INDIAN CONTRACT ACT 1872

Q.1 Define the contract .

A contract is a legally binding agreement, that is, an agreement which will be enforced by the
courts. Salmond defines contract as, “an agreement creating and defining obligation between
the parties.” Halsbury defines a contract to be, “an agreement between two or more persons
which is intended to be enforceable at law and is constituted by the acceptance by one party
of an offer made to him by the other party to do or abstain from doing some act.”
The definition of the term ‘contract’ given in the Act Section 2(h) of the Indian Contract Act
defines a contract as, “An agreement which is enforceable by law.” This definition has two
important components which constitute the basis for a contract. They are :
1. Agreement : An agreement gives birth to a contract. An agreement is defined as, “every
promise and every set of promises forming consideration for each other.” (Section 2(e)). A
proposal when accepted becomes a promise. Thus an agreement is an accepted proposal. An
agreement comes into existence only when one party makes a proposal or offer to the other
party and the other party signifies his assent thereto. In short, an agreement is the sum total of
offer and acceptance. The following are the characteristics of the definition of agreement as
given above :
(a) Plurality of persons : There must be two or more persons to make an agreement because
one person cannot enter into an agreement with himself.
(b) Consensus ad idem : An agreement is necessarily the outcome of consenting minds or
consensus ad idem, i.e., the two contracting parties must agree as regards the subject-matter
of the contract at the same time and in the same sense.
2. Legal Obligation : Although every contract is an agreement, there are many kinds of
agreements which are not contracts. An agreement to become a contract must give rise to a
legal obligation. Obligation is an undertaking to do or to abstain from doing some definite
act. The obligation must be such as is enforceable by law. In other words, it must be a legal
obligation and not merely moral, social or religious. To take an example, “Please, come to my
house”, says P to D, “and we shall go out for a walk together”. D came to the house of P but P
could not leave the house because of some important engagement. D cannot sue P in damages
for his not fulfilling the promise, the reason being that there had been no intention between D
and P to create any legal obligation by the engagement as made between them. In the
circumstances, there was, in the eye of law no contract between P and D. Contracts must not
be the sports of an idle hour, or mere matters of pleasantry, never intended by the parties to
have any serious effect whatever.
Another kind of obligation which does not constitute a contract is the arrangement made
between husband and wife. Such agreements are purely domestic and are not intended to
create legal relationship.

Q.2 Explain in detail various types of contract.

The classification of contracts from the various points of view may be discussed as follows :
(a) From the point of view of enforceability
Contracts may be classified according to their enforceability as (i) valid (ii) void contracts or
agreements (iii) voidable (iv) illegal and (v) unenforceable.
Valid Contract : A valid contract is one which satisfies all the requirements prescribed by
law for the validity of a contract, i.e. the essential elements laid down in Sec.10. A valid
contract creates in favour of one party a legal obligation binding upon the other.
Void Contract : A contract which was legal and enforceable when it was entered into may
subsequently become void due to impossibility of performance, change of law or other
reasons. When it becomes void the contract ceases to have legal effect. In other words, a void
contract is not valid from its inception but subsequent to its formation, it becomes invalid and
destitute of legal effect because of certain reasons. [Sec. 2(j)]
Void Agreement : “An agreement not enforceable by law is said to be void.”— Sec. 2(g). A
void agreement has no legal effect. It confers no rights on any person and creates no
obligations.
An agreement made by a minor; agreements made without consideration (except the cases
coming under Sec.25); certain agreements against public policy; agreements in restraint of
trade or in restraint of marriage or in restraint of legal proceedings, etc. are examples of void
agreements.
Voidable Contract [Section 2(i)] : A voidable contract is a contract which can be avoided or
set aside at the option of one of the parties to the contract. It can be set aside at the option of
the party defrauded. Until it is avoided or rescinded by the party entitled to do so by
exercising his option in that behalf, it remains valid. But the aggrieved party must exercise
his option of rejecting the contract (i) within a reasonable time and (ii) before the rights of
third parties intervene, otherwise the contract cannot be repudiated.
Contract can be voidable when it is made under
1. Coercion
2. Fraud
3. Misrepresentation
Illegal or Unlawful Contract : The word illegal means ‘contrary to law’ and the term
contract refers to an agreement enforceable by law. An ‘illegal contract’ involves a
contradiction in terms as it amounts to saying that an agreement contrary to law is
enforceable by law. Thus it will be appropriate to use the term illegal agreement in place of
illegal contract. An illegal agreement is one which is against the law enforceable in India. The
term ‘illegal agreement’ has a wider conception than ‘void agreement.’ All illegal agreements
are void but all void agreements are not necessarily illegal, e.g., an agreement with a minors
is void but not illegal.
Unenforceable Contract : A contract may be valid, but not executable. because of certain
technical defects such as absence of writing, registration, requisite stamp, etc., or time barred
by the law of limitation. Suppose A gives a loan of Rs.1000 to B. The contract of loan, let us
assume, is valid in this case; but if A does not sue on the contract within the period prescribed
by law and allows his claim to be barred by time, he cannot afterwards recover it from B. He
cannot recover it, not because the contract was invalid, but because the Statute of Limitation
bars the suit.
(b) From the point of view of creation : From the point of view of creation, contracts may
be two types : (i) express contracts, and (ii) implied contracts.
Express Contract : Contracts entered into between the parties by words spoken or written,
are termed as express contracts. For example, if X tells Y on telephone that he offers to sell
his house for Rs.20,000 and Y in reply informs X that he accepts the offer, there is an express
contract.
Implied Contract : Where the offer or acceptance is made not by words, written or spoken,
but by acts and conduct of parties, it is termed as an implied contract. Thus, where X, a
coolie, in uniform takes up the luggage of Y to be carried out of a railway station without
being asked by Y, and Y allows the coolie to do so, the law implied here that Y agreed to pay
for the services of X, and there is an implied contract between X and Y. Similarly, when A
takes a seat in a bus, an implied contract comes into being—a contract according to which A
will pay the prescribed fare to the conductor (i.e., the agent of the bus company) for taking
him to his destination.
(c) From the point of view of extent of execution or classification according to
performance : On the basis of extent to which the contracts have been performed, we may
classify them as (i) executed contract, and (ii) executory contracts.
Executed Contract : An executed contract refers to that contract in which both the parties
have fulfilled their respective obligations. In other words, an executed contract is one where
nothing remains to be done by either party.
Example: X agrees to paint a picture for Y for Rs.20. When X paints the picture and Y pays
the price, it becomes an executed contract.
Sometimes though the contract may appear to be completed at once yet the effects of it may
continue, e.g., when a person buys a bun for a penny and subsequently breaks his tooth due to
a stone in it, he has a right to recover damages from the seller.
Executory Contract : An executory contract refers to that contract in which both the parties
to the contract have yet to perform their respective obligations. In the example
referred to above, the contract is executory, if X has not yet painted the picture and Y has not
paid the price. Similarly, if A agrees to engage M as his servant from the next month, the
contract is executory.
A contract may sometimes be partly executed and partly executory. Thus if Y has paid the
price to X and X has not yet painted the picture, the contract is executed as to Y &executory
as to X.
On the basis of execution, the contracts may also be classified as (i) unilateral
contracts, and (ii) bilateral contracts.
Unilateral Contract : A contract is said to be unilateral where one party to a contract has
performed his share of obligation either before or at the time when the contract comes into
existence. It is only the obligation of the other party which remains outstanding at the time of
formation of the contract. Such contracts are also termed as contract with executed
consideration. Thus, a contract of loan, where money has been advanced by the creditor is an
example of unilateral contract, because the creditor has done what he was to do under the
contract, it remains for the debtor to repay the debt.
Bilateral Contract : In a bilateral contract obligations of both the parties are outstanding at
the time of the formation of the contract. They are, executory contracts or contracts with
executory consideration. In other words, in a bilateral contract, there is only a promise for a
promise. For example, where X promises to sell his car to Y after 15 days and Y promises to
pay the price on the delivery of the car, the contract is bilateral as obligations of both the
parties are outstanding at the time of formation on the contract.
It is to be remembered that a contract comes into being on the date on which it is entered into
between the parties. The date of its execution is immaterial for determining the validity of the
contract. In other words, a contract is a contract from the time it is made and not from the
time its performance is due.
(d) From the point of view of form or mode of the contract : There are four kinds of
contracts : formal contracts, contracts under seal or specialty contracts, simple contracts and
quasi-contracts.
Formal Contracts : These are in vogue in England. These have not received recognition by
the Indian Contract Act. Their validity depends upon their form alone. Consideration is not
essential in such contracts. They are required to satisfy certain legal formalities.
Contract under seal or speciality contracts : These contracts are those contracts, the terms
of which have been written down on a paper and are signed, sealed and delivered.
The following contracts must be made under seal, otherwise they will not be valid :
1. Contracts made without consideration.
2. Contracts of lease relating to land for more than three years.
3. Contracts entered into by corporations or companies.
4. Contracts relating to transfer of a British ship or any share therein.
Simple Contracts : Contracts which are not formal are known as simple contracts. They are
also known as ‘parole contracts’. They are made by words, spoken or written. They are to be
valid only when they are supported by consideration.
Quasi-Contracts : Contractual obligations are generally created voluntarily; but there are
some obligations which are not contractual, but which are treated as such by law, that is to
say, there is no contract in fact, but there is one in the contemplation of law. Such contracts
are called quasi-contracts. Thus, if X pays a sum of money to Y believing him to be his
creditor, while as a matter of fact he was not, he is bound to return the money to X on the
assumption that the above sum was given to him by way of loan. The Contract Act has rightly
named such contracts as “certain relations resembling those created by contract.”

Q.3 Describe the essentials of a valid contract.

