15 marks

1. DISCUSS THE RIGHTS OF A CONSUMER ACCORDING TO THE CONSUMER

PROTECTION ACT.

Although businessman is aware of his social responsibilities even then we come across many
cases of consumer exploitation.

That is why government of India provided following rights to all the consumers under the
Consumer Protection Act:

1. Right to Safety:
According to this right the consumers have the right to be protected against the marketing of
goods and services which are hazardous to life and property, this right is important for safe
and secure life. This right includes concern for consumer’s long term interest as well as for
their present requirement.

Sometimes the manufacturing defects in pressure cookers, gas cylinders and other electrical
appliances may cause loss to life, health and property of customers. This right to safety
protects the consumer from sale of such hazardous goods or services.

2. Right to Information:
According to this right the consumer has the right to get information about the quality,
quantity, purity, standard and price of goods or service so as to protect himself against the
abusive and unfair practices. The producer must supply all the relevant information at a
suitable place.

3. Right to Choice: According to this right every consumer has the right to choose the goods
or services of his or her likings. The right to choose means an assurance of availability,
ability and access to a variety of products and services at competitive price and competitive
price means just or fair price.

The producer or supplier or retailer should not force the customer to buy a particular brand
only. Consumer should be free to choose the most suitable product from his point of view.

4. Right to be Heard or Right to Representation:

According to this right the consumer has the right to represent him or to be heard or right to
advocate his interest. In case a consumer has been exploited or has any complaint against the
product or service then he has the right to be heard and be assured that his/her interest would
receive due consideration.

This right includes the right to representation in the government and in other policy making
bodies. Under this right the companies must have complaint cells to attend the complaints of
customers.

5. Right to Seek Redressal:

According to this right the consumer has the right to get compensation or seek redressal
against unfair trade practices or any other exploitation. This right assures justice to consumer
against exploitation.

The right to redressal includes compensation in the form of money or replacement of goods
or repair of defect in the goods as per the satisfaction of consumer. Various redressal forums
are set up by the government at national level and state level.

6. Right to Consumer Education:

According to this right it is the right of consumer to acquire the knowledge and skills to be
informed to customers. It is easier for literate consumers to know their rights and take actions
but this right assures that illiterate consumer can seek information about the existing acts and
agencies are set up for their protection.

The government of India has included consumer education in the school curriculum and in
various university courses. Government is also making use of media to make the consumers
aware of their rights and make wise use of their money.

2.DIFFRENCE BETWEEBN TRADEMARK AND PATENT.

Definition of Trademark

The term ‘trademark’ is used to mean a visual symbol, which indicates the source of product
or services. It entails signature, name, label, logo, slogan, combination of colours, numerals,
or any of these elements, used to distinguish the product or service from other similar goods
or services.

In short, a trademark is a distinctive sign, which recognises certain goods or services,

produced under a specific brand name. It is used to provide protection to the mark owner, by
granting an exclusive right for using it or to authorise another party to use it for adequate
consideration.

One can register the trademark with the appropriate authority for availing its use over a
number of years. The period of protection differs. However, it can be renewed end number of
times, by paying additional fees. One of the major advantages of the trademark is that the
protection hampers the efforts made by unfair competitors, i.e. counterfeiters, to use a similar
mark to sell the inferior quality product.

Definition of Patent

By the term ‘patent’ we mean the exclusive rights conferred by the government of the
country, for a definite period, to the owner of the invention, for the new and useful invention
which encompasses an innovative step. It can either for a product or process. It empowers
inventor to exclude others from producing, using or selling the patented invention.

The inventor enjoys proprietary rights over the patented invention and authorises the patentee
(agent) to use the invention. The greatest benefit of the patent is that the product is prevented
from unauthorised use, during the term of the patent. The registration of patent is obligatory,
i.e. one has to get the invention to avail the benefits of protection. Further, patentability
requires the invention to be novel, non-obvious and industrially applicable.
 BASIS FOR
TRADEMARK PATENT
COMPARISON

Meaning Trademark connotes a symbol, which Patent is described as the

is used by the companies to distinguish monopoly conferred by the
their products or services from those of government, for a set period
the competitors. over a new and useful invention.

Applicable to Marks or symbols on goods, which Inventions of any kind.

represent the brand offering the item.

Protection Protects goodwill tied with the mark. Ideas, which are turned to
reality.

Awarded for Distinctiveness Novelty and non-obviousness

Prevents Other from using a mark which too Others from producing, using or
nearly resembles with the company's selling the patented product.
mark.

Registration Discretionary Compulsory

Term 10 years 20 years

4. Definition of negotiable instrument and its character

What are Negotiable Instruments?

A negotiable instrument is actually a written document. This document specifies payment to a

specific person or the bearer of the instrument at a specific date. So we can define a bill of
exchange as “a document signifying an unconditional promise signed by the person giving
promise, requiring the person to whom it is addressed to pay on demand, or at a fixed date or
time, a certain sum to or to the order of a specified person, or to bearer.”

Important characteristics of Negotiable Instruments are:

 1. Property: The possessor of negotiable instrument is acknowledged to be the owner of
property contained therein. Negotiable instrument does not simply give ownership of the
instrument but right to property as well. The property in negotiable instrument can be
moved without any formality. In the case of bearer instrument, the possessions pass by
meager delivery to the transferee. In case of order instrument, endorsement & delivery
are necessary for transfer of property.
2. Title: The transferee of negotiable instrument is called ‘holder in due course.’ A genuine
transferee for value is not affected by any flaw of title on the part of transferor or of any
of the previous holders of instrument.
3. Rights: The transferee of negotiable instrument can take legal action in his own name, in
case of dishonor. A negotiable instrument can be reassigned any number of times till it
is attaining maturity. The holder of instrument need not give notice of transfer to the
party legally responsible on the instrument to pay.
4. Presumptions: Certain presumptions are applicable to all negotiable instruments i.e., a
presumption that deliberation has been paid under it. It is not essential to write in
promissory note the words ‘for value received’ or alike expressions for the reason that
the payment of consideration is acknowledged. The words are typically included to
generate additional substantiation of consideration.
5. Prompt payment: A negotiable instrument facilitates the holder to anticipate prompt
payment because dishonor refers to the ruin of credit of all persons who are parties to the
instrument.
Features of Negotiable Instruments

 Easily Transferable: A negotiable instrument is easily and freely transferable. There are
no formalities or much paperwork involved in such a transfer. The ownership of an
instrument can transfer simply by delivery or by a valid endorsement.

 Must be Written: All negotiable instruments must be in writing. This includes

handwritten notes, printed, engraved, typed, etc.

 Time of Payment must be Certain: If the order is to pay when convenient then such an
order is not a negotiable instrument. Here the time period has to be certain even if it is not
a specific date. For example, it is acceptable if the time of payment is linked with the
death of a specific individual. As death is a certain event.

