y The Law of Contract deals with the law relating to the general principles of contract. It is the most important part of Mercantile Law. It affects every person in one way or the other, as all of us enter into some kind of contract everyday. Since this law was not happily worded, two subsequent legislations namely Indian Sale of Goods Act ± Sections 76 to 123 of the Indian Contract Act 1872 were repealed; and Partnership Act was also enacted and Sections 239 to 266 of the Contract Act were also repealed.


What is `Contract`
The term `Contract` is defined in Section 2(h) of the Indian Contract Act, which reads as under ³An agreement enforceable by law is a contracts.´ y The analysis of this definition shows that a contract must have the following two elements: 1. An agreement, and 2. The agreement must be enforceable by law. y In other words: Contract = An Agreement + Enforceability (by law) Agreement (Section 2(e) Every promise and every set of promises forming the consideration for each other is an agreement. Promise (Section 2(b)) A proposal when accepted becomes a promise. y Every agreement is not a contract. When an agreement creates some legal obligations and is enforceable by law, it is regarded as a contract. y

1. Agreement 2. Intention to create legal relationship 3. Free and genuine consent. 4. Parties competent to contract. 5. Lawful consideration. 6. Lawful object. 7. Must be in writing. (Oral contract is not enforceable) 8. Agreement not declared void or illegal. 9. Certainty of meaning. 10. Possibility of performance. 11. Necessary legal formalities. Ex ± 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 or'. There is no consensus-ad-idem.

y The term jus in personam means a ³right against or in respect of a specific person.´ Thus, law of contract creates jus in personam and not jus in rem. A jus in rem means a right against or a thing.

CLASSIFICATION OF CONTRACTS 1. Classification according to validity or enforceability. a) Valid b) Voidable c) Void contracts or agreements d) Illegal.

e) Unenforceable 2. Classification according to Mode of formation (i) Express contract (ii) Implied contract 1. Classification according to Performance (i) Executed contract (ii) Executory contract. (iii) Unilateral Contract (iv) Bilateral Contract 1.2 OFFER AND ACCEPTANCE [Sections 3-9]

What is `Offer/Proposal`
y 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 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).

How an Offer is made?

CASE EXAMPLE In Carbolic Smoke Ball Co. 's case, 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.)

y An offer must have certain essentials in order to constitute it a valid offer. These are: I. The offer must be made with a view to obtain acceptance. 2. The offer must be made with the intention of creating legal relations. [Balfour v. Balfour (1919) 2 K.B.57Il 1. The terms of offer must be definite, unambiguous and certain or capable of being made certain. The terms of the offer must not be loose, vague or ambiguous. 4. An offer must be distinguished from (a) a mere declaration of intention or (b) an invitation to offer or to treat. 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.

Offer vis-a-vis Invitation to offer
An offer must be distinguished from invitation to offer. A prospectus issued by a company for subscription of its shares by the members of the public, is an invitation to offer. The Letter of Offer issued by a company to its existing shareholders is an offer. 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 sell as general offer. 

6. The offer must not contain a term the non-compliance of which may be assumed to amount to acceptance.

Cross Offers
y 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.

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 2) An offer lapses by the death or insanity of the offeror or the offeree before acceptance. 3) An offer terminates when rejected by the offeree. 4) An offer terminates when revoked by the offeror 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. 6) A conditional offer terminates when the condition is not accepted by the offeree. (7) Counter Offer y

1. An offer lapses after stipulated or reasonable time. 2. An offer lapses by the death or insanity of the offeror or the offeree before acceptance. 1. An offer lapses on rejection. 4. An offer terminates when revoked. 5. It terminates by counter-offer. 6. It terminates by not being accepted in the mode prescribed or in usual and reasonable manner. 7. A conditional offer terminates when condition is not accepted.

y Acceptance has been defined as "When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted´. The offeree is deemed to have given his acceptance when he gives his assent to the proposal. The assent may be express or implied. It is express when the acceptance has been signified either in writing, or by word of mouth, or by performance of some required act. Ex- A enters into a bus for going to his destination and takes a seat. From the very nature, of the circumstance, the law will imply acceptance on the part of A.] In the case of a general offer, it can be accepted by anyone by complying with the terms of the offer.

Acceptance how made


1) Acceptance must be absolute and unqualified. 2) Acceptance must be communicated to the offeror. 3) Acceptance must be according to the mode prescribed. Ex- A sends an offer to B through post in the usual course. B should make the acceptance in the "usual and reasonable manner" as no mode of acceptance is prescribed. He may accept the offer by sending a letter, through post, in the ordinary course, within a reasonable time.

As mentioned earlier that in order to be a valid offer and acceptance. (i) the offer must be communicated to the offeree, and (ii) the acceptance must be communicated to the offeror. The communication of acceptance is complete: (i) as against the proposer, when it is put into a course of transmission to him, so as to be out of the power of the acceptor; (ii) as against the acceptor, when it comes to the knowledge of the proposer. ExA proposes, by letter, to sell a house to B at a certain price. B accepts A's proposal by a letter sent by post. The communication of acceptance is complete: (i) as against A, when the letter is posted by B; y

if at the time when he makes it. B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A. A person.(ii) as against B.000. B accepts the proposal by a letter sent by post. The Privy Council decided that Sections 10 and 11 of the Indian Contract Act make the minor's contract void. The Privy Council further held that as a minor's contract is void. ExA proposes. but not afterwards. The minor executed mortgage of property in favour of the lender. who is usually of unsound mind. Subsequently. by a letter sent by post. 8. who is at intervals. any money advanced to a minor cannot be recovered. Ex. when B receives it. may make a contract when he is of sound mind. Under Section 7 of the Transfer of Property Act. (3) Incompetence through Status . 539) held that in India minor's contracts are absolutely void and not merely voidable. (2) as against the person to whom it is made when it comes to his knowledge. to sell his house to B. in the eye of law: - (A) LIVING PERSON (1) Minor: (i) (ii) (iii) (iv) (v) A contract with or by a minor is void and a minor. It is complete as against B. If a minor has received any benefit under a void contract. A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance. The Privy Council had to ascertain the validity of the mortgage. every person competent to contract is competent to mortgage. so as to be out of the power of the person who makes it. but occasionally of sound mind. of sound mind.000 by the minor. ExA revokes his proposal by telegram. Revocation of proposal and acceptance: y A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer. 1.30 Ca. when the telegram is dispatched. therefore. the minor sued for setting aside the mortgage. A sane man. A minor's agreement cannot be ratified by the minor on his attaining majority. cannot. may contract during those intervals. and of forming a rational judgement as to its effect upon his interests. he cannot be asked to refund the same. A minor cannot be a partner in a partnership firm. but not afterwards.A patient. when the letter is received by A. The revocation is complete as against A. A minor's estate is liable to a person who supplies necessaries of life to a minor. The mortgagee prayed for refund of Rs. when it is put into a course of transmission to the person to whom it is made. a minor. who is delirious from fever or who is so drunk that he cannot understand the terms of a contract or form a rational judgement as to its effect on his interest. in a lunatic asylum. Dharmodas Ghose (190. but not afterwards. The communication of a revocation (of an offer or an acceptance) is complete: (1) as against the person who makes it. The facts of the case were: Dharmodas Ghose.3 CAPACITY TO CONTRACT (Sections 10-12) WHO ARE NOT COMPETENT TO CONTRACT y The following are considered as incompetent to contract. 20. cannot contract whilst such delirium or drunkenness lasts. entered into a contract for borrowing a sum of Rs. CASE EXAMPLE In 1903 the Privy Council in the leading case of Mohiri Bibi v. he is incapable of understanding it.000 out of which the lender paid the minor a sum of Rs. 8. (2) Mental Incompetence   A person is said to be of unsound mind for the purpose of making a contract. bind himself by a contract.

however sacred and binding in honour it may be.C. 10. 5. 1. they are said to consent. Peek (1889) 14 A. The consignee pays the sum charged in order to obtain the goods. There is a valid contract since A and B have consented to the same subject matter.' Consideration has been defined as "When at the desire of the promisor. 337]. issued a prospectus stating that they had the right to run tramcars with steam power instead of with horses as before. 4. 2. such act or abstinence or promise is called a consideration for the promise. 1. ExA agrees to sell his Fiat Car 1983 model for Rs. a shareholder sued the directors for damages for fraud. B agrees to buy the same.5 CONSIDERATION [Sections 2(d). But. In fact.4 FREE CONSENT (Sections 10. or does or abstains from doing. cannot create a legal obligation. The House of Lords held that the directors were not liable in fraud because they honestly believed what they said in the prospectus to be true. Coercion Undue influence Fraud Misrepresentation Mistake ± (i) of fact (a) Bilateral (b) Unilateral (ii) of Fact Contract voidable Contract voidable Contract voidable Contract voidable Void Generally not invalid Void (i) Ex A railway company refuses to deliver certain goods to the consignee. 13-22) What is the meaning of `CONSENT` (SECTION 13) y When two or more persons agree upon the same thing in the same sense. the Board of Trade refused to give permission and the company had to be wound up. . it means 'something in return. 80.000. the promisee or any other person has done or abstained from doing. [Derry v.23-25. the Act incorporating the company provided that such power might be used with the sanction of the Board of Trade. 185] Definition y y Consideration is what a promisor demands as the price for his promise. P. In simple words.(i) Alien Enemy (Political Status) (ii) Foreign Sovereigns and Ambassadors (iii) Company under the Companies Act or Statutory Corporation by passing Special Act of Parliament (Corporate status) (iv) Insolvent Persons (B) CORPORATE When under liquidation (under the supervision of the Court/Tribunal) 1. or promises to do or promises to abstain from doing something. What is meant by `Free Consent` y Consent is said to be free when it is not caused by Causes affecting contract Consequences 1. except upon the payment of an illegal charge for carriage. 148. He is entitled to recover so much of the charge as was illegally excessive. (ii) The directors of a Tramway Co." IMPORTANCE OF CONSIDERATION y A promise without consideration is purely gratuitous and.