We know that there are two elements of a contract : (1) an agreement; (2) legalobligation.
Section 10 of the Act provides for some more elements which are essential in order to
constitute a valid contract. It reads as follows :
“All agreements are contracts if they are made by free consent of parties, competent to
contract, for a lawful consideration and with a lawful object and are not hereby expressly
declared to be void.” Thus the essential elements of a valid contract can be explained as
follows :
1. Agreement : As already mentioned, to constitute a contract there must be an agreement.
An agreement is composed of two elements – offer and acceptance. The party making the
offer is known as the offeror, the party to whom the offer is made is known as the offeree.
Thus, there are essentially to be two parties to an agreement. They both must be thinking of
the same thing in the same sense. In other words, there must be consensus-ad-idem. An offer
to be valid must fulfill certain conditions, such as it must intend to create legal relations, its
terms must be certain and unambiguous, it must be communicated to the person to whom it
made, etc. An acceptance to be valid must fulfill certain conditions, such as it must be
absolute and unqualified, it must be made in the prescribed manner, it must be communicated
by an authorised person before the offer lapses.
Thus, where ‘A’ who owns 2 cars ‘X’ and ‘Y’ wishes to sell car ‘X’ for Rs.30,000. ‘B’, an
acquaintance of ‘A’ does not know that ‘A’ owns car ‘X’ also. He thinks that ‘A’ owns only
car ‘Y’ and is offering to sell the same for the stated price. He gives his acceptance to buy the
same. There is no contract because the contracting parties have not agreed on the same thing
at the same time, ‘A’ offering to sell his car ‘X’ and ‘B’ agreeing to buy car ‘Y’. There is no
consensus-ad-idem.
2. Intention to create legal relationship : As already mentioned there should be an intention
on the part of the parties to the agreement to create a legal relationship. An agreement of a
purely social or domestic nature is not a contract.
However, even in the case of agreements of purely social or domestic nature, there may be
intention of the parties to create legal obligations. In that case, the social agreement is
intended to have legal consequences and, therefore, becomes a contract.
Whether or not such an agreement is intended to have legal consequences will be determined
with reference to the facts of the case. In commercial and business agreements the law will
presume that the parties entering into agreement intend those agreements to have legal
consequences. However, this presumption may be negated by express terms to the contrary.
Similarly, in the case of agreements of purely domestic and social nature, the presumption is
that they do not give rise to legal consequences.
However, this presumption is rebuttable by giving evidence to the contrary, i.e., by showing
that the intention of the parties was to create legal obligations.
Example: There was an agreement between Rose Company and Crompton Company,
whereof the former were appointed selling agents in North America for the latter. One of the
clauses included in the agreement was : ‘This arrangement is not…. a formal or legal
agreement and shall not be subject to legal jurisdiction in the law courts.”
3. Competency of parties : The parties to the agreement must be competent to contract. If
either of the parties to the contract is not competent to contract, the contract is not valid.
According to Section 11 following are the persons who are competent to contract –
(a) who are of the age of majority according to the law to which they are subject;
(b) who are of sound mind;
(c) who are not disqualified from contracting by any law to which they are subject.
4. Free Consent : An agreement must have been made by free consent of the parties. A
consent may not be free either on account of mistake in the minds of the parties or on account
of the consent being obtained by some unfair means like coercion, fraud, misrepresentation or
undue influence. In case of mutual mistakes, the contract would be void, while in case the
consent is obtained by unfair means, the contract would be voidable.
Examples
1. X has two scooters, one is blue and the other green. He wants to sell his blue scooter. Y
who knows of only X’s green scooter offers to purchase X’s scooter for Rs. 5,000. X accepts
the offer thinking it to be an offer for his blue scooter. Held, consent is not free since both the
parties are not understaning the same thing in the same sense.
5. Lawful consideration : All contracts must by supported by consideration. Gratuitous
promises are not enforceable at law. An agreement made for an unlawful consideration is
void. Lawful consideration requires both the presence of consideration and the lawfulness of
consideration.
Example : A promises to obtain for B an employment in public service and B promises to
pay Rs. 1,000 to A. The agreement is void as the consideration for it is unlawful.
6. Lawful object : The object of an agreement must be lawful. Object has nothing to do with
consideration. It means the purpose or design of the contract. Thus, when one hires a house
for use as a gambling house, the object of the contract is to run a gambling house. According
to Section 23, the object is said to be unlawful if –
(a) it is forbidden by law;
(b) it is of such nature that if permitted it would defeat the provisions of any law;
(c) it is fraudulent;
(d) it involves an injury to the person or property of any other;
(e) the court regards it is immoral or opposed to public policy.
Examples
1. A, B and C enter into an agreement for a division among them of gains acquired, or to be
acquired, by them by fraud. The agreement is void, as its object is unlawful (Illustration (e) to
Sec. 23).
2. A promises to obtain for B an employment in the public service, and B promises to pay Rs.
1,000 to A. The agreement is void as the consideration for it is unlawful
3. A promises B to drop a prosecution which he has instituted against B for robbery, and B
promises to restore the value of the things taken. The agreement is void, as its object is
unlawful
7. Agreements not expressly declared void : The agreement must not have been declared to
be expressly void. Agreements mentioned in sections 24 to 30 have been expressly declared
to be void. Under these provisions, agreement in restraint of marriage, agreement in restraint
of legal proceedings, agreement in restraint of trade and agreement by way of wager have
been expressly declared void.
Examples
1. A makes a contract with B that he will marry nobody except B, and if he marries somebody
else, he will pay a certain sum of money to B, the contract is void; because there is no
promise of marriage on either side and the agreement is purely restrictive
8. Certainty and possibility of performance : The terms of the contract must be precise and
certain. It cannot be left vague. A contract may be void on the ground of uncertainty. Thus a
purported acceptance of an offer to buy a lorry ‘on-hire-purchase terms’ does not constitute a
contract if the hire-purchase terms are never agreed. The terms of the agreement. must also
be capable of performance. An agreement to do an impossible act cannot be enforced.
9. Legal formalities : An oral contract is a perfectly valid contract, except in those case
where writing, registration etc. is required by some statute. In India writing is required in
cases of sale, mortgage, lease and gift of immovable property, negotiable instrument;
memorandum and articles of association of a company, etc. Registration is required in cases
of documents coming within the scope of Section 17 of the Registration Act.
All the elements mentioned above must be present in order to make a valid
contract. If any one of them is absent the agreement does not become a contract.
Q.4 In what cases the consideration and object of an agreement are said to be
unlawful? Illustrate.
According to Section 23 of the Indian Contract Act, an agreement of which the object or
consideration is unlawful is void. The word ‘object’ in Section 23 is not used in the same
sense as consideration. Object means purpose or design of the contract. It implies the
manifestation of intention. Thus, if a person while in insolvent circumstances transfers to
another for consideration some property with the object of defrauding his creditors, the
consideration of the contract is lawful but the object is unlawful. Both the object and the
consideration of agreement must be lawful, otherwise the agreement would be void. The
word ‘lawful means ‘permitted by law’. Section 23 of the Contract Act speaks of three thing :
(i) consideration for the agreement;
(ii) object for the agreement; and
(iii) agreement
The consideration or the object of an agreement is unlawful in the following cases:
1. If it is forbidden by law
If the consideration or object for a promise is such as is forbidden by law, the agreement is
void. The agreement is forbidden by law, if the legislature penalizes it or prohibits it. It is
illegal and cannot become valid even if the parties act according to such agreement. Sections
26, 27, 28 and 30 of the Contract Act deal with cases where the consideration or object of an
agreement is considered unlawful. Thus, where the lawful wife was alive, any agreement by
the husband to marry another is unenforceable as being forbidden by law. Similarly, an
agreement to sublet a telephone, in contravention of conditions is void because it is forbidden
by law. Such agreements are illegal not because their consideration or objects is unlawful but
because they are forbidden by law.
Example: A promises to obtain for B an employment in the public service and B promises to
pay Rs. 1000 to A. The agreement is void as the consideration for it is unlawful.
2. If it is of such a nature that if permitted it would defeat the provisions of any law
If the object or consideration of an agreement is of such a nature that if permitted it would
defeat the provisions of any law, the agreement is void. A contract which seeks to exclude the
application of a statutory provision to the parties is not valid. An agreement to give an annual
allowance to the parents of an adopted Hindu boy in order to induce them to consent to the
adoption is void.
3. If it is fraudulent
Agreements which are entered into to promote fraud are void. Thus, an agreement for the sale
of goods for the purpose of smuggling them out of the country is void and the price of the
goods so sold, cannot be recovered.
4. If it involves or implies injury to the person or property of another
The object or consideration of an agreement will be unlawful if it tends to injure the person or
property of another. Thus, an agreement to pull down another’s house is unlawful. The word
‘injury’ means criminal or wrongful harm. Loss which ensues to a trader as a result of
competition by a rival trader is not injury within the meaning of this clause.
5. If the court regards it as immoral
Where the consideration or object of an agreement is such that the court regards it as
immoral, the consideration is void. The word immoral means inconsistent with what is right.
Rent due in respect of a flat let to a prostitute for the purpose of her trade cannot be
recovered. Similarly money lent for the purpose of assisting the borrower to visit brothels and
bring in prostitutes cannot be recorded in a court of law.
6. If the court regards it as being opposed to public policy
An agreement is unlawful if the court regards it as opposed to public policy. A contract which
is opposed to public policy cannot be enforced by either of the parties to it. Any agreement
which tends to promote corruption or injustice or is against the interests of the public is
considered to be opposed to public policy. Public policy is that principle of law which holds
that no citizen can lawfully do that which has a tendency to be injurious to the public. A
contract having tendency to injure public interest or public welfare is opposed to public
policy. Public policy is not capable of exact definition and, therefore, courts do not generally
go beyond the decided cases on the subject. The courts do not invent a new head of public
policy. The courts in India have declared certain agreements as opposed to public policy and
hence unenforceable or void.

Q.5 Write Exceptions to “No Consideration No Contract”.

Every agreement to be enforceable at law must be supported by valid consideration. An
agreement made without consideration is void and unenforceable except in certain cases.
Section 25 specifies the cases where an agreement though made without consideration will be
valid. These are as follows :
1. Natural love and affection (Sec. 25(1))
An agreement though made without consideration will be valid if it is in writing and
registered and is made on account of natural love and affection between parties standing in a
near relation to each other. An agreement without consideration will be valid provided :
(i) it is expressed in writing;
(ii) it is registered under the law for the time being a force;
(iii) it is made on account of natural love and affection; and
(iv) it is between parties standing in a near relation to each other.
All these essentials must be present to enforce an agreement made without consideration. The
presence of only one or some of them will not suffice. Thus, the mere registration of
document in the absence of nearness of relationship or natural love and affection will not
suffice.
Example : A for natural love and affection, promises to give his son B, Rs. 1,000. A puts his
promise to B into writing and registers it. This is a contract.
2. Compensation for services rendered (Sec. 25(2))
An agreement made without consideration may be valid if it is a promise to compensate
wholly or in part a person who has already voluntarily done something for the promisor or
something which the promisor was legally compellable to do. To apply this rule the following
essentials must exist :
(a) the act must have been done voluntarily;
(b) the promisor must be in existence at the time when the act was done;
(c) the promisor must agree now to compensate the promisee.
Example : A finds B’s purse and gives it to him. B promises to give A Rs. 50. This is a
contract.

3. Time-barred debt (Sec. 25(3))

A promise to pay a time-barred debt is also enforceable. But the promise must be in writing
and be signed by the promisor or his agent authorized in that behalf. The promise may be to
pay the whole or part of the debt. An oral promise to pay a time barred debt is unenforceable.
The clause does not apply to promises to pay time-barred debts of third persons. It is
restricted to the promisor who is himself liable for the debt. So, where a Hindu son agrees to
pay his deceased father’s time-barred debt, there is no personal liability for the son, for it is
only the joint-family property in his hands that will answerable for the debt.
The debt must be such which the creditor might have enforced in law for recovery of the
payment. A person under no obligation cannot, therefore, promise to pay. An insolvent finally
discharged is under no obligation to pay any debt. So any promise to pay by him is not a debt
as there is no consideration for such a promise.
Example : D owes P Rs.1,000 but the debt is barred by the Limitation Act. D signs a written
promise to pay Rs.500 on account of the debt. This is a contract.
The promise to pay referred to in Section 25(3) must be an express one. Thus, a debtor’s
letter to his creditor ‘to come and receive’ what was due to him, was held to disclose no
express promise. But where a tenant in a letter to the landlord referred to the arrears of time-
barred rent and said, “I shall send by the end of December”, it was held that the document
contained an express promise as required by Section 25(3).
4. Completed gifts
Explanation 1 to Section 25 provides that the rule ‘no consideration, no contract’ shall not
affect validity of any gifts actually made between the donor and the donee. Thus if a person
gives certain properties to another according to the provisions of the Transfer of Property Act,
he cannot subsequently demand the property back on the ground that there was no
consideration.
5. Agency
There is one more exception to the general rule. It is given in Section 185 which says that no
consideration is needed to create an agency.

Q.6. What do you mean by performance of a contract. Under what circumstances a

contract need not be performed?
A contract creates an obligation which continues till the contract has been discharged by
actual performance or attempted performance. Performance of a contract consists in doing or
causing to be done what the promisor has promised to do. Section 37 of the Indian Contract
Act provides that the parties to a contract must either (i) perform their respective promises or
(ii) offer to perform the same, unless (iii) such performance is dispensed with or (iv) excused
under the provisions of this act or any other law.
Performance may be actual or attempted. When a party has done what he undertook to do
there is nothing left for him to do. Then he is said to have performed his obligation. The
performance of the contract in order to be complete must, however, be made in accordance
with the terms of the contract. Performance of a contract has two effects:
(i) A party who wishes to enforce the other party's promise may have to show that he has
performed or is willing to perform his own promise.
(ii) A party who performs, or tenders performance is thereby discharged from his obligations
under the contract.
The contract is completely terminated when both parties completely and precisely perform
the exact thing which, each has agreed to do. If one party only performs his promise, he
alone, is discharged and he acquires a right of action against the other party.
CONTRACTS WHICH NEED NOT BE PERFORMED
Sections 62 to 67 of the Contract Act deals with contracts which need not be performed. The
relevant provisions are as under:
(1) If the parties to a contract agree to novation, rescission or alternation, the original contract
need not be performed .
(2) The promisee may dispense with or remit performance by the promisor in whole or in part
or may extend the time for the performance or may accept any satisfaction in lieu thereof
(3) When a voidable contract is rescinded, the other party need not perform his promise
(4) Where the failure of performance has been caused by the promisee’s neglect or refusal,
the promisor will be excused.

