CONTRACTSOFI

NDEMNI
TY,
GUARANTEEANDBAI
LMENT

Contr
actsofIndemni
ty:Acontractofi
ndemnityisacont i
ngentcont
ract.I
tisacont r
act
bywhichonepar t
ypromisestosav et
heotherfrom losscausedtohim byt heconduct
ofthepromisorhi
mselforbytheconductofanyotherpersonorbyaccident.Theperson
whounder t
akest oi
ndemni f
yormakegoodt hel ossi scal
ledthe" i
ndemni f
ier
"and
whoselossismadegoodi scall
edthe“i
ndemnifi
ed”or“ indemnit
yholder”
.

Acont r
actstoi ndemnifyBf oranyconsequencesofanyproceedingswhichCmayt ake
againstBinrespectofacer t
ainsum ofRs.200.Thisi
sacont ractofi
ndemni
ty.I
fBi s
orderedtopayt oC Rs. 200,Ashallberequir
edtopaythisamountt oB.Apromiset o
i
ndemni f
ymay beexpr essori mpl
ied.Theill
ustr
ati
ongivenabov eisanexampleofan
expresspromiset oindemni f
y.

Thef ollowingisanexampl eofani mpliedpr omi setoi ndemni fy:Abrokerf orgedthe

signatur eoft heholderofgovernmentpr omi ssor ynoteandendor sedittot heBankof
India.The bankgott he not
er enewed f rom t he gover nment .The holdersued the
gov ernmentandr ecovereddamages.Thegov ernmentsuedt hebankf orindemni t
y.The
suitwasdecr eed.Therewasani mpl i
edpr omi sebyt hebankt hatthenotewasgenui ne.
Asweshal lstudythatshortl
y,i
nacont ractof guar anteet hereisani mpliedpromi seby
thepr incipaldebt
ort oindemnif
yhisagentf oranyexpensesi ncurredi
nt heperformance
ofal l
lawf ulactdonebyt heagentwhileact i
ngf ortheprincipal.

Si
milarl
y,acontr
actofinsur
anceisacont
ractof indemnit
y.Inshort
,theindemni t
y-
hol
derisenti
tl
edtorecoverf
rom t
hei
ndemnif
ieral
ldamagespaidbyhim andal lcosts
i
ncurredbyhi
m andallot
hersumspai
dbyhim onaccountoftheindemnif
ier
.

Ri
ght
sofI
ndemni
tyhol
derwhensued.

Accor
dingt
osec.125ani
ndemni
tyhol
deri
sent
it
ledt
orecov
erf
rom t
hepr
omi
sor:

(
i) alldamageswhi
chhemaybecompel
ledt
opayi
nanysui
tinr
espectofanymat
ter
t
owhichthepromi
setoi
ndemni
fyappl
i
es.

(i
i) al
lcost
swhi chhemaybecompel ledtopayinbri
ngi
ngordefendi
ngsuchsui
ts.But
the indemnif
ied shoul
d haveacted asanypr udentman would actundersimil
ar
cir
cumstancesinhisowncase,orwit
ht heaut
hor
it
yoftheindemni
fi
er;

(i
ii
)allsumswhi chhemayhav epaidunderthetermsofanycompromiseofanysuch
sui
t. Thecompr omiseshoul
dnotbecont r
arytot heor
dersoftheindemnif
ierand
shoul
dbepr udentoraut
hori
sedbytheindemnif
ier
.
Ri
ght
sofi
ndemni
fi
er

TheIndi
anContr
actActdoesnotspeakaboutt heri
ghtsofi
ndemnifi
eri
nacont r
actof
i
ndemnity
.Butont hebasisoft
heauthorit
yofEnglishLaw,i
tmaybest at
edthatthe
ri
ght
soft hei
ndemnifi
eraresi
milart
ot heright
sofasuretyundersect
ion141.These
ri
ght
shavebeendiscussedlat
eroninthisl
essonit
self
.

Ti
meofcommencementoft
hel
i
abi
l
ityoft
hei
ndemni
fi
er

Noment ioni sf oundr egardingt het i

meoft hecommencementoft heindemnifi
er's
l
iabil
i
tyi nt heI ndiancontractAct .Int hisconnect ionv ar
iousHi ghCour tshav eheld
dif
ferentv i
ews.I thas been obser ved bycer t
ain High Cour t
st hatt he i
ndemnifi
er
i
s notl iable untilthei ndemni f
iedhas i ncur r
edt heactualloss,whereasot herHigh
Courtshav ehel dthatthei ndemni fi
edcanf orcet he i
ndemni f
iertomakegoodhi sloss
evenbef orehedi schargeshi sli
abili
ty.Thisposi t
ionhasbeensuppor tedbyBuckley.L.J.
According t ohi
m,“ I
ndemni tyisnotgi v en byr epaymentaf terpay ment.I ndemni ty
requi
rest hatthepar tyi
ndemni f
iedshall neverbecal l
edupont opay .”Thisvi
ewi sbased
onequi t
abl epri
nciples,assuchi tisfoll
owedbyt hecourt
s.

I
nanEngl i
shcase,ithasbeenobserved.“..
..
toindemni f
ydoesnotmer el
ymeant ore-
i
mburseinrespectofmoneyspaid,buttoser v
ef rom l
ossinrespectofli
abil
i
tyagainst
whi
chtheindemni t
yhasbeengiven..
.ifi
tbehel dthatpaymentisacondit
ionprecedent
tor
ecovery
, t
hecontractmaybeofli
ttl
evaluetot hepersont
obei ndemnif
ied,whomay
beunabl
etomeett heclai
mi nt
hefir
stinstance.”

Onsi mil
arli
nesitwasobserv
edbyJust i
ceChaglathat“I
ftheindemnifi
edhadincur
red
aliabi
li
tyandthatl
iabi
li
tyi
sabsolute,
heisent
it
ledtocallupontheindemnif
iert
osame
himf r
om thatl
iabi
li
tyandpayitoff
.”[
Gaj
ananMor eshwarVs.Mor eshwarMadan,A.
I.
R.
(1942)Bombay302] .

Cont
ractofGuar
ant
ee

Acont
ractofguaranteeisacontr
acttoper
for
mt hepromisordischargetheli
abi
li
tyofa
t
hir
dpersoni ncaseofhi sdefaul
t.Thepersonwhogi v estheguar anteeiscall
ed
t sur
he‘ ety’or‘guarantor
’,thepersonforwhom t heguar anteeisgi v
eni scal
ledthe
pr
“ i
nci
paldebtor
”,andpersonstowhom theguaranteeiscalledt
he“ cr
edit
or”.

AlendsRs.1,
000toBandCst andssuret
yfort
hepaymentofthedebt.Thi
sisacont
ract
ofguarant
ee.IfBdoesnotpaythedebtwhenitbecomesdue,thenCshallhav
etopay
theamounttoA. Acont
ractofguar
anteemaybeeitheror
alorwrit
ten.I
tshoul
dsat
isfy
all
theessent
ialsofavali
dcontr
act.
Howev er
,twopoint
sshoul dbenoted.Inacont
ractofguarant
ee,t
hepr i
nci
paldebtor
maybeami nor
,althoughthesur
etymustbeamaj or.Secondl
y,theconsider
ati
on
recei
vedbythepr i
ncipaldebt
oristakentobeasuf f
ici
entconsi
derat
ionforsuret
y's
promise.

Fi
duciaryRel ationshi
pinacont r
actofi nsuranceut mostgoodf ait
hisessent ial
,buta
contr
actofguar anteeisnotacont r
actofut mostgoodf ait
hinthesenset hatthereisan
obli
gationont hepartoft
hecr edi
torto discl
oset othesur etyeverycir
cumst ancewi t
hin
hi
sknowl edgemat eri
altot hesuretytoknow.St i
llthesur et
yi sentit
ledt oknow so
muchaswi lltellhi
m whatist hetr
ansactionforwhi chhei smaki nghimsel fanswer able.
Hewi llbedi scharged,ifthereiseitheracti
v emi srepresentat
ionoft hemat terbyt he
credi
tor,orsilenceamount ingtomisrepresentati
on.

Asi t
uat i
onoft hiski ndexi st
swher eanempl oyercont inuest oempl oyt hepr i
ncipal
debtor,butf ail
st ot el
lt he suretyt hatt he empl oyee,whose conducthas been
guaranteedbyt hesur etyisadef aulter
,thusr epresentinghimt obehonest ,theref
or e,a
contractofguar anteemaynotbeacont ractofut mostgoodf ai
th,
butthesur etyship
rel
ati
oni st hatoft r
ustandconf idence,andt hev ali
dityoft hecont r
actdependsupon
goodf ait
hont hepar tofthecr edit
or.Acr edi t
ormustdi scloset hesefactswhi chunder
thecircumst ancest hesur etywoul dexpectnott oexist ,f
oromi ssiontost atethatsuch
facts do notexi sti s an impl i
ed repr esentation thatt hey do exi st.A cr edi t
or
i
npossessi onofunusualandi mpor t
antf actsmusti mpar tthosef actstot hesuretyat
thetimet he agr eementi smade.I tis,howev er
,notev erydisclosurethatasur etycan
requi
re.Ther uleist hatthecr edit
orneednotof ferinformat i
oni fthesuretyhasequal
oppor t
unit
yt odiscov ersuchf acts.

Di
ff
erencebet
weenacont
ractofI
ndemni
tyandGuar
ant
ee

1. I nacontractofi ndemnit
y,thepr
omisorunder
takesanindependentl
i
abi
li
ty,i
na
cont
ractofguarant
eet heli
abil
it
yofthesuret
yissecondar
y,sothatheisli
abl
etopay
onl
yifthepri
ncipaldebtorfai
l
stopay.

2. I nacontr
actofindemni
tyt
her
ear etwopart
ies-
theindemni
fi
erandtheindemnity
hol
der.I
nacont ractofguar
ant
ee,therear
et hr
eepar t
iesthecredi
tor
,theprinci
pal
debt
orandthesurety
.

3. Inacontractofguarantee,thereisanexisti
ngdebtordut y
,theperfor
manceof
whi
ch i
sguar
ant eed bythesur ety.In acontractofi ndemni
ty,t
heliabil
i
tyofthe
i
ndemni
fi
erar
isesonl yonthehappeni ngofacontingency.

4. I nacontractofguar
antee,
thesuret
y,aft
erhehasdischar
gedthedebtowingtothe
credit
or,canproceedagainstt
heprinci
paldebtor.I
nacont r
actofi
ndemnitytheloss
fall
sont hei
ndemnifi
erexcepti
ncer
tainspeci
alcases.
Natureofsur ety’
sLiabili
ty:Thel i
abil
ityofasur etyissecondar y.Thesur et
yisl i
abl
eonl y
ondef aul toftheprinci
pal debtor.Ther efore,unl essthepr i
ncipaldebtormakesadef ault
thesur ety cannotbecal l
edupont opay .Butt hemomentt hepr inci
paldebtordefaults
i
nt hepay ment ,t
hen immedi atel
y,thesur et ybecomesl iabl
e, asifhewer ethepr i
ncipal
debtor.Ther efore,assoonast het i
mef orpay menthascomeandt hepr i
ncipaldebtor
doesnot ,orisunabl etopay ,t
hesur et ybecomesl iablet opay .Thecr edit
ormayf i
lea
suitagai nstthesuretywi t
houtsui ngt hepr incipaldebt or.Oncet hel i
abil
it
yoft hesurety
ari
ses, itisco-extensivewi tht
hatoft hepr incipaldebt or.Itwil
lbenei thermorenorl ess,
alt
houghbyaspeci alcontractitmaybemadel essthant hatoft heprinci
paldebtorbut
nevergr eater.Iftheprinci
paldebt orisami norand, therefore,notl i
abletopaybackt he
debttot hecr editor
,thesur etywillbeliablet opay .

KindsofGuar
antee:-Aguarant
eemaybesimpleorspeci
fi
coritmaybeconti
nui
ng.A
guarant
eecover
ingasi
ngl
edebti scal
l
edasimpl
especif
icguar
ant
ee,andcomestoan
endwhent hedebtguar
anteedhasbeenpai
d.

AlendsRs.
5000toBandCpromi
sest
oAt
hati
fBdoesnotpayt
hemoney
,Cwi
l
lpayi
t.
Thi
si saspeci
fi
cguar
ant
ee.

Acontinuingguaranteeextendstoaser iesofdisti
nctandseparatetr
ansact
ions,iti
sa
conti
nuingguaranteewher eAguar anteestoBf or12mont hstheduepay ment sofbil
l
ofexchangeofCupt oRs.10,
000ifBdi scount
st hemduri
ngtheper i
odanduptot hesaid
amount, i
ncaseCf ai
lst
o pay .Si
mi l
arl
yAguar anteespaymenttoB, ateadealer,
tothe
amountofRs. 5,
000, f
oranyteahemayf rom t
imet oti
mesupplyt oC.

Revocat
ionofConti
nuingGuar ant
ee:Aconti
nui
ngguar ant
eemayber evokedbythe
suret
yastof ut
uret
ransact
ions,bynot
icet
othecredit
or;butt
hesur
etyremainsl
i
able
foral
ltr
ansacti
onsprevi
oustothenoti
ceofr
evocat
ion.

Aguar
anteest
oBthepay
mentbyCofal lsumsl
entbyBfrom t
imetoti
met
oCdur
ing
t
heper
iodof12mont
hsuptoRs.
10,
000.Thisi
saconti
nui
ngguarant
ee.

I
fdur i
ngt heper iodofsi xmonthsBhadl enttoCRs. 6,
000andAr evokestheguarant
ee,
thenAwi llbedi schargedofallli
abil
it
yt oBf oranysubsequentloan.ButAisli
abletoB
forthepay mentofRs. 6,000al
readyadv anced,i
fC f ai
lstopay.Thedeathofthesurety
operates,intheabsenceofacont racttot hecontrary,asarevocat
ionofacont i
nui
ng
guarantee,asr egardsf utur
etransacti
ons.Butt heestateofthesuretywi
llbeli
ablefor
allt
ransactionsent er
edi ntopr
iortothedeat hofthesur et
y.
Di
schargeofSuret
y:Asur
etymaybedi
schar
gedf
rom l
i
abi
l
ityi
nany
oneoft
hef
oll
owi
ng
ci
rcumstances:

1.NoticeofRev ocati
on:Inthecaseofaconti
nuingguar
ant
ee,anoti
cebythesur
etyto
thecredit
orsstati
ngt hathewil
lnotberesponsi
bleanymore,wi
l
lrevokehi
sli
abi
l
ityas
regar
dsal lf
uturetransacti
ons.

2.Deat
hofSuret
y:I
nt hecont
inui
ngguarant
eethedeat
hofthesur
etydi
schargeshi
m
fr
om li
abi
l
ityasr
egardstr
ansacti
onsaft
erhisdeat
hunlesst
her
eisacontracttothe
cont
rar
y.

3.Vari
ati
onofContract
:Anyvari
ance,madewi t
houtt
hesur ety’
sconsent
,int
heterms
ofthe cont
ractbet
weenthepri
ncipaldebtorandthecredi
tor,di
schar
gesthesur
etyas
totr
ansacti
onssubsequentt
othev ar
iance.

4.ReleaseorDischargeofPr incipalDebtor
:Thesur etyisdischargedi fthecr edi
tor
makesacont r
actwiththepr i
ncipaldebtorbywhichthepr i
nci
paldebt orisrel
eased,or
act
sormakesacommi ssionwhi chresult
sinthedischargeofthepr i
ncipaldebtor.But
meref or
ebearanceont hepar toft hecredi
tortosuet heprincipaldebtorwi t
hint he
l
imit
ationper
iodortoenf orceanyot herremedyagainsthim,doesnotdi scharget he
sur
ety:

(a) Agivesaguar anteet

oCf orgoodstobesuppli
edbyCt oB.Csuppl i
esgoodst oB,
andaf t
erwardsBbecomesembar rasedandcontr
act
swi thhi
scredi
tors(i
ncludi
ngC)to
assigntothem hispropert
yinconsider
ati
onofthei
rr
eleasi
nghi
mf rom theirdemands.
HereBi sreleasedfrom hi
sdebtbyt hecontr
actwithC,andAi sdischargedfromhi
s
surety
ship.

(b) Acont
ract
swi t
hBf orafixedpri
cet obuil
dahousef orBwi
thi
nasti
pulat
edti
me,
B
suppl
yi
ngthenecessar
yt i
mber ,CguaranteesA’sperformanceoft
hecontr
act.Bomi
ts
tosupplyt
heti
mber .Cisdi
schargedfr
om hi ssur
etyship.

(
c) Bowest oCadebtguaranteedbyE.Thedebtbecomespayabl
e.CdoesnotsueB
f
orayearaf
tert
hedebthasbecomepayable.Ei
snotdischar
gedf
rom hi
ssur
ety
ship.

5.CompoundingbyCr edi
torwi
thPrinci
palDebtor:Acont
ractbet
weent hecredi
torand
thepri
nci
pal
debtorbywhichthecredit
ormakesacomposi ti
onwith,
orpromisestogi v
e
ti
met o,ornott osue,thepri
nci
paldebtor,dischar
gesthesurety.Butifthesur ety
assent
stosuchcontract,
hewillnotbedischar
ged.

6.Cr
edi
tor
’s ActorOmi
ssi
on I
mpai
ri
ng Sur
ety
’s Ev
ent
ualRemedy
:The sur
etyi
s
dischargedwhenthecredi
tordoesanyactwhi chisinconsistentwit
hther i
ght
softhe
suretyoromitstodoanyactwhi chishisdutytot
hesur etyrequir
eshimt odo,andt
he
eventualremedyofthesur
etyagainstt
heprinci
pal
debtoristherebyimpai
red.

(a) Bcont r
actstobuil
dashipforagivensum,tobepai
dbyinstal
ment sasthework
reaches cert
ain st
ages.Abecomes suret
ytoC f orB’
s due performance ofthe
contract.C, wit
houttheknowledgeofA,prepaysBthelasttwoi nstal
ments.A i
s
dischargedbythi
spayment.

(b) Aput
sM asappr ent i
cetoB,andgivesaguar
anteetoBf
orM'sfideli
ty,Bpromi
ses
onhispar
tthathewill,atleastonceamonth,seeM makeupthecash:Bomi t
stosee
thi
sdoneaspromised, andMembezzles.Aisnotl
iabl
etoBonhisguarantee.

7.ByI nval
idati
onofContract
:A contractofguar ant
eemaybeav oided,andsurety
dischar
ged,becausei
tisei
thervoi
dableoril
legal
.Ifthedebti
tsel
fisv
oidforil
legal
i
ty,
it
cannotber ecover
edfr
om thesurety.I
faguar anteeisobtai
nedbycoer ci
onorunder
undueinfl
uenceorbyfraud,i
twouldbev oi
d.

8.FailureofConsi
derati
on:Asuret
ywi l
lbedischargedont hefai
lureofconsi
derat
ion.
Wher eitwasint
endedthatthr
eesuret
iesshouldjoi
n,butitwasdiscover
edthatt
heydi d
notjoin,thent
hesuretywhoactual
lysignedthesurety
-bondundert hei
mpressi
ont hat
theothersweregoingtojoi
nisdi
schargedfrom hi
ssuretyshi
p.

Rightofsuret
yonPayment :Whereasur etyhaspai dtheguarant
eeddebtoni t
s
becomingdue,orhasperf
ormedt heguar
anteedduty,ont hedef
aul
tofthepri
ncipal
debtor
,hei
sinvest
edwi
thal
lt her
ight
sthecredi
torhadagainstt
hepri
nci
paldebt
or.

Thesuret
yi salsoenti
tl
edtothebenefitofeverysecur
itywhichthecredit
orhadagainst
thepri
nci
paldebt oratt
hetimewhent hecontractofsuretyshi
pwasent eredi
nto:andif
thecredi
tor losesorwi t
houttheconsentoft hesurety
,part
swi t
hsuchsecur it
yt he
suret
yisdischargedtotheextentoft
hev al
ueoft hesecuri
ty.

Cadv ancest oB,hi stenant,Rs.2,000ont heguar anteeofA,andChasal soaf urt

her
securi
tyf orRs. 2,
000 bya mor tgage ofB’ sf urnit
ure.C cancel st he mortgage.B
becomesi nsolvent,andCsuesAonhi sguar antee.Ai sdischargedfrom li
abil
i
tyt othe
amountoft hev al
ueoft he fur
ni tur
e.Inev erycont ractofguar ant
eet her
ei simplied
promisebyt heprincipaldebtort oindemni f
yt hesur ety;andt hesuretyisent i
tl
edt o
recoverfrom t hepr i
ncipaldebt orwhat eversum hehasr i
ghtful
l
y pai d undert he
guarantee.

(a)Bisindebt
edtoC,andAi ssurety,
fort
hedebt.Cdemandspaymentfrom Aandon
hisref
usalsueshi
mfort heamount.Adefendst
hesuit
,havi
ngreasonabl
egroundsf
or
doingso,butiscompell
edt opayt heamountofthedebt
withcosts.Hecanrecov
er
f
rom Bt
heamountpai
dbyhi
mforcost
saswel
last
hepr
inci
pal
debt
.

(b)A suretyset
tl
ed wit
ht he cr
edi
torbypaying a sum smal
l
ert
han t
he amount
guar
anteed.Hecanrecov
eronl
ywhatheactual
l
ypaid.

Contri
but i
onsbetweenco- sureti
es:Somet i
mesi tmayhappent hatoneandt hesame
debthasbeenguar ant
eedbyt woormor esureties,eit
herj oi
ntl
yorsev eral
ly.Sect i
on
146pr ovidesfora r i
ghtofcont ri
butionbetweenco- sureti
es.Whenasur et
yhaspai d
mor ethanhi sshareoft hedebtt ot hecredit
or,hehasar ightofcontri
butionfrom ot her
co-sur
et i
es,whoar eequall
yboundt opaywi thhim. A,BandCar esureti
est oDf orthe
sum ofRs. 3,
000l enttoF.Fmakesadef aultinpay ment .A,BandC ar el i
ableas
betweent hemselv es,topayRs. 1,
000each.I fanyoneoft hem hast opaymor et han
Rs.1,
000,hecancl aim contr
ibutionf r
om theot hertor educepay mentt oonlyRs. 1,000.
Ifanyoneoft hem becomesi nsolventandnot hingcanber ecoveredfrom hisest ate,
thentheot hertwowi l
lhavet opayt hewhol eamountequal l
y.Wher eco-sureti
eshav e
agreedt oguaranteedi f
fer
entsums, t
heyareliabletopayequal l
yupt othemaxi mum of
theobligati
onofeachone.

(a)A,BandC,assur et
iesforD,enterint
othreeseveralbonds,eachinadi f
fer
entand
separat
epenal
ty,namely ,
AinthepenaltyofRs.1,
000,B,i
nthatofRs.2,000andCi nthat
ofRs.4,
000conditi
onedbydul yaccordingtoE.D'smakesdefaulttoextentofRs.3,
000.
A,BandCar eeachliabletopayRs.1,000.

(
b)I
f,i
ntheabov
eil
lust
rat
ion,
Dmakesdef aul
ttot
heext
entofRs.
4,000,
thenAi
sli
abl
e
t
opayRs.1,
000andBandCRs. 1,
500each.

(c)I
fDmakesdef aul
ttot
heext
entofRs.
7,000,A,BandCwillhav
etopayeacht
hef
ull
penal
tyoft
hisbondnamely,
Rs.
1,000,
Rs.
2,000andRs.4,
000r
especti
vel
y.

Cont
ractofBai
l
ment
Defini
ti
onofBai lment
:Bail
menti sthedeliv
eryofgoodsbyoneper soncal
ledthebai
lor
toanot her
,call
edthebail
ee,f
orsomepur pose, uponacontractt
hattheyshal
l,whent
he
purpose is accompli
shed,be returned orot her
wise di
sposed ofaccording t
othe
di
recti
onoft hepersondeli
veringthem (i
.e.
,thebail
or)
.

Toconst
it
uteabai
l
ment
:

(
1)Goodsar
edel
i
ver
edbyoneper
sont
oanot
her
;

(
2)Thegoodsar
edel
i
ver
edf
orsomepur
pose;

(
3)Thegoodsar
etober
etur
nedt
othebai
l
orordi
sposedofaccor
dingt
ohi
sdi
rect
ion
whent
hepur
posei
saccompl
i
shed.

I
ll
ust
rat
ions

(
a)Al
endsabookf
oroneweekt
oB.

(
b)Adel
i
ver
sawat
cht
oBf
orr
epai
r.

(
c)Agi
veshi
swat
cht
oBassecur
it
yforal
oan.

(
d)Agi
vesapi
eceofcl
otht
oB,
atai
l
orf
ormaki
ngi
ntoasui
t.

(
e)Adel
i
ver
shi
sgoodst
oacar
ri
ert
obeconv
eyedf
rom onepl
acet
oanot
her
.

(
f)Agi
vest
oBsomef
urni
tur
eonhi
re.

Abailmentmaybegr atui
tous,i
.e.
,withoutanycharge,ori
tmaybef orr
ewar di.
e.,non
grat
uit
ous.Loanofanar ti
cleandarti
cleskeptinsafecustodywithoutchargearet wo
examplesofgratui
tousbailment,t
hepar ti
ngwiththepossessi
onofgoodsbyt hebailor
i
ssuf f
ici
entconsiderati
on.Inabai l
mentf orrewardtheconsider
ati
onist hepayment
ei
therbythebail
orort hebail
ee.

Forexampl
ewhenAgi veshiscarforrepai
rtoworkshop,orwhenAgiveshiscaronhi
re
toB.Int
hefi
rstcaseconsi
derat
ionispaidbybai
l
orandi nsecondcasebythebail
ee.

Dut
iesofBai
l
ee:

1.Thebai leemusttakeasmuchcar eofthegoodsbai ledtohim asamanofor

dinary
prudencewoul d,undersi
mil
arcir
cumstances,takeofhi sowngoods.AsIongast he
bail
eet akesreasonabl
ecarethatamanofav eragepr udencewouldt
akeofhi
sown
goods,hei snotli
abl
eforanyl
oss,damage,ordestruct
ionofgoods.

Adeposi
tshisgoodsi
nB’swarehouse:Thewarehouseispr
oper
lyl
ockedandwat
ched.
However
,thegoodsar
est
olen.Bisnotli
abl
efortheloss.

2.Thebaileemustnotmakeanyunauthor
iseduseofthegoodsbai
l
ed.Ifhemakesan
unauthor
iseduseofthegoods,hewi
llbeliabl
eforal
ldamagestothegoods,andt
he
bai
lormayt er
minat
ethebai
lment.

Alendsahor setoBf orhi

sownr i
dingonl
y.Ball
owsCtori
det
hehorse.Cri
deswit
h
care,butthehorseacci
dental
l
yfal
lsandinjur
ed.Bi
sli
abl
etocompensat
eAf ort
he
i
njurytothehor
se.

3.Thebai
leemustkeepthegoodsbail
edtohim separ
atef
rom hi
sowngoods,and
mustnotmixt
hem wit
houtt
heconsentoft
hebai
lor
:
Adeposi
ts,
ati
nofpur
egheewi
thBwhomi
xesv
eget
abl
egheewi
thi
t.Bi
sli
abl
etopay
t
hepri
ceofpur
egheetoA.

4.The bailee mustr eturnthe goods tothe bail

or,ordeli
verthem accordi
ngt ohis
dir
ecti
ons,wi t
ht hetimef orwhichtheywerebai l
edl andexpir
ed,ort hepurposef or
whicht heywer egiveni saccompli
shed.Ifthebaileedoesnotr et
urnordel i
veras
dir
ectedbyt hebail
or,ortenderthegoodsattheproper t
ime,hebecomesl i
abl
eforany
l
oss,dest r
ucti
onordet eri
orati
onofgoodsev enwhenhei snotnegligent,orhastaken
reasonablecare.

Adeliver
edgol dtoBfortur
ningi tintoor namentandBpr omi sedt
ocompl et
ethewor k
withi
naf ort
nightandhandov ert heor namentstoA.Apr essedforthedeli
ver
yoft he
ornaments,butBf ai
l
edtodoso, althoughamont hhadel apsed.I
nthemeant ime,B’s
shopwasbur gl
ed.Bwashel dliablet opayt heprice,al
thoughhewasnotnegligentin
keepi
ngt hegoods.

5.Intheabsenceofanycont
ractt
othecontr
ary,t
hebail
eemustdel
iv
ert
othebai
l
or
anyincr
easeorprof
itwhi
chmayhaveaccr
uedfor
mt hegoodsbai
l
ed.

Aleavesacowi
nthecust
odyofBtobetakencar
eof
.Thecowhasacal
f,Bi
sboundt
o
del
ivert
hecowaswel
lasthecal
ftoA.

Dut
iesofBai
l
or:

1.Thebail
ormustdiscl
oseallt
hefaul
tsinthegoodsbai
l
edinsofarastheyar
eknown
tohim.Ifhefai
l
st odot hat
,hewi
llbeliabl
etopaydamagest othebail
eewhicht
he
l
attermayhavesuff
eredonaccountofthefaul
tsi
nthegoods.

Alendsahor se,whi
chheknowstobev i
cious,toB,wi
thoutdi
sclosi
ngthisfact
.The
hor
ser unsawayandBisi
njur
ed.Ai
sresponsibl
etoBforthedamagessustai
ned.

2.Ift
hegoodsar
ebail
edforhi
re,t
hebail
ori
sli
abl
etopaydamages,ev
eni
fhedi
dnot
know ofthef
aul
tsi
nthegoodsbail
ed.

Ahi
resacarri
ageofB.Thecarr
iagei
sunsaf
e,t
houghBi
snotawar
eofi
t.Ai
sinj
ured.B
i
sresponsi
bletoAfort
heinj
ury.

3.I
nabai
lmentwithoutremunerat
ion(
grat
uit
ousbai
l
ment)thebai
lormustpayt
othe
bai
l
eeal
lthenecessaryexpensesi
ncur
redbyhimi
nconnect
ionwit
hthebai
lment
.

Aisgoi
ngonaholi
dayforani
ght
.Herequest
sBt otakecareofhi
sdogi
nhi
sabsence,
andBagreedt
odoso.AmustpaytoBal
ltheexpensesincur
redbyBont
hedog.

4.Thebail
orisboundtoindemni
fyt
hebai
l
eeforanycostorlosswhi
chbai
l
eemayi
ncur
becauseofthedefect
iveti
tl
eoft
hebai
l
eetot
hegoodsbai l
ed.
Agiv
esB’scartoCforusewit
houtB’sknowledgeorper
missi
on.BsuesCandr
ecei
ves
compensat
ion.Ci
senti
tl
edtorecov
erhislossesf
rom A.

Bai
l
ee’
sRi
ght
s:

1.Ifthebail
ordoesnotper
for
m anyofhi
sdut
iest
hebai
l
eecansuehi
m andgetan
orderfort
hei
rperfor
mance.

2.Hehasar
ightofl
i
en.