which is forbidden and penalised by the Akbari Act and the rules thereunder [Velu Payaychi v. the meaning of which is not certain. Executed or Present 2. the consideration and the object of an agreement are unlawful in the following cases: 1.8 CONTINGENT CONTRACTS . If the object of an agreement is to injure the person or property of another it is void. damage. (ii) Agreements under a mutual mistake of fact material to the agreement. 1. (vi) Agreement in (absolute) restraint of trade (vii) Agreements in restrain of legal proceedings.7 VOID and VOIDABLE Agreements (Sections 26-30) Void agreement 1. Voidable agreements y An agreement. If it involves or implies injury to the person or property of another. or inconvenience that may have been occasioned to the other party in respect of the promise. coercion is voidable.6 LEGALITY OF OBJECT (Sections 23. If it is forbidden by law If it is of such a nature that if permitted. is void. (viii) Agreements void for uncertainty (Agreements. 4. or capable of being made certain) (ix) Agreements by way of wager (a promise to give money or money's worth upon the determination or ascertainment of an uncertain event) (x) Agreements against Public Policy (xi) Agreements to do impossible act. damage or inconvenience so caused is regarded in law as the consideration for the promise. KINDS OF CONSIDERATION y A consideration may be: 1. whose object or consideration is immoral or is opposed to the public policy. Siva Sooriam. is void ab-initio whether the partnership was entered into before the licence was granted or afterwards as it involved a transfer of licence. ExA partnership entered into for the purpose of doing business in arrack (local alcoholic drink) on a licence granted only to one of the partners. 2.y A person who makes a promise to do or abstain from doing something usually does so as a return or equivalent of some loss. at the option of the aggrieved party. (iii) Agreement with unlawful consideration. (Exception ± if such an agreement is in writing and registered or for a past consideration) (v) Agreement in restraint of marriage. 5. it would defeat the provisions of any law. 24) y An agreement will not be enforceable if its object or the consideration is unlawful. (iv) Agreement without consideration. fraud. which has been entered into by misrepresentation. The benefit so received and the loss. Executory or Future 1. 1. An agreement. The following are the additional grounds declaring agreements as void: (i) Agreements by person who are not competent to contract. 987]. If it is fraudulent. According to Section 23 of the Act. If the Court regards it as immoral or opposed to public policy. An agreement with a view to defraud other is void. AIR (1950) Mad. What consideration and objects are unlawful ² agreement VOID 1.

the promisor may employ a competent person to perform it. (iii) Responsibility of Finder of Goods (iv) Liability of person to whom money is paid. or thing delivered by mistake or under coercion ExA. If the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise. 1. If the promisee dispenses with or remits. 2. the Legal representative must perform the promise unless a contrary intention appears from the contract. Agent . or his agent or by his legal representative. It must be unconditional. wholly or in part the performance of the promise made to him or extends the time for such performance or accepts any satisfaction for it. because there is no real contract in existence. The event should not be the discretion of the promisor. such contracts become void. If the event becomes impossible. It must be made at proper time and place. 6. at whose option the contract is voidable. If the person.10 PERFORMANCE OF CONTRACTS [SECTIONS 37-67] Offer to perform or tender of performance y According to Section 38. There must be a valid contract. The event must be collateral to the contact. WHO MUST PERFORM y y y Promisor . It is an obligation. 3. The performance of the contract must be conditional. with necessaries suitable to their conditions in life. who supplies the wife and children of B. if some event. 1. Legal Representative . is entitled to be reimbursed from B's property. If the parties mutually agree to substitute the original contract by a new one or to rescind or alter it 2. which the law creates in the absence of any agreement. 2.(SECTIONS 31-36) y A contingent contract is a contract to do or not to do something.The promise may be performed by promisor himself. the promisor shall not be responsible for non-performance nor shall he lose his rights under the contract. (ii) Reimbursement of person paying money due by another in payment of which he is interested.11 DISCHARGE OF CONTRACTS [Sections 73-75] . rescinds it. if a valid offer/tender is made and is not accepted by the promisee. 1. Obligation of a person enjoying benefits of non-gratuitous act.72] y The term `quasi contract` may be defined as a ` contract which resembles that created by a contract.In case of death of the promisor. 5.` as a matter of fact. `quasi contract` is not a contract in the strict sense of the term.9 QUASI CONTRACTS [SECTIONS 68. Moreover. 1. and performed in the agreed manner. CIRCUMSTANCES OF QUASI CONTRACTS y Following are to be deemed Quasi-contracts. collateral to such contract does or does not happen. a lunatic. (i) Claim for Necessaries Supplied to a person incapable of Contracting or on his account. The even must be uncertain. WHICH NEED NOT BE PERFORMED I. When a contingent contract may be enforced y ESSENTIAL ELEMENTS OF A CONTINGENT CONTACT 1. Contingent contracts may be enforced when that uncertain future event has happened. The event must be an act of the party. A tender or offer of performance to be valid must satisfy the following conditions: 1. 4. 4. CONTRACTS. there is no intention of the parties to enter into a contract.

1.e. Recession (cancellation) c.y The cases in which a contract is discharged may be classified as follows: A. and B engages to pay her Rs. 100 for each night¶s performance. Alteration C. B is entitled to claim compensation for the damages for which he has sustained through the non-fulfilment of the contract. RIGHTS OF INDEMNIFIED (THE INDEMNITY HOLDER) y The indemnity holder is entitled to recover from the promisor a) All the damages which may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies b) All costs of suit which he may have to pay to such third party provided in bringing or defending the suit (i) he acted under the authority of the indemnifier or (ii) he did not act in contravention of the orders of the indemnifier and in such a such as a prudent man would act in his own case. It has been held in Jaswant Singh Vs. A wilfully absents herself from the theatre and B in consequence.13 CONTRACTS OF INDEMNITY [SECTIONS 124-125] What is contract of indemnity y y A contract of indemnity is a contract whereby one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other party. Novation (substitution) b. Section of State 14 Bom 299 that the indemnifier becomes entitled to the benefit of all the securities. On the sixth night. By subsequent impossibility By operation of law By breach 1. if the compromise was not contrary to the orders of the indemnifier. and was one which it would have been prudent for the promisee to make. y 1. a singer contracts with B. which the creditor has against the principal debtor whether he was aware of them. E. to sing at his theatre for two nights in every week during the next two months. c) All sums which he may have paid under the terms of any compromise of any such suit. rescinds the contract. the manager of a theatre. By mutual consent  A contract may terminate by mutual consent in any of the following ways: - a. RIGHTS OF INDEMNIFIER y The Contract Act makes no mention of the rights of the indemnifier. the duty of a principal to indemnify an agent from consequences of all lawful acts done by him as an agent. D. or not. By performance or tender B.14 CONTRACT OF GUARANTEE [SECTION 126] What is Contract of Guarantee y A contract of guarantee is defined as a contract to perform the promise or discharge the liability or a . A contract of indemnity may arise either (1) by an express promise or (2) by operation of law i.12 REMEDIES FOR BREACH OF CONTRACT (SECTIONS 73-75) As soon as either party commits a breach of the contract. the other party becomes entitled to any of the following reliefs: a) Recession of the contract b) Damages (monetary compensation) c) Specific performance d) Injunction e) Quantum meruit Ex ± A.

the person from whom the guarantee is given is called the ³Principal Debtor´ and the person to whom the guarantee I given is called the ³Creditor´. he has a right of contribution from the other sureties who are equally bound to pay with him. the liability of the surety begins and runs co-extensive with the liability of the principal debtor. y Essential and legal rules for a valid contract of guarantee (i) The contract of guarantee must satisfy the requirements of a valid contract (ii) There must be someone primarily liable (iii) The promise to pay must be conditional Kinds of guarantee (i) Specific Guarantee (ii) Continuing Guarantee RIGHTS AND OBLIGATIONS OF THE CREDITOR Rights y The creditor is entitled to demand payment from the surety as soon as the principal debtor refuses to pay or makes default in payment. 2. 10. Requirement of two contracts It must be noted that in a contract of guarantee there must. the surety can direct creditor to dismiss the employee whose honesty he has guaranteed.the creditor and the surety. which the creditor has against the debtor. Rights of Contribution Where a debt has been guaranteed by more than one person. the creditor need not first exhaust his remedies against the securities before suing the surety. in the event of proved dishonesty of the employee. he will himself pay to B. in the sense that the surety will be liable for all those sums for which the principal debtor is liable. Rights against the Creditor In case of fidelity guarantee.the principal debtor and the creditor . or give time to. 2) Not to compound. he is invested with all the rights. Rights against the Principal Debtor (a) Right of Subrogation (stepping into the shoes of the original) Where a surety has paid the guaranteed debt on its becoming due or has performed the guaranteed duty on the default of the principal debtor. the amounts which he has rightfully paid under the contract of guarantee. Where the creditor holds securities from the principal debtor for his debt. and (ii) a secondary contract . The creditor may file a suit against the surety without suing the principal debtor. The person who gives the guarantee is called the ³Surety´. unless the contract specifically so y . 1. in effect be two contracts. there is a contract of guarantee. The obligations of a creditor are: 1) Not to change any terms of the Original Contract. (b) Right to be indemnified The surety has the right to recover from the principal debtor. But as soon as the principal debtor defaults. LIABILITIES OF SURETY y y The liability of a surety is called as secondary or contingent. When a surety has paid more than his share. (i) a principal contract .000 to C and guarantees that C will repay the amount within the agreed time and that on C failing to do so. Ex ± When A requests B to lend Rs.y third person in case of his default. as his liability arises only on default by the principal debtor. they are called as co-sureties. or agree not to sue the Principal Debtor 3) Not to do any act inconsistent with the rights of the surety Obligations y RIGHTS OF SURETY y Rights of a surety may be classified under three heads: 1.