Q.7 What do you mean by breach of contract and state various ways of breach of
contract.
A breach of contract occurs if any party refuses or fails to perform his part of the contract or
by his act makes it impossible to perform his obligation under the contract. In case of breach,
the aggrieved party (i.e., the party not at fault) is relieved from performing his obligation and
gets a right to proceed against the party at fault.
A contract terminates by breach of contract. Breach of contract may arise in two ways (a)
Anticipatory Breach, and (b) Actual Breach.
Anticipatory Breach of Contract (Sec. 39)-- Anticipatory breach of contract occurs, when a
party repudiates it before the time fixed for performance has arrived or when a party by his
own act disables himself from performing the contract.
Examples
(1) A contracts to marry B. Before the agreed date of marriage he married C. B is entitled to
sue A for breach of promise.
Consequences of Anticipatory Breach
Where a party to a contract refuses to perform his part of the contract before the actual time
arrives the promisee may either: (a) rescind the contract and treat the contract as at an end,
and at once sue for damages, or (b) he may elect not to rescind but to treat the contract
operative and wait for the time of performance and then hold the other party liable for the
consequences of non-performance. In the latter case, the party who has repudiated may still
perform if he can.
Thus, from the above discussion it follows that 'anticipatory breach' of contract does not by
itself discharge the contract. The contract is discharged only when the aggrieved party accepts
the repudiation of the contract, i.e., elects to rescind the contract.
Notice that if the repudiation is nor accepted and subsequently an event happens, discharging
the contract legally, the aggrieved party shall lose his right to sue for damages.
Example : A agreed 10 load a cargo of wheal on B' s ship at Odessa by a particular date but
when the ship arrived A refused to load the cargo. B did not accept the refusal and continued
to demand the cargo. Before the last date of loading had expired the Crimean War broke out,
rendering the performance of the contract illegal. Held, the contract was discharged and B
could not sue for damages.
Section 39 of the Contract Act deals with anticipatory breach of contract and provides as
“when a party to contract has refused to perform, or disabled himself from performing his
promise in its entirety, the promisee may put an end to the contract, unless he has signified,
by works or conduct, his acquiescence in its continuance”.
Actual Breach of Contract-The actual breach may take place (a) at the time when
performance is due, or (b) during the performance of the contract.
Actual breach of Contract, at the time when performance is due. If a person does not
perform his part of the contract at the stipulated time, he will be liable for its breach.
Example : A seller offers to execute a deed of sale only on payment by the buyer of a sum
higher than is payable under the contract for sale, the vendor shall be liable for the breach.
Time as Essence of Contract--But if the promisor offers to perform his promise
subsequently, the question arises whether it should be accepted, or whether the promisee can
refuse such acceptance and hold the promisor liable for the breach. The answer depends upon
whether time was considered by the parties to be of the essence of the contract or not. Section
55, in this respect, lays down as follows: intentionally or without intention if the promisor
could not perform on time and when time is the essence of contract, contract becomes
voidable at the option of the promisee.
Breach during the Performance of the Contract. Actual breach of contract also occurs
when during the performance of the contract one party fails or refuses to perform his
obligation under the contract.
Example : A contracted with a Railway Company to supply it certain quantity of railway
chairs at a certain price. The delivery was to be made in installments. After a few instaments
had been supplied, the Railway Company asked A to deliver no more. Held, A could sue for
breach of contract.

Q.8 Define quasi contract and explain the causes deemed as quasi contracts.
A quasi-contract is a kind of contract by which one party is bound to pay money in
consideration of something done or suffered by the other party. Though no contractual
relation exists between the parties, law makes out a contract for them and such a contract is
called a quasi-contract. The basis of quasi-contract is to prevent unjust enrichment or unjust
benefit, i.e., no one should grow rich out of another person’s loss.
CASES DEEMED AS QUASI-CONTRACTS
The Indian Contract Act recognises such types of contracts and section 68-72 deal with such
contracts. They are as follows :
1. Claims for necessaries supplied (Section 68)
If a person incapable of entering into a contract or any one whom he is legally bound to
support, is supplied by another person with necessaries suited to his condition in life, the
supplier is entitled to recover the price from the property of the incapable person.
Example : A supplies to B, a lunatic, with necessaries suitable to his condition in life. A is
entitled to be reimbursed from B’s property.
A contract by a minor is wholly void and unenforceable. He cannot even ratify it on attaining
majority. But section 68 of the Act provides an exception to this rule and makes the estate of
the minor liable for necessaries supplied to him. But supplier has to prove that goods supplied
were reasonable necessary for supporting a person in his position and infant had not already a
sufficient supply of these necessaries.
2. Payment by an interested person (Section 69)
This section provides that a person who is interested in the payment of money which another
is bound by law to pay and who, therefore, pays it, is entitled to be reimbursed by the other.
Example : B holds land in Bengal on a lease granted by A, the Zamindar. The revenue
payable by A to the Government being in arrear, his land is advertised for sale by the
Government. Under the revenue law, the consequence of such sale will be the annulment of
B’s lease. B to prevent the sale and the consequent annulment of his own lease pays to the
Government the sum due from A. A is bound to make good to B the amount so paid.
Examples : (a) A’s goods were wrongfully attached to realise the arrears of Government
revenue due by B. A pays the dues to save his property. He is entitled to recover the amount
from B.
3. Obligation of a person enjoying benefit of non-gratuitous act (Section 70)
Where a person lawfully does anything for another person or delivers, anything to him, not
intending to do so gratuitously, and such other person enjoys the benefit thereof the latter is
bound to make compensation to the former in respect of, or to restore the thing so done or
delivered.
Examples : (a) A, a tradesman leaves goods at B’s house by mistake. B treats the goods as
his own. He is bound to pay A for them.
(b) A saves B’s property from fire. A is not entitled to compensation from B, if the
circumstances show that he intended to act gratuitously.
4. Responsibility of finder of goods (Section 71)
A person who finds goods belonging to another and takes them into his custody, is subject to
the same responsibility as a bailee.
A finder of goods is bound to take as much care of the goods found as a man of ordinary
prudence would take of his own goods under similar circumstances. He cannot appropriate
the goods without taking proper steps to find out the owner and should keep them for a
reasonable time so that the owner may turn up and take them. The finder of the goods is
entitled to retain the goods against the owner until he receives compensation from him. He is
also entitled to the possession of the goods as against the whole world except the true owner.
Example : H picked up a diamond from the floor of F’s shop and handed over to F to keep it
till the owner is found. Inspite of best efforts the true owner could not be reached.
After some time H tendered to F the lawful expenses incurred by him for finding the true
owner and asked him (F) to hand over the diamond to him (H). F refused. It was held that F
must return the diamond to H as H was entitled to retain it against the whole world except the
true owner.
A person to whom money has been paid or anything delivered by mistake or under coercion,
must repay or return it.
Examples : (a) A and B jointly owe 100 rupees to C. A alone pays the amount to C and B not
knowing of this fact, pay 100 rupees over again to C. C is bound to repay the amount to B.
Q.9 Write note on Quantum Merit.
QUANTUM MERUIT
In addition to the above types of quasi-contracts a claim can also be made on the basis of
Quantum Meruit. Where one person has rendered service to another in circumstances which
indicate an understanding between them that it is to be paid for although no particular
remuneration has been fixed the law will infer a promise to pay Quantum Meruit i.e., as
much as the party doing the service has deserved. It covers a case where the party injured by
the breach had at time of breach done part but not all of the work which he is bound to do
under the contract and seeks to be compensated for the value of the work done. For the
application of this doctrine two conditions must be fulfilled :
(1) It is only available if the original contract has been discharged.
(2) The claim must be brought by a party not in default.
The object of allowing a claim on quantum meruit is to recompensate the party or person for
value of work which he has done. Damages are compensatory in nature while quantum
meruit is restitutory. It is but reasonable compensation awarded on implication of a contract
to remunerate. Where a person orders from a wine merchant 12 bottles of whisky and he
sends 10 bottles of whiskey and 2 of brandy, and the purchaser accepts them, the purchaser
must pay a reasonable price for the brandy. The claim for quantum meruit arises in the
following cases :
1. Where work has been done in pursuance of a contract, which has been discharged
by the default of the defendant.
Examples
(a) P agreed to write a volume on ancient armour to be published in a magazine owned by C.
For this he was to receive $ 100 on completion. When he had completed part, but not the
whole, of his volume, C abandoned the magazine.
P was held entitled to get damages for breach of contract and payment quantum meruit for the
part already completed
 SALE OF GOODS ACT 1932

Q.10 Define contract of sale and explain its essentials.

According to Section 4(1), a contract of sale of goods is a contract whereby the seller
transfers or agrees to transfer the property in goods to the buyer for a price. A contract of sale
may be absolute or conditional. In an absolute sale, the property in the goods passes from the
seller to the buyer immediately and nothing remains to be done by the seller. Sale on a
counter in a shop is an absolute sale. In a conditional contract of sale, the property in the
goods does not pass to the buyer absolutely until a certain condition is fulfilled. The term
‘contract of sale’ is a general term and comprises of :
(1) Sale; and
(2) Agreement to sell
Where the seller transfer the property in the goods immediately to the buyer there is a sale.
But where the transfer of the property in the goods is to take place at a future time or subject
to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled
subject to which the property in the goods is to be transferred. Every sale originates in an
agreement to sell. It is an agreement of sale which gives birth to a sale. On a sale, the
agreement of sale is completely exhausted and ceases to exist.
ESSENTIALS
1. Contract
The word contract means an agreement enforceable by law. It resumes free consent on the
part of the parties who should be competent to contract. Thus, a compulsory transfer of goods
under a Nationalisation Act is not a sale. The agreement must be made for a lawful
consideration and with a lawful object. In other words all the essential elements of a valid
contract must also be present in a contract of sale.
2. Two parties
To constitute a contract of sale, there must be a transfer or agreement to transfer the property
in goods by the seller to the buyer. It means that there must be two persons, one the seller and
the other the buyer. The seller and the buyer must be two different persons, for a man cannot
purchase his own goods. The parties must be competent to contract.
Example--A club supplies food and drinks to its members at fixed price. This was held not to
be a sale as a member of the club pays to the members jointly (i.e. the club) Members of a
club are undivided joint owners and not part owners
3. Transfer the property
In a contract of sale, there should be a transfer or agreement to transfer the absolute or
general property in the goods sold or agreed to be sold. It contemplates the transfer of the
ownership in the goods. Though passing of the title in the goods is an essential ingredient of
sale, physical delivery of goods is not essential. The Sale of Goods Act contemplates the
transfer of general property in goods from the seller to the buyer.
4. Goods
The subject-matter of the contract of sale must be the goods, the property in which is to be
transferred from the seller to the buyer. Goods of any kind except immovable goods may be
transferred. It does not include money and other actionable claims. The seller must be the
owner of the goods the ownership of which is sought to be transferred.
A debt is not goods because it can only be assigned as per Transfer of Property Act but cannot
be sold.
Example : According to a contract between the hotel and resident customers the hotel made a
consolidated charge for residents, services and supply of food. No rebate was allowed if food
was not taken. On a question being raised whether the supply of food amounted to sale it was
held that it was simply a provision of service as the transaction was an indivisible contract of
multiple services and did not involve any sale of food. (Associated Hotels of India V. Excise
and Taxation Officer AIR 1966. Punjab, 249).
5. Price
To constitute a valid contract of sale, consideration for transfer must be money paid or
promised. Where there is no money consideration the transaction is not a contract of sale, as
for instance goods given in exchange for goods or as remuneration for work or labour.
However, an existing debt due from the seller to the buyer is sufficient. Further, there is
nothing to prevent the consideration from being partly in money and partly in goods or some
other articles of value. For example, when an old car is returned to the dealer for a new one
and the difference is paid in cash, that would also be a sale.
It may be noted that no particular form is necessary to constitute a contract of sale. A contract
of sale may be made in writing or by word of mouth or may be implied from the conduct of
the parties.

Q.11 Distinguish between sale and agreement to sale.