 Payee also must be certain: The person to whom the payment is to be made must be a
specific person or persons. Also, there can be more than one payee for a negotiable
instrument. And “person” includes artificial persons as well, like body corporates, trade
unions, chairman, secretary etc.
Key Differences Between Memorandum of Association and Articles of Association
Definition of Memorandum of Association

Memorandum of Association (MOA) is the supreme public document which contains all that
information that are required for the company at the time of incorporation. It can also be said
that a company cannot be incorporated without memorandum. At the time of registration of
the company, it needs to be registered with the ROC (Registrar of Companies). It contains the
objects, powers, and scope of the company, beyond which a company is not allowed to work,
i.e. it limits the range of activities of the company.

Definition of Articles of Association

Articles of Association (AOA) is the secondary document, which defines the rules and
regulations made by the company for its administration and day to day management. In
addition to this, the articles contain the rights, responsibilities, powers and duties of members
and directors of the company. It also includes the information about the accounts and audit of
the company.

The major differences between memorandum of association and articles of association are
given as under:

1. Memorandum of Association is a document that contains all the condition which are
required for the registration of the company. Articles of Association is a document
that contains the rules and regulation for the administration of the company.
2. Memorandum of Association is defined in section 2 (56) while the Articles of
Association is defined in section 2 (5) of the Indian Companies Act 1956.
3. Memorandum of Association is subsidiary to the Companies Act, whereas Articles of
Association is subsidiary to both Memorandum of Association as well as the Act.
4. In any contradiction between the Memorandum and Articles regarding any clause,
Memorandum of Association will prevail over the Articles of Association.
5. Memorandum of Association contains the information about the powers and objects
of the company. Conversely, Articles of Association contain the information about the
rules and regulations of the company.
6. Memorandum of Association must contain the six clauses. On the other hand, Articles
of Association is framed as per the discretion of the company.
7. Memorandum of Association is obligatory to be registered with the ROC at the time
of registration of Company. As opposed to Articles of Association, is not required to
be filed with the registrar, although the company may file it voluntarily.
8. Memorandum of association defines the relationship between company and external
party. On the contrary, articles of association govern the relationship between the
company and its members and also between the members themselves.
 9. When it comes to scope, the acts performed beyond the scope of memorandum are
absolutely null and void. In contrast, the acts done beyond the scope of artciles can be
ratified by unanimous voting of all shareholders.

BASIS FOR ARTICLES OF

MEMORANDUM OF ASSOCIATION
COMPARISON ASSOCIATION

Meaning Memorandum of Association is a Articles of Association is a

document that contains all the document containing all the
fundamental information which are rules and regulations that
required for the incorporation of the governs the company.
company.

Defined in Section 2 (56) Section 2 (5)

Type of Information Powers and objects of the company. Rules of the company.
contained

Status It is subordinate to the Companies Act. It is subordinate to the

memorandum.

Retrospective Effect The memorandum of association of the The articles of association

company cannot be amended can be amended
retrospectively. retrospectively.

Major contents A memorandum must contain six clauses. The articles can be drafted as
per the choice of the
company.

Obligatory Yes, for all companies. A public company limited by

shares can adopt Table A in
place of articles.

Compulsory filing at Required Not required at all.

the time of
Registration

Alteration Alteration can be done, after passing
Special Resolution (SR) in Annual
General Meeting (AGM) and previous
approval of Central Government (CG) or
Company Law Board (CLB) is required.
Alteration can be done in the
Articles by passing Special
Resolution (SR) at Annual
General Meeting (AGM)
 BASIS FOR ARTICLES OF
MEMORANDUM OF ASSOCIATION
COMPARISON ASSOCIATION

Relation Defines the relation between company Regulates the relationship

and outsider. between company and its
members and also between
the members inter se.

Acts done beyond Absolutely void Can be ratified by

the scope shareholders.

6. SHORT NOTE:

CAVIET EMPTOR: caveat emptor is a Latin term that means "let the buyer beware." Similar
to the phrase "sold as is," this term means that the buyer assumes the risk that a product may
fail to meet expectations or have defects. In other words, the principle of caveat emptor
serves as a warning that buyers have no recourse with the seller if the product does not meet
their expectations.

The term is actually part of a longer statement: Caveat emptor, quia ignorare non debuit
quod jus alienism emit ("Let a purchaser beware, for he ought not to be ignorant of the nature
of the property which he is buying from another party.") The assumption is that buyers will
inspect and otherwise ensure that they are confident with the integrity of the product (or land,
to which it often refers) before completing a transaction. This does not, however, give sellers
the green light to actively engage in fraudulent transactions.

Caveat Emptor in Practice

Under the principle of caveat emptor, for example, a consumer who purchases a coffee mug
and later discovers that it has a leak is stuck with the defective product. Had they inspected
the mug prior to the sale, they may have changed their mind.

Void: contracts are unenforceable by law. Even if one party breaches the agreement, you
cannot recover anything because essentially there was no valid contract. Some examples of
void contracts include:

 Contracts involving an illegal subject matter such as gambling, prostitution, or

committing a crime.
 Contracts entered into by someone not mentally competent (mental illness or minors).
 Contracts that require performing something impossible or depends on an impossible
event happening.
 Contracts that are against public policy because they are too unfair.
 Contracts that restrain certain activities (right to choose who to marry, restraining
legal proceedings, the right to work for a living, etc.).

Voidable: contracts are valid agreements, but one or both of the parties to the contract can
void the contract at any time. As a result, you may not be able to enforce a voidable contract:
  Contracts entered into when one party was a minor. (The law often treats minors as
though they do not have the capacity to enter a contract. As a result, a minor can walk
away from a contract at any time.)
 Contracts where one party was forced or tricked into entering it.
 Contracts entered when one party was incapacitated (drunk, insane, delusional).

Public Company
A public company is a company that has issued securities through an initial public offering
(IPO) and trades its stock on at least one stock exchange or over-the-counter market.
Although a small percentage of shares are initially floated to the public, daily trading in the
market determines the value of the entire company.It is considered to be "public" since
shareholders, who become equity owners of the company, may be composed of anybody who
purchases stock in the firm.Public companies are publicly traded within the open market, and
a variety of investors buy the shares. Most public companies were once private companies
that, after meeting all regulatory requirements, opted to become public to raise capital.
Examples of public companies include Chevron Corporation, F5 Networks, Inc., Google
LLC, and Proctor & Gamble Company.

Private Companies
The growth of trade and business led to many problems that traditional forms of business did not
solve. For example, the unlimited liability feature of a sole proprietorship form of business
resulted in people forming partnerships, but even that proved to be too inadequate and risky.
This is when the concept of companies emerged, and private companies form of business is the
oldest example of it.

Definition of Private Company: Section 2(68) of Companies Act, 2013 defines private
companies. According to that, private companies are those companies whose articles of
association restrict the transferability of shares and prevent the public at large from subscribing
to them. This is the basic criterion that differentiates private companies from public companies.
The Section further says private companies can have a maximum of 200 members (except for
One Person Companies). This number does not include present and former employees who are
also members. Moreover, more than two persons who own shares jointly are treated as a single
member. This definition had previously prescribed a minimum paid-up share capital of Rs. 1
lakh for private companies, but an amendment in 2005 removed this requirement. Private
companies can now have a minimum paid-up capital of any amount.