In case of non-gratuitous bailments. and the person to whom goods are delivered is called the "Bailee". To take care of the goods bailed 2. 2. In case of gratuitous bailment (i. Lien 1. y CHARACTERISTICS OF BAILMENT 1. Hire . DISCHARGE OF SURETY 1. Principal Debtor 6. By death of surety 1.e. To bear expenses in case of Gratuitous bailments 4. The bailor can enforce by suit all duties or liabilities of the bailee. Liability for breach of warranty as to title. By variance in terms of contract 4. DUTIES OF THE BAILEE 1. Pawn or Pledge . Delivery of Goods . 2. 1. Not to make unauthorised use of goods 1.15 CONTRACT OF BAILMENT AND PLEDGE BAILMENT [SECTIONS 148 ²181] What is `Bailment` y When one person delivers some goods to another person under a contract for a specified purpose and when that specified purposes is accomplished the goods shall be delivered to the first person. By notice of revocation 2. the bailor can demand their return . Loss of Security 1. Commodatum . (b) for breach of warranty as to title and the damage resulting therefrom. The ordinary expenses like feeding the horse etc. To return any accretion to the goods bailed RIGHTS OF BAILEE 1.Delivery of goods by one man to another to keep for the use of the bailor. To disclose faults in the goods 2. shall be borne by the bailee but in case horse falls may be express or constructive (implied). Delivery of goods for being transported by the bailee . 2. 1. Return of goods in specie. Not to Mix Bailor's goods with his own 4.e. Rights against wrongful deprivation of injury to goods RIGHTS OF THE BAILOR 1. bailment without reward).Goods lent to friend gratis (free of charge) to be used by him.Deposit of goods with another by way of security for money borrowed. 2. DUTIES OF BAILOR 1. or agreeing not to sue. and (c) for extraordinary expenses. KINDS OF BAILMENTS y 1. the bailor is held responsible to bear only extra-ordinary expenses. it is known as Bailment The person delivering the goods is called the "Bailor". The bailee can sue bailor for (a) claiming compensation for damage resulting from non-disdosure of faults in the goods. Contract. 5. By compounding with. in return for payment of money.. Bailment may be classified as follows: Deposit . By creditor's act or omission impairing Surety's eventual remedy 7.. 1. ExA horse is lent for a journey.. 4. To return the goods bailed 5.for reward. By release or discharge of Principal Debtor 5. the money spent in his treatment will be regarded as an extraordinary expenditure and borne by the bailor.Goods lent to the bailee for hire. i. or giving time to.

Not to make any secret profits .. The person for whom or on whose behalf he acts is called the Principal. y y y WHO CAN EMPLOY AN AGENT Any person. The agent should conduct the business with the skill and diligence that is generally possessed by persons engaged in similar business. WHO MAY BE AN AGENT y In considering the contract of agency itself (i. however. On the accomplishment of the specified purpose. In other words. besides the responsibility of exercising reasonable efforts in finding the real owner.A pledge is created only when the goods are delivered by the borrower to the lender or to someone on his behalf with the intention of their being treated as security against the advance. 1. However. On the expiry of the stipulated period. his principal. an agent is a person who acts in place of another. amount to 2/3rd of its value. the agent. 2. Delivery of goods may.e. To use all reasonable diligence. Delivery Essential .whenever he pleases. and in seeking to obtain his instructions. in transactions with third person. (2) when the lawful charges of the finder in respect of the thing found. y 1.16 PLEDGE y A pledge is the bailment of goods as security for payment of debt or performance of a promise. he enjoys certain rights also. The function of an agent is to bring about contractual relations between the principal and third parties. except where the principal knows that the agent is wanting in skill. as security is called the 'pledgor' and the person to whom the goods are so delivered is called the 'pledgee'. TERMINATION OF BAILMENT 1. FINDER OF LOST GOODS y Finding is not keeping. It is only a qualified property that passes to the pledgee. Agency is therefore. a relation based upon an express or implied agreement whereby one person. To conduct the business of agency according to the principal's directions 2. To render proper accounts. By bailee's act inconsistent with conditions. 5. y 1. 4. HOW AGENCY IS CREATED y A contract of agency may be created by in any of the following three ways: (1) Express Agency (2) Implied Agency (3) Agency by Estoppel (4) Agency by Holding Out (5) Agency of Necessity (6) Agency By Ratification DUTIES OF AGENT 1. who is capable to contract may appoint as agent. is authorised to act for another. a minor or lunatic cannot contract through an agent since they cannot contract themselves personally either. be actual or constructive. Right to retain the goods 2.17 CONTRACT OF AGENCY [SECTION 182 ² 238] Who is an `Agent` y An agent is defined as a "person employed to do any act for another or to represent another in dealings with third person". the contractual capacity of the agent becomes important. even though he lent it for a specified time or purpose. 3. Right to Sell -the finder may sell it: (1) when the thing is in danger of perishing or of losing the greater part of its value. Thus. The ownership remains with the pledgor. the relation between principal and agent). The person who delivers the goods. His rights are summed up hereunder 1. A finder of lost goods is treated as the bailee of the goods found as such and is charged with the responsibilities of a bailee. in communicating with his principal.

2. y Right to remuneration Right Of Retainer Right of Lien Right of Indemnification Right to compensation for injury caused by principal¶s neglect PRINCIPAL'S DUTIES TO AGENT A principal is: (i) bound to indemnify the agent against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him. Environment has been defined to include water. plants. not of the agent. Orders. Directions (i) co-ordination of actions by the State Governments. 5. (ii) liable to indemnify an agent against the consequences of an act done in good faith. Not to deal on his own account 7. 1986 was enacted on 23rd May 1986. 1. 5. liquid or gaseous substance in such concentration as may be. 1986 y The United Nations Conference on the Human Environment held at Stockholm in June 1972. 7. it was decided to take appropriate steps for the protection and improvement of human environment. By revocation by the Principal. air and land. 4. Stephens (1920) AC. the agent is bound to take on behalf of the representatives of his late principal. 4. An umbrella Act y y Power of Central Government to take measures to protect and improve environment [SECTION 3] y The Central Govt. (iii) laying down standards for emission or discharge of environmental pollutants from various sources . has been empowered to take following actions including issue of requisite Rules. Insolvency of the principal. and human beings. 1. control and abatement of environmental pollution. An agent should not disclose confidential information supplied to him by the principal [Weld Blundell v. On the performance of the specific purpose. Agent not entitled to remuneration for business misconducted. 2.relationship. 9. injurious to environment. This Act is an umbrella Act. RIGHTS OF AN AGENT 1. An agency shall also terminate in case subject matter is either destroyed or rendered unlawful. Thus for the purpose of implementing the said decision. microorganism and property. Environmental pollution means the presence in the environment of any solid. TERMINATION OF AGENCY 1. (iii) The principal must make compensation to his agent in respect of injury caused to such agent by the principal's neglect or want of skill. India was a participant country. When an agency is terminated by the principal dying or becoming of unsound mind. 6. 1956]. Insanity or Death of the principal or Agent. or tend to be. other living creatures. all reasonable steps for the protection and preservation of the interests entrusted to him. By renunciation of agency by the Agent. On the expiry of fixed period of time. air and land and the inter. CHAPTER 7 ENVIRONMENTAL LAWS Source of The Environment Protection Act. Insolvency of the Principal. terminates the agency. 8. the Environment Protection Act. (ii) planning and execution of a nation-wide programme for the prevention. which exists among and between water. officers and other authorities.6.

1986 and for matters connected therewith or incidental thereto. materials or substances and giving. industrial solid waste. (ix) establishment or recognition of environmental laboratories and institutes to carry out the functions entrusted to such environmental laboratories and institutes under this Act. manufacturing or other processes. control and abatement of environmental pollution. Imprisonment upto five years with or without fine upto Rs. The provisions of this Act shall have an overriding in so far as other Acts affecting any factory is concerned. water. Establishment of Central Pollution Control Board. operations or processes shall not be carried out or shall be carried out subject to certain safeguards under the Environment (Protection) Act.whatsoever: (iv) restriction of areas in which any industries. Environmental laboratories have been established under the Act to issue directions to any industry or any local or other authority and analysis of samples of air. Recycle Plastic Manufacture and usage.000 has been prescribed. Chemical accidents. machinery. plant. equipment. control and abatement of environmental pollution. operations or processes or class of industries. 5. (v) laying down procedures and safeguards for the handling of hazardous substances. (x) collection and dissemination of information in respect of matters relating to environmental pollution. Bio-medical waste etc. Municipal waste. Notifications.Environmental Clearance is mandatory for the expansion and modernization of any activity or new projects. by order. hazardous chemicals. . Orders. (v) Noise Pollution (vi) Animal Welfare (vii) Public liability Insurance y (i) (ii) (iii) (iv) The National Environment Appellate Authority Act 1997 y This Appellate Authority has been established to hear appeals with respect to restriction of areas in which any industries. (xi) preparation of manuals. codes or guides relating to the prevention. Penalty for contravention [SECTION 15] y Bar of jurisdiction [SECTION 22] y Environmental clearance ² a prerequisite y Other measures initiated by the Central Government Following Rules. Directions have been issued by the Central Government State Coastal Zone Management Authority Eco-marks Scheme Eco-sensitive Zones Hazardous Substances Management ² batteries. bio-medical waste. operations or processes shall not be carried out or shall be carried out subject to certain safeguards. materials and substances as are likely to cause environmental pollution. The civil court shall not have jurisdiction to entertain any suit or proceeding in respect of anything done. Environmental Laboratories y Central Pollution Control Board. Pre. (vii) carrying out and sponsoring investigations and research relating to problems of environmental pollution. (viii) inspection of any premises. action taken or order or direction issued by the Central Government under this Act. soil or other substance respectively for the violation of the standards and rules relating to hazardous waste. (vi) examination of such manufacturing processes. One lakh For continuing contravention fine of Rs. operations or processes or class of industries. y The Central Government may appoint appropriate number of officers and entrust them powers and duties for the purpose of this Act. officers or persons as it may consider necessary to take steps for the prevention. of such directions to such authorities. municipal solid waste including plastic waste etc. (xii) such other matters as the Central Government deems necessary or expedient for the purpose of securing the effective implementation of the provisions of this Act.

The National Environment Tribunal Act 1995 y United Nations Conference on Environment and Development held at Rio de Janeiro in June 1992 decided that the member countries to develop national laws regarding liability and compensation for the victims of pollution and other environmental damages. . the National Environment Tribunal Act 1995 was enacted. Accordingly.

