Legal Aspects of BusinessUnit 1: Commercial Law

Prepared and presented by,

N. Ganesha PandianAssistant ProfessorMadurai School of

management Madurai

Contents COMMERCIAL LAW

THE INDIAN CONTRACT ACT 1872 Definition of contract, essentials elements and types of a contract, Formation of

a contract, performance of contracts, breach of contract and its remedies, Quasi contracts Contract Of Agency: Nature of agency, Creation and types of agents, Authority

and liability of Agent and principal: Rights and duties of principal and agents, termination of agency.

THE SALE OF GOODS ACT 1930 Nature of Sales contract, Documents of title, risk of loss, Guarantees and

Warranties, performance of sales contracts, conditional sales and rights of an unpaid seller

Negotiable Instruments Act 1881: Nature and requisites of negotiable instruments. Types of negotiable instruments, liability of parties, holder in due course, special rules for Cheque and drafts, discharge of negotiable instruments

Commercial Law - The Indian contract Act 1872

Introduction to Business Law

Business law refers to those rules and regulations which govern the formation and execution of business transactions made by various persons in the society.

“ A law is a rule of conduct imposed and enforced by the sovereign”

“Ingnorantia juris non excusat” (Ignorance of law is no excuse)

Law of contract In India Law of contract contained in the Indian

Contract Act 1872, hereinafter referred to this act. It extends to whole of India except the state of J&K and came into force on 1st September 1872.

Meaning: The word ‘contract, derived from Latin ‘contractum’

meaning “ An agreement enforceable by law”.

Indian Contract Act 1872 2 elements a, an agreement b, its enforceability

(legal obligation) Agreement : According to act “ Every promise and

every set of promises forming the consideration for each other is an agreement”.

Promise : According to act “A Proposal when accepted becomes a promise”

Contract = An agreement + Its enforceability

Agreement =Offer + Acceptance

Key definitions in the Indian Contract Act

Contract - section 2(h) defines a contract as “An agreement enforceable by law”

Proposal – section 2(a) defines a proposal as “when one person signifies to another his willingness to do or o abstain from doing anything with a view to obtaining the assent of the other person to such act or abstinence, he is said to make a proposal”

Proposal + Acceptance = Promise

Void contract : A contract cannot be enforced in a court of law is known as void contract, a void contract can’t be changed into a Valid contract.

Voidable contract: A contract which is enforceable at the option of the aggregated party is a voidable contract. It can be changed at the desire of aggravated party .

Elements of Valid contract 1. Offer and acceptance 2. Legal relationship 3. Lawful consideration4. Capacity of parties5. Free consent 6. Legality of the object7. Legal formalities8. Certainty9. Possibility of performance10. Not expressly declared void

Classification of contracts

Basis of enforceability

Basis of creation

Basis of execution

Valid VoidVoidable

unenforceable

Express

implied

Quasi

Execute

d

Executor

y

Unilateral contract – It is a contract in which only on party has yet to perform his obligation such contract are termed as contracts with executed consideration.

Bilateral contract – Bilateral contracts are two sided contracts in which there are two obligatory to be fulfilled at the time of its formation.

Offer and acceptance Promiser or offerer – person making proposal Promisee or offeree – Person accepting

proposal An offer can be made by i, by words(whether

oral or written) ii, by conduct iii, by omission Types of offer I, Express offer II, Implied offer

III, specific offer IV, General offer

Essential requirements of valid offer1, The offer must be communicated to the other party 2, The offer must be made with a view to obtain3, The terms of the offer must be definite and certain4, The offer must be capable of creating a legal relationship 5, An offer must be express or implied from the circumstances6, An offer must be conditional7, A tender is an offer as it is in response to an invitation to

offer8, A mere statement of intention is not an offer

Revocation of offer Under sect 6 of Indian contract act 1872,

an offer is revoked under the following circumstances:

I, By giving notice to revocationII, by lapse of timeIII, After lapse of reasonable time, by death or

insanity and by refusal

Cross offers : Where two parties makes identical offers to each other in ignorance of each other’s offer, then the offers are known as cross offers and neither of the two can be called an acceptance of the other, and therefore, there is no contract

Counter offers : A counter offer is a rejection of original offer and making a new offer. The new offer is a counter offer and subsequently changes his mind and wishes to accept the original offer, can’t do so as the first offer lapses and he can’t treat it as still open

Tenders A tender ( in response to an invitation

to offer) is an offer and may be either1. Tender as a definite offer2. Tender as standing offer

Acceptance Acceptance is one of the essential elements of a valid

contract .An offer may be accepted only by the person to whom it is made.

