Sec. 78). In case the instrument is payable to bearer, the payment may be made to any

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person in possession of the instrument unless there is a suspicion to show that he is not entitled to payment. In that case, payment even to a thief or finder will discharge the instrument. In case the instrument is payable to order, the payment should be made to the payee named. This condition is very strict. Even if the payment is made to another person of the same name, it will not discharge the party liable to pay it. Example: A bill was drawn payable to Ram Lai. Another Ram Lai picked up the bill and got the payment. The acceptor is not discharged. The true Ram Lai can still recover the amount from the acceptor. However, in case of a cheque, special protection has been granted by Sec. 85(1): "Where a cheque payable to order purports to be indorsed by or on behalf of the payee, the drawee is discharged by payment in due course". Thus, in the above example, if it were a cheque and not a bill, then the true Ram Lai would have no remedy against the drawee, i.e. the bank. 2. Discharge by cancellation [Sec. 82(a)]: Where the holder of an instrument with the intention of discharging the instrument, cancels the name of the party primarily liable (i.e. the maker of a note or the acceptor of a bill), the instrument is discharged. An instrument is also discharged if the holder cancels the instrument itself with an intention of discharging all the parties to the instrument. He may cancel the instrument by scoring it out or tearing it off. Example: A drew a bill for Rs. 500 on B. A indorsed the bill to C, C to D and D to E. E, the holder of the bill, cancels the name of the drawer A. Now B, C and D are also discharged as their liability is dependent upon the liability of the drawer A. It should be noted that cancellation should be intentional. An accidental cancellation will not discharge the instrument. To discharge the instrument, the name of the party primarily liable should be cancelled. If the name of a party who is secondarily liable is cancelled, the instrument will not be discharged; only the subsequent parties will be discharged in that case. The instrument should be destroyed physically so that it may not be used again. Example: A accepted a bill and gave it to B for getting r- discounted. B failed to discount the bill and returned the bill to A. Then, A tore the bill in half with the intention of canceling it and threw the pieces on the road. B was very clever, he picked up the pieces and pasted them together
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so nicely that it appeared to have been folded for safe custody rather than cancelled. B passed it so that it reached a holder in due course. Held, A was liable on the bill. A did not clearly tear off the bill so as to show his intention unmistakably. [Ingham v. Primerose]. 3. By acceptor of a bill becoming its holder [Sec. 90]: Where the acceptor of a bill of exchange (which has been negotiated) becomes its holder at or after maturity, the bill is discharged. This is based on the principle of 'Negotiation Back' discussed earlier. The party primarily liable becomes the holder of the instrument, it will not be allowed to enforce its claim against other parties because it will lead to circuity of action. Hence the instrument is discharged. 4. By release [Sec. 82 (b)]: Where the holder of the instrument releases the party primarily liable on the instrument or otherwise discharges him, the instrument is also discharged. The reason is very simple. Discharge of principal debtor discharges the surety. In a negotiable instrument, an indorser and subsequent parties are in the position of sureties. Discharge of One or more Parties to an Instrument : 1. Discharge by cancellation [Sec. 82(a)]: This point has already been discussed as point No. 2 on the last page while discussing discharge of an instrument. 2. Discharge by release [Sec. 82(b)]: Where the holder of the instrument releases any indorser or otherwise discharges him, then that indorser and subsequent parties are discharged from the liabilities. 3. Discharge by payment [Sec. 82(c)]: Where the party primarily liable on the instrument makes the payment, the instruments as well as all the parties to the instrument are discharged. For essential rules regarding payment, please refer to discharge of instrument discussed earlier. 4. Discharge by allowing more than 48 hours to the drawee to accept the bill [Sec. 83]: If the holder allows more than 48 hours to the drawee to consider whether or not he will accept the bill, all previous parties not consenting to such allowance, are discharged from their liability to such holder. 5. Discharge by delay in presenting cheques [Sec. 48]: A cheque must be presented for payment within a reasonable time. When a cheque is not presented for payment within a reasonable time of its issue and the drawer suffers actual damage through the delay, he is to that extent discharged from his liability. However, the holder shall become the creditor of the bank to that extent. Example:
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A issued a cheque for Rs. 500 to B. When the cheque should have been presented, there was enough balance in his account. But the cheque is delayed beyond reasonable time and the bank fails in the meantime. A is discharged from his liability. However, B can claim Rs. 500 from the liquidator of the bank, i.e. whatever dividend is paid to the other creditors. If in the above example, before A could present the cheque in the ordinary course, the bank fails. A will not be discharged because A has not suffered any loss due to the presentment of the cheque which was in time. 6. Discharge by qualified acceptance: As a rule, acceptance must be absolute or unqualified. A holder is entitled to object to a qualified acceptance. However, if he does not object to such qualified acceptance, all other parties who do not consent to such qualified acceptance are discharged to such holder and those claiming under him, unless, on notice given by the holder, they agree to such acceptance. 7. Discharge by material alteration [Sec. 87]: Any material alteration of a negotiable instrument renders the same void as against anyone who is party thereto at the time of making such alteration. However, if the party consents to such alteration or it was made to carry out the common intention of the parties, the alteration does not discharge the party concerned. Alteration by Indorsee: Any alteration made by the indorsee, discharges his indorser from all liability to him. However, it should be noted that an acceptor or indorser of a negotiable instrument is bound by his acceptance or indorsement if the alteration was made before he accepted or indorsed the instrument. The reason is simple. In such a case, he has in a way consented to such alteration. An alteration is void only if it is made subsequent to acceptance or indorsement. 8. Discharge by payment of instrument on which alteration is not apparent: When an instrument has been materially altered but does not look like that or where cheque has been crossed but does not appear to have been crossed, e.g. crossing clearly erased, the person paying or the banker is discharged from all liabilities thereon. 9. Discharge by debtor becoming its holder, i.e. when the acceptor of a bill again becomes its holder [Sec. 90]: We have already made reference to negotiation back which discharges all the parties to the bill. A debtor (acceptor) who again becomes the holder of a bill, discharges all other parties on the same principle. 10. Discharge by operation of law: Liability of party to a negotiable instrument is discharged by operation of law. It may be by:
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(a) Insolvency. An insolvent is discharged from his liability. (b) Merger. When merger takes place, the liability is discharged, i.e., merging of debt under the instrument into the judgement debt. (c) Law of limitation. Further, the liability may be discharged by the debt becoming timebarred by the law of limitation. Material Alteration: An alteration which in any way alters the operational character of the instrument or rights and liabilities of the parties is called material alteration? It is immaterial whether the alteration is advantageous or disadvantageous. Alteration must be intentional. An accidental alteration is not bad. It need not be made by the holder. It is sufficient if it was made when the instrument was in the possession of the holder. The holder must take every care to protect it from such alteration, otherwise he will be liable for the consequence of the alteration. Material Alterations: The following alterations are regarded as material: 1. the date, 2. the sum payable, 3. the place of payment, 4. the time of payment, 5. the rate of interest, 6. the place where the instrument is drawn, 7. addition of a party's name or place of payment. Any of the above alterations made will discharge the parties liable on the instrument. Alterations which are not material (Sec. 87): The following alterations are not regarded as material alterations: 1. Alteration made before acceptance or indorsement. An acceptor and indorser are bound by previous alterations (Sec. 88). 2. Alteration made to carry out the common intention of the parties. 3. Alteration consented to or agreed by the other parties. 1. Filling an inchoate but stamped instrument (Sec. 20): A holder has the authority to fill in the blanks in such an instrument. Even where the holder fills an amount larger than intended (but is covered by the stamp) the instrument is not void against a holder in due course. 2. Converting blank indorsement into full (Sec. 49): A holder has the authority to convert an indorsement in blank into an indorsement in full. 3. Conditional or qualified acceptance (Sec. 86): A holder may take a qualified acceptance. 4. Crossing of cheques (Sec. 125):
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A holder and a banker are empowered to cross the cheques. Effect of Material Alteration (Sec. 87): When a material alteration has been made a negotiable instrument, as well as all the parties to the instrument are discharged. If the alteration is made by an indorsee, then his indorser is discharged from all liabilities to him. It should be noted that even if a material alteration is agreed to by all the parties, it becomes a new instrument which requires a new stamp.