CHAPTER 02 INDIAN PARTNERSHIP ACT 1932 2. two partnership firms cannot enter into partnership. The following points of distinction between the two may he noted: Partnership 2. the Indian Partnership Act. 4. It always implies a business. (iv) The agreement must be to share profits of the business. 1872 as Chapter XI thereof. y It must be noted that the Partnership Act does not specify the minimum or the maximum number of partners in a partnership firm. 2. AIR 1965 SC 139. It involves sharing of profits and losses. (v) Business must be carried on by all or any of them acting for all. hence it is obvious that the minimum numbers of persons to constitute a valid partnership should be atleast two.Partners may choose any name as their firm's name provided it does not go against the rules relating to trade name or goodwill. A Partnership is defined as "the relationship between persons who have agreed to share profits of a business carried on by all. As such.g. [Malabar Fishries v. the Act is silent. Since an association cannot be formed with persons less than two. 3. (iii) The agreement must be to carry on some business. the law relating to Partnership was contained in and formed part of the Indian Contract Act.2 PARTNERSHIP DISTINGUISHED FROM CERTAIN SIMILAR ORGANISATIONS y Co-ownership 1. 5. A and B inherit a house from their father. 6. A partner can claim a share in the surplus assets of the firm. 3. . A co-owner can claim division of the joint prop erty In specie. besides contract. It may exist without any business. it may exist without any business. or by any of them acting for all." Firm Name . in 1932 Chapter XI of the Contract Act was repealed and in place was passed a comprehensive legislation. y Further. the maximum number of partners in a partnership firm. It arises from contract.1 THE NATURE OF PARTNERSHIP [Sections 1-8] y Originally. y 'PARTNERS'. (ii) Partnership must be the result of mutual agency between two or more persons. e. 5. A Co-owner may transfer his interest to a third party without the consent of other co-owners. arise by status. 2. 'FIRM' AND 'FIRM NAME' (SECTION 4) y y Persons who have entered into partnership with one another are called individually "partners" and collectively "a firm" and the name under which their business is carried on is called the "firm name. It may. But. 1956 that imposes a limit at 10 in case of banking business and 20 in case of any other business. Magan Lal. A partner cannot transfer his interest without the consent of all other partners. Kerala AIR 1980 SC 176] NOTE ± The Hon`ble Supreme Court in Devji v. 1. Each partner is the agent of other partners. the following elements must be present before partnership can be said to come into existence (i) Partnership is an association of two or more persons. A co-owner is not the agent of the other coowners. 4. It is only Section 11 of the Companies. The partners are personally liable for all the business obligations of the firm. but not a share in the proper ties of the firm in specie. NOTES ± A firm is not a person in legal terms. observed that the true test of partnership is the `Agency relationship` and not the sharing of profits. 6." Definition of partnership (Section 4) y ESSENTIALS OF PARTNERSHIP Thus. It does not always involve the sharing of profits or losses because.

in case of Joint Hindu Family. . is as follows: Partnership Company 1) A company is a separate legal entity distinct from its members. [Salomon v.PARTNERSHIP AND COMPANY y Distinction between a partnership and a company incorporated under the Companies Act 1956. Unless there is a contract to the contrary. a legal necessity. Salomon & Co. 2) In Joint Hindu Family business a person becomes a member merely by his birth. i.]. 7) Maximum membership. 5) The death of a member of a Joint Hindu Family leaves the firm unaffected. A minor cannot be member of a firm except that he may be admitted to the benefits of an already existing partnership firm. his acts bind the firm. 2) Admission. The audit of the accounts of a firm is not compulsory. Raghunath. 6) It is the Karta who has the authority to contract and bind the family other coparceners cannot do so. retirement or insolvency of a partner results in the dissolution of the firm. In a partnership. Death of a partner generally dissolves the firm. 2) Mutual Agency. 6) Minimum Membership.. even his own personal assets are liable for the debts of the firm. death. 3) Liability of member or shareholder of limited company is limited to' the extent of the amount remaining unpaid on shares held by him or the amount of guarantee as mentioned in the Memorandum of Association of the company. 3) Female Members. 3) A female member cannot become a member of a Joint Hindu Family business.].e. 6) Mutual Agency.. 5) Death of a Member. subject to restrictions contained in the Articles. Partnership is founded on the idea of mutual agency: every partner is an agent of the rest of the partners. PARTNERSHIP AND JOINT HINDU FAMILY BUSINESS. 1) Legal status. 5) A company enjoys a perpetual succession. the liability of other co-parceners is limited to the extent of their share in the profits of the family business. 8) The audit of the accounts of a company is obligatory. v. 6) The minimum number required to form a company is 2 in the case of private companies and 7 in case of public companies. However. 7) Only Karta is liable unlimitedly. are members of the family from the date of their birth. The minimum number of persons required to form a partnership is 2. 7) There is no limit to the maximum number of members in case of a public company. can freely transfer his share. The number is limited to 10 in case of banking business. y The principal differences between a Partnership and a Joint Hindu Family business are as following:Partnership Joint Hindu Family Business 1) A Hindu Family is the result of status. 1) Creation. new partner can be admitted only with the consent of all the existing partners. Partnership is essentially the result of an agreement between the parties. . A partner cannot transfer his interest without the consent of all other partners. 4) Transfer of Interest. 2) A member of a company is not an agent of other members. [Indian Cotton Co. 4) Minor Members. 4) A shareholder. Every partner is an agent of the rest of the partners and. 5) Duration of Existence. 7) Liability. Ltd.e. A partnership cannot be formed with persons exceeding 20. Every partner is liable to an unlimited extent. i. Liability of a partner is unlimited. 8) Audit. therefore. A partnership firm has no existence apart from its members. 3) Liability of Members. 4) Minors. A female can join partnership business as a full-fledged partner. a private company cannot have more than 50 members. Death or retirement or insolvency of a member does not affect the existence of the company.

Working Partner . and shall file the statement. so as to enforce a right (a) arising from contract. [Robinsonv. Thus. That stranger is called a 'sub-partner'. or by their agents specially authorised in that behalf. and duly verified." Such a partner is not entitled to share the profits of the firm but is liable for all acts of the firm as if he were a real partner. 5. When the Registrar is satisfied that the relevant provisions of the Partnership Act have been duly complied with. 2. y It should be noted that registration of a firm is not compulsory.ILLEGAL PARTNERSHIP A partnership may be illegal in either of two ways. he registers the firm by recording an entry of the statement in a register called the Register of Firms. Third . (4) the date when each partner joined the firm. has no rights against the firm. 4. he will be called as a "Nominal partner. 2. Partner by Holding Out or by Estoppel . Such a partner is liable like any other partner of the firm. a statement in the prescribed form and accompanied by the prescribed fee stating: (1) the firm name. No suit can be filed on behalf of an unregistered firm against any third party for the purpose of enforcing a right arising from a contract. Effect of non-registration y The consequences of non-registration of a firm as follows: 1. a person who is admitted as a partner into an already existing firm with the consent of all the existing partners is called as "incoming partner. is partner only in name.Anderson. therefore. because of his special qualifications. Incoming Partner -No person can be introduced as a partner into a firm without the consent of all the existing partners. or delivering to the Registrar of Firms of the area in which any place of business of the firm is situated or proposed to be situated. may be assigned the management and control of the business. Nominal Partner . (2) the place or principal place of business of the firm. However. or (b) conferred by the Partnership Act. to be a partner in a firm.A nominal partner. where a person's name is used. as the title suggests." A working partner normally receives a fixed amount of salary. as if he were a partner of the firm.Anyone who by words spoken or written or by conduct represents himself.4 TYPES OF PARTNERS 1.A partner. (3) the names of any other places where the firm carries on business. however. (2) Where the number of partners exceeds the maximum limit (prescribed under Section 11 of Companies Act 1956).two auditors engaged in a particular audit may be regarded as partners in that audit. 3. he will be liable to the other partners for the same. A partner of an unregistered firm cannot file a suit against the firm or any partner.3 Procedure y REGISTRATION OF FIRMS [Sections 58-59] A partnership firm may be registered at any time by sending by post. Ex. (Note that suit for recovery of money can be filed against the unregistered firm in the name of individual partners). A sub-partner is not a partner in the eyes of law and. 6. (5) the names in full and addresses of the partners and (6) the duration of the firm. (1) By being formed to carry on an illegal business.A sub-partnership comes into existence when one of the partners agrees to share the profits derived by him from the firm with a stranger.] y 2. He is also not liable for the debts of the firm. besides his share in the profits of the firm.A "dormant" or "sleeping" partner is one who does not take an active part in the business of the firm. y The statement must be signed by all the partners. though actually he is not. Dormant or Sleeping Partner . Such a partner is commonly known as a "working partner. Sub-Partner . Other partners. remain liable to the third parties for all his acts. where he specifically agrees to bear the past liabilities. 2. Thus." An incoming partner does not become liable for any act of the firm done before his admission as a partner.