Prospectors:

The first step in the sales process is that of locating prospective customers. Prospecting is the
process by which a sales person gets new customers. It is also known as “cold calling “,
“hunting steel” or “pounding the pavement”. New prospects are needed to replace old
customers lost for a variety of a reasons and to replace lost contacts in existing customers due
to plant relocations, turnover, merger’s downsizing and other factors.The word “prospecting”
is a geological or mining term. It means a search made for underground treasure by
geologists. It may be oil, water or even a one searching or prospecting. In salesmanship, the
term “prospecting” is used with a specific meaning. Prospecting is the hint for ‘needers’, who
can be changed into ‘wanters’ and ‘buyers’.A prospect is a qualified person or a unit that has
the potential to buy the firm’s product or service. A prospect should not be confused with the
term ‘lead’. The name of a person or a unit who might be a prospect, is referred to as a ‘lead’.
A ‘Lead’ can be a ‘suspect’ indicating the person or a unit is suspected of a prospect. Once
the ‘lead’ has been qualified, the lead becomes a prospect to know whether a ‘lead’ is a
‘prospect’ or a suspect.

9.Holder in due Course

The despotic but necessary principle relating to negotiable instruments is that a person taking
a negotiable instrument in good faith and for value obtains a valid title though he takes from
one who had none or who was merely a thief. The property in a negotiable instrument is
acquired by anyone who takes it bona-fide and for value, notwithstanding any defect of title in
the person from whom he took it. Now such a person who takes an instrument “in good faith
and for value” becomes the true owner of the instrument and is known as a “holder in due
course”.
According to Section 9 “Holder in due course” means any person who for consideration
became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or
the payee or endorsee thereof, if payable to order, before the amount mentioned in it became
payable and without having sufficient cause to believe that any defect existed in the title of the
person from whom he derived his title.
The essential qualifications of a “holder in due course” may be summed up as follows:
1. He must be a holder for valuable consideration. All the prerequisite of consideration should
be met so as to result in a valuable consideration.
2. That he became the holder of the instrument before its maturity. Thus the person who takes
a negotiable instrument after maturity does not become a holder in due course.
3. That the instrument should be complete and regular on the fact of it. Face here includes the
back also.
4. The last requirement is that the holder should have received the instrument in “good faith”.
There are two methods of ascertaining a person’s good faith, “subjective” and objective”. In
subjective test the Court has to see the holder’s own mind and the only question is “did he take
the instrument honestly”? In objective test, on the other hand, we have to go beyond the
holder’s mind and see whether he exercised as much care in taking the security as a reasonably
careful person ought to have done. Subjective test requires “honesty”, objective “due care and
caution”. Good faith indicates a person takes the instrument without sufficient cause to believe
that any defect existed in the title of the person from whom he derived his title.
Right of a holder in due course
1. Once a negotiable instrument passes through the hands of a holder in due course, it get
cleansed of all defects, unless he himself was a party to fraud or illegality committed regarding
the instrument (S. 53).
2. The maker of a note, or drawer of a bill or cheque, and no accepts of a bill for the honour
of the drawer, will be permitted to deny the validity of the instrument, as originally drawn, in
a suit thereon by a holder in due course.
3. In case of a suit by holder in due course, no maker of a note, or acceptor of a bill payable to
order, will be permitted to deny the validity of the payee’s capacity at the date of the note of a
bill to endorse the same (S.121).
4. Upon a suit by a holder in due course the acceptor cannot take the defence or
accommodation acceptance (S. 36).
5. The holder in due course gets a better title than that of the transferor of the instrument, even
if the title of the transferor was defective, the holder in due course will get a good title. But in
case of a forged instrument, even a holder in due course will get no title, as it is a case of total
absence of title and not a mere defect of title (S. 58).
6. If a note or a bill is negotiated to a holder in due course the liable parties cannot avoid
liability on the ground, that delivery of the instrument was conditional or for a special purpose
(S. 46, 47).
7. When a bill is drawn payable to the drawer’s order on a fictitious name, and is endorsed by
the same hand as drawer’s signature, the acceptor cannot take the plea that the payee was a
fictitious person (S. 42).
8. Where a duly stamped and signed instrument is either left wholly blank or in complete in
some material requirements such as date, amount, payee’s name, and is delivered by one person
to another for the purpose of filling it up. If such a person or any holder fills up more amount,
than what he was authorized to do. The holder in due course of such an instrument can recover
the whole amount, provided the stamp affixed upon it is sufficient to cover the filled sum
(S.20).
10. Short notes
Cyber law is the part of the overall legal system that deals
with the Internet, cyberspace, and their respective legal
issues. Cyber law covers a fairly broad area, encompassing
several subtopics including freedom of expression, access
to and usage of the Internet, and online privacy.
Generically, cyber law is referred to as the Law of the
Internet.Like any law, a cyber law is created to help
protect people and organizations on the Internet from
malicious people on the Internet and help maintain order.
If someone breaks a cyber law or rule, it allows another
person or organization to take action against that person or
have them sentenced to a punishment.

Agency:
An agreement, express , or implied, by which one of the parties, called the principal, confides
to the other, denominated the agent, the management of some business; to be transacted in his
name, or on his account, and by which the agent assumes to do the business and to render an
account of it. As a general rule, whatever a man do by himself, except in virtue of a delegated
authority, he may do by an agent. Hence the maxim qui facit per alium facit per se.
When the agency is express, it is created either by deed, or in writing not by deed, or verbally
without writing. When the agency is not express, it may be inferred from the relation of the
parties and the nature of the employment without any proof of any express appointment.
The agency must be antecedently given, or subsequently adopted; and in the latter case there
must be an act of recognition, or an acquiescence in the act of the agent, from which a
recognition may be fairly implied.
An agency may be dissolved in two ways:

1. By the act of the principal or the agent.

2. By operation of law.

The agency may be dissolved by the act of one of the parties. First, as a general rule, it may
be laid down that the principal has a right to revoke the powers which he has given; but this is
subject to some exception, of which the following are examples. When the principal has
expressly stipulated that the authority shall be irrevocable, and the agent has an interest in its
execution; it is to be observed, however, that although there may be an express agreement not
to revoke, yet if the agent has no interest in its execution, and there is no consideration for the
agreement, it will be considered a nude pact, and the authority may be revoked.
But when an authority or power is coupled with an interest, or when it is given for a valuable
consideration, or when it is a part of a security, then, unless there is an express stipulation that
it shall be revocable, it cannot be revoked, whether it be expressed on the face of the
instrument giving the authority, that it be so, or not. The agency may be determined by the
renunciation of the agent. If the renunciation be made after it has been partly executed, the
agent by renouncing it, becomes liable for the damages which may thereby be sustained by
his principal.
Misrepresentation
Misrepresentation is a wrong statement of fact made innocently, i.e., without any intention to
deceive the other party. A party makes a statement which is not correct but the party making
the statement does not know that it is wrong or it honestly believes that it is correct.