Whenthegoodsar ebail
edforapar t
icul
arpur
pose,andbail
ee,i
ndueper f
ormanceof
bai
lmentexpendsskil
landlabour,hehasal ienonthegoodsi .
e.,hecanretai
nthe
goodsunti
lhischar
gesar epai
dt ohim.Butifthebai
leedoesnotcompletethework
wit
hintheagr
eedtime,orareasonableti
me,hecannotexer
ciset
her i
ghtofli
enonthe
goods.

Agiv esapi eceofclothtoB,at ai

lor
,formaki
ngi ti
ntoasui t
.Bpromi
sest ohavesui
t
readf ordel
iver
ywithint
endays.Bhast hesui
treadyfordeli
very
.Hehasarightt
oretai
n
thesui tunt
ilheispaidhisdut
ies.ButifBhadtakenafortni
ghttomakethesuit
,hehas
nolien.

Li
ensar
eoft
woki
nds:
Par
ti
cul
arLi
enandGener
alLi
en.

Parti
cularli
enisavailableonlyagainstthatpr opert
yinrespectofwhi chtheskilland
l
abourar eused.Agener alli
enisarightt odetainany propertybelongingtotheother
andinthepossessionoft heper
sont r
y i
ngt oexerci
sethelieninrespectofanypay ment
l
awf ul
lyduet ohim.A bai l
eehasapar t
icularl
ien.Thebanker s,factors,
wharf
ingers,
att
orney sofaHighCour t,andpoli
cy-holdershav egener
allien.Theseper sonscan,in
theabsenceofacont racttothecontrary,ret
ainthegoodsbai l
edwi ththem assecurit
y
foranydebtduet othem.

Bai
l
or'
sRi
ght
s:

1.Thebai
l
orcanenf
orcebysui
tal
lthel
i
abi
l
iti
esordut
iesoft
hebai
l
ee.

2.Thebai
l
orcanter
minatethebail
mentift
hebai
l
eedoesanyactwi
thr
egar
dtot
he
goodsbai
ledwhi
chi
sinconsi
stentwi
tht
heter
msofbai
l
ment.

Alet
st oB,forhi
re,ahor
sef
orhi
sownr
idi
ng.Bdr
ivest
hehor
sei
nhi
scar
ri
age.Acan
t
erminatet
hebail
ment.

3.Whengoodsar elentgrat
uitousl
y,thebail
orcandemandt hei
rretur
nwhenev erhe
pleases,eventhoughhelentt hem foraspecif
iedti
meorpur pose.Butifthebail
ee
suffer
sanyl ossinexcessthebenef it
der
ivedbyhim becauseofprematur
er et
urnof
goods, t
hebail
orshal
lhavetoindemnifyhi
m.
Li
en

Li
enmeansar i
ghtofonepersontoretai
npossessi
onofsomegoodsbel
ongi
ngt
o
anot
herunt
ilsomedebtorcl
aim oft
hepersoni
npossessi
oni
ssat
isf
ied.

I
tmaybepar
ti
cul
arLi
enoragener
alLi
en.

Parti
cularLien:Apar ticularlienisonewhi chisav ai
lablet othebai l
eeagai nstthose
goodsonl yinr espectofwhi chhehasr enderedanyser viceinv olv
ingt heexerciseof
l
abourorski l
l
.Wher et hebai l
eehas,inaccor dancewi t
ht hepur poseoft hebailment
,
renderedanyser viceinv olvi
ngt heexerciseofl abourorski l
linrespectoft hegoods
bail
ed,hehas,i ntheabsenceofacont ractt othe contr
ary ,ari
ghtt oclaim suchgoods
unti
lher ecei
vesduer emuner ati
onfort
heser vi
ceshehasr enderedinrespectoft hem.

Par
ti
cul
arl
i
encanbeexer
cisedundert
hef
oll
owi
ngcondi
ti
ons:

(1)I
nr espectofthosechangeswhichhaveaccruedasar
esul
tofl
abourorski
l
l
exer
cisedbythebail
eei
nrespectoft
hegoodsbai
l
ed;

(2)I
fthecont
racthasbeenf
ull
yper
for
med,
i.
e.,
theser
viceshav
ebeenper
for
medi
nful
l
bythebail
ee;

(
3)Ifther
eisnoagr
eementbet
weent
hebai
l
orandt
hebai
l
eef
orpay
mentofpr
icei
n
f
utur
e;

(
4)I
fthegoodsar
einpossessi
onoft
hebai
l
ee.I
fpossessi
oni
slost
.Li
eni
sal
sol
ost
.

Gener
alLi
en

Agenerall
ieni
sar i
ghttoretainallt
hegoodsoranyproper
tyofanotherunti
l
lallthe
cl
aimsofthehol
deraresati
sfi
ed.Thisri
ghti
sav
ail
abl
etobanker
s,fact
ors,wharf
ingers,
at
torney
sofHighCourt,pol
icybroker
s.

Al
i
eni
sext
ingui
shedby
:

(
a)Abandonment
:

(
b)Pay
mentort
enderoft
heamountdue;
and

(
c)Lossorsur
renderofpossessi
onoft
hegoods.

Ri
ght
sofBai
l
orandBai
l
eeagai
nstThi
rdPar
ti
es

1.Ifaper
sonothert
hanthebail
or,
clai
msthegoodsbai
l
ed,hemayappl
ytot
hecour
tto
stopdeli
ver
yofthegoodsbai
ledanddeci
detheti
tl
etothegoods.

2.I
fat
hir
dpar
tywr
ongf
ull
ydepr
ivest
hebai
l
eeoft
heuseoft
hegoodsordoest
hem
anyinj
ury,
thebail
eemayf i
l
easuitf
ordepr
ivati
onordamages.Hecanalsorecovert
he
goodsfrom t
hewr ong-
doer
.Thebai
lormayalsosuethet
hir
dpartyfort
heinjur
yorthe
depri
vat
ioncausedbyhim.

3.What
everisobtai
nedbywayofrel
iefi
nsuchsuit
sshal
lbedi
vi
dedbet
weent
hebal
i
er
andt
hebaileeaccordi
ngtot
hei
rrespect
ivei
nter
est
.

Ter
minat
ionofBai
l
ment

Acont
ractofbai
l
mentt
ermi
nat
esundert
hef
oll
owi
ngci
rcumst
ances:

1.I
fthebai
l
menti
sforast
ipul
atedper
iod,
itt
ermi
nat
esassoonast
hatper
iodexpi
res.

2.Ift
hebai
lmenti
sforaspeci
fi
edpur
pose,i
tter
minat
esassoonast
hepur
posei
s
accompl
i
shed.

3.I
fthebai
l
eedoesanyact,wi
thregar
dtothegoodsbai
l
ed,
whi
chi
sinconsi
stentwi
th
theter
msofthebai
l
ment,t
hebail
mentter
minat
es.

4.Agratui
tousbai
lmentcanbeterminat
edanyti
mebutifthepremat
uret
ermi
nat
ion
causesanylosst
othebail
ee,
thebail
ormusti
demnif
ythebai
l
ee.

5.Agr
atui
tousbai
l
mentt
ermi
nat
esupont
hedeat
hofei
thert
hebai
l
orort
hebai
l
ee.

Ri
ght
sandObl
i
gat
ionsofFi
nderofGoods

Wehav eseenunderSecti
on71oftheCont ractActt
hatthepositi
onoff i
nderofgoods
i
sexactlythatofabail
ee.Asabai lee,therefor
e,hemustt akeasmuchcar eofthe
goodsthathefi
ndsasamanofor dinaryprudencewoul d,undersimil
arci
rcumstances,
takeofhisowngoodsofl i
ke descript
ion,qualit
yandv alue.Thus,sofarast hereal
ownerofthegoodsisconcernedthef i
nderi sthebail
eeandmustt rytofindoutthe
ownerandmustnotappropri
atet
hepr opertytohisownuse.I ftheownerist r
aced,t
he
fi
nderr
estorest
hegoodstohim.

Ther
ight
soft
hef
inderofgoodsar
easf
oll
ows:

1.Hecanr et
ainpossessi
onoft hegoodsagai
nstev
erybodyexceptt
hetr
ueowner.A
fi
ndsadiamondr i
ngont her
oadandpicksi
tup.Acankeepitashisownasagai
nstt
he
wholewor
ld,excepttheowner.

2.Heisenti
tl
edtobecompensat edforthetroubl
eandexpenseincurr
edbyhimt o
pr
eservet
hegoodsandt of
indoutt
heowner.Hecanref
uset
oretur
nt hegoodsunt
ilt
he
ownerpay
ssuchcharges.

3.Hecansuetheownerforanyr
ewar
dthatmi
ghthav
ebeenof
fer
edandmayr
etai
nthe
goodsunti
lherecei
vesi
t.
4.I
ftheownercannotwithreasonabl
edel
igencebefoundorifheref
usest
opayt
he
l
awfulchar
gesofthef
inder
,thefi
ndermaysellt
hegoods,pr
ovi
ded:

(
i)t
het
hingi
sindangerofper
ishi
ngorl
osi
nggr
eat
erpar
tofi
tsv
alue;
or

(
ii
)thel
awf
ulchar
gesoft
hef
inderamountt
otwo-
thi
rdsoft
hev
alueoft
het
hing.

Bai
l
mentbyWayofPl
edgeorPawn

Thedeposi
tofgoodsassecurit
yf orapay mentofadebtorper
formanceofapr omise
i
scalledaPledgeorPawn.Thebailorordeposi
teri
scal
ledthePledgerorPawner.The
bai
leeort
hedeposit
eeiscall
edt hePledgeeorthePawnee.

Ri
ght
soft
hePl
edgee

1.Thepledgeeorpawneecanr etaint
hegoodspledged,
notonlyfort
hepaymentoft he
debt,
butalsof orthepaymentoft hei
nterestont
hedebt,aswel
lasanyotherexpenses
i
ncurredinrespectofthepossessionorforthepr
eser
vat
ionofthegoods.

2.Thepawnee'
slienisaparti
cul
arl
ien,i.
e.,hecannotr
etai
nthegoodsforanydebt
othert
hanf
orwhichthesecur
it
ywasgiven,unl
essther
ewasacontr
acttot
hecontr
ary.

3.Thepawneei
senti
tl
edtor
ecei
vefr
om thepawnerext
raor
dinaryexpensesi
ncur
redby
hi
m forthepreser
vat
ionofthegoods;buthecannotr etai
nt hegoodsunt i
lsuch
paymenti
smade.

Apawnedahor
sewithB.Thehorsef
elli
l
landBi ncur
redcert
ainexpensesf
orcur
ingi
t.
B cansueAf
ortheamountsospent
,buthecannotret
ainthehor
se.

4.I
fthepawnermakesadefaul
tinpay
mentoft
hedebt
,orper
for
manceoft
hepr
omi
se,
i
nthestipul
atedt
ime,
thepawneemay —

(i
)fi
leasuitf
ortherecov
eryoft
heamountduet
ohi
m andr
etai
nthegoodspl
edgedas
col
lat
eral
securi
ty;
or

(
ii
)suef
ort
hesal
eoft
hegoodsandr
eal
i
sat
ionoft
hemoneyduet
ohi
m;or

(
ii
i)hi
msel
fsel
lthegoodspawned,
aft
ergi
vi
ngr
easonabl
enot
icet
othepawner
.
I
ft hepr
oceedsoft hesaleei t
herunder( ii
)or(ii
i)isl
essthantheamountdue,t
he
pawneri
sstil
lli
abl
et opaythebal ance.Ift
heproceedsaregr
eat
erthant
heamountso
due,t
hepawneemustpayov erthesurplustothepawner
.

Ri
ght
sofPl
edger

1.Wherethepawnermakesdef aultinpaymentofthedebtatt hest i

pulat
edti
me,he
mayredeem thegoodspledgedatanyti
mebeforetheactualsal
eoft hem:buthemust
i
nthatcase,
pay ,
inaddi
ti
on,anyexpenseswhi
chhav ear
isenfrom hi
sdef aul
t.

2.I
fthepawneemakesanunaut
hor
isedsal
e,i
.e.
,wi
thoutgi
vi
ngar
easonabl
enot
ice,
the
pawnermay-

(i
)fi
leasui
tforr
edempt i
onofthegoodsbydeposi
ti
ngt
hemoney
,andt
reat
ingt
hesal
e
asifi
thadnevertakenpl
ace;
or

(
ii
)askf
ordamagesont
hegr
oundofconv
ersi
on.

3.Thepawnercanenf
orcet
hepr
eser
vat
ionandpr
opermai
ntenanceoft
hegoods
pl
edged.

Pl
edgebyNon-
owner
s

Theownerofgoodscanal
wayspledgethem.Buti
ncert
aincasesev
enanon-
ownercan
makeav al
idpl
edge,t
heseci
rcumstancesar
easfoll
ows;

1.Amer cant
ileagentwhois,withtheconsentoftheowner,i
npossessionofthegoods,
canmakeav ali
dpledgeofthegoodswhi leacti
ngintheordi
narycourseofhi
sbusiness
ofamer canti
leagent.Suchapl edgewi l
lbev ali
dandwillbindtheowner,evenifthe
agenthadnoaut horit
ytopledge,prov
idedthatthepawneeact singoodfai
thanddoes
nothave,duringthewholedur ati
onoft hepledge,anynoti
cet hatt
hepawnerhadno
author
it
ytopledget hegoods.

2.Asellerofgoods,lef
tinpossessi onofgoodssold,i
snomor et heownerofgoodsbut
apledgecr eat
edbyhi m wi l
lbevalid,pr
ovidedthepawneeactedi ngoodf ai
thandhad
noknowl edgeoft hesaleoft hegoodst ot hebuyer
.Again,whereabuy eroraperson
whohasagr eedtobuy ,obtainspossessionofgoodswi t
ht heseller
’sconsent
,bef
ore
thepaymentofpr ice,pledgesthesegoodst oapawneewhot akesthem ingoodfai
th
andwi t
houtnoticeofthesel l
er’
srighttoli
enoranyot herri
ghtoft hesel
ler,
thepl
edge
i
sv al
id.
3.Whenthepawneri
snottheownerofthegoodsbuthasalimit
edi nter
estinthem,and
pawnssuchgoods,t
hepawnwillbeval
i
dt otheext
entoftheint
erest.Amor tgageeora
per
sonhavingl
i
enov ert
hegoodsmaypl edgethem t
otheext
entofhi sint
erest.

4.Oneoft
heco-ownersinsol
epossessi
onoft
hegoods,
wit
htheconsentoft
heot
her
,
canmakeaval
i
dpl edgeoft
hegoods.

5.Aper sonhavi
ngpossessi
onofgoodsunderavoidablecontr
actcanmakeav al
id
pl
edgeoft hegoodssolongast
hecontr
acti
snotrescinded.Thepawneeget
sagood
ti
tl
et othegoodsprov
idedhe act
singoodfait
handwi t
houtnoti
ceofthepawner
’s
defect
iveti
tl
e.

AGENCY
Def
ini
ti
onandGeneralRul
es:An“ Agent
”isaper sonemployedtodoanyactforanother
ort
or epr
esentanot
herindeali
ngswi t
hat hir
dperson.Thepersonf orwhom suchact
i
sdone,orwhoissor epr
esented,i
scalledthe“Pri
nci
pal”.The appoint
mentofsucha
per
sontoactonhisbehal
fresult
sinthecreati
onofagency .

PappointsAtosel lbal
esofcottononhisbehalf.Pist heprinci
palandAi shi sagent.
Thefuncti
onofanagenti st
obr ingaboutcontr
actualr el
ati
onsbet weenthepr i
ncipal
andthi
rdpart
ies.Theagentdoesnotmakecont r
act son hi sown behal f,butacts
onlyas aconnectingli
nkbetweenhispr i
nci
palandt hi
rdpar ti
es.Therefor
e,theactof
theagent(wi
thinthescopeoftheauthori
tyorinstr
uction)bindst heprinci
palasifthe
pri
nci
palhasdonet hem hi
mself
.

Inotherwords,theact soft heagentar etheactsoftheprinci

pal.Ast heagentbri
ngs
aboutacont ractbetweent hepri
ncipalandt hethi
rdparti
es,itisessent i
alboththe
pri
ncipaland thir
d partymusthav e contr
actualcapaci
ty.A pr i
nci
palwho hasno
contr
actualcapacit
y( e.
g.,ifheisami nor),cannotmakeacont ractevenbyempl oyi
ng
anagentwhohascont ractualcapacit
y.Ast heagentisonlyaconnect ingli
nkandhis
actsaretheactsoft heprincipal
,theagentneednothav econtr
actualcapacity
.Aminor
be appoint
ed an agent .Butt he minorwi l
lnotbe l i
abl
et o his princi
palforany
misconduct.

Pgi
vesA,ami
nor
,ar
ingwor
thRs.
500andaskshi
m nott
osel
litoncr
edi
tandnotf
or
l
essthanRs.
500.Asel
lstheri
ngtoBoncreditforRs.400.Thetransacti
onbi
ndsPandB,
butPhasnori
ghttoclai
m damagesasagainstAf orhismisconduct,asAisaminor
.(I
f
Ahadbeenmajor,Pcoul
dhav er
ecov
ereddamagesf orhismisconduct).

Met
hodsofcr
eat
ingAgency

Agencymaybecr
eat
edi
nanyoneoft
hef
oll
owi
ngway
s:

1.AgencybyExpr
essAgr
eement
.

Acontractofagencymaybecr eatedbyexpressagreement.The agr

eementmaybe
ei
theroralorwr i
tt
en.Theusualform ofwrit
tencontr
actofagencyisthepowerof
At
torneywhichcontai
nst
heter
msandcondi t
ionsaccor
dingt
owhi cht
heagenti
stoact
.

2.AgencybyI
mpl
i
edAgr
eement
.

I
mpl i
edauthor
it
ymayarisebyconductofthepar
ti
esornecessi
ti
esorcircumst
ancesof
thecase.I
mpli
edagencywouldt
herefor
eincl
udeAgencybyestoppel
,agencybyholdi
ng
out,
andagencybynecessit
y.

(i
) Agency is creat
ed by estoppelorby impl i
cati
on ofl aw int he fol
l
owi ng
manner .
Whenamanhas,byhi sconductorwords,inducedother stobel i
evethata
certai
nper sonishisagent ,heispr ecl
udedfr
om subsequent l
ydenyingit.Hewi llbe
boundbyt heactsoft hatcert
ainpersonasifhehadexpr essl
yauthorisedthem.At ell
s
Bi nthepresenceandwi thi
nt hehearingofPthathe( A)isP'sagentandPdoesnot
contradi
ctt hi
sstatement.Af t
ersomet imeBentersi nt
oacont ractwithA honest l
y
beli
evingthatAisP' sagent.Pisboundbyt hecontractmadeby. Aonhisbehalf,even
thoughAi snotP'sagentinreali
ty.

(i
i) AgencybyHol di
ngOut .I
tisav ar
iati
onofagencybyest oppel;butinagencyby
holdi
ngoutther
ei sanaffir
mati
veconductorst at
ementbyt heprinci
pal.Apersoni s
heldoutasanagent ,al
thoughhei
sactuall
ynotso.Pal l
owshisservantAt obuygoods
forhi
m oncredi
tregul
arl
y .Ononeoccasiontheservantbuyssomegoodsoncr edi
t,but
thegoodswerenotorderedbyP.Pshallhavetopayt hepr
iceofgoodsbecauseAhas
beenhel
doutashisagent.

(i
ii
)AgencybyNecessit
yissaidtobecr eat
edwhenci rcumst
ancesfor
ceapersonto
actonbehal
fof
anotherwit
houtanyexpressauthori
tyf
rom hi
m.Threecondi
ti
onsmust
besati
sfi
edbef
oreanagencyofnecessi
tyiscreat
ed:

(
1)i
tmustbei
mpossi
blet
ogett
hepr
inci
pal
'
sinst
ruct
ions;

(2)ther
e mustbe an act
ualand benef
ici
alcommer
cialnecessi
tyf
or act
ing on
pri
nci
pal’
sbehal
f;and
(
3)t
heagentofnecessi
tymustactbonaf
idei
nthei
nter
estofal
lpar
ti
esconcer
ned.

Awi fedesertedbyherhusband, andt husforcedtoli

vesepar atel
yf r
om him,canpledge
herhusband’scredi
ttobuyal lnecessar i
esofl i
fe.I
fashipi si
npor t
,andthenecessari
es
forthev oy
agear ewait
ing,orr epairstotheshi parer
equired,themast eroftheshi
pcan
pledge the owner’
s credi
t f ort hese purposes.Also,a car r
ierofgoods,i n case
ofaccidentoruponanemer gency ,becomesanagentbynecessi tyfortheownerof
goodst otakecareofthem, andf orthatpurposecanpl edgetheowner ’
scredit
.

3. AgencybyRat
if
icat
ion.

Iftheagenthadnoaut horit
yt ocont r
actonbehal fofapr i
ncipalorexceededsuch
authorit
yashehad, thecont ractisnotbi ndingont hepr incipal.The pr i
ncipalmay ,
howev er,af terwar dsconf i
rm oradoptt hecont ractso made,andt hisi sknownas
rat
ifi
cation; andagencybyr ati
fi
cati
onorbysubsequentaut horityiscreat ed.Thisi salso
knownasexpostf actoagencyar i
singaf t
erev ent.Theef fectofr atifi
cat i
oni stor ender
thecont ractasbi ndingont hepr i
ncipalasi ftheagenthadbeenpr oper l
yaut hor i
sed
beforehand. Rati
ficati
onr el
atesbackt ot heor i
ginalmaki ngoft hecont ract,sot hatthe
agencyi st akent ohav ecomei ntoexistencef r
om t hemomentt heagentf i
rstact ed,and
notfrom t hedat eofpr i
ncipal'
sratif
icati
on. Amadeanof fert oB,t hemanagi ngdi rect
or
ofacompany .Baccept edtheof feronbehal foft hatcompany ,althoughhehadno
authorit
yt odoso.At hengav enot i
cet ot hecompanyt hathewi thdrewt heof fer.The
companysubsequent lyrati
fi
edB’ sunaut hor i
sedaccept ance.I twashel dthat ,ast he
rat
ifi
cationdat edbackt ot hetimeoft heaccept anceof theof ferbyB, thewi thdrawalof
the of fer was not oper ati
ve. An of fer once accept ed cannot be
wit
hdr awn. Ratifi
cat i
onmaybeexpr essedori mpl i
ed,i .
e.,itmaybeexpr essedbywor ds
orbyconduct .
A, withoutaut horit
y,buysgoodsf orB.After war dsBsel l
st hem t oConhi s
ownaccount .B’sconducti mpli
esar atif
icat i
onoft hepur chasebyAf orhim. Tobev al
id,
arati
ficationmustf ul
fillthefol
lowingcondi tions:

1. Theagentmustexpressl
ycontr
actas.
agentf
oraprinci
pali
ncontempl
ati
on.A
per
soncannot
ent
eri
ntoacontr
acti
nhisownnameandl
atershi
fti
tonathi
rdpar
ty.

2. Thecontractcanonl
yber
ati
fi
edbyapr
inci
palwhowasnamedori
dent
if
iedwhen
thecont
ract
wasmade.

3. Theagentmusthav
eapr
inci
palwhoi
sinact
ualexi
stenceatt
het
imeoft
he
cont
ract
.

4. Thepri
nci
palmusthav
econt
ract
ualcapaci
tyatt
hedat
eoft
hecont
ractandatt
he
dat
eofr
ati
fi
cat
ion.

5. Thepr
inci
pal
mustatt
het
imeofr
ati
fi
cat
ion,
hav
eful
lknowl
edgeoft
hef
act
s.
6. Ther ati
fi
cati
onmustbeoft
hewhol
econt
ract
.Thepr
inci
palcannotr
ati
fyapar
t
andr
ejectanother
par
t.

7. Rat
if
icat
ionmustt
akepl
acewi
thi
nar
easonabl
eti
meaf
tert
hecont
racti
smade.

8. Thef actt
oberati
fi
edmustbeal
awf
ulone.Ther
ecanbenor
ati
fi
cat
ionofan
i
ll
egal
actoranact
whichisv
oid.

Rati
fi
cat
ioncannotbemadesoast
osubj
ectat
hir
dpar
tyt
odamages,
ort
ermi
nat
eany
ri
ghtorinter
estofat
hir
dpar
ty.

Ki
ndsofAgent

Therel
ati
onshi
pbetweenthepri
ncipalandagentandtheextentoftheaut
hor
it
yoft
he
agentarematter
stobedeter
minedbyagreementbetweenthepart
ies.

Accor dingly,anagentmaybeASpeci alorGener al.Aspeci alagenti sappoi ntedf ora

specificpur poseoroccasi ontowhi chhisaut hor i
tyi srestricted.Hehasaut horityonl yt o
dot hatpar ti
cul aractoract si nt hatpar t
iculart ransact i
on.I fhe does any t
hi ng
outside t hatpar ticularauthori
ty,thepr i
ncipalisnotl i
able.Agener alagenti sappoi nt ed
to do any thi
ng wi thinthe gener alauthoritygi ven byt he pr i
nci pal.He act si n all
transactionsr elati
ngt othespecifiedt r
adeormat t
er.Thi rdpar t
iesmayassumet hat
suchanagenthaspowert odoal lthatisusualf oragener alagentt odoi nt hebusi ness
i
nv olved.Hi sact sar ebindi
ngont heprincipalifthey arewi thint hescopeofhi sappar ent
author i
ty,althought heymaybeout sidet hescopeofhi sact ualauthority.Ther efore,a
privatelimitationoft heapparentaut horityisnotbi ndingunl essi tisknownbyt heot her
partyt othecont ract.Asexampl esoft het woki ndsofagent s, i
tmaybepoi ntedoutt hat
themanagi ngdi rectorofacompanyi st he gener alagentoft hecompany ,andaman
sentbyaf r
iendt obidfrom hi
m atanauct ionsal eist hespeci alagentofhi sfriendonl y
fort hatpur pose.Agent s may al so beclassi f
ied as Mer cantil
e Agent s and Non-
Mer cant i
l
eAgent s.Amer canti
leagenti sanagentwho,i nt heor dinarycour seofhi s
businessasagent ,buysandsellsgoodsonbehal foft hepr inciple.

Mer
cant
il
eAgent
s

Factor
:Af actorisamercanti
l
eagentwi thwhom goodsarekeptforsal
e.Heusual
l
y
sel
lsgoodsi nhisownname.Hehasagener all
i
enont hegoodsformoneysduet
ohim
asagent.Hehasal soaninsur
abl
eint
eresti
nthegoodsandcaninsur
ethem.

Broker:A brokerisonewho makesbar gai

nsforanotherand recei
vesbr oker
age
commi ssionf
ordoingso.Thebr
okerdoesnotkeepthegoodsoft heprincipali
nhis
possession.Hisduti
esareatan endassoonast hepr
inci
palandthethir
dpar t
yare
broughttogether
.
Commi ssi
onAgent
:A commissionagenti
sonewhosecur esbuyer
sforasel
l
erof
goodsandsell
ersforabuyerofgoods,inretur
nf oracommissi
on.Hemayhave
possessi
onoft
hegoodsornot.Hemaysell
orbuygoodsi
nhisownname.

DelCr edereAgent:A delcreder

eagenti sanagentwho,f oranextraremunerati
on
guaranteestohispr
inci
palt
hatthethir
dpart
ieswit
hwhom heenter
sintocontr
actsshall
perf
ormt hei
robli
gati
ons.I
ftheotherpar
tyfai
lstopaythepri
ceofgoodsorot her
wise
causesdamagest othepri
ncipal
,thedelcreder
eagentmustpaycompensati
ont othe
pri
ncipal.Delcr
ederecommissionisinadditi
ontohisnor
malcommissi
on.

Auctioneer:Anauct i
oneerisanagentwhosel l
sgoodsbypubl icauct
ion,i.
e.,t
ot he
highestbidderinpubl
iccompet i
ti
on.Hehasnoaut hori
tytowarrantt
hegoodssol dand
candel i
verthegoodsonr eceiptoft
heprice.Ashehast hepossessi
onoft hegoodshe
mustar rangefortheirproperstorageandi sresponsiblet
otheownerf oranydamage
causedt hroughhisnegl
igence.Heenj oy
sapar ti
cularl
ienont
hegoodsf orhischarges.

Non-
Mer
cant
il
eAgent
s

Non-
mer
cant
il
eagent
sar
e:

(
1)Est
ateAgents,whoareempl
oyedt
onegot
iat
ethesal
eandpur
chase;orl
easeof
i
mmovabl
e.propert
y,or

(
2)HouseAgent
s,whoar
esi
mil
arl
yengagedwi
thr
espectt
ohouse,
shops,
etc.
,or

(3)Law Agents,whosebusi nessi

st olookaft
erthelegalaffai
roft heirpr
inci
pals.I
n
additi
on,ther
ear eatt
orney
s,whoactonbehal foft hei
rcl i
ents.Wi feisalsounder
cert
aincircumstances,herhusband'sagent
.Wi
feasAgent :Wher et hehusbandhas
expressl
yauthori
sedhiswifetoborrowmoneyorpledgehiscredi
t;thehusbandisliabl
e.
Butthequestionbecomesdi f
fi
cul
twhent hewif
eisregardedt ohav eimpli
edauthori
ty
asherhusband'sagent.

Thepositionmaybest at
edasfoll
owsWher ethehusbandandwi f
eareli
vi
ngt
ogether
,
thewi f
ei spr esumed tohav
ei mpli
ed aut
horit
yt o pl
edgethehusband'
scr
editfor
necessi
ties.Butthehusbandcanescapeli
abil
i
tyifhecanprov
ethat

(
i)hehasexpr
essl
yfor
biddenhi
swi
fef
rom bor
rowi
ngmoneyorbuy
ingoncr
edi
t;

(
ii
)thegoodspur
chasedwer
enotnecessi
ti
es,

(i
ii
)hehasall
owedsuffi
cientf
undsf
orpur
chasi
ngt
hear
ti
clessheneededt
othe
knowl
edgeoft
het
radesman;or

(
iv)t
hetr
adesmanhasbeenexpressl
ytol
dnottogiv
ecr edi
ttot
hewif
e.Wherethewi
fe
l
i
vesapartf
rom t
hehusbandt
hroughnofaul
tofher
s,andisnotpr
ovi
dedwithfundsf
or
hermaint
enance,shecanbindthehusbandfornecessar
ies.
Butift
hewif
elivesapar
tof
herownwi l
lwithoutj
ust
if
icat
ion,sheisnotherhusband’sagentandcannotbindhi
m
evenf
ornecessari
es.

