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LEGAL ASPECT OF BUSINESS

Q-1 all contracts are agreement but all agreement are not contracts

Answer; A contract is a legally binding agreement or relationship that exists between two
or more parties to do or abstain from performing certain acts. A contract can also be
defined as a legally binding exchange of promises between two or more parties that the law
will enforce. For a contract to be formed an offer made must backed acceptance of which
there must be consideration. Both parties involved must intend to create legal relation on a
lawful matter which must be entered into freely and should be possible to perform.

An agreement is a form of cross reference between different parties, which may be


written, oral and lies upon the honor of the parties for its fulfillment rather than being in
any way enforceable.

All contracts are agreement because there must be mutual understanding between two
parties for a contract to be formed. All parties should agree and adhere to the terms and
conditions of an offer.

The following cases illustrate ways in which all contracts are agreements;

In the case of invitation to treat, where an invitation to treat is merely an invitation to make
an offer. When a firm's offer is accepted it results into a contract provided other elements of
contracts are accepted.

Considering person A buying a radio on hire purchase from person B who deals with
electronics and its appliances. Both parties must come to an agreement on payment of
monthly installment within specified period of time. Such an agreement result to specialty
contract which a contract under seal.

All contracts are agreement until avoided for example, avoidable contract where one of
the parties can withdraw from it if s/he wishes. This occurs due to minor agreement and
misrepresentation or undue influence. Considering a case where person A make contract
with person B but during the contract period B realizes that he was engaged to perform an
agreement under undue influence.

Definition of contract

According to section 2(h) of the Indian Contract Act: “An agreement enforceable by law is a
contract." A contract therefore, is an agreement the object of which is to create a legal
obligation i.e., a duty enforceable by law.

From the above definition, we find that a contract essentially consists of two elements: (1)
An agreement and (2) Legal obligation i.e., a duty enforceable by law. We shall now
examine these elements detail.

1. Agreement. As per section 2 (e): “Every promise and every set of promises, forming
the consideration for each other, is an agreement." Thus it is clear from this definition that
a 'promise' is an agreement. What is a 'promise'? The answer to this question is contained
in section 2 (b) which defines the term." When the person to whom the proposal is made
signifies his assent thereto the proposal is said to be accepted. A proposal, when accepted,
becomes a promise."

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An agreement, therefore, comes into existence only when one party makes a proposal or
offer to the other party and that other party signifies his assent (i.e., gives his acceptance)
thereto. In short, an agreement is the sum total of 'offer' and 'acceptance'.

On analyzing the above definition the following characteristics of an agreement become


evident:

(a) At least two persons. There must be two or more persons to make an agreement
because one person cannot inter into an agreement with himself.

(b) Consensus-ad-idem. Both the parties to an agreement must agree about the subject
matter of the agreement in the same sense and at the same time.

2. Legal obligation. As stated above, an agreement to become a contract must give rise
to a legal obligation i.e., a duty enforceable by law. If an agreement is incapable of creating
a duty enforceable by law. It is not a contract. Thus an agreement is a wider term than a
contract. “All contracts are agreements but all agreements are not contracts,"

Agreements of moral, religious or social nature e.g., a promise to lunch together at a


friend's house or to take a walk together are not contracts because they are not likely to
create a duty enforceable by law for the simple reason that the parties never intended that
they should be attended by legal consequences

Essential Elements of a Valid Contract

A contract has been defined in section 2(h) as "an agreement enforceable by law." To be
enforceable by law, an agreement must possess the essential elements of a valid contract
as contained in sections 10, 29 and 56. According to section 10, all agreements are
contracts if they are made by the free consent of the parties, competent to contract, for a
lawful consideration, with a lawful object, are not expressly declared by the Act to be void,
and where necessary, satisfy the requirements of any law as to writing or attention or
registration. As the details of these essentials form the subject matter of our subsequent
chapters, we propose to discuss them in brief here.

The essential elements of a valid contract are as follows.

1. Offer and acceptance. There must a 'lawful offer' and a 'lawful acceptance' of the offer,
thus resulting in an agreement. The adjective 'lawful' implies that the offer and acceptance
must satisfy the requirements of the contract act in relation thereto.