Example:
A, while selling his watch, tells B that his watch is made in Switzerland. A honestly believes
that the watch is made in Switzerland. B purchased the watch. However, it is found later on
that the watch is made in India. A is guilty of misrepresentation.

1. By position statement:
When a person makes a positive representation without any reasonable basis or ground,
honestly believing it to be true though it is not true, he is making a misrepresentation.

2. By breach of duty:
When a person commits a breach of duty which gives him an advantage by misleading
another to his disadvantage, he is making a misrepresentation.

3. When a person induces another person, even innocently to make a mistake regarding the
subject- matter of the agreement, he is making a misrepresentation.

Essentials of Misrepresentation:
1. There must be a representation or omission of a material fact.

2. The representation or omission of duty must be made with a view to inducing the other
party to enter into contract.

3. The representation or omission of duty must have induced the party to enter into contract.
 4. The representation must be wrong but the party making the representation should not know
that it is wrong. In other words, the party making the representation should believe honestly
that it is true.

Consequences of Misrepresentation
1. Aggrieved party may avoid the contract.

2. Aggrieved party may accept the contract but insist that he shall be placed in the position in
which he would have been had the representation been true. In other words, claim the
difference.

3. Where the aggrieved party had the means to discover the truth with ordinary diligence, the
contract cannot be avoided.

Breach of contract is a legal cause of action and a type of civil wrong, in which a binding
agreement or bargained-for exchange is not honored by one or more of the parties to the
contract by non-performance or interference with the other party's performance. Breach
occurs when a party to a contract fails to fulfill its obligation(s) as described in the contract,
or communicates an intent to fail the obligation or otherwise appears not to be able to
perform its obligation under the contract. Where there is breach of contract, the resulting
damages will have to be paid by the party breaching the contract to the aggrieved party.
It is important to bear in mind that contract law is not the same from country to country. Each
country has its own independent, free standing law of contract. Therefore, it makes sense to
examine the laws of the country to which the contract is governed before deciding how the
law of contract (of that country) applies to any particular contractual relationship.

11. OBJECTIVE OF CONSUMER PROTECTION ACT.

The main objectives of the Act are to:
 Ensure fair, competitive and responsible markets that work well for consumers and promote
ethical business practices.
 To promote and protect the economic interests of consumers.
 To improve access to information that consumers require, to make informed choices
according to their individual needs.
 To protect consumers from hazards to their well being and safety.
Consumers have the right to:
Equality: Businesses must not unfairly discriminate against any person based on gender, race
or socio-economic status when they provide goods or services.
All consumers should be given the same treatment, access to services, prices and quality
when they buy goods.
Privacy: Businesses should not supply customers with goods and services that are unwanted.
A consumer may block unwanted marketing and the business must
abide by instructions from the consumer.
Choice: For example the right to select a supplier, the right to examine goods and the right to
return goods.
What are my rights as a consumer?
 The right to consumer education
Consumers must be able to acquire the knowledge and skills needed to make informed and
 confident choices about goods and services, while being aware of basic consumer rights and
responsibilities and how to act on them.
 The right to disclosure and information Consumers must be provided with the facts needed to
make informed choices to ensure their protection against dishonest or misleading advertising
and labelling.
 The right to choice
Consumers should be able to choose from a range of products and services, offered at
competitive prices, with the assurance of satisfactory quality.
 The right to representation
Consumer interests should be represented in the making and execution of government policy,
and development of products and services.
 The right to redress
Consumers must receive a fair settlement of just claims, including compensation for
misrepresentation, or shabby goods or services.
 The right to safety
From a trade and industry perspective, consumers should be protected against production
processes, products and services that are dangerous to health or life.
 The right to a healthy environment
Consumers should be able to live and work in an environment that is not threatening to the
well-being of present and future generations.

13.Essential element of valid acceptance and offer.

1. Acceptance must be given by the person to whom the proposal is made:
An acceptance to be valid must be given only by a person to whom offer has been given. In
other words, acceptance must move from the offeree and no one else.
2. Acceptance can be given only when the acceptor has the knowledge of the offer:
Acceptance therefore cannot be given without the knowledge of offer, as in case of Lalman
Shukla v Gauri Dutt.

3. The acceptance must be absolute and unconditional:

It is another important essential element of a valid acceptance. A valid contract arises only if
the acceptance is absolute and unconditional. It means that the acceptance should be in total
(i.e. of all the terms of the offer), and without any condition.

Thus, an acceptance with a variation is no acceptance. It is simply a counter offer. A counter

offer puts an end to the original offer, and it cannot be revived by subsequent acceptance.

4. The acceptance must be given within the time prescribed or within a reasonable time:
Sometimes, the time limit is fixed within which an acceptance is to be given. In such cases,
the acceptance must be given within the fixed time limit. In case, no time is prescribed, the
acceptance should be given within a reasonable time. The term ‘reasonable time’ depends
upon the facts and circumstances of each case.

5. The acceptance must be given before the lapse of offer:

A valid contract can arise only when the acceptance is given before the offer has elapsed or
withdrawn. An acceptance which is made after the withdrawal of the offer is invalid, and
does not create any legal relationship.
6. The acceptance must be communicated:
It is an important and essential element of a valid acceptance. The definition of acceptance as
given in Sec. 2(b) emphasises this requirement. According to this, the consent to the offer
should be signified (i.e. indicated or declared).

In other words, the acceptance is completed only when it has been communicated to the
offeror. It may be noted that until the acceptance is communicated, it does not create any
legal relations.

7. The acceptance must be communicated to the offer or himself:

A valid contract arises only if the acceptance is communicated to the offeror himself. If
acceptance is communicated to the person, other than the offeror, it will not create any legal
relationship. In fact, such communication is no communication at all.

8. The acceptance must be in the prescribed manner:

It is the legal rule of the acceptance that it must be accepted in the prescribed manner. If the
offer is not accepted in the prescribed manner, then the offeror may reject the acceptance
within reasonable time.It may, however, be noted that, if the offeror does not reject the
acceptance within a reasonable time then he becomes bound by acceptance. [Sec. 7(2)]

9. The acceptance must be given in some usual and reasonable manner:

It is another important legal rule of an acceptance that where no mode is prescribed,
acceptance must be given in some usual and reasonable manner. In such cases, the mail
course is considered, a very reasonable manner.

10. The acceptance must show an intention that acceptor is willing to fulfil the terms of the
offer:
A valid contract can arise only when the acceptance is given with the intention of fulfilling
the terms of the contract. An acceptance which is made jokingly and without any intention of
entering into a contract is invalid and does not create any legal relationship.

11. The acceptance may be express or implied:

An acceptance, which is expressed by words written or spoken, is called an express
acceptance.