ExtentofAgent '
sAut hority:Theext entofanagent 'saut hor i
tymaybeei t
herexpr essed
oritmaybei mpliedbyt heci r
cumst ancesoft hecase.Anexpr essedaut hori
tymaybe
givenbyt hepr i
nci pal
bywor dofmout horinwr it
ing.Ani mpl iedauthor i
tycanbei nferred
from wor dsspokenorwr i
ttenorf r
om t heor dinarycourseofdeal ingbet weent hepar t
ies
andot her s.Aownsashopi nDel hi;butl i
vesi nBombay , andv i
sit
st heshopoccasi onally
.
Theshopi smanagedbyB, andhei si nthehabi tofor der inggoodsf rom Ci nthename
ofAf ort hepur posesoft heshop,andofpay ingf ort hem outofA' sfundswi thA’ s
knowl edge, Bhasani mpl iedaut hor i
tyfrom At oordergoodsf r
om Ci nt henameofAf or
purposeoft heshop. Furthermor e,anagenthasani mpl iedaut horitytodoal l
thatmay
benecessar yfordoi ngt heact expr esslyaut hor i
sedbyt hepr i
ncipal.Thus,anagent
hav i
ngaut horit
yt ocarr
yonbusi nesshasaut hor i
tytodoev erylawfulthingnecessar yfor
thepur pose,orusual lydonei nt he cour seof conduct ingsuchbusi ness.Ai sempl oy ed
byB, residi nginLondon, tor ecoveratDel hiadebtt oB.Amayadoptanyl egalprocess
necessar yf orthepur poseofr ecov eringthedebt ,andmaygi veav ali
ddi schargef ort he
same. Agai n,anagenthasaut horit
yt odoal lsucht hi
ngswhi chmaybenecessar yt o
protectt hepr i
ncipalfrom l ossinanemer gency andwhi chhewoul ddot oprotecthi s
ownpr oper tyundersimi l
arci r
cumst ances.

Aconsi
gnsf
reshf
rui
tst
oBatCal
cut
ta,
wit
hdeci
sionst
osendt
hem i
mmedi
atel
ytoC

atCut
tack.Bmaysel
lthef
rui
tsatCal
cut
ta,
ift
heywi
l
lper
ishi
ntr
ansi
ttoCut
tack.

Del
egat
ionofAut
hor
it
y:

Thegener alruleisthatanagentcannotappoi ntanagentt odowhathehashi mself

undertakentodo.Butt herear
esomeexceptionstot hi
sr ule(1)Anagentmayappoi nta
sub-agentwher eexpresslyaut
hori
sedbythepr inci
pal;or(2)wheret hecustom ofthe
tradepermitssuchappoi ntment
;or(3)wher
et hepr i
ncipalknowst hattheagenti
ntends
todelegateaut hori
ty;or(4) where thenatureoft heaut hori
tyispur el
ycler
icalor
routi
newor k;or(5)i
nanemer gencyanagentcanal waysappoi nta“sub-agent”
.

Anagentappoi nt
edbyanagenti scal l
ed“ sub-agent
”andwor ksundert hecontrolofthe
ori
ginalagent.Thepr inci
palisbound byt heact soft hesub- agentasi fhewer e
appoint
edasanagentbyt hepr i
ncipal.Theagenti sresponsibl
et othepri
ncipalforthe
actofthesub-agent.Thesub-agentisr esponsiblef
orhisactt otheagent ;butthesub-
agentisnotresponsi
bletothepr i
ncipalincaseoff r
audandwi l
fulwrong.I ft
heagent
i
mpr operl
yappointsasub-agenttheagenti sresponsi
bleforhisactbotht othepr i
nci
pal
andtot
hir
dpar t
ies.Thepri
nci
pali
nsuchcasesi snei
therr
epr
esent
edby
thesub-
agent
norhei
sresponsibl
efort
heactofthesub-agent
.

A“Substit
utedAgent ”isapersonappointedbyt heagentaccordingtotheauthor
it
yof
thepri
ncipal,toactonbehal foftheprinci
palinthebusinessoft heagency
.Sucha
personistheagent oft hepr i
nci
palandi sresponsi
bletohi m.Incaseofsubsti
tut
ed
agentthereisdirectpri
vi
tyofcont r
actbetweenhim andthepr inci
pal.I
ncaseofsub-
agentt
hereisnosuchpr i
vi
tybetweenhim and theprinci
pal,butincaseofsubsti
tut
ed
agentthepri
v i
tybetweenpri
ncipal
andagentisamust .

Adirect
sBt osellhi
shousebyauct i
on,andtoempl
oyanaucti
oneerfort
hepurposeB
names C,anauct i
oneer,t
oconductthesal
e,Cisnotasub-
agent,buti
sA’sagentfor
theconductoft
hesal eofhishouse.

Dut
iesofanAgent
:Thedut
iesofanagentar
e:

1.Tocar r
youtt
heworkaccor
dingtotheinst
ruct
ionsoft
hepri
ncipal
.Ifhedoesnotact
withi
nthescopeofhi
saut
hori
tyaccor
dingtothepri
nci
pal
'si
nst
ructi
ons,hewil
lbeli
able
foranyloss.

2.Tof
oll
owt
hecust
omsoft
radei
ntheabsenceofi
nst
ruct
ions.

3.Tocar
ryoutt
hewor
kwi
thr
easonabl
ecar
e,ski
l
landdi
l
igence,
wher
e,byt
henat
ure

ofhi
spr
ofessi
on,t
heagentpur
por
tst
ohavespecialski
l
l,t
henhemustshowasmuch
ski
l
laswouldbeexpect
edofmeni
nthatpr
ofessi
on.

4.I
ncaseoft hedi
ff
icul
tyt
heagentmustcommuni
cat
ewi
tht
hepr
inci
palandgethi
s
i
nst
ruct
ions.

5.Ast heagentactsonbehal
fofhispri
ncipalal
lmoneyrecei
vedbyhi
m onbehalfoft
he
pri
ncipalmustbepaidovert
ot hepr
inci
pal.Theagenti
snottomakeanyprof
itoutofhi
s
agencyexceptt her
ecei
ptofremunerat
ion.

6.Iti
sthedut yoftheagenttokeepandr endert
rueandcor
rectaccountofal
lhi
s
tr
ansact
ionsandtobeal
waysreadyt
oproducethem t
ohi
spri
nci
pal.

7.Anagentmustnotdealonhi sownaccounti nthebusi

nessoft heagency
.Inother
words,hemust notbecomepr incipalasagainsthisemployer.Forexample,ifthe
pri
nci
palaskshisagenttobuyf orhimsomeshar esofacompanyandt heagentsell
s
hi
sownshar eswithouti
nfor
ming,thelatt
ercanresci
ndt
hecontract
.

8.Theagentmustnotdi
scl
oseconf
ident
iali
nfor
mat
ionordocument
sent
rust
edt
ohi
m
bythepr
inci
pal
.
9.Subj
ecttot
hefiv
eexcept
ionsnot
edabove(del
egat
ionofauthor
it
y)anagentmust
notdel
egat
ehisaut
hor
it
ytoanot
herper
son,
butper
formtheworkhimsel
f.

Dut
iesofPr
inci
pal
:Thedut
iesoft
hepr
inci
pal
are:

1.Topayt
heagentt
hecommi
ssi
onort
heot
herr
emuner
ati
onagr
eedbet
weent
hem.

2.Toi ndemnifyt
heagentf
oractslawful
l
ydoneandli
abi
l
iti
esi
ncur
redinthecour
seof
the agency.Butt
heagentl
oseshisri
ghttoani
ndemni
tyi
fheactsbeyondhi
sauthor
it
y
ornegligent
lyper
for
mshisduty.

3.Tomakecompensati
ontohisagenti
nrespectofi
njur
ycausedt
osuchagentbyt
he
pri
nci
pal
'
snegl
ectorwantofski
l
l.

Aempl
oysB,
abr
ickl
ayeri
nbui
l
dingahouse,
andput
supt
hescaf
fol
dinghi
msel
f.The

scaf
fol
dingi
sunski
l
lful
l
yputup,
andBi
shur
t.Amustmakecompensat
iont
oB.

Ri
ght
sofPr
inci
pal

Thepr i
nci
palcanenfor
cealltheduti
esoft
heagentwhi
chareindi
rectl
ytheright
soft
he
pri
ncipalwhen an agent
fail
si n hi
sduti
estowardsthe pr
inci
pal,then he hast
he
fol
lowingremedi
esagainstanagent:

1. Tor ecov erdamages-

Ifpri
nci
palsuff
ersanylossduet odi
sregardbytheagentof
thedi
rectionsgivenbyhim orbynotfoll
owingthecust omsoft radeintheabsenceof
dir
ect
ions, orwherehesuff
ersduetolackofrequi
sit
eski ll
,car
eordi l
i
genceonthepart
oftheagent ,hecanrecoverdamagesaccr
uingasar esultf
rom theagent
.

2. Tor ecov
ersecr
etprofi
ts-
Hecanrecoverf
rom t
heagentanysecr
etprof
it
smadeby
theagentout
oftheagencyandcanresi
stagent'
sri
ghtt
oanycommi ssi
oninrespectof
thattr
ansact
ion.

3. Tor esistagent
’sclai
mf orindemni t
y-Wher
ehecanshowthatt
heagenthasact
ed
asaprincipalhi
mself,hecanr esisttheagent
’scl
aimfori
ndemnityagai
nstli
abi
l
ity
i
ncur
redbyhi mi nsuchatransaction.

Responsi
bil
i
tiesoft
hePr
inci
pal
toThi
rdPar
ti
es

1.Thepr inci
pali
sboundbyal lact soft heagentdonewi thi
nt hescopeofact ual
,
apparentandostensi
bleaut
hori
ty.Thisliabil
it
yoft hepri
ncipalforact sdonebyt he
agentextendsnotonl
ytoactsact ual
l
yaut hori
sedbythepri
ncipalbutalsotosuchacts
oftheagentasarenecessar
yforthepr operexecuti
onoft
heaut hori
ty.

2.Thepr
inci
pali
sl i
abl
eformisrepr
esent
ati
onorfr
audoftheagentcommit
tedinthe
cour
seoftheemploymentor
withi
nthescopeoft
heemploy
mentorwithi
nthescopeof
t
heagent
'sappar
entaut
hor
it
y.

3.Thepr
inci
pal
isboundbyt
headmi
ssi
onmadebyt
heagent
.

4.Thepri
ncipalisboundbyt heinformationobtai
nedbyt heagentinthecourseofthe
busi
nessoft hepri
nci
pal.Theagenti srequiredtoinformtheprinci
palofal
lmat t
ers
rel
ati
ngtotheagency ,andtherefore,i
ti
spr esumedt hathehasdonehi sdut
yandt he
pri
nci
pali
sawar eoft hefact
s.Knowl edgeoft heagentissaidt
obet heknowledgeof
thepri
nci
pal
.

5.Liabil
it
iesofUndi scl
osedPrinci
pal:Where,atthet i
meoft hecont r
act,theagent
discl
osedt heexi
stenceofthepri
ncipalbutnothisname,suchundi sclosedpr incipalis
l
iableforthecontractsmadebyt heagentwhenheisdiscl
osed.Ift
hepr i
ncipaldi scloses
himselfbeforet
hecont r
actiscompl et
edthethi
rdpart
ymayr ef
uset ofulfi
lthecont ract
;
i
fi tcanshow thatifhehadknownwhowast hepri
ncipalinthecont ractorifhehad
knownt hattheagentwasnottheprinci
pal,
hewouldnothav eenteredintocont r
act .

6.Conceal edPrinci
pal:Wher eneit
hertheexi st
encenort heidentityoft hepri
nci
palis
discl
osed,t het
hirdpar t
ymaysueei therthepr i
ncipal,whendiscov ered,ortheagentat
hisoptionorboth.Conv ersel
ythethirdpartyi
sliabletobesuedei therbyt hepri
nci
palor
theagent .
Aconcealedpr inci
palcanrequiretheper formanceoft hecont ractby
thethi
rd
partysubjecttot herightsandobligati
onssubsi sti
ngbet weentheagentandt heother
party.
A, whoowesRs. 500t oB,sel
lsRs.1,000wor thofr i
cetoB.Ai sactingasagentfor
Pi nthet r
ansacti
on,butBhasnoknowl edgethatAi sP'sagent.PcannotcompelBt o
takether i
cewithoutal l
owinghimtosetof fA’sdebt .

Per
sonal
li
abi
l
ityofAgentt
oThi
rdPar
ty

Wher eanagentcontr
actsonbehalfofapr i
nci
palwhom henamest otheotherpart
y,
theagentismerel
yaconnect i
ngli
nkbet
weenhi spr
inci
palandt hethir
dparty.Assoon
ascontracti
smade,he dr opsoutandi ncursnopersonall
iabil
i
ty.Therearecertai
n
excepti
onstohisgeneralrule,andaccordi
ngl
yanagenti sper sonal
lyli
abletothe
thi
rdpar
tyint
hefoll
owingcases:

1. Whent
hecont
ractwi
tht
het
hir
dpar
tyexpr
essl
ypr
ovi
desf
ort
heagent
'sper
sonal
l
iabi
l
ity
.

2. Whentheagentact
sforaf
orei
gnpr
inci
pal
;iti
stheagentwhoi
sli
abl
e,nott
he
pr
inci
pal
.

3. Whentheagentsi
gnsanegoti
abl
einst
rumenti
nhi
sownname;wi
thoutmaki
ngi
t
cl
eart
hathei
ssigni
ngasanagent
.

4. Theagenti
sper
sonal
l
yli
abl
ewhenheact
sforaconceal
edpr
inci
pal
.
5. Whereanagentact
sforapr
inci
palwhocannotbesuede.
g.,i
fhei
sami
nor
,the
agenti
sper
sonal
l
yli
abl
e.

6. Whenanagentact
sforanon-exi
stentpr
inci
pal
,oract
swi
thoutorbey
ondaut
hor
it
y
andt
hepri
nci
paldoesnotr
ati
fyhi
sact.

7. Wherethecust
om orusageofat r
ademakestheagentliabl
ee.
g.,aJobbermay
hol
dabrokerli
abl
easpercust
om oft
radeofst
ockexchange.

8. Whent heauthorit
yis“ coupledwi t
hint
erest
”,t
heagenti spersonall
yliable.Where
anagenthasinter
estinthesubj ectmat t
erofthecontractwhichhesigns,hisaut hor
it
y
i
ssaidtobecoupledwi thinterest.
Forexample,PauthorisesAtosellhi
s( P’s)landand
outofthe saleproceedsoft hatl andtopayhimselfthedebtduet ohimf rom P.A's
aut
hori
tyiscoupledwithinterest.
Ter mi
nati
onofAgency:Anagencymay bet erminat
ed
byactofpar
ti
esorbyoper at i
onofl aw.

I
npar
ti
cul
ar,
acont
ractofagencycomest
oanendi
nthef
oll
owi
ngway
s:

1. Wheretheagencyi
sonef
orasi
ngl
etr
ansact
ion,
itt
ermi
nat
eswhent
het
ransact
ion
i
scompleted.

2. I tcanbet
ermi
nat
edatanyt
imebymut
ualagr
eementbet
weent
hepr
inci
paland
theagent
.

3. Ift
heaut
hor
it
yisgi
venf
oraf
ixedper
iod,
theagencycomest
oanendont
heexpi
ry
oft
heperi
od.

4. Anagencyt
ermi
nat
esbyt
hedeat
hori
nsani
tyoft
hepr
inci
pal
oroft
heagent
.

5. Anagencyt
ermi
nat
esbyt
hei
nsol
vencyoft
hepr
inci
pal
andoft
heagent
.

6. Wher ethepr
inci
paloragenti
sacompany
,theagencycomest
oanendbyi
ts
di
ssol
uti
on.

7. I
tal
sot
ermi
nat
esbyt
hedest
ruct
ionofsubj
ectmat
ter
.

8. Theagentmay
,bygi
vi
ngr
easonabl
enot
icet
othepr
inci
pal
,renouncet
hecont
ract
ofagency
.

9. Thepr incipalcanr ev
oketheauthor
it
yoftheagentatanyti
me,bygi
vi
ngnoti
ceto
theagent
.Termi nat
ionofagencytakeseff
ectwhenitbecomesknowntot
heagent
,and
sofarasthet hirdpart
iesareconcer
ned,wheni
tbecomesknownt ot
hem.

I
rr
evocabl
eAgency

Whent
heaut
hor
it
ygi
vent
oanagentcannotber
evokedbyt
hepr
inci
pal
,i
tissai
dtobe
ani
rr
evocabl
eagency
.Anagencybecomesi
rr
evocabl
eint
hef
oll
owi
ngt
hreecases:

1.Wher eanagencyi sonecoupledwi thinterest

.Whenacr edi
torisemploy edasan
agenttocollectrentduetoapr i
ncipalforadjusti
ngtheamountt owardshisdebt,the
authori
ty ofthe agent sis coupl
ed wi thi nter
est
and itisi r
revocable duri
ng the
subsist
enceoft hei nter
est
.Itshouldbenot edheret hatthisruleappli
esonlyifthe
agencyiscreatedfortheprot
ecti
onofi nter
estofagent.Itdoesnotappl yi
ftheinter
est
ari
sesaftert
hecreati
onofagency .

Exampl
e

Aconsigns,
1000balesofcottontoB,whohasmadeadv ancestohim onsuchcot t
on.
Adesir
esBt osel
lthecot
ton,
andtorepayhi
msel
f,outofthepri
ceofcotton,
theamount
ofhi
sownadv ances.Acannotrev
okehisaut
hor
it
y,norisi
tter
minat
edbyhi sinsani
tyor
deat
h.

2.Wher eanagenthasi ncurr

edpersonalli
abil
it
y.Therevocat
ionwouldcauseagent
personall
oss.Thepr
inci
palcannoti
nsuchacaser evoket
heagencyleavi
ngtheagent
exposedtotheri
skorl i
abi
li
tyhehasal
readyincur
red.

Exampl
e

Pgivesaut hori
tytoAt opayP' scredi
torCandplacesthenecessarymoneyi nt hehands
ofAf orthatpurpose.ThereuponAi nformsCt hathehasr ecei
vedt hemoneyi nhis
handsf orpay mentofhi sdebtandt hatCmaycol l
ectthesameanyt i
mef r
om him.P
cannotr evokeA'sauthori
tytopayC asAhasi ncur
redaper sonall
iabil
it
y.3.Wherethe
authorit
yhasbeenpar tlyexercisedbytheagent
,theprinci
palcannotrevokeit,sofaras
regardssuchactsandobl i
gationsasar i
sefr
om actsalr
eadydonei ntheagency .

THEI
NDI
ANPARTNERSHI
PACT,
1932

Thelawofpart
nershipiscontai
nedintheIndianPart
ner
shi
pAct,1932,whichcameinto
for
ceon1stOct .
,1932.Thi
sisbasedont heEngl i
shLawonthesubjectascontai
nedin
thePart
nershi
p Act ,1890.Themai nprincipl
esaret
hesame.Themosti mport
ant
changei
sregardi
ngpr ovi
sionforr
egist
rati
onoff i
rms.

Defi
nit
ion and Nat ure ofPartner
ship :Sect i
on 4 oft he Part
nershi
pActdef i
nes
Part
nershi
pas“ ther el
ati
onbetweenper sonswhohav eagreedtosharethepr ofitsofa
busi
nesscar ri
edonbyal loranyoft hemacti
ngf oral l
”.TheEngli
shPar tnershipAct
defi
nes Partnershi
p as “ t
he rel
ati
on whi ch subsist
s between personscarrying on
busi
nessincommonwi thav i
ewofpr ofi
t”.I
fweel aboratewefindthi
sdefinit
ionpoi nt
s
outt
hef
oll
owi
ngessent
ial
element
sofpar
tner
shi
p:

1.Ther
emustbeatl
eastt
woper
sons.

2.Thati
tist
her
esul
tofanagr
eement
.

3.Thati
tisor
gani
sedt
ocar
ryonabusi
ness.

4.Thatt
heper
sonsconcer
nedagr
eet
oshar
ethepr
ofi
tsoft
hebusi
ness.

5.Thatt
hebusi
nessi
stobecar
ri
edonbyal
lorany
oneoft
hem act
ingf
oral
l
.

1.Associati
onofatleastTwoPer sons:Inordertoconst
it
uteapartnershi
plegall
yther
e
mustbeanassoci ati
onofatl easttwoper sons.Regar
dingthemaxi mum numberof
Part
nersinaf i
rm Sec.I
IoftheCompani esActpr ovi
dest
hatthenumberofpar tner
sina
fi
rm car
ryingonbankingbusinessshoul dnotexceed10andinanyotherbusiness20.

2.Agr eement :AccordingtoSecti

on5apar tner
shipi
scr eatedbycont ractandnotby
status.Itishowev er,notnecessaryt hatthereshould bea v eryformalorwr i
tten
agreement .Theagr eementto createapart
nershi
pmayaswel larisef
rom theconduct
oft hepar t
iesconcer ned.Where,theparti
esagr eetoenterintopar t
nershi
patsome
futuredate,therel
ationofpart
nershipdoesnotariseunti
lthatdat e.

3.Busi
ness:Apar tnershi
pcanbef ormedonl
yforthepur
poseofcarryi
ngonbusiness.
Busi
nessi ncl
udeseverytr
ade,occupati
onandprof
essi
on.Thewordbusinessgeneral
ly
convey
st heideaofr unni
ngbusinessi
nvol
vi
ngnumeroustr
ansact
ions.Thebusi
nessto
becarr
iedonbyt hef i
rm mustbelegal.

4.Shari
ngofPr ofi
ts:ThewordPart
nershi
pisderivedfrom t
heword“ t
opar t”whi
ch
means“ t
odi v
ide”
.Thusdiv
isi
onofpr
ofi
tsisanessenti
alcondi
ti
onoft
heexi st
enceofa
part
ner
ship.The objectof
part
ner
shi
pshouldbetomakepr of
it
sanddist
ribut
eamong
thepar
tners.

5.Mut ualAgency:Thebusinessofpar tnershi

pmaybecar ri
edonbyal loranyoneof
them acti
ngf oral
l.
Thus,ifapersoncar r
yingont hebusinessact snotonl
yforhimsel
f
butforothersalso,sothattheystandinthepositionofprinci
plesandagents,t
heyare
part
ners.Itisnotnecessarythatallofthem shouldacti
vel
ypar t
ici
pateint
heaffai
rsof
business.Thenecessaryelementi sthatt hebusinessmustbecar ri
edon,onbehal
fof
allt
hepar t
ners.

TestofPartnership:I
napartner
ship,
alltheelementsment i
onedabov emustbepr esent
.
Thus,al
thoughshar i
ngofprofi
tsi
sast rongev i
denceoftheexist
enceofpar t
nership,
yet
thetr
uetestist heelementofagency.Forthi
sr eason,cr
edit
orwhoadv ancesmoneyon
theunderst
andi ngthathewouldhaveashar eintheprofi
tsofbusinessi
nlieuofinter
est
i
snotapar tner.Simil
arl
y,anempl oyeeget ti
ngashar eofprofi
tsasapar tofhi s
remuner ati
on,ort hesellerofgoodwi l
lofthebusi nessr ecei
vingapor ti
onoft heprofit
s,
i
snotapar t
ner .I
nal lthesecasest het hi
rd elementofpar tnership,namel y,agency
i
sabsent .Acr editororanempl oyeeort hesell
eroft hegoodwi llcannotbi ndthef i
rm by
theiractions,can be cal l
edpartners.Thus,i nt he absence ofdef inite partnershi
p
agreementt heCour t
,inor dertodet erminetheexi stenceofpar tnershi
p,mustt akei nt
o
accountal lt her elevantcircumst ances,suchas,t heconductofpar ties;themodeof
doingbusi ness; whocont r
olsthepr operty;
themodeofkeepi ngaccount s;themanner
ofdist
ributionofpr ofi
ts;ev i
denceofempl oyeesandcor respondence.

To sum up,fordet
ermi
ning t
he exi
stence ofpar
tnershi
p,t
he f
oll
owi
ng mustbe
consi
der
ed:(
1)Ther
emustbeanagreement-or
alorwr
itt
en;

(2)t
heagreementmustbet
oshar
ethepr
ofi
ts;(
3) t
hosepr
ofi
tsmustar
isef
roma
busi
ness;
and

(
4)t
hatbusi
nessmustbecar
ri
edonbyal
lorany
oneoft
hem act
ingf
oral
l
.

Par
tner
shi
pdi
sti
ngui
shedf
rom ot
herAssoci
ati
ons

Part
ner
shi
pandCo-ownership:Co-owner
shi
pmeansjointowner
shi
p.AandBj
oint
ly
buyahorsef
ort
hei
rri
ding.Theyar
eco-owner
soft
hehorseandnotpar
tner
s.

(1)Co- ownershipisnotalwaystheresul
tofagreement.I
tmayari
sebytheoper
ati
onof
l
aw or f r
om st atus,e.
g.,co-
hei
rsofapr oper
ty,per
sonst owhom pr
oper
tyisjoi
ntl
y,
given.Partnership,ontheotherhand,i
snecessari
lyt
heresul
tofagr
eement
,expr
essor
i
mpl ied.

(
2)Par
tner
shi
pnecessar
il
yinv
olv
eswor
kingf
orpr
ofi
t.Co-
owner
shi
pdoesnot
.

(3)Oneco-ownercan, withouttheconsentoftheother
s,tr
ansferhi
srightsandint
erest
tostranger
;apar tnercannotdosowi t
houttheconsentofallt
hepartners(4)Apartner
i
st heagentoft hepartnershi
pt obi
ndt hefi
rm.Aco-ownerhasnoimpl i
ed author
it
yt o
bindtheotherco-owners.

(5)Part
nershi
p al
waysimpli
esa business.Co-owner
shi
p can exi
stwi
thoutany
busi
ness,e.
g.,
joi
ntowner
shi
pofar
esidenti
alhouse.

(6)Apartner
,bei
nganagentofot
herpart
nershasal
i
enont
hepar
tner
shi
ppr
oper
ty.A
co-ownerhasnosuchl
i
enonthejoi
ntproper
ty.

Par
tner
shi
pandCompany:

Thepoi
ntsofdi
sti
nct
ionbet
weent
het
womaybesummedupasf
oll
ows:

1.Acompanycomesi
ntoexi
stenceaf
terr
egi
str
ati
onundert
heCompani
esAct
.Int
he
caseofpar
tner
shi
p,r
egi
str
ati
oni
snotcompul
sor
y.

2.Themaxi
mum numberofpersonsr
equi
redtofor
m acompanyissev
eni
nthecaseof
publ
iccompanyandt
wointhecaseofapriv
atecompany.Apar
tner
shi
pcanbeformed
wit
htwopersons.

3.Apubli
ccompanymayhav eanynumberofmember s.Apri
vatecompanycannot
hav
emoret han50members.Apar
tnershi
pcarry
ingonbanki
ngbusinesscannothav
e
moret
han10member sandapart
nershipcar
ryi
ngonanyother
businesscannothav
e
moret
han20partner
s.

4.Acompanyi sregardedbylawasasinglepersonseparat
efr
om themembers,who
const
itut
eit.I
thasal egal
per
sonal
it
y.Thepartnershi
pisacoll
ect
ionofpart
ner
s.Iti
s
notalegalent
ityandhasnori
ghtsandobl
igat
ionsseparat
efr
om i
tspar
tner
s.

5.Theproper
tyofapar t
nershi
pisthej
ointpropert
yofthepar
tner
s.Eachpar
tnerhas
aut
hori
tyto bi
ndthefirm byhisacts.Thepr opert
yofacompanybel ongst othe
company.Ashar
eholderinhisi
ndi
vi
dualcapaci
tycannotbi
ndt
hecompanybyhisacts.

6.Acompanyhasperpet
ualsuccession.Thedeathorinsol
vencyofamemberdoesnot
aff
ecti
tsexi
stence.
Apartnershi
pf i
rm,int heabsenceofacont ractt
othecont
rar
y,
comestoanendwhenapar tnerdiesorbecomesinsolvent
.

7.Thel
iabi
l
ityofpar
tner
sforthedebtsofthef
ir
misal
way
sunl
i
mit
ed.Thel
i
abi
l
ityof
themembersofacompanyisusual
l
yli
mited.

8.Thecr edit
orsofapart
nershi
pfir
m arecredi
tor
soft hei ndi
vi
dualpartners,anda
decreeobtai
nedagai
nstaf
ir
m canbeexecut
edevenagainsttheindivi
dual
partners.The
credit
orsofacompanyarenotcredi
tor
sofindi
vi
dualshareholder
s.Adecr eeobt ai
ned
againstacompanycanbeexecut edonly agai
nstthecompany ,andnotagai nstthe
sharehol
ders.

9.Apart
nerofafi
rm cannott
ransferhi
sint
eresti
nthefi
rmtoanoutsiderandmaket
he
tr
ansf
ereeapar
tnerwithoutt
heconsentofalltheother
s.Ashar
eholderofacompany
cantr
ansferhi
ssharesandthetr
ansfer
eecanbecomeamemberoft hecompany .

Par
tner
shi
pandJoi
ntHi
nduFami
l
yFi
rm.
Aj oi
ntHi nduf amil
ywhi chcarriesonabusi nesshandeddownf rom itsancestorsis
call
edaJoi ntHinduFamilyFir
m.Thei nter
estinthebusinesspassesbysur vi
vorshi
pt o
thesurvivingmember s,andev ery
memberacqui resbybirthani nterestinthepr ofi
ts
andasset soft hebusiness.Thisisnotpartnership,
butaco-parcener y
,arelat
ionship
created by Hindu Law,and each memberi s call
ed a co-parcener.Thepoints of
disti
nct
ionbet weenHi ndufamilyfi
rm andapartnershi
pmaybeenumer atedasfoll
ows:

1.A partnershi
pi s cr
eat
ed byagr
eement
:A Joi ntHindu fami
lyf i
rm comes i
nto
exi
stencebyoperationofl
aw.
Membershi
pofjoi
ntfamil
yfir
mi stheresul
tofstat
us,
i.
e.
posi
tionofthepersonconcer
nedasmemberofajoi
ntfamil
y.

2.Inapar
tnershi
p,t
hedeathofapart
nerdi
ssol
vest
hef
ir
m,t
hedeat
hofacopar
cener
doesnotdissolv
ethej
oint
fami
lyf
ir
m.

3.I
najoi
ntfami
l
yf i
rm onl
ythemanagerorKar
tahasaut
hor
it
ytobi
ndt
hemember
sby
hi
sact
s,inapar
tnershi
peachpar
tnercandot
his.

4.I
napart
ner
shipev erypart
nerispersonall
yliabl
et oanunli
mitedextentforthedebts
oft
he f
ir
m.Inaj oi
ntHi nduf
amilyfi
rm,onlytheKar t
ahasunlimitedl
iabi
li
ty.Theother
member
sareliableonlyt otheext
entoft heirsharei
nthejoi
ntf amil
ybusiness.Minor
member
sarenotl i
able.

5.Mi
normember
sofaj
ointf
ami
l
yar
emember
soft
hef
ir
mfr
om t
hedat
eoft
hei
rbi
rt
h.

I
napar t
nershi
paminorcannotbeapar t
ner
,asapartner
shi
pi sther
esul
tofan
agr
eementandami
nordoesnothav
ecapaci
tyt
oent
eri
ntoacont
ract.

6.Thepartner
shavear ightt
odemandaccountsoft
hepartner
shi
pfi
rm,aco-par
tner
cannotaskforanaccountofpastdeal
i
ngs;hi
sonlyr
ighti
stoaskforpar
ti
ti
onoft he
asset
softhefir
m.

7.Apar
tner
shi
pisgov
ernedbyt
hePar
tner
shi
pAct
;aj
ointHi
nduf
ami
l
yfi
rmi
sgov
erned
byHi
nduLaw.