Essentials of valid acceptance:1, Acceptance must be absolute and unconditional2, Acceptance must be communicated to offerer3, Acceptance must be made within reasonable time4, Acceptance may be Expressed or implied5,Agreement to accept in future 6, Counter offer is not an acceptance

Communication of Offer, Acceptance and Revocation

According to sect 4, the communication of proposal is complete when it comes to the knowledge of the person to whom it is made

The communication of acceptance and revocation is complete:1. As against the proposer, when it is put into course of

transmission to him so as to be out of the power of acceptor

2. As against the acceptor, when it comes to the knowledge of proposer

Revocation of proposal and acceptance

Sec 5 provides that a proposal may be revoked at any time before the communication of its acceptance is complete, as against the proposer, but not afterwards.

Also an acceptance may be revoked at any time before the communication of acceptance, as against acceptor, but not afterwards

Termination of offer: An offer may come to an end by revocation, or lapse or rejection

Lapse of offer1. The offer lapses after a stipulated or reasonable time2. An offer stands revoked, if the offeree fails to fulfill a

condition precedent to acceptance (sec 6(3))3. Revocation by death or insanity 4. An offer terminates, when it is rejected by offeree5. An offer terminates by not being accepted in the mode

in the prescribed6. An offer terminates, when it is revoked by offerer,

before acceptance

Consideration Consideration means that when a party to an agreement

promises to do something, he must get something in return.Definition: Sect 2(d) of the contract Act 1872, defines: “When at the

desire of the promisor, the promisee or any other person has done or abstained from doing or does or abstains from doing or promises to do or to abstain from doing something, such act or abstinence or promise is called consideration for the promise”

Types of consideration1, Executory or future consideration2, Executed or present consideration3, Past consideration

Essentials of consideration1, Consideration must move at the desire of the promisor 2, Consideration must be real3, Consideration must be lawful 4, Consideration may be an act to do something, or abstinence

or a return promise5, consideration may be past, present or future6, Consideration need not be adequate7, Consideration must not be illegal, immoral or opposed to

public policy8, Consideration may move from the promisee or from any other

person

Privity of contract Privity of contract means a relationship subsisting between

the parties who have entered into contractual obligations. It is the general rule that only the parties to contract may sue and be sued on the obligations arising out of the contract

A party cannot sue for carrying out of promises made by parties to a contract

Exceptions: 1, Charge in favor of person 2, Creation of trust3, Contracts entered into by agent

No consideration No contract

A promise without consideration is a gratuitous undertaking and can’t create a legal obligation under the Indian Law, the presence of consideration is as a rule, essential to the validity of contracts.

Exceptions: 1, Natural Love and Affection sect25(1)2, Voluntary compensation sect25(2)3, Time barred debt sect25(3)4, Agency sect1855, Completed gift

Capacity of parties Sec 10,11&68 of the Indian contract act deal with the matter

of capacity of the contracting parties.Definition: Sec 11 of the Indian contract Act state that “Every

person is competent to contract, who is the age of majority according to the law to which he is subject of sound mind and not disqualified from contracting by any law to which he is subject.

A person is incapable of entering into contracts under the following circumstances.

1, Not attained age of majority 2, Person of Unsound mind 3, Disqualified by law

Disqualified personPersons Disqualified

by Law

Insolvents

Alien Enemy

Convicts

Statutory Corporations

Foreign sovereigns

Free Consent Free consent is the consent which has been obtained by the

free will of the parties out of their own accord. According to sec 14, consent is said to be free consent when it is not caused by

I, Coercion as defined under sec 15 II, Undue influence as defined under sec 16III, Fraud as defined under sec 17IV, Misrepresentation as under sec 18V, Mistake as defined under sec 20,21,221, Mistake of law and 2, Mistake of fact

Legality of object and consideration Section 23 of act provides that the object or

consideration of an agreement is not lawful when,

1, Forbidden by law 2, Opposed to public policy3, Defeats any provision of law4, Fraudulent 5, Court regard it as immoral

