BUSINESS
LAW SOLVED QUESTION PAPERS’ 2019
RAVINDRANATH
TAGORE UNIVERSITY (RTU)’ HOJAI
Paper: 1.1
Full
Marks: 80
Time: 3
hours
The
figures in the margin indicate full marks for the questions.
1. (A)
Choose the correct option from the following: 1x4=4
(a) Where no mode of acceptance is prescribed, acceptance
(i) need
not be communicated in writing
(ii) must
be communicated by registered post
(iii) must
be communicated by telegram
(iv) may be expressed in some usual and reasonable manner.
(b) An agency can be created by:
(i)
Express Agreement
(ii)
Implied Agreement
(iii)
Operation of law
(iv) All of the above
(c) The term goods under the sale of
goods act, 1930 does not include:
(i)
Harvested crop
(ii) Actionable claim
(Other than actionable claims and money)
(c) Grass
(d) Stock
and Share
(d) The Agreement of Limited liability
partnership should be
(i) Written only
(ii) Oral
only
(iii)
Either written or oral
(iv) None
of the above
(B) State whether the following
statement are correct or incorrect: 1x4=4
(a) A
minor can become a member of a partnership firm through agreement. True
(b) No
consideration is necessary to create an agency. True
(c) Sale
is an executed contract. True
(d)
Collecting banker collects both open and crossed cheque. False, Crossed cheque
(C) Fill in the blanks with appropriate word: 1x2=2
(a) Every
limited liability partnership shall have at least two designated partners.
(b) Chief
Information Commissioner shall hold office upto the age of five (5)
years.
2. Answer the following questions: (any five)
2x5=10
(a) What
do you mean by performance of Contract?
Ans: When the parties to a contract fulfill their obligations arising under the contract within the time and in the manner prescribed, it is called performance contract. Performance may be actual performance or attempted performance.
(b) A
sells to B 10 bags of rice which are locked up in a godown. A gives B the key
of the godown. Does it constitute delivery of the goods?
Ans:
Section 33 provides that the delivery of goods sold may be made
a) By doing anything which the parties agree; or
b) Which has the effect of putting the goods in the possession of
the buyer or of any person authorized to hold them on his behalf;
In the given question, after giving
the key to B goods are in the possession of the buyer. So, it constitute
delivery of the goods.
(c) What
is a partnership deed?
Ans: A partnership is formed by an agreement. This agreement may
be oral or in writing. Though the law does not expressly require that the
partnership agreement should be in writing, it is desirable to have it in
writing. A written agreement, which contains the terms of partnership, as
agreed to by the partners is called ‘Partnership Deed.’
(d) Define
the term ‘holder in due course?
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 course
to believe that defect existed in the title of the person from whom he derived
his title.
(e) Define
the term ‘Limited Liability Partnership’.
Ans: LLP is simply a combination of
Partnership and Company form of business organisation. It is a corporate
business vehicle that enables profession expertise and entrepreneurial
initiative to combine and operate in flexible, innovative and efficient manner.
It provides an alternative to the traditional partnership firm with unlimited
liability.
(f) What
is meant by Information under Right to Information Act, 2005?
Ans:
According to Sec 2(f) of the RTI Act’ 2005,” "information"
means any material in any form, including records, documents, memos, e-mails,
opinions, advices, press releases, circulars, orders, logbooks, contracts,
reports, papers, samples, models, data material held in any electronic form and
information relating to any private body which can be accessed by a public
authority under any other law for the time being in force.”
3. Answer any four of the following
question: 5x4=20
(a)
Write when the consent to a contract is said to be not free.
Ans: Section 14 defines ‘Free Consent’ as – Consent is said to be
not free in the following cases:
(i) Coercion, as defined in Section 15, or
(ii) Undue influence, as defined in Section
16, or
(iii) Fraud as defined in Section 17, or
(iv) Misrepresentation as defined in Section
18, or
(b)
Distinguish between contract of indemnity and contract of guarantee.
Ans: The contract of indemnity differs from the contract of
guarantee in the aspects shown in the following table:
|
Contract of
Indemnity |
Contract of
Guarantee |
|
1. In a contract of indemnity the promisor
undertakes an independent liability. |
1. A contract of guarantee is a contract to
discharge the liability of a third person in case of default made by him. |
|
2. A contract of indemnity involves two
persons, viz., the indemnifier and the indemnity-holder. |
2. A contract of guarantee requires the
concurrence of three person viz. the principal debtor, the creditor and the
surety. |
(c)
Briefly explain the term ‘Caveat Emptor’.