Par
tner
shi
pandClub.Aclubisanassoci
ati
onofpersonsfor
medforsoci
alpur
pose.I
t
i
s notfor
medforgain and i
s not
,ther
efor
e,a part
nershi
p.A cl
ub di
ff
ersfrom a
par
tner
shi
pint
hefoll
owingrespect
s:

1.Aclubisnotabusiness,andt
her
eisnomot i
veofear
ningprofi
tsandshari
ngt hem.A
part
nershi
pisfor
medt ocar r
yonbusi
nessandtoshareprofi
tsofthebusiness.Aclub
maybehav i
ng profi
tbyr unni
ngacl
ubcanteenbutitcannotbecal ledpar t
nershi
p
becauseit
sobjecti
snott ocarr
yonabusinessandshar
eitsprof
it
s.
2.Amemberofaclubisnottheagentoft
heot
hermembersandsomembersofacl
ub
arenotl
iabl
efor
eachother
’sacts.Apart
neri
sanagentoftheot
herpar
tner
sandall
part
ner
sareli
abl
efort
heact sofapart
ner
.

3.Amemberofacl
ubi
snotl
i
abl
efort
hedebt
soft
hecl
ub,
butapar
tneri
sli
abl
efort
he
debt
soft
hefi
rm.

4.Thedeathorresignat
ionofamemberdoesnotaf f
ecttheexi
stenceofthecl
ub.The
deat
h or insolvencyofapart
nerdissol
vest hefi
rm. 5.Amemberofacl ubhasno
tr
ansmissi
blei
nterestinthecl
ubsot hatonhisdeathhishei
rscannotclai
mt oinher
it
anyofhisr
ight
s.Adeceasedpartner
’sheir
sinheri
thi
sinter
esti
nthepartner
shi
pfirm.

FORMATI
ONOFPARTNERSHI
P

Inacont r
actofpar t
nershipalltheel ement sofav ali
dcont ractmustbepr esent .Ther e
mustbef reeconsent ,
consideration,l
awf ulobjectandt hepar ti
esmusthav ecapaci t
yt o
contract.Thusanal i
enf r
iendcanent erintopartner
shi p, anal
ienenemycannot .Ami nor
i
snotcompet enttobeapar t
ner .Ami norcan,howev er,beadmi tt
edt othebenef it
sof
part
ner ship,ifallt
hepar t
ner sagr eetodo so. Apar tnershipagr eementmaybeor alorit
maybei mpl i
edori nf
erredfrom t heconductoft hepar ties.Wheni ti
sr educedt owr i
ting
i
tisi ncorporatedi nadocument knownast heDeedof Par tnershiporAr t
icl esof
Part
ner ship.Thedeedmustbest ampedaccor dingt ot heprov i
sionsof the StampAct .
Thereaf t
er, t
hef i
rm mayber egisteredwiththeRegi st
rarofFi rms, alt
houghr egistration
i
snot compul sory.Becauseoft hedi sabil
iti
essuf feredbyanunr egisteredf i
rm,i tis
advi
sabl et oregist
erev er
yf i
rm.

Accor
dingt
oS.58theregi
str
ati
onshoul
dbemadei
nthef
orm ofaSt
atementsi
gnedby
al
lthepart
ner
sandgiv
ing:

(
1) t
henameoft
hef
ir
m;

(
2) t
hepr
inci
pal
placeofbusi
nessoft
hef
ir
m;

(
3) nameoft
heot
herpl
ace(
ifany
)wher
ethef
ir
m car
ri
esonbusi
ness;

(
4) t
hedat
eonwhi
cheachpar
tnerj
oinedt
hef
ir
m;

(
5) t
henamesi
nful
landaddr
essesoft
hepar
tner
s;

(
6) t
hedurat
ionofthefi
rm.Fur
ther
more,
ever
ychangeinthenamesandaddr
essesof
t
hepart
ner
sorplaceofbusi
nessshoul
dbenot
ifi
edtotheRegi
str
arofFi
rmsfr
om ti
me
t
oti
me.
REGI
STRATI
ONOFAFI
RM

EffectofNon-regist
rati
onofaFirm:Unli
keEngl ishl
aw regi
str
ati
onisopt
ionalunder
I
ndi anPartner
shipAct,Buti
tbecomesi ndirect
lynecessar
y,sothatifafir
mi snot
regist
ered,
thefoll
owingconsequenceswil
lensue:

1. Apar t
nerofanunregister
edfi
rm cannotf i
l
easui tagai
nstthefir
m oranypartnerto
enfor
cear i
ghtari
si
ngf rom acont r
actorconf err
edbyt hePar t
nershipAct[
S.69(1)
]
WhereA,B,CandDar epar t
nersinanunr egist
eredfirm.Di swrongfull
yexpell
edfrom
thefi
rm byther
estofpartners.Dcannotf il
easuitforhiswrongfulexpulsi
on,t
he only
remedyavai
labl
etohi
mi st ofil
easui
tfort hedissol
utionoffi
rm.

2. Anunr egi
ster
edfir
m cannotf i
l
easui tagai
nstanythi
rdpart
ytoenforcear i
ght
ari
singf rom acontr
act
.[S.69(2)
].Thisclausedoesnotprohi
bitanunr
egist
eredf ir
mt o
enterintocont r
actwit
ht hi
rdpar
ties,thebarisonlyagai
nsttaki
ngacti
onagai nstthi
rd
parti
es.Howev er,the thi
rd par t
ies aref r
ee totakeact
ion agai
nstunr egist
ered
partnership.

3. Anunr
egist
eredfi
rm cannotcl
aim asetoffaboveRs.100i
nasuit[
S.69(
3)]
.
Accordi
ngto Sect
ion69oft
hePar t
ner
shipActthenon-
regi
str
ati
onofaf
ir
m doesnot
af
fectthef
oll
owing:

1. Ther
ightofat
hir
dpar
tyt
osuet
hef
ir
m oranypar
tner.

2. Theri
ghtofapart
nertosuefordi
ssol
uti
onofthefir
m orforset
tl
ementof
accountsi
fthefi
rmi
sal
readydi
ssol
vedorf
orhi
sshareoftheasset
softhedissol
ved
fi
rm.

3. Ther i
ghtofanunr egi
steredfi
rmt osuetoenfor
cear i
ghtari
singother
wisethan
outofcontract
,e.
g.,f
oraninj
unctionagai
nstapersonwrongful
l
yusingthenameoft he
fi
rm;orforwr ongful
inf
ri
ngementofat rademark.Regist
rat
ionisnotnecessaryf
ora
sui
tinrespectoftortcommittedbyapartner
.

4. ThepowerofanOf
fi
cialAssi
gneeorOf
fi
cialRecei
vert
oreal
i
set
hepr
oper
tyofan
i
nsol
vent
par
tner
.

5. Asui
torset
-of
fnotexceedi
ngRs.100i
namount
.

6. Ther
ight
soff
ir
msorpar
tner
soff
ir
mshav
ingnopl
aceofbusi
nessi
nIndi
a.

Regi
str
ati
onTi
me:Anunr
egi
ster
edf
ir
m cangeti
tsel
fregi
ster
edatanyt
imebef
orei
tis
actuall
ydi
ssol
ved.Buti
nanycasei tshoul
dber
egi
ster
edbefor
efi
l
li
ngasuitinthecour
t,
otherwise t
hecourtwil
lr
ejectsuchsuit.I
nor
dertoinst
it
uteasui
t,notonlythefi
rm
must

bear egist
eredone,butal
lthepar
tner
ssui
ngmustal
sobeshownaspar
tner
sint
he
regi
steroffir
ms.

Exampl e:Apar tnershipf i

rm consist
ingofA,BandCaspar tnerswasf ormedandi t
commencedi tsbusinessbef oregetti
ngitselfregistered.Thefir
mf il
ledasuitagai
nstX
foracl aim ofRs.5000f orgoodssuppli
edt ohi m andi mmediatel
yaf t
erfil
l
ingthesui
t,
the firm was r egistered.The cour twi lldi smiss t he sui
tbecause the fi
rm was
unregister
edatt het i
meoff il
li
ngthesuit.Butwher easui tisdismissedbecauseofthe
non-regist
rati
onofaf ir
m ori ti
swith-dr
awnbef orei tisdi
smissedbyt hecourt,
thefi
rm
cansubsequent lygeti tself
regi
ster
edandf il
et hesui tagain provi
dedt hesui
thasnot
becomet i
mebar red.

Fir
m andFi r
m Name:Per sonswhohav eent er
edi ntopartner
shipwithoneanotherare
call
ed individual
ly“
part
ner s”andcollectiv
ely“af i
rm” ,andthenameunderwhi cht hei
r
businessi s carr
iedoni scal l
edthe“fi
rm name”( Sec.4) .Afi
rmi snotanart
ifi
cialand
l
egalper sonl i
keacompany .I
tismer el
yacol l
ectiv
enamef orthepart
ner
s.Iti
sj usta
convenientwayofdescr ibingthepartners.Therightsandobl i
gati
onsofthepartnershi
p
fi
rmsarer eall
ytheright
sandobl i
gat
ionsoft hepartner sconst
it
uti
ngit.

Durat
ionofPar tnership:Thepar t
iesmayf ixthedurationoft hepar t
nershiporsay
not
hingabouti t.
Wher et hepartnersdecidet ocarryonthebusinessf oracertai
nper i
od
oftime,itiscal leda“ part
nershipforaf ixedper i
od”
.Whent heper i
odisov er
,the
par
tnership comest o anend.Wher et hepar tner
shi
pi sformed forthepur poseof
car
ryingonpar ti
cularv entur
e,itiscall
eda“ par
ticul
arpar t
nership”
.Itcomest oanend
onthecompl et
ionoft hev enture.Iti
sal soopent opartnerstosay not hi
ngaboutt he
dur
ationor t
oagr eet hatthebusi nessshallbecar ri
edonnotf orafixedperi
od,butso
l
ongast hepar tnersar eincl
inedtocarryiton.Suchapar t
nershipiscall
ed“Partnershi
p
atwil
l”.I
tisdissolvedbynot i
cebyapar tnertohiscopar
tners.
Part
nershipPr oper
ty:Thepr opert
yoft hefir
mi ncl
udes( i
)allproper
tyandr i
ghtsand
i
nterestsinpropert
yoriginal
lybroughtint
othestockofthef i
rm,orsubsequentl
yadded
ther
eto;(i
i)thepropert
yacquiredinthecourseofthebusinesswithmoneybel ongi
ngto
thefir
m; (
ii
i)thegoodwillofthebusiness,
theproper
tyofthefirmisacquir
edtobeused
bythepartnersfortheexclusiveuseoft hefi
rm.

Exampl
esofPar
tner
shi
pPr
oper
ty

(a) Apartner
shipisformedwithA,BandCaspar tner
s.Acont
ri
butestothest ockof
thefi
rm aplotofland.Bamotorlorr
yandCt hesum ofRs.10,
000.Subsequently,t
he
fi
rm pur
chases,outofit
searni
ngs,ahouse.Al
lthesepr
oper
ti
esandthegoodwillofthe
busi
nessar epr
operti
esofthefi
rm.

(b) Acol l
ier
yownedbyAwast akenonl easebyaf ir
m consisti
ngofAandBas
partner
sandwaswor ked.
Theprofi
tswereshar edbythepar t
ners.Thecoll
i
erywas
takentobeproper
tyofthefi
rmforthet
imebeing.Buti
fthecoll
ier
ywer eonl
ywor kedin
partner
shi
pbyA andBwhoshar edprofi
tsoft heventure,t
hecoll
ier
yremainedt he
propert
yofA,anddidnotbecomethepropertyofthef
ir
m.

PartnershipDeed.Theagr eementcr eati

ngpartnershi
pmaybeexpr essori mplied,and
thelattermaybeconcl udedf rom theconductort hecourseofdeal i
ngsoft hepar ti
esor
from theci rcumstancesoft hecase. Butitisint heinterestoft hepar tnerst hatthe
agreementmustbei n wr it
ing.Thedocumentwhi chcont ainsthi
sagr eementi scal l
ed
Partnership Deed.Itcont ainspr ov isionsrel
ating tothenat ureand pr incipalplace
ofbusiness,thenameoft hef i
rm,t henamesandaddr essesoft hepartners,thedur ati
on
ofthef ir
m, prof
it
sharingr ati
o, i
nter estoncapi t
alanddr awings,v al
uat i
onofgoodwi ll
on thedeat h orreti
r ementofapar tner,
management ,accounts,arbitr
ation,etc.The
I
ndianSt ampAct ,
1889, requi r
est hatt heDeedmust bestamped.

Whocanbecomeapar
tner

Anypersonwhoiscompetenttocontr
actcanenteri
ntopar
tner
shi
pagr
eement
.The
posi
ti
onoffol
lowi
ngper
sonsneedspeci
alconsi
der
ati
on:

1. Minor
:A minori
snotcompet
enttocont
ract
,hencehecannotenteri
nto
part
ner
shipcont
ract
.Howev
erhemaybeadmi
tt
edtothebenef
it
sofpar
tner
shi
p,i
fal
l
thepar
tner
sagreetodoso.
2. Al
i
en:
Anal
i
enenemycannotbepar
tneri
nanI
ndi
anf
ir
m.

3. Per sonofunsoundmind:Apersonofunsoundmi
nd,notbei
ngcompet
entt
o
cont
ractcannotent
eri
ntoapart
ner
shi
pcontr
act
.

4. Company :Acompany ,ifaut

hor
isedbyitsar
ti
clesofassoci
ati
oncanent
eri
nto
par
tner
shi
pbecausei
tisapersoncompetentt
ocont
racti
ntheeyesoflaw.

5. Fi r
m:Af ir
m cannotent
eri
ntopar
tnershi
pcontr
act.I
fafi
rm,atal
lent
ersi
nto
par
tnershi
pi nt
hatcase,t
he member
s become part
nersinthe ot
herf
ir
m inthei
r
i
ndi
v i
dualcapaci
ty.

Posi
ti
onofaMi
noradmi
tt
edasapar
tnert
otheBenef
it
sofPar
tner
shi
p

Wehav eseenear li
erthatpar t
nershipr esult
sf rom acontr
act .Consequent l
y,ami nor
cannotenteri
ntoacontractofpartner shipasanagr eementbyami norisvoid.I
tfol
lows
thataminorcannotbecomeapar tner ,
norcanapar tner
shi
pbecr eatedwithami noras
apartner
.Buti fallt
hepar tner
sagr eeami normaybeadmi ttedt ot hebenefit
sofan
alr
eady exist
ing par
tnershi
pf i
rm.I tshoul d be remember ed thatev en after
such
admissi
ont heminordoesnotbecomeoneoft hegroupofpersonscal l
edthefir
m.

Secti
on30ofthePar
tner
shipActl
aysdownther
ight
sandl
i
abi
l
iti
esofami
noradmi
tt
ed
tothebenef
it
sofapart
nershi
pasfol
lows:

1. Theminorhasar
ightt
osuchshar
eoft
hepr
oper
tyandoft
hepr
ofi
tsoft
hef
ir
m as
maybeagr
eeduponbythepar
tner
s.

2. Themi
norhasaccesst
oandi
nspectandcopyanyoft
heaccount
soft
hef
ir
m.

3. Themi
norisnotper
sonal
l
yliabl
efort
hedebtsandobl
i
gati
onsofthef
ir
m al
though
hi
ssharei
nthepr
ofi
tsandoftheasset
softhef
ir
m wil
lbel
iabl
efort
hesame.

4.Solongastheminorcont
inuestobei
nthefi
rm,
hecannotfi
leasuitagai
nstt
heother
part
nersforanaccountorf orthepaymentofhisshareofthepr oper
tyorprofi
ts
ofthefi
rm.Hecanfil
esuchasui t
onl
ywhenhewantstosever
ehisconnecti
onwit
ht he
fi
rm.

5.Atanyti
mewi t
hinsixmonthsofhisattai
ningmajori
ty,orofhisobtai
ningknowledge
thathehadbeenadmi ttedtothebenef
it
sofpar tner
ship,whicheverdateislater
,the
minorhast
oelecteit
hertobecomeornott obecomeapar tneri
nthefirm.Suchelecti
on
maybemadebyapubl i
cnotice.I
fhegivesnonot i
cetot hiseff
ectheshallbecomea
par
tneri
nthef
ir
m ont
heexpi
ryoft
hesai
dsi
xmont
hs.

6.Ami norwhothusbecomesapartnerwil
lbecomeper
sonal
lyl
iabl
eforal
ldebt
sand
obl
igat
ionsofthef i
rmincur
redsi
ncet hedateofhisadmissi
ontot hebenef
it
sof
par
tner
ship.

7.Wher
ethemi
norel
ect
snott
obecomeapar
tnert
hef
oll
owi
ngr
uleswi
l
lappl
y:

(a) Hi
sri
ghtsandl
i
abi
li
ti
escont
inuetobethoseofami
norupt
othedat
eonwhi
chhe
giv
espubli
cnoti
cet
onott
obecomeitspar
tner.

(
b) Hi
sshar
ewi
l
lnotbel
i
abl
eforanyactoft
hef
ir
m doneaf
tert
hedat
eoft
henot
ice.

(
c) Hecansuet
hepar
tner
sforhi
sshar
eoft
hepr
oper
tyandpr
ofi
tsoft
hef
ir
m.

Cl
assesofPar
tner
s

Apersonwhodealswit
hafi
rm woul
dli
ket oknow whoaret
hepart
ners,andt
owhat
ext
enttheyareli
abl
etohi
mforhiscl
aim agai
nstthefi
rm.Theposi
ti
onofdiffer
ent
cl
assesofpar
tner
smaybeexaminedasfol
lows:

ActualPart
ner:Aper sonwhohasbyagreementbecomeapar tnerandwhot akesactual
partintheconductofpartner
shi
pbusinessisanactualandwor kingpart
ner.Heisthe
agentofot herpartnersfort
hepurposesofthebusiness.Allhisactsintheordinary
courseofthebusinessbindhim andtheotherpar
tnerstothi
rdparti
es.

PartnerbyHol dingOut :Aper sonmay ,undercer taincir

cumst ances,beli
ableforthe
debtoft hef i
rmal t
houghhei snotapar tner.I
faper sonbywor dsspokenorwr i
tt
en,or
byconductr epr esentshimsel forknowinglypermitstober epresented,t
obeapar t
nerin
af i
rm,hei sliableasapar tnerinthatf ir
mt oanyonewhohas,ont hefait
hofsuch
representati
on, giv
encreditt othefirm(Sec.28) ,
So, whereaper sonconduct
shimselfas
tolendanot hert obeli
evet hathei sapar tner,
alt
houghr eall
yhei snot,andonthat
beli
ef
theot herpersongi vescredittothef i
rm,hei sdeemedt obeapar tnerbyholdi
ngout.

(a) A,BandCcarryonabusi nessforprofi

t.Ccontri
but
esnei
therl
abournormoney,
anddoesnotrecei
veanyshar
eoft heprofit
s,buthisnameisusedasapar t
neri
nthe
fi
rm.Heisl
iabl
etoever
youtsi
derwhogi vescredi
trel
yi
ngonhi
sbeingther
easpart
ner.

(b) Sureshcarri
edonbusinessinthenameofthebusinessasRam SaranandCo.,
employedapersonnamedRam Sar antoactasmanagerofthebusi
ness.Ram Sar
an
wasr egar
dedaspartner
byholdi
ngoutorest
oppel
.

Theposi
ti
onofapar
tnerbyhol
dingouti
specul
i
ar.Hei
sli
abl
etomakegoodt
hel
oss
whicht heper songi vi
ngcr edi t
tot hef i
rm maysuf fer, buthehasnocl aim upont hef i
rm.
Apar tnerwhohasr eti
redf rom t hef i
rm butal l
owst heuseofhi snamet ocontinuewi th
thef irm maybecomel iablet ot hir
dpar ti
esbyt hepr i
ncipalofhol di
ngout .
Exampl e:
Pretiredf r
om af irm consi stingofPXandRasi tspar tners.Hef ailedtogi v
enot ice of
hisret irement .AfterhisretirementSj oinedt hef i
rm andt hefirm cont i
nueditsbusi ness
undert heol dname.Onecr editorf i
ledasui tfort her ecoveryofhi sdebtaf t
ert he
reti
rementofP.I twashel dt hecr edi t
orcoul dmakePandhi sco-par t
nersandRl iablefor
hisdebtont hepr incipleofest oppel.Buthecannotf i
leasui tagainstP, X,RandS, al
lof
them t ogether.Dor mantorSl eepingPar tner:Aper sonwhoi si nr eali
tyapar tnerbut
whosenamedoesnotappeari nanywayaspar t
ner ,nordoeshet akeparti nt he
managementoft hebusi ness, andi snot ,therefore, knownt oout sidersaspar t
neri nthe
fi
rm, iscal l
edador mantorsl eepi ngpar tner.Suchapar tnerisli
abl etothirdparti
eswho
gav ecr edittot hef irm ev enwi thoutknowi ngofhi sbei ng par tnerbutsubsequent ly
discov er i
ngt hef act.Asl eepi ngpar tner ’
sl i
abil
ityr est sonhi sbei ngi nt he positi
onof
anundi scl osedpr incipal.
Onei mpor tantdi sti
nctionexi stsbet weenasl eepingandact i
ve
partnerwi thregar dtol i
abili
ty t
owar dst hirdpar ti
es.Asl eepingpar tnerisresponsiblefor
thedebt softhef irmt akendur ingthet enur eofhi spar tnershipli
keanact i
vepartner.But
hisliabi li
tyceasesi mmedi atelyonr eti
rementandhei snotsupposedt ogiveanoticeon
hisret irementl i
keot heract ivepar tners.

Part
nersi
nPr of
itsonly:Apar t
nermayst i
pul
atewi t
hhisco-par
tnersthathewi
l
lbe
enti
tl
edtoacertainshar
eoft heprof
it
swi t
houtbeingli
abl
eforlosses.Buthewi
llbe
l
iabl
etoout
sider
sf oralldebt
sandobli
gat
ionsofthefi
rm.

Sub-part
ner:Whereamemberofaf i
rm agreest oshar
ethepr
ofi
tderivedbyhimf r
om
the fi
rm withastr
anger
,ther
ear i
sesasub- partner
shipbet
weenhim andthestranger
.
Suchst r
angerissaidtobeasub- partner
,al t
houghhei sinnowayapar tnerinthe
ori
ginalf
irm,hasnori
ght
sagai nstit,norhei sli
ablefor
it
sdebt
s.

I
ncomingPartner
:Aper sonwhoi sadmittedasapar tnerint
oanal r
eadyexisti
ngf i
rm
wit
htheconsentofal
lthepartner
siscalledanincomingornewpar t
ner.Theincoming
par
tnerdoesnotbecomel i
ableforanyactofthefi
rm donebef or
ehebecomespar t
ner,
unl
essheagreestobeso liabl
e.Hisli
abil
itycommencesfrom thedat
eofadmi ssionas
apart
ner.

Reti
redorOutgoingPar t
ner:Apar tnerwhogoesoutofaf ir
mi nwhichther emaining
part
nerscontinuetocar
ryont hebusinessiscall
edr eti
redoroutgoi
ngpar
tner; Areti
red
part
nerconti
nuest obeliabl
ef or
alldebt
sandobl i
gat i
onsofthefir
mincur
redbef orehis
ret
ir
ement.A,BandCar epartnersandDi sthecredit
orofthef i
rm.Areti
resf rom the
fi
rm.Aremainsl iabl
etoD.Twoy earsaf
terA’
sr et
irementthefir
m becomesinsolvent.A
wil1bel iableforthedebt sexi sti
ngatt hetimeofhisretirement .
Ar et
iredpart
nerwi l
lbe
l
iablef oral l
debtsincurredaf terhisr etir
ementi fhef ail
st ogi vepropernot i
ceofhi s
reti
rement .Int hatcasehei sdeemedt obeapar t
nerbyhol dingout.Ar et
ir
ingpar t
ner
willalsobel iabletothir
dpar tiesforal ltr
ansactionsoft hef i
rm beganbutunf i
nishedat
thet i
meofhi sr et
ir
ement ,event houghnot iceofhisreti
rementi sgiventothir
dpar t
y.A
reti
ri
ngpar tnermay ,howev er,bedi schar gedfrom thel iabili
tybyt heconsentoft he
credit
or s.Ther emaini
ngpar t
nerswillbel i
ableinsuchacase.Thi sruleistheappl i
cat
ion
ofthegener al r
uleofthelawofcont ractknownas“ Nov ation”.

Ri
ghtaf
terr
eti
rementt
oshar
epr
ofi
tsori
nter
est-
(Sec.37)

Wher eamemberofaf irm ceasest obet hepar t

neroft hef irm andt hecont inui
ng
partnercarryont hebusi nesswi t
hthepr oper t
yoft hefir
m wi thoutanyf inalsett
lement
ofaccount s,i.
e.,withoutt heshareoft heasset soft heout
goi ngpar tnerbei ngpaidover,
orwi thouthi si nterestbei ng purchased byt he remaining par tners,t he estate of
thepartnerisent i
tledt oshar eint hepr ofi
tear nedwi t
htheai doft heasset sofsuch
outgoingpar tner,orinter
estat6%perannum att heopt i
onoft heoutgoi ngpar t
ner.The
optiont ocl aim ashar eoft hepr ofi
tsori nt
er estcanbeexer ci
sedonl ywhen t he
account soft hesubsequentbusi nessar emade.Butacl aim bot hf orshar eoft he
subsequent profi
tsaswel lasi nterestwi l
lnotbeal l
owed.Al so,oncet heout goi
ng
partnerhasdeci ded,t henhewi llnotbeal l
owedt ogobackoni t
,norhebeper mi tt
edt o
clai
m pr of
itsforpar toftheper i
odandi nterestforr emaini
ngper iod.

NominalPar
tner:I
faper
son’
snamei susedasamemberoft hefi
rm,al
thoughheisnot
arealmember andnotent
it
ledtotheshareofprof
it
softhefir
m,isknownanomi nal
par
tner
.Suchaper soni
sanecessar
ypart
yonlyi
ncasesofnegoti
abl
einstr
uments.

RELATI
ONOFPARTNERSRel
ati
onofPar
tner
stoOneAnot
her

Therel
ati
onofpartnershipcomesi ntoexistencebyanagr eementbet weent hepart
ners
andsuchanagr eementusual l
yprovidesf orthemut ualrightsanddut iesofpartners.
TheDeedofPar tnershipusuall
ycont ainst heclauseswi t
hr egardtotheconductand
managementofthebusi ness,t
hecont ri
butionofcapi talbyeachpar tner,t
heproporti
on
i
nwhi chpr
ofi
tsar etobeshar ed,andt her ight
sanddut iesoft hepar tner
sint he
busi
ness.I
fther
ei snowr i
tt
enpartnershipagreement ,theirr el
ati
ons,wi l
lbegoverned
bythecourseofdeal ingamongt hemsel ves.Wher epartnersfailto providefortheir
rel
ati
onstheruleslaiddowninthePart
nershi
pActwi llappl
y.Itshouldberemembered
thatthepartners,relat
ionswhet
hergoverned bywr it
ten ar
ticl
esofpar tner
shi
p or
defi
nedbythePar t
nershi
pActcanbechangedbyt heconsentofallthepar
tners.

ThePar
tner
shi
pActl
aysdownt
her
ight
sanddut
iesofpar
tner
sasf
oll
ows:

Ri
ght
s

1.Subj
ectt
oanycontr
acttothecont
rar
y,ev
erypar
tnerhasar
ightt
otakepar
tint
he
managementoft
hebusi
ness.

2.Ev erypart
nerhasar i
ghttobeconsult
edandhear di nallmat t
ersaff
ect
ingt he
businessofthe fi
rm.Inallmatt
ersofi
mport
anceandt hoseaffecti
ngthepol
icyand
natureofthebusinessorany changeint
heconstit
uti
onoft hefi
rm,allt
hepartners
mustagr ee,meremajori
tywil
lnotbesuffi
cient
.Butinordinar
yr outi
nematt
erst he
majorit
yrul
emayapply.

3.Everypar
tner
,acti
veordormant
,hasari
ghtoff
reeaccesstoal
lrecor
ds,booksand
accountsofthebusi
nessandal
sotoexami
neandcopythem.

4.Everypar
tneri
sent
it
ledt
oequalshar
eint
hepr
ofi
ts,
unl
essdi
ff
erentpr
opor
ti
onsar
e
sti
pulat
ed.

5.Apartnerwhohascont r
ibutedmor et
hanhisshar eofthecapi
talforthepur posesof
thebusinessi
sentitl
edtointerestatarateagreeduponandwher enor at
ei sagreed
upon,at6percentperannum.Butapar tneri
snot enti
tl
edtoanyinterestont hecapital
subscri
bedbyhim unlessthereisanagreementorat r
adecustom tothateff
ectexists.

6.Subj
ecttoacont r
actt
othecontr
ary,
apartnerisenti
tl
edt
obeindemni f
iedbyt
hef
ir
m
foral
lactsdonebyhiminthecour
seofthepartnershi
pbusi
ness,
forallpayment
smade
byhimtodi schar
gethedebtsandli
abi
li
ti
esofthef i
rmandf
orexpensesmadebyhimin
anemer gency.

7.Everypar
tneri
sjoi
ntownerofthepart
ner
shi
ppropert
yandi
sent
it
ledt
ohav
ethe
proper
tyusedexcl
usi
vel
yfor
thepur
posesoft
hepar
tner
ship.

8.Apar
tnerhaspowert
oacti
nemer
gencyf
orpr
otect
ingt
hef
ir
mfor
mloss.

9.Ever
ypart
nerisent
it
ledt
opr
eventt
hei
ntr
oduct
ionofanew par
tneri
ntot
hef
ir
m
wit
houthi
sconsent
.

10.Anincomingpart
nerisnotli
ablef
oranydebt
sandobl
i
gat
ionsoft
hef
ir
mincur
red
befor
ehej oi
nedi
t,except
ingbyhi
sownconsent
.
11.Ev
erypar
tnerhasar
ightt
oret
ir
efr
om t
hef
ir
m.

12.Ev
erypar
tnerhasari
ghttoconti
nuei
nthepart
nershi
pandnott
obeexpel
l
edf
rom i
t
unl
esspowerofexpul
sioni
sprovi
dedint
hepart
nershipagr
eement
.

13.Ever
youtgoi
ngpartnerhasari
ghtt
ocarr
yoncompet ingbusiness,butwit
houtusi
ng
thefi
rm’snameandwi thout
sol
i
cit
ingt
hecustomers.Hemay ,howev er,
agreenottodo
soforaspecifi
edper
iodandwithi
nspeci
fi
edlocal
limit
s.

14.Wher eapar t
nerdi esorot herwiseceasest obeapar t
nerbecauseofhisr et
ir
ement,
expulsi
on,insolvency,i
nsanity,andt heotherpar t
ner
scar r
yont hebusinesswi t
ht he
propertyofthefirm withoutanyf i
nalsett
lementofaccounts,theestat
eofthedeceased
partner,orthepar tnerhi mself
,ast hecasemaybe,i sent i
tl
edt oshareintheprofi
t
earnedwi ththeaidoft heassetsoft heout goi
ngpartner,orint
erestat6percentper
annum,i fsodesi redby t
helegalrepresentati
vesofthe deceasedpar t
ner,orbyt he
partnerhimself
.