Agreements against public policy An agreement which tend to be injurious to the public or against the public good is

void as being opposed to public.1, Trading with enemy 2, Stifling prosecutions3, Maintenance and Chamberty 4, Agreements in restraint of legal proceedings5, Trafficking in Public offices and titles6, Agreements tending to create interest opposed to duty7, Contracts interfering with course of justice8, Agreements tending to create monopoly 9, Agreements in restraint of parental rights10, Agreements in restraint of marriage11, Agreements influence elections12, Agreements to defraud creditors or revenue authority

Void agreements – According to sec 2 (g) of Indian contract act 1872, a void agreement is an agreement which is not enforceable by law. The agreements which are not enforceable by law right from the time when they are made, Void ab intio

Uncertain agreements – An uncertain agreements means an agreement, the meaning of which is not certain or capable of being made certain. Such agreements are void and hence are not enforceable in a court of law

Wagering agreements – An agreement between two persons under which money or money’s worth is payable, by one person to another, on the happening or not happening of a future uncertain event is called a wagering agreement

Illegal agreements – Illegal agreements may be defined as the agreement which is expressly or impliedly forbidden by law (eg) by IPC

Contingent contract – section 31 of contract act defines a contingent contract as ‘a Contract to do or not to do something if some event, collateral to such a contract, does or doesn't happen’

Contracts of indemnity and insurance are common instances of contingent contract

Quasi contract – Contractual obligations are generally voluntarily created, but these are some obligations which are not contractual, but are treated as such by law. Such contracts are called Quasi contract

Performance of contract The act lays down “the parties to a contract must

either perform or offer to perform, their respective promises, unless performance is dispensed with or excused under the provisions of the act or of any other law”

It is only the promisee who can demand performance of the promise. The general rule is that “a person can’t acquire rights under a contract to which he is not a party”

Discharge of contract Meaning: “Discharge of contract means discontinuation of the

contractual relationship between parties. When the rights and obligations arising out of a contract are extinguished the contract is said to be discharged or terminated”

Mode of discharge:1, Discharge by performance I, Actual II, Attempted2, Discharge by mutual consent or agreement I, Novation II, Rescission

III, Alteration IV, Remission V, Waiver 3, Discharge by subsequent or supervening impossibility or illegality 4, Discharge by lapse of time5, Discharge of operation of law I, By the death of promisor II, By

insolvency III, By merger IV, By unauthorized material alteration6, Discharge by breach of contract

Remedies for breach of contract

1. Rescission of contract2. Suit for damages3. Suit for specific performances4. Suit for injunction5. Suit for quantum meriut

Contract of indemnity and Guarantee

Indemnity – make good the loss or to compensate the party for their loss.

A contract by which one party promises to save the other from the loss caused by him by the conduct of the promisor himself, or by the conduct of any other person is called “Contract of indemnity”

Guarantee – “A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of default”

I, Specific guarantee II, Continuing guarantee

Bailment The word ‘Bailment’ is derived from the French word ‘baillier’ which

means deliver According to the act “A bailment is the delivery goods by one person

to another for some purpose, upon a contract that they shall when the purpose is accomplished, be returned or otherwise disposed of according to the direction of the person delivering them

Kind of Bailment – 1. Gratuitous 2. non Gratuitous 3. Pawn or pledge Pledge or pawn – The bailment of goods as security for payment of a

debt or performance of a promise is called pledge. The bailer in this case is called the pawner. The bailee is called the pawnee. So pledge is a kind of bailment

Agency Definitions of agent and principal: The contract which creates the relationship of principal and

agent is known as ‘agency’ The legal provisions pertaining to agency are contained in

sec182-238 of Indian contract actAgent – An agent is a person employed to do any act for,

another or to represent another in dealings with third persons

Principal – The person for whom such an act is done, or who is so represented is called the principal

Contract of agency – special features

1, Agreement 2, Fiduciary relationship3, Competency of parties4, consideration5, Basis of agency6, Intention of agent to act on behalf of

principal

General rule of agency The acts of the agents shall for all

legal purposes be considered to be the acts of the principal

A person is competent to do by himself, shall also be allowed to be done by agent

Classification of agentsAgents

Basis of extent of authority

Basis of nature of

workGenera

l

Special

Universal

Mercantile

Non Mercantile

Broker

Auctioneer

Commission

agentsDel

credere AgentsFactors

Insurance agentsSolicitor

s

Attorneys

Creation of agency

Express agreem

ent

Implied agreeme

nt

By ratificati

on

By operation

of law

By estoppel

s Holding

outNecessit

y

Del credere agents: A del credere agent is one who in consideration of an extra commission called del credere commission, guarantees to his principal that the third persons with who he enters into contracts shall perform their obligation