5. he being incapable of contracting. 2. 6. However. all such acts as are reasonably necessary to protect the firm from loss. Entitled to be indemnified by the firm in respect of liabilities incurred by him in the ordinary course of business. 9. Such acts which are common in the type of the business carried on by the firm.parties. A joint owner of the property of the firm including also the goodwill of the business. 7. Right to carry on a competing business. the law presumes that every partner has power to do certain acts. 2. 3. Right to resist the introduction of a new partner. The agreement may. transfer of any immovable property belonging to the firm. be verbal or written. A partner's authority may be express or implied. 11. Right not to be expelled. No new partner can be introduced into the firm unless all the partners consent thereto. 12. 2. Following are not the implied powers: 1. 10. [but in case of difference of opinion regarding ordinary matters of the business. in an emergency. no change can be made in the nature of the business without the consent of all the partners]. It is implied when the law impliedly gives certain powers to a partner. .e. Right to do. Right to retire. Outgoing Partners . The partners may however by a contract amongst them. 8. Entitled to share equally in the profits. if all the partners agree. cannot hold him liable since there is no privity of contract between the new partner and the creditors. y Right to take part in the conduct of business. in certain cases to share subsequent profit. 13. 3. 7. Right to express his opinion on any matter. 4. and (c) to render true accounts and full information of all things affecting the firm to any partner or his legal representative. (b) to be just and faithful to each other. Implied authority of a partner may be: 1. General Duties of Partners  Partners are bound (a) to carry on the business of the firm to the greatest common advantage. and Right as an outgoing partner. However. restrict the implied authority of any partner. Right to have access to and inspect and copy any of the books.. being a contract. It is "express". however. of the firm. Implied authority of a partner y y DUTIES OF A PARTNER 1. Entitled to claim interest @ 6 per cent per annum on any amount advanced by him beyond the amount of capital that he agreed to subscribe. he is bound by the majority decision. admission of any liability in a suit.5 RIGHTS. a minor may be admitted to the benefits of an already existing firm. a minor cannot enter into partnership. and 2. submitting of a dispute relating to the business of the firm. 2. i. Such acts which are done by the partner in the usual course of business of the firm. withdrawal of a suit or proceeding filed on behalf of the firm. MINOR AS A PARTNER [SECTION 30] y Partnership. An agreement with or by a minor is void-ab-initio. Duty to Indemnify for loss caused by fraud. DUTIES AND LIABILITIES OF PARTNERS RIGHTS OF A PARTNER It must be understood that the following rights conferred upon a partner are subject to contract amongst the partners: 1. when it is fixed between the partners by mutual agreement. however.A partner who leaves a firm in which the rest of the partners continue to carry on business is called a retired or outgoing partner. 2.

y Liable to account for any profit. (The partners may however contract otherwise). They wee carrying on the business of buying and selling the wine. Lathm 2 B & A 795. the mill was enlarged and improved by the firm and also a new building was constructed on the land acquired by the firm. or in accordance with a contract between the partners. derived by a partner from any transaction of the firm.3. y . [Robinson v. Thus dissolution of firm amounts to the break up of the relation of partnership between al the partners. or from the use of the property. 9. or business connection of the firm or the firm name. If restrained by an agreement with other partners. it may be dissolved by giving notice in writing to the other partners of his intention to dissolve the firm. It was held that the mill had become the property of the firm. However. for the purpose. the active partner of the firm. 3. gave to C the false accounts of purchase and sale of wine and misappropriated the money. C gave a sum of money to the firm. derived by a partner from any transaction of the firm. It was held that the firm was liable to pay the money to C. on the completion thereof. By Notice . 8. Thus. [Rapp v. To attend diligently to his duties in the conduct of the firm's business without any remuneration 2. a partner shall be liable (i) for not carrying on the business of the firm to the greatest common advantage. y A firm may be dissolved: 1. 2. (This is subject to contract). including secret profit. To account for any profit. If a partner carries on any business competing with that of the firm. Ex ± 1) A and B were partners in a firm. 6. y Liable to indemnify the firm for any loss caused by his fraud or willful neglect in the conduct of the business of the firm. 5. y Liable to contribute equally towards the losses of the firm. Dissolution By Operation of Law 2. including secret profit. he shall account for and pay to the firm all profits made by him in that business. (11919) 21 RR 495] y y 2. The notice must (1) state the intention to dissolve the firm and (2) be in writing. By the Happening of Certain Contingencies (also called Optional Dissolution)  Partnership will stand dissolved on the happening f any of the following events: (a) if the firm is constituted for a fixed term. or from the use of the property or business connection of the firm or the firm name. . By Mutual Agreement . (b) if constituted to carry out one or more adventures or undertakings. 44 LIC Ch. 25. To contribute equally to the losses of the firm. the value of assets of the mill was credited to A`s capital account and he was also allowed interest on it. Not to assign his share. Ashtan 1875) 20 Eq. C. Subsequently. He entered into partnership with B and C. 7. on the expiry of that term.A firm may at any time be dissolved with the consent of all the partners. A. LIABILITIES OF A PARTNER Liabilities of a partner stem from not complying with his duties under the Partnership Act. a partner has a duty not to carryon any business other than that of the firm while he is a partner. To indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm ExA was the owner of a cotton mill.Where the partnership is at will. (ii) for not being just and faithful to other partners and (iii) for failure to render true accounts and full information of all things affecting the firm to any partner or his legal representative.6 DISSOLUTION OF PARTNERSHIP [Sections 39-44] What is dissolution The dissolution of firm means the discontinuance of the jural relation between all the partners of the firm. a wine merchant. The business of the firm was carried on at A`s mill. employed the firm of A and B for buying and selling the wine for him on the commission basis.

Dissolution by Court Grounds for dissolution by court If a partner has become of unsound mind. 5. except: (a) insofar as it may be necessary to wind up affairs of the firm. he shall be entitled to repayment of the premium or of such part thereof as may be reasonable (regard being had to the terms and to the length of time during which he was a partner). (d) on the adjudication of a partner as an insolvent. e. where a partner has paid a premium on entering into partnership for a fixed term. Right to enforce Winding-up 2. deadlock in management. he must share it with the other partners and the legal representatives of the deceased partners. Permanent incapacity of a partner. Restraint of trade by Buyer of Goodwill Partners may.(c) on the death of a partner. Willful and persistent disregard of partnership agreement by a partner. Exception (I) the dissolution is due to the death of a partner.  Just and Equitable.. upon or in anticipation of dissolution of the firm. and the firm is dissolved before the expiration of that term. After dissolution. make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits. CONSEQUENCES OF DISSOLUTION 1. Misconduct of a partner affecting the business. Transfer of interest or share by a partner. Such an agreement shall be valid if the restrictions imposed are reasonable.g. 3. a partner cannot bind the firm in any case. and (b) to complete transaction begun but unfinished at the time of dissolution. or (3) the dissolution is in pursuance of an agreement containing no provision for the return of the premium or any part of it. . Further. or (2) to his own misconduct. If any partner earns any profit from any transaction connected with the firm after its dissolution. Where the business cannot be carried on except at loss.

This is `an agreement to sale`. the law relating to sale of goods was contained in Chapter VII of the Indian Contract Act. nitrate of . The ship carrying the nitrate of soda was yet to arrive. y It must be noted here that the payment of price is immaterial to the transfer of property in goods. Thus. sale takes place when there is a transfer of property in goods from the seller to the buyer. the following essentials of a contract of sale may by noted: 1.1 FORMATION OF THE CONTRACT OF SALE Definition (Section 4) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property goods to the buyer for price". strictly speaking. There must be at least two parties 2. in ESSENTIALS OF CONTRACT OF SALE From the above definition.000. 3. 4.e. A sale is an executed contract. 3. The consideration is Price. Transfer or Agreement to transfer the ownership of goods. 3. Ex A sells his Yamaha Motor Bicycle to B for Rs. `SALE` AND 'AGREEMENT TO SELL' DISTINGUISHED Sale: y It is a contract where the ownership in the goods is transferred by seller to the buyer immediately at the conclusion contract. Ex(i) A agreed to buy from B a certain quantity of nitrate of soda. The same was repealed and re-enacted by the Sale of Goods Act. 1872. III of 1930. 10. The subject matter of the contract must necessarily be 'goods'. A Contract of sale may be absolute or conditional 6. All other essentials of a valid contract must be present. the ownership of nitrate of soda is to be to transferred to A on the arrival of the ship containing the specified goods (i. In this case.CHAPTER 03 SALE OF GOODS ACT 1930 y Originally. It is a sale since the ownership of the motorcycle has been transferred from A to B. Agreement to sell: y It is a contract of sale where the transfer of property in goods is to take place at a future date or subject to some condition thereafter to be fulfilled.

6.goodwill. even though the goods are in the possession of the buyer. the seller can sue the buyer for the price of the goods. the property passes as soon as sale is made though price has not been fully paid. In these circumstances. The TEST IS . In these circumstances.  The hirer. the ownership having passed to the buyer. 5.  ln case of sale. A sale is an executed contract. If the buyer becomes an insolvent without paying the price. A "Hire-purchase agreement" is distinct from "Sale" in which price is payable by instalments  A 'Hire-purchase agreement. Till such time. y y . In a sale. the seller shall have to deliver the goods to the Official Assignee or Receiver except where he has a lien over the goods. and electricity are all goods and may be the subject matter of a contract of sale. It was agreed between st themselves that the ownership of the car will transfer to B on 31 March 1998 when the car is got registered in B`s name. 2.soda) [Johnson V Mcdonald (1842) 9 M & W 600. 3. growing crops. or whether he has bought or agreed to buy the goods. trademark. since the property has passed to the buyer. Thus. A agreed to sell his car to B for Rs. grass. under this agreement. the seller can only sue for damages. and things attached to or forming part of the land. the hirer will become the owner of the goods on the payment of the last instalment. usually by payment of all the instalments. In case buyer pays the price and the seller thereafter becomes an insolvent. with an option to purchase. An Agreement to sell is an executory contract. Other points of distinction between a sale and an agreement to sell are: Sale Agreement to sell 1. An agreement to sell creates a right in personam. It is because 'Risk' is associated with ownership. copyright. the said property shall be movable and fall within the definition of `Goods`. 4. 3. the seller can refuse to deliver the goods to the Official Assignee or Receiver.if the property on shifting its situation. the buyer cannot claim the goods but only a rateable dividend for the money paid. water. it constitutes bailment. 1. A sale creates a right in rem. The loss in this case shall be borne by the seller. the buyer can claim the goods from the Official Receiver or Assignee.000.2 GOODS Definition of `GOODS` under the Act y 'Goods' means every kind of moveable property and includes stock and shares. regard shall have to be paid to the fact whether the hirer has merely an option to purchase. which are agreed to be severed before sale or under the contract of sale. even though the goods are in the possession of the seller. Sale and Hire Purchase Agreement Hire Purchase Agreement y It is an agreement for hire. is required to pay every month a particular sum of money. 6. does not lose its character.' does not result in passing of the property unless the option to purchase is exercised. 4. in case of breach. patents. 2. gas. if the hirer fails to pay any particular instalment. In case of loss of goods. 3. the loss will fall on the buyer. Sale y 3. unless the price was payable at a stated date. 80. It is an agreement to sell and it will become sale on 31st March when the car is registered in the name of B. 60 RR 838] st (ii) On 1 March 1998. the owner can terminate the contract and take away the goods. In an agreement to sell. goods include every kind of moveable property other than actionable claim or money.  But. because the ownership continues to remain in the owner. Example . In determining as to whether a particular contract belongs to one type or the other. and if he pays in that way for a fixed number of months.