2. Intention to create legal relations. There must be an intention among the parties that the
agreement should be attached by legal consequences and create legal obligations.

Agreements of a social or domestic nature do not contemplate legal relations, and as such
they do not give rise to a contract. An agreement to dine at a friend's house in not an
agreement intended to create legal relations and therefore is not a contract. Agreements
between husband and wife also lack the intention to create legal relationship and thus do
not result in contracts.

Try to work out the solution in the following cases and then go to the answer.

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3. Lawful consideration. The third essential element of a valid contract is the presence of
'consideration'. Consideration has been defined as the price paid by one party for the
promise of the other. An agreement is legally enforceable only when each of the parties to
it gives something and gets something. The something given or obtained is the price for the
promise and is called 'consideration' subject to certain exceptions; gratuitous promises are
not enforceable at law.

The 'consideration' may be an act (doing something) or forbearance (not doing something)
or a promise to do or not to do something. It may be past, present or future. But only those
considerations are valid which are 'lawful'. The consideration is 'lawful'. unless it is
forbidden by law; or is of such a nature that, if permitted it would defeat The provisions of
any law; or is fraudulent; or involves or implies injury to the person or property of another;
or is immoral; or is opposed to public policy (sec.23).

4. Capacity of parties. The parties to an agreement must be competent to contract. But the
question that arises now is that what parties are competent and what are not. The
contracting parties must be of the age of majority and of sound mind and must not be
disqualified by any law to which they are subject (sec.11). If any of the parties to the
agreement suffers from minority, lunacy, idiocy, drunkenness etc. The agreement is not
enforceable at law, except in some special cases e.g., in the case of necessaries supplied to
a minor or lunatic, the supplier of goods is entitled to be reimbursed from their estate (sec
68).

5. Free consent. Free consent of all the parties to an agreement is another essential
element. This concept has two aspects. (1) Consent should be made and (2) it should be
free of any pressure or misunderstanding. 'Consent' means that the parties must have
agreed upon the same thing in the same sense (sec. 13). There is absence of 'free consent,'
if the agreement is induced by (I) coercion, (ii) undue influence, (iii) fraud, (IV) miss-
representation, or (v) mistake (sec. 14). If the agreement is vitiated by any of the first four
factors, the contract would be voidable and cannot be enforced by the party guilty of
coercion, undue influence etc. The other party (i.e., the aggrieved party) can either reject
the contract or accept it, subject to the rules laid down in the act. If the agreement is
induced by mutual mistake which is material to the agreement, it would be void (sec. 20)

6. Lawful object. For the formation of a valid contract it is also necessary that the parties to
an agreement must agree for a lawful object. The object for which the agreement has been
entered into must not be fraudulent or illegal or immoral or opposed to public policy or
must not imply injury to the person or the other of the seasons mentioned above the
agreement is void. Thus, when a landlord knowingly lets a house to a prostitute to carry on
prostitution, he cannot recover the rent through a court of law or a contract for committing
a murder is a void contract and unenforceable by law.

7. Writing and registration. According to the Indian contract Act, a contract to be valid,
must be in writing and registered. For example, it requires that an agreement to pay a time
barred debt must be in writing and an agreement to make a gift for natural love and
affection must be in writing and registered to make the agreement enforceable by law
which must be observed.

8. Certainty. Section 29 of the contract Act provides that “Agreements, the meaning of
which is not certain or capable of being made certain, are void." In order to give rise to a
valid contract the terms of the agreement must not be vague or uncertain. It must be
possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced

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Illustration. A, agrees to sell B “a hundred ton of oil" there is nothing whatever to show
what kind of oil was intended. The agreement is void for uncertainly.

9. Possibility of performance. Yet another essential feature of a valid contract is that it must
be capable of performance.

Section 56 lays down that "An agreement to do an act impossible in itself is void". If the act
is impossible in itself, physically or legally, the agreement cannot be enforced at law.

Illustration. A agrees with B, to discover treasure by magic. The agreement is not


enforceable.