Ans: The term ‘Caveat Emptor’ means ‘Let the buyer beware’ i.e. in
sale of goods, the seller is under no duty to reveal unflattering truths about
the goods sold. Therefore, when a buyer buys some goods, he must examine them
thoroughly. If the goods turn out to be defective or do not suit his purpose,
or if he depends upon his own skill and judgment and makes a bad selection, he
cannot blame anybody excepting himself.
(d)
What test would you apply to determine the existence of partnership?
Ans: In order to determine the existence of partnership between groups of
persons, agreement between persons must be taken into consideration. If the
agreement is to share the profits of a business, and the business is carried on
by all or any of them acting for all, there is partnership otherwise not.
(e)
Mention five liabilities of a partner in a limited liability partnership.
Ans: Liabilities
of partners of an LLP:
1. Section 28
provides that a partner is not personally liable solely by reason of being a
partner of LLP. But he will be personally liable for his own wrongful act or
omission. But he shall not be personally liable for the wrongful act or
omission of any other partner of the LLP.
2. Section 29
provides that any person, who by words spoken or written or by conduct represents
himself, or knowingly permits himself to be represented to be a partner in a
LLP is liable to any person, who has on the faith of any such representation
given credit to the LLP, whether the person representing himself or represented
to be a partner does or does not know that the representatives has reached the
person so giving credit.
3. Unlimited liability: Section 30 provides that any act with intent
to defraud creditors of the LLP or any other person, the liability of LLP and partners shall be
unlimited for all or any of the debts or other liabilities of the LLP. If such act is carried out by a partner, the
LLP is liable to the same extent as the partner unless it is established by the LLP that such act was
without the knowledge or the authority of the LLP.
Section 30(2)
provides that where any business is carried on with such intent to defraud the
creditors of LLP, every person who was knowingly a party to the carrying on the
business shall be punishable with imprisonment for a term which may extend to 2
years and with fine which shall not be less than 50000/- but which may extend
to `5 lakhs.
In such cases the
LLP or any partner or designated partner or employee shall be liable to pay
compensation to any person who has suffered any loss or damage by reason of
such conduct. Section 31 provides for reduction of penalty awarded under
Section 30(2). According to Section 31 the Court or Tribunal may reduce or
waive any penalty imposed on any partner or employee of a LLP, if it satisfied
that:
a) such partner
or employee of a LLP has provided useful information during investigation of
such LLP; or
b) when any
information given by any partner or employee leads to LLP or any partner or
employee of such LLP being convicted under this Act or any other Act.
No partner or
employee of any LLP may discharged, demoted, suspended, threatened, harassed or
in any other manner discriminated against the terms and conditions of his LLP
or employment merely because of his providing information or causing
information to be provided by him.
(f) How is Central Information Commission constituted under Right to
Information Act, 2005?
4. Answer any four of the following
questions: 10x4=40
(a) Define the term
‘offer’. Explain the legal rules regarding a valid offer under the Indian
Contract Act, 1872.
Ans:
Offer and Rules relating to offer
The term ‘proposal’ is otherwise called as
‘offer’. An offer is a proposal by one person, whereby he expresses his
willingness to enter into a contractual obligation in return for promise, act
or forbearance. Section 2(a) of the Act defines ‘proposal’ or offer as when one
person signifies to another his willingness to do or abstain from doing
anything with a view to obtaining the assent of that other to such act or
abstinence. The person making the proposal is called as ‘offeror’ or proposer’
and the person the proposal is made is called as ‘Offeree’.
Rules as to Offer:
1. Intention to create legal relationship: The
Offeror while making the offer must do it with the intention to create legal
relations. Offeror must be conscious that a contract will arise, if the Offeree
accepts the same.
2. Certain or Unambiguous: The terms of
the Offer to be valid must be certain, clear and unambiguous. For e.g. A
offers to sell B, ten tones of oil. A is a dealer of various oil. Here the
offer is ambiguous as the offer does not specify the type of oil. However, if A
was a dealer only in Parachute Coconut oil then the offer is unambiguous.
3. Offer must be distinguished from:
(i) A declaration of intention: A
declaration by a person that he intends to do something gives right of action
to another. Such a declaration only means that an offer will be made or invited
in future and not that an offer is made now.