DISHONOUR OF A NEGOTIABLE INSTRUMENT


When a negotiable instrument is dishonoured, the holder must give a notice of dishonour to all the previous parties in order to make them liable. A negotiable instrument can be dishonoured either by nonacceptance or by non-payment. A cheque and a promissory note can only be dishonoured by non-payment but a bill of exchange can be dishohoured either by non-acceptance or by non-payment. Dishonour by non-acceptance (Section 91) A bill of exchange can be dishonoured by non-acceptance in the following ways: 1. If a bill is presented to the drawee for acceptance and he does not accept it within 48 hours from the time of presentment for acceptance. When there are several drawees even if one of them makes a default in acceptance, the bill is deemed to be dishonoured unless these several drawees are partners. Ordinarily when there are a number of drawees all of them must accept the same, but when the drawees are partners acceptance by one of them means acceptance by all. 2. When the drawee is a fictitious person or if he cannot be traced after reasonable search. 3. When the drawee is incompetent to contract, the bill is treated as dishonoured. 4. When a bill is accepted with a qualified acceptance, the holder may treat the bill of exchange having been dishonoured. 5. When the drawee has either become insolvent or is dead. 6. When presentment for acceptance is excused and the bill is not accepted. Where a drawee in case of need is named in a bill or in any indorsement thereon, the bill is not dishonoured until it has been dishonoured by such drawee. Dishonour by non-payment (Section 92) A bill after being accepted has got to be presented for payment on the date of its maturity. If the acceptor fails to make payment when it is due, the bill is dishonoured by non-payment. In
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the case of a promissory note if the maker fails to make payment on the due date the note is dishonoured by non-payment. A cheque is dishonoured by non-payment as soon as a banker refuses to pay. 42 An instrument is also dishonoured by non-payment when presentment for payment is excused and the instrument when overdue remains unpaid (Sec 76). Effect of dishonour: When a negotiable instrument is dishonoured either by non acceptance or by non-payment, the other parties thereto can be charged with liability. For example if the acceptor of a bill dishonours the bill, the holder may bring an action against the drawer and the indorsers. There is a duty cast upon the holder towards those whom he wants to make liable to give notice of dishonour to them. Notice of dishonour: Notice of dishonour means the actual notification of the dishonour of the instrument by nonacceptance or by non-payment. When a negotiable instrument is refused acceptance or payment notice of such refusal must immediately be given to parties to whom the holder wishes to make liable. Failure to give notice of the dishonour by the holder would discharge all parties other than the maker or the acceptor (Sec. 93). Notice by whom: Where a negotiable instrument is dishonoured either by non- acceptance or by non-payment, the holder of the instrument or some party to it who is liable thereon must give a notice of dishonour to all the prior parties whom he wants to make liable on the instrument (Section 93). The agent of any such party may also be given notice of dishonour. A notice given by a stranger is not valid. Each party receiving notice of dishonour must, in order to render any prior party liable give notice of dishonour to such party within a reasonable time after he has received it. (Sec. 95) When an instrument is deposited with an agent for presentment and is dishonoured, he may either himself give notice to the parties liable on the instrument or he may give notice to his principal. If he gives 43 notice to his principal, he must do so within the same time as if he were the holder. The principal, too, in his turn has the same time for giving notice as if the agent is an independent holder. (Sec. 96) Notice to whom?: Notice of dishonour must be given to all parties to whom the holder seeks to make liable. No notice need be given to a maker, acceptor or drawee, who are the principal debtors (Section 93). Notice of dishonour may be given to an endorser. Notice of dishonour may be given to a duly authorised agent of the person to whom it is required to be given. In case of the death of such a person, it may be given to his legal representative. Where he has been declared insolvent the notice may be given to him or to his official assignee (Section 94). Where a party entitled to a notice of dishonour is dead, and notice is given to him in ignorance of his death, it is sufficient (Section 97).
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Mode of notice: The notice of dishonour may be oral or written or partly oral and partly written. It may be sent by post. It may be in any form but it must inform the party to whom it is given either in express terms or by reasonable intendment that the instrument has been dishonoured and in what way it has been dishonoured and that the person served with the notice will be held liable thereon. What is reasonable time?: It is not possible to lay down any hard and fast rule for determining what is reasonable time. In determining what is reasonable time, regard shall be had to the nature of the instrument, the usual course the dealings with respect to similar instrument, the distance between the parties and the nature of communication between them. In calculating reasonable time, public holidays shall be excluded (Section 105). 44 Section 106 lays down two different rules for determining reasonable time in connection with the notice of disnonour (a) when the holder and the party to whom notice is due carry on business or live in different places, (b) when the parties live or carry on business in the same place. In the first case the notice of dishonour must be dispatched by the next post or on the day next after the day of dishonour. In the second case the notice of dishonour should reach its destination on the day next after dishonour. Place of notice: The place of business or (in case such party has no place of business) at the residence of the party for whom it is intended, is the place where the notice is to given. If the person who is to give the notice does not know the address of the person to whom the notice is to be given, he must make reasonable efforts to find the latters address. But if the party entitled to the notice cannot after due search be found, notice of dishonour is dispensed with. Duties of the holder upon dishonour : (1) Notice of dishonour. When a promissory note, bill of exchange or cheque is dishonoured by non-acceptance or non-payment the holder must give notice of dishonour to all the parties to the instrument whom he seeks to make liable thereon. (Sec. 93) (2) Noting and protesting. When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may cause such dishonour to be noted by a notary public upon the instrument or upon a paper attached thereto or partly upon each (Sec. 99). The holder may also within a reasonable time of the dishonour of the note or bill, get the instrument protested by notary public (Sec. 100). 45 (3) Suit for money. After the formality of noting and protesting is gone through, the holder may bring a suit against the parties liable for the recovery of the amount due on the instrument. Instrument acquired after dishonour: The holder for value of a negotiable instrument as a rule, is not affected by the defect of title in his transferor. But this rule is subject to two important exceptions (i) when the holder acquires it after maturity and (ii) when he acquires it with notice of dishonour.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

The holder of a negotiable instrument who acquired it after dishonour, whether by nonacceptance or non-payment, with notice thereof, or after maturity, has only, as against the other parties, the rights thereon of his transfer. (Sec. 59).

LAW OF AGENCY:
Meaning & Definition of Agency: According to Section 182, An agent is a person employed to do any act for another or to represent another in dealing with third persons. The person for whom such act is done or who is so represented, is called the principal Essentials of relationship of agency : 1.Agreement between the principal and the agent. 2.Intention of the agent to act on behalf of the principal. Example: X (a dealer) appoints Y to sell 200 Kg of wheat at a price range between (10-12 Rs) per Kg. Y accepted the task assigned by X. Here, the relationship of principal and agent has been created by Mr X and Y through an agreement. Features of the contract of agency: 1. Principal is answerable to third parties for the acts of agent . 2. Consideration not necessary Section 185 of the act clearly lays down , No consideration is necessary to create an agency 3. Principal must be competent to employ an agent Only a person who is competent to contract can employ an agent. ( Major, Sound Mind ) 4. Agent may not have contractual capacity 5. A minor or a person of unsound mind may act as an agent & bind the principal to the third persons. E.g- X hands over to Y (a Minor), a T.V set worth Rs 18500 and instructs him not to sell below 19000. Y sells the same to Z for Rs 18,000. Now, X will be responsible to Z for the act of Y. Test of Agency: A person does not become an agent on behalf of another merely because he gives him advice in matters of business. Every person who acts for another cannot be agent. Cobbler mending shoes of a man , servant rendering services for us are not agents. (Parties are just providing their Services, Existence of third party is not there)

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Classification of agents:
Special Agents: Who is employed to do some particular act or represent his principal in some particular transaction. As soon as the act is performed the authority of agent comes to an end. E.g. An agent engaged to sell a house. General Agent: who is employed to do all such acts which are connected with the business of trade of his employer. E.g- A mercantile agent appointed by a company can buy and sell the goods under the normal course of business until or unless it is not terminated by principal. Universal Agent: is one who is employed to all such act which a principal can lawfully do & can delegate. Agent has unlimited authority. (Exclusive Rights) FROM THE POINT OF VIEW OF NATURE OF WORK TO BE PERFORMED: 1. Factors is a mercantile agent to whom the possession of goods are given for the purpose of selling them. He usually sells the goods in own name. He can exercise a general right of lien on the goods delivered to him for balance of payment if any. 2. Auctioneer is an agent who is appointed by the principal to sell the goods on his behalf at a public auction for a reward in form of commission. 3. Broker is an agent appointed by the principal for the purpose of selling or buying goods on his behalf. He do not have possession of goods nor he can contract in his own name. He bring seller & buyer together to bargain. He gets commission ( brokerage ). 4. Del credere Agent is one who guarantees to his principal, the performance of the financial obligation by party with whom he enters into a contract on principal behalf, in consideration of an extra commission. He becomes surety & become liable on the default of third party. 5. Banker act as a mercantile agent on behalf of his customer when he collects cheques, drafts, bills & pay insurance premium & buy or sell securities. Creation of Agency : By express agreement authority is given to agent in written or by words of mouth. He can bind the principal to the third parties by his acts to the extent he is delegated with the authority E.g X who owns a shop, appoints Y to manage his shop by executing a power of attorney in Ys favour. Here, relationship has been created between X and Y by an express authority.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

By implied agreement: 1. Agency by Estoppel: Agency by estoppel arises where a person by his words or conduct induces third person to believe that a certain person is, His/her agent. The person who induces as such is estopped to denying the truth later on. E.g. A tell B in the presence of P that A is the agent of P. P does not contradict the statement. B enter into the contract with P on the belief that A is Ps agent. In such case P would be bound by the contract. 2. Agency by holding out: Some positive conduct of the principal indicates that a particular person is his agent. P sends A to buy goods on credit from C. A buys goods on credit for himself & refuses to pay. C sue P. P cannot plead that A had no authority.

4. Agency by ratification: Ratification means subsequent adoption or acceptance by a person of an unauthorized act done by another on his behalf without any authority. X buys 5 bags of wheat on behalf of Y without his knowledge or authority. Y would be bound by the contract, if he ratify or accept the same. Essentials of a valid ratification: 1. Act must have been done as agent on behalf of principal identifiable Only the person on whose behalf the act is done can ratify it. If the agent act in his own name, his act cannot be ratified by any other person. Case: Keighley maxeted & co. Duarnt X was authorised by Y to buy wheat at certain price. X exceeded his authority & purchased wheat from Z at a higher price in his own name. He did not profess to buy wheat on behalf of Y. Subsequently Y ratified the act of X but later refused to take delivery of the wheat. Z sue Y. Held, the contract could not be ratified because X did not expressed to act as an agent of Y. 2. The principal must be in existence. (company) 3. The principal must be competent to ratify the act must have contractual capacity. A minor cannot ratify the contract a contract on attaining the age of majority. 4. The principal must have the full knowledge of all the material facts X bought certain goods from Y at the price greater than the market value in the name of Y. Y ratified the transaction without knowing the same ( high price ) . The ratification is invalid. 5. The principal must ratify the whole transaction. 6. Ratification must be made within reasonable time.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

7. Act to be ratified must not be void or illegal. 8. Ratification must be communicated.

Duties of an agent :
1. To follow principals directions An agent must act within the scope of the authority conferred on him. An agent was instructed to insure goods. He failed to do so. The goods were destroyed. He was held liable to the extent of loss. 2. To follow the customs in the absence of instructions B, a broker, in whose business, it is not the custom to sell on credit, sell goods of A on credit to C, whose credit at the time was very high. C, before payment, becomes insolvent. B must make good the loss to A. 3. To conduct business with reasonable care skill & diligence A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit, without making the proper & usual enquires as to the solvency of B. B at the time of such sale, is insolvent. A must make compensation of his principal in respect of any loss thereby sustained. 4. To keep & render accounts to principal when demanded. 5. To communicate with principal. 6. Not to deal on his own account If an agent wants to deal on his own account, he must seek the consent of the principal first & must acquaint him with all the material facts. ( Purchase ) 7. Not to make secret profits ( Bribe ) Agency is a fudiciary relation. 8. To pay sum received he can deduct his remuneration & all expenses incurred in conducting business.