(1) Nature of contract
An agreement to sell is an executory contract, is a contract pure and simple and no property
passes; where as a sale is an executed contract plus a conveyance.
(2) Transfer of property
In a sale the property in the goods passes from the seller to the buyer at the time the contract
is made. But in an agreement to sell, the transfer of property takes place at some future time
or until some condition is fulfilled.
In other words in a sale the buyer becomes the owner of the goods immediately at the time of
making the contract. In an agreement to sell the seller continues to be the owner until the
agreement to sell becomes a sale.
(3) Risk of loss
In a sale, the buyer immediately becomes the owner of the goods and the risk as a rule passes
to the buyer; under an agreement to sell, the seller remains the owner and the risk is with him.
Thus under a sale, if the goods are destroyed the loss falls on the buyer, even though the
goods are in the possession of the seller. But, under an agreement to sell, the loss will fall on
the seller in the case of destruction of goods even though they are in the possession of the
buyer.
(4) Consequences of the breach
On breach of an agreement to sell by the seller, the buyer has only a personal remedy against
the seller. But if after a sale the seller breaks the contract (e.g., resell the goods) the buyer
may sue for delivery of the goods or for damages.
In an agreement to sell, if the buyer fails to accept the goods the seller may sue for damages
only and not for the price. On a sale, if the buyer does not pay the price, the seller may sue
him for the price.
(5) Insolvency of the buyer
In a sale, if the buyer is adjudged an insolvent, the seller in the absence of a lien over the
goods is bound to deliver the goods to the Official Receiver of assignee. The seller will,
however, be entitled to a rateable dividend for the price of the goods. In an agreement to sell,
when the buyer becomes insolvent before he pays for the goods, the seller may not part with
the goods.
(6) Insolvency of the seller
In a sale, if the seller becomes insolvent, the buyer is entitled to recover the goods from the
Official Receiver or assignee as the property of the goods is with the buyer. In an agreement
to sell, if the buyer has already paid the price and the seller becomes insolvent, the buyer can
claim only a rateable dividend and not the goods.
(7) General and particular property
An agreement to sell creates a right in personam while a sale creates a right in rem. In case of
an agreement to sell the buyer and seller get remedy against each other in case of breach of an
agreement. The agreement of sale creates a right with which only the contracting parties are
concerned and not the whole world, whereas in case of sale, the buyer gets an absolute right
of ownership and this right of the buyer is recognized by the whole world.
(8) Right of re-sale
In an agreement to sell, the property in the goods remains with the seller and he can dispose
of the goods as he likes, although he may thereby commit a breach of his contract. In a sale,
the property is with the buyer and as such the seller cannot resell the goods. If he does so, the
buyer can recover the goods sometimes even from third party.

Q.12 What are the different types of goods.

The subject matter of the contract of sale must be ‘ goods’. According to Section 2(7), “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 served before sale or under the contract of sale.”
Thus every kind of movable property except actionable claim and money is regarded as
‘goods’. Goodwill, trade marks, copyrights, patents right, water, gas, electricity, decree of a
court of law, are all regarded as goods. Shares and stock are also included in goods. With
regard to growing crops, grass and things attached to or forming part of the land, such things
are regarded as goods as soon as they are agreed to be separated from the land. Thus where
trees were sold so that they could be cut out and separated from the land and then taken away
by the buyer, it was held that there was a contract for sale of movable property or goods.
‘Actionable claims’ means claims which can be enforced by a legal action or a suit, e.g., a
book debt.
‘Money’ means current money. It is not regarded goods because it is the medium of exchange
through which goods can be bought. Old and rare coins, however, may be treated as goods
and sold as such.
Kinds of Goods
‘Goods’ form the subject mater of a contract of sale. We have already seen the meaning of the
term ‘goods’ as per Section 2(7). Goods may be classified into the following types :
(1) Existing goods ;
(2) Future goods ; and
(3) Contingent goods.
1. Existing goods
Goods which are physically in existence and which are in seller’s ownership and/or
possession, at the time of entering the contract of sale are called ‘existing goods’
Where seller is the owner, he has the general property in them. Where seller is in possession,
say, as an agent or a pledgee, he has a right to sell them. Existing goods may again be either
‘specific’ or ‘unascertained.’
(a) Specific goods : Goods identified and agreed upon at the time of the making of the
contract of sale are called ‘specific goods’ [Sec. 2(14)]. It may be noted that in actual practice
the term ‘ascertained goods’ is used in the same sense as ‘specific goods.’ For example,
where A agrees to sell to B a particular radio bearing a distinctive number, there is a contract
of sale of specific or ascertained goods.
(b) Unascertained goods : The goods which are not separately identified or ascertained at
the time of the making of the contract are known as ‘unascertained goods.’ They are indicated
or defined only by description. For example, if A agrees to sell to B one bag of sugar out of
the lot of one hundred bags lying in his godown, it is a sale of unascertained goods because it
is not known which bag is to be delivered. As soon as a particular bag is separated from the
lot for delivery, it becomes ascertained or specific goods.
The distinction between ‘specific’ or ‘ascertained’ and ‘unascertained’ goods is important in
connection with the rules regarding ‘transfer of property’ from the seller to the buyer.
2. Future goods : Goods to be manufactured, produced or acquired by the seller after the
making of the contract of sale are called ‘future goods’ [Sec. 2(6)]. These goods may be
either not yet in existence or be in existence but not yet acquired by the seller. It is worth
noting that there can be no present sale of future goods because property cannot pass in what
is not owned by the seller at the time of the contract. So even if the parties purport to effect a
present sale of future goods, in law it operates only as an ‘agreement to sell’ [Sec. 6(3)].
Examples : (a) A agrees to sell to B all the milk that his cow may yield during the coming
year. This is a contract for the sale of future goods.
(b) X agrees to sell to Y all the mangoes which will be produced in his garden next year. It is
contract of sale of future goods, amounting to ‘an agreement to sell.’
3. Contingent goods : Goods, the acquisition of which by the seller depends upon an
uncertain contingency are called ‘contingent goods’ [Sec. 6(2)]. Obviously they are a type of
future goods and therefore a contract for the sale of contingent goods also operates as ‘an
agreement to sell’ and not a ‘sale’ so far as the question of passing of property to the buyer is
concerned. In other words, like the future goods, in the case of contingent goods also the
property does not pass to the buyer at the time of making the contract. It is important to note
that a contract of sale of contingent goods is enforceable only if the event on the happening of
which the performance of the contract is dependent happens, otherwise the contract becomes
void.
Examples : (a) A agrees to sell to B a specific rare painting provided he is able to purchase it
from its present owner. This is a contract for the sale of contingent goods.
(b) X agrees to sell to Y 25 bales of Egyptian cotton, provided the ship which is bringing
them reaches the port safely. It is a contract for the sale of contingent goods. If the ship is
sunk, the contract becomes void and the seller is not liable.

Q13 Define unpaid seller and explain his rights.

Section 45 lays down that a seller is unpaid
(1) When the whole of the price has not been paid or tendered.
(2) When a negotiable instrument or a bill of exchange has been received a conditional
payment and the condition on which it was received has not been fulfilled by reason
of the dishonour of the instrument or otherwise.
Definition suggest us
1. Even small portion remain unpaid seller remains an unpaid seller
2. ‘Seller’ here includes any person who is in the position of a seller
3. He must sell goods against cash only and not on credit, and he must be unpaid.
4. He must be unpaid either wholly or partly.
5. He must not refuse payment when tendered, otherwise he will cease to be an unpaid
seller.
RIGHTS OF AN UNPAID SELLER
The Sale of Goods Act has expressly given two kinds of rights to an unpaid seller of goods,
namely.
(1) Against the goods
(a) When the property in the goods has passed
(i) right of lien- Lien’ is the right to retain possession of goods until payment in respect of
them is paid. Section 47(1) describes the circumstances in which an unpaid seller may
exercise
his right of lien. The unpaid seller of goods, who is in possession of them, can retain
possession until payment or tender of the price in the following case :
(a) Where the goods have been sold without any stipulation as to credit;
(b) Where the goods have been sold on credit, but the term of credit has expired.
(c) where the buyer becomes insolvent.
The lien of the unpaid seller the is for the price only; so when the price has been paid or
tendered, he cannot retain possession of the goods any longer. Again the right of lien does not
extend to other charges which the seller may have to incur for storing the goods during the
exercise of the lien.
(ii) Right of stoppage of goods in transit
The second important right which is available to an unpaid seller is the right of stoppage in
transit. The right to stoppage means the right to stop further transit of the goods, to resume
possession thereof and to retain the same till the price is paid. The right can be exercised
under the following circumstances :
(i) The seller must be unpaid.
(ii) The seller must have parted with the possession of the goods and the buyer must
not have acquired it.
(iii) The buyer must be insolvent.
(iv) The property must have passed from the seller to the buyer.
Example
When the goods reach their destination and after taking delivery the buyer puts them on his
cart, though the cart has not left the station, the railway company cannot stop the goods at this
stage if the seller asks. The transit has already ended (GIP Railway Co. V. Hanuman das).
(iii) Right of re-sale.
In addition to the rights of lien and stoppage in transit, the unpaid seller has got the valuable
right of re-sale of the goods, which are the subject-matter of the contract. This limited right of
resale is conferred by the section 54 which also enumerates the circumstances under which
the right of re-sale may be exercised. The right may be exercised in the following cases :
(a) Where the goods are of a perishable nature. In this case the unpaid seller need not give a
notice to the buyer of his intention to resell the goods.
(b) Where the unpaid seller has exercised his right of lien or stoppage in transit, he can give
notice to the buyer of his intention to resell the goods. If after such notice the buyer does not
within a reasonable time pay or tender the price, the seller can resell the goods within a
reasonable time. He can recover from the original buyer any loss occasioned by the breach of
the contract. The seller shall be entitled to the profits, if any on the resale. If the unpaid seller
fails to give such notice he cannot recover damages from the buyer and is under an obligation
to pay over the profits, if any, arising from the resale.
(c) Where the seller has expressly reserved a right of resale, in case the buyer makes default.
In such a case, on re-sale though the original contract of sale is thereby rescinded, the unpaid
seller does not lose his right to claim damages for breach of the contract.
These rights of an unpaid seller do not depend upon any agreement, express or implied
between the parties. They arise by the implication of law.
(b) When property in the goods has not passed.
i) Right of withholding delivery.
Where the property in goods has not passed to the buyer, the unpaid seller has an addition to
other remedies a right of withholding delivery, similar to and co-extensive with his right of
lien and stoppage in transit, where the property has passed to the buyer.
2. Against the buyer personally
1. Suit for price (Sec. 55). Where property in goods has passed to the buyer; or where the
sale price is payable ‘on a day certain’, although the property in goods has not passed; and the
buyer wrongfully neglects or refuses to pay the price according to the terms of the contract,
the seller is entitled to sue the buyer for price, irrespective of the delivery of goods.
2. Suit for damages for non-acceptance (Sec.56). Where the buyer wrongfully neglects or
refuses to accept and pay for the goods, the seller may sue him for damages for non-
acceptance. The seller’s remedy in this cases is a suit for damages rather than an action for
the full price of the goods.
The damages are calculated in accordance with the rules contained in Section 73 of the Indian
Contract Act, that is, the measure of damages is the estimated loss arises directly and
naturally from the buyer’s breach of contract. Where the goods have a ready market the
principle applicable is that the seller may recover from the buyer damages equal to the
difference between the contract price and the market price on the date of the breach of the
contract. Thus, if the difference between the contract price and market price is nil, the seller
can get only nominal damages. But where the goods do not have any ready market, the
measure of damages will depend upon the facts of each case.
3. Suit for special damages and interest (Sec. 61). This Section entitles the seller to sue the
buyer for ‘special damages’ also for such loss “which the parties knew, when they made the
contract, to be likely to result from the breach of it.” In fact the Section is only declaratory of
the principle regarding ‘special damages’ laid down in Section 73 of the Indian Contract Act.
The Section also recognises unpaid seller’s right to get interest at a reasonable rate on the
total unpaid price of the goods sold, from the time it was due until it is actually paid.

Q.14 Discuss the rights of buyer against the seller.