Agency by ratification: sec 196 of act states that when acts are done by one person on behalf of another, but without his knowledge or authority. He may elect to ratify or to disown such acts. If he ratifies then, the same effects will follows

Duties and rights of Principal

Duties of principal:1, Agent to be indemnified against consequences of lawful acts2, Agent to be indemnified against consequences of acts done in

good faith3, Compensation for agent for injury caused by his neglectRights of principal:1, When an agent deals on his own account, in the business of

agency without the principal’s consent 2, Right to benefit gained by agent dealing on his own account in

business of agency

Duties and rights of Agent Duties of Agent:1, Agent’s duty in conducting principal’s business2, Skill and diligence required from agent3, To make compensation4, To render accounts to his principal5, Duty to communicate with principal 6, Duty to pay sums received for principal Rights of agent:1, Agent’s right of retainer2, When agent’s remuneration becomes due 3, Agent’s lien on principal’s property

Delegation of Authority of Agent The rule ‘delegatus non potest delegare’ is enshrined in sec190 of the

Indian contract act 1872 Accordingly, an agent can’t lawfully employ another to perform acts

which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may or from the nature of agent must, be employed

Exceptions to general rule(sec 190):1, When principal permits delegation2, When an emergency requires delegation3, when expressly been provided that a sub agent will be appointed4, custom of trade permits delegation5, Nature of agency requires delegation

Sub agent: According to 191 of the act, it is a person who is employed by the original agent and who acts under the control of the original agent in the business of agency. Thus a subagent is the agent of original agent. It is like relationship of principal and agent

Substituted agent: According to sec 194, a person who is named by the agent holding an express or implied authority to name another person, to act for the principal in the business of the agency. Such a person is an agent of the principal for such part of business of the agency as is entrusted to him

Termination of agency An agency may be terminated by any of the

following modes:1, by the act of the parties a, by agreement between principal and

agent b, revocation of agency by principal c, Revocation by the agent

Contd…2, by operation of law a, by the performance of the control of agency b, by the insanity of principal or agent c, by insolvency of the principal d, by the expiry of time fixed for agency

contract e, by death of principal or agent f, by renunciation of employment by agent g, when the company is wound up h, on Principal becoming alien enemy I, on destruction of subject matter

Sale of Goods act 1930

Sale of Goods Act 1930 The sale of goods act came into force on 1st July

1930 and it extends to the whole of India except the state of J&K, all the legal provisions relating to the sale of movable goods are contained in the sale of goods Act 1930.

The transactions relating to immovable properties are governed by a separate act known as Transfer of property act 1882.

Contract of Sale and Sale ‘contract of sale is defined in 4(1) of the sale of

goods act “A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price.

Sale – The term sale is defined in sec 4(3) of sale of goods act, where under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called sale.

Essential elements of contract of sale

1, Buyer and seller 2, Goods 3, consideration4, Transfer of property 5, Requirements of a valid contract

Making of contract of sale A contract of sale is made by an offer to buy or sell goods for a price and

consideration of such offer.A, Immediate delivery of the goods B, Immediate payment of priceC, BothD, For the delivery or payment by installmentsE, That the delivery or payment or both shall be postponed.A contract of sale may be made: 1, In writing 2, By word of mouth 3, Partly in writing and partly by word of mouth 4, may be implied from the conduct of parties

Subject matter of contract of sale Goods form the subject matter of

contract of sale 1, Goods perishing before making of

contract (sec 7)2, Goods perishing before sale but

after agreement to sell (sec8)

Sale and Hire purchase agreement A hire purchase agreement is not a contract of sale, but

only a bailment and the property in the goods remains with the owner during the continuance of the bailment

In other words, it is a bailment plus agreement to sell:The hirer has following 2 options of sale and hire purchaseA, He may purchase the goods after paying all the agreed

installments B, He may return goods at any time and stop further

payment of installments

Meaning of goods 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 from the land before sale or under the contract of sale

Goods also include shares and stocks Goods excludes money and actionable claims

Documents of title to goods Sec2(4) A document of title to goods may be described as any document used

as proof of the possession of control of goods, authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods.