Rights of an agent:
1. Right of retainer The agent has a right to retain, out of any sums received all money due to him in respect of remuneration, advance made, expenses incurred in conducting business. 2. Right to receive remuneration if he has completed his task. He is not entitled to any remuneration for part transaction. 3. Right of lien he has right to exercise particular lien over the goods, paper, property until the amount due to him for commission, expenses has been paid.

Duties & Rights of the Principal :


1. 2. 3. 4. 5. To pay remuneration to agent To recover compensation for breach of duty by the agent To forfeit agents remuneration where he is guilty of misconduct To receive any extra profit made by agent. To enforce the various duties of the agent.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

6. To receive all sums.

Termination of Agency:
By act of parties: 1. .By agreement mutual consent 2. .By revocation of authority by the principal The principal can revoke the authority of an agent at any time before the authority has been exercised as to bind the principal. 3. By renunciation by the agent by giving reasonable notice.

Termination by operation of law: 1.By performance of contract of agency. 2.By death of principal or agent. 3.By expiry of time where agency is for fixed time period. 4.By insolvency of the principal. 5.By destruction of subject matter agency was created to sell a house & house destroys. 6.By becoming alien enemy where principal & agent are from different countries.

Bailment:
A bailment is the delivery of the goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed off according to the directions of the person delivering them.Bailment means to deliver or to hand over. Custody of goods without possession does not constitute Bailment. The person delivering the goods is called the bailor. The person to whom they are delivered is called the bailee. The transaction is called bailment (Section 148). A delivers cloth piece to B, a tailor, to be stitched into a suit. This is bailment. If a person already in possession of the goods of another contracts to hold them as a bailee, he thereby becomes the bailee and the owner becomes the bailor of such goods. Essentials: 1. Contract: Delivery of goods is upon a contract between the bailor and the bailee. 2. Delivery of goods and change of possession: Mere custody of goods w/o parting with its possession doesnt constitute a bailment.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

3. Specific purpose: Delivery of goods must be for some specific purpose. 4. Only for Movable Goods: Money not included as a movable good. 5. Return of specific goods: Bailee must return the specific goods as soon as the specific purpose is accomplished. Kinds of Bailment: Gratuitous bailment: Goods given to a friend or any one else, to be used by him without any (unnecessary) reward or remuneration or consideration. Bailment for reward or remuneration: For example, goods given on hire, goods given for repair against charges, etc. Pawn or Pledge: Goods delivered to another as a security for money borrowed. Bailor: Rights, Duties & Liabilities: Termination of bailment (Section 153): For example, A lets to B for hire a horse for his own riding. B drives the horse in his carriage. A can terminate the bailment. Return of goods (Sections 160 & 161): Bailor has the right to get back the goods from the bailee as soon as time for which they were bailed has expired. Right to claim compensation (Section 154): For wrongful use of goods by bailee. Claim in case of mixture of goods by the bailee (Section 155-157): (i) With the consent of bailor. Bailor can claim proportionate share in mixed goods. (ii) Without consent of bailor. But goods can be separated. Bailor can claim expenses of separation & any damage arising from the mixture. (iii) Without consent of bailor. But goods cannot be separated. Bailor is fully entitled to compensation for the loss of the goods. Right to receive any increase or profit from goods bailed. Put bailee into possession (Section 149). Disclose faults in the goods bailed (Section 150). Not disclosing is a liability for bailor. Repay necessary expenses (Section 158). To repay to bailee who receives no remuneration. To indemnify gratuitous bailee (Section 159). Indemnifying for any loss due to earlier demand by bailor. Responsible for any loss due to defect in title (Section 164). To take back the goods. Bailee: Rights, Duties & Liabilities: Particular Lien (Section 170): For example, A delivers a rough diamond to B, a jeweller, to be cut and polished, which is accordingly done. B is entitled to retain the stone till he is paid for the services rendered. To know faults in the goods bailed (Section 150). Claim proportionate share in goods mixed (Section 155). Claim expenses of bailment (Section 158). Claim losses for defect in title of bailor (Section 160). Gratuitous bailee can claim indemnity (Section 159).
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

To take reasonable care of the goods bailed (Section 151). No unauthorized use of goods bailed (Section 154). Return of goods (Section 160 & 161). To deliver any increase or profits accrued on the goods (Section 163). To pay damages: if he fails to take care of the goods; damage due unauthorized use; mixing w/o consent of bailor; commits default in returning goods. Effect of mixture of goods.

Pledge :
According to section 172 of the Indian Contract Act, 1872 pledge is defined as bailment of goods as security for payment of a debt or performance of a promise. The person who offers the security is called the 'pawner' or 'pledger' and the bailee is called the 'pawnee' or the 'pledgee'. Thus, in case of a pledge(i) there should be bailment of goods; and (ii) the objective of such bailment should be to hold the goods as security for the payment of a debt or the performance of a promise. In other words, the bailment should be on behalf of a debtor or an intending debtor. 1. Bailment of goods- Section 148 defines bailment as the delivery of goods from one person to another for some purpose upon the contract that the goods be returned back when the purpose is accomplished or otherwise disposed of according to the instructions of the bailor. 2. Bailment of security for payment of debt- It is essential that the bailment of the goods is done with the object to secure the payment of a debt or the performance of a promise. If the goods are left with the banker for safe custody or for any other purpose, it does not constitute a pledge. Banks, therefore, take a declaration in case of pledge to safeguard their interests. \Who can pledge the goods? Goods can be pledged by any one who is in legal possession of the same, namely, 1. The owner of the goods himself. 2. The mercantile agent of the owner- According to Section 178, where a mercantile agent is, with the consent of the owner, in possession of goods or the documents of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same, provided that the pawnee acts in good faith and has not, at the time of pledge, notice that the pawner has no authority to pledge. 3. Joint-owner with the consent of other co-owner- If the interest of the pledger in the goods is to a limited extent only, he can pledge the same to the extent of his limited interest. But in such cases the rights of an innocent third party are well protected, if a second pledge is made to him. 4. If a person obtains possession of the goods by fraud, misrepresentation, coercion or undue influence, such contract is voidable at the option of the lawful owner.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

However, the former can create a valid pledge on such goods provided the following conditions are fulfilled: (a) The contract has not been rescinded before the contract of pledge is entered into. (b) The pledgee acts in good faith and without notice of the defective title of the pledger. 5. If a buyer leaves the goods or documents of title to goods after sale in the possession of the seller, the latter may make a valid pledge of the goods provided the pledgee acts in good faith and he has no notice of the sale of goods to the buyer.

Rights of a pledgee : 1. The pledgee has the right to retain the goods pledged for the payment of the debt or the performance of the promise and also for the amount of interest due on the debt and the necessary expenses incurred by him in connection with the possession or for the preservation of the goods pledged (Section 173). This right is applicable only in case of particular debt for which the goods are pledged, in the absence of an agreement to the contrary (Section 174). The pledgee can also claim any extra-ordinary expenses incurred by him for the preservation of the security. The banker is entitled to this right of the pawnee in case of cash credit arrangements, even if the customer (pledger) has violated any provisions of the law in respect of the goods pledged. This right of the pledgee is not affected even if he allows the pledger to retain possession over the goods pledged. In Bank of India vs. M/s Binod Steel Limited and Another (A.I.R. 1977 M.P. 188), the Bank of India permitted the company to retain possession of the movable machines pledged to it as security for loan, for and on behalf of the bank. Subsequently the Additional Tahsildar attached the movable machines for the recovery of the amount of wages due to the workers of the company. The High Court held that- 114 The legal possession and custody of the machinery and other movables of the company, which were under a pledge, must be held to be in the bank itself. The physical possession may be with the company but in the eyes of law the company must be deemed to be in possession of the same for and on behalf of the bank, the pledgee. The court held that the bank was a secured creditor and since the right to possess the movables and machinery as pledgee was vested in the bank, no one could touch the pledged property until the claim of the bank was satisfied. 2. In case of default by the pledger to make payment of the debt, the pledgee has the right either(a) to file a civil suit against the pledger for the amount due and retain the goods as a collateral security; or (b) to sell the goods pledged after giving the pledger reasonable notice of sale (Section 176). The pledgee can resort to these steps only when the pledger defaults in making payment of the debt and not earlier. In case of loans repayable after a fixed period, default takes place if the loan remains unpaid after the expiry of the stipulated period. In case of a loan repayable on demand, default takes place if, on receipt of a notice from the creditor demanding the repayment of the loan by a specified date, the debtor fails to do so within the period allowed by the creditor.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