Dut
iesofPar
tner
s

Therelati
onofpart
nersisbasedonmut ualconf
idenceandthelaw requi
redthata
par
tnermustactt
owar dst
heotherpart
nerswi
ththeutmostgoodf
aith.I
nparti
cul
ar,t
he
Par
tnershi
pActpr
ovidesfort
hef ol
lowingdut
ies:

1.Everypart
nermustcar
ryont
hebusi
nessoft
hef
ir
m t
othegr
eat
estcommon
adv
antage.

2.Ev
erypar
tnermustbej
ustandf
ait
hful
tot
heot
herpar
tner
s.

3.A par t
neri sboundtokeepandr endertr
ue,pr
operandcor r
ectaccountofthe
partner
ship.Hemustper mit
theotherpart
nerstoinspectsuchaccount
sandt ake
copiesoft hem.Al
lmoneyofthef
ir
mt hatmaycomet ohishandmustbehandedover
tothefir
m.

4.Ever
ypart
neri
sanagentoftheotherpar
tner
sandassuchisboundtocommuni
cat
e
ful
linf
ormat
ionr
elat
ingt
othebusi
nessofthefi
rmtot
heotherpar
tner
s.

5.Everypar
tnerisboundt oindemnif
ythef
ir
mf oranyl
osscausedbyhisfr
audin
conductofbusiness.Also,i
fapart
nercommit
saf r
audonhisco-par
tner
,hemust
i
ndemnifyhi
mf oranylosscausedtohim.

6.Ever
ypartnerwhoisguilt
yofwi l
fulnegl
ecti
ntheconductoft
hebusi
nessandthe
fi
rm suff
erslossi
nconsequence,
isboundtomakecompensati
ontot
hefi
rm andot
her
part
ners.
7.Subj
ectt
oacont
ractt
othecont
rar
y,ev
erypar
tneri
sboundt
oshar
elossesequal
l
y
wit
htheother
s.

8.Everypar
tneri
sboundt oat t
enddi l
i
gentl
ytothebusinessoft hefi
rm andi
nthe
absenceofan agreementt othecont r
ary
,heisnotent it
led f
oranyr emuner
ati
on;
whetheri
nthefor
m ofsal ar
y,commi ssi
on,orot
herwi
se,onaccountofhi
sownt r
ouble
i
nconducti
ngthebusinessofthefir
m.

9.I
nt heabsenceofanagreementt
ot hecont
rar
y,ev
erypar
tneri
sboundt
ohol
dand
usethepartner
shi
pproper
tyfor
thef
ir
m.

10.Apar t
nercannotmakepri
vategainbyr easonofhismember shipwit
hthef
ir
m.Thus,
whereapar t
nerint
hecourseofthebusinesshasr ecei
vedaninf
or mati
onandusesitf
or
hi
sper sonalgainasagai
nsttheint
erestoft hefi
rm,hemustpayov eranybenefi
tshe
mayhav eobtainedbytheuseoft hi
si nf
ormat i
on.Hecannotbargainforapr
ivat
egain
fr
om thecustomersofthefi
rm.

11.Nopartnercancar r
yonanybusinesswhichislikelyt
ocompet ewi t
hthebusinessof
thepart
nershipexceptwit
ht heconsentoft heotherpartners.I
fhedoesso,heshal l
havetoaccountf ortheprof
itsof
suchbusinesstot hefi
rm,andalsot ocompensatethe
fi
rmforanylosssust ai
nedbyhi scarr
yingonsuchcompet ingbusiness.

12.Ever
ypartnerisboundtoactwithi
nthescopeoft
heactualaut
horit
yconfer
redupon
hi
m.Ifheexceedshi sauthor
ity
,heshallhav
etocompensatetheotherpar
tner
sforany
ensui
ngloss,unlesstheyrat
if
yhisact.

13.Nopar t
nercanassi gnortransferhispart
nershipi
nter
estt oanyotherper
sonsoas
tomakehi m apart nerinthebusiness.Butapar t
nermayassi gnhisshareint
heprof
it
s
andasset soft hef irm.Theassi gneeort ransfer
eewi l
lhav enori
ghttoaskf ort
he
accountsort ointerfereinthemanagement oft hebusiness.Hecanonl ysharet
he
actualprof
its.
Ondi ssolut
ionhecanaskf ortheshareoft he assetsandalsothe
accountssincethedat eofdissoluti
on.

Useofpr opertyofthef
ir
m exclusi
vel
yf ort
hefir
m.Accor dingt
oSec.15,subj
ectto
contr
actbetweenthepar
tner
s,thepropertyoft
hef i
rm shallbehel
dandusedbyt he
part
nersexclusi
vel
yfort
hepurposesofthefi
rm’
sbusiness.

Personalprof
it
searned.Subj
ecttocontractbet
weenthepartner
si fapart
nerderi
ves
anypr of
itf
orhimsel
ff
rom anytr
ansacti
onofthefi
rm,orf
rom theuseoftheproper
tyor
businessconnect
ionofthefi
rm orfi
rmname,heshal
laccountforthatpr
ofi
tandpayit
tothef
irm.Secondl
y,ifapar t
nercar
ri
esonanybusi nessofthesamenatur
easand
compet
ingwiththatofthefir
m, t
henheshal
laccountf
orandpaytothef
irm,allpr
ofi
ts
madebyhiminthatbusiness.

I
tisopent opart
nerst
odeterminebyagr
eementamongstt hem ast
owhatshal
lbet he
propert
yoft hefi
rm andwhatshal
lbetheseparatepropertyofoneormor eoft he
partner
s.Subj
ecttoacontr
actamongstt
hepart
ners,t
hepropert
yofthef
ir
mincludes:

(a) al
lpr
oper
tyandr
ight
sandi
nter
est
sinpr
oper
tyacqui
redbypur
chaseorot
her
wise,
byorforthef
ir
m;

(b) al
lpr
oper
tyandr
ight
sandi
nter
est
sinpr
oper
tyor
igi
nal
l
ybr
oughti
ntot
hecommon
stockoft
hefi
rm;

(c) al
lpr
opert
yandright
sandi nt
erest
sinpr
oper
tyacqui
redf
ort
hepur
pose,
andi
nthe
courseofthebusi
nessofthef
ir
m;

(
d) goodwi
l
loft
hebusi
nessoft
hef
ir
m.

SELFCHECKTEST

(a) Apar
tnerwi
thoutt
heknowledgeofhi
sco-
par
tner
sobt
ainsforhi
sownbenefi
tthe
r
enewalofthel
easeofthebusi
nesspromi
sesoft
hefir
m.Willhebeabl
etoenjoythe
l
ease?

(b) BandCwer epart

ners,andCwasemployedt
obuysugarfort
hefi
rm.CwithB’
s
knowledge,sol
dhisownsugartot
hefi
rm att
hemarketpr
iceandmadeaconsi
der
abl
e
prof
it
.Adv i
seC.

(c) Par
tner
shi
pDeed, si
gnedbyBandC, gaveBpowert
ointr
oduceintot
hepart
nershi
p
anyofhissonont hei
ratt
ainingt
heageof21,B’ssonDattai
ned21andBpr oposedto
makehim apar t
ner.Crefusedtoconsent.Coul
dCprev
entDfrom bei
ngapar
tner?

(
d) Awasacommonpar tnerist
wof i
rmspubl
i
shi
ngnewspaper
s.Hecommuni cat
ed
i
nfor
mat
ionandnewsofonefir
mt otheot
her
.Canhebepr
event
edfrom doi
ngso?

(e) A,BandCwer epartner

sinafi
rm Byhiswilfulnegl
ectandmisconductBcaused
seri
ouslosstot
hebusinessoft
hefi
rm.Afterseveralwar
ningstoB,AandCpasseda
resol
uti
onexpel
l
ingBfrom thefi
rm.Bobjectstohisexpulsi
on.
Ishelegall
yent
it
ledto
doso?
Answer:

(
a) No,
thel
easesor
enewedwaspar
tner
shi
ppr
oper
ty,

(
b) C mustaccountf
ort
othef
ir
mfort
hepr
ofi
tmade,

(c) No,Ccouldnotpr
eventDfrom bei
ngint
roducedasapartner
,ast
hepar
tner
shi
p
deedsignedbyhi
m andBoper
atedasaconsentbybothpar
tner
s.

(d) Yes,Acanbepr
event
edbyInjunct
ionfr
om doi
ngso.Hemayal
sober
equi
redt
o
compensatet
hefi
rmf
oranyl
osscausedtoitbyhi
smisconduct
.

(e) No,Bcannotobjectt
ohisexpul
sionbytheot
herpart
ner
s.Hehasmi sconduct
ed
andcausedseri
ouslosstothefi
rmand,inspi
teofsev
eralwar
nings,hasnotmended
hisways.

RELATI
ONOFPARTNERSTOTHI
RDPARTI
ES

Powerofpar tnert obi ndt hefirm:Ev er

ypar tneri st heagentoft hef i
rm andhi s
copar tnersf ort hepur posesoft hebusi nessoft hef i
rm.Whent woormor eper sons
agreet ocar ryonapar tnershipbusi nessandshar eitspr ofit
s,eachi sapr inci
paland
eachi sanagentf ort heot hers.Eachi sboundbyt heot her’
scont r
actincarryingont he
business, justasasi nglepr i
ncipalwoul dbeboundbyt heact sofanagent .Thepr i
ncipal
ofagencygov ernst her elati
onshi pbet weenthepar tners.Itisbecauseoft histhatt he
l
awof par t
ner shipi ssaidt obeabr anchoft helawofagency .Theauthori
tyofapar tner
toactonbehal foft hef irmmayei therbeexpr essori mpli
ed.Any aut horitywhi chi s
expressl ygivent oapar t
nerbyagr eementofpar tnershipiscalledExpressAut hori
ty.The
fi
rmi sboundbyal lact sdonebyapar tnerbyv i
rtueofanyexpr essauthori
tygivent ohim.
ImpliedAut hor it
ymeanst heaut horit
yt obindt hef irm whi char i
sesbyi mpl i
cati
onof
l
aw- from thef actof partnership.

I
MPLI
EDAUTHORI
TYOFAPARTNER

Sect
ion19(
1)and22r
eadt
oget
herpr
ovi
det
hatt
heactofapar
tnerwhi
chi
sdonet
o
carr
yon,i ntheusualway ,busi
nessoft heki ndcarri
edonbyt hef i
rm,bi ndsthef i
rm,
provi
dedt hattheactisdonei nthefi
rm nameori nanymannerexpr essi
ngori mplying
anintent
iont obindthef i
rm.Suchanaut hor
ityofapar t
nert
obi ndthef i
rmi scal
ledthe
i
mpl i
edAut hori
tyofapar tner.
Theref
orethet est
,tojudgewhetheratransactionentered
i
ntobyapar tnercomeswi t
hinhisimpliedaut hori
tyisqui
tesi mple.Forsuccessf ul
appli
cati
onoft histestthefoll
owingthreecondi t
ionsmustbefulfi
ll
ed.Absenceofev en
one conditi
on wi l
lv i
ti
atet he tr
ansacti
on and wi l
lnotcome under t he ambitof
i
mpl i
edauthorit
yofapar tner.Theseconditi
onsar e:

1. Thenat
ureoft
het
ransact
ion—l
stocar
ryonbusi
nessoft
heki
ndcar
ri
edonbyt
he
fi
rm?

2. Themanneri
nwhi
cht
het
ransact
ionhasbeent
ransact
ed—I
sitdonei
ntheusual
way
?

3. I
nwhosenamet
het
ransact
ionhasbeendone-
lsi
tdonei
nthenameoft
hef
ir
m?

Ori
sthei
ntent
iont
obi
ndt
hef
ir
m cl
ear
?

Ev
erypar
tnerhasani
mpl
i
edaut
hor
it
ytobi
ndt
hef
ir
m byt
hef
oll
owi
ngact
s:

(
1) Hemaysel
lthegoodsoft
hef
ir
m.

(
2) Hemaypur chaseont
hef
ir
m’sbehal
fgoodsoft
heki
ndusual
l
yempl
oyedi
nthe
f
ir
m’sbusi
ness.

(
3) Hemayr
ecei
vepay
mentoft
hef
ir
m’sdebt
sandgi
ver
ecei
ptf
ort
hem.

(
4) Hemayengageser
vant
sfort
hepar
tner
shi
pbusi
ness.

(
5) Accept,makeandissuenegot
iabl
einst
rument(
cheques,bi
l
lsofexchange,
pr
omissor
ynot
es)inthef
ir
m’sname.

(6) Bor r
ow moneyont
hef
ir
m’scr
edi
tandpl
edget
hef
ir
m’sgoodst
oef
fectt
hat
purpose.

(
7) Buygoodsoncr
edi
tfort
hef
ir
m.

(
8) Engageandinst
ructanadvocat
einasuitbyoragai
nstt
hefi
rmforatradedebt
.(A
t
radi
ngfi
rmisonewhichcarr
iesonthebusi
nessofbuyi
ngandsel
l
ingofgoods).

Exampl
es:

(
a) A,
thepar
tnerofaf
ir
m ofconf
ect
ioner
,buy
ssugaroncr
edi
tint
hef
ir
m name.The
f
ir
misboundt
opayf
ort
hesugar
.

(b) A,t
hepart
nerofafi
rm ofbankers,accept
sabi l
lofexchangeonbehal
fofthefi
rm
doesnotinf
ormthef
ir
m ofthisrecei
ptandaf t
erwardsthemoneyi sappr
opri
atedbyA
forhi
sownuse.Thefir
misliabl
et omakegoodt hepayment.

(c) AandBar epar

tners.A,wi
ththei
ntent
ionofcheat
ingB,
purchasesonbehalfoft
he
fi
rm.The goods wer e oft
he t
ype used bythe fi
rm.He uses the goods forhi
s
personal
use.

The fir
mi sli
abletopayf orthepriceofthegoods.I
fapar tnerpledgesthecredi
tofthe
fi
rmf orapurposeappar ent
lynotconnect
edwiththefir
m’ sor di
narybusinessthefi
rmis
notbound unl ess he was speci al
lyauthor
ised byot herpar tner
s.The par t
neris
personal
lyli
abl
e, al
thoughhisactmaysubsequent l
yber ati
fiedbythefir
m.

(a) A,thepart
nerofaf i
rm ofconfecti
oner
s,buy
sahorseoncr editi
nthef i
rm’s
name.Thef
ir
misnotboundt opay
thepriceoft
hehorse,
ast
hisactdoesnotf
allwit
hin
thescopeofaconf
ect
ioner
’sbusi
ness.

(b) B,thepar
tnerofafi
rm’ofsoli
citor
s,accept
sabil
lofexchangeonbehal
foft
hefir
m.
Thef i
rmisnotboundtopaythebi l
l
,asitisnopartofor
dinar
ybusinessofasol
i
cit
orto
draw,acceptorendor
sebil
l
sof exchange.

Li
mit
ati
onsofI
mpl
i
edAut
hor
it
yofaPar
tner
:

Sect
ion19(
2)oft
hePart
nershi
pActexpr
essl
yprovi
dest
hati
ntheabsenceofusageor
cust
om oft
radet
othecont
rarythei
mpli
edauthor
it
y ofapart
nerdoesnotempower
hi
mt o:

(
a)submi
tadi
sput
erel
ati
ngt
othebusi
nessoft
hef
ir
mtoar
bit
rat
ion;

(
b)openabanki
ngaccountonbehal
foft
hef
ir
minhi
sownname;

(
c)compr
omi
seorr
eli
nqui
shanycl
aim orpor
ti
onofacl
aim byt
hef
ir
m;

(
d)wi
thdr
awasui
torpr
oceedi
ngf
il
edonbehal
foft
hef
ir
m;

(
e)admi
tanyl
i
abi
l
ityi
nasui
torpr
oceedi
ngagai
nstt
hef
ir
m;

(
f)acqui
rei
mmov
abl
epr
oper
tyonbehal
foft
hef
ir
m;or

(
g)t
ransf
eri
mmov
abl
epr
oper
tyonbehal
foft
hef
ir
m;
(h)ent
eri
ntopart
nershi
ponbehal fofthef i
rm.Accordi
ngtoS.20ofthePar
tnershi
pAct,
i
tisopentothepartner
sbyexpressagr eementt oextendorli
mitt
heimpli
edaut hor
it
y.
Thethi
rdpar
ti
eswillbeboundbyexpr essl i
mitati
ononlywhen t
heyhavenoti
ceofsuch
l
imit
ati
onorcur
tai
lmentoftheimpliedaut hor
it
y .

Accordingt
osec.21apar tnerhasauthor
it
ytodoallsuchact
sduri
ngemergency
whicharenecessar
ytoprotectthefi
rmfrom l
oss.I
nsuchacase,t
hefi
rm woul
dbe
l
iableev
enfortheunaut
hori
sedact sofapar
tner
.

Li
abi
l
ityofPar
tnerf
orAct
soft
hef
ir
m:

Section25oft heActlaysdownt hegener alrul

et hatev er
ypar t
nerisliabl
ef orallactsof
thef i
rm donewhi l
eheisapartnerandt hattheliabili
tyisjointandsev er
al.Anactoft he
Fir
mi sanactorcommi ssi
onbyal l
thepartnersorbyanypar tneroragentoft he fir
m
whichgi vesri
set oar i
ghtenforceablebyoragai nstthefir
m. I
tfoll
owst hatal lpart
ners
arel i
ablejoi
ntl
yorsev eral
l
yf orallactsorcommi ssionsbindingont hef ir
m.I norder
thatanactdonemaybeanactoft hef i
rm and,thereforebindingonal landev erypartner,
i
ti snecessaryt hatt
hepartneroragentdoi ngt heactonbehal fofthef ir
m musthav e
done t hatactinthenameofandonbehal foft hef i
rm andnoti nhisper sonalcapacity,
andt heactmusthav ebeendonei ntheordinar
ycour seoft hebusi nessoft hef i
rm.

Exampl
es:

(a) A,
thepar
tnerofafi
rm ofcl
othmerchant
s,buyscl
othf
rom amil
loncredi
t.Thi
sis
anactofthefi
rm andal
l
partner
sarel
i
abletopaythepri
cej
oint
lyaswel
lasseveral
l
y.

(b) A,thepart
nerintheabov ementi
onedf i
rm,ordersoncredi
t5casesofKashmi r
appl
esonhisownini
tiat
ive,butsendstheorderonthefir
m’slet
ter
headandinthefir
m’s
name.Thefir
mi snotli
ablet opayf
ortheapples,astheorderi
snotforthepurposeof
thebusi
nessofthef
irm ofclothmerchant
s.Aispersonal
lyl
iabl
etopay.

Li
abil
i
tyf
orWrongf
ulAct
sofPartner
:Ever
ypar
tneri
sli
abl
efort
henegligenceandf
raud
oftheot
her
part
ner
sinthecour
seofthemanagementoft
hebusiness.

Exampl
es:

(a) A,thepartnerofaf i
rm,bribedthecler
kofar i
valfi
rm andobtai
nedcer
tai
n
confi
denti
ali
nformat
ion.
Thefi
rm washeldl
i
ablefort
hewr
ongful
actofA.
(
b) A,t
hepar
tnerofafi
rm oft
axidr
iver
s,i
njur
esPbyhi
snegl
i
gentdr
ivi
ng.Thef
ir
m
washel
dli
abl
etopaydamagest
oP.

(c) A,t hepar

tnerofafir
m ofjewel
l
ers,misappr
opr
iat
esRs.10,
000whichP had
deposi
tedwit
hhimf or
buy
inggol
dandmakingornament
s.Thef
ir
mi sli
abl
e.

Di
ssol
uti
onofPar
tner
shi
p

ORReconst
it
uti
onoft
heFi
rm

Whent herei
sachangeintherel
ati
onsofpar
tnersandt
hefirm conti
nuesasanewf
ir
m,
then i
ti s call
ed dissol
uti
on oft
he part
nershi
p or reconsti
tuti
on of t
he f
ir
m.
Reconsti
tuti
onofthef
irm maytakepl
aceinvar
iousways,
namel y;

(
1)byadmi
ssi
onofapar
tner
,

(
2)byr
eti
rementofapar
tner

(
3)byexpul
sionofapar
tner
,

(
4)byi
nsol
veneyofapar
tner
,

(
5)bydeat
hofapar
tnerand

(
6)byt
ransf
erofapar
tner
’sshar
e.

1.Admi
ssi
onofapar
tner(
31)

Anewpar tnercanbeintr
oducedi naf i
rm wit
hconsentofalltheexisti
ngpar t
nersoft he
fi
rm.Thisisbecausetherel
ati
onsofpar t
ner
sar ebasedonmut ualtrustandconfidence,
assuch,onlythatpersoncanbeadmi ttedasanewpar t
nerwhoenj oystheconf i
dence
ofallt
hepar t
ners.Anewpar t
nercanal sobei ntr
oducedinthefir
mi fthereisacont r
act
betweenthepar tner
sint hi
sr egard.Therefore,itmeansthatanew par tnercanbe
admitt
edeitherwitht
heconsentofal lthepartnersori
naccordancewi t
ht hecontract.A
newpar t
nerisalsocall
edincomi ngpar t
ner
.Liabi
lit
yofanewpar tneraccordingtoSec.
31

(2),“
Subjecttoprovisi
onsofSec.30, aper
sonwhoi sintr
oducedasapar tnerintoafi
rm
doesnott herebybecomeliabl
ef oranyactoft hefi
rm donebef or
ehebecameapar tner.
”
Thismeanst hel i
abil
it
yofanewpar t
nerstart
sf r
omt hedateofhisadmission.Howev er
,
thenew par tnermayagr eewi thhi spartner
st obel i
abl
ef ortheli
abil
ityoft hefi
rm
i
ncurredbyt hef i
rm bef
orethedat eofhisadmi ssion.Butsuchan agreementi sfi
nding
onlybetweent henewpar t
nerandexi st
ingpar t
ners,anddoesnotgi veanyr i
ghttot he
credi
tortosuet henew par t
nerf orpartdebt soft hef
ir
m.Butanew par tnermaybe
madel i
abletot hecredi
tor
soft hef i
rmforthepastdebt softhefir
m only,
if,

(a)Thenewpar
tner
sort
her
econst
it
utedf
ir
m shoul
dhav
eassumedt
hel
i
bil
i
tyoft
he
pastdebs.

(b) Thecredi
tor
sshould beinf
ormed oft
henew arrangement.Thenew par
tner
becomesli
abletothoseofthecr
edi
tor
swhoexpressl
yori mpli
edlyacceptt
henew
arr
angement
.

2.Ret
ir
ingpar
tner

Thereti
rementofapar tnerfr
om af ir
mt akesplacewhenheleavesthefir
m.Whena
part
nerret
ireorwithdr
awsf r
om t hefi
rm andt heremai
ningpar
tnersconti
nuewi
tht
he
fi
rm,reconsti
tut
ionofthefi
rmt akesplace.Apart
nermayreti
ref
rom thefi
rm—

(
a)wher
eal
lthepar
tner
sgi
vet
hei
rconsentt
oret
ir
ement
.

(b)whereitisapart
ner
shi
pagr
eementt
hatapar
tnermi
ghtr
eti
rewi
thoutseeki
ngt
he
dissol
uti
onofthef
ir
m.

(
c)wherepar
tner
shi
pisatwi
l
l,bygi
vi
ngnot
icet
oal
lot
herpar
tner
sofhi
sint
ent
iont
o
r
eti
re.

Li
abi
l
ityofar
eti
ri
ngpar
tner
.Thi
smaybedi
scussedundert
woheads—

(i
) Li abili
tyfortheactsoft hefir
m donebef or ereti
rement.Accoringt osec.32( 2),a
retiri
ngpar t
nerremainsl
iabletothecr edit
orsoft hefirmf oral
ltheactsoft hef i
rm done
byt hef i
rm donebeforethedat eof
retirement.Inaddi t
ion,hewillal
sobel iabl
ef orall
the
transactionsoft hefi
rm begunbutr emai nunfinishedatthedateofr et
irement .
Howev er
,
ar eti
ri
ng par t
nerbe discharged from such l i
abil
it
ies ifthereis an agr eementi n
thisconnectionbetweent hereti
ri
ngpar t
ner,t
her emaini
ngpar t
nersandt hecr edit
orsof
thef irm.Thi sagreementi scall
ed'nov at
ion'
.Buti nordert odischargehi mf rom the
creditorsbynov ati
ontwot hingsmustbef ul
fi
lled—
(
i) Theremainingpart
nersmusthav
eagr
eedwi
tht
her
eti
ri
ngpar
tnert
orel
easehi
m
f
rom exi
sti
ngdebtsandl
iabi
li
ti
es.

(i
i) Thecr edit
orsmustbei nformedoft hereti
rementandt henewar r
angement.After
thi
st he r eti
ri
ngpart
nerwi l
lbe r el
eased from li
abili
tytot he cr
edit
ors who hav e
expressely ori mpli
edly agreed t
or el
ease the reti
red part
nerand t o acceptthe
reconstit
uted fir
m as t hei
rdebt or
.An i mplied agreementar
ises when a credi
tor
continuestodeal wit
hr econsti
tut
edfirm af
ternoti
ce.

(i
ii
) Liabili
tyf ort heAct soft hef i
rm doneaf t
erretir
ement( sec.32( 3)—Ther et
ir
ing
part
nerr emai nsl i
ablet othirdpar t
iesf ort heactsoft hefirm doneaf terhisreti
rement
unti
lapubl i
cnot iceofhi sretirementgi ven.Thisli
abil
it
yoft her et
ir
ingpar tneri
sbased
onthepr incipleofhol dingout .Butt heactshoul dbewi thi
nthescopeoft heauthori
tyof
thepartnerdoi ng i t
.Butther etir
ingpar tnerisl i
abl
eonl ytothoseper sonswhodealwi th
thefir
m undert heassumpt iont hatt heretiri
ngpar t
nerwasst illapar t
ner.Buthei snot
l
iabletothet hir
dpar t
ieswhohav enoknowl edgethathewasapar t
ner.Howev er,a
publi
cnot icei snotr equiredincaseofasl eepingpartnerandhewi l
lnotbel iabl
eforthe
actsofthef irm doneaf t
erhisr eti
rement .Thi si
sbecausesuchapar t
neri snotknownt o
thethi
rdpar ties.

3.Expl
usi
onofapar
tner(
sec.33)

Ordi
nari
lyapartnercannotbeexpell
edfr
om thefirm byanymajor
it
yoft hepart
ners.But
theaut
horit
yofexpulsioncanbegivent
othemaj ori
tyonlybyanexpressprovi
sioninthe
part
ner
shipagreement .Butthi
spowerofexpulsioncanbeexerci
sedifthreecondit
ions
aresat
isfi
ed.Thesecondi t
ionsar
e:

(
a) t
her
ightofexpul
si
onshoul
dbegi
vent
othepar
tner
sbyanexpr
esscont
ract
,

(
b) t
hepowerofexpl
usi
onshoul
dbeexer
cisedbyamaj
ori
tyofpar
tner
s,

(c) thepowershoul
dbeexercisedingoodfai
th.Thetestofgoodfaithi
sthat,
fir
st,t
he
expulsi
onmustbei nthei
nterestofthefir
m,t wo,thatthepartnertobeexpel l
edis
servedanot i
ceandthr
ee,
thathei sgi
venanappor t
unit
ytoexpl
ainhisposi
ti
on.

Wheret heexpulsionofapar t
nertakespl acewit
houtsatisf
yinganyoft heconditi
ons
mentionedabov e,theexpulsi
onisi
rregular.I
nsuchacase,t heexpel
ledpartnermay
ei
therclai
mr e-
instatementasapartner,orsuefortheref
undofhisshareofcapitaland
pr
ofit
si nt he fir
m.An i rr
egularexpulsion i
sineffect
ive and i
noperati
ve and the
expel
ledpart
nerdoesnotceasetobeapar tner
.Butwhileexpel
li
ngapar tneri
tmustbe
ensuredthatallt
hethreecondi
ti
onshavebeensati
sfi
edtomakei taproperandregul
ar
expul
sion.Thent her
ight
sandli
abil
it
iesofanexpel
led par
tnerarethesameast hoseof
areti
redpartner.

4.I
nsol
vencyofaPar
tner(
sec.34)

Whereapart
nerinafir
mi sdecl
aredi nsolment,heremainsnomor eapartneronthe
dat
eonwhichtheorderof
declar
inghimi nsolventismade,whethert
hefir
mi sther
eby
di
ssol
vedornot
.Theotheref
fectsresulti
ngfrom thei
nsol
vencyofapart
nerare:

(a) Thef i
rmisdissol
vedont hedateoforderofinsol
vencybutt hepar
tner
smay
speci
fi
cal
l
ypr ov
idet
hatonsuchaneventt
hefi
rm shal
lnotbedissol
ved.

(b) Theestateoftheinsol
ventpar
tnershal
lnotbeli
ablefortheactsofthefi
rm done
afterthedat
eoftheorder.Apubli
cnoticeoftheorderofadjudi
cati
nginsol
venti
snot
requir
ed.

(
c)t
hef
ir
misnotl
i
abl
efort
heact
soft
hei
nsol
ventpar
tneraf
tert
hedat
eofor
der
.

5.Deat
hofapar
tner(
sec.
s.35and42(
c).

Afi
rmi sdi
ssol
ved,subjecttocontr
actbet
weent hepartner
s,bythedeat
hofapar tner.
However,whenunderacont r
actbet
weent hepartner
st hefir
mi snotdissol
ved,the
est
ateofthedeceasedpar t
nerisnotli
abl
ef oranyactofthefir
mdoneafterhi
sdeat h.
Fur
ther
,nopubli
cnot i
ceisrequir
edofthedeathofapartner.

6.Tr
ansf
erofapar
tner
’sI
nter
est(
sec.29)
.