Sec 2(4) recognizes following are 1. Bill of lading2. Dock warrant3. Warehouse keeper’s certificate4. Wharfinger’s certificate5. Railway certificate6. Warrant or order for delivery of goods7. Any other documents used in ordinary course of business

Classification of goods

Existing goods sec(6)

Future Goods sec2(6)

Contingent goods

sec6(2)

Specific Goods

Unascertained goods

Ascertained goods

Price of goods Sec 2(10) of the sale of goods act has defined price as the

money consideration for a sale of goods.Modes of fixing the price :Sec 9 of the sale of goods act 1930 provides1, Fixation of price by contract of sale 2, Fixation of price in a manner provided in contract of sale3, Fixation of price by course of dealings4, Fixation of reasonable priceFixation of price by third party

Conditions and warranty 1. A stipulation in a contract of sale with reference of goods

which are subject thereof may be condition or warranty2. A condition is a stipulation essential to the main purpose

of the contract, the breach of which give rise to a right to treat contract as repudiated

3. A warranty is a stipulation collateral to the main purpose of the contract, the breach of which rises to a claim for damages, but not a right to reject the goods and treat contract as repudiated

Circumstances when a condition can be treated as warranty

Sec 13 of act provides for the situations in which a condition can be treated as warranty are

1, if the buyer waives the condition (or)2, if the buyer elects to treat the breach of

condition as a breach of warranty 3, If the buyer accepts the goods or a part thereof

in case the contract is not separable, unless there is a term in the contract to that effect

Implied conditions and warranty

1, warranty as to the title and possession (sec 14)

2, condition as to the description (sec 15)3, condition as to the quality of fitness (sec

16) 4, Condition as to the matching with sample

(sec 17)

Implied conditions and warranties

Implied conditions

Implied warranties

TitleSale by sample

Quality

Sale by description

Sale by description and

sampleMerchantable

qualityUsage of

trade

Quiet Possession

Against Charges and

encumbrances

Usage of tradeWholesom

ness

Implied condition as to quality or fitness (Caveat Emptor) sec 16

Sec 16 of act contains a very important doctrine, that is Doctrine of caveat emptor – “Buyer Beware”

There is no implied condition in a contract of sale of goods regarding its quality or fitness for the purpose of which the buyer is buying the goods

Buyer and seller are free to put up any condition in a contract of sale of goods either expressly or impliedly. In absence, the doctrine of Caveat emptor will apply as in sec(16)

Exceptions to The doctrine of Caveat Emptor

Sale by sample

Fitness for particular Quality

Concealment of latest defects by seller

Sale by description

Sale by sample and description

Merchantable Quality

Performance of sale contract

The term ‘performance of contract of sale’ may be defined as the respective duties of the seller and the buyer, as per the terms of the contract

Performance of contract of sale comprises of two parts namely,

1, Seller’s duty to deliver the goods2, Buyer’s duty to accept the goods and pay the

price

Rights of the buyer1, Examinations of goods2, Suit for damages for non- delivery 3, suit for specific performance4, Suit for breach of warranty5, In case of repudiation of contract6, Suit for interest

Rights of unpaid seller Sec 45 defines the meaning of unpaid seller as 1, When the whole of the price has not been paid or

tendered.2, When a bill of exchange or any other negotiable

instrument has been received as a conditional payment and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument

Rights of an unpaid seller against goods (sec46)

1, When property in goods have passed to the buyerA, Right to lien B, Right of stoppage of goods in transitC, Right of resale2,Where the property in goods has not passed to buyerA, Withholding of delivery of goodsB, Right to lien C, Right of stoppage of goods in transitD, Right of resale

Rights of unpaid seller against the buyer personally

1, Suit for price 2, suit for damages3, Suit for interestSeller’s lien (sec 47)Termination of lien (sec 49)Part delivery (sec 48)Duration of transit (sec 51)Stoppage in transit (sec 52)

Negotiable Instruments Act 1881 The Negotiable instruments acts doesn’t define a

negotiable instrument. A negotiable instrument is a transferable

document either by application of law or by custom of trade concerned

A negotiable instrument may be made payable to two or more payees jointly, or it maybe made payable in alternative to one or two or some of several payees.

Applicability The negotiable instrument act 1881,

extends to the whole of India except J&K and to all persons resident in India, whether foreigners or Indians came into force on 1st March 1881.