The question whether the pledgee can exercise the right to sue and the right to sell the pledged goods or securities concurrently was decided in Iaridas Mundra vs. National and Grindlays Bank (67 G.W.N. 58). In this case the Bank, being the pledgee of the shares, filed a suit for the recovery of the loan. During pendency of the suit the Bank served a 115 notice on the customer demanding payment of its dues failing which the shares would be sold by the bank. The customer pleaded that the right of the pawnee under section 176 to sue for the debt or the promise is alternative to his right to sell and that he cannot sell the articles after he files a suit on the debt. The Court held that the right to retain the article pawned and the right to sell it are alternative and not concurrent rights. The pawnee has the right (i) either to sue on the debt or the promise concurrently with his right to retain the pawn or (ii) to sell it. However, the court observed that the institution of a sit upon the debt or promise does not reduce the pledge to a passive lien and destroy the pawnee's right to sell the article pawned and that right to sell is necessary to make the security effectual for the discharge of the pawner's obligation and the right continues in spite of the institution of the suit. This means that the banker is not denied the option for the second right, i.e., to sell, if he had already filed a suit in the Court. If he sells the goods after giving due notice and his claim is met in full, the suit filed becomes ineffective. But the pledger cannot force the pledgee to sell goods without clearing debts even if value of the goods pledged deteriorated during the pendency (Bank of Maharashtra vs. M/s Racmann Auto (P) Ltd. (AIR 1991 Delhi 278). In this case, the Delhi High Court further held that if the value of the goods had deteriorated due to passage of time, no relief can be obtained by the pledger against the pledgee as the former was legally bound to clear the debt and obtain the possession of the pledged goods from the bank, before the pledged goods were sold during the pendency or the suit. It is also essential that a clear and specific notice of sale is issued to the pledger before the pledgee exercises his right of sale, not withstanding the presence of a specific term in the agreement of pledge authorising the pledgee to sell the security without notice to the pledger. The sale made by the pledgee without giving a reasonable notice to the pledger cannot be set aside, but the pledgee will be liable to the pledger for the damages. It must be noted that after giving notice of sale, the pledgee retains the right to sell or not to sell the goods pledged. It is not obligatory for him to sell the goods within a reasonable time after the notice of sale is served. If the sale proceeds are insufficient to meet the claim of the pledge, the pledger remains liable to pay the balance. If the sale proceeds exceed the amount due, the pledgee has to return the excess amount to the pledger. 3. The pledger is bound to disclose to the pledgee the faults, if any, in the goods pledged which are within his knowledge, and which materially interfere with the use to those goods or expose the pledgee to extraordinary risks. If the pledgee suffers any damage as a result of nondisclosure of such fault by the pledger, the latter shall be responsible for it. 4. If the title of the pledger to the goods pledged is defective and the pledgee suffers any loss due to this fact, the pledger shall be responsible for such loss. 5. If the pledgee has given his consent as a result of inducement by fraud or misrepresentation in this regard or in regard to pledger's interest in the goods, the contract would be voidable at the option of the pledgee.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

6. A pledgee's rights are not limited to his interest in the pledged goods but he would have all the remedies that the owner of the goods would have against a third person for deprivation of goods or injury to them. In Morvi Mercantile Bank Ltd. Vs. Union of India, the Supreme Court held that the bank (pledgee) was entitled to recover the 117 full value of the consignment from Railways, namely, Rs. 35,000 and not only the amount due to it from the customer, namely, Rs. 20,000. Duties of the pledgee : 1. The pledgee is bound to return the goods on payment of the debt. It is the duty of the pledgee to restore the goods to the pledger or to deliver the goods according to the directions of the pledger as soon as the obligation to repay the amount is discharged. 2. The pledgee is responsible to the pledger for any loss, destruction or deterioration of the goods, if the goods are not returned by the pledgee at the proper time (Section 161). The banker remains liable to the pledger even if the goods are delivered to a wrong party without the negligence of the banker. In UCO Bank vs. Hem Chandra Sarkar (1991) 70 Comp. Case P119, S.C., the goods were delivered by the bank to some impostor who produced an artfully forged order. The Supreme Court held that a banker takes charge of goods, articles, securities etc., as bailee only and any inference of a fiduciary relationship was unwarranted and unjustified. It further held that if the property is not delivered to the true owner, the banker cannot avoid his liability in conversion. In its opinion, where the bank delivers the goods to the wrong person, whereby they are lost to the owner, the liability of the bank is absolute, though there is no element of negligence just as where delivery is obtained by means of an artfully forged order. 3. The pledgee is bound to use the goods pledged according to the agreement between the two parties. If he violates any of the conditions of the pledge, the contract would be voidable at the option of the pledger. He is also liable to make compensation to the pledger if he suffers any damage due to the unapproved use of the goods pledged (Section 153). 118 4. The pledgee is also bound to deliver to the pledger any increase of profit which may have accrued from the goods bailed in the absence of an agreement to the contrary (Section 163). In M.R. Dhawan vs. Madan Mohan and Others (A.I.R. 1969 Delhi 313), the borrower pledged certain shares with the banker. The right of the pledgee to the dividends and the rights and bonus shares issued in respect of pledged shares was disputed by the pledger. Declaring that the pledgee has no right, in the absence of a contract tot eh contrary, to the accretion to the goods pledged, the Delhi High Court observed thatThe primary purpose of a pledge, which is a kind of bailment and security, is to put the goods pledged in the power of the pledgee to reimburse himself for the money advanced, when on becoming de it remains unpaid, by selling the goods after serving the pledger with a due notice. The pledgee at no time becomes the owner of the goods pledged. He has only a right to retain the goods until his claim for the money advanced thereon has been satisfied. The pledgee acquires a right, after notice, to dispose of the goods pledged. This amounts to his acquiring only a 'special property' in the goods pledged. The general property therein remains in the pledger and wholly reverts to him on the payment of the debt or performance of the promise. Any accretion to the goods pledged will, therefore, be, in the absence of any contract to the contrary, the property of the pledger.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

SALE OF GOODS ACT 1930


Definition of Sale:
(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 in 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.

SALE v/s AGREEMENT TO SELL


A Sale and an Agreement to Sell can be distinguished as under:

Basis of distinction
1. Transfer of ownership

Sale
Transfer of ownership of goods takes place immediately

Agreement to sell

2. Executed contract or Executory contract 3. Conveyance of property

4. Transfer of risk

5. Rights of seller against the

Transfer of ownership of goods is to take place at a future time or subject to fulfillment of some condition It is an executed contract It is an executory contract because nothing remains to because something remains be done. to be done Buyer gets a right to enjoy Buyer does not get such right the goods against the whole to enjoy the goods. It only world including seller. There creates jus in personam fore, a sale creates jus in rem (Right against the person). (Right against property). Transfer of risk of loss of Transfer of risk of loss of goods takes place goods does not take place immediately because because ownership is not ownership is transferred. As transferred. As a result, in a result, in case of case of destruction of goods, destruction of goods, the loss the loss shall be borne by the shall be borne by the buyer seller even though the goods even though the goods are in are in the possession of the the possession of the seller. buyer. Seller can sue the buyer for Seller can sue the buyer for

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

buyers breach

the price even though the goods are in his possession. Buyer can sue the seller for damaged and can sue the third party who bought those goods, for goods. Buyer can claim the goods from the official receiver or assignee because the ownership of goods has transferred to the buyer.

6. Rights of buyer against the sellers breach

damages even though the goods are in the possession of the buyer. Buyer can sue the seller for damages only.

7. Effect of insolvency of seller having possession of goods

8. Effect of insolvency of the buyer before paying the price

Seller must deliver the goods to the official receiver or assignee because the ownership of goods has transferred to the buyer. He can only claim rateable dividend for the unpaid price.

Buyer cannot claim the goods even when he has paid the price because the ownership has not transferred to the buyer. The buyer who has paid the price can only claim rateable dividend. Seller can refuse to deliver the goods unless he is paid full price of the goods because the ownership has not transferred to the buyer.

Definition of Goods: According to Sale of goods act 1930, " goods" means every kind of movable property other than actionable claims and money; and includes stock and shares, growing 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 sale;

Price:
Section 9 in The Sale Of Goods Act, 1930: Ascertainment of price.(1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties. (2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Section 55 in The Sale Of Goods Act, 1930 Suit for price.(1) Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods. (2) Where under a contract of sale the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the goods has not passed and the goods have not been appropriated to the contract. No sale can take place without a price. Thus, if there is no valuable consideration to support a voluntary surrender of goods by the real owner to another person, the transaction is a gift, and is not governed by the Sale of Goods Act. Therefore, price. which is money consideration for the sale of goods, constitutes the essence for a contract of sale. It may be money actually paid or promised to b/3 paid. If a consideration other than money is to be given, it is not a sale. Modes of Fixing Price (Sections 9 and 10) The price may be fixed: 1. at the time of contract by the parties themselves, or 2. may be left to be determined by the course of dealings between the parties, or 3. may be left to be fixed in some way stipulated in the contract, or 4. may be left to be fixed by some third-party. Where the contract states that the price is to be fixed by a third-party and he fails to do so, the contract is void. But if the buyer has already taken the benefit of the goods, he must pay a reasonable price for them. If the third-party's failure to fix the price is due to the fault of one of the parties, then that party is liable for an action for damages. Where nothing is said by the parties regarding price, the buyer must pay a reasonable price, and the market price would be a reasonable price.

Conditions and Warranties (Sections 10-17)


The. parties are at liberty to enter into a contract with any terms they please. As a rule, before a contract of sale is concluded, certain statements are made by the parties to each other. The statement may amount to a stipulation, forming part of the contract or a mere expression of opinion which is not part of the contract. If it is a statement by the seller on the reliance of which the buyer makes the contract, it will amount to a stipulation. If it is a mere commendation by the seller of his goods it does not amount to a stipulation and does not give the right of action. .
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