10. Not expressly declared void. The agreement must not have been expressly declared to
be void under the Act. Sections 24-30 specify certain types of agreements that have been
expressly declared to be void. For example, an agreement in restraint of marriage, an
agreement in restraint of trade, and an agreement by way of wager have been expressly
declared void under sections 26, 27 and 30 respectively

Q-2.Not all Person have the capacity to enter into a contact’ discuss this
Statement

Ans. Not All people are completely free to enter into a valid contract. The contract of the
groups of people listed below involves problematic consent and are dealt with separately, as
follows
 People who have a mental impairment,
 Young people (minors);
 Bankrupts;
 Corporations(People acting on behalf of a company); and
 Prisoners.

People who have a mental impairment, generally speaking, people are free to enter
into contracts even though they may have a mental impairment, or are temporally disabled
by drugs or alcohol. They are however, sometimes vulnerable to being bound by contracts
they do not fully understand. The question of capacity to make the contracts often arise
only after the contactor is in place.
People with disabilities and their advocates will find some protection in the rule that
a contract is not valid and enforceable unless there was genius consent to its making.
Capacity it give consent involves a general understanding the general nature of the
contract, (not necessarily its fine details). A person with a mental impairment, for example,
may have the capacity to understand some contracts (for example, buying a loaf of bread),
but not to understand other more complicated contracts (for example, buying a car on
credit)
Where a person with a disability did not understand the general nature of the contacts, a
court can intervene to set aside the contacts only if
 The other party knew ( or ought to have know ) of the disability or lack of capacity;
and
 The person with the disability can give back most of the benefit they received under
the contract; and
 The benefit received by the other person has not been sold to a third party who did
not know the previous transaction might not be valid, generally, to escape the

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consequence of a contracts , the other party should be intention not to be bound by


the contract within a reasonable time.
If the contract was made during a period when the person was able to understand it
(legally termed a “lucid interval”), the contract will be binding even though the other
party knew of the disability.
Some people with disability (temporary or long-term) are assisted by a
administration appointed by the guardianship list of the Victorian civil administration
Tribunal (VCAT).People with disability who have an administrator appointed to act on
their behalf are generally not free to enter into contract, unless this a approved in
writing by their administrator or an order of the Guardianship List of VCAT.
A person with an intellectual or psychiatric disability will be liable to pay only a
reasonable price for necessaries sold and delivered.” Necessaries “and the rules
applicable here are dealt with in “Young people” below because the definition is the
same for both groups).

Young people, the term young person is used here to anyone under the age of 18
year. Sometimes legal writing refers to minors or infant.

The exact capacity of young to people to bind themselves and be bound by contract is
limited but also unclear, because no Act of parliament completely covers this area of
law. The supermen court 1986 (VIC) in sections 49 to 51 contracts of minors is the most
useful reference on this question.

Binding contracts and young people


Contracts for the supply of necessaries will generally be binding. There are no hard and
fast rules to identify what is a necessary but it does include the sorts of things the
young person needs to live a reasonable lifestyle, it including basics such as
 Food;
 Clothing;
 A place to live
 Medicine,
And so on.

It will also include any contracts relating to the young person’s education, apprenticeship or
something very similar, if it can be shown to be of benefit to the young person. While a
court has not yet considered the issue specifically, mobile phones are probably not
necessaries.

The young person contracting in this situation will be held bound to pay a reasonable price
(although that may not be the contract price) for necessary actually sold and delivered.
(“Delivered is a technical term. Generally, delivery takes the goods away). Where
necessaries have been sold but there has been no delivery, the young person does not have
to take delivery or pay for the goods.

Non-binding contracts and young people.


Two classes of contracts are not binding on a young person, namely:
 Contracts which are not for necessaries and
 Contracts for the repayment of money lent or to be (thetas is any form of credit
contract).
Where a young person has already paid money under a non-binding contract, that money
will not be recoverable unless no benefit has been received by the young person. The young
person can, however, refuse to make any further payment under the contracts. It is not

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certain who then own goods that are not necessaries. It appears that they become the
property of the young person unless the young person has fraudulently misrepresented
their age.