1. Suit for damages for non-delivery (Sec. 57). Where the seller wrongfully neglects or
refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-
delivery.
Example : A, having contracted with B to supply B with 1,000 tons of iron at Rs.100 a ton,
to be at a stated time, contracts with C for the purchase of 1,000 tons of iron at Rs.80 a ton,
telling C that he does so for the purpose of performing his contract with B. C fails to perform
his contract with A, who cannot procure other iron, and B in consequence rescinds the
contract. C must pay to A Rs. 20,000 being the profit which A would have made by the
performance of his contract with B.
2. Suit for specific performance (Sec. 58). Where there is breach of a contract for the sale of
specific or ascertained goods, the buyer may file a suit for the specific performance of the
contract. This remedy is discretionary and will only be granted when damages would not be
and adequate remedy, for instance, the subject-matter of the contract is rare goods, say, a
picture by a dead painter.
This remedy is allowed by the court subject to certain conditions given below :
(i) The contract must be for the sale of specific or ascertained goods.
(ii) The court can order the specific performance when the damages would not be an adequate
remedy.
3. Suit for damages for breach of warranty (Sec. 59). Where there is a breach of warranty
by the seller, or where the buyer elects or is compelled to treat breach of condition as breach
of warranty, the buyer is entitled to file a suit for damages if the price has already been paid.
But if the buyer has not yet paid the price he may ask the seller for a reasonable reduction in
price.
4. Suit for recession of contract and for damages for breach of ‘condition’. The breach of
‘condition’ entitles the buyer to treat the contract as repudiated (Sec. 12(2)). Accordingly,
where there is a breach of ‘condition’ by the seller, the buyer is entitled to file a suit for
recession of the contract. Also, he may claim damages for loss suffered on the footing that the
whole contract is broken and the seller is guilty of non-delivery..
5. Suit for recovery of the price together with interest (Sec. 61). If the buyer has already
paid the price of the goods to the seller and the goods are not delivered or they are stolen one,
he can sue the seller for the refund of the price and also for the interest at reasonable rate
from the date of payment to the date of refund.

Q.15 State the rules regarding sale by auction.

In an auction sale, the auctioneer invites bids from prospective purchasers and sells the goods
to the highest bidder. Section 64 lays down the following rules relating to an auction sale :
1. Where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of
a separate contract of sale.
2. The sale is complete when the auctioneer announces its completion by the fall of the
hammer or in other customary manner, say, by saying word like “one, two, three” or “going,
going, gone;” and, until such announcement is made, any bidder may retract his bid. On the
other hand, the auctioneer is also not bound to accept the highest bid if he feels that it is much
below his expectation. Of course, his not accepting the highest bid would injure his business
reputation because it is the custom of trade that goods must be sold to the highest bidder.
In the language of the Contract Act, a notice or advertisement of an auction sale is simply ‘an
invitation to an offer.’ The bid constitutes the ‘offer,’ and the fall of hammer constitutes the
‘acceptance.’ An offer can always be withdrawn before its acceptance, and need not
necessarily be accepted. In this connection, it may be of interest to note that the auctioneer
has the right to make the auction subject to any conditions he likes (The Coffee Board Vs.
Famous Coffee and Tea Works).
Thus, if the auctioneer expressly announces that biddings once made cannot be withdrawn,
then that will hold good and the normal contractual rule, i.e., an offer may be revoked before
its acceptance will not apply.
3. The seller or any one person on his behalf can bid at the auction, provided such a right to
bid has been expressly reserved at the time of notifying the auction sale. (The employment of
a second puffer is fraudulent even if the right to bid is expressly reserved). If the seller makes
use of pretended bidding to raise the price without expressly notifying about the same, the
sale may be treated as fraudulent by the buyer and he may avoid the contract on that ground.
4. The sale may be notified to be subject to a reserved or upset price. It is a price below which
the auctioneer will not sell, and if he by mistake knocks down the lot for less than the
reserved price, no valid contract comes into existence and he can refuse to deliver the goods
to the highest bidder (Rainbow Vs. Hawkins). Where the sale is ‘without reserve’ the goods
must be sold to the highest bidder, irrespective of the bid amount. But it is only a usage or
custom of the trade because otherwise the auctioneer is free to accept or reject any offer or
bid made
to him.
5. A ‘knock out’ agreement between intending buyers not to bid against each other is not
illegal (Lachman Dass & Others Vs. Sita Ram & Others).
6. The auctioneer cannot sell goods on credit or accept payment by means of a bill of
exchange. Also, he can not be compelled to accept a cheque for the purchase price.

NEGOTIABLE INSTRUMENTS ACT

Q.16 Define negotiable instrument (NI) and discuss the characteristics of negotiable
instruments.
According to Section 13 (a) of the Act, "NI means a promissory note, bill of exchange or
cheque payable either to order or to bearer, whether the word "order" or " bearer" appear on
the instrument or not."
In the words of Justice, Willis, "A NI is one, the property in which is acquired by anyone who
takes it bonafide and for value notwithstanding any defects of the title in the person from
whom he took it".
Thus, the term, NI means a written document which creates a right in favour of some person
and which is freely transferable. Although the Act mentions only these three instruments
(such as a promissory note, a bill of exchange and cheque), it does not exclude the possibility
of adding any other instrument which satisfies the following two conditions of negotiability :
(1) the instrument should be freely transferable (by delivery or by endorsement. and delivery)
by the custom of the trade; and
(2) the person who obtains it in good faith and for value should get it free from all defects,
and be entitled to recover the money of the instrument in his own name.
Characteristics of a NI Act
A NI has the following characteristics :
1. Property--The possessor of the NI is presumed to be the owner of the property contained
therein. A NI does not merely give possession of the instrument but right to property also.
The property in a NI can be transferred without any formality. In the case of bearer
instrument, the property passes by mere delivery to the transferee. In the case of an order
instrument, endorsement and delivery are required for the transfer of property.
2. Title--The transferee of a NI is known as 'holder in due course.' A bona fide transferee for
value is not affected by any defect of title on the part of the transferor or of any of the
previous holders of the instrument.
3. Rights--The transferee of the NI can sue in his own name, in case of dishonour
A NI can be transferred any number of times till it is at maturity. The holder of the instrument
need not give notice of transfer to the party liable on the instrument to pay.
4. Presumptions--Certain presumptions apply to all negotiable instruments e.g., a
presumption that consideration has been paid under it. It is not necessary to write in a
promissory note the words ‘for value received’ or similar expressions because the payment of
consideration is presumed. The words are usually included to create additional evidence of
consideration.
5. Prompt payment- A NI enables the holder to expect prompt payment because a dishonour
means the ruin of the credit of all persons who are parties to the instrument.

Q.17) Describe the various types of negotiable instruments.

Negotiable instruments recognised by statute are :
(i) Promissory notes -Section 4 of the Act defines, "A promissory note is an instrument in
writing (note being a bank-note or a currency note) containing an unconditional undertaking,
signed by the maker, to pay a certain sum of money to or to the order of a certain person, or
to the bearer of the instruments."
(ii) Bills of exchange -Section 5 of the Act defines, "A bill of exchange is an instrument in
writing containing an unconditional order, signed by the maker, directing a certain person to
pay a certain sum of money only to, or to the order of a certain person or to the bearer of the
instrument".
(iii) Cheques -Section 6 of the Act defines "A cheque is a bill of exchange drawn on a
specified banker, and not expressed to be payable otherwise than on demand".
A cheque is bill of exchange with two more qualifications, namely, (i) it is always drawn on a
specified banker, and (ii) it is always payable on demand. Consequently, all cheque are bill of
exchange, but all bills are not cheque.
(b) Negotiable instruments recognised by usage or custom are :
(i) Hundis- A "Hundi" is a NI written in an oriental language. The term hundi includes all
indigenous NI whether they be in the form of notes
or bills. The word 'hundi' is said to be derived from the Sanskrit word 'hundi', which means
"to collect". They are quite popular among the Indian merchants from very old days.
Other types of negotiable instruments are as under
(ii) Share warrants (iii) Dividend warrants (iv) Bankers draft (v) Circular notes (vi) Bearer
debentures (vii) Debentures of Bombay Port Trust (viii) Railway receipts (ix) Delivery
orders.

Q.18 ) Discuss the essentials of promissory notes.

An instrument to be a promissory note must possess the following elements :
(1) It must be in writing : A mere verbal promise to pay is not a promissory note. The
method of writing (either in ink or pencil or printing, etc.) is unimportant, but it must be in
any form that cannot be altered easily.
(2) It must certainly an express promise or clear understanding to pay : There must be an
express undertaking to pay. A mere acknowledgment is not enough. The following are not
promissory notes as there is no promise to pay.
(3) Promise to pay must be unconditional : A conditional undertaking destroys the
negotiable character of an otherwise negotiable instrument. Therefore, the promise to pay
must not depend upon the happening of some outside contingency or event. It must be
payable absolutely.
(4) It should be signed by the maker : The person who promise to pay must sign the
instrument even though it might have been written by the promisor himself. There are no
restrictions regarding the form or place of signatures in the instrument. It may be in any part
of the instrument. It may be in pencil or ink, a thumb mark or initials. The pronote can be
signed by the authorised agent of the maker, but the agent must expressly state as to on whose
behalf he is signing, otherwise he himself may be held liable as a maker. The only legal
requirement is that it should indicate with certainty the identity of the person and his intention
to be bound by the terms of the agreement.
(5) The maker must be certain : The note self must show clearly who is the person agreeing
to undertake the liability to pay the amount. In case a person signs in an assumed name, he is
liable as a maker because a maker is taken as certain if from his description sufficient
indication follows about his identity. In case two or more persons promise to pay, they may
bind themselves jointly or jointly and severally, but their liability cannot be in the alternative.
(6) The payee must be certain : The instrument must point out with certainty the person to
whom the promise has been made. The payee may be ascertained by name or by designation.
A note payable to the maker himself is not pronate unless it is indorsed by him. In case, there
is a mistake in the name of the payee or his designation; the note is valid, if the payee can be
ascertained by evidence.
(7) The promise should be to pay money and money only : Money means legal tender
money and not old and rare coins. A promise to deliver paddy either in the alternative or in
addition to money does not constitute a promissory note.
(8) The amount should be certain : One of the important characteristics of a promissory
note is certainty—not only regarding the person to whom or by whom payment is to be made
but also regarding the amount. where the name of a dead person is entered as payee in
ignorance of his death, his legal representative can enforce payment.
(9) Other formalities : The other formalities regarding number, place, date, consideration
etc. though usually found given in the promissory notes but are not essential in law. The date
of instrument is not material unless the amount is made payable at a certain time after date.
Even in such a case, omission of date does not invalidate the instrument and the date of
execution can be independently ascertained and proved.

Q.19 Describe essential conditions for bill of exchange.

(1) It must be in writing.
(2) It must be signed by the drawer.
(3) The drawer, drawee and payee must be certain.
(4) The sum payable must also be certain.
(5) It should be properly stamped.
(6) It must contain an express order to pay money and money alone.
For example, In the following cases, there is no order to pay, but only a request to pay.
Therefore, none can be considered as a bill of exchange:
(a) "I shall be highly obliged if you make it convenient to pay Rs. 1000 to Suresh".
(b) "Mr. Ramesh, please let the bearer have one thousand rupees, and place it to my account
and oblige"
However, there is an order to pay, though it is politely made, in the following examples :
(a) "Please pay Rs. 500 to the order of 'A’.
(b) 'Mr. A will oblige Mr. C, by paying to the order of' P".
(7) The order must be unconditional.

Q.20 Distinguish between Bill of exchange and Promissory note.