(ii) An invitation to make an offer or do
business: Display of goods by a shopkeeper in his window, with prices
marked on them, is not an offer but merely an invitation to the public to make
an offer to buy the goods at the marked prices. A buyer, in case the prices of
the goods are marked, cannot force the seller to sell the goods at those
prices. He can, at the most, ask the seller to sell the goods to him, in which
case he is making an offer to the seller and it is up to the seller to accept
the offer or not. Likewise, quotations, menu card, catalogues, prospectus
issued y a company for subscribing to shares are all example of an invitation
to make an offer.
4. Offer must be to a definite person: The
words of an Offer must apply to definite persons or class of persons to create
a legal relationship.
5. Offer must be communicated: An
offer, to be complete, must be communicated to the person to whom it is made.
Unless an offer is communicated, there can be no acceptance of it.
6. Offer must be made with a view to
obtaining the assent: The offer to do or not to do something must be made
with a view to obtaining the assent of the other party addressed and not merely
with a view to disclosing the intention of making an offer.
7. Special Terms to be made clear in the
Offer: The offer may be conditional but the conditions or special terms
must be clearly communicated in the offer. Whenever an offer has special terms
attached to it, these special terms and conditions must be effectively
communicated to the Offeree to bind him.
8. Offer should not contain a term, the
non-compliance of which may be assumed to amount to acceptance: A person
cannot say that if acceptance is not communicated within a certain time, the
offer would be considered as accepted.
(b) Distinguish between:
5+5=10
(i) Void agreement and void contract
(ii) Sale and agreement
to sell.
Ans: Difference between ‘Sale’ and
‘agreement to sell’:
|
Basis |
Sale |
Agreement to Sell |
|
Definition |
Where under a contract of sale, the property in the goods is
transferred from the seller to the buyer (i.e. at once); the contract is
called a ‘sale’. |
where the transfer of the property in the goods is to take place
at a further time or subject to some condition thereafter to be fulfilled,
the contract is called an ‘agreement of sell’ |
|
Transfer of ownership |
Transfer of ownership of goods takes place immediately. |
Transfer of ownership of goods is to take place at a future time
or subject to fulfillment of some condition. |
|
Executed contract or Executory contract |
It is an executed contract. |
It is an Executory contract. |
|
Conveyance of property |
Buyer gets a right to enjoy the goods against the whole world
including seller. |
Buyer does not get such right. |
|
Transfer of risk |
Transfer of risk of loss of goods takes place immediately
because ownership is transferred. |
Transfer of risk of loss of goods does not take place because
ownership is not transferred. |
(c) Define Bailment and
briefly state the rights and duties of bailor under Indian Contract Act,
1872. 2+4+4=10
Ans:
Bailment: Bailment is a kind of activity in which the property of one
person temporarily goes into the possession of another. The ownership of the
property remains with the giver, while only the possession goes to another.
Several situations in day to day life such as giving a vehicle for repair, or
parking a scooter in a parking lot, giving a cloth to a tailor for stitching,
are examples of bailment.
Section 148 of Indian Contract Act 1872, defines bailment as
follows: “A bailment is the delivery of 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 directions
of the person delivering them.”
Rights and Duties of Bailer
Rights
of bailer
1. Right
to take back: As the purpose completes, the bailer has right to get back the
property bailed and if any damage is caused to the property, he is entitled for
compensation from the bailee.
2. Right
in case of unauthorized use: If the bailee uses property in unauthorized
manner, the bailer can terminate the bailment as well as can claim for
compensation also.
3. Right
to gratuitous bailer: The bailer has right to terminate the contract of
gratuitous bailment at any time even before the specified time, subject to the
limitations that where such termination of bailment causes loss in excess of
benefit, the bailer must compensate the bailee.
4. Right
to get benefit/profit: If the bailed property has been accredited, the bailer
has right to the benefit/profit.
Duties of Bailer
1. Duty to dispose
faults: Bailer
should disclose faults present in goods at the time of making delivery. Faults
are of two types namely; Known faults and Un-known faults. On the other hand
bailments also are of two types namely Gratuitous bailment and Non-Gratuitous
bailment. In case of gratuitous bailment, bailer is liable to compensate for
bailee injuries arising out of known faults. In Gratuitous bailment, bailer is
not answerable to un-known faults. In case of Non-Gratuitous bailment, bailer
is answerable to both known faults and Un-known faults.