The stipulation may either be a condition or a warranty. Section 12 draws a clear distinction between a condition and a warranty. Whether a stipulation is a condition or only a warranty is a matter of substance rather than the form of the words used. A stipulation may be a condition though called a warranty and vice versa. Conditions: If the stipulation forms the very basis of the contract or is essential to the main purpose of the contract. it is a condition. The breach of the condition gives the aggrieved party a right to treat the contract as repudiated. Thus, if the seller fails to fulfil a condition, the buyer may treat the contract as repudiated, refuse the goods and. if he has already paid for them, recover the price. He can also claim damages for the breach of contract. Warranties: If the stipulation is collateral to the main purpose of the contract, i.e.. is a subsidiary promise, it is a warranty. The effect of a breach of a warranty is that the aggrieved party cannot repudiate the contract but can only claim damages. Thus, if the seller does not fulfil a warranty. the buyer must accept the goods and claim damages for breach of warranty. Section 11 states that the stipulation as to time of payment are not to be deemed conditions (and hence not to be of the essence of a contract of sale) unless such an intention appears from the contract. Whether any other stipulation as to time (e.g., time of delivery) is the essence of the contract or not depends on the terms of the contract. When condition sinks to the level of warranty In some cases a condition sinks or descends. to the level of a warranty. The first two cases depend upon the will of the buyer. but the third is compulsory and acts as estoppel against him. (a) A condition will become a warranty where the buyer waives the condition, or (b) A cond ition will sink to the level of a warranty where the buyer treats the breach of condition as a breach of warranty; or (c) Where the contract is indivisible and the buyer has accepted the goods or part thereof. the breach of condition can only be treated as breach of warranty: The buyer can only claim damages and cannot reject the goods or treat the contract as repudiated. Sometimes the seller may be excused by law from fulfilling any condition or warranty and the buyer will not then have a remedy in damages.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Implied Warranties/Conditions: Even where no definite representations have been made, the law implies certain representations as having been made which may be warranties or conditions. An express warranty or condition does not negative an implied warranty or condition unless inconsistent therewith. There are two implied warranties: Implied Warranties [Section 14(b), 14(c) and 16(3)] (a) Implied warranty of quiet possession: If the circl!mstances of the contract are such as there is an implied warranty that the buyer shall have and enjoy quiet possession of the goods. (b) Implied warranty against encumbrances: There is a further warranty that the goods are not subject to any right in favour of a third-party, or the buyer's possession shall not be disturbed by reason of the existence of encumbrances. This means that if the buyer is required to, and does discharge the amount of the encumbrance, there is breach of warranty, and he is entitled to claim damages from the seller. Implied Conditions [Sections 14(a), 15(1), (2), 16(1) and Proviso 16(2), and Proviso 16(3) and 12(b) and 12(c)]. Different implied conditions apply under different types of contracts of sale of goods, such as sale by description, or sale by sample, or sale by description as well as sample. The condition, as to title to goods applies to all types of contracts, subject to that there is apparently no other intention. Implied Conditions as to title: There is an implied condition that the seller, in an actual sale, has the right to sell the goods, and, in an agreement to sell, he will have to it when property is to pass. As a result, if the title of the seller turns out to be defective, the buyer is entitled to reject the goods and can recover the full price paid by him. In Rowland v. Divali (1923) 2 K.B. SOD, 'A' had bought a second hand motor car from 'B' and paid for it. After he had used it for six months, he was deprived of it because the seller had no title to it. It was held that 'A' could recover the full price from 'B' even though he had used the car for six months, as the consideration had totally failed. Implied conditions under a sale by description In a sale by description there are the following implied conditions: (a) Goods must correspond with description: Under Section 15, when there is a sale of goods by description, there is an implied condition that the goods shall correspond with description.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

In a sale by description, the buyer relies for his information on the description of the goods giVen by the seller, e.g. in the contract or in the preliminary negotiations. Where 'A' buys goods which he has not seen, it must be sale by description, e.g., where he buys a 'new Fiat car' from 'B' and the car is not new, he can reject the car. Even if the buyer has seen the goods, the goods must be in accordance with the description (Beale v. Taylor (1967) All E.R. 253). (b) Goods must also be of merchantable quality: If they are bought by description from dealer of goods of that description. [Section 16(2)]. Merchantable quality means that the goods must be such as would be acceptable to a reasonable person, having regard to prevailing conditions. They are not merchantable if they have defects which make them unfit for ordinary use, or are such that a reasonable person knowing of their condition would not buy them. 'P' bought black yarn from' '0' and, when delivered, found it damaged by the white ants. The condition of merchantability was broken. But, if the buyer has examined the goods, there is no implied condition as regards defects which such examination ought to have revealed. If, however, examination by the buyer does not reveal the defect, and he approves and accepts the goods, but when put to work, the goods are found to be defective, there is a breach of condition of merchantable quality. The buyer is given a right to examine the goods before accepting them. But a mere opportunity without an actual examination, however, cursory, would not suffice to deprive him of this right. (c) Condition as to wholesomeness: The provisions, (i.e., eatables) supplied must not only answer the description, but they must also be merchantable and wholesome or sound. 'F' bought milk from 'A' and the milk contained typhoid. germs. 'F's wife became infected and died. 'A' was liable for damages. Again, 'C' bought a bun at 'M's bakery, and broke one of his teeth by biting on a stone present in the bun. 'M' was held liable. (d) Condition as to fitness for a particular purpose: Ordinarily, in a contract of sale, there is no implied warranty or condition as to the quality of fitness for any particular purpose of goods supplied. But there is an implied condition that the goods are reasonably fit for the purpose for which they are required if: (i) the buyer expressly or i,mpliedly makes known the intended purpose, so as to show that he relies on the seller's skill and judgement, and (ii) the goods are of a description which it is in the course of the seller's business to supply (whether he be the manufacturer or not). There is no such condition
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

if the goods are bought under a patent or trade name. In Priest v. Last (1903) 2 K.B. 148, a hot water bottle was bought by the plaintiff, a draper, who could not be expected to have special skill knowledge with regard to hot water bottles, from a chemist, who sold such articles. While being used by the plaintiff's wife, the bottle bursted and injured her. Held, the seller was responsible for damages. In Grant v. Australian Knitting Mills (1936) 70 MLJ 513, 'G' purchased woollen underpants from 'M' a retailer whose business was to sell gCJods of that description. After wearing the underpants, G developed some skin diseases. Held, the goods were not fit for their only use and 'G' was entitled to avoid the contract and claim damages. Implied conditions under a sale by sample (Section 15) In a sale by sample: (a) there is an implied condition that the bulk shall correspond with the sample in quality; (b) there is another implied condition that the buyer shall have a reasonable opportunity of comparing the bulk with the sample; (c) it is further an implied condition of merchantability, as regards latent or hidden defects in the goods which would not be apparent on reasonable examination of the sample. "Worsted coating" quality equal to sample was sold to tailors, the cloth was found to have a defect in the fixture rendering 'the same unfit for stitching into coats. The seller was held liable even though the same defect existed in the sample, which was examined. Implied conditions in sale by sample as well as by description In a sale by sample as well as by description, the goods supplied must correspond both with the samples as well as with the description. Thus, in Nichol v. Godis (1854) 158 E.R. 426, there was a sale of "foreign refined rape-oil having warranty only equal to sample". The oil tendered was the same as the sample, but it was not "foreign refined rape-oil" having a mixture.of it and other oil. It was held that the seller was liable, and the buyer could refuse to accept. Implied Warranties Implied warranties are those which the law presumes to have been incorporated in the contract of sale inspite of the fact that the parties have not expressly included them in a contract of sale. Subject to the contract to the contrary, the fol!owing are the implied warranties in the contract of sale: (i) Warranty as to quite possession: Section 14(b) provides that there is an implied' warranty that the buyer shall have and enjoy quiet possession of goods'. If the buyer's possession is

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

disturbed by anyone having superior title than that of the seller, the buyer is entitled to hold the seller liable for breach of warranty. (ii) Warranty as to freedom from encumbrances: Section 14(c) states that in a contract for sale, there is an Tmplied warranty that the goods shall be so free from any charge or encumbrances in favot,Jr of any third party not declared or ~nown to the buyer before or at the time when the contract is made'. But. if the buyer is aware of any encumbrance on the goods at the time of entering into the contract, he will not be entitled to any compensation from the seller for discharging the encumbrance. (iii) Warranty to disclose dangerous nature of goods: If the goods are inherently dangerous or likely to be dangerous and the buyer is ignorant of the danger, the seller must warn the buyer of the probable danger: (iv) Warranties implied by the custom or usage of trade: Section 16(3) provides that an implied warranty or conditions as to quality or fitness for a particular purpose may be annexed by the usage of trade.

Doctrine of Caveat Emptor:


The term caveat emptor is a Latin word which means "let the buyer beware". This principle states that it is for the buyer to satisfy himself that the goods which he is purchasing are of the quality which he requires. If he buys goods for a particular purpose, he must satisfy himself that they are fit for that purpose. Section 6 provides that "subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale". In simple words, it is not the seller's duty to give to the buyer the goods which are fit for a suitable purpose of the buyer. If he makes a wrong selection, he cannot blame the seller if the goods turn out to be defective or do not serve his purpose. The principle was applied in the case of Ward v. Hobbs. (1878) 4 A.C. 13, where certain pigs were sold by auction and no warranty was given by seller in respect of any fault or error of description. The buyer paid the price for healthy pigs. But they were ill and all but one died of typhoid fever. They also infected some of the buyer's own pigs. It was held that there was no implied condition or warranty that the pigs were of good health. It was the buyer's duty to satisfy himself regarding the health of the pigs. Exceptions to the doctrine of Caveat Emptor: 1. Where the seller makes a false representation and the buyer relies on it.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

2. When the seller actively conceals a defect in the goods which is not visible on a reasonable examination of the same. 3. When the buyer, relying upon the skill and judgement of the seller, has expressly or impliedly communicated to him the purpose for which the goods are required. 4. Where goods are bought by description from a seller who deals in goods of that description.