(1) Number of parties : In a promissory note there are only two parties – the maker (debtor)
and the payee (creditor). In a bill of exchange, there are three parties; drawer, drawee and
payee; although any two out of the three may be filled by one and the same person,
(2) Payment to the maker : A promissory note cannot be made payable the maker himself,
while in a bill of exchange to the drawer and payee or drawee and payee may be same person.
(3) Unconditional promise : A promissory note contains an unconditional promise by the
maker to pay to the payee or his order, whereas in a bill of exchange, there is an
unconditional order to the drawee to pay according to the direction of the drawer.
(4) Prior acceptance : A note is presented for payment without any prior acceptance by the
maker. A bill of exchange is payable after sight must be accepted by the drawee or someone
else on his behalf, before it can be presented for payment.
(5) Primary or absolute liability : The liability of the maker of a promissory note is primary
and absolute, but the liability of the drawer of a bill of exchange is secondary and conditional.
(6) Relation: The maker of the promissory note stands in immediate relation with the payee,
while the maker or drawer of an accepted bill stands in immediate relations with the acceptor
and not the payee.
(7) Protest for dishonour : Foreign bill of exchange must be protested for dishonor when
such protest is required to be made by the law of the country where they are drawn, but no
such protest is needed in the case of a promissory note.
(8) Notice of dishonour : When a bill is dishonoured, due notice of dishonour is to be given
by the holder to the drawer and the intermediate indorsers, but no such notice need be given
in the case of a note.
Q.21 Write short notes on
a. Modes of transfer of Negotiable Instrument
Negotiation requires two conditions to be fulfilled, namely :
1. There must be a transfer of the instrument to another person; and
2. The transfer must be made in such a manner as to constitute the transferee the
holder of the instrument.
Handing over a NI to a servant for safe custody is not negotiation; there must be a transfer
with an intention to pass title. Negotiation may be effected in the following two ways :
1. Negotiation by delivery (Sec. 47) : Where a promissory note or a bill of exchange or a
cheque is payable to a bearer, it may be negotiated by delivery thereof.
Example : A, the holder of a NI payable to bearer, delivers it to B’s agent to keep it for B.
The instrument has been negotiated.
2. Negotiation by endorsement and delivery (Sec. 48) : A promissory note, a cheque or a
bill of exchange payable to order can be negotiated only be endorsement and delivery. Unless
the holder signs his endorsement on the instrument and delivers it, the transferee does not
become a holder. If there are more payees than one, all must endorse it.

(b) Essentials and Types of Endorsement

The word ‘endorsement’ in its literal sense means, writing on the back of an instrument. But
under the Negotiable Instruments Act it means, the writing of one’s name on the back of the
instrument or any paper attached to it with the intention of transferring the rights therein.
Thus, endorsement is signing a NI for the purpose of negotiation. The person who effects an
endorsement is called an ‘endorser’, and the person to whom NI is transferred by
endorsement is called the ‘endorsee’.
Essentials of a valid endorsement
The following are the essentials of a valid endorsement :
1. It must be on the instrument. The endorsement may be on the back or face of the
instrument and if no space is left on the instrument, it may be made on a separate
paper attached to it called allonage. It should usually be in ink.
2. It must be made by the maker or holder of the instrument. A stranger cannot endorse it.
3. It must be signed by the endorser. Full name is not essential. Initials may suffice. Thumb-
impression should be attested. Signature may be made on any part of the instrument. A rubber
stamp is not accepted but the designation of the holder can be done by a rubber stamp.
4. It may be made either by the endorser merely signing his name on the instrument (it is a
blank endorsement) or by any words showing an intention to endorse or transfer the
instrument to a specified person (it is an endorsement in full). No specific form of words is
prescribed for an endorsement. But intention to transfer must be present. When in a bill or
note payable to order the endorsee’s name is wrongly spelt, he should when he endorses it,
sign the name as spelt in the instrument and write the correct spelling within brackets after his
endorsement.
5. It must be completed by delivery of the instrument. The delivery must be made by the
endorser himself or by somebody on his behalf with the intention of passing property therein.
Thus, where a person endorses an instrument to another and keeps it in his papers where it is
found after his death and then delivered to the endorsee, the latter gets no right on the
instrument.
6. It must be an endorsement of the entire bill. A partial endorsement i.e. which purports to
transfer to the endorse a part only of the amount payable does not operate as a valid
endorsement.
If delivery is conditional, endorsement is not complete until the condition is fulfilled.

(c) Qualification and Privileges of a Holder in due Course

Section 9 of the Act defines 'holder in due course' as any person who (i) for valuable
consideration, (ii) becomes the possessor of a NI payable to bearer or the indorsee or payee
thereof, (iii) before the amount mentioned in the document becomes payable, and (iv) without
having sufficient cause to believe that any defect existed in the title of the person from whom
he derives his title. (English law does not regard payee as a holder in due course).
1. He must be a holder for valuable consideration. Consideration:
a. must not be void or illegal, e.g. a debt due on a wagering agreement.
b. may, be inadequate.
c. A donee, who acquired title to the instrument by way of gift, is not a holder in due course,
since there is no consideration to the contract.
2. He must have become a holder (possessor) before the date of maturity of the NI .
3. He must have become holder of the NI in good faith. Good faith implies that he should
not have accepted the NI after knowing about any defect in the title to the instrument
4. A holder in due course must take the NI complete and regular on the face of it..
Privileges
1. Instrument purged of all defects: A holder in due course who gets the instrument in good
faith in the course of its currency is not only himself protected against all defects of title of
the person from whom he has received it, but also serves, as a channel to protect all
subsequent holders. A holder in due course can recover the amount of the instrument from all
previous parties although, as a matter of fact, no consideration was paid by some of the
previous parties to instrument or there was a defect of title in the party from whom he took it.
Once an instrument passes through the hands of a holder in due course, it is purged of all
defects. It is like a current coin. Who-so-ever takes it can recover the amount from all parties
previous to such holder (Sec. 53).
It is to be noted that a holder in due course can purify a defective title but cannot create any
title unless the instrument happens to be a bearer one.
2. Rights not affected in case of an inchoate instrument : Right of a holder in due course
to recover money is not at all affected even though the instrument was originally an inchoate
stamped instrument and the transferor completed the instrument for a sum greater than what
was intended by the maker. (Sec. 20)
3. All prior parties liable : All prior parties to the instrument (the maker or drawer, acceptor
and intervening indorers) continue to remain liable to the holder in due course until the
instrument is duty satisfied. The holder in due course can file a suit against the parties liable
to pay, in his own name (Sec. 36)
4. Can enforce payment of a fictitious bill : Where both drawer and payee of a bill are
fictitious persons, the acceptor is liable on the bill to a holder in due course. If the latter can
show that the signature of the supposed drawer and the first Endorser are in the same hand,
for the bill being payable to the drawer's order the fictitious drawer must indorse the bill
before he can negotiate it. (Sec. 42).
5. No effect of conditional delivery : Where NI is delivered conditionally or for a special
purpose and is negotiated to a holder in due course, a valid delivery of it is conclusively
presumed and he acquired good title to it. (Sec. 46).
6. No effect of absence of consideration or presence of an unlawful consideration: The
plea of absence of or unlawful consideration is not available against the holder in due course.
The party responsible will have to make payment (Sec. 58).
7. Estoppel against denying original validity of instrument: The plea of original invalidity
of the instrument cannot be put forth, against the holder in due course by the drawer of a bill
of exchange or cheque or by an acceptor for the honour of the drawer. But where the
instrument is void on the face of it e.g. promissory note made payable to "bearer", even the
holder in due course cannot recover the money. Similarly, a minor cannot be prevented from
taking the defence of minority. Also, there is no liability if the signatures are forged. (Sec.
120) .
8. Estoppel against denying capacity of the payee to indorsee: No maker of promissory
note and no acceptor of a bill of exchange payable to order shall, in a suit therein by a holder
in due course, be permitted to resist the claim of the holder in due course on the plea that the
payee had not the capacity to indorse the instrument on the date of the note as he was a minor
or insane or that he had no legal existence (Sec 121)
9. Estoppel against indorser to deny capacity of parties: An indorser of the bill by his
endorsement guarantees that all previous endorsements are genuine and that all prior parties
had capacity to enter into valid contracts. Therefore, he on a suit thereon by the subsequent
holder, cannot deny the signature or capacity to contract of any prior party to the instrument.

(d) Dishonour of a Negotiable Instrument

When a NI is dishonoured, the holder must give a notice of dishonour to all the previous
parties in order to make them liable. A NI can be dishonoured either by non-acceptance or by
non-payment. A cheque and a promissory note can only be dishonoured by non-payment but
a bill of exchange can be dishohoured either by non-acceptance or by non-payment.
Dishonour by non-acceptance (Section 91)
A bill of exchange can be dishonoured by non-acceptance in the following ways :
1. If a bill is presented to the drawee for acceptance and he does not accept it within 48 hours
from the time of presentment for acceptance. When there are several drawees even if one of
them makes a default in acceptance, the bill is deemed to be dishonoured unless these several
drawees are partners. Ordinarily when there are a number of drawees all of them must accept
the same, but when the drawees are partners acceptance by one of them means acceptance by
all.
2. When the drawee is a fictitious person or if he cannot be traced after reasonable search.
3. When the drawee is incompetent to contract, the bill is treated as dishonoured.
4. When a bill is accepted with a qualified acceptance, the holder may treat the bill of
exchange having been dishonoured.
5. When the drawee has either become insolvent or is dead.
6. When presentment for acceptance is excused and the bill is not accepted. Where a drawee
in case of need is named in a bill or in any indorsement thereon, the bill is not dishonoured
until it has been dishonoured by such drawee.
Dishonour by non-payment (Section 92)
A bill after being accepted has got to be presented for payment on the date of its maturity. If
the acceptor fails to make payment when it is due, the bill is dishonoured by non-payment. In
the case of a promissory note if the maker fails to make payment on the due date the note is
dishonoured by non-payment. A cheque is dishonoured by nonpayment as soon as a banker
refuses to pay.
An instrument is also dishonoured by non-payment when presentment for payment is excused
and the instrument when overdue remains unpaid (Sec 76).

(e) Noting and Protesting

When a NI is dishonoured the holder may sue his prior parties i.e the drawer and the
indorsers after he has given a notice of dishonour to them. The holder may need an authentic
evidence of the fact that a NI has been dishonoured. When a cheque is dishonoured general1y
the bank who refuses payment returns back the cheque giving reasons in writing for the
dishonour of the cheque.
Sections 99 and l00 provide convenient methods of authenticating the fact of dishonor of a
bill of exchange and a promissory note by means of ‘noting' and 'protest'.
Noting
As soon as a bill of exchange or a promissory note is dishonoured, the holder can after giving
the parties due notice of dishonour, sue the parties liable thereon. Section 99 provides a mode
of authenticating the fact of the bill having been dishonoured. Such mode is by noting the
instrument. Noting is a minute recorded by a notary public on the dishonoured instrument or
on a paper attached to such instrument. When a bill is to be noted, the bill is taken to a notary
public who represents it for acceptance or payment as the case may be and if the drawee or
acceptor still refuses to accept or pay the bill, the bill is noted as stated above.
Noting should specify in the instrument, (a) the fact of dishonour, (b) the date of dishonour,
(c) the reason for such dishonour, if any (d) the notary's charges, (e) a reference to the
notary's register and (f) the notary's initials.
Noting should be made by the notary within a reasonable time after dishonour.
Noting and protesting is not compulsory but foreign bills must be protested for dishonor
when such protest is required by the law of the place where they are drawn. Cheques do not
require noting and protesting. Noting by itself has no legal effect. Still it has some
advantages. If noting is done within a reasonable time protest may be drawn later on. Noting
without protest is sufficient to allow a bill to be accepted for honour.
Protest
Protest is a formal certificate of the notary public attesting the dishonour of the bill by non-
acceptance or by non-payment. After noting, the next step for notary is to draw a certificate of
protest, which is a formal declaration on the bill or a copy thereof. The chief advantage of
protest is that the court on proof of the protest shall presume the fact of dishonour.
Besides the protest for non-acceptance and for non-payment the holder may protest the bill
for better security. When the acceptor of a bill becomes insolvent or suspends payment before
the date of maturity, or when he absconds the holder may protest it in order to obtain better
security for the amount due. For this purpose the holder may employ a notary public to make
the demand on the acceptor and if refused, protest may be made. Notice of protest may be
given to prior parties. When promissory notes and bills of exchange are required to be
protested, notice of protest must be given instead of notice of dishonour. (Sec. 102)
Inland bills may or may not be protested. But foreign bills must be protested for dishonour
when such protest is required by the law of the place where they are drawn (Sec. 104).
Where a bill is required to be protested under the Act within a specified time, it is sufficient if
it is 'noted for protest' within such time. The formal protest may be given at anytime after the
noting (Sec. 104A)