2. Duty to contribute
for expenses: Bailer
should contribute for expenses incurred by bailee. In case of Gratuitous
bailment, bailer need not contribute for ordinary expenses and extra ordinary
expenses or to the contributed by bailer. In case of Non-Gratuitous bailment,
bailer should contribute for both ordinary expenses and extra ordinary
expenses.
3. Duty with regard to
defective title: In case
where bailer has delivered the goods with defective title, the bailee may come
across suffering from the side of true owner due to bailer’s defective title.
In such a case bailer with defective title should compensate bailee.
4. Duty to Indemnify: Principal of indemnity operates between
bailer and bailee, where bailer becomes implied indemnifier and bailee becomes
implied indemnity holder. So bailer has duty to indemnify bailee.
5. Duty to take the
Goods back: After
fulfillment of purpose bailee returns the goods to bailer. Then bailer should
take them back. If bailer refuses to take the goods back, bailer has to
compensate bailee.
(d) Define the term condition and
warranty in a contract of sale. When condition can be treated as warranty?
Briefly explain two implied conditions in a contract of sale. 2+2+2+4=10
Ans: ‘Condition’ and
‘Warranty’
In a contract of sale, the subject matter is
‘goods’. There are millions of sale transactions which occur in the normal
course, all around the world. There are certain provisions which need to be
fulfilled because it is demanded by the contract. These prerequisites can
either be a condition and warranty. The condition is
the fundamental stipulation of the contract of sale whereas Warranty is
an additional stipulation.
Condition: Section 12(2) states that a
condition is a stipulation which is essential to the main purpose of the
contract. The breach of a condition gives rise to a right to treat the contract
as repudiated or broken. So according the above
definition it is clear that condition is very essential for the performance of
a contract. The breach of condition will be regarded as the breach of the whole
contract.
Example: A buys
from B hair oil advertised as pure coconut oil. The oil turns out to be mixed
with herbs. A can return the oil and claim the refund of price.
Warranty: Section 12(3) states that a warranty
is a stipulation which is collateral to the main purpose of the contract. The
breach of a warranty gives rise to a claim for damages but not a right to reject
the goods and treat the contract as repudiated. The
above definition shows that for the implementation of a contract warranty is
not essential. For the breach of warranty only damages can be claimed.
Example: A while
selling his car to B, stated the car gives a mileage of 12 kms per litre of
petrol. The car gives only 10 kms per litre. B cannot reject the car. It is
breach of warranty. He can only claim damages for the loss due to extra
consumption of petrol.
When condition to be treated as
warranty.
a) Where a
contract of sale is subject to any condition to be fulfilled by the seller, the
buyer may waive the condition or elect to treat the breach of the condition as
a breach of warranty and not as a ground for treating the contract as
repudiated.
b) Where a
contract of sale is not severable and the buyer has accepted the goods or part
thereof, the breach of any condition to be fulfilled by the seller can only be
treated as a breach of warranty and not as a ground for rejecting the goods and
treating the contract as repudiated, unless there is a term of the contract,
express or implied, to that effect.
c) Nothing in
this section shall affect the case of any condition or warranty fulfillment of
which is excused by law by reason of impossibility or otherwise.
Implied Conditions:
1.
Condition as to title: In a contract of sale, unless the
circumstances of the contract are such as to show a different intention, there
is an implied condition on the part of the seller that –
(a) In the case of a sale, he has a right to
sell the goods and
(b) In the case of an agreement to sell, he
will have a right to sell the goods at the time when the property is to pass.
2. Sale by
description: Where there is a contract for the sale of goods by description,
there is an implied condition that the goods shall correspond with the
description (Section 15). If you contract to sell peas, you cannot oblige a
party to take beans.
(e) (i) How a partnership
firm can be registered under Indian Partnership Act, 1932? 5
Ans: Registration of Firms:
The registration of a partnership is not compulsory but to avoid future
problems it is necessary for a firm to get itself registered under the Indian
Partnership Act, 1932. Sec. 58 of the Indian Partnership Act lays down the
provisions relating to the registration of a firm. If partners want to get
their firm registered, they have to file statement in the prescribed form. The
statement can be send by post or delivered to the registrar of the area in
which the place of business is situated. The following points must be stated in
the statement of registration:
a) The firm’s
name
b) The
principal place of business of the firm
c) The names
of any other places of business
d) The date
when each partner joined the firm
e) The name
and address of the firm
f) The
duration of the firm
The statement of registration shall be signed
by the partners or their authorised agents. When the registrar is satisfied
that the provisions of Sec. 58 have been duly complied with, he shall record an
entry of this statement in the register of firms and shall file the statement.