Performance of the Contract of Sale:


It is the duty of the seller and buyer that the contract is performed. The duty of the sellers is to deliver the goods and that of the buyer to accept the goods and pay for them in accordance with the contract of sale. Unless otherwise agreed, payment of the price and the delivery of the goods and concurrent conditions, i.e., they both take place at the same time as in a cash sale over a shop counter., Delivery (Sections 33-39) Delivery is the voluntary transfer of possession from one person to another. Delivery may be actual, constructive or symbolic. Actual or physical delivery takes place where the goods are handed over by the seller to the buyer or his agent authorised to take possession of the goods. Constructive delivery takes place when the person in possession of the goods acknowledges that he holds the goods on behalf of and at the disposal of the buyer. For example, where the seller, after having sold the goods,may hold them as bailee for the buyer, there is constructive delivery. Symbolic delivery is made by indicating or giving a symbol. Here the goods themselves are not delivered. but the "means of obtaining possession" of goods is delivered, e.g, by delivering the key of the warehouse where the goods are stored, bill of lading which will entitle the holder to receive the goods on the arrival of the ship. Rules as to delivery The following rules apply regarding delivery of goods: (a) Delivery should have the effect of putting the buyer in possession. (b) The seller must deliver the goods according to the contract. (c) The seller is to deliver the goods when the buyer applies for delivery; it is the duty of the buyer to claim delivery. (d) Where the goods at the time of the sale are in the possession of a third person, there will be delivery only when that person acknowledges to the buyer that he holds the goods on his behalf. . (e) The seller should tender delivery so that the buyer ca~ take the goods. It is no duty of the seller to send or carry the goods to the buyer unless the contract so provides. But the goods must be in a deliverable state at the time of delivery or tender of delivery. If by the contract the seller is bound to send the goods to the buyer, but no time is fixed, the seller is bound to send them within a reas9nable time. (f) The place of delivery is usually stated in the contract. Where it is so stated, the goods must be delivered at the specified place during working hours on a working day.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Where no place is mentioned, the goods are to be delivered at a place at which they happen to be at the time of the contract. of sale and if not then in existence they are to be delivered at the price they are produced. (g) The seller has to bear the cost of delivery u~less the contract otherwise provides. While the cost of obtaining delivery is said to be of the buyer, the cost of the putting the goods into deliverable state must be borne by theeseller. In other words. in the absence of an agreement to the contrary, the expenses of and incidental to making delivery of the goods must be borne by the seller, the expenses of and incidental to receiving delivery must be borne by the buyer. (h) If the goods are to be delivered at a place other than where they are, the risk of deterioration in transit will, unless otherwise agreed, be borne by the buyer. (i) Unless otherwise agreed, the buyer is not bound to accept delivery in instalments. Acceptance of Goods by the Buyer: Acceptance of the goods by the buyer takes place when the buyer: (a) intimates to the seller that he has accepted the goods; or (b) retains the goods, after the lapse of a reasonable time without intimating to the seller that he has rejected them; or (c) does any act on the goods which is inconsistent with the ownership of the seller, e.g., pledges or resells. If the seller sends the buyer a larger or smaller quantity of goods than ordered, the buyer may: (a) reject the whole; or (b) accept the whole; or (c) accept the quantity be ordered and reject the rest. If the seller delivers, with the goods ordered goods of a wrong description, the buyer may accept the goods ordered and reject the rest, or reject the whole. Where the buyer rightly rejects the goods, he is not bound to return the rejected goods to the seller. It is sufficient if he intimates to seller that he refuses to accept them. In that case, the seller has to remove them.

Instalment Deliveries When there is a contract for the sale of goods to be delivered in stated instalments which are to be separately paid for, and either the buyer or the seller commits a breach of contract, it depends on the terms of the contract whether the breach is a repudiation of the whole contract or a severable breach merely giving right to claim for damages. Suits for Breach of Contract Were the property in the goods has passed to the buyer, the seller may sue him for the price. Where the price is payable on a certain day regardless of delivery, the seller may sue

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

for the price, if it is not paid on that day, although the property in the goods has not passed. Where the buyer wrongfully neglects or refuses to accept the goods and pay for them, the seller may sue the buyer for damages for non-acceptance. Where the seller wrongfully neglects or refuses to deliver the goods to the buyer,the buyer may sue him for damages for non-delivery. Where there is a breach of warranty or where the buyer elects or is compelled to treat the breach of condition as a breach of warranty, the buyer cannot reject the goods.

He can set breach of warranty in extinction or dimunition of the price payable by him and if loss suffered by him is more than the price he may sue for the damages. If the buyer has paid the price and the goods are not delivered, the buyer can sue the seller for the recovery of the amount paid. In appropriate cases the buyer can also get an order from the Court that the specific goods ought to be delivered.

Anticipatory Breach Where either party to a contract of sale repudiates the contract before the date of delivery, the other party may,either treat the contract as still subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach. In case the contract is treated as still subsisting it would be for the benefit of both the parties and the party who had originally repudiated will not be deprived of: (a) his right of performance on the due date in spite of his prior repudiation or (b) his rights to set up any defence for non-performance which might have actually arisen after the date of the prior repudiation. Measure of Damages: The Act does not specifically provide for rules as regards the measure of damages except stating that nothing in the Act shall affect the right of the seller or the buyer to recover interest or special damages in any case were by law they are entitled to the same. The inference is that the rules laid down in Section 73 of the Indian Contract Act will apply.

Unpaid Seller (Sections 45-54)

The seller of goods is deemed to be unpaid seller: (a) When the whole of the price has not been paid or tendered; or (b) When a conditional payment was made by a bill of exchange or other negotiable instrument, and the instrument has been dishonored.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Rights of an Unpaid Seller against the Goods

An unpaid seller's right against the goods are: (a) A lien or right of retention (b) The right of stoppage in transit. (c) The right of resale. (d) The right to withhold delivery. (a) Lien (Sections 47-49 and 54) An unpaid seller in possession of goods sold, may exercise his lien on the goods, i.e., keep the goods in his possession and refuse to deliver them to the buyer until the fulfilment or tender of the price in cases where:
the goods have been sold without stipulation as to credit; or the goods have been sold on credit, but the term of credit has expired; or the buyer becomes insolvent.

The lien depends on physical possession. The seller's lien is possessory lien, so that it can be exercised only so long as the seller is in possession of the goods. It can only be exercised for the non-payment of the price and not for any other charges. . A lien is lost: (i) When the seller delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer, without reserving the right of disposal of the goods; When the buyer or his agent lawfully obtains possession of thegoods; By waiver of his lien by the unpaid seller. (b) Stoppage in transit (Sections 50-52) The right of stoppage in transit is a right of stopping the goods while they are in transit, resuming possession of them and retaining possession until payment of the price. The right to stop goods is available to an unpaid seller when the buyer becomes insolvent; and the goods are in transit. The buyer is insolvent if he has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due. It is not necessary that he has actually been declared insolvent by the Court. The goods are in transit from the time they are delivered to a carrier or other bailee like a wharfinger or warehousekeeper for the purpose of transmission to the buyer and until the buyer takes delivery of them.
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The transit comes to an end in the following cases:


(i) If the buyer obtains delivery before the arrival of the goods at their destination;

(ii) If, after the arrival of the goods at their destination, the carrier acknowledges to the buyer that he holds the goods on his behalf, even if further destination of the goods is indicated by the buyer. (iii) If the carrier wrongfully refuses to deliver the goods to the buyer. If the goods are rejected by the buyer and the carrier or other bailee holds them, the transit will be deemed to continue even if the seller has refused to receive them back. The right to stop in transit may be exercised by the unpaid seller either by taking actual possession of the goods or by giving notice of the seller's claim to the carrier or other person having control of the goods. On notice being given to the carrier hemust redeliver the goods to the seller, who must pay the e~penses of the redelivery. The seller's right of lien or stoppage ,in transit is not affected by any sale on the part of the buyer unless the seller has assented to it. A transfer, however, of the bill of lading or other document of seller to a bona fide purchaser for value is valid against the seller's right.

(c) Right of re-sale (Section 54): The unpaid seller may re-sell: (i) where the goods are perishable; " (ii) where the right is expressly reserved in the contract; (iii) where in exercise of right of lien or stoppage in transit, the seller gives notice to the buyer of his intention to re-sell, and the buyer, does not payor tender the price within a reasonable time. ' If on a re-sale, there is a deficiency between the price due and amount realised, the re-seller is entitled to recover it from the buyer. If there is a surplus, he can keep it. He will not have these rights if he has not given any notice and he will have to pay the buyer any profits. (d) Rights to withhold delivery: If the property in the goods has passed, the unpaid seller has right as described above. If, however, the property has not passed, the unpaid seller has a right of withholding delivery similar to and co-e>..1ensive with his rights of lien and stoppage in transit. Rights of an unpaid seller against the buyer (Sections 55 and 56)

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

An unpaid seller may sue the buyer for the price of the goods in case of breach of contract where the property in the goods has passed to the buyer or he has wrongfully refused to pay the price according to the terms of the contract. The seller may sue the buyer even if the property in the goods has not passed where the price is payable on a certain day. Under Section 56, the seller may sue the buyer for damages or breach of contract where the buyer wrongfully neglects or refuses to accept and pay for the goods. Thus an unpaid sellers rights against the buyer personally are: (a) a suit for the price. (b) a :suit for damages. Auction Sales (Section 64) A sale by auction is a public sale where goods are offered to be taken by bidders. It is a proceeding at which people are invited to complete for the purchase of property by successive offer of advancing sums. Section 64 lays down the rules regulating auction sales. Where goods are put up for sale in lots, each, lot is prima facie deemed to be the subject of a separate contract of sale. The sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner. Until such announcement is made, any bidder may retract his bid. A right to bid may be reserved expressly by or on behalf of the seller. Where such right is expressly so reserved, the seller or any other person on his behalf may bid at the auction. Where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person. Any sale in contravention of this rule may be treated as fraudulent by the buyer. The sale may be notified to be subject to a reserved price. Where there is such notification, every bid is a conditional offer subject to its being up to the reserve price. Where an auctioneer inadvertently knocks down to a bidder who has bid less than the reserved price, there is no contract of sale. If the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer.