Even after turning 18, a person cannot confirm a prior contract and the n become bound by
it any money paid by a young person under such circumstances may be recovered.

Bankrupts, bankrupts people are not deprived of their general capacity to contract.
However there are provisions of the Bankrupts Act 1966 that relate to dealing and contracts
by bankrupts. For example, obtaining credit of $4,145(indexed) or more without disclosing
your bankruptcy is an offence and liable to penalty under section 269 of the bankruptcy Act.

Corporations: A corporation is an artificial body created by law. The corporation has a


legal existence separate from the individual people who comprise it. However, a company
has the legal capacity of a natural person and therefore has the capacity to enter
contractual relations. This is so even if there is an express prohibition contained in the
company’s construction. Such trisection is not deemed void and beyond the company
powers simply because the exercise of such powers is in breach of the restrictions placed in
the company constitution.

A company has the capacity to enter contractual relations, but such relations are only
binding on the company if these acting on behalf of the company do so with the company’s
express or implied authority ( $.126(1)). The courts have been quite liberal in their
interpret on of implied authority. It has been found that in case where directors with
express authority have acquiesced and allowed directors with no authority to frequently
enters contractual relation on behalf of the company, that such directors have implied
authority and therefore can contractually bind the company.

Prisoners: During their imprisonment, prisoners may enter contracts, including contracts
to buy and sell property. The usual restriction about supervision and censorship of anything
coming into the prison still apply, so that the permission of correction Victoria is required
before a prisoner may sign for deliver or receive any document.

Q-3.Discuss how a contract can be discharged by breach

Discharge of contract means parties to the contract is no more liable to the contract. In
other words, the liability of the parties to the contract will come to an end.

Discharge by breach of contract: Breach of contract by a party thereto is also a method


of discharge of a contract, because “breach” also brings to an end the obligations created
by a contract on the part of each of the parties. Of course the aggrieved party i.e., the
party not at fault can sue for damages for breach of contract as per law; but the contract as
such stands terminated. Breach of contract may be of two kinds: (1) Anticipatory breach;
and (2) Actual breach.

1. Anticipatory breach: An anticipatory breach of contract is a breach of contract


occurring before the time fixed for performance has arrived. It may take place in two
ways: (a) expressly by words spoken or written. Here a party to the contract
communicates to the other party, before the due date of performance, his intention
not to perform it. (b) Impliedly by the conduct of one of the parties. Here a party by

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his own voluntary act disables himself from performing the contract. When a party to
a contract has refused to perform or disabled himself from performing, his promise
in its entirety, the promise may put an end to the contract, unless he has signed, by
words or conduct his acquiescence in its continuance.
2. Actual breach: Actual breach may also discharge a contract. It occurs when a party
fails to perform his obligations upon the date fixed for performance by the contract.
Actual breach entitles the party not in default to elect to treat the contract as
discharged and to sue the party at fault for damages for breach of contract.

 Q-4. Discuss the Essential of Contract of Guarantee:

1.    From: A contract of guarantee is just like any other contract which may be either
oral or in writing.

2.    Tripartite agreement: Every contract of guarantee involves three agreements


between (I) the creditor and principal debtor, (ii) the surety and the creditor, and (iii)
the surety and the principal debtor.

Consent of the parties: There must be consent of all the three parties.

Example: X sells and delivers goods to Y. X afterwards requests Z to pay in default of Y.


Z agrees to do so. Here, Z cannot become surety without the consent of Y.

3. Secondary Liability: The test which applied to determine whether the contract is
one of guarantee or indemnity is whether the obligation has been undertaken at the
debtor’s request in which case the contract is one of guarantee. If the obligation is
undertaken without any request of the debtor, the contract is one of indemnity. The
intention of the parties is also important whether one making oneself primarily or
collaterally liable. Hence, the promise to be primarily and independently liable is not
a guarantee, though it may be an indemnity. Hence in a contract of guarantee, the
primary liability is with the principal debtor.