12. The acceptance cannot be presumed from silence:

Sometimes, the acceptor does not convey his decision to the offer or/and keeps silent. In such
a case, his silence does not amount to acceptance. Similarly, the offeror does not have the
legal rights to say that if no answer is received within a certain time, the offer shall be
deemed to have been accepted.He (the offeror) cannot impose a condition that offeree’s
silence will be regarded as equivalent to acceptance.

Essential Elements Of A Valid Offer

1. The offer must be communicated to the other party: The offer is completed only when it
has been communicated to the offeree. Until the offer is communicated, it cannot be
 accepted. Thus, an offer accepted without its knowledge does not confer any legal rights
on the acceptor.
2. The offer must be made with a view to obtain the consent of the offeree: When a
person is making an offer it means that he is making it with a view to obtain the consent
of the offeree. As soon as the offeree accepts it, the offeror is bound by it.
3. The offer must have its terms definite and clear: The terms of an offer must be
definite, clear and certain. If the terms of the offer are vague and uncertain, no contract
will come into existence.
4. The offer must be capable of creating legal relationship: An offer must be such that
when accepted it will result in a valid contract. A mere social invitation cannot be
regarded as an offer, because if such an invitation is accepted it will not give rise to any
legal relationship.
5. The offer must express the final willingness of the offeror: The terms of the offer
should be such that they contain final willingness of the offeror. Sometimes, a party does
not express his final willingness but proposes certain terms on which he is willing to
negotiate. In such cases, he is not making an offer because he is not expressing his final
willingness to enter into a contract.

15.Difference Between Agreement and Contract

There is an old statement, “All contracts are an agreement, but all agreements are not
contracts” which implies that agreement is different from a contract. Without knowing the
fact, we enter into hundreds of agreement daily, which may or may not bound us legally.
Those which bind us legally are known as a contract, while the rest are agreement.

In this way, the Indian Contract Act came into force, which was enacted by the British
Government because at that time they were ruling on India. The act gives a base to all the
agreements and contracts. This act was applicable in all over the country except in the state of
Jammu & Kashmir.

Now let’s understand the basic and special differences between Agreement and Contract
concerning the Indian Contract Act, 1872.

BASIS FOR
AGREEMENT CONTRACT
COMPARISON

Meaning When a proposal is accepted by the person When an agreement is

to whom it is made, with requisite enforceable by law, it
consideration, it is an agreement. becomes a contract.

Elements Offer and Acceptance Agreement and

Enforceability

Defined in Section 2 (e) Section 2 (h)

 BASIS FOR
AGREEMENT CONTRACT
COMPARISON

In writing Not necessarily Normally written and

registered

Legal obligation Does not creates legal obligation Creates legal obligation

One in other Every agreement need not be a contract. All contracts are agreement

Scope Wide Narrow

Definition of Agreement

When a person (promisor) offers something to someone else (promisee), and the concerned
person accepts the proposal with equivalent consideration, this commitment is known as the
agreement. When two or more than two persons agree upon the same thing in the same sense
(i.e. Consensus ad idem), this identity of minds is agreement. The following are the types of
agreement are as under:

 Wagering Agreement
 Void Agreement
 Voidable Agreement
 Implied Agreement
 Express Agreement
 Conditional Agreement
 Illegal Agreement.

It can also be defined as the contract which lacks enforceability by law is known as the
agreement.

Definition of Contract

To be precise, a legally enforceable agreement for doing or not doing an act is known as a
contract. A contract must contain these elements: Offer and Acceptance, Adequate and
Unconditional Consideration, Free Consent, Capacity, Lawful object, Certainty, Intention of
creating legal obligations, and the Agreement should not be declared void.

The contract may be oral or written. The major types of contract are as under:

 Void Contract
 Voidable Contract
 Valid Contract
 Unilateral Contract
  Bilateral Contract
 Express Contract
 Tacit Contract
 Contingent Contract
 Implied Contract
 Executed Contract
 Executory Contract
 Quasi Contract etc.

Key Differences Between Agreement and Contract

The points given below are substantial so far as the difference between agreement and
contract is concerned:

1. Promises and commitments forming consideration for the parties to the same consent
is known as an agreement. The agreement, which is legally enforceable is known as a
contract.
2. The agreement is defined in section 2 (e) while a Contract is defined in section 2 (h)
of the Indian Contract Act, 1872.
3. The major elements of an agreement is the offer and its acceptance by the same
person to whom it is made, for adequate consideration. Conversely, the major
elements of an agreement are agreement and its enforceability by law.
4. Every agreement is not a contract, but every contract is an agreement.
5. An agreement needs not to be given in writing, but the contracts are normally written
and registered.
6. The agreement does not legally bound any party for the performance. In the Contract,
the people are legally bound to perform their part.
7. The scope of the agreement is wider than a contract because it covers all types of
agreement as well as contract. On the contrary, the scope of a contract is relatively
narrower than an agreement because it covers only that agreement which have legal
enforceability.

16.Classification of contract.
1. Express Contract
A contract is said to be an express contract, if the terms of a contract are expressly agreed
upon between the parties (either by words spoken or written) at the time of formation of the
contract. An express promise results in express contract. A promise is said to be an express
promise, when the offer or acceptance of any promise is made in words.

2. Implied Contract
An implied contract is one for which the proposal or acceptance is made otherwise than in
words. Where the proposal or acceptance of any promise is made otherwise than in words,
the promise is known as implied promise. Implied contracts are inferred from the
circumstances of the case and conduct of the parties.
3. Quasi – Contract

A quasi-contract is one, which is created by law. In the quasi-contract, there is no intention

on either side to make a contract. In a quasi contract, rights and obligations arise not by an
agreement but by operations of law.

For example, where certain letters are delivered to a wrong addressee, the addressee is under
an obligation to return the letters.

Classification of Contracts according to performance

According to the extent of performance of contracts, contracts may be classified as

1. Unilateral Contract, and

2. Bilateral Contract.
1. Unilateral Contract
It is also called as one-sided contract. In a unilateral contract, only one party has to satisfy his
obligation at the time of the formation of it, the other party having fulfilled his obligation at
the time of the contract or before the contract comes into existence.

For example, A takes a public auto to go to Mount Road. A contract comes into existence as
soon as A was dropped in Mount Road. By that time, auto man has fulfilled his obligation,
only A has to fulfill his obligation i.e. paying the auto- man.

2. Bilateral Contract
A contract is said to be a bilateral contract where the obligations of both the parties to the
contract are pending at the time of formation of the contract. In this type of contract, a
promise on one side is exchanged for a promise on the other.

For example, A promises to stitch a blouse and 0 promises to pay Rs.30. Here A promises to
stitch the blouse and 0 promises to pay. Thus each party is both a promisor and a promisee.

Classification of Contracts according to execution

According to the execution of the contracts, contracts are classified into 2 as

1. Executed Contract, and

2. Executory Contract.
1. Executed Contract
A contract is said to be executed contract when both the parties to contract have performed
their share of obligation.