Apar tnermayt ransf erhisint erestinfi

rm bysale,mor t
gageorchar ge.Butthet r
ansf
ree
i
snotent i
tl
edt ointerfreeint heconductoft hebusinessoft hefi
r m, t
or equir
eaccounts
oft hefirm andt oi nspectt hebooksoft hefi
rm.Whent hepartnert ransferstheshare,
thet r
ansf ereeonl ybecomesent i
tl
edt oreceivet
heshar eofprofitoft hepart
nerwhohas
transferedhi sshar e.Buthehast oacceptt heaccountofpr ofit
spr ov
idedbyt he
partners.[Sec.29( 1)]I
fthef irmi sdissolv
edori ft
het ransf
eri
ngpar tnerceasestobea
partner,thet ransfereei sent itl
edt oreceivethet
ransferi
ngpar t
ner ’
sshar eintheassets
oft hef irm.Forknowi ngt hatshar e, hei sentil
edt oanaccountf rom thedateof
dissolution.[sec.29( 2)]

DI
SSOLUTI
ONOFFI
RM

Dissol
uti
onofaf irm:Dissol
uti
onofaf ir
m meanstheendofaf i
rm bythebreakupof
therel
ati
onof par
tnershi
pbetweenallthepart
ner
sButwher etherelat
ionbetweenonl
y
somepar tnerisbrokeriti
scalleddi
ssol
uti
onofpartner
ship.Forexample,whereA,B
andC wer epar t
nersi nafirm andA diedorreti
redor wasadjudgedinsolv
ent,t
he
part
ner shipf irm woul dcomet oanend.Buti fthepar t
nershadagr eedt hatdeat h,
ret
ir
ementori nsolvencyofapar t
nerwoul d not dissol
vet he fi
rm,t hen on t he
happeni ng ofanyoft hese contingenci
es the“par
tnershi
p”wouldcer t
ainlycomet o
anend,butt hef i
rm mi ghtcontinueunderthesamename.I twouldbea“ reconstit
uted
fi
rm”;forwher eAhadgoneoutoft hefir
m onaccountofanyr eason;ther elati
onshi p
betweenA,BandC i sbr okenupandanew r el
ati
onshipbetweenBandCi screat ed.
Therefor e,“dissolut
ionofpar tnership”i
nvolvesachangei nther
elat
ionoft hepar tner s,
butitdoesnotmeant heendoft he par t
nershi
pfi
rm.Af i
rm maybedi ssol
vedonanyof
thefoll
owi nggr ounds:

1.ByAgreement:Afirm maybedissol
v edwit
htheconsentofal
lthepar
tner
soft
he
fi
rm,par
tner
shipiscr
eatedbycont
ract
.Itcanbeter
minat
edbycont
ract(
S.40).

2.ByNot i
ce:Wheret hepartnershi
pisatwill
,thefi
rm maybedi ssolvedbyanypar t
ner
givi
ng noti
ceinwri
tingtoalltheotherpar
tnersofhisi
ntentiontodissol
vethefir
m.The
dissol
uti
ontakesplacefrom thedatementi
onedinthenotice,or,
ifnodateismentioned
thenfr
om thedateofcommuni cat
ionoft
henot i
cet
otheot herpart
ners(S.43)
.

3.Onthehappeningofcert
aincont
ingenci
es:(
S.42):Subj
ecttocontractbetweent
he
par
tner
stocont
inuethebusi
nessinspit
eoftheconti
ngency
,fi
rmisdissolved

(
a) i
ffor
medf
oraf
ixedt
erm,
byt
heexpi
ryoft
hatt
erm;

(
b) iff
ormedt
ocar
ryoutoneormor
eadv
ent
uresorunder
taki
ng,byt
hecompl
eti
on
t
her
eof;

(
c)byt
hedeat
hofpar
tner
;and

(
d) byt
hei
nsol
vencyofapar
tner
.

4.Compul
soryDissolut
ion:Accordi
ng to Sect
ion 41 t
he di
ssol
uti
on ofa f
ir
m i
s
aut
omat
icundert
hef oll
owingci
rcumstances:

(a)I
fallthepart
nersofafir
m orifal
lthepartner
sexceptonebecomei nsolv
ent,there
mustnecessar i
ly
bedissol
uti
onofthef i
rm.Whenapar t
nerisdecl
aredinsol
vent,then
heceasest obea par t
nerfrom t
hedateofsuchdecl ar
ati
on,si
nce,theremustbeat
l
eastt wo part
nersinaf i
rm,ifallpartner
soral lthepar
tnersexceptonebecome
i
nsolventthent
hef i
rmi
sdissolv
ed.

(b)Bybusi
nessbecomingi
l
legal
:Af i
rmisi
neverycasedi
ssol
vedifthebusi
nessoft
he
part
nershi
pispr
ohi
bit
edbylaw,i
.e.
,theobj
ectf
orwhichthepart
nershi
pwasf or
medis
unl
awful
,orbecomesil
legalasaresul
tofsomesubsequentevent
s.Thi
sisbyoperati
on
ofl
aw.Butifthefi
rm is carr
yingonmorethanonebusi
ness,
ifonebusinessbecomes
i
ll
egal
thefi
rmi snotdi
ssolved.

5.Di
ssol
uti
ont hr
oughtheCourt(
S.44):Att
hesui
tofapar
tner
,theCour
tmaydi
ssol
ve
afi
rm onanyoneofthefol
l
owinggrounds:

(a) I
fapar
tnerbecomesofunsoundmi nd.Thesuitf
ordi
ssol
uti
onmaybef
il
edbyt
he
nexti
nki
noftheinsanepar
tnerorbyanyotherpar
tner
.

(b) Ifapar
tnerbecomesper manentl
yincapabl
e,ofper
forminghi
sduti
esasapar
tner
,
e.g.
,hebecomesbli
nd,orparaly
tic,
etc.
,Thesuitwil
lbefi
ledbyapart
nerot
hert
hanthe
part
nerwhohasbecomei ncapable.

(c) Ifapar tneri

sguiltyofmisconductwhichisli
kelytoprej
udicethebusinessofthe
fi
rm,thecour tmaydissolvet
hefir
m attheinst
anceoft heotherpart
ners.TheCourtwil
l
orderdissoluti
onift
heactcompl ai
nedofisli
kelytoaff
ectthecredi
tandcust omersof
thepartnershipbusi
ness.Gambl i
ngbyt hepart
ner,misappl
i
cationofcli
entsmoneybya
soli
ci
toraretheexampl esofmisconduct.

(d) I fapartnerwil
full
yandper sist
ent
lycommi t
sbr eachoft hepartnershipagr
eement
regardingmanagement ,and t he ot
herpar tner
sf ind itimpossi bl
et o car
ryon the
partnershi
pbusiness,theCour tmayorderdissoluti
onoft hefirm atthei nst
anceofany
of t he other partners. For exampl e, constantrefusal to per form duties, or
continuous,quarrel
s,orer roneous accounts by a par tnerar e goodgr ounds for
dissoluti
on.

(e) Ifapartnerhastr
ansfer
redthewholeofhi
sint
erestinthefi
rmtoanoutsi
deror
hasall
owedhi si
nter
esttobesol
dinexecuti
onofadecree,theot
herpar
tner
smaysue
fordi
ssol
uti
on.

(f
) I fthebusinessoft
hef
ir
m cannotbecar
ri
edonexceptatal
oss,t
hecour
tmay
orderdi
ssol
uti
on.

(g) Wher ethecourtconsider

sitjustandequi
tabl
etodissolv
ethefi
rm.I
tmaydosoat
the instanceofanypar tner
.Dissolut
ionhasbeengr antedunderthi
sclauseint he
fol
lowing cases:deadl ockinthemanagement ;completedestr
uct
ionofconfidence
betweent hepart
nersthattheyarenotevenonspeakingter
msanymor e;t
hesubstance
ofthebusi nessgone,et
c.

Di
ssol
uti
onofpar
tner
shi
pandDi
ssol
uti
onofFi
rm

I
tissai
dthatdi
ssol
uti
onofpart
nershi
pdoesnotnecessar
il
yleadtodissol
uti
onoff
ir
m,
wher
easdissol
uti
onoffi
rmdoesleadtodi
ssol
uti
onofpart
nershi
p.Iti
sbecause:
(1) Di ssoluti
on of f i
rm means t he complet
e break down of par tnershi
p
rel
ati
on.Dissoluti
onofpart
nershipsimpl
ymeansachangei nt
herelat
ionorconsti
tuti
on
ofpartners.Ev en af
terdissoluti
on ofpar
tner
shi
p,the par
tner
s mayagr ee among
themselvestocont i
nuethebusiness.

(2) Di ssol
uti
onofaf i
rm meanscl osi
ngdownthebusinessofthefi
rm.Buti
n
dissol
uti
onof partner
shi
p,thebusi
nesscont
inuesasbef
oreexceptthefi
rmisre-
consti
tut
ed,

(3) Incaseofdi
ssol
uti
onofpar
tnershi
p,apart
nerret
ir
es,diesorbecomesinsolv
ent
butincaseofadi
ssol
uti
onoffi
rm,thereiscomplet
eterminati
onofrelat
ionbetween
part
ner
s.

(4) When t
hef i
rm isdissolved,it
sasset sarer eal
ised and distr
ibut
ed among
partners.Whi
lein case of
dissolut
ion ofpartner
ship,onlything to be done isthe
ascertainmentoft
he shareoft heoutgoingpart
ner,
becausethebusi nessconti
nuesas
before.

ConsequencesofDi
ssol
uti
on

1.Ont hedissolut
ionofaf ir
m,itcomest oanendandi tsaffairshavetobewoundup
accordi
ngtot herulesl
aiddowni ntheAct .Theassetsofthef i
rmt obecoll
ectedand
appli
edin pay mentoft hedebtandl i
abili
ti
es.Thedef
ici
t,ifanyi stobedistri
buted
amongt hepar t
nersaccordingtot hei
rrights.Thedefi
cit
,ifany ,istobepaidby the
part
nersaccordingt ot
het ermsoft heagr eementofpartnership.Thesepr
oceedings
arecall
ed“windi
ngup” .

2.Unti
lpubl
icnot
icei
sgi
venofthedissol
uti
on,t
hepart
nerscont
inuet
obel
i
abl
etot
hir
d
part
iesforal
lact
sdonei
nconnecti
onwi t
htheaff
air
softhefi
rm.

3.Notwit
hst
andi
ng t
hedi
ssol
uti
on,t
heaut
hor
it
yofeach par
tnert
o bi
nd t
hef
ir
m
cont
inues

(
i)sof
arasmaybenecessar
ytowi
ndupt
heaf
fai
rsoft
hef
ir
m,and

(
ii
)tocompl
etet
ransact
ionsbegunbutunf
ini
shedatt
het
imeofdi
ssol
uti
on.

4.I
fanypar
tnermakesanypr
ofitf
rom anytransacti
onconnect
edwit
hthefi
rm af
teri
ts
di
ssol
uti
on,
hemustshareit
withtheotherpartner
sandthelegalr
epr
esent
ati
vesofthe
deceasedpar
tner
s.

5.Wher eapar tnerhaspaidpremium onenteringintopart

nershi
pforfi
xedt erm,andthe
fi
rmi sdi ssolv
edbef or
et heexpir
ationofthatter m ot
herwisethanbyt hedeat hofa
partnerheshal lbeenti
tl
edt orepaymentofthepr emium orofsuchpartthereofasmay
ber easonable,accordi
ngt othet ermsofadmi ssi
onandt heunexpiredper i
odoft he
ter
m. Buthewi llnotgetanythi
ngi fthe di
ssolut
ion isduet ohismisconductoritisin
pursuanceofanagr eementcont ainingnoprovi
sion fortheretur
nforthepr emium or
anypar tofit.

6.Wher
eacont r
actcr
eat
ingpar
tnershi
pisresci
ndedonthegr
oundoft
hef
raudofany
oft
hepart
iest
heret
o,t
hepart
yenti
tl
edtoresci
nditi
senti
tl
ed

(a)toalienontheasset
soft
hefi
rmremainingaf
tert
hedebtsofthefi
rm hav
ebeen
paid,f
oranysumpai
dbyhi mf
ort
hepurchaseofashar
einthefi
rm andfort
hecapi
tal
contri
but
edbyhim;

(b)t
orankasacredi
toroft
hef
ir
minr
espectofanypay
mentmadebyhi
mtowar
dst
he
debt
softhefi
rm;
and

(
c)tobei
ndemni
fi
edbyt
hepar
tnergui
l
tyoft
hef
raudagai
nstal
lthedebt
soft
hef
ir
m
(
S.52)
.

7.Afterafi
rmisdi ssolved,everypart
nerorhi srepresentat
ivemay ,i
ntheabsenceora
contr
actbetweent hepartnerstothecont r
ary,r
estrainanyot herpartnerf
rom carry
ing
onasi mil
arbusinessint hef i
rm nameorf rom usinganyoft hepr opert
yofthefirmfor
hi
sownbenef i
ts,unt i
ltheaf fai
rsoft hefirm havebeencompl etel
ywoundup.But a
part
nerwhohaspur chasedt hegoodwillofthefi
rm, cannotber estrai
nedfr
om usingthe
fi
rm name(S.53).

8.Par
tner
smay,uponori nanti
cipati
onofthedissol
uti
onofafir
m, makeanagreement
thatsomeorallofthemwillnotcarry
onabusinesssimil
artothatofthefir
m wit
hina
speci
fi
edper
iodorwi t
hinspecif
iedlocall
i
mi t
s.Suchanagreementwillnotbevoi
don
thegr
oundofrestr
aintoftr
ade( S.54).
Partner’
sl i
en-Secti
on46pr ovidest othesameef fectandl aysdownt her ulethaton
dissolut
ion of a f i
rm,for the di schar
ge of t he l i
abil
it
ies,each par t
ner or his
representati
veshasar ighttohav et hepropertyoft hefi
rm appl i
edi npaymentoft he
debtsoft hefir
m.Ifther
ei sanysur plusasset ,
apar tnerhasar ighttohavetheaccounts
adjustedandt henetasset sdi vi
dedamongt hepar tnersaccor di
ngt otheirri
ghts.Or,
hehasar i
ghttohavewhat evermaybeduef rom co-partner
sdeduct edfr
om whatwoul d
beot herwisepayabl
etothem i nrespectoft heirshares.Thisrightofa par tneri
sof t
en
call
edapar t
ner’
sli
en.

Goodwi l
l-I
tisani mportanti
tem i
napar tnershi
p.I tmaybesol deitherseparat
elyor
al
ongwi t
ht heot herpropertyofthef i
rm.Itsv aluati
onwi l
ldependupont hefacts
andci r
cumstancesofeachcase.I ncaseofPagev s.Ratli
ff
e(1896),75LT.173,itwas
observedthatthev al
ueoft hegoodwillcouldbedeterminedandt akenequaltothetotal
ofthreeyears’netprofi
ts.Iti
supt oapar tnertodeci detopur
chasethegoodwi l
lofthe
fi
rm andcarryont hebusinessunderthef i
rm.

Set
tl
ementofAccount
s

Usuall
ythePartnershi
pDeedcont ai
nsan“accounti
ngclause”accor
dingtowhichthe
fi
nalaccount
sbet weenthepart
nersaresett
led.Buti
ntheabsenceofanyagr eement
betweenthepartnerst
herulesstat
edinSec.48oftheActapply
.Accordi
ngl
ythemode
ofsett
lementofaccountsbetweenthepart
nersaft
erdi
ssolut
ionisasfol
l
ows:

1.Wher ethefirm hassuff

er edlosses,orwherecapi talhasdwindl
ed,i
neithercase,the
undi
stri
butedpr ofi
ts,
ifany
, arefi
rstofalltobeappl i
edt othepaymentofsuchl ossesor
tothemaki ngupt hedeficiencyofcapital
.Ifthepr ofit
sproveinsuf
fi
cient,t
hecapi tal
mustbeappl i
edfort hepay mentoft helosses.Ifeventhentherei
sloss,part
nersmust
contr
ibuteindiv
iduall
yinpr oporti
ontothepr ofi
tsharingrati
o.

2.Theasset
soft hefir
mincludi
nganysumscont
ri
but
edbyt hepart
ner
stomakeup
def
ici
enci
esofcapit
al,
mustbeappli
edi
nthef
oll
owi
ngmannerandorder:

(
a) i
npay
ingt
hedebt
sduet
othi
rdpar
ti
es;

(b) inpayi
ngtoeachpartnerr
ateabl
ywhati
sduet
ohi
mfr
om t
hef
ir
mforadv
ancesas
dist
ingui
shedf
rom capi
tal
contr
ibutedbyt
hem;

(
c)i
npay
ingt
oeachpar
tnerr
ateabl
ywhati
sduet
ohi
m onaccountofcapi
tal
;and

(
d) t
heresi
due,i
fany,mustbedivi
dedamongt
hepar
tner
sint
hepr
opor
ti
oni
nwhi
ch
t
heywer
eenti
tl
edtoshar
eprofi
ts.
3.Ifapar t
nerbecomesi nsolv
entorot herwisecannotpayhisshar eofthecontr
ibut
ion,
thecapitaloft hesolventpart
ner scannotber etur
nedinfull.Inthiscase,thesolv
ent
partner
smustshar er ateablyt he avail
abl
e assets(i
ncl
uding theirown contri
buti
on
tot hecapitaldefi
ciency),i
.e.
,theav ai
labl
eassetswil
lbedistri
butedinpropor
ti
ontothe
ori
ginalcapit
al.

Exampl
e:

A,BandCar ethreepar tnersi naf irm whohav eagr eedt oshar epr ofi
tsandl osses
equall
y.Thei rcapitalcontributi
onsar e:A-Rs. 10,000; B-Rs. 5,000; C-Rs.1,
000, makinga
tot
alcapi talof Rs. 16,000. Ondi ssol utioni ti sfoundt hatr eli
abl easset sareRs. 20,000
anddebt spay abl ear eRs. 13,
000wi t
ht her esul tthatt heav ailableassetsareRs. 7,000.
Therefore,capitaldef i
ciencyi sRs. 9,000.Accor dingt oRul e1st atedabov e,eachpar t
ner
mustcont ri
buteRs. 3,000capi t
aldef i
ci ency ,becauset heyshar e pr ofi
tsequal l
y.The
fi
nalposi ti
onwi ll
bet hatAi stopayRs. 3, 000andr eceiveRs. 10,000:Bi stopay Rs.3,000
and recei ve Rs.5,000;C i st o pay Rs. 3,000 andr eceive Rs. 1,000.Consequent l
y,C
contri
butes Rs. 2,
000. Thi s cont ribut ion t ogether wi t
h t he av ai
labl
e asset s of
Rs.7,
000amount st oRs. 9,000.Outoft hisamountAget sRs. 7,000andBget sRs.2,000.I
f
Cisi nsolvent(Rul e3) ;hewi llpay not hing.Theav ai
lableasset swi l
lbeRs. 7,
000pl us
Rs.6,
000 ( thecont ri
but i
onofAandB) ,i.e.,inal lRs.13,000.Thi samountwi llbedi v
ided
betweenAandBi nther at i
oof2:1whi chi st her at
iobet weent heircapital.Awi l
lget
Rs.8,
666. 67p.andBwi l
lgetRs. 4,333. 33P.

Pay
mentofdebt
soft
hef
ir
m andpr
ivat
edebt
s

Wher etherear ej
ointdebtsduebyt hef ir
m,andsepar atedebt sduef r
om anypar tner,
thepartnershipcr
editorsshouldbepai df ir
stoutoft hepar tnershipassets,andsimilarl
y
priv
atecr edi
tors shouldbepai df irstoutoft hepr i
vat easset soft hepartner
.Inbot h
cases,iftherebesurplus,t
heot hersetofcr editor
swi llbeent itl
edt oshareinit.
AandB
arepart
ner sandbecomei nsolvent.A'spr ivatedebt sar eRs. 10,000andB’ sRs15,000.
The par t
nership debts are Rs.50,000,and t he assets Rs.60, 000.The par t
nership
credit
orswi l
lbepai di nful
l,andt he8. urpl
usofRs. 10, 000wi llbedi vi
dedamongt he
priv
atecreditorsofAandBi npr opor t
ionoft heirr
ightsi nthepar tnershi
pproperty.

SELFCHECKTEST
(a) AandBwer epar
tner
sunderanagr eementwhichprovi
dedthatt
hepart
ner
shi
p
shoul
dbet er
minatedbymutualagr
eementonly.CanAt ermi
natethepar
tner
shi
pby
giv
ingnot
icetoB?

(b) A,anIndi
an,andB,aChi nesesubj
ect
,arepartnersi
ntrade.Warbr
eaksout
betweenI
ndi
aandChi
na.Whati
stheposi
ti
onofthepar
tnershi
p?

(
c) AandBwer epartner
s,andAwasconv ict
edoft r
av el
i
ngontherai
l
waywi
thout
t
icketandwi
thi
ntentt
odefraud.Wi
l
ltheCour
torderdi
ssoluti
onoft
hefi
rm?

(d) A and B carr

ied on busi
ness as partners.Aftersome t i
me t he rel
ati
ons
between t
hem became so st r
ained that neither would speak to t he other
.
Communicati
onshavingtobeconveyedbet
weent hem throughtheaccountscl
erk.The
fi
rm hadmadeandcont i
nuet
omakel argeprof
its.Cant
hecour tor
deri
tsdissol
uti
on?

(e) AandB carr

iedonbusi nessinpartner
shi
p.OnB’ sdeatht
hepart
ner
shi
pwas
dissol
vedbutAcarr
iedonthebusi
nessforafurt
herper
iodofoney
ear
.Howshoul
dthe
profi
tsear
nedsi
nceB'sdeathbedivi
ded?

(f
) B, CandJcar r
iedonabusinessasJ&Co.Jr eti
redandBandCcar r
iedonbusi
ness
underanewnamewi ththeaddi
tionof“ LateJ&Co” .Jf oundanewf i
rm car
ryi
ngonthe
sameki ndofbusinessinpremisesadjoini
ngtheoldf i
rm’spremisesi
nthenameofJ&
Co.;andsentcir
cularsabouthi
sbusi nesstothecustomer soft
heoldfir
m.WhatareJ’s
ri
ghtsandt hoseofBandC?

Answer
s:

(a) No,
Acannott
ermi
nat
ethepar
tner
shi
pbygi
vi
ngnot
ice.HemustgetB’
sconsentt
o
doso.

(
b) Thepar
tner
shi
pbecomesunl
awf
ulandi
sdi
ssol
ved.

(c) Yes,thecourtwoul
dorderdi
ssol
uti
onofthefi
rm.Theconvi
cti
onwasf
ordi
shonest
andcal culat
edtobedet
eri
mentalt
othepar
tnershi
pbusi
ness,

(d) Yes,t
hecourtwoul
dorderdi
ssol
uti
onoft
hef
ir
m onj
ustandequi
tabl
egr
ound,
deadl
ockbetweent
hepar
tner
shadari
sen.

(e) B’
sestat
ei senti
tl
edtoshar
einsuchpar
toft
heprof
it
saswereearnedbytheuse
ofthepar
tnershipasset
s,pr
opor
ti
onat
etohi
sshar
eint
hetotal
par
tner
shipasset
s.

(
f) Jcoul
dcar
ryonhi
snew busi
nessi
ncompet
it
ionwi
tht
heol
dfi
rm andi
nthe
i
mmedi atevici
nit
y,butwit
houtsolici
tingthecustomersoftheoldfir
m.Theol df
ir
m
couldrest
rai
nhimf rom convassi
ngt hei
rcust
omers.Fur
ther
,al
thoughhisnamewasJ,
hecoul dnotcarryonhi snew businessi nthenameofJ&Co. ,astheol df
ir
m had
ret
ainedJ& Co.,aspartofit
sname.

CONTRACTOFSALEOFGOODS

Cont
ractofSal
e

Accor dingtoSect ion4oft heSal eofGoodsActacont r

actoft hesal eofgoodsi sa
cont r
actwher eby t he sel l
ert ransfer s,oragr ees tot ransfer ,the pr oper tyi n( i.
e.,
owner shipof)goodst othebuy erf orapr i
ce.
Acont r
actofsal emaybe( i
)absol uteor( ii
)
conditional,i.
e.,accor ding t ot hewi shesoft he par ti
est ot hecont ract.Thet erm
“contractofsale”i sagener ict erm.I ti ncl
udesan‘ actualsale’aswel lasan‘ agr eement
tosel l
’.Whereunderacont ractof salet hepropert
yint hegoods( i
.e.,
theowner shiphas
passedf rom thesel l
ert ot hebuy er,thecont r
actiscal l
edasal e.Wher ethet ransferof
owner shipi st ot akepl aceata f uturedate,orsubj ectt o somecondi ti
on t o be
ful
f i
ll
edlater
,thecont racti scal ledanagr eementt osell.Anagr eementt osel lbecomes
asal ewhent het i
meel apsesort hecondi ti
onisf ul
fil
l
edsubj ectt owhi cht heowner ship
oft hegoodsi stobet r
ansf erred.Ahasabook.Het r
ansf ershi sri
ghtorowner shipt oB
forRs. 15.Ther eisasal e.Wher eAagr eestot r
ansfert heowner shipoft hebookt oB
aftert
womont hsf orRs. 15, thisi san agr eementt osell,whent het womont hsexpi re,i
t
becomesasal e.Themai ndi stinctionbet weenasal eandanagr eementt osel list hatina
salet hebuy erownst hegoods,whi l
ei nanagr eement tosel l,theowner shipdoesnot
passf rom thesel lertot hebuy eratt het i
meoft hecont r
act.Thesel l
ercont inuest obe
theownerunt iltheagr eementt osel l becomesanact ualsal ebyt heexpi ryoft he
sti
pulat edti
meoront hef ulfilmentofsomecondi ti
on.

Essent
ial
sofaCont
ractofSal
e

Av
ali
dcont
ractofsal
emustconsi
stoft
hef
oll
owi
ngessent
ial
s:

(1)Twoparti
es:Ther
emustbet wopart
iesvi
z.,buy
erandsell
ertoconsti
tut
ethe
cont
ract
.Sowher eapersonbuy
shisowngoodst hr
oughsomeagent,ther
ei sno
cont
ract
.However
,apart
-ownercansel
lhi
ssharetoother
par
t-
owner
s.

(
2)Goods:Subj
ectmat
terofcont
ractofsal
emustbet
hegoodsofanyki
ndexcept
i
mmovablegoods.

(
3)Tr
ansf
erofpr
oper
ty:Passi
ngofpr
oper
tyi
snecessar
yandnott
hephy
sicaldel
i
ver
y
ofgoods.

(4)Pri
ce:Consi
derat
ionforacontr
actofsal
emustbemoney .I
fsomegoodsar e
suppl
i
edasr emunerati
onforwor
kdoneorinexchangef
orsomegoods,i
tdoesnot
amounttocontr
actofsal
e.

(
5)Last
ly,
itmustcont
ainal
ltheessent
ial
sofav
ali
dcont
ract
.

Contr
actofsal ehowmade.Nopar ti
cul
arfr
om i
snecessar ytoconstit
uteacontractof
sal
e.Itis,l
ikeanyothercontract
,madebytheordinar
ymet hodofofferbyonepar t
yand
i
tsaccept ancebyt heot herpart
y.It
maybemadei nwr i
tingorbywor dofmout h,or
par
tl
yi nwr i
tingandpartlybywordofmouth.Itmayalsobei mpl
iedfrom theconductof
par
ti
es, orfrom t
hecour seofdeali
ngsbetweenthepart
ies.

Di
ff
erencebet
weenSal
eandAgr
eementt
oSel
l

1.Natureofcontr
act
:Saleisanexecutedcontractwhi
leanagreementt
osel
lisan
execut
orycontr
act.I
nanagreernenttosellsomethi
ngremainstobedone.I
tshal
l
becomesaleonl
ywhent hecondit
ionsof
contr
actaref
ulf
il
led.

2.Transferofproperty:I
nasal ethet r
ansferofpropert
ytakesplaceimmediatel
ybutin
an agreementt osel
l,i
tdoesnotpasst othebuyerimmedi at
ely
.Ast hebuyer
,inasale
i
mmedi atelybecomest heownerof goods,sother iskalsopassest ohim.Butinan
agreementt osellsell
erstil
lremainst heownersot heri
skdoesnotpasst othebuyer
andifthegoodsar edest r
oyed,thelosswi llf
all
ont hesell
ereventhoughtheyar
einthe
possessionofthebuy er.

3.Creat
ionofri
ght:Anagr
eementt
osel
lcr
eat
esa‘Jusi
npersonam’
,i.
e.,aper
sonal
ri
ghtonlyagai
nstt
hebuyerwhi
leasal
ecreat
es‘
fusinrem’
,i.
e,ri
ghtinthegoods
agai
nstthewhol
ewor l
d.

4.Remedi esincaseofbr each:Inanagr eementtosell,t

hesellercansueonl yfor
damagesf ornon-
per
formanceofcont r
actbythebuy er
.Butinasale,thesell
ercansue
forthepri
ceofthegoods.I naddi
ti
ontothathehast heri
ghtofli
en,stoppageintransi
t
andr e-
sal
e.I
ncaseofbr eachofcontr
actofsalebythesell
er,t
hebuy ercansuef orthe
deli
veryofgoodsorf ordamagesbuti nanagr eementt osellthebuy erhasonl ya
personalr
emedyagainstthesell
er.

5.ConsequencesofI nsolvency:Inasaleifthebuyerisadj
udgedinsol
vent
;thesell
er
mustdel i
verthegoodstotheof fi
cialr
ecei
verandcanclai
mrateabl
edivi
dendli
keother
unsecuredcredi
torsforthepriceunpai
donhisgoods.Inanagreementtosel
lthesell
er
canrefusetodeli
vert hegoodsunl esspai
dforthegoods.

I
nasal
e,i
fthesel
l
eri
sadj
udgedi
nsol
vent
,thebuy
eri
sent
it
ledt
orecei
vet
hegoods
fr
om theoff
ici
alr
ecei
ver.Buti
nanagr
eementtosell
,i
fthebuyerhasmadethepayment
i
nadv ancetothesel
ler
,hecanonl yaskforrat
eablediv
idendandnott
hedeli
veryof
goods.

Subj
ectmat
terofCont
ractofSal
e

Thesubj ectmat t
erofcontractofsal eisessenti
all
ythegoods.Sect i
on2( 7)sayst
hat
“goods”.meansev eryki
ndof mov ablepropert
yotherthanmoneyoract i
onabl
eclai
ms,
i
tincludesst ock andshares,gr
owi ngcrops,andthingsatt
achedtot heeart
hwhichare
tober emov edbecauseoft hecont ractofsate.Accordingtothi
sdef i
nit
ionmoneyand
acti
onablecl ai
msar enotgoodsandcannotbeboughtandsol d.Moneyher emeans
l
egalt endermoney .Itdoesnotincludeoldcoinswhi charesoldlikegoods,e.g.
,si
lv
er
rupeecoinsinourcount r
y.Anactionableclai
m meansadebtor aclai
mf ormoneywhich
apersonmayhav eagainstanotherandwhi chhecanr ecoverbysuit
.

Goodsmaybecl
assi
fi
edi
ntot
hreet
ypes:

(
1)Exi
sti
nggoods(
2)Fut
ureGoods,
and(
3)Cont
ingentGoods.

(1)Exist
ingGoodsar egoodswhicharealr
eadyinexist
enceandwhichar
ephysi
cal
l
y
presentinsomeperson’
spossessionandownershi
p.Exist
inggoodsmaybeei
ther(
i)
Specifi
candAscert
ainedor(i
i)Generi
candUnascer
tai
ned.

(i
)Specif
icgoodsarethosegoodswhi chareidenti
fi
edandagr eeduponattheti
meof
thecontractof
sal
e;i.
e.,aparti
cularpaint
ingbyapai nter
,ahor sepoi
ntedoutand
recogni
sedasseparat
ef r
om ot
her hor
sesinast able.Theter
m Ascert
ainedgoodsi
s
usedinthesamesenseasSpecifi
cGoods.