4. Existing liability: It is not necessary that the principal contract must be in existence
at the time the contract of guarantee is made; the original contract by which the
principal debtor undertakes to repay the money to the creditor may be about to come
into existence.

Example: X took a loan of Rs.10, 000 from Y on 1 st Jan. 1999 and paid nothing on
account of interest and principal. On 2 nd Jan. 2002, Z gave the guarantee to Y for the
payment of Rs.10, 000 due from X. This is not a valid contract of guarantee because the
primary liability between X and Y is a time barred debt which is not enforceable by law.

1. The promise to pay must be conditional: In other words, the liability of the
surety should arise only when the principal debtor makes a default.
2. Consideration: Something done for the benefit of the principal debtor is considered
as consideration for the guarantee to make the contract valid. The legal detriment
incurred by the promise at the promise’s request is sufficient to constitute the
element of consideration.
3. Competency: The principal debtor, surety and creditor must be a person competent
to contract. However, under certain circumstances, a surety is liable though the
principal debtor is not i.e. the original contract is void as is the case of a contract

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with a minor in which the surety is liable not only as surety but also as principal
debtor. A person of unsound mind or an undercharged insolvent cannot give a valid
guarantee.
4. Consent: There must be free consent; otherwise the contract of guarantee may
become void or voidable. Generally a contract of guarantee is not the contract of
utmost good faith i.e., uberrimae fideism, but it is sometimes a first cousin to it.
Mere non-disclosure will not affect the contract of surety unless there is an
intentional concealment.
5. Example: I: A engages B as clerk to collect money from him. B fails to account for
some of his receipts, and A in consequence calls upon him to furnish security for his
duty accounting. C gives his guarantee for B’s duty accounting. A does not acquaint
C with B’s previous conduct. B afterwards makes a default. The guarantee is invalid.

Indemnity Guarantee

Number of parties: There are two There are three parties to it viz., the
parties: Indemnifier and Indemnified. principal debtor, the surety & the creditor.
Number of Contracts: There is only
one contract between the indemnified Three contracts: (I) between the principal
and Indemnifier. debtor and the creditor, (ii) between the
surety and the creditor, and (iii) between
the surety and the principal debtor
(implied).
Form: May be written or oral in both
Indian and English Law.
According to section 4, of the Statute of
Frauds (in England) it should be in writing:
in Indian Law it may be written or oral.

Interest in the transaction: The


indemnifier has interest in the
transaction apart from the indemnity The guarantee is totally unconnected with
i.e., apart from his promise to pay the the contract but the only interest in the
loss. contract is his promise to the loss.

Nature of risk: It is possibility of risk


of any loss happening in future There is an existing debt the discharge or
against which the indemnifier performance of which is guaranteed by the
undertakes to indemnify i.e., surety i.e., it is the absolute and
continuing risk. subsisting risk.
Nature of liability: The indemnifier
is primarily and independently liable. In a guarantee the liability of the surety is
co-extensive with that of the principal
debtor (ancillary liability). The guarantor if
secondarily liable except where the
principal debtor is incapable of
contracting).

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Subrogation: An indemnifier cannot


have subrogation unless there is an If a surety pay the debt or perform the
assignment. Otherwise he must bring obligation he can file a suit in his own
the suit in the name of the name against the principal debtor to
indemnified. reimburse the amount so paid.

Request: It is not necessary for the


indemnifier to act the request of the It is necessary for the surety to give his
indemnified. guarantee at the request of the debtor.

Example: II: A guarantees to C payment for iron to be supplied by him to B to the amount
of 2000 tons. B and C have privately agreed that we should pay Rs.500 per ton beyond the
market price, such excess to be applied on liquidation of an old debt. This agreement is
concealed from A. A is not liable

A contract of guarantee may be either ‘retrospective’ e.g., for an existing debt or


‘prospective’ i.e. for a future debt. Guarantee are further divided into ’specific’ also known
as simple or single guarantee and ‘continuing’. When the guarantee is given for a single or
particular debt, it is called a ’specific guarantee’ and it comes to an end when the debt
guaranteed has been paid. A guarantee which extends to a series of transactions is called a
continuing guarantee. (Sec. 129 of the Indian Contract Act).