2. Executory Contract
An executory contract is one, which is either wholly unperformed, or something remains in
there to be done by both the parties to contract. Sometimes, a contract may be partly executed
and partly executory.

Other Contracts
Besides the above said classification, there are other types of contract also. Contingent
Contract is one such type.
1. Contingent Contract
Contingent contract is one, which is collateral to do or not to do something, if some event
collateral to such contract, does or does not happen. For example, A agrees to sell a certain
piece of land to B, in case he succeeds in his litigation concerning that land. This is a
contingent contract.

The essential elements of a contingent contract are:

1. There is an uncertain event,

2. The uncertain event is collateral to the contract,
3. The performance of the contract depends upon the contingency.

Contracts of insurance, indemnity and guarantee are the commonest instances of a contingent
contract.

17.Bailment & Pledge

A bailment is a special contract defined under section 148 of the Indian Contract Act, 1872. It
is derived from a French word i.e. “bailer” which means “to deliver”[2]. The etymological
meaning of bailment is “handing over”or “change of possession of goods”. By bailment, we
mean delivery of goods from one person to another for a special purpose on the contract that
they shall reimburse the goods on the fulfilment of the purpose or dispose of them as per the
direction of the bailor. The person who delivers the goods is known as bailor. And the person
to whom the goods are given is known as Bailee. And the property bailed is known as Bailed
Property.

Essentials of Bailment

 There shall be a contract between the parties for the delivery of goods,
 The goods shall be delivered for a special purpose only,
 Bailment can only be done for movable goods and not for immovable goods or
money,
 There shall be a transfer of possession of goods,
 Ownership is not transferred to Bailee, therefore Bailor remains the owner,
 Bailee is duty bound to deliver the same goods back and not any other goods.

Duties of a Bailor

Section 150 of the Indian Contract Act, 1872 bound the bailor with certain duties to disclose
the latent facts specifically pertaining to defect in goods. Bailor’s duty of disclosure are:

 Gratuitous Bailment: It is the duty of the bailor to disclose all the defects in the
goods that he is aware of to the Bailee that can interfere with the use of goods or can
expose him to extraordinary risks. And failure to do the same will make bailor liable
for damages.
 Non Gratuitous Bailment (Bailment for Reward):This duty particularly deals
with the goods given on hire. As per this provision, when the goods are bailed for
hire, then in such a situation even if the bailor is aware of the defect in the goods or
 not will be held liable for the injury that has been caused due to the existence of such
defect.

Duties of Bailee

Bailee has to fulfil several obligations as per Indian Contract Act, 1872. That is:

 Duty to take reasonable care: It is the duty of the Bailee to take care of goods as
his own goods. He shall ensure all safety measures that are necessary to protect the
goods. The standard of care should be such as taken care by a prudent man. Duty
not to make unauthorized use of the goods:Bailee is duty bound to use the goods
for a specific purpose only and not otherwise. If he uses the goods for any other
purpose than what is agreed for then the bailor has the right to terminate such
bailment or is entitled with compensation for damage caused due to unauthorized
use. (Section 153-154)
 Duty not to mix bailor’s goods with his own goods: It is the duty of the Bailee not
to mix bailor’s goods with his own. But if he wants to do the same then he shall seek
consent from the bailor for mixing of goods. If the bailor agrees for the mixing of
the goods then the interest in the mixed goods shall be shared in proportion.
 Duty to return the goods on the fulfilment of purpose:Bailee is duty bound to
return the goods once the purpose is achieved or on the expiry of the time period for
which the goods were bailed. But if the Bailee makes default in returning the goods
on proper time then he will be responsible with the loss, destruction or deterioration
of the goods if any. (Section 160-161)

 Duty to deliver to the bailor increase or profit if any on the goods bailed:The
Bailee has a duty to return the goods along with increase or profit subject to contract
to the contrary. Accretion that has accrued from the bailed goods is the part of the
bailed goods and therefore bailor has the right over such accretions if any. And such
accretions shall be handed over to the bailor along with the goods bailed.

 Rights of a Bailor

As such Indian Contract Act, 1872 does not provide for Rights of a Bailor. But Rights of a
Bailor is same as Duties of the Bailee i.e. Rights of Bailor = Duties of Bailee[7]. So the rights
of bailor are:

 Enforcement of Bailee’s Duty:Since Right of the bailor is same as the right of the
Bailee, therefore on the fulfilment of all duties of Bailee the bailor’s right is
accomplished. For example, it is the duty of the Bailee to give the accretions and it
is the right of bailor to demand the same.
 Right to claim damages: If the Bailee fails to take care of the goods, the bailor has
the right to claim damages for such loss. (Section 151)
 Right to Termination the Contract: If the Bailee does not comply with the terms
of the contract and acts in a negligent manner in such case the bailor has the right to
rescind the contract. (Section 153)
 Right to claim compensation: If the Bailee uses the goods for an unauthorized
purpose or mixes the goods which cause loss of goods in such case bailor has the
right to claim compensation.
  Right to demand the return of goods: It is the duty of the Bailee to return the
goods and the bailor has the right to demand the same.

Rights of a Bailee

 Right to recover expenses:In the contract of Bailment, the Bailee incurs expenses
to ensure the safety of goods. The Bailee has the right to recover such expenses from
the bailor. (Section 158)
 Right to remuneration: When the goods are bailed to the Bailee he is entitled to
receive certain remuneration for services that he has rendered. But in case of
gratuitous bailment, the Bailee is not awarded any remuneration.
 Right to recover compensation:At times a situation arises wherein bailor did not
have the capacity to contract for bailment. Such a contract causing loss to the Bailee,
therefore the Bailee has the right to recover such compensation from the bailor.
(Section 168)
 Right to Lien:Bailee has the right over Lien. By this, we mean that if the bailor fails
to make payment of remuneration or does not pay the amount due, the Bailee has
the right to keep the goods bailed in his possession till the time debtor dues are
cleared. Lien is of two types: particular lien and general lien. (Section 170-171)

 Right to suit against a wrongdoer:After the goods have been bailed and any third
party deprives the Bailee of use of such goods, then the Bailee or bailor can bring
an action against the third party. (Section 180)

Pledge

Pledge is a kind of bailment. Pledge is also known as Pawn.It is defined under section 172 of
the Indian Contract Act, 1892. By pledge, we mean bailment of goods as a security for the
repayment of debt or loan advanced or performance of an obligation or promise. The person
who pledges the goods as security is known as Pledger or Pawnor and the person in whose
favour the goods are pledged is known as Pledgee or Pawnee.

Essentials of Pledge

Since Pledge is a special kind of bailment, therefore all the essentials of bailment are also the
essentials of the pledge. Apart from that, the other essentials of the pledge are:

 There shall be a bailment for security against payment or performance of the

promise,
 The subject matter of pledge is goods,
 Goods pledged for shall be in existence,
 There shall be the delivery of goods from pledger to pledgee,
 There is no transfer of ownership in case of the pledge.