or (III) it may be determined by the course of dealings between the parties. i.g. Contingent Goods . The stipulation essential to the main purpose of the contract.goods arc goods indicated by description and not specifically identified. or keep the horse and claim damages. parties make certain stipulations. The contract cannot be repudiated. Existing goods may be either: (a) Specific and Ascertained . y 3. In contrast. WHEN CONDITION TO BE TREATED AS WARRANTY [SECTION 13] y Under the following circumstances a breach of condition is to be treated as a breach of warranty. If the horse turns out to be vicious. 3. which is essential to the main purpose of the contract. some may be intended by the parties to be binding. Here the stipulations are known as `warranties'.e.3 PRICE y y 'Price' means the money consideration for sale of the goods. price is not capable of being fixed in any of the above ways. or (b) Generic and Unascertained .. 3. e.Future goods" means goods to be manufactured or produced or acquired by the seller after making the contract of sale. ExA man buys a particular horse.goods identified and agreed upon at the time a contract of sale is made.CLASSIFICATION OF GOODS Goods may be classified into: 1. 'Price' is an integral part of a contract of sale. agree to certain terms. the breach of which gives rise to a right to treat the contract as repudiated. Waiver of Condition . Such stipulations are known as `Conditions`. A breach of condition may be treated as a breach of warranty in certain circumstances. quality of the goods to be supplied. stipulation collateral to the main purpose of the contract. which are owned or possessed by the seller at the time of the contract.e. 2. Contingent goods are a part of future goods. Instances of sale of goods possessed but not owned by the sellers fire sales by agents and pledgees. If it is not fixed or is not capable of being fixed. y DISTINCTION BETWEEN 'CONDITION' AND 'WARRANTY' Condition 1. 2. Thus. i. the buyer is bound to pay reasonable price. The price may be fixed (I) by the contract or (II) may be agreed to be fixed in a manner provided by the contract.. A breach of condition gives the aggrieved party a right to sue for damages as well as the right to repudiate the contract. (IV) in case. the whole contract is void ab-initio. 3. the right to repudiate the contract is deemed to have been lost: 1. the buyer's only remedy is to claim damages. the breach of which gives rise to a claim for damages but not to a right to reject the goods. A warranty is a stipulation. e. Warranty 1.g. Future Goods . 2. which is only collateral or subsidiary to the main purpose of the contract. a man asks a dealer to supply him with a quiet horse and the horse turns out to be vicious. but of a subsidiary or inferior character.g.. time of payment. 5. But if instead of buying a particular horse. which is warranted quiet to ride and drive. A breach of warranty gives only the right to sue for damages. Existing Goods . the stipulation is a condition and the buyer can reject the horse. by a valuer. e.4 CONDITIONS AND WARRANTIES [Sections 11-17] y In a contract of sale.Existing goods are those. A condition is a stipulation (in a contract). A breach of warranty cannot be treated as a breach of condition. Some of them may be intended by the parties to be of a fundamental nature. What is reasonable price will vary from case to case.Contingent goods are the goods the acquisition of which by the seller depends upon a contingency which mayor may not happen...

These are: 1. It means "Caution Buyer". Hobbs 1878. Gregson (1868) L. The rule of Caveat Emptor will not apply. The bulk shall correspond with the sample in quality. there is implied condition as to their being of merchantable quality. it was held that the seller was not bound to disclose that the pigs were unhealthy.e. i. caused typhoid to other healthy pigs of the buyer. 2. Ex(i) Certain shoes were sold by sample for the French Army.A contract of sale is a contract for sale by sample where there is a term in the contract. 49. (ii) In a contract for the sale of brandy by sample. y (B) IMPLIED WARRANTIES y There are two implied warranties. Warranty of Quiet Possession 2. to that effect. and these pigs. The shoes were found to contain paper not discoverable by ordinary inspection. the brandy that was supplied had been coloured with a dye. The buyer must inspect the goods to find out if they will suit his purpose. Warranty of Freedom from Encumbrances Ex ± A purchased a second hand typewriter from B. The rule of the law being 'Caveat Emptor'. 4. Where the seller actively conceals a defect in the goods. y In a sale by sample. so that on a reasonable examination the same could not be discovered. Held. Held. the buyer was entitled to the refund of price plus damages. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample. it is not the duty of the seller's duty to point out defects of his own goods. 3.4Ex. since the defect could not have been located on reasonable examination of the sample [Mody v.5 DOCTRINE OF CAVEAT EMPTOR y y Caveat Emptor is a fundamental principle of the law of sale of goods. 13].2. Exceptions 1. and the seller happens to be a person whose business is to sell goods of that description. (A) IMPLIED CONDITIONS The following are the implied conditions (1) Condition as to Title (2) Sale by Description (3) Condition as to Quality or Fitness (4) Merchantable Quality Sale by sample . Compulsory treatment of breach of condition as breach of Warranty. [Goddard v. Cas. Burmingham (1949) 2 KB 545] 3. The typewriter turned out to be stolen one and as such A had to return it to the true owner. ExPigs were sold "subject to all faults". In case of sale by description. They are said to be 'implied' when the law deems their existence in the contract even without their actually having been put in the contract.]. The rule of "Caveat Emptor" will not apply and the buyer will be entitled to the goods according to that representation. 2. being infected. and 3. this condition of "merchantability" extends only to .R. express or implied. That the goods shall be free from any defects rendering them unmerchantable. Where the seller makes a false representation and buyer relies on that representation. EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES y Conditions and Warranties may be either express or implied. though the bulk corresponded with sample. 4 App. Where the buyer makes known to the seller the purpose for which he is buying the goods. the buyer was not bound by the contract. They are said to be "express" when the terms of the contract expressly provide for them. It was held that A could recover damages from B amounting to the price paid and the cost of repair [Mason v. However. which would not be apparent on reasonable examination of the sample. "Let the buyer beware". the following are the implied conditions: 1. A used it for sometime and also spend some money on its repairs. if the buyer has examined the goods. then there is an implied condition that the goods shall be reasonably fit for such purpose. In other words.

has no title. c) The seller of goods has the duty of giving delivery according to the terms of the contract. as an unpaid seller. Sale by an unpaid DUTIES OF THE SELLER AND BUYER Duty of the seller a) To deliver the goods.g.). Constructive Delivery or Attornment . in accordance with the terms of the contract of sale. buyer has to pay for it. B can recover from that person.. King (1902) A. Sale by the Seller in Possession of Goods after Sale 3. No one can give a better title than he himself has. b) Delivery and payment of price are concurrent conditions. The defects.6 TRANSFER OF TITLE BY NON-OWNERS [Sections 27-30] y The general rule is that only the owner of goods can transfer a good title. or delivery of the key of a warehouse. are not covered. Who is an unpaid seller y y .. b) Accept delivery.C. delivery of a railway receipt properly endorsed. [Faruquaharson v. DELIVERY y y I. 3. i. Sale by a Person in Possession under a Voidable Contract 4. 2. The true owner. the seller. therefore. Duty of the buyer a) Pay for the goods. or a defective title. y Ex- A finds a ring of B and sells it to a third person who purchases it for value and in good faith. Sale by a Joint-owner 3. which such examination ought to have revealed. and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise. has not been paid or tendered. the rule of Caveat Emptor will be applicable. though he may be a purchaser . shall have certain rights..e. In case buyer fails or refuses to pay.only an acknowledgement by the person in possession that he holds them on behalf of another.bonafide and for value. The seller of goods is deemed to be an "unpaid seller" if: (a) the whole of the price. the buyer's title will be equally wanting or defective as the case may be. This rule is expressed by the maxim "Nemo dat quod non habet" which means "that no one can give what he himself has not" If the seller. i. be: Physical or Actual Delivery Symbolic Delivery . Sale by Mercantile Agent 2. (b) when a bill of exchange or other negotiable instrument has been received as conditional payment. The term "seller" includes an agent of the seller. Exceptions to the Rule 1. Delivery of the goods may. An unpaid seller of goods is a person who has not been paid the whole of the price or to whom the whole of the price has not been tendered. 3. 3. if seller is under an obligation to deliver goods. Stevenson (the `snail in the ginger-beer `case) it was held that manufacturers owed a duty to the ultimate consumer to take care in making their goods where there is no likelihood of their being examined before they reach the ultimate consumer.. It has been defined as a voluntary transfer of possession from one person to another.e.7 UNPAID SELLER AND HIS RIGHTS y A contract is comprised of reciprocal promises. in a contract of sale. for A having no title could pass none the better.e.hidden or latent defects. Ex In Donoghue v. 323. and c) Pay compensation to the seller in case he wrongfully refuses to accept delivery.