(ii) State five
advantages of forming a limited liability partnership. 5
Ans: Advantages of LLP: An LLP has the following advantages:
a) Easy
formation: The process of formation is very simple as compared to companies and
does not involve too much formality.
b) Separate Legal
Entity: It has separate legal entity distinct from its members. LLP is known by
its name and not by the name of its partners.
c) Perpetual
Existence: It has perpetual existence irrespective of change in partners. The LLP shall continue to exist till it is
wound up in accordance with the provisions of the relevant law.
d) Limited
restrictions: In LLPs, there is no requirement of minimum capital contribution,
no restrictions as to maximum number of partners.
e) No need to
maintain statutory record: There is no requirement to maintain statutory record
except books of accounts and return which is required to be submitted with ROC.
(f) What is general and
special endorsement? Mention five reasons for bouncing of cheque. 5+5=10
Ans: Blank or
General Endorsement: An endorsement is said to be blank or general, if the
endorser sings on the back or on the face of the instrument without specifying
the name of any endorsee. The effect of his endorsement makes the instrument
payment to bearer even though originally it was payable to order. For example,
a cheque payable to Mr. X or order and Mr. X endorse the cheque to Mr. Y by
simply affixing his signature. The effect of this endorsement makes the
instrument payable to bearer even though originally it was payable to order.
Full or Special Endorsement: If an endorser
signs his name and adds a direction to pay the amount mentioned in the
instrument to or to the order of a specified persons, such an endorsement is
said to be a full or special endorsement.
For example, “Pay to Mr. X or order” S/d Mr. Y is an example of full
endorsement. Here Mr. Y is the endorser and he has mentioned the name of the
endorsee – Mr. X.
Conditions
where a Banker dishonour a cheque
The bank may dishonour a cheque for the
following cases.
a) When the
cheque is post dated and it is presented for payment before the date it bears.
b) When there
are insufficient funds to the credit of the drawer.
c) When the
cheque is presented for payment at branch where the drawer of the cheque has no
account.
d) When a
cheque is not duly, presented, as for example a cheque presented outside
banking hours.
e) When the
cheque is ambiguous, mutilated, materially altered or irregular.
f) When the
cheque has become stale, that is it is not presented within six months of the
issue of the cheque.
(g) (i) Explain the salient
features of ‘Right to Information Act, 2000’.
Ans:
(ii) Distinguish between
sale and bailment.
Ans:
Difference between Bailment and Pledge
|
Basis |
Bailment |
Sale |
|
1.
Section |
It
is defined under Sec. 148 of the Indian Contract Act, 1872. |
It
is defined under Sec. 4 of the Sale of Goods Act’ 1930. |
|
2.
Meaning |
Bailment
is a kind of activity in which the property of one person temporarily goes
into the possession of another. |
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.’ |
|
3.
Transfer of Ownership |
Only
possession is transferred in case of bailment not the ownership. |
Transfer
of ownership of goods takes place immediately. |
|
4.
Consideration |
Consideration
may or may not be present. |
Consideration
must be present in a sale. |
|
5.
Parties |
Parties
in a contract of bailment are known as Bailer and Bailee. |
Parties
in a contract of sale are known as buyers and sellers. |
|
6.
Sale of goods |
Bailee
has no right to sale the goods. |
Buyers
can sale the goods if they wish. |
(h) Explain in short the
following terms:
(i)
Consideration
Ans: Consideration: Section 2
(d) of Indian Contract Act, 1872, defines consideration as “When at the desire
of the promisor the promise or any other person has done or abstained from
doing or does or abstains from doing something, such act abstinence or promise
is called a consideration for the promisor.”
Consideration is based on the term ‘quid-pro-quo’ which means ‘something in return’. When a person
makes a promise to other, he does so with an intention to get some benefit from
him. This act to do or to refrain from doing something is known as
consideration.
Consideration is an advantage or benefit which
moves from one party to another. It is the essence of bargain. It is the
reciprocal promise i.e. to do something or abstain from doing something in
return of a promise. It is necessary for an agreement to be enforceable by law.
In consideration both the parties give something & get something in return.
It may be in cash or kind.