Deals with promissory notes, Bill of exchange and cheques

A negotiable instrument is a 1. Written Instrument 2. Signed by the maker or drawer of the

instrument 3. That contains an unconditional promise or

order to pay4. An exact sum of money 5. On demand or at an exact future time6. To a specific person, or to order, or to its

bearer.

Negotiable instrument – Key features

An instrument may be negotiable either by 1, statue or 2, By usage

An instrument is said to be negotiable if it possesses the following features:

1. Freely transferable2. Holder’s title free from defects 3. The holder can sue in his own name 4. A negotiable instrument can be transferred infinitum 5. A negotiable instrument is subject to certain

presumptions

Presumptions as to Negotiable Instruments

Sec 118&119 enlist the following presumptions as to negotiable instruments, unless the contrary is proved

1. Every negotiable instrument is deemed to have been made, drawn, accepted, endorsed, negotiated or transferred for consideration

2. Every negotiable instrument bear the date on which is made or drawn 3. Every bill of exchange was accepted within reasonable time4. Every transfer of a negotiable instrument was made before the date of its

maturity5. The endorsements appearing on it were made in the order in which they appear

thereon.6. The holder of the instrument is a holder in due course7. If a suit is filled upon an instrument which has been dishonored, the court shall,

on the proof of the protest, presume the fact of dishonor unless it is disproved

Discharge of negotiable instruments A negotiable instrument is said to be discharged when it

becomes completely unless (i.e) no action on that will lie and it can’t be negotiated further

After a negotiable instrument is discharged, the rights against all the parties thereto come to an end, and no party, even a holder in due course, can claim the amount of instrument from any party thereto

Discharge of party primarily and ultimately liable on the instrument results in the discharge of the instrument itself

Discharge of one or more parties A party is said to be discharged from his liability on

the instrument comes to an end When only some of the parties to a negotiable

instrument are discharged, the instrument continues to be negotiable and the un discharged parties remain liable on it

Thus the discharge of one or more parties to an instrument and rights under it can still be enforced against those parties who continue to be liable

Types of negotiable instruments1, by Statue – Cheque, Bill of exchange and promissory note and etc.,2, Documentary bill3, Inland instrument 4, Foreign Instrument 5, Inchoate instrument 6,Time instrument 7, Accommodation Bill8, Fictitious bill9,Clean bill 10, Ambiguous instrument

Promissory note (section 4)

A promissory note is an instrument in writing containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument

Essentials of Promissory note

1. It must be in writing 2. It must contain a promise or undertaking to pay3. The promise to pay must be unconditional 4. The amount promised must be a certain and definite

sum of money 5. The instrument must be signed by the maker6. The person whom the promise is made must be definite

person7. The amount payable must be in legal tender money of

India8. Proper stamping should be made

Bill of Exchange (section 5) “A bill of exchange is an instrument in

writing containing an unconditional order, signed by the maker, directing a certain person to pay certain sum of money only to, or to the order of, a certain person or to bearer of the instrument “

Essentials of Bill of Exchange

1, The bill of exchange must be in writing 2,There must be an order to pay3, The order must be unconditional4, The drawee must sign the instrument 5. There must be two distinct person 6, The sum must be certain7, Medium of payment must be money and money

only

Cheques (section6) A cheque is bill of exchange drawn on

a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated and a cheque in the electronic form

Essentials of cheques 1. A cheque can be payable either to order or bearer2. A cheque is an instrument in writing 3. A cheque is payable on demand4. A cheque can be drawn only on the branch where the

customer is having an ccount5. Notice of dishonor is not neccesary in the case of

dishonor of cheques6. Cheques are not neccesary to present for acceptance7. Cheques are not required to be stamped in India

Different types of crossings of cheques

General crossing Special crossing Restrictive crossingTruncated Cheque:Cheque in the electronic form – use of digital

signature or biometric signature for verification of authorization

Holder in due course (sec9)

“Holder in due course” means any person who for consideration become the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or endorsee thereof, if payable to order before the amount mentioned in it became payable and without having sufficient cause to believe that ant defect existed in the title of person whom he derived his title”

Types of Endorsement1, Blank/General Endorsement2, Full/ special Endorsement3, Restrictive Endorsement4, Partial Endorsement5,Conditional Endorsement6, Sans recourse Endorsement7, Sans frais Endorsement8, Facultative Endorsement

End of unit1: Commercial Law