(f) Discharge of Parties and Instruments

The term 'discharge' in relation to negotiable instruments has two meanings:
(1) the discharge of the instrument, and
(2) discharge of one or more parties from liability on the instrument.
Discharge of the instrument
An instrument is said to be discharged when all rights under it are extinguished, or ceases to
be negotiable and even a holder in due course does not acquire any rights under it. This
happens when the party who is primarily and ultimately liable on the instrument is discharged
from liability. A NI may be discharged by any of the following ways :
1. By payment in due course.
2. Where the principal debtor becomes the holder.
3. Where it discharges as simple contract.
4. By renunciation, and
5. By cancellation.
1. By payment in due course
A NI is discharged by payment made in due course by or for the primary party or by a person
who is accommodated, in case the instrument was made or accepted for accommodation.
Payment in due course means that it must be made at or after the 'maturity' of the instrument
to the 'holder' in good faith, or his agent. The right of further negotiation is denied (a) when
the drawer pays an instrument which is payable to the order of a third person, or (b) when
instrument executed or accepted for accommodation is paid by the party for whose
accommodation the instrument was executed.
For final discharge of payment, the principal and the interest, if any, both must be paid. The
person paying the instrument has the right to demand the surrender of the instrument.
(1) the discharge of the instrument, and
(2) discharge of one or more parties from liability on the instrument.
Discharge of the instrument
An instrument is said to be discharged when all rights under it are extinguished, or ceases to
be negotiable and even a holder in due course does not acquire any rights under it. This
happens when the party who is primarily and ultimately liable on the instrument is discharged
from liability. A NI may be discharged by any of the following ways :
1. By payment in due course
A NI is discharged by payment made in due course by or for the primary party or by a person
who is accommodated, in case the instrument was made or accepted for accommodation.
Payment in due course means that it must be made at or after the 'maturity' of the instrument
to the 'holder' in good faith, or his agent. The right of further negotiation is denied (a) when
the drawer pays an instrument which is payable to the order of a third person, or (b) when
instrument executed or accepted for accommodation is paid by the party for whose
accommodation the instrument was executed.
For final discharge of payment, the principal and the interest, if any, both must be paid. The
person paying the instrument has the right to demand the surrender of the instrument.
2. Where the principal debtor becomes the holder
When the primary party lawfully becomes the holder of the instrument in his own right at or
after maturity, the instrument is discharged. In the following cases, the instrument will not be
discharged:
(a) If the debtor acquires the instrument before maturity, in this case he may negotiate it
further in the same way as any other holder could; or
(b) If the holder did not acquire it lawfully or in his own right, as when he acquired it by
fraud or as an agent for another person.
3. Where it discharges as simple contract
A negotiable instrument, in certain cases, may be discharged in the same way as a simple
contract for the payment of money. Like an ordinary contract, the instrument may be
discharged by novating, a covenant not to sue, rescission or substitution of another
instrument.
4. By renunciation
A negotiable instrument is discharged when the holder renounces or gives up his right against
all the parties to the instrument. It must however, be in writing.
5. By cancellation
The party who is entitled to enforce the payment of an instrument may surrender it to the
party liable thereon with an intention to release him from the obligation. This operates as a
discharge of the instrument and is known as cancellation. Cancellation may also take place by
physical destruction of the instrument itself made with the intention to terminate liability. It
may also be done by crossing out signature on the instrument.

CONSUMER PROTECTION ACT 1986

Q.22 Describe scope of Central Consumer Council.
The central government is empowered to constitute the Central Consumer Protection Council
which consists of 150 members.
The term of the council shall be three years. The council may meet as and when necessary,
but not less than three meetings of the council shall be held every year. Each meeting of the
council shall be called by giving not less than 10 days notices in writing to every member,
specifying the time, place and agenda of the meeting. However, no proceedings of the
councils shall be invalid merely by reasons of existence of any vacancy in or defect in the
constitution of the council.
The council is empowered to constituted from amongst its members, such working groups as
it may deem necessary. Every working group so constituted shall perform such functions as
are assigned to it by the central council. It seems that such working groups may prove to be
more useful and effective in dealing with the specific problems allocated to them. The
findings of such working groups are required to be placed before the council for its
consideration. The resolutions by the council shall be recommendation in nature.
Objectives of the Central Council: The COPRA, 1986 provides that the
objectives of the Central Council shall be to promote and protect the rights of the consumers,
such as:
(a) The right to be protected against marketing of goods which are hazardous to life and
property;
(b) The right to be informed about the quality, quantity, potency, purity, standard and prices of
goods so as to protect the consumer against unfair trade practices;
(c) The right to be assured, wherever possible, access to a variety of goods at competitive
prices;
(d) The right to be heard and to be assured that consumer interests will receive due
consideration at appropriate fora;
(e) The right to seek redressal against unfair trade practices or unscrupulous exploitation of
consumers; and
(f) The right to consumer education.
The central council may have a significant role in the formulation of the Central
Government’s Economic Policy. In addition, it may respond to request for information and
advice on particular issues relating to the protection of consumers.
Though the decisions of the council are recommendation, they have a significant impact on
several authorities concerned with the matters of consumer protection.

Q.23 Describe District Forum under CPA.

A Consumer Disputes Redressal Forum to be known as the District Forum is required to be
established by the state government with the prior approval of the central government in each
district of the state.
i) Composition of the District Forum: The Act provides that each district forum shall
consist of a president, who is required to be a qualified district Judge nominated by the state
government. It shall consist of two members; among them, one should be a .woman social
worker. The members may hold the office for a period of five years or up to the age of 65
years whichever is earlier and they are not eligible for re-appointment. Vacancy occurred by
members’ the state government may fill resignation and it has entire authority about deciding
salary or honorarium to be paid to the members.
ii) Jurisdiction of the District Forum: can entertain the complaints where the value of the
goods or services or compensation claimed is less than Rs.5,00,000 (earlier it was
Rs.1,00,000). It can take complaints where opposite party/parties reside/s or carries on
business in the district and the cause of action, wholly or in part, arises.
iii) Procedure to be followed by the District Forum:
a. After receiving a complaint from the complainant, it refers a copy of the complaint to
the opposite party directing him to give his version within 30 days or such extended
period not exceeding 15 days.
b. If the opposite party denies or disputes the allegations contained in the complaint or
omits or fails to take any action to represent his case within the time given by the
District Forum, then the forum shall take the following if the complaint relates to
goods.
 If complaint alleges a defect in the goods which cannot be determined by
proper analysis, then the District Forum shall take a sample and send it to a
laboratory with prescribed fee (from the complainant) and then it has to send
a copy of the laboratory report to the opposite party of the complainant
disputes with the correctness of report of the laboratory, then they may submit
in writing their objections and then the District Forum gives a reasonable
opportunity to the parties of being heard and issue an appropriate order.
  If the complaint relates to service and where the opposite party on receipt of a
copy of the complaint denies or disputes the allegations contained in the
complaint, or omits or fails to take any action to represent his case within the
time given by the Forum, the Forum shall proceed to settle the consumer
dispute on the basis of:
(i) Evidence brought to its notice by the complainant and the opposite party denies or
disputes the allegations contained in the complaint, or
(ii) Evidence brought to its notice by the complainant where the opposite party omits or fails
to take any action to represent his case within the time given by the Forum.
If the District Forum is satisfied that the goods complained against any of the defects
specified in the complaint or that any of the allegations contained in the complaint about the
services are proved, it shall issue an order to the opposite party directing him to take one or
more of the following things:
(i) to remove the defect pointed out by the appropriate laboratory from the goods in question;
(ii) to replace the goods with new goods of similar description which shall be free from any
defect;
(iii) to return to the complainant the price, or as the case may be the charges paid by the
complainant; and
(iv) to pay such amount as may be awarded by it as compensation to the consumer for any
loss or injury suffered by the consumer due to the negligence of the opposite party. The
person (whether complainant or opposite party) dissatisfied with the order made by the
District Forum may prefer an appeal against such order to the State commission within a
period of 30 days from the date of order.
Q.24 Describe State Commission for Consumer Protection.
i) Jurisdiction of the State Commission: The State Commission can entertain the
complaints where the value of the goods and compensation if any, claimed exceeds
Rs.5,00,000 but does not exceed Rs.20,00,000 (earlier it was Rs.1,00,000 and Rs.10,000,000
respectively). It can entertain appeals against the orders of any District Forum within the
state.
ii) Procedure: While disposing of the complaints, State Commission have to follow the
Sections 12,13 and 14 and the rules made hereunder with such modifications as may
necessarily be applicable to it. The Rule 10 of the Consumer Protection Act as are vested to
the District Forum regarding the production documents, search and seizure. It may, however,
be noted that the State Governments have yet to make their own rules in exercise of their
powers under Section 30 (2) of the, Act. It is submitted that the State Government may adopt
the similar rules as laid down by the central government, viz., Consumer Protection Rules,
1987. It will
help in maintaining uniformity in Law all over the country.
Appeal against the Orders of the State Commission: Section 19 of the Act provides that
the person aggrieved by an order made by the State Commission on a complaint may prefer
an appeal against such order to the National Commission within a period of 30 days from the
date of the order. The National Commission may entertain an appeal after the expiry of the
said period of 30 days if it is within that period.
It may be noted that an order made by the State Commission on an appeal against the orders
of the District forum is not appealable to the National Commission. Thus, provision exists
only for a single appeal to the State Commission, from the order of the State Commission to
the National Commission.
Q.25 Describe National Commission For Consumer Protection
This is the highest authority to settle the consumer disputes under the Act. It is an
independent statutory body.
i) Composition of the National Commission: The National Commission shall consist of a
president appointed by the central government who is or has been a Judge of Supreme Court
and four other members who are eminent in any field of knowledge - one of whom should be
a woman. However, no sitting judge of the
Supreme Court shall be appointed under the previously mentioned provisions except after
consultation with the Chief Justice of India. The COPRA and the Rules have laid down many
provisions to rescue the independence of National Commission. The terms and conditions of
the service to the president and the members should be varied to their disadvantage.
ii) Jurisdiction of the National Commission: Jurisdiction of National
Commission is original as well as appellate. The original jurisdiction is limited to the
complaints where the value of the goods or service and compensation exceeds Rs.20,00,000
(earlier, it was Rs.10,00,000). The appellate jurisdiction is confined to appeal against the
orders of any State Commission.
iii) Procedure: The procedure to be followed in dealing With the complaints is specified by
Section 22 of the COPRA, which is similar to the powers of a civil court. It may also follow
the procedure, which is prescribed by the central government. Accordingly, the procedure has
been laid down in the Rule 14 of the consumer Protection Rules. These rules provide that a
complaint containing the following particulars should be presented by the complainant in
person or by his agent to the National Commission or be sent by registered post to the
Commission:
(a) the name, description and address of the complainant;
(b) the name, description and address of the opposite party or parties;
(c) the facts relating to the complaint and when and where it arose;
(d) documents in support of the allegations contained in the complaint, and
(e) the relief which the complainant claims.
On receipt of a complaint, the National Commission has to follow the same procedure as is to
be followed by the District Forum under Section 13 of the Act.
The procedure to be followed by the National Commission for hearing the appeal has been
prescribed in Rule 15. Accordingly, a memorandum should be presented by the appellant or
his agent to the National Commission in person or by post addressed to the commission. The
memorandum must be set forth on the grounds of appeal without any arguments or narrative
and must be accompanied by a certified copy of the order of the State Commission appealed
against and such of the documents as may be received to support grounds of objection
mentioned in the memorandum. However, under Section 19 of the Act, the appeal is to be
preferred within a period of 30 days from the date of the order of the State Commission.
When such an appeal is presented after the expiry of the period of limitation, the
memorandum must also be accompanied by an application supported by an affidavit setting
forth the facts on which the appellant relies to satisfy the National Commission that he has
sufficient cause for not preferring the appeal within the period of limitation.
It is obligatory for the parties or agents to appear before National Commission on the date of
hearing or any other day to which hearing may be adjourned. If the appellant/respondent or
his agent fails to appear on such date, the commission may in its discretion either dismiss the
appeal or decide expert on merit.
iv) Appeal against the order of the National Commission: A person dissatisfied with the
order made by the National Commission may prefer an appeal against such order to the
Supreme Court within a period of 30 days from the date of the order made by the National
Commission and on an appeal preferred from the orders of the State commission shall be
final and no further appeal against such orders should be preferred to the Supreme Court.

IT ACT 2000 AND CYBER LAWS

Q.26 What is a copyright? What are its characteristics?