Guarantee may be for a part of a whole debt or for the whole debt subject to a
limit: When the intention of the parties is not explicit it will be presumed that where a
portion of a floating balance is guaranteed it is for a part of it only. When portion of a fixed
and ascertained debt is guaranteed the guarantee applied to the whole debt subject to the
limit.

Distinction between Indemnity and Guarantee Distinction between Indemnity and


Guarantee

Q-5.How can negotiable instruments are endorsed? Discuss in detail.

Negotiable Instruments Act

The law relating to “Negotiable Instruments” is contained in the Negotiable Instruments Act,
1881, as amended up-to-date. It deals with three kinds of negotiable instruments, i.e.,
Promissory Notes, Bills of Exchange and Cherubs. The provisions of the Act also apply to
‘hands’ (an instrument in oriental language), unless there is a local usage to the contrary.
Other documents like treasury bills, dividend warrants, share warrants, bearer debentures,
port trust or improvement trust debentures, railway bonds payable to bearer etc., are also
recognized as negotiable instruments either by mercantile custom or under other
enactments like the Companies Act, and therefore, Negotiable Instruments Act is applicable
to them.

Definition & Features

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The word ‘negotiable’ means ‘transferable by delivery’, and the word ‘instrument’ means ‘a
written document by which a right is created in favor of some person’. Thus, the term
‘negotiable instrument’ literally means ‘a written document transferable by delivery’.

According to Section 13 of the Negotiable Instruments Act, “a negotiable instrument means


a promissory note, bill of exchange or cherub payable either to order or to bearer.” The Act,
thus, mentions three kinds of negotiable instruments, namely notes, bills and cherubs and
declares that to be negotiable they must be made payable in any of the following forms:

A) Payable to order: A note, bill or cherub is payable to order which is expressed to be


‘payable to a particular person or his order’. But it should not contain any words prohibiting
transfer, e.g., ‘Pay to A only’ or ‘Pay to A and none else’ is not treated as ‘payable to order’
and therefore such a document shall not be treated as negotiable instrument because its
negotiability has been restricted. There is, however, an exception in favor of a cherub. A
cherub crossed “Account Payee only” can still be negotiated further; of course, the banker
is to take extra care in that case.

b) Payable to bearer: ‘Payable to bearer’ means ‘payable to any person whom so ever
bears it.’ A note, bill or cherub is payable to bearer which is expressed to be so payable
or on which the only or last endorsement is an endorsement in blank. The definition
given in Section 13 of the Negotiable Instruments Act does not set out the essential
characteristics of a negotiable instrument. Possibly the most expressive and all
encompassing definition of negotiable instrument had been suggested by Thomas who is
as follows:

    “A negotiable instrument is one which is, by a legally recognized custom of trade or
by law, transferable by delivery or by endorsement and delivery in such circumstances
that (a) the holder of it for the time being may sue on it in his own name and (b) the
property in it passes, free from equities, to a bonfire transferee for value,
notwithstanding any defect in the title of the transferor.”

Characteristics of Negotiable Instruments:

An examination of the above definition reveals the following essential characteristics of


negotiable instruments which make them different from an ordinary chattel:

1. Easy negotiability: They are transferable from one person to another without any
formality. In other words, the property (right of ownership) in these instruments
passes by either endorsement or delivery (in case it is payable to order) or by
delivery merely (in case it is payable to bearer), and no further evidence of transfer
is needed.
2. Transferee can sue in his own name without giving notice to the debtor: A
bill, note or a cherub represents a debt, i.e., an “actionable claim” and implies the
right of the creditor to recover something from his debtor. The creditor can either
recover this amount himself or can transfer his right to another person. In case he
transfers his right, the transferee of a negotiable instrument is entitled to sue on the
instrument in his own name in case of dishonor, without giving notice to the debtor
of the fact that he has become holder.
3. Better title to a bonfire transferee for value: A bonfire transferee off a
negotiable instrument for value (technically called a holder in due course) gets the
instrument ‘free from all defects.’ He is not affected by any defect of title of the

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transferor or any prior party. Thus, the general rule of the law of transfer applicable
in the case of ordinary chattels that ‘nobody can transfer a better title than that of
his own’ does not apply to negotiable instruments.