(ii)
Contingent contract
Ans: Contingent
Contract: According to the Contract Act a contingent contract is one whose
performance us uncertain. The performance of the contract which comes under
this category depends on the happening or non- happening of certain
uncertain-events. On the other hand, an ordinary or absolute contract is such
where performance is certain or absolute in itself and not dependent on the
happening or non-happening of an event. A contingent contract is defined as a
contract to do or not to do something, if some event, collateral to such
contract, does or does not happen (sec. 31).
Example
(A) A contracts to pay Rs. 50,000 if B’s house
is destroyed by five. This is a contingent contract as the performance depends
on the happening of an event.
(B) A asks B to give loan to M and promises
that he (A) will repay the loan if M does not return it in time.
Characteristics of a Contingent Contract: A
Contingent Contract must have three essential characteristics. There are:
(1) The performance of the contract
depends on the happening or non-happening of a certain event in future. This
dependence on a probable future event distinguishes a contingent contract from
an ordinary contract.
(2) This event must be uncertain, that
means happening or non-happening of the future event is not certain, i.e., it
may or may not happen. If the event is hundred percent sure to happen, and the
contract in that case has to be performed any way, such a contract is not
called a contingent contract.
(3) The event must be collateral or
incident to the contract. Therefore, contracts of indemnity, guarantee and insurance
are the most common instances of a contingent contract.
(iii)
Quasi contract
Ans: Quasi Contract: It means a
contract which lacks one or more of the essentials of a contract. In a
contract, a promisor voluntarily undertakes an obligation in favour of the
promisee. When a similar obligation is imposed by law upon a person for the
benefit of another even in the absence of a contract. Such contracts are the
quasi-contracts. Quasi contract are declared by law as valid contracts on the
basis of principles of equity i.e.
no person shall be allowed to enrich
himself at the expense of another the legal obligations of parties remains
same.
Nature of Quasi contracts:
a) A quasi contract does not arise from
any formal agreement but is imposed by law.
b) Every quasi contract based upon the principle
of equity and good conscience.
c) A quasi contract is always a right to
money and generally though not always to a liquidated sum of money.
d) A suit for its breach may be filed in
the same way as in case of a complete contract.
e) The right grouted to a party under a
quasi contract is not available to him against the whole world but against
particular person(s) only.
(iv)
Unpaid seller
Ans: Section 45 define an unpaid seller as “One who has not been
paid or tendered the whole of the price or one who receives a bill of exchange
or other negotiable instrument as conditional payment and the condition on
which it was received has not been fulfilled by reason of dishonour of the
instrument or otherwise.” The following conditions must be fulfilled before a
seller can be deemed to be an unpaid seller:
(i) He must be unpaid and the price must be
due.
(ii) He must have an immediate right of action
for the price.
(iii) A bill of exchange or other negotiable
instrument was received but the same has been dishonoured.
Rights of
an Unpaid Seller against the Goods
According to Section 46, an unpaid seller’s
rights against the goods are:
(a) A lien or right of retention
(b) The right of stoppage in transit.
(c) The right of resale.
(d) The right to withhold delivery
(v)
Promissory Note
Ans: Promissory Note, in the law of negotiable instruments, is a
written instrument containing an unconditional promise by a party, called the
maker, who signs the instrument, to pay to another, called the payee, a
definite sum of money either on demand or at a specified or ascertainable
future date. The note may be made payable to the bearer, to a party named in
the note, or to the order of the party named in the note.
According to the Section 4 of the Negotiable
Instrument Act, 1881 “A Promissory Note is an instrument in writing not being a
bank note or a current note containing an unconditional undertaking, signed by
the maker, to pay a certain sum of money only to, or do the order of, a certain
person, or to the bearer of the instrument.”
In other words, we can say that a promissory
note is an unconditional promise in writing made by one person to another,
signed by the maker, engaging to pay on demand to the payee, or at fixed or
determinable future time, certain in money, to order or to bearer.
There are two parties to a Promissory Note:
a) Maker: It is the debtor, who promises to
make the payment. It must be signed by its maker.
b) Payee: The person who receives the payment
of the promissory note is the payee.
A signs instruments in the following terms:
(a)
"I promise to Pay B or order Rs.500".
(b)
"I acknowledge myself to be indebted to B in Rs.1, 000, to be paid on
demand, for value received”.
(c) “I
promise to pay B Rs.500/- on 01-10-2005. etc are promissory notes”.
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