15 M. has the following rights against the buyer personally: (i) Right to sue for the price. 2. 3. it shall not be lawful for the seller to bid for himself or to employ any person to bid at such sale. sale is voidable at the option of the buyer. but not otherwise. besides his rights against goods. each lot is deemed. the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner. When the goods are put up for sale in lots. Rights Against the Buyer Personally An unpaid seller. 367]. Haines. 4. Rights against goods An unpaid seller has the following rights against the goods: (a) Lien on the goods (b) A right of stoppage in transit (c) A right of re-sale y 2. the seller or any person on his behalf may bid at the auction.Rights of an unpaid seller y y Rights of an unpaid seller may broadly be classified under two heads namely: 1. 3. prima facie. If the seller makes use of pretended bidding to raise the price. and (ii) the right to sue the buyer for damages for non-acceptance. The sale may be notified to be subject to a reserved or upset price. & W. to be the subject matter of a separate contract of sale. A right to bid may be reserved expressly by or on behalf of the seller and where such right is expressly so reserved.8 SALE BY AUCTION (Section 64) y In the case of sale by auction the following rules apply: 1. . 3. At an auction. Any sale contravening this rule shall be treated as fraudulent. 6. until such completion any bidder may withdraw his bid. or for the auctioneer knowingly to take any bid from the seller or any such person. Where the sale is not notified to be subject to a right to bid on behalf of the seller. [Thornett v. 1846.

dividend warrants. 7) As to holder-in-due course 8) As to dishonour 4. signed by the maker to pay a certain sum of money to. or (2) By usage . i. is that its holder in due course. B. and the term 'instrument' means 'any written document by which a right is created in favour of some person. (i) "Mr.Promissory notes. 1000. 5) A negotiable instrument is subject to certain presumptions. Presumptions as to negotiable instruments [Sections 118-119] 1) As to Consideration 2) As to date 3) As to Acceptance 4) As to Transfer 5) As to the order of 6) As to lost Instruments. bearer debentures. the negotiable instrument is a document by which rights vested in a person can be transferred to another person in accordance with the provisions of the Negotiable Instruments Act. for value received. 2) Holder's title free from defects: The holder (of the negotiable instrument) in due course acquires a good title not withstanding any defect in a previous holder's title. 1000. 1881. 4) A negotiable instrument can be transferred infinitum.Another characteristic feature of a negotiable instrument.A 'negotiable instrument' means a promissory note. The term 'negotiable instrument' has been defined as . or (b) by endorsement and delivery. scripts and treasury bills y An instrument is to be called 'negotiable' if it possesses the following characteristic features: 1) Freely transferable .' Thus. can sue on the instrument in his own name. I. bills of exchange and cheques are negotiable instruments under the Negotiable Instruments Act. share warrants.02 PROMISSORY NOTE [Section 4] Definition y A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking. 3) The Holder can sue in his own Name . bill of exchange or cheque payable either to order or to bearer. to be paid on demand.e." y Followings are Not Promissory Notes.CHAPTER 04 NEGOTIABLE INSUTRUMENTS ACT 1881 4.Bank notes." y MAIN FEATURES OF A NEGOTIABLE INSTRUMENT y An instrument may be negotiable either by (1) Statute .01 DEFINITION OF A NEGOTIABLE INSTRUMENT [SECTION 13] y The word 'negotiable' means transferable from one person to another. (I owe you) Rs." y .Transferability may be by (a) delivery. a certain person or to the bearer of the instrument Examples of Promissory Notes ³A´ signs instruments in the following terms: "I acknowledge myself to be indebted to 'B' in Rs.. 1881. bank drafts.U. or to the order of. can be transferred any number of times till its maturity.O. A holder in due course is one who receives the instrument for value and without any notice as to the defect in title of the transferor.

Writing includes print and typewriting. a certain person." (iii) "I promise to pay B Rs. 4. (1) In writing . (5) Certain Parties . It must contain an order to pay and not a promise or request. There must be three parties. 1500 on D's death. 4. It must be duly stamped as per the Indian Stamp Act.Payable 'on demand' means payable immediately or any time till it becomes time-barred. It must be in writing. 500 seven days after my marriage with C. date etc . 4. place.the person to whom the amount of the note is payable. Essentials or Characteristics of a Promissory Note y From the definition.The instrument must point out with certainty the maker and the payee of the promissory note.A promissory note must be in writing. or to the bearer of the instrument. (8) Number. Note that the use of the word `promise' is not essential to constitute an instrument as promissory note. it is deemed to have been made when it was delivered. (2) Promise to pay . otherwise it is of no effect. it cannot be a promissory note. provided he leaves me enough to pay that either the original payee or any other person in whose favour the note been endorsed.If the instrument contains a promise to pay something in addition money. Bills are of different kinds. The Holder . drawee and payee.The promise to pay must not be conditional.These are usually found in a promissory note but are not essential in law. The Payee . 4. 8. 3. which is not so stamped. y Kinds of bills . (4) Signed by the Maker ± The promissory note must be signed by the maker. Thus. (9) It may be payable in installments (10) It may be payable on demand or after a definite period .03 BILL OF EXCHANGE [Section 5] y A 'bill of exchange' is defined by as an instrument in writing. viz. containing an unconditional order. it is clear that a promissory note must have the following essential elements. instruments payable on performance or non-performance of a particular act or on the happening or non-happening of an event are not promissory notes. The order must be to pay money and money alone. 9. 7. (7) Promise to pay money only . 4. is a nullity. It must be signed by the drawer. 4. Number. 10. 2.The sum payable must be certain or capable of being made certain. (11) It cannot be made payable to bearer on demand or even payable to bearer after a certain period (12) It must be duly stamped under the Indian Stamp Act .. date and place are not essential. A demand promissory note becomes time barred on expiry of 3 years from the date it bears.the person in whose favour the note is negotiated by indorsement.It must contain an undertaking or promise to pay. If a promissory note does not bear a date. Some of these are: Characteristic Features of a Bill of Exchange 1.(ii) "I promise to pay B Rs. The Maker . The sum payable must be certain or capable of being made certain. The Endorser .the person who makes the note promising 'to pay the amount stated therein. (6) Certain sum of money . The parties must be certain. directing a certain person to pay a certain sum of money only to or to the order of." Parties to A Promissory Note 1. A promissory note. a mere acknowledgement of indebtedness is not sufficient.It means that the stamps of the requisite amount must have been affixed on the instrument and duly cancelled either before or at the time of its execution. Thus.the person who indorses the note in favour of another person. signed by the maker. 3. The order must be unconditional. The Endorsee . (3) Unconditional . drawer. 2.

The endorsee . 4. the payee. viz. (iv) for a certain sum of money. An acceptance to be valid must be (a) in writing. (ii) contain an unconditional order to pay (iii) drawn on a specified banker. the endorsee. (i) must be in writing. The Payee . Demands Bills the original payee but where the bill has been endorsed. either by the clearing house or by the Bank whether paying or receiving payment.the person to whom the amount of the bill is payable.. immediately on generation of an electronic image for transmission. 1945] When a bill of exchange has been noted or protested for non-acceptance or for better security and any person accepts it supra protest for honour of the drawer or of anyone of the endorsers. After acceptance of the bill by the acceptor for honour. Foreign Bills 3. Thus. 4. such person is called an acceptor for honour.the person on whom the bill is drawn. which contains the exact mirror image of a paper Cheque. The Drawee . M/s Ranchahodas Meghaji. 1. y y The Drawer . and is generated. 2.: (i) it is always drawn on a specified banker. Clean and Documentary Bill Parties to a Bill of Exchange 1. A 'Cheque in the electronic form' means a Cheque. and (ii) it is always payable on demand and not otherwise. substituting the further physical movement of the cheque in the person who endorses a bill. a cheque is a bill of exchange with two added features. viz. (c) on bill of exchange.1. has to present the bill first to the drawee for payment and if it is also dishonoured for payment by the drawee and noted or protested as the case may be it should then be presented to the acceptor for honour for payment. Time Bills (Usance Bills) 5.04 CHEQUE [Section 6] y y y y A cheque is defined as 'a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand¶. A Cheque is a bill of exchange with following features. Inland Bill 2. at the due date. Presentment for acceptance Presentment for payment 4. The endorser . The Holder .is the person to whom the bill is negotiated by endorsement. 2. written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system. and (d) completed by delivery to the holder or by notice of acceptance to him or some person on his behalf [Jagjivan Mauji Vithlani v. Features of a Cheque y . Acceptance for Honour y y PRESENTMENT y Presentment of a negotiable instrument is made for two purposes.the person who draws or makes the bill. A "truncated Cheque" means a Cheque which is truncated during the course of a clearing cycle. (b) signed by the drawee or his agent. Trade and Accommodation Bills 4. ACCEPTANCE The acceptance of a bill is the indication by the drawee of his assent to the order of the drawer. 5. 3.

Marking or certification is a method adopted when the paying banker verifies the customer's account and indicates thereon that there are enough funds in his account torn that cheque. Crossing on a cheque is a direction to the paying banker by the drawer that payment should not be made across the counter. Cheques in electronic form In view of the banking transforming from traditional banking to e-banking. As payment cannot be claimed across the counter on a crossed cheque. Crossing may be either (1) General . and it is always payable on demand and not otherwise. A cheque without a date is considered incomplete and is returned unpaid by the banks. The addition of 'A/c payee' to a crossing has no legal sanctity and the paying banker may ignore such a direction without being liable for any damages. The Banker. like that of the cheque on which payment is due.(v) (vi) (vii) (viii) (ix) y the payee must be a definite person. The drawer of a cheque. Dating of cheques y y Crossing of cheques y y y Significance of crossing y Types of crossing y y Account Payee Crossing (A/c Payee Crossing) y Who can cross a cheque y Marking of cheques y Material alterations y Ex(i) . A cheque may be crossed by any of the following: 1. the electronic form or electronic image of a Cheque as a valid Cheque has also now been recognized [Negotiable Instruments (Amendment) Act. i.implies the specification of the name of the banker on the face of the cheque The object of special crossing is to direct the drawee banker to pay the cheque only if it is presented through the particular bank mentioned therein. The holder of a cheque. 2002]. Bombay Bullion Association (1965)]. between two parallel transverse lines or of two parallel transverse lines simply. amount must be written both in figures and words. A cheque that is not crossed is called an `open cheque`. in whose favour the cheque has been crossed specially. A post-dated cheque is as much negotiable as a cheque for which payment is due. either with or without the words 'not negotiable'. if he is a holder in due course.e. the transferee of a post-dated cheque. acquires a better title than its transferor. it is always drawn on a specified banker. An A/c payee crossing signifies that the drawer intends the payment to be credited only to the payee¶s account and in none else. 2. it must be dated. date. The payment on a crossed cheque can be collected only through a banker. Crossing of a cheque is effected by drawing two parallel transverse lines with or without the words 'and company' or any abbreviation thereof. The drawer of a Cheque is expected to date it before it leaves his hands. It is a peculiar method of modifying the instrument to the banker for payment of the cheque. crossing of cheques serves as a measure of safety against theft or loss of cheques in transit. An alteration is material if it alters materially or substantially the operation of the instrument and thereby the rights and liabilities of the parties. it makes the cheque system still safer. Crossing is a unique feature associated with a cheque affecting to a certain extent the obligation of the paying banker and also its negotiable mean as where a cheque bears across its face an addition of the words 'and company' or any abbreviation thereof. that addition shall be deemed a crossing and the cheque shall be deemed to be crossed generally (2) Special . [Sita Ram v. Marking only certifies the genuineness of the drawer's signature and the sufficiency of funds. Thus. 3..