Trading Contracts involving rail or Sea Transit In the case of a contract for the sale of goods which are to be shipped by sea a number of conditions are attached by the parties or by custom and practice of merchants. Some of the important types of such contracts are given below:

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

(a) F.O.B(Free on Board): Under an F.O.B. contract, it is the duty of the seller to put the goods on board a ship at his own expenses. The property in goods passes to the buyer only after the goods have been put on board the ship, usually named by the buyer. The seller must notify the buyer immediately that the goods have been delivered on board, so that the buyer may insure them. If he fails to do so the goods shall be deemed to be at seller's risk during such sea transit. (b) F.O.R.(Free on Rail): Similar position prevails in these contracts as in the case of F.O.B contracts. C .I.F. or C.F.I. (Cost insurance and freight): A CIF contract is a contract for the sale of insured goods lost or not lost to be implemented by transfer of proper documents. In such types of contracts, the seller not only bears all the expenses of puting the goods on board the ship as in an F.O.B. contract but also to bear the freight and insurance charges. He will arrange for an insurance of the goods for the benefit of the buyer. On the tender of documents, the buyer is required to pay and then take delivery. He has a right to reject the goods if they are not according to the contract. (d) Ex-Ship: Here the seller is bound to arrange the shipment of the goods to the port of destination, and to such further inland destination as the buyer may stipulate. The buyer is not bound to pay until the goods are ready for unloading from the ship and all freight charges paid. The goods travel at the seller's risk but he is not bound to insure them.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

INTELLECTUAL PROPERTY LAW


What is Intellectual Property ? Intellectual Property is the property created by the intellect of the human mind. It is a nonphysical property which stems from, and whose value is based upon some idea(s). It encompasses the protection offered by legal regimes of various types such as patent, copyright, trade mark, designs, geographical indications and trade secrets. It also includes similar legal regimes like protection of plant varieties and protection of data bases. Nature of intellectual property rights: Intellectual property insists on some amount of novelty or originality to gain protection. Intellectual property system is duration specific. It does not provide perpetual and absolute monopoly over the property. What is protected with respect to intellectual property is the use or value of ideas/expressed ideas. However, the bundle of rights constituting intellectual property is not over abstract ideas but rather over physical, concrete or tangible manifestations of these ideas. For e.g., rights under patent law include the right to manufacture, distribute etc. while rights under copyright law extend to the right of distribution, publication etc. all of which deal with concrete embodiments of ideas and not the abstract ideas themselves. Constitutional aspects of Intellectual Property: The Constitution plays an important part in helping courts and legislature arrive at and justify a balance between conflicting rights. The US Constitution specifically protects the intellectual property [Article 1(8)]by specifically providing To promote the progress of science and arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. Though there is no such intellectual property clause in the Indian Constitution, there are no constitutional restrictions on the power to make laws on intellectual property. The Constitution (44th Amendment) Act, 1978, struck off the right to property from the fundamental rights. However, property was made a legal right and was put under Article 300A in the Right to Property. Intellectual Property could be regarded as property falling under Article 300A which says that no person shall be deprived of his property save by authority of law. Types of Intellectual property rights: Patents Trademarks Copyright Designs Geographical Indications Semiconductor Integrated Circuits and layout design Plant varieties and farmers rights
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Law relating to patents:


1. Patent refers to a grant of some privilege, property or authority by the Government or the Sovereign of the country to one or more individuals. The instrument by which such grant is made is known as Patent. 2. Section 2(m) of the Indian Patents Act, 1970 defines Patent as Patent means a patent for any invention granted under this Act. 3. The Act conveys to the inventor substantive rights and secures to him valuable monetary right which he can enforce for his own advantage either by using it himself or by conveying the privileges to others. The patent to whom a patent is granted is called the Patentee. 4. After the expiry of the period for which exclusive right is granted to the inventor (20 years in India from the date of application), the invention can be put to use by any person other than the one to whom a patent has been granted. 5. In Bishwanath Prasad Radheshyam Vs. Hindusthan Metal Industries,[ (1979) 2 SCC 511], the Supreme Court held that the object of patent law is to encourage scientific research, new technology and industrial progress. Grant of exclusive privilege to own, use or sell the method or the product patented for a limited period, stimulates new inventions of commercial utility. The price of the grant of monopoly is the disclosure of the invention at the Patent Office, which after the expiry of the fixed period of the monopoly, passes into the public domain. Under the Indian Patent Law, a Patentable invention must be, Novelty: Novelty (newness) in an invention depends upon the state of prior art, i.e., the existing knowledge and similar inventions already known in the particular field. There will be no novelty, if there has been prior publication and prior use of same or an identical invention. In other words, the invention must involve any innovation or technology which has not been anticipated by publication in any document or used in the country or elsewhere in the world before the date of filing of patent application. The subject matter must not have fallen in the public domain. Non-obviousness: The invention must be non-obvious to a person skilled in the art to which the invention relates. Usefulness: The invention, besides being new and non-obvious, must also be useful. If the invention can not be put to any beneficial use of the mankind, it can not be patented. Exceptions: Some inventions in spite of being new, non-obvious and useful can not be patented. They include,- [see sec.3] Inventions which are injurious to public health or violate public morality or public interest or which causes serious prejudice to human, animal or plant life or health, or to the environment;

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The mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance, or the mere discovery of any new property, or new use for a known substance or of the mere use of a known process, machine, or apparatus unless such known process results in a new product or employs at least one new reactant. Any process for the medicinal, surgical, curative, prophylactic, diagnostic, therapeutic or other treatment of human beings or any process for a similar treatment of animals to render them free of disease or to increase their economic value or that of their products. Any invention which in effect is traditional knowledge or which is an aggregation or duplication of known properties of traditionally known component. The mere discovery of a scientific principle or the formulation of an abstract theory or the discovery of any living thing or non-living substance occurring in nature. Inventions relating to atomic energy. New method of agriculture or horticulture is non-patentable in order to have widespread benefit of such invention, rather than concentrating the commercial gain of such invention in the hands of inventor alone; A process of treatment of human beings, animals or plants; The mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance, or the mere discovery of any new property, or new use for a known substance or of the mere use of a known process, machine, or apparatus unless such known process results in a new product or employs at least one new reactant. Any process for the medicinal, surgical, curative, prophylactic, diagnostic, therapeutic or other treatment of human beings or any process for a similar treatment of animals to render them free of disease or to increase their economic value or that of their products. Any invention which in effect is traditional knowledge or which is an aggregation or duplication of known properties of traditionally known component. The mere discovery of a scientific principle or the formulation of an abstract theory or the discovery of any living thing or non-living substance occurring in nature. Inventions relating to atomic energy. Plants and animals in whole or any part thereof other than micro-organisms but including seeds, varieties and species and essentially biological processes for production or propagation of plants and animals; A mathematical or business method or a computer program per se or algorithms; A mere scheme or rule or method of performing mental act or method of playing games; A presentation of information; Topography of integrated circuits; A literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever incl. cinematographic works and television productions; Persons entitled to apply for patent:

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Person claiming to be the true and first inventor of the invention. Any person being the assignee of the true and first inventor of the invention By the legal representative of any deceased person who immediately before death was entitled to make such an application. Full Disclosure of invention: While the Act grants exclusive right to the inventor to exploit his invention for commercial gain for a specific period of time, it also imposes on him the duty of fully disclosing the invention in the complete specification so as to facilitate anyone from the public working the invention, once the period of protection is over. The full disclosure of the patented invention is mandatory. If this is not done, the patent will not be granted. The validity of such patent, even if granted, can be contested by an opposing party. The patent can be revoked on such contest succeeding. Use by Central Government: Though the patentee has exclusive right of use, the Act provides for the Central Govt. to use any invention even without paying the royalty to the inventor. The Central Govt. can acquire the patent from the patentee or any other person having interest in the patent, by paying the compensation, in public interest. Restricted use of patented invention: Such use by a person other than the patentee is permissible. For instance, use of patented invention is permissible for research or experimental purposes or for imparting knowledge or instructions to pupils. Infringement: Use by a person other than the patentee or his assignee or licensee would be an infringement of the patent. Civil remedy is filing of a suit in a court of competent jurisdiction. The plaintiff on satisfying the court about the infringement would be entitled to the following reliefs 1) interlocutory injunction 2) damages 3) account of profits When the subject-matter of a patent is a process for obtaining a product, the onus is on the defendant to prove that the process used by him is different from the patented process. A suit as any grievance relating to infringement of patent may be instituted in a court not inferior to a District court. But where a counter claim for revocation of the patent is made by the defendant, the suit along with counter claim, shall be transferred to the High Court. The reliefs which a court may grant include an injunction and either damages or account of profits. The court may also order that the infringing goods shall be seized, forfeited or destroyed. Any act of making, constructing, using or selling a patented invention solely for uses reasonably related to the development and submission of information required under any law; and
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

importation of patented products by any person from a person who is duly authorised by the patentee to sell or distribute the product; shall not be construed as an infringement of patent rights. Principles applicable to working of patented inventions: Patented inventions are worked in India on a commercial scale and to the fullest extent without undue delay. The protection and enforcement of patent rights contribute to the promotion of technological innovation and to the transfer and dissemination of technology to the mutual advantage of producers and users and in a manner conducive to social and economic welfare. The patent right is not abused by the patentee and the patentee does not resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. The benefit of the patented invention is available to the public at reasonably affordable prices. They do not impede protection of public health and nutrition and should act as an instrument to promote public interest. Compulsory Licences: At any time after the expiration of a period of 3 years from the date of grant of a patent, the Controller of Patents, if he is satisfied that the reasonable requirements of the public with respect to the patented invention have not been satisfied or the patented invention is not worked in the territory of India or the patented invention is not available to the public at a reasonably affordable price, may grant a licence to an applicant upon such terms as he may deem fit. (Sec.84) In such cases, the patentees exclusive right to use is limited only to three years.

law relating to copyrights:


What is copyright ? Copyright is a unique kind of intellectual property. The right which a person acquires in a work, which is the result of his intellectual labour, is called his copyright. The primary function of copyright law is to protect the fruits of a mans work, labour, skill or test from being taken away by other people. The statutory definition of copyright means the exclusive right to do or authorise other(s) to do certain acts in relation to,1. original literary, dramatic, musical and artistic works; 2. cinematograph films; and 3. sound recordings. Nature of copyright : It is a statutory right it is a right created by a statute It is a form of intellectual property result of utilisation and investment of intellect Copyright is a monopoly right restraining others from exercising that right which has been conferred on the owner of copyright.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