(i
i
)Gener i
c orUnascer tained Goods aret hose goods whi ch ar
e notspecif
ical
l
y
i
dentif
iedbutareindi
catedbydescr i
pti
on.IfAagr eestosupplyonebagofwheatf rom
hi
sgodownt oB, i
tisacont ractr
elat
ingtounascertai
nedgoodsbecausei ti
snotknown
whichbagwi l
lbedelivered.Assoonasapar t
icularbagisseparat
edfrom thel
otand
makingorident
if
iedfordeliveryi
tbecomesspeci ficgoods.

(2)Futur
eGoodsar egoodswhi
cht hesell
erdoesnotownorpossessattheti
meofthe
contract
,butwhi
chhewi l
lmanufactureorproduceoracquir
eafterthemaki
ngofthe
contract
.Forexample,Aagr
eetosel l
toBalltheorangeswhi
chwi l
lbepr
oducedi
nhis
gardennextyear.Thi
sisanagr
eementf orthesal
eof f
utur
egoods.

(3)Conti
ngentgoodsaret
hosegoodswhichthesell
erwil
lacqui
reonthehappeni
ngof
a conti
ngency.Anagr
eementt
osellcont
ingentgoodscanalsobemade.Forexampl
e,
A’sfat
herhasar ar
ecopyofbookwhichi
soutofpr i
nt.Ahopestogeti
tonhisfat
her
’s
death.Aagreestosel
litt
oBf orRs.10,
000ev
enbef
orehi
sfat
her
’sdeat
h.Thi
sisan
agreementf
orthesal
eofcont
ingentgoods.

Peri
shingofGoods:I finacont r
actforthesaleofspecifi
cgoods,thegoodshave,
wit
houtthesel l
er’
sknowl
edge,peri
shedatthetimewhent hecontr
actwasmade,the
contr
actisvoid.WhereAsold700bagstoB, butonly591bagswer
einexist
enceatt
he
dateofcontract,t
heremaini
nghav i
ngbeenstolen.I
nthi
scaseBcannotbecompell
ed
toacceptthe591bags.

ThePr ice:Price,whi chmeansmoneyconsi der at

ionf orasal eofgoods, consti
tutesthe
essenceofacont ractofsal e.Itmaybemoneyact uallypai dorpr omi sedt obepai d
accordinglyast heagr eementi sf orcashsaleorcr edi tsale.Ifconsi derati
onot herthan
moneyi sgiven,itisnotasal e.I
nanagr eementt osellwhent hesel l
erbecomesi nsol
vent
theonl yremedyav ailabletobuy eri stoclai
mf orrateabledi videndi fthebuy erhaspaid
theprice.Buti nasal ei fsel
lerbecomesi nsol
v ent,t
hebuy ercanr ecoverthegoodsf r
om
theli
qui datorbecauset heowner shipingoodshas passedt ohi m.Thepr i
cemaybe
fi
xedbyt hecont ractormaybedet erminedbythecour seofdeal ingbet weent heparties.
Intheabsenceofei t
heroft hesepr ovi
sionsthebuy ermustpayar easonabl epr i
ce,the
amountofwhi chisdet erminedbyt hefactsofeachpar t
icularcase.

Saleandcontractforworkandmat eri
als.Acontractofsal
emustbedi sti
ngui
shedfr
om
acont r
actfor
wor kandmat er i
als.TheSal eofGoodsActappl iestotheformerandnot
tothelatt
er.Acont r
actofsal econt emplatesthedeliv
eryofgoodswher easacontract
forworkand mat eri
alsinv olv
es exer ci
se of skilland labour by one part
yi n
respectofmat er
ial
ssuppliedf oranot her,t
he deli
veryofgoodsbei ngonly
subsi
diary
orinci
dental
.

Ear
nestorDeposi
tMoney

Anearnestmoneyi ssomeamountwhi cht

hebuyerpayst othesell
erattheti
meoft he
contr
actasat okenofgoodfait
h, andasaguarant
eethathewi llf
ulf
il
lhiscont
ract.Ifhe
fai
lstoful
fi
lthecont r
act
,theearnestmoneyisfor
fei
tedbyt hesel
ler
,butifheful
fi
llsthe
contr
acttheear nestordepositwi llbetr
eatedaspart-paymentoft hepri
ce,onlythe
bal
ancebeingr equir
edtobepaidt omakeupt heful
lpri
ce.

Sal
eandHi
re-
Pur
chaseAgr
eement

A hi
repur
chaseagreementisoneunderwhi chapersontakesdel i
ver
yofgoods
pr
omisi
ngtopaythepri
cebyacert
ainnumberofi
nst
all
mentsand,unt
ilful
lpaymenti
s
made,t
opayhirechargesf
orusi
ngt hegoods.Iti
sinfactbai
lmentforhir
ewithan
opti
ont ot hehi r
ert obuyt hegoodsi nhi spossessi ononmaki ngthefullpay ment .Until
thef ull
paymenti smadet heagr eementr emainsacont ractofhi r
eandt hehi r
ercan
ret
urnt hegoodst ot heownerandt heownercangett hem back, astheowner shipoft he
goodsr emai nswi thhi m.Whent hehi rerpay sf ullpri
cehebuy sthegoods.Theessence
ofhirepur chaseagr eementi sthatt her eisnopur chaseoragr eementt opur chase,but
onlyanopt ioni sgi vent ot hehirert obuysot hatwhenhehaspai dt hef ullpriceit
becomesasal eandhebecomest heowner .I
nasal e,ont heot herhand,t hepr oper t
y
passest ot hebuy erimmedi at
elyonmaki ngt hecont r
actev eni ft
hepay mentof theprice
i
st obemadebyi nstal
ment s.Thet r
ansact i
onofhi re-
pur chasepr otectst heowner
againstthei nsolvencyof thebuy er,forift hebuy erbecomesi nsolventorf ailst opayt he
i
nstalment s,thesel l
erhast herightt ot aket hegoodsasownerandt r
eatal lt hemoney
alr
eadyr ecei v
edashi r
e-charges.Agai n,untilthef ullpri
cei spai d andt heagr eement
remai nsthatofhi re,not i
tl
ewi l
lpassev ent oani nnocentandbonaf i
depar ties.

Sal
eandBai
l
ment

Bail
menti sthedel
iveryofgoodsf r
om onepersontoanotheruponacondi t
ionthathe
shallr
eturnthegoodst othebai
lorwhenhispurposeisaccompl i
shed.Bail
mentmaybe
withorwi t
houtconsiderati
on.Saleisdeli
veryofgoodsinret
urnofmonet ar
ypay ment
andt hereisnopr ovisi
onofr etur
noft hosegoods.Inasal e,thebuy erbecomes
theabsolut
eownerofgoodsbuti nbail
ment,t
hequestionoftransferofowner shi
pdoes
notariseatall
.

Agreementtosellatvaluati
on.Accordingtosect i
on10t hepart
iesmayagreetosel l
and
buygoodsont hetermst hatpri
ceist obefixedbyt hev al
uati
onofat hi
rdpart
y.Ifsuch
thi
rdpartycannotordoesnotmakesuchv aluati
on,theagreementbecomesv oid.Butif
thegoodsoranypar tthereofhav ebeendel i
veredtoandappropriat
edbythebuy er,he
shallpayareasonablepr i
cetherefore.I
ft het hir
dpartyispreventedf
rom makingt he
val
uationbythef aul
toft hesell
erorbuy er,thepar tynotinfaultmaymai nt
ainasui t
for
damagesagai nstthepartyinfault
.

SELFCHECKTEST

(a) Aagr eedtosel

ltoBoi
l
,noty
etpr
essedf
rom seedsi
nhi
spossessi
on.I
tisa
cont
ractofsal
e?

(b) Achangeswi
thBa100r
upeenot
ewi
thcoi
nsf
or100r
upees.I
sthi
str
ansact
iona
sal
e?

(
c) Abuy
sVi
ctor
iaRupeesf
rom aj
ewel
l
erandpay
sfort
hem i
n10r
upeenot
es.I
s
t
her
easal
e?

(
d) Aexchanges32bull
ocksfort
heent
ir
ecr
opofwheathar
vest
edf
rom B'
sland.Does
t
hist
ransact
ionamountt
osale?

(e) Aagreestobuy100balesofcottonfrom Bandtakesdel

iver
yafteroneweek.He
deposi
tsRs.100withBasaguarant
eef orper
for
mancebyhim ofthecontr
act.Af
ail
sto
takedel
i
veryofthegoodsontheexpi
ryofoneweek.WhatareB’sri
ght
s?

Answer:

(
a) Yes,
iti
sacont
ractofsal
eoff
utur
egoods.

(
b) No,
iti
sexchangeandnotsal
e.

(c) Yes,
iti
ssal
eofv
ict
ori
aRupeeswhi
char
enomor
elegalt
ender
,andcanbet
reat
ed
asgoods.

(
d) No,
iti
sbar
ter
.

(e) Rs.100deposit
edbyAwi thBisearnestmoney.Itwi
l
lbefor
fei
tedbyBf orA'
s
nonperf
ormanceofthecont
ract.I
fthecont
ractf
all
sthr
oughduet
othefaul
tofsell
erB,
thedepositi
sr et
urnabl
e.Ifthecontr
actisper
for
med,theamountofRs.
100wi l
lbe
countedtowardsthepri
ce.

CONDI
TIONSANDWARRANTI
ES

Thepar ti
esmayent erintoacont ractwi t
hanyt er
mst heyli
ke.Int hecaseofsal eof
goods, theor di
narymax imi sCAVEATEMPTORwhi chmeansl ettheBuy erBeware!The
doctri
ne,of cav eatempt ormeans t hat,ordinari
ly
,a buy er
mustbuygoods af ter
sati
sfyinghi mselfoft hei
rqual i
tyandf i
tness.Ifhemakesabadchoi cehecannot
blamet hesellertorecov erdamagesf rom him.I tisnopartofthesel l
er ’
sdut ytopoi nt
outthedef ectsint hegoodshei sselli
ng.Butt hebuy ermaywantt obesur eoft he
quali
tyandf it
nessoft hegoodsandmaymakeknownt otheseller
’sskillorjudgement ,
and buy st hem dependi ng upon t he representati
ons made by t he sel l
er.Such
repr
esent ati
onmay rankei therascondi t
ionsorwar ranti
es.I
nsuchacaset heprinciple
ofcav eatempt orwi llnotappl y,andt hecont r
act wi
llbesubjectt ot hecondi ti
onor
warranty.

Cav
eatEmpt
or

Accordi
ngt
ot hedoctri
neof‘CaveatEmptor’t
hebuyershoul
dbeawar
eattheti
meof
buyi
ngthegoods,becauseasel
lerneverpoi
ntsoutt
hedefect
soft
hegoodsbei
ngsol
d
byhi m.Or dinari
ly
, abuy erbuy sgoodsonhi sownr i
skt hatis,ifthegoodst urnoutt obe
defecti
v eorofl owqual i
tyori tisnotf i
tfort hespeci ficpur pose,t hent hesel l
ercannot
behel dr esponsible.Ifthesel l
ersellsthegoodbyf raud,t hent hebuy ercanr ejectthe
goods.Thus,accor dingtot hisdoctri
nei tisthedut yoft hebuy erthatbef orebuy ingthe
goodsheshoul denqui r
ei ntothegoodst hatwhet herthegoodsar efi
tf orhi spurposeor
not.Accor dingtoSect ion16,t heexpl anationoft hisdoct rinei sthat‘Accor dingt ot his
Actand accor di
ngt ot heexpl anationofanyot heractpr evalentatapar t
icul
art i
me
thereisnoi mpliedcondi t
ionorwar rantyr egardingt hef i
tnessoft hegoodsf ora
specifi
cpur poseunderacont ractofsal eof goods.Ther eforei tiscleart hatthebuy er
shouldf ullysati
sfyhimsei f.Ifsell
erdoesf raud ori ntentional l
yconceal sthedef ectsof
thegoodsort henat ureoft hedef ectissucht hati tcannotbedet ectedwi thor di
nar y
enquiry,thenthesel l
erwi llbehel dresponsi ble.
Ifthisdoct r
inei sst r
ictlyf oll
owed,t hen
thebuy er swi l
lhav et of acedi ff
icult
ies,
becauseev erybuy eri snotascl everast o
enquireint othequalityorf i
tnessoft hegoods.

Ther
ear
ecer
tai
nexcept
ionst
opr
otectsuchbuy
ers.

1.Whent hebuyercl
earl
ystatesthepurposeofpur chasingthegoodstothesel
l
erand
hedependsont heknowledgeandexperti
seoft hesell
er,theniti
sanimpli
edcondit
ion
thatt
hesoldgoodsshallbefi
tforthepurpose.Thuswhent hebuyermakes,t
hepurpose
ofpurchasi
ngthegoods,knowntot hesell
er,t
hisdoctri
nedoesnotapply.

2.Whent hegoodsaresoldbydescr
ipt
ion,theniti
simpli
edcondit
ionthatt
hegoods
shal
lbemer chant
abl
eandthegoodsshallbeaccordi
ngtodescr
ipt
ion.I
fthebuy
erhas
examinedthegoods,t
hesel
lerwi
l
lbeli
ableforlat
entdef
ect
s.

3.Whenthegoodsar epurchasedunderatr
adeorpatentname,ther
eisnoi
mpl
i
ed
condi
ti
onregar
dingt
hefi
tnessofthegoodsf
oraspeci
fi
cpurpose.

4.Ifthesel
l
ersell
sgoodsbyf r
audorint
ent
ional
lyconcealsthedef
ect
sort
her
ear
e
l
atentdef
ectinthegoods,
event
henthi
sdoct
rinewil
lnotapply
.

Acondi tioni
sast ipul
ati
onessentialt
othemai npur
poseofthecontr
actandformst he
verybasi soft hecontr
act.I
tsbr eachgivesrisetoar i
ghttot r
eatthecont r
actas
repudiated.Thus,ifthecondi
ti
oni snot
ful
fi
ll
edthebuyerhasar i
ghttorepudiatethe
contract,andrefusethegoods.Ifhehas alreadypai
dthepr
ice,hecanrecoveritfr
om
theseller.

Awar r
antyisastipul
ati
oncoll
ater
altothemai npurposeofthecont
ract,
thatistosay ,it
i
sa subsi di
ary
promise.It
sbreachdoesnotent i
tletheaggri
evedpartyt
or epudiat
et he
contr
act.Hecanonl ycl
aimdamages.Wheret hereisabreachofwarrant
yont hepartof
thesel
ler,
thebuyermustacceptt hegoodsandcl ai
m damages.WhereApur chases100
bagsofwheatf rom B.Wheatmustbef i
tforhumanconsumpt i
on.Thisisanessent ial
sti
pulati
on.Hencei tiscall
edascondi t
ion.Otherst i
pulationsl ikepacking,etc. ,isa
minor one,hencecal l
edaswar ranty.
Condi t
ionsandwar rantiesmaybeexpr essor
i
mpl i
ed.Anexpr esscondi ti
onorwar rant yisonest at eddef init
elyi nsomanywor dsas
thebasisoft hecontract.I
mpl i
edcondi tionsorwar r ant i
esar ethosewhi chattacht ot
he
contractbyoperationofl aw.Thel aw incorporatedt hem i ntothecont ractunl esst he
part
iesagr eetothecontr
ary.Asoldt oBt i
mbert obepr operlyseasonedbef or
eshi pment .
Itwasagr eedbetweent hepar t
ies, t
hati ncaseofdi sput et hebuy erwouldnotr ej
ectt he
goodsbutacceptorpayf orthem agai nstdocument s.Itwashel dthattheprov i
sionas
toseasoni ngwasnotacondi ti
onbutonl yawar r
ant y.Ift hetimberwasnotpr operl
y
seasonedBhadt oacceptitandcl aim damagesf orthebr eachofwar ranty
.

Thepoi
ntsofdi
sti
nct
ionbet
weenacondi
ti
onandwar
rant
ycanbesummedupasunder
:-

(
1) Aconditi
onisastipul
ationessent
ialt
othemainpurposeofacont
ractwhi
l
ea
war
rant
yisast
ipul
ati
oncoll
ateral
tothemainpur
poseofcont
ract
.

(2) Breachofcondi t
iongivestheri
ghttotreatt
hecontractasrepudi
atedwhil
ethe
breachofwarranty
givestherightt
oclai
mf ordamagesalone.Thecontr
actcannotbe
repudi
atedbecausethebreachofwarr
antydoesnotdef
eatthepurposeofcont
ract
.

(3) A br eachofcondi ti
onmaybet reatedasbr eachofwar rantybutabr eachof
war r
antycannot bet reat
edasbreachofcondi t
ion.Letust akeanexampl et omake
thesetwot er
mscl ear.Sowhereamanbuy saparticularhorsewhi chiswarrant
edquiet
tor i
de.Thehor se,turnsouttobeav i
ciousone.Buy ersremedyi st o cl
aimdamages
unlesshehasexpr esslyreser
vedther i
ghtt or
eturnt hehor se.Suppose instead of
buyinga parti
cularhor se,hespecifi
call
yasksf ora qui ethor se-t
hatsti
pulati
onsis
acondi t
ion.Now t hebuy ercaneit
herr etur
nthehorseorr etai
nt hehorseandcl ai
m
damages.( Hart
leyv .Hymans)

Whencondi
ti
ont
obet
reat
edasWar
rant
y

Secti
on13oft heSalesofGoodsActmenti
ons3casesinwhichacondi
ti
onsi
nksor
descends t
othelevelofawar
rant
y.Acondi
ti
ondescendst
othelev
elofawarr
ant
yin
thefol
lowi
ngcases:

(
1) Wher
ethebuy
erwai
vest
hecondi
ti
on;

(
2) Wher
ethebuy
ert
reat
sthebr
eachofcondi
ti
onasbr
eachofwar
rant
y;

(
3) Wherethecont
racti
sindi
vi
sibl
eandt
hebuy
erhasaccept
edt
hegoodsorpar
tof
t
hegoods.
Inalltheabovet hreecasest hebreachofacondi t
ionisdeemedt obeabr eachofa
warrantyandbuy ercanonly cl
aim damagesorcompensat i
onf orthebr eachoft he
condit
ion.Hecannotr epudiatethecontractorrefuset otakedel
iver
yoft hegoods.In
thefir
sttwocases,acondi tionistreat
edawar ranty.atthewi l
lofthebuy er;butin
thet
hirdcasethebr eachofconditi
oncanbet reat
edonl yasbreachofwar ranty
;foronce
the buyerhas accept ed t
he goods he cannotr ejectthem on anygr ound.Ifon
subsequentinspectionabreachofconditionisdiscl
osed, hecantreatthatasbreachof
warrantyandsuef ordamages.

Example:SupposeApr omisestodeli
ver100balesofcot t
ont oBon1stAugust ,80.A
deli
ver
sthebal esofcottonon10thofAugust.Nowi nthi
scont ract
,ti
meist heessence
ofcontr
act.Bcanr efusetoacceptthedel
i
very.Buthecanal sowaivethi
sright.Hemay
tr
eatthi
sbr eachofcondi t
ionasbreachofwar r
antybyaccepti
ngt hegoodsandcl aim
damagesinstead.

I
MPLI
EDCONDI
TIONSANDWARRANTI
ES

Evenwhere,inacontractofsale,nodefini
terepresent
ationsar emade,thelawimpli
es
cert
ain represent
ati
ons ashav i
ng been made.Such i mpli
ed repr
esentati
ons may
amounttoconditi
onsorwar ranti
es.Secti
on14t o17oft hesal eofGoodsActgiveali
st
ofconditi
ons and warrant
ies which arei mpli
ed unless the cir
cumstances ofthe
contr
actaresuchastoshowadi f
ferenti
ntent
ion.

I
mpl
i
edWar
rant
ies

Subj
ecttoacont r
actt
othecont
rar
ythef
oll
owi
ngwar
rant
iesar
eimpl
i
edi
nev
ery
cont
ractofsal
e.

1.Thatthebuyershallhaveandenj oyqui etpossessi onofthegoods.Ifhispossession

i
sdi stur
bedeit
herby t
hesel l
erorsomeot herper sonclaimi
ngsuperiorti
tle,buyercan
recoverdamages f r
om t he sellerf orthe br each ofani mpl
ied warranty ofquiet
possession.Aboughtat ypewr i
terfrom Bf orRs. 200.AspentRs.11Oonov er
hauli
ng
i
t.Unknownt oAandBt hetypewr it
erwasst olenpr oper
tyandAhadt oreturnittothe
realowner .A washeldent it
ledt ocl ai
mf rom B t hesum of Rs. 200+110=310as
damagesf orbreachofwarrantyofqui etpossession.

2.Thatthegoodsarefreefrom anychargeorencumbranceinfavourofat hi
rdpart
ynot
declar
edorknownt othebuy erbefor
eoratt het i
mewhent hecontractismade.I tthe
buyerhastodischargetheamountoft hechargeorencumbranceont hegoods,thereis
abreachofimpli
edwar rantyandhecanclaimt heamountasdamagesf rom thesell
er.

A sel
l
stoBausedmot
or-
carwhi
chwaspr
evi
ousl
ymor
tgagedt
oC,butBhasno
knowledgeoft
hemort
gageandAdoesnoti nf
orm Bofitsexi
stence.Ai
sli
abl
etoBf
or
breachoftheimpl
i
edwarr
antyagai
nstencumbrances.

I
mpl
i
edCondi
ti
ons

1.Condi t
ionsast otit
leThereisani mpli
edcondi t
ionont hepar tofthesel l
erthat,inthe
caseofsal e,hehast her i
ghtt osel
lthegoods, andint hecaseofanagr eementt osell
,
hewi l
lhav etheri
ghtt osellthegoodswhent hepropertyistopass.Thusi fthesellerhas
notitl
et othegood, thebuy ercanrejectt
hegoods, orifhehast akenpossessi onoft he
goodsandi sdeprivedofitbyt herealowner,thebuy ercanr ecoverthef ullpri
ceoft he
goodsev eni
fhehasmadeuseoft hem.Aboughtamot or
-carf r
om andusedi tf or4
mont hs.Bhadnot i
tl
et othecarbecausehehasobt ai
nedt hepossessi onbyt heftand
consequent l
yAhadt osur renderittotherealowner .Awasent i
tl
edt orecoverf rom B
thefullpri
ceev enthoughheusedt hecarfor4mont hs. ( RowlandVs. Divall)
.

2.SalebyDescr ipt
ionWher ethereisasal eofgoodsbydescr i
pti
on,t her
ei sanimpl i
ed
conditiont hatthegoodsshal lcorrespondwi ththedescript
ion.Goodsar esol dby
descripti
onwhent heyar edescr i
bed byt hecontractbymeansofwor ds,symbol s,
numberofgr ade,andthebuy erreli
esont hem whenbuy ing.Ther ulethatthegoods
shall
cor respond witht he descripti
on applies bot
ht o speci
fic and unascer t
ained
goods. Aboughtat r
uckl oadofcor nfromBont hebasi
sofal et
terfrom thesellerwhich
ref
erredt othecornas“ No.3Yel l
ow21percentmoi st
ure”
.Whent hecor nwasr ecei
v ed,
i
twas49percentmoi sture,moul dyandunf i
tforuse.A couldr ejectthegoodsor
acceptt hem andsuef ordamages.

1.Condi t
ionast oquali
tyorf i
tness:Thi
sconditi
oninrespectofmer chantabi
li
tyand
wholesomeness di scussedbelow ar e excepti
ons to t he doctrine of cav eat
empt or
.Ordinar
il
y,i
n a contractofsal e ofgoods,ther
ei s noi
mplied warr
antyor
conditi
ont hatthe goodssuppl i
edar eofpart
icul
arqual
ityorar efi
tf oraparti
cular
purpose.Butinthef
oll
owingcases, ther
eissuchanimpli
edcondi ti
on.

(a)Wheret hebuy ermakesknownt othesell

ert hepurposef orwhi chhei sbuy ingt he
goodsandi ndicatesthatheisr el
yi
ngupont heskillandjudgementoft heseller,andt he
goodsareofadescr ipti
onwhi chiti
sinthecourseof sel
ler’
sbusinesst osuppl y,thereis
animpli
edcondi t
iont hatthe goodsshallber easonablyfitforthatpur pose.AaskedB
tosupplyhim acer t
ainnumberofcl aypotswhichar esuit
ableforheat ingandr et ai
ning
moltenglass, t
hebuy erreli
eduponthejudgementandski l
lofthesel ler
.Iftheclaypot s
arenotsuitableforthepur posethereisabreachof impl
iedcondi ti
onast ofi
tnessf ora
part
icul
arpur pose.I
fthebuy erpurchasesanarticleunderitspatentort heirtradename,
ther
eisnoi mpl i
edcondi t
ionast oit
sfit
nessforanypar t
icularpurpose.
(b)Condi ti
on as t o merchant able qualit
y:Buti ft he sellersells an ar
ticle ofthe
descr i
pti
oni nwhi chheusual lydeal s,evenunderi t
spat entandt radename,t hereisan
i
mpl iedcondi t
iont hatiti
sofmer chantablequalit
y,i
.e.,i
tissaleable.Thusint hesaleof
ar efri
gerator,t henameoft hear t
icl
ei tself impliest hatthesel l
erwar rantsthe
machi netobef itforapar t
icularpur pose.Althoughtherei sani mpl i
edcondi ti
onast o
mer chantabil
it
y ,yetifthebuy erhasexami nedt hegoods,t hereisnoi mpli
edcondi ti
on
asregar dsdefect swhichsuchexami nationoughttohav er eveal
ed.

Exampl
es

(a) Aagr
eedtodel
i
vermotor-
hor
nst oBbyi
nstal
ments.Thefi
rstinst
almentwasgood
and wasaccept
edbyB,butt
hesecondcont
ainedal
argequantit
yofhor nswhi
chwere
damaged.Bwasheldent
it
ledtor
ejectt
hewholei
nst
almentsasthegoodswer enotof
sal
eabl
equal
it
y.

(b) Bwantedtobuysomegl ue.Asthesellershowedhimt hegl uewhichwasstor

edin
hiswarehouseincasks.Bdidnothavet hecasksopened,whi chhecoul dhavedone
easil
y,but merelylookedattheoutsideoft hecasks.Thegl uewasf oundtohave
defect
swhichcoul dhavebeendiscov
eredi fBhadinspectedthecontent
softhecasks.
Itwasheldthatther
ewasnoi mpli
edconditionastomer chant
abl equal
it
y.

(c) InBal dryv s.Marshallt

hepl aintif
fwant edtobuyacomf or t
ablecarsuitabl
efor
touri
ng purpose.The def endantst ated,t hattheir“ Budgatt
icar ”woul d servethe
purpose.Thecarwasseenbypl aintif
f.Heor der
edf orthecar.
Whent hecarwasputon
road,itwasf oundtobeunsui tablef ort our
ingpurposes,theplai nti
ffcl
aimedt oret
urn
thecarandr ecovert
hepr i
cepaidf orit.Itwasheldthatthepl ai
ntiffcouldretur
nt hecar
because the t er
m thatt he carshoul d be comf ort
ablef ort ouringpurposeswasa
conditi
onandnotawar ranty.

(d) Conditi
onast owholesomeness:Inasaleofgoodsf orhumanconsumpti
on,t
here
i
sani mpl i
edconditi
ononthepartofthesell
erthatt
hegoodsar ewhol
esomeandf i
tto
beeatenordr unkbyhumanbei ngs.Bboughtfr
om Atinnedsal
mon.Bfell
il
landhi
swife
diedasar esultofeat
ingt hesalmon.Therewasabr eachofi
mpliedcondi
ti
onas
towholesomenessandAwasl i
abletopaydamaget oB.

Aboughtmil
kfrom B,andthemi
lkcont
ainedtyphoi
dgerms.A’swif
egotinfect
edand
di
ed.B was li
abl
ef ordamages f
orbreach ofimpli
ed condi
ti
on offi
tness as t
o
whol
esomenessofmilk.

3.Sal
ebySampl
e

Whent hegoodsar
etobesuppl
i
edaccor
dingt
osampl
eagr
eedupont
hef
oll
owi
ng
condi
ti
onsarei
mpli
ed
(
a) Thebul
kshal
lcor
respondwi
thsampl
einqual
i
ty.

(
b) Thebuy
ershal
lhav
ear
easonabl
eoppor
tuni
tyofcompar
ingt
hegoodswi
thsampl
e.

(c) The goods shal

lbe f r
ee fr
om any latent def
ectsr ender
ing t
hem
unmer
chant
abl
ewhi
chwoul
dnotbeappar
entonr
easonableexaminat
ionofthesample.

Exampl
e

(i
) Asol dtoBbysampl esomeapplesputupincans.Thesampl
ecanappearedt obe
sati
sfact
ory,but
theremainderoft
hegoodswer efoundtobespoi
led.Awasl i
ableto
paydamaget oBforabreachofi
mpli
edcondit
ion.Bcoul
drej
ectt
hegoods,
ifheliked.

(i
i) Asoldt woparcel
sofwheatbysamplet
oB.Bwentt oinspectt
hegoods.One
parcelwasshown,notbot
h.Onfindi
ngtheot
herpar
celdef
ectiveBwasentit
ledto
resci
ndthecont
ract
.

(i
ii
)Some“ worst
edcoati
ng”quali
tyequalt
osampl ewassol dtot
ail
ors.Theclothwas
found to hav eadefectinthetexturewhichcouldnotbedet ectedonr easonable
examinati
on,andconsequentl
ythecl ot
hwasunf i
tforsti
tchi
ngintocoats.Theseller
washeldliabl
etopaydamagest othebuyer
sev enthought
hesamedef ectexi
stedint
he
sample,butwasnotdet ect
edonexami nat
ion.

4.Sal
ebySampl
easwel
lasbyDescr
ipt
ion

Wher egoodsar esol dbysampl easwel lasdescri

ption,thegoodsmustcor r
espond
bothwi tht hesampl eandwi ththedescripti
on.I
nsuchcases,i fthesel
lerhasseenand
approv edt hesampl eandt hegoodsar eaccordingt
ot hesampl e,
hecanr epudi
atethe
contracti ft hesearenotaccordingt o descri
pti
on.Aagreedt osel
lBsomeoi ldescri
bed
as“f
or eignr efi
nedr apeoil
,warrantedonl yequaltosampl e”.Theoilt
enderedwast he
sameast hesampl e,buti
twasnot“ foreignref
inedrapeoi l
”beingami xtureofitand
hempoi l.Thebuy ercouldr
ejecttheoil.

5.Condi
ti
onast oquali
tyorf
it
ness.I
nacontractofsalethereisnoimpli
edcondi
ti
onas
to qual
it
yorfi
tnessofgoodsf oraparti
cularpurpose.Thebuy ermustexaminet he
goodsthor
oughlybeforehebuyst
hem i
nordertosat i
sfyhimselfthatt
hegoodswillbe
sui
tabl
eofthepurposeforwhichheisbuyi
ngthem. Thepointstobenotedar
e:

(1) Wheret hebuy er

,expr
esslyorbyi mpli
cati
on,makesknownt osel
lert
heparticul
ar
purposeforwhi chheneedst hegoodsanddependsupont heski
llandj
udgementoft he
sel
lerwhose busi ness i
st o supply
goods oft hatdescri
pti
on,ther
ei s an i
mpl i
ed
condit
ionthatthegoodsar ereasonabl
yfitfort
hatpur
pose.
(2) Animpl
i
edconditi
onastoqual
i
tyorf
it
nessf
orapar
ti
cul
arpur
posemayal
sobe
annexedbyt
heusagesoft
rade.