Copyright laws grant authors, artists and other creators protection for their literary and artistic
creations, generally referred to as “works”. A closely associated field is “related rights” or
rights related to copyright that encompass rights similar or identical to those of copyright,
although sometimes more limited and of shorter duration.
Works covered by copyright include, but are not limited to: novels, poems, plays, reference
works, newspapers, advertisements, computer programs, databases, films, musical
compositions, choreography, paintings, drawings, photographs, sculpture, architecture, maps
and technical drawings.
The creators of works protected by copyright, and their heirs and successors (generally
referred to as “right holders”), have certain basic rights under copyright law. They hold the
exclusive right to use or authorize others to use the work on agreed terms. The right holder(s)
of a work can authorize or prohibit: its reproduction in all forms, including print form and
sound recording; its public performance and communication to the public; its broadcasting;
its translation into other languages; and its adaptation, such as from a novel to a screenplay
for a film. Similar rights of, among others, fixation (recording) and reproduction are granted
under related rights. Many types of works protected under the laws of copyright and related
rights require mass distribution, communication and financial investment for their successful
dissemination (for example, publications, sound recordings and films). Hence, creators often
transfer these rights to companies better able to develop and market the works, in return for
compensation in the form of payments and/or royalties (compensation based on a percentage
of revenues generated by the work).

Q.27 What is trademark? What are its functions?

Trademark: A trademark is a distinctive sign that identifies certain goods or services
produced or provided by an individual or a company.
Trademarks may be one or combination of words, letters and numerals. They may consist of
drawings, symbols or three dimensional signs such as shape and packaging of goods. In some
countries, non-traditional marks may be registered for distinguishing features such as
holograms, motion, color and non–visible signs (sound, smell or taste)
The Functions of a trade mark : A trade mark serves the purpose of identifying the source
of
origin of goods. Trade mark performs the following four functions:
1. It identifies the product and its origin. For example, the trade mark ‘Booke Bond’ identifies
tea originating from the Company manufacturing tea and marketing it under that mark.
2. It guarantees its quality. The quality of tea sold in the packs marked Brooke Bond Tea
would be similar but different from tea labelled with mark Taj Mahal.
3. It advertise the product. The trade mark represents the product. The trade mark ‘Sony’ is
associated with electronic items. The trade mark SONY rings bell of particular quality of
particular class of goods. It thus advertise the product while distinguishing it from products of
Sony’s competitors.
4. It creates an image of the product in the minds of the public, particularly consumers or the
prospective consumers of such goods. The mark ‘M’ which stands for the food items
originating from the American fast food chain McDonalds creates an image and reputation
for food items offered by it for sale in the market.
Essential factors of infringement of Trade Mark
1. The taking of any essential feature of the mark or taking the whole of the mark and then
making a few additions and alterations would conaltute infringement.
2. The infringing mark must be used in the course of trade, i.e. in a regular trade wherein the
proprietor of the mark is engaged.
3. The use of the infringing mark must be printed r usual representation of the mark in
advertisements, invoices or bills. Any oral use of the trade mark is not infringement.
4. Any or all of the above acts would constitute infringement if the same is done in such
manner as to sender the use of the mark likely to be taken as being used as a trade mark

Q.28 What are general obligations for enforcement of Intellectual property rights?
Explain.
General obligations
1. Members shall ensure that enforcement procedures as specified in this Part are available
under their law so as to permit effective action against any act of infringement of intellectual
property rights covered by this Agreement; including expeditious remedies to prevent
infringements and remedies which constitute a deterrent to further infringements. These
procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate
trade and to provide for safeguards against their abuse.
2. Procedures concerning the enforcement of intellectual property rights shall be fair and
equitable. They shall not be unnecessarily complicated or costly, or entail unreasonable
timelimits or unwarranted delays.
3. Decisions on the merits of a case shall preferably be in writing and reasoned. They shall be
made available at least to the parties to the proceeding without undue delay. Decisions on the
merits of a case shall be based only on evidence in respect of which parties were offered the
opportunity to be heard.
4. Parties to a proceeding shall have an opportunity for review by a judicial authority of final
administrative decisions and, subject to jurisdictional provisions in a Member’s law
concerning
the importance of a case, of at least the legal aspects of initial judicial decisions on the merits
of a case. However, there shall be no obligation to provide an opportunity for review of
acquittals in criminal cases.
5. It is understood that this Part does not create any obligation to put in place a judicial
system for the enforcement of intellectual property rights distinct from that for the
enforcement of law in general, nor does it affect the capacity of Members to enforce their law
in general.
Nothing in this Part creates any obligation with respect to the distribution of resources as
between enforcement of intellectual property rights and the enforcement of law in general.

Q.29 What are the different roles of Certifying Authorities? Explain.

(A) The Role and Function of Certifying Authorities
 Certificate Authority (CA) is a trusted entity that issues Digital Certificates and public
private key pairs. The role of the Certificate Authority (CA) is to guarantee that the individual
granted the unique certificate is, in fact, who he or she claims to be.
 The Certificate Authority (CA) verifies that the owner of the certificate is who he says he
is. A Certificate Authority (CA) can be a trusted third party which is responsible for
physically
verifying the legitimacy of the identity of an individual or organization before issuing a
digital certificate.
 A Certificate Authority (CA) can be an external (public) Certificate Authority (CA) like
sign, that or comodo, or an internal (private) Certificate Authority (CA) configured inside our
network.
 Certificate Authority (CA) is a critical security service in a network. A Certificate
Authority (CA) performs the following functions.
 Certificate Authority (CA) Verifies the identity: The Certificate Authority (CA) must
validate the identity of the entity who requested a digital certificate before issuing it.
 Certificate Authority (CA) issues digital certificates: Once the validation process is over,
the Certificate Authority (CA) issues the digital certificate to the entity who requsted it.
Digital certificates can be used for encryption (Example: Encrypting web traffic), code
signing, authentication etc.
 Certificate Authority (CA) maintains Certificate Revocation List (CRL): The Certificate
Authority (CA) maintains Certificate Revocation List (CRL). A certificate revocation list
(CRL) is a list of digital certificates which are no longer valid and have been revoked and
therefore should not be relied by anyone.

Q.30 What is cybercrime? Brief different cybercrimes.

(A) Cybercrime is a generic term that refers to all criminal activities done using the medium
of
computers, the Internet, cyber space and the worldwide web.
Examples of Cybercrimes
 Harassment via E-Mails : It is very common type of harassment through sending letters,
attachments of files & folders i.e. via e-mails. At present harassment is common as usage of
social sites i.e. Facebook, Twitter etc. increasing day by day.
 Cyber-Stalking : It means expressed or implied a physical threat that creates fear through
the use to computer technology such as internet, e-mail, phones, text messages, webcam,
websites or videos.
 Hacking : It means unauthorized control/access over computer system and act of hacking
completely destroys the whole data as well as computer programmes. Hackers usually hacks
telecommunication and mobile network.
 Cracking : It is amongst the gravest cyber crimes known till date. It is a dreadful feeling
to
know that a stranger has broken into your computer systems without your knowledge and
consent and has tampered with precious confidential data and information.
 E-Mail Spoofing : A spoofed e-mail may be said to be one, which misrepresents its origin.
It shows it’s origin to be different from which actually it originates.
 Cyber Squatting : It means where two persons claim for the same Domain Name either
by claiming that they had registered the name first on by right of using it before the other or
using something similar to that previously. For example two similar names i.e.
www.yahoo.com and www.yaahoo.com.

Q.31 Write short note on Need for Cyber Law

There are various reasons why it is extremely difficult for conventional law to cope with
cyberspace. Some of these are discussed below.
1. Cyberspace is an intangible dimension that is impossible to govern and regulate using
conventional law.
2. Cyberspace has complete disrespect for jurisdictional boundaries. A person in India could
break into a bank’s electronic vault hosted on a computer in USA and transfer millions of
Rupees to another bank in Switzerland, all within minutes. All he would need is a laptop
computer and a cell phone.
3. Cyberspace handles gigantic traffic volumes every second. Billions of emails are
crisscrossing the globe even as we read this, millions of websites are being accessed every
minute and billions of dollars are electronically transferred around the world by banks every
day.
4. Cyberspace is absolutely open to participation by all. A tenyear- old in Bhutan can have a
live chat session with an eightyear- old in Bali without any regard for the distance or the
anonymity between them.
5. Cyberspace offers enormous potential for anonymity to its members. Readily available
encryption software and steganographic tools that seamlessly hide information within image
and sound files ensure the confidentiality of information exchanged between cyber-citizens.
6. Cyberspace offers never-seen-before economic efficiency. Billions of dollars worth of
software can be traded over the Internet without the need for any government licenses,
shipping and handling charges and without paying any customs duty.
7. Electronic information has become the main object of cybercrime. It is characterized by
extreme mobility, which exceeds by far the mobility of persons, goods or other services.
International computer networks can transfer huge amounts of data around the globe in a
matter of seconds.
8. A software source code worth crores of rupees or a movie can be pirated across the globe
within hours of their release.
9. Theft of corporeal information (e.g. books, papers, CD ROMs, floppy disks) is easily
covered by traditional penal provisions. However, the problem begins when electronic
records are copied quickly, inconspicuously and often via telecommunication facilities. Here
the “original” information, so to say, remains in the “possession” of the “owner” and yet
information gets stolen.
Q.32 What are the duties of the digital signature certificate subscriber?
Generating key pair
Where any Digital Signature Certificate, the public key of which corresponds to the private
key of that subscriber which is to be listed in the Digital Signature Certificate has been
accepted by a subscriber, then, the subscriber shall generate the key pair by applying the
security procedure.
Acceptance of Digital Signature Certificate.
(1) A subscriber shall be deemed to have accepted a Digital Signature Certificate if he
publishes or authorizes the publication of a Digital Signature Certificate :
(a) to one or more persons:
(b) in a repository, or otherwise demonstrates his approval of the Digital Signature Certificate
in any manner.
(2) By accepting a Digital Signature Certificate the subscriber certifies to all who reasonably
rely on the information contained in the Digital Signature Certificate that:
(a) the subscriber holds the private key corresponding to the public key listed in the Digital
Signature Certificate and is entitled to hold the same;
(b) all representation made by the subscriber to the Certifying Authority and all material
relevant to the information contained in the Digital Signature Certificate are true:
(c) all information in the Digital Signature Certificate that is within the knowledge of the
subscriber is true.
Control of private key.
(1) Every subscriber shall exercise reasonable care to retain control of the private key
corresponding to the public key listed in his Digital Signature Certificate and take all steps to
prevent its disclosure to a person not authorized to affix the digital signature of the subscriber.
(2) If the private key corresponding to the public key listed in the Digital Signature
Certificate
has been compromised, then, the subscriber shall communicate the same without any delay to
the Certifying Authority in such manner as may be specified by the regulations.
Explanation: For the removal of doubts, it is hereby declared that the subscriber shall be
liable till he has informed the Certifying Authority that the private key has been
compromised.
Q.33 Explain the need of Digital Signature.
A digital signature or digital signature scheme is a mathematical scheme for demonstrating
the
authenticity of a digital message or document. A valid digital signature gives a recipient
reason
to believe that the message was created by a known sender, and that it was not altered in
transit.
Digital signatures are commonly used for software distribution, financial transactions, and in
other cases where it is important to detect forgery or tampering. Digital signatures are often
used to implement electronic signatures, a broader term that refers to any electronic data that
carries the intent of a signature, but not all electronic signatures use digital signatures. In
some countries, including the United States, India, and members of the European Union,
electronic signatures have legal significance. However, laws concerning electronic signatures
do not always make clear whether they are digital cryptographic signatures in the sense used
here, leaving the legal definition, and so their importance, somewhat confused.
Digital signatures employ a type of asymmetric cryptography. For messages sent through a
nonsecure channel, a properly implemented digital signature gives the receiver reason to
believe the message was sent by the claimed sender. Digital signatures are equivalent to
traditional handwritten signatures in many respects; properly implemented digital signatures
are more difficult to forge than the handwritten type. Digital signature schemes in the sense
used here are cryptographically based, and must be implemented properly to be effective.
Digital signatures can also provide non-repudiation, meaning that the signer cannot
successfully claim they did not sign a message, while also claiming their private key remains
secret; further, some nonrepudiation schemes offer a time stamp for the digital signature, so
that even if the private key is exposed, the signature is valid nonetheless. Digitally signed
messages may be anything representable as a bitstring: examples include electronic mail,
contracts, or a message sent via some other cryptographic protocol.