Rights of Pawnor

As per Section 177 of the Indian Contract Act, 1872 the Pawnor has the Right to Redeem. By
this, we mean that on the repayment of the debt or the performance of the promise, the Pawnor
can redeem the goods or property pledged from the Pawnee before the Pawnee makes the actual
sale. The right of redemption is extinguished once the actual sale is done by the Pawnee as per
his right under section 176 of the Indian Contract Act, 1872[9].

Rights of a Pawnee

The rights of the Pawnee as per Indian Contract Act, 1872 are:

 Right to retain the goods: If the Pawnor fails to make the payment of a debt or
does not perform as per the promise made, the Pawnee has the right to retain the
goods pledged as security. Moreover, Pawnee can also retain goods for non-payment
of interest on debt or non-payment of expenses incurred. But Pawnee cannot retain
goods for any other debt or promise other than that agreed for in the contract.
(Section 173-174)
 Right to recover extraordinary expenses: The expenses incurred by Pawnee on
the preservation of goods pledged can be recovered from Pawnor. (Section 175)
 The right of suit to procure debt and sale of pledged goods: On the failure to
make repayment to Pawnee of the debt, the Pawnee has two right: either to initiate
suit proceedings against him or sell the goods. In the former case, the Pawnee retains
the goods with himself as collateral security and initiate the court proceedings. He
need not provide any notice of such proceedings to the Pawnor[10]. And in the latter
case, the Pawnee can sell the goods after giving due notice of sale to the Pawnor. If
the amount received from the sale of goods is less than the amount due then the rest
amount can be recovered from Pawnor. And if the Pawnee gets more amount than
the due amount then such surplus is to be given back to Pawnor. (Section 176)

18.SALE OF GOODS ACT,

Originally, the transactions related to sale and purchase of goods was regulated by Chapter
VII (Sections 76 to 123) of Indian Contract Act, 1872 – which was broadly based on English
common law. A need was felt to overhaul the law due to rapid growth of mercantile
transactions and various progressive English judgments being passed to meet the needs of the
community. Thus, the provisions of Chapter VII were repealed, suitably amended keeping in
mind the English Sales of Goods, 1893 and recent judicial decisions of the time. A separate
act, the Sale of Goods Act came into force on 1st July 1930.
It extends to the whole of India except the State of Jammu and Kashmir. It does not affect
rights, interests, obligations and titles acquired before the commencement of the Act. The Act
deals with sale but not with mortgage or pledge of the goods.
Definition of Sale
Section 4 of the Sales of Goods Act, 1930 defines a sale of goods as a “contract of sale
whereby the seller transfers or agrees to transfer the property in goods to the buyer for price”.
The term ‘contract of sale’ includes both a sale and an agreement to sell.
A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of
such offer by the other party. The contract may be oral or in writing. A contract of sale may
be absolute or conditional.
Formalities of a contract of sale: Section 5 of the Act specifically provides for the following
three steps or formalities in a contract of sale:
1) Offer and Acceptance: A contract of sale is made by an offer to buy or sell the goods for a
price and acceptance of such offer.
2) Delivery and Payment: It is not necessary that the payment for the goods to the seller and
delivery of goods to the buyer must be simultaneous. They can be made at different times or
in instalments – as per the contract.
3) Express or Implied: The contract can be in writing, oral or implied. It can also be partly
oral and partly written.

Essentials
The five essential features of a contract of sale are as discussed below:
1) Two partied
2) Subject matter to be goods
3) Transfer of ownership of goods
4) Consideration is price.
5) Essential elements of a valid contract

1) Two parties: A sale has to be bilateral because the goods have to pass from one person to
another. There must be a buyer – a person who buys or agrees to buy the goods and a seller –
a person who sells or agrees to sell goods. The seller and the buyer must be different persons.
A part owner can sell to another part owner. A partner may, therefore, sell to his firm or a
firm may sell to a partner. But if joint owners distribute property among themselves as per
mutual agreement, it is not ‘sale’. A person cannot be the seller of his own goods as well as
the buyers of them.
However, when a bankrupt person’s goods are sold under an execution of decree, the person
may buy back his own goods from his trustee.
2) Subject matter to be goods: The term ‘goods’ is defined in Section 2(7). It states that
‘goods’ “means every kind of movable property other than actionable claims and money; and
includes stock and shares, growing crops, grass and things attached to or forming part of the
land which are agreed to be severed before sale or under the contract of sale”.
Money cannot be sold because money means legal tender and not the old coins which can be
sold and purchased as goods. Actionable claims are things that a person cannot make use of,
but which can be claimed by him by means of legal action such as a debt.
Sale of immovable property is not covered under this Act. As per Section 3 of the Transfer of
Property Act, 1882, ‘immovable property’ does not include standing timber, growing crops or
grass. They are considered movable property and thus goods. Standing timber is taken as
movable property while trees are immovable property.
Things like goodwill, copyright, trademark, patents, water, gas, electricity are all goods. In
the case of Commissioner of Sales Tax vs. Madhya Pradesh Electricity Board [AIR 1970 SC
732], the Supreme Court observed – “…electricity…can be transmitted, transferred,
delivered, stored, possessed, etc., in the same way as any other movable property…If there
can be sale and purchase of electric energy like any other movable object, we see no
difficulty in holding that electric energy was intended to be covered by the definition of
“goods”.
In the case of H. Anraj vs. Government of Tamil Nadu [AIR 1986 SC 63], it was held that
lottery tickets are goods and not actionable claims. Thus, sale of lottery tickets is sale of
goods. Sugarcane supplied to a sugar factory is goods within the meaning of Section 2(7) of
the Act as held in the case of UP Cooperative Cane Unions Federation vs. West UP Sugar
Mills Assn. [AIR 2004 SC 3697]
3) Transfer of ownership of Goods: There must be transfer of ownership or an agreement to
transfer the ownership of goods from the seller to the buyer – not the transfer of mere
possession or limited interest as in the case of pledge, lease or hire purchase agreement). If
goods remain in possession of seller after sale transaction is over, the ‘possession’ is with
seller, but ‘ownership’ is with buyer. The Act uses the term ‘general property’ implying that
sale involves total ownership and not a specific right limited by conditions.
Delivery of goods refers to a voluntary transfer of possession of goods from one person to
another. Delivery may be constructive or actual depending upon the circumstances of each
case. A contract may provide for the immediate delivery of the goods or immediate payment
of the price or both. Alternatively, the delivery or payment may be made by instalments or be
postponed.
4) Consideration is Price: The consideration in a contract of sale has to be price i.e., money.
If goods are offered as the consideration for goods, it will not amount to sale. It will be barter.
If there is no consideration, it will be called gift. But where the goods are sold for definite
sum and the price is paid partly in kind and partly in cash, the transaction is a sale.
Consideration is an essential for a valid contract as per the Indian Contract Act, 1872. It is the
duty of a buyer who has received and appropriated the goods to pay a reasonable price.
According to Section 2(10) ‘price’ means the money consideration for the sale of goods. If
the price is not fixed, the contract is void ab initio.
Section 9 lays down how the price may be fixed in a contract of sale:
a) It can be fixed by the contract itself; or
b) It can be fixed in a manner provided by the contract, such as appointment of a valuer; or
c) It can be determined by the course of dealings between the parties; or
d) If the price is not capable of being fixed in any of the ways mentioned ways, the buyer is
bound to pay reasonable price. What is a reasonable price is a question of fact dependent on
the circumstances of each particular case. It is not necessary that reasonable price should be
equal to the market price.
Section 10 makes it clear that if the third party appointed under the agreement to fix the price
cannot or does not make such valuation, then the agreement to sell goods will become void. If
the third party is prevented in his valuation due to the buyer or the seller, the party not at fault
can file a suit for damages against the party in fault.
5) Essential elements of a valid contract: All the essentials of a valid contract must be
present. viz., competent parties, free consent, legal object and so on. The transfer of
possession and ownership under the Act has to be voluntary and not be tainted with fraud or
duress.
 19. Features of a Promissory Note and Bill of exchange?