It is a negative right meaning thereby that it is prohibitory in nature. It is a right to prevent others from copying or reproducing the work. The object of copyright is to encourage authors, composers and artists to create original works by rewarding them the exclusive right for a specific period to reproduce the works for publishing and selling them to the public. The moral basis of copyright law rests in the eighth commandment Thou shall not steal. Copyright is not a single right. It is a bundle of rights in the same work. For e,g. in the case of a literary work, copyright consists of reproduction in print media, the right of dramatic and cinematographic versions, the right of translation, adaptation, abridgement and the right of public performance. Copyright consists not merely of the right of reproduction. It also consists of right to works derived from the original work, rights like the right of public performance, the recording right and the broadcasting right. Such related rights are called neighbouring rights. To secure copyright protection, the author must have bestowed upon the work sufficient judgment, skill and labour or capital. It is immaterial whether the work is wise or foolish, accurate or inaccurate or whether it has literary merit or not. Copyright protects the skill and labour employed by the author in his work. The owner of a copyright has no monopoly in the subject-matter. Others are at liberty to produce the same result provided they do so independently and though they are not first in the field, their work is nonetheless original. There is no copyright in ideas. Copyright subsists only in the material form to which the ideas are translated. Since there is no copyright in ideas or information, it is no infringement of copyright to adopt the ideas of another or to publish information derived from another, provided there is no copying of the language in which those ideas have or that information has been previously embodied. Copyright subsists in original literary, dramatic, musical and artistic works; cinematographic films and sound recordings. Literary work includes computer programs, tables, compilations incl. computer data bases. Dramatic work includes any piece for recitation, choreographic work or entertainment in a dumb show, the scenic arrangement or acting form of which is fixed in writing or otherwise but does not include cinematographic film. Music work means a work consisting of music and includes any graphical notation of such work, but does not include any works or action intended to be sung, spoken or performed with the music. An artistic work means a painting, a sculpture, a drawing (incl. diagram, map, chart or plan), an engraving or a photograph, whether or not any such work possesses artistic quality; a work of architecture means any building or structure having an artistic character or design or any model for such building or structure. Cinematographic film means any work of usual recording on any medium produced through a process from which a moving image may produced by any means and includes a sound recording accompanying such visual recording and cinematograph shall be construed as including any work produced by any process analogous to cinematography including video films.

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Sound recording means a recording of sounds from which such sounds may be reproduced regardless of the medium on which such recording is made or method by which the sounds are produced. The word original does not mean that the work must be expression of original or inventive thought. It only means the work must not be copied from another work, that is, it should originate from the author.

To qualify for copyright in India, the work should satisfy the following conditions: the work is first published in India; where the work is first published outside India, the author at the date of publication must be a citizen of India. If the publication was made after the authors death, the author must have, at the time of death, been a citizen of India. In the case of unpublished work the author, on the date of making of the work, is a citizen of India or domiciled in India. Copyright is a bundle of rights consisting of 1) economic rights and 2) moral rights. ECONOMIC RIGHTS: (a) In the case of a literary, dramatic or musical work, not being a computer program, the right consists of ,1) to reproduce the work in any material form incl. the storing of in any medium by electronic means; 2) to issue copies of the work to the public ; 3) to perform the work in public, or communicate it to the public; 4) to make any cinematographic film or sound recording in respect of the work; 5) to make any translation of the work; 6) to make any adaptation of the work; 7) to do, in relation to translation or adaptation of the work, any of the acts specified in relation to the work in sub-clauses (1) to (6) (b) In the case of computer program,1) to do any of the facts specified in clause (a); 2) to sell or give on hire, or offer for sale or hire any copy of the computer program, regardless of whether such copy has been sold or given on hire on earlier occasions; (c) in the case of an artistic work,1) to reproduce the work in any material form incl. depiction in two dimensions of a three dimensional work; 2) to communicate the work in public; 3) to issue copies of the work to the public; 4) to include the work in any cinematographic film; 5) to make adaptation of the work;
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

6) to do in relation to an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (1) to (4). (d) in the case of cinematographic film,1) to make a copy of the film, incl. a photograph of any image forming part thereof; 2) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; 3) to communicate the film to the public. (e) in the case of a sound recording,1) to make any other sound recording embodying it; 2) to sell or give on hire, or offer for sale or hire, any copy of the sound recording regardless of whether such copy has been sold or given on hire on earlier occasions; 3) to communicate the sound recording to the public. MORAL RIGHTS: 1) the right to decide whether to publish or not to publish the work; 2) the right to claim authorship of a published or exhibited work; 3) the right to prevent alteration and other actions that may damage the authors honour or reputation the right of integrity; 4) to restrain or claim damages. TERM OF COPYRIGHT In the case of any literary, dramatic, musical or a artistic work (other than a photograph), life time of the author + 60 years. In the case of photograph, cine films, sound recording and Govt. Work, 60 years from the beginning of the calendar year next following the year in which the work is first published. In the case of broadcasters/performers, reproduction right shall subsist until 25 years from the calendar year next following the year in which the broadcast/performance is made.

AUTHOR AND OWNERSHIP OF COPYRIGHT: [See Sec. 2(d)] The author in relation to various categories of works is as follows: Literary or dramatic work author of the work Musical work composer Artistic work Artist Photograph Photographer Cinematograph film Film producer Sound recording the producer Literary, dramatic, musical or artistic work which is computer generated the person who causes the work to be created. The owner of copyright: Normally the author of the work will be the first owner, subject to the following exceptions.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Where a work is made by the author in the course of his employment by the proprietor of a newspaper/magazine/ periodical for publication therein, then such proprietor will be first owner. Where a photograph is taken or a painting or a portrait drawn or an engraving or cine film made for a consideration at the instance of any person, then such person shall be the first owner. When a work is made in the course of the authors employment under a contract of service/apprenticeship, the employer will be the first owner. Where any person has delivered any address or speech in public, that person will be first owner of the copyright. In the case of Government work, government is the first owner.

Law relating to trade mark:


Trademark is defined as a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include shape of goods, their packaging and combination of colours. A mark includes Device, brand, heading, label, ticket, name, signature, word, letter, numeral, shape of goods, packaging, combination of colours, and any combination thereof. Device refers to pictorial representations e.g. animals, birds, landscape buildings, etc. Letter as a mark is the identity created out of letterforms and his its inbuilt strength of distinctivity and individuality e.g. IBM, GM, ELBEE, 3M etc. Numerals can be registered as trade mark upon evidence of user, e.g. 555, 501 Symbols may take the shape of brand or logos. A logo is a visual depiction of a mufacturer or company and gives an identity to it. E.g. B.M.W., Maruti, Benz etc. Brands refers to marks which are branded on the goods or services a process of applying mark on goods constituting the trade mark e.g. McDonald for restaurants, Cycle brand agarbattis, etc. Label and ticket mean a composite mark containing various features incl. devices, words, usually painted on paper and attached to the goods themselves. Name is the words signifying a name, surname or a personal name or an abbreviation thereof Color a combination of colors can be considered as a trademark-e.g. color combinations used in drug capsules. Sound sound or a sequence of sound can be registered as a trade mark e.g. the roar of the lion sound has been registered by MGM pictures; the Tarzan Yell has been registered as Edgar Rice Burroughs Inc. Smell Registration of smell as a trademark has been permitted as a trade mark. A smell reminiscent of roses applied to tyres was registered for sumitomo tyres smell of fresh cut grass for the tennis ball, etc. Containers fall within the definition of trade mark.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

Collective mark means a trade mark distinguishing the goods or services of members of an association of persons (not being a partnership), who is the proprietor of the mark from those of others. Service means service of any description which is made available to potential users and includes the provisions of services in connection with business of any industrial or commercial matters such as banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising. A mark identifying such a service is called a service mark. Certification trade mark means a mark capable of distinguishing the goods or services in connection with which it is used in the course of trade which are certified by the proprietor of the mark in respect of origin, material, mode of manufacture of goods or performance of services, quality, accuracy or other characteristics from goods and services not so certified. (e.g. wool mark, ISO 9001 etc.) Registration of a trade mark is not a compulsory requirement of the law. The registration of a trade mark, if valid, gives its proprietor the exclusive right to the use of the trade mark in relation to the goods or services in respect of which the trade mark is registered and to obtain relief in respect of infringement of the trade mark. A trademark gets protection for a period of 10 years from the date of registration and can be renewed every 10 years consecutively. The right to trademark subsists for the time ad infinitum from generation to generation, successor to successor so long as the trade mark retains its registration. For registration, a trademark has to be distinctive.

Grounds for refusal of registration: Marks devoid of distinctive character Descriptive marks Generic marks Marks of such a nature as to deceive or cause confusion Marks containing any matter which is likely to hurt the religious susceptibilities of any class or section of the Indian citizens Marks containing scandalous or obscene matter Marks prohibited under the Emblems and Names (Prevention of Improper use) Act, 1950 Marks consisting exclusively of the shape of the goods which results from the nature of the goods themselves (e.g. apple design for a package of apples, round shape for tennis balls, etc.) Marks consisting exclusively of the shape of the goods which is necessary to obtain technical results. If there exists likelihood of confusion with the earlier trade mark by reason of the fact of the trade mark being identical with the earlier trade mark and similarity of goods and services or being similar to earlier trademark and identical or similar goods and services.
COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER

If the earlier trademark being a well-known trademark and the trademark sought to be registered is identical with or similar to an earlier trademark and the goods or services are dissimilar and the use of the mark would take unfair advantage of or be detrimental to the distinctive character or repute of the earlier trade mark. If the use of trademark in India is liable to be prevented because of any law protecting an unregistered trademark used in the course of trade or because of law of copy right. Acquisition of Trademark: Trademark may be acquired either by the proprietor of the goods and services for which trademark is sought for registration or by transfer, license, lease, assignment by the proprietor to another entity. Suit for infringement: Suit for infringement of registered trademark or relating to any right in a registered trademark or for passing off has to be filed in a District Court. Reliefs can be claimed by way of injunction, damages, account of profits with or without an order for the delivery up of the infringement labels and marks for destruction or erasure.

COMPILED BY: VAISHAK T P, AJITH KUMAR, ASHRAF, GARRY FERNANDES, MARIAN LEWIS, JENIFER PINTO, PRATHIBA TAURO, SUPREETHA POOJARY, SAIPRASAD, DIVYA REGO, WILFRED FURTADO, RITHESH LEWIS, KESHAV SHENOY, GOLWIN PETER