(3) Incasethegoodscanbeusedf oranumberofpur poses,t

hebuyermusttel
lthe
sel
lerthepart
icul
arpur
poseforwhi
chherequi
resthegoods.Ifhedoesnot,hecannot
hol
dt hesell
erl i
ablei
fgoodsdonotsui
tt
heparti
cularpurposeforwhi
chhebuy sthe
goods.

6.Condi t
ionast omerchantabil
it
y .Wheregoodsareboughtbydescript
ionfr
om asel l
er
who deal singoodsoft hatdescript
ion,
thereisanimpli
edcondi
tionthatthegoodsar e
ofmer chantable qual
ity.I
fgoodsar eofsuchaqual i
tyandinsuchacondi t
ionthata
reasonableper sonacti
ngr easonablywoul dacceptt
hem after
havingexaminedt hem
thoroughly,theyareofmer chantablequali
ty.
Butwherethebuy erhasexami nedt he
goods,thereisnoi mpl
iedcondi t
ionasr egar
dsdefect
s whichsuchexami nati
onought
tohav erevealed.

7. Condi
ti
onastowholesomeness.I
nt hecaseofeat
abl
esandprov
isi
ons,inaddit
ion
tothei
mpli
edcondi
ti
onastomerchantabil
i
ty,t
her
eisanot
heri
mpli
edcondit
ionthatthe
goodsshal
lbewholesome.

Exampl
e:

AsoldtoBat i
nofdisinfectantpowder,knowingthati
twaslikel
ytobedangeroust
oB
i
fit wasopenedwithoutspeci alcarebeingt aken.Bopenedthetinwhereuponthe
powderfl
ewintoherey es,causinginj
ury.Awashel dl
i
abl
etopaydamagest oB,ashe
shoul
dhavewarnedB oft heprobabledanger
.

SELFCHECKTEST

(
a) A,whi
leshowingapi eceofclot
htoB,says“thi
sisthebestpi
eceofcl
othi
nthe
mar
ket
”.Bbuysthecl
oth.Doesthi
ssettl
ementamounttoacondi
ti
on?

(b) Atell
sB,“t
hisradi
owillgetal
ltheEur
opeanst
ati
ons”or“
thi
str
uckwi
l
ldo15mi
l
es
on5l i
tres”
.Ar
etheserepr
esentati
oncondi
ti
ons?

(c) Aorderedacertai
nquant
it
yofaspeci
fiedgradeofleather.Heplanst ouseitf
or
makingsuitcases.Whenhefi
ndst
hattheleatherisnotsuitableforthatpurposehe
suesthesel
lerfordamagesonabr
eachofi
mpliedcondit
ions.Willhesucceed?

(
d) Asol
dcer
tai
ngr
ainbydescr
ipt
iont
oB,
aret
ail
er.Par
toft
hegr
aindel
i
ver
edbyA
waswetanddecay
ed.Wast
her
eabr
eachofcondi
ti
on?

(e) RLtd.agr
eedtosuppl
y500tonsofcoaltoManchest
erLiner
sforS.S.“
Manchest
er
I
mpor t
er”.Thecoalwasf
oundtobeunsuitabl
eforthatpar
ti
cularshi
p.Hasthebuyer
anyremedy?

(
f) Abought100balesof“Fai
rBengal
”cot
tonbysampl
eandaf
terhavi
nginspect
ed
t
hebul
k,thecottonpr
ovednottobesuchaswasknowninthemarket“
Fai
rBengal”.
Wast
hereabr eachof
condi
ti
on.

Answer:

(
a) No.t
hest
atementdoesnotamountt
oanycondi
ti
on,butonl
yanopi
nionorsal
es
t
alk

Bhasnor
ightagai
nstA.

(
b) Yes,t
heserepresentat
ionsamounttoexpresscondi
ti
onsandt
hei
rbr
eachent
it
les
t
hebuyert
orepudiatethecontr
actorcl
aim damages.

(
c) No,hewil
lnotsucceedbecausehehadorderedaspecif
icgradeofl
eatherand
t
her
eisnoimpl
iedcondi
ti
onastofi
tnessf
orapar
ticul
arpur
poseinsuchacase.

(
d) Yes,
ther
ewasabr
eachofi
mpl
i
edcondi
ti
onast
omer
chant
abi
l
ity
.

(e) Thebuyercanr
ejectt
hecoalorcl
aim damagesast
hecoali
snotsui
tabl
efort
he
part
icul
arshi
p.

(f
) Yes,t her
eisabr
eachofi
mpl
i
edcondi
ti
onast
hecot
tondi
dnotcor
respondt
o
descr
ipt
ion.

TRANSFERORPASSI
NGOFPROPERTYI
NGOODS

Themai nobjectofasalei sthetr

ansferofowner shipofgoodsf rom thesellert
othe
buyer.Astheriskofl
ossfoll
owsowner shi
p, i
tisi
mpor tanttoknowt hepreci
semoment
atwhi cht
he sel l
erceasest obetheownerandt hebuyerbecomest heowneroft he
goods. Subject to any cont r
act bet ween t he par t
ies, the Act lay s down
theci
rcumstances when the ownership passes from the sellert ot he buyerThe
fundamentalruleist
hatpropert
yorowner shippassesonl yinascer tai
ned goods and
notinunascertai
nedgoods.
Passingofpropert
yorowner shi
pinspecifi
corascertai
nedgoods:I
nasaleofspecifi
c
orascert
ainedgoodsthepr oper
typassest ot hebuyerattheti
mewhent heparties
i
ntenditto pass.But,unless acontrar
yintenti
on appear
s,the f
oll
owi
ng r
ules are
appl
icabl
ef orascer
tai
ningtheintent
ionofthepart
ies:

(1)Wheret herei san uncondi ti

onalcont r
actforthe sale ofspecifi
cgoodsi na
deli
ver
ablestate,thepropert
yi nt hegoodspassest othebuy erwhent hecont r
actis
made,eventhought hepaymentoft hepriceorthedeli
veryoft hegoodsorbot hareto
takepl
aceatal aterdat
e.Deli
v erablestatemeanssuchast atethatthebuy erwouldbe
boundtotakedeliver
y,asnot hingr emainst obedonebyt hesel l
ereit
hertot hegoods
orforthepurposeofascer t
ainingt hepri
ce.Therefor
e,proper
tyi ngoodspassesatt he
ti
meofent er
ingintothecontr
actofsal ei
ft hefol
l
owingconditi
onsarefulf
il
led:

(
i) Thegoodsar
especi
fi
cgoods;

(i
i
) Thegoodsar einadel i
ver
abl
estat
e,thatistosay ,t
heycanbei
mmedi
atel
y
del
iv
ered;
(ii
i
)Thecont
ractoft
hesal
eiswi
thoutanycondi
ti
on;

(
iv)Thepar
ti
est
hemsel
veshav
enotf
ixedadi
ff
erentt
imef
ort
hepassi
ngofpr
oper
ty,

Exampl
es:

(a) Aboughtfrom Bon4t hJanuaryastackofhayl y

ingonB’sland.Thepricewasto
bepaidon4thFebruar
yandt hehayst
ackwast or emai
nonB’ sl
andt i
llt
hefir
stofMay.
Thehaystackwasdestroyedbyfir
e.Thebuy er,Ahadt obeart
helossast heproper
ty
hadpassedt ohi
m on4t hJanuary,t
hedateoft hecontract
,al
thought hepaymentof
pri
ceandt
hedeliver
yofthegoodswer epostponed.

(b) Asol damot or-

cartoB,thepri
cebei
ngpayabl
ebymont hlyinstal
mentsandon
defaul
tofpaymentofanyi
nstal
ment,t
hesel
lerwasatl
iber
tyt
ot akepossessi
onofthe
car.Thepr
opert
yinthecarpassedonl
yont
hepaymentbyBofalltheinstal
ments.

(2)Wherether
eisacontr
actfort
hesaleofspeci
fi
cgoodsnotinadel
iverabl
estat
e,i.
e.,
thesell
erhast odosomethi
ngt othegoodst oputthem inadeli
verablestat
e,the
proper
tydoesnotpassunti
lthatthi
nghasbeendoneandthebuy
erhasnot i
ceofit
.

Exampl
es:

(
a) Aboughtfr
om B200bottl
esofhai
roil
.WhenBhadfil
ledall
thebott
lesandhadgot
t
hem r
eadyfordel
i
ver
yand,A,t
hebuyercametoknowofthefact,t
heownershi
ppassed
t
oA,andthegoodsatthatst
agewereinadel
i
verabl
est
ate.
(b) Ther
ewasacontractfort
hesaleofcer
taint
eaktr
ees.Thebuyerwastosel
ectand
the sell
er wastocutawayr ej
ect
edpor t
ion.Unl
essthereject
edport
ionhadbeen
severedf
rom at
eaktree,t
heproper
tyini
tdi
dnotpasstothebuyer.

(
3) Wherether
eisacontr
actforthesal
eofspecif
icgoodsinadeliver
ablest
ate,but
t
hesell
eri
sboundtowei
gh,measure,t
estordosomethi
ngwithref
erencetothegoods
f
orthepur
poseofascer
tai
ningthepri
ce,
theproper
tydoesnotpassunt i
l
lsuchactor
t
hingi
sdoneandthebuy
erhasnoticeofit
.

Exampl
es:

(a) 289bal
esofgoatski
ns,
contai
ning5dozensineachbale,wer
esol datRs.
57.50per
dozen,andthesell
erhadtocountov ert
heskinstoascer t
ainthepr i
ce.Beforethe
counti
ngwasdone,thewhol
elotwasdestroy
edbyf i
re.Thel
ossfellonthesel
lerasthe
propert
yhadnotpassedtot
hebuyer.

(b) Asoldwheatl
y i
nginaheapatapar ti
cul
arpl
ace,anditwastobewei ghedbefore
del
iver
ytoascert
ainpri
ce.Apar tofitwasweighedanddeliver
edbutt heremaining
wheatwasdestr
oyedbyhi ghf
loods.Thel
ossoft
heunweighedresiduef
ellonthesell
er
astheproper
tyhadnotpassed.

(
4)Wheregoodsaresol
danddel
i
ver
edon‘
appr
oval
’or“
onsal
eorr
etur
n”t
hepr
oper
ty
t
her
einpassest
othebuyer

(i
) whenhesignifi
eshi
s‘appr
oval
’oraccept
ancet
othesel
l
erordoesanyot
heract
adopt
ingt
het
ransacti
on;

(
ii
) ifheret
ainst
hegoodswit
houtnoti
ceofrej
ecti
on,beyondthet
imef
ixedf
ort
he
r
etur
nofthegoods,
ori
fnoti
meisfi
xed,
beyondareasonabl
etime.

Exampl
es:

(a) Aagreedt osellahorset oB,ontheter

mst hatB,shouldtakeitaway,tr
yitfor8
days,andthenretur
nit,if
heshouldnotfi
nditsuit
ableforhispurpose.Thi
swasasal e
‘
onappr ov
al’or‘onsaleorr et
urn’
.Thehorsediedwi t
hin3dayswi t
houtfaul
tofeither
part
y.Thebuy erwasriotli
abletopayt
hepr i
ceast hepropert
yhadnotpassed;itcould
onl
ypassaf tertheexpir
yof8day s.

(
b) A del
i
ver
edj
ewel
l
eryt
oB onsal
eorr
etur
n.B pl
edgedi
twi
thC.Thepl
edge
amountedtoanactbyBadopt
ingthetransact
ion,andther
efor
e,t
hepr
oper
tyi
nthe
j
ewell
erypassedt
ohi
m sot
hatAcouldnotr
ecoveritf
rom C.

OwnershipinUnascert
ainedGoods:Wehav eseenbeforethataccordi
ngtosect i
on18,
the pr
opertyinunascer
tained goods does notpass unt i
lgoods ar e ascertai
ned.
Unascert
ainedgoodsar egoodsby descri
pti
ononly,e.g.
,100t onnesofcoal ,andnot
goodsidenti
fi
edandagr eeduponwhent hecontr
actismade.Hencepr opert
ydoesnot
passinunascert
ainedgoods.

Secti
on23pr ovidespropertyinunascer t
ainedorf ut
uregoodssoldbydescr ipt
ion
passestot hebuy erwhent hegoodsoft hatdescri
pti
onandindeliverabl
est ateare
appropri
atedtot hecontract,ei
therby t
hesellerwit
htheassentoft hebuy er,orthe
buyerwitht heassentoft heseller.Where,inpursuanceofthecontract
,t hesell
er
del
iversthegoodst obuyerort oacar r
ierf
ort hepur
poseoftr
ansmissiontot hebuyer
anddoesnotr eserv
ether i
ghtofdi sposal
,hei sdeemedt o have uncondi ti
onall
y
appropri
atedthegoodstot hecontract.

Appr
opr
iat
ion:
Theappr
opr
iat
ionoft
hegoodsmaybemade:

(i
) Byt hebuyerwiththeassentofthesell
er,wher ethebuyerhasthepossessi
onof
thegoods.Forexample,wherethebuyerisawar ehousemanf orthesel
leri
nrespectof
balesofcotton andagreestobuy25balesoutoft hem, t
hebuy ermay,
withthesel
ler
’s
assent,sel
ect25outoft he60bales,andwhenhehasdoneso,t hegoods(25bales)
becomeappr opri
atedandowner shi
pinthem passest othebuyer.

(i
i) Byt
hesel
lerwi
ththebuyer’
sassentwhenthegoodsar
einhi
spossessi
on,whi
chis
themorecommont hi
ng.Intheaboveexamples,i
fthebal
eswerely
ingwitht
hesell
er
andheselect
ed25bal eswi t
hthebuyer
’sconsent
,theowner
shipofthose25bales
wouldpasst
ot hebuyerassoonasthi
swasdone.

Thesel
l
ermayappr
opr
iat
ethegoods:

(a) byputtingthequantitycontr
actedfori
nsui
tabl
erecept
acles,asforexample,
putt
ingt
heoilinbott
lesorgrai
ninbagsandget
ti
ngt
heassentofthebuyer
,ori
nbott
les
orbagssuppliedbythebuyer.

(b) bysepar at
ingt hearti
clescontr
act edforfrom t
heothers,asfori nstance,i
nasale
ofjute,themar kingbyt hesell
erofthequant ityofthegoodsr equi
redbyt hebuyer
,wil
l
transferpr operty;
(c) bydel iver
ytot hecarr
ierorotherbail
eef ortransmi ssi
ontothe
buy er
, wi
thoutreser vi
ngther i
ghtofdisposal,asforexample,handingov erthegoodsto
arail
wayadmini
str
ati
onorashi
ppi
ngcompanyforcar
ri
ageandt
her
ail
wayr
ecei
ptor
bi
l
l ofl
adi
ngismadeoutint
henameofthebuy
er.

Cont
ractofSal
eInv
olv
ingSeaTr
ansi
t

I
nasaleofgoodstobeshi
ppedabroad,anumberofcondi
ti
onsareat
tachedbyt
he
par
ti
esorbycust
om.Themost
usual
ofsuchcontr
act
sareasfoll
ows:

F.O.B.Contr
acts:F.
O.B.orf
reeonBoar
dmeanst hattheproper
tyinthegoodspassest o
thebuy eronlyaf
terthegoodshavebeenl oadedonboar d,andaccordinglyther i
sk
attachestothebuyeronlyonshi
pmentofgoods.Thegoodsar eattheri
skoft hesell
er
beforetheyareputonboardbutaft
ertheyareonboardt
hebuy err
unstheriskofloss.

C.I
.F.Cont r
acts:Cost ,I nsur anceandFr eightwi t
hcont racti ssai dtobeacont ractof
saleofgoodswi thinsur anceandf rei
ghtt erms.Itmaybedef inedasacont r
actf orthe
saleofgoodst obeper formedbyt hedeliveryofdocument sr epr esentingt hegoods, i
.e.
,
ofdocument sgivingt her i
ghtt ohav et hegoodsdel iv
er edort hepossi bler i
ght,ifthey
arelostordamaged,r ecov eringt heirval uefrom t heshi pownerorf rom t heinsurer.
Wher et hebuy eror dersgoodsf rom amer chantabr oad, thesel lerwillinsur ethegoods,
deli
vert hem t ot heshi ppingcompanyandsendt hebi l
lofl adingandt hei nsurance
poli
cyt oget herwi tht hei nv oicet oabankandt hebuy erhast opayt hepr i
ce( which,
i
ncludescost ofgoods,pr emi um ofi nsur anceandf reight),andr eceiv etheabov e
document sf r
om t hebank,andgetdel iveryoft hegoodsf rom t heshi ppi ngcompanyon
producingt hedocument s.Thi smet hodpr otectst
hesel l
er ,fort hegoodscont i
nuet obe
i
nhi sowner shipunt ilthebuy erpay sfort hem andget st hedocument s, andt hebuy eri s
equallypr otected;ashei sonl ycal l
edupont opayagai nstt hedocument s,andt he
moment ,hepay sheobt ainst hedocument swhi chenabl eshi mt oobt aindel iveryof
goods,assoonast heyar ri
v e.If,i
nt hemeant imet hegoodsar elost,nei therwoul dbe
puttol oss,foreit
hert hesel l
erort hebuy er ,whoeverist heowneratt het i
meoft hel oss,
canmakeacl aim agai nstt heinsur ersforsuchl oss.I faftert akingdel iveryoft hegoods,
thebuy erf i
ndst hatt heyar enotaccor di
ngt othecont racthemayr ejectt hegoodsand
suef ordamages.

Ex-
shipContract:Inthecaseofcont r
actswher edeliver
yhast obemade“ exship”,t
he
ownershipoft hegoodswi llnotpassunt i
l
lact ual
lydel i
ver
ed.Thegoodsar eatt he
sel
ler
’sri
skdur i
ngthev oyage,andheisnotobl
igedt oinsurethem onthebuyer’
sbehalf.
Hewill,
howev er,i
nsurethem toprot
ecthisowni nterests.
Evenift
hebuy erhaspaidthe
pri
ceagainstt hedocument s,t he buyerdoesnott herebyacquireani nt
erest
inthe
goods.

PassingofRi sk:Secti
on26l aysdowntherulesregar
dingthepassi
ngofr i
sk.The
generalruleisri
skfol
lowsownershi
p.Thegoodsremainatt hesel
ler
’sr
iskunti
lthe
propert
yt her
einistr
ansfer
redtothebuy
er.
Aft
erthepropert
yhaspassedt
ot hebuyer
,
thegoodsareatt
hebuyer’
sriskwhet
herdeli
ver
yhasbeenmadeornot.Thus,whereA
buysgoodsofBandpr oper
typassestohim,butt hegoodsremai
ninB’swarehouse
whichcat
chesfi
reandgoodsaredestr
oyedthelosswil
lfal
lonAandhemustpayt he
pri
cetoB.

Ther
ear
etwoexcept
iont
otheabov
erul
e:

(
1) Wher
edeli
veryhasbeendelay
edthrought
hef
aul
tofei
thert
hebuy
erort
hesel
l
er,
t
hegoodsar
eattheri
skofthepart
yatfaul
t.

(2) Theparti
esmayagr eet
hattheri
skwillpassatati
medi f
ferentfr
om t
het
imewhen
propert
ypassed.Forexampl
e,t
hesell
ermayagr eetoberesponsibl
efort
hegoodsev
en
aftert
heproperty
haspassedtothebuyer
.

Tr
ansf
erofTi
tl
ebyNon-
owner
s

Gener alRul
e:Thegeneral ruleisthatonlytheownerofgoodscansel lthem.Noonecan
conveya bet ter
ti
tlethan he hi mselfhas.I fa person t
ransfer
s some goods not
belongingtohim,thetransf ereegetsnot i
tlebecausehowcanonegi vewhathehimsel
f
doesnotown. Afi
ndsar i
ngandaf termaki ngreasonableeff
orttodiscovert
heowner
sel
lsi ttoBwhobuy swithoutknowl edget hatAwasmer el
yaf i
nder.ButBdoesnotget
ti
tl
et otheri
ngandt hetrueownercanr ecovertheringfr
om B.

Except
ionstotheGeneralRul
e:Ther
ear ecer
tai
nexcept
ionstothegener
alr
ule,
“Nemo
datquodnonhabet”.I
neachoft hefol
l
owingcasesaper sonwhoisnotanowner,can
gi
vetot het
ransf
ereeagoodtit
letot
hegoods,

(1)Sal
ebyaMer cantil
eAgent :Wher eamer canti
leagentis,withtheconsentoft he
owner,
inpossessionoft hegoodsordocument softit
leofthegoods, anysalemadeby
him,whenactingi ntheordinarycourseofbusinessofmer canti
leagent,givesagood
ti
tl
etothebuy erprovidedthebuy eractsingoodfait
handhasnonot icethattheagent
hadnoauthoritytosell.Thus,abuy erwhobuy sfr
om afactor,
brokeroraucti
oneergets
agoodstit
letot hegoodsev enthoughtheagenthasexceededhi sauthori
ty.

(2)SalebyaCo- owner:I
foneoft hejointownersofthegoodshast hesolepossession
ofthem byper
mi ssi
onoftheco-ownerst hepropertyi
ngoodspassest oanypersonwho
buysthem ingoodf ai
thandnonot i
ce,atthetimeoft hecontract
,thatthesell
erhadno
authori
tyt
osell.A,oneofthejointowner sofadiamond, hol
dsiti
nhi ssafecustody
.He
sell
sittoBwhobuy si
ngoodfaith.B getsgoodt it
let
ot hedi
amond.

(
3)Sal
ebyaper
soni
npossessi
onunderav
oidabl
eCont
ract:Wher
eaper
soni
n
possessi
on of thegoods under a voidabl
e contr
act (
through coercion or mis-
repr
esent
ati
on)sell
st hem,befor
ethecont r
acti
savoi
ded,t
oabuy erwhobuy singood
fai
thandwit
houtnoticeofthesel
ler
’sdefecti
vet
it
letothegoods,t
hebuy erget
sagood
ti
tl
etothegoods(Theruledoesnotapplytoacont r
actwhichisori
ginal
l
yv oi
d).

(4)Salebyselleri
npossessionaf
tersal
e:Wher
easel l
er,afterhavi
ngsoldthegoods,
conti
nuest obeinpossessi
onofthegoods,oradocumentoft i
tl
et othegoodsand
againsell
sthem orpl
edgesthesameeit
herhi
mselfort
hroughanagentt oapersonwho
actsingoodf ait
handwi t
houtnoticeofthepr
evioussalesuchaper songetsagood
ti
tl
etot hegoods.

Abuy
sapict
urefrom shopandleavesi
twit
htheshopkeeper.Theshopkeepersel
l
sitto
Bwhohasnoknowledgeof t
hesaletoA.Bgetsagoodt i
tl
etot hepi
ctur
e.Acannotget
t
hepi
ctur
efrom B.Hi
sonl yremedyist
osuetheshopkeeperfordamages.

(5)Salebybuy eri npossessi onofgoodsov erwhicht hesell

erhassomer ights: Wher ea
buyer,hav i
ngboughtoragr eedt obuygoods,obt ainswi ththeconsentoft hesel ler
possessi onoft hegoodsort hedocument soft it
letot hegoods,andt hensel ls,pledger
thesameei therbyhi msel fort hroughamer canti
leagent ,
thebuy erorpledgee, whoact s
i
ngoodf aithandwi thoutnot ice ofl ienofanyot herr i
ghtofowner( i.e..theor iginal
sell
er)get sagoodt it
let othegoods. Aagr eedt obuyacarandpayf ori t
,ifhi ssol i
citor
approv ed,andhav ingobt ained,possessi onoft hecar ,solditt oG,butt hesol i
citor
disappr ovedoft het r
ansact ion.Ct hebonaf ide buyergetsagoodt i
tl
e,f orA“ agreedt o
buyi t
”.Butaper sonwhohasmer elyanopt i
ont obuy ,asinahire-purchaseagr eement ,
thebuy ercannott ransf ertit
let oasub- buy er,howeverbonaf i
de,foropt i
ont obuyi snot
agreementt obuy .Aent eredintoahi r
e-purchaseagr eementwi thBi nr el
at i
ont oapi ano
ont hecondi ti
ont haton pay i
ng12i nstalment sofRs. 100eachthepi anoshoul dbehi s
property ,
Afterpay ing6i nstalment s,Bpawnedt hepi anowi t
hC, whot ooki tingoodf aith.
Acant akebackt hepi anof r
om C.

6.Saleundert hei mpliedaut hori

tyoft heownerort itl
ebyestoppel:Undercer tain
cir
cumstancest hetrueownermaybepr ecl
uded,byhi sconductf r
om deny ing t
he
sell
er'
sauthori
tyt osell
.Whent hetrueownerhasact edinsuchamannert hatthebuy er
hasbeeninducedt obelievethatthegoodsbel ongtosomebodyel seandont hatbelief
buysthegoods,t heownercoul dnotr ecovergoodsf rom suchperson.
Theleseeofa
publi
chousewhoal lowedanot herpersont osellt
hefixt
uresandfi
tti
ngsasift heywer e
hisownwher ebythir
dper sonwasi nducedt obuythem bonafi
de,Hecouldnotr ecover
them f
rom thebuy erwhoget sgoodtitl
etothegoods.

Mi
scel
l
aneousexcept
ions

Therearesomeot hercasesi
nwhichnon-
owner scansel
landpassgoodt i
tl
etothe
goods.Arecei
verappoi
ntedbyt
heCour
t,Of
fi
cialAssi
gneeorOf
fi
cialRecei
verundert
he
Insol
v encyActs,aLiqui
datorundert heCompani esAct,orall
ExecutororAdmi ni
str
ator
hasaut hori
tytosel
lgoodsandpassgoodt it
le.Also,anunpaidsell
erexercisehisright
ofli
enorst opthegoodsi ntr
ansitevenwherepr opert
yhaspassedt othebuy erandthen
sellthem tosomeot herpersonwhowi l
lgetgood t i
tl
et othegoods.Apl edgeeor
pawneewhoi snottheowneroft hegoodscansel lt
hem ift
hepledgerfai
l
st opayont he
agreeddat eandthebuy erwil
lgetgoodtitl
e.

Safeinmar ketovert.Apersonwhobuy sgoodsinmarketover

t,obtainsagoodt i
tl
eto
the goods.‘Marketover
t’meansan‘open,publ
icandl
egal
lyconsti
tutedmarket’
.Where
goodsar e sol
di nmar ketover
t,t
hebuyeracqui
resagoodtit
letothem irr
especti
veof
thesell
er’
stit
lepr ovi
ded,

(
1) Thegoodsar
esol
dinaccor
dancewi
tht
heusageoft
hemar
ket
;and

(2) Thebuyerboughtt
hegoodsi
ngoodf
ait
handwi
thoutnot
iceofanydef
ectofwant
orti
tl
eont hepar
tofthesel
l
er,

Thi
spr
act
icei
sfol
l
owedi
nEngl
and.

SELFCHECKTEST

(
a) Abuy sari
ngfrom Batalowpri
cebyunduei nf
luenceandsel
l
sitt
oCwhoi san
i
nnocentbuy
erwi
thout
noti
ceofA’
sdefect
ivet
it
le.CanBr ecov
ert
heri
ngf
rom C?

(
b) Aobtai
nedgoodsunderanagr
eementwhi
chwasf
oundt
obev
oid,
DidAgetgood
t
it
let
othegoods.

(c) Ahorsewassol
datapubl icaucti
or,
.Thehor
sewasstol
enpropert
ybutthi
swas
notknowntoeit
hert
heauct
ioneerorthebuyer
.Di
dthebuy
ergetgoodti
tl
etot
he

hor
se?

(
d) Asentapi anotoBonsaleorr
etur
nbasis.Af
teraweek.from t
hedateofthe
r
ecei
ptofthepianobyB,
Bpl
edgesi
tasasecur
it
yofal oanadv
ancedtohi
m byC.Does
Cgetagoodpledge?

(e) Atol
dBt hathewishedtobuyB’
scar.Hedr
ovet
hecarforabout10minutescame
backtoBandst atedthathewant
edtoshowitt
ohisfat
her
,andt henl
eftwit
ht hecar
andneverret
urned.LaterAsol
dthecart
oCwhosolditt
oD,BsuedDf ort
her ecov
ery
ofthecar
.Willhesucceed?

Answer:
(
a) No,
Bcannotr
ecov
ert
her
ingf
rom C,
eveni
fthecont
racti
ssubsequent
lyr
esci
nded.

(
b) No,
Adi
dnotgetanyt
it
let
othegoods,
eveni
fwewer
eabonaf
idebuy
erf
orv
alue

andwi
thoutanynot
iceoranydef
ecti
nthesel
l
erst
it
le.

(
c) No,
thet
rueownercanr
ecov
ert
hehor
sef
rom t
hebuy
erasi
tdoesnotcomeunder

Sec.27.

(d) Yes,C getsagoodpledge,TheActofpledgingthepi

anobyB amount
sto
accept
anceoft
hegoodsandt
hepassingofpr
oper
tytohim.

(e) Yes,Bwil
lsucceed.Awasguil
tyoftheftandobt
ainednoti
tl
etothecarandso
coul
dconveynotit
letoanybuy
erev
ent houghtheul
ti
matebuyergavev
alueandact
ed
i
ngoodf ai
th.

PERFORMANCEOFTHECONTRACTOFSALE

Dut iesofsell
erandbuy er:Itist hedutyofthesel lert odeliverthegoodsandoft he
buy erto accept andpay fort hem inaccordancewi t
ht het er
msoft hecont r
actof
sale.Unl
essotherwi
seagr eeduponpay mentoft hepriceandt hedeli
ver
yoft hegoods
areconcurrentcondi
tions,thatist osay,thesell
ermustber eadyandwi l
li
ngt odel
iver
thegoodst othebuyerandt hebuy ermustber eadyandwi l
l
ingt opayagainstdeliv
er y
.
Bothpay mentanddel i
verytakepl aceatt hesamet imeunl essot herwi
seagr eed.The
sel
lermustdel i
vert
hegoodsaccor di
ngtot hetermsoft hecont r
actandifhefailstodo
so,t hebuyercancl ai
m damages.Si mil
arl
y,thebuy ermustpayf orthegoodsand
acceptdeli
v er
y,andifhewr ongfull
yrefusestoacceptdel ivery;heshallhav et opay
compensat i
ontothesel l
er.

Rul
esr egardingdel i
very:Deliveryisthev ol
unt
arytransferofpossessi onf rom one
per
son t o other.Del
iverymaybemadebydoi nganythi
ngwhi chthepart i
esagr eeshal l
betreatedas del iv
er y
.Themodeof gi
vi
ngpossessioni st obedet ermi nedbyt he
par
ti
es.Deli
v erymaybeact ual
,const r
ucti
veorsy mbol i
c.Actualdel
iveryt akepl ace
wheret hegoodsar ehandedov ert
ot hebuyerorhisaut hori
sedagent .Const ructi
ve
del