 The promissory note must be in writing- Mere verbal promises or oral undertaking does not
constitute a promissory note. The intention of the maker of the note should be signified by
writing in clear words on the instrument itself that he undertakes to pay a particular sum of
money to the payee or order or to the bearer
 It must contain an express promise or clear undertaking to pay- The promise to pay must
be expressed. It cannot be implied or inferred. A mere acknowledgment of indebtness is not
enough.
 The promise to pay must be definite and unconditional- The promise to pay contained in
the note must be unconditional. If the promise to pay is coupled with a condition, it is not a
promissory note.
 The maker of the pro-note must be certain- The instrument should show on the fact of it as
to who exactly is liable to pay. The name of the maker should be written clearly and
ascertainable on seeing the document.
 It should be signed by the maker- Unless the maker signs the instrument, it is incomplete and
of no legal effect. Therefore, the person who promises to pay must sign the instrument even
though it might have been written by the promisor himself.
 The amount must be certain- The amount undertaken to be paid must be definite or certain
or not vague. That is, it must not be capable of contingent additions or subtractions.
 The promise should be to pay money- The promissory note should contain a promise to pay
money and money only, i.e., legal tender money. The promise cannot be extended to payments
in the form of goods, shares, bonds, foreign exchange, etc.
 The payee must be certain- The money must be payable to a definite person or according to
his order. The payee must be ascertained by name or by designation. But it cannot be made
payable either to bearer or to the maker himself.
 It should bear the required stamping- The promissory note should, necessarily, bear
sufficient stamp as required by the Indian Stamp Act, 1889.
 It should be dated- The date of a promissory note is not material unless the amount is made
payable at particular time after date. Even then, the absence of date does not invalidate the pro-
note and the date of execution can be independently proved. However to calculate the interest
or fixing the date of maturity or lm\imitation period the date is essential. It may be ante-dated
or post-dated. If post-dated, it cannot be sued upon till ostensible date.
 Demand- The promissory note may be payable on demand or after a certain definite period of
time.
 The rate of interest- It is unusual to mention in it the rated of interest per annum. When the
instrument itself specifies the rate of interest payable on the amount mentioned it, interest must
be paid at the rate from the date of the instrument.

Definition of Bills of Exchange:

A bill of exchange is an instrument in writing containing an unconditional order, signed by
the maker, directing a certain person to pay a certain sum of money only to, or to the order of,
a certain person, or to the bearer of the instrument.

Features of a Valid Bill of Exchange

 It should be in writing and should be unconditional.

  It should be signed by the drawer of the instrument.
 It must contain a certain amount of money which has to be paid.
 Drawer, Drawee and payee must be certain & exact person.
 It must contain a date & must be stamped.
 Bill must be accepted by the party on whom it is drawn & addressed.
 It is a negotiable instrument and can be transferred hand to hand in settlement
of order.
 It is a riskless instrument as we do not require carrying money from one place to
other.
 The debtor enjoys the full credit as he is not imposed to pay the amount of bill
before the due date
 Payment can be enforced on a bill of exchange in a court of law.

21.Meaning of crossing of cheque & different type of crossing.

A crossed cheque is a cheque that has been marked specifying an instruction on the way it is
to be redeemed. A common instruction is for the cheque to be deposited directly to
an account with a bank and not to be immediately cashed by the holder over the bank counter.
The format and wording varies between countries, but generally, two parallel lines may be
placed either vertically across the cheque or on the top left hand corner of the cheque. By
using crossed cheques, cheque writers can effectively protect the instrument from being
stolen or cashed by unauthorized persons. Open cheque
An open cheque is a cheque that is not crossed on the left corner and payable at the counter of
the drawee bank on presentation of the cheque.

Crossed cheque
A crossed cheque is a cheque that is payable only through a collecting banker and not directly
at the counter of the bank.
When two parallel transverse lines, with or without any word, are drawn generally, on the left
hand top corner of the cheque.

Types of crossing
General crossing
A crossed cheque generally is a cheque that only bears two parallel transverse lines,
optionally with the words 'and company' or '& Co.' (or any abbreviation of them) on the face
of the cheque, between the lines, usually at the top left corner or at any place in the
approximate half (in width) of the cheque.[2] In the UK, the crossing is across the cheque by
the person who originally wrote the cheque (the drawer), or it can legitimately be added by
the person the cheque is payable to (the payee), or even by the bank that the cheque is being
paid into.
Generally-crossed cheques can only be paid into a bank account, so that the beneficiary can
be traced
A crossed cheque on its own does not affect the negotiability of the instrument.
Account payee
Adding a crossing to a cheque increases its security in that it cannot be cashed at a bank
counter but must be paid into an account in exactly the same name as that which appears on
the ‘payee’ line of the cheque (i.e. the person who has received the cheque, who is legally the
“payee” and “holder” of the cheque).
Not negotiable
The words 'not negotiable' can be added to a crossing.
The effect of such a crossing is that it removes the most important characteristic of a
negotiable instrument: the transferee of such a crossed cheque cannot get a better title than
that of the transferor (cannot become a holder in due course) and cannot convey a better title
to his own transferee, but the instrument remains transferable.
Restrictive or special crossings
Where some customary instruction is written between the two parallel transverse lines
(constituting crossing of cheque) that may result in imposing certain restrictions on the
collecting or paying banker, it is called restrictive crossing. The example is "State Bank of
India". In these cases, the respective restrictions mandate to pay the cheque through State
Bank of India (acting as collecting banker) only.
Specific bank
A crossing may have the name of a specific banker added between the lines. A cheque with a
such a crossing can only be paid into an account at that bank.
The beneficiary bank can add an additional crossing to allow another bank, who are acting as
their agent in collecting payment on cheques, to be paid the cheque on their behalf.

Consequence of a bank not complying with the crossing

A bank's failure to comply with the crossings amounts to a breach of contract with its
customer. The bank may not be able to debit the drawer's account and may be liable to the
true owner for his loss.