Examples of Negotiable Instruments: The following instruments have been recognized


as negotiable instruments by statute or by usage or custom: (I) Bills of exchange; (ii)
Promissory notes; (iii) Cherubs; (iv) Government promissory notes; (v) Treasury bills; (vi)
Dividend warrants; (vii) Share warrants; (viii) Bearer debentures; (ix) Port Trust or
Improvement Trust debentures; (x) Hindis; (xi) Railway bonds payable to bearer, etc.

Examples of Non-negotiable Instruments: These are: (I) Money orders; (ii) Postal
orders; (iii) Fixed deposit receipts; (IV) Share certificates; (v) Letters of credit.

Endorsement:

Section 15 defines endorsement as follows: “When the maker or holder of a negotiable


instrument signs the same, otherwise than as such maker, for the purpose of negotiation,
on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same
purpose a stamped paper intended to be completed as negotiable instrument, he is said to
indorse the same, and is called the endorser.”

Thus, an endorsement consists of the signature of the holder usually made on the back of
the negotiable instrument with the object of transferring the instrument. If no space is left
on the back of the instrument for the purpose of endorsement, further endorsements are
signed on a slip of paper attached to the instrument. Such a slip is called ‘along’ and
becomes part of the instrument. The person making the endorsement is called an ‘endorser’
and the person to whom the instrument is indorsed is called an ‘indorse.’

Kinds of Endorsements: Endorsements may be of the following kinds:

1. Blank or general endorsement: If the endorser signs his name only and does not
specify the name of the indorse, the endorsement is said to be in blank. The effect of
a blank endorsement is to convert the order instrument into bearer instrument which
may be transferred merely by delivery.
2. Endorsement in full or special endorsement: If the endorser, in addition to his
signature, also adds a direction to pay the amount mentioned in the instrument to,
or to the order of, a specified person, the endorsement is said to be in full.
3. Partial endorsement: Section 56 provides that a negotiable instrument cannot be
indorsed for a part of the amount appearing to be due on the instrument. In other
words, a partial endorsement which transfers the right to receive only a part
payment of the amount due on the instrument is invalid.
4. Restrictive endorsement: An endorsement which, by express words, prohibits the
indorse from further negotiating the instrument or restricts the indorse to deal with
the instrument as directed by the endorser is called ‘restrictive’ endorsement. The
indorse under a restrictive endorsement gets all the rights of an endorser except the
right of further negotiation.
5. Conditional endorsement: If the endorser of a negotiable instrument, by express
words in the endorsement, makes his liability, dependent on the happening of a
specified event, although such event may never happen, such endorsement is called
a ‘conditional’ endorsement.

RAHUL GUPTA, MBAHCS (3RD SEM), SUBJECT CODE-MH0039, SET-1 Page 11


LEGAL ASPECT OF BUSINESS

In the case of a conditional endorsement the liability of the endorser would arise only upon
the happening of the event specified. But the indorse can sue other prior parties, e.g., the
maker, acceptor etc., if the instrument is not duly met at maturity, even though the
specified event did not happen.

Q-6. Why do you think an agreement to take a person to moon for a holiday
cannot be a contract?

The essential of a valid contactor state that’s “the terms of the agreement should be
capable of being performed and should be certain”’ taking a person to the moon for a
holiday cannot be a valid contract because neither the activity is being capable of being
performed in the near future nor it is certain that someone making such kind of promise will
be able to fulfill. We all know that’s moon missions are multi-billion projects and are funded
by governments, so someone making such a

Promise would only be a fraud. The governments’ laws have also not yet authorized any
agency or person to make such contracts so any agency or person promising someone a
holiday on the moon is unlawful which an essential term of a valid contract is also.

RAHUL GUPTA, MBAHCS (3RD SEM), SUBJECT CODE-MH0039, SET-1 Page 12

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