(vi) the relationship between parties. A 'holder in-due-course' y y 4. A 'holder in-doe-course'. that negotiable instrument is either wholly blank or having written thereon. (vii) legal character of the instrument. An alteration made by an outsider or stranger to the instrument will be considered as an alteration made by the holder himself as it is the duty of the holder to preserve the instrument. which has not been. crossing of cheques. (vii) Forged Instruments . Even a holder in due c 4. (i) (ii) (iii) (iv) 4. and where a cheque is crossed specially. Inchoate Instruments (Section 20) . (iii) the place of payment. he may be a holder but will not be called as a holder in due course.the holder may at his election treat it as either and the instrument shall be thenceforward treated accordingly. his agent for collection.(ii) the time of payment. crossing it specially to another banker.the amount stated in words shall be the amount undertaken or ordered to be paid. y The maker of the instrument has thereby prima facie authorises the holder thereof to make or complete. Alterations which are not material filling blanks of the instrument.06 CERTAIN IMPORTANT CONCEPTS AND EXPLANATIONS Ambiguous Instrument (Section 17) . for any amount therein but not exceeding the amount covered by the stamp. 58) . Such an instrument is thus incomplete (inchoate). and (vi) alteration made with the consent of the parties. where a person receives a negotiable instrument without consideration. consented to by either the drawee or the payee is void as against them.07 DISHONOUR OF A CHEQUE ON GROUNDS OF INSUFFICIENCY OF FUNDS [Sections 138 to 142] y Section 138 to 142 of the Negotiable Instruments Act provide for criminal penalties in the event of . Thus. (iv) the sum payable. altering a general crossing into a special crossing.05 HOLDER AND HOLDER-IN-DUE-COURSE [Section 8 & 9] Holder of negotiable instrument y A holder of a negotiable instrument is a person entitled in his own name to the possession of that negotiable instrument and to receive or recover the amount due thereon from the parties thereto. a forged signature does not confer a good title. (Exception ± when the later (finder) person is holder in due course). free from such forgeries.It means an instrument that is incomplete in certain respects. Lost or Stolen Instruments (Sec. (ix) converting an order cheque into a bearer cheque. Effect of Material Alteration y Any material alteration of a negotiable instrument. on the other hand. (v) canceling the word bearer and making the cheque payable to order. is a person who for consideration became the possessor of a negotiable instrument before the due date of payment of that instrument and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. addition of the words 'account payee' negotiable' to a crossing. the possessor or endorsee who has found or had obtained the instrument by fraud shall not be entitled to receive the amount due thereon from such maker of the lost instrument. (viii) opening a crossed cheque. (v) the number of parties. y Where one person signs and delivers to another person a duly stamped negotiable instruments and however.In such instances. y It is immaterial as to who makes the alteration. Where Amount is stated differently in Figures and Words (Section 18) .As a general rule. the banker to whom crossed. conversion of blank endorsement into endorsement in full.

Kuchil Kumar Nandi (1998)]. Nagarjuna Investments (1997) and N. may be punished with imprisonment upto 2 years (earlier I year) or with a fine up to twice the amount of the cheque or with both. every trial shall be conducted as expeditiously as possible and an endeavour shall be made to conclude the trial within six months from the date of filing of the complaint. This is a cognizable offence and shall be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class. 138. be continued from day to day. so far as practicable. Further. Anil Bhalla (2001). Every offence punishable under Negotiable Instruments Act shall be compoundable (Section 147) y y y y 4. It has been now provided that offences for dishonour of cheques shall be tried by a Judicial magistrate of the first class or by a Metropolitan Magistrate. Offences by companies y y POWER OF COURT TO TRY CASES SUMMARILY [SECTION 143] y This is a non-obstante clause. demanding payment within 30 days (5). Mittal Stainless Steel vs. Drawer liable upon failure to pay within 30 days` Upon failure Complaint in writing. (1996)]. (4) when the drawee could not be found after a reasonable search. following conditions must be satisfied:  (1). under Sec. secretary or other officer of the company shall be liable to be proceeded against and punished accordingly in case the offence has been committed with the consent or connivance. shall have to make a police complaint in this regard.f. the maximum sentence that may be passed by the Magistrate shall be imprisonment for a term not exceeding one year and an amount of fine not exceeding five thousand rupees. Ltd. The trial shall. (ii) Request to the payee not to present the cheque till further information [Modi Cement Ltd. Dishonour by Non-Payment . (5) where the acceptance is qualified. Magna Leasing Ltd. Cheque should be presented to the paying bank within the validity period (generally 6 months from the date on which it is drawn) (4).08 DISHONOUR OF BILL OF EXCHANGE 1.E. It overrides the provisions contained in the Code of Criminal Procedure. (6) where one or more of the several drawees refuse to accept the bill. not accept it within 48 hours from the time of presentment for acceptance. The enhancement in the penal provisions was made by Negotiable Instruments (Amendment) Act 2002 w. manager.2003.M. (i) where such person proves that the offence was committed without his knowledge.Payment against an enforceable debt (3).2. (2) when presentment for acceptance is excused and it remains unaccepted. (2). The drawer. . (iii) where he is nominated as a Director of a company by the Central Government or State Government or financial institutions.P. (iii) Cheque received back from the payee-bank with the remarks 'Account Closed' [G. Micon Ltd. vs. or (ii) where he had exercised all due diligence to prevent the commission of such offence. or is attributable to any neglect on his part in this regard. v. Ltd. consistent with the interests of justice.Rajneesh Aggarwal v. In the case of summary trial. v. a person will not be liable in a case. Insufficiency of funds The Courts have held the following amounting to dishonour for insufficiency of funds: (i) Stop-payment instructions to the payee-bank [ET & TD Corpn. In order to attract the aforesaid penalties. Id Technologies & Engross P. However. A director. (1999)]. Payee to serve Default Notice.e. (3) when the drawee is a person incompetent to contract. Offence triable by 1st Class Magistrate y The payee having failed to receive the payment within 30 days` of notice of dishonour of the cheuqe.y dishonour of cheques for insufficiency of funds. 2. 1973. Dishonour by Non-Acceptance (Section 91) (I) When the drawee does. C. 4.

4. and the manner in which. (6) Where the promissory note is not negotiable. 'Noting' must be made within a reasonable time after dishonour. the formal protest may be drawn up by the notary at his leisure. (1) (2) (3) (4) (5) When it is dispensed with by the party entitled thereto. such acceptance or payment was offered and effected. Signature of the notary public. if any. When the payment has been countermanded by the drawer or endorser. If the instrument has been expressly dishonoured. When the party entitled to notice cannot after reasonable search be found. the name of the person by whom or the person for whom. Each party receiving notice of dishonour must in order to render any prior party liable to himself give notice of dishonour to such party within a reasonable time after he has received it. or a literal transcript thereof. knowing the facts. given by the acceptor. promises unconditionally to pay the amount due on the instrument. When the protest is drawn up it relates back to the date of noting. (8) When the party entitled to notice. besides giving the above notice. death or serious illness of the holder or his agent or any other accident. Where the party liable to give notice is unable. The names of the parties against whom the instrument is protested. Place and time of dishonour or refusal to give better security. The notice may be oral or in writing though for safety it is advisable to give a written notice. to give it. the reason why the holder treats it as dishonoured and the notary's charges should be metioned. Notice of dishonour unnecessary NOTING y Noting is a convenient method of authenticating the fact of dishonour. y PROTESTING y The protest is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. y . e.Notice of Dishonour y When a negotiable instrument is dishonoured by non-acceptance or non-payment. After the noting has been made. should get the bill or promissory note 'noted' by the notary public. the holder. the holder must give notice of dishonour to the drawer and all other parties whom he seeks to make liable. 2. The notary public presents the instrument. Where an instrument is dishonoured. 4. The instrument itself. 4. The fact and reason/reasons for dishonour. A protest to be valid must contain the following particulars: 1.g. (7) In case the drawer himself is acceptor. 3. In the event of an acceptance for honour or of a payment for honour. no notice is necessary to charge the drawer. When the party charged could not suffer damages for want of notice. notes down in his register date of its dishonour and the reason. without any fault of its own.

even if no notice of dishonour is given. 2) A note contains an unconditional promise by the maker to pay the payee. A party who does not receive a notice of dishonour can generally escape its liability thereon. . 6) The maker of the note stands in immediate relation with the payee. 6) The maker or drawer does not stand in immediate relation with the acceptor drawee. 5) Crossing of a bill of exchange is not possible. 2) It contains an unconditional order to the drawee to pay according to the drawer`s directors. 3) A usance (time) bill is entitled to three days of grace. 5) No notice of dishonour need be given. specified time. 3) No prior acceptance is needed. 7) A bill is noted or protested to establish dishonour. 4) The liability of the maker or drawer is primary and absolute. 2) The amount may be payable on demand or after a. 4) Acceptance is not needed.4. 4) A bill payable after sight must be accepted.although any two of these capacities may be filled by one and the same person. 8) The protection given to the paying banker in respect of crossed cheques is peculiar to this instrument. Promissory Note 1) There are only two parties ± the maker (debtor) and the payee (creditor). 3) The cheque is not entitled to days of grace. the drawee and the payee. Bill of Exchange 1) It can be drawn on any person including a banker. 4) The liability of the drawer is secondary and conditional upon non-payment by the drawee. 5) Notice of dishonour must be given by the holder to the drawer and the intermediate endorsers to hold them liable thereon. 8) No such protection is available in the case of bills. 5) A cheque can be crossed 6) Notice of dishonour is not necessary. Bill of Exchange 1) There are three parties ± the drawer.09 IMPORTANT DISTINCTIONS Cheque 1) It must be drawn only on a banker. 6) Notice of dishonour is necessary to hold the parties liable thereon. 2) The amount is always payable on demand. 7) A cheque is not to be noted or protested in case of dishonour. The parties thereon remain liable. 3) A bill payable `after sight` must be accepted by the drawee or his agent before it is presented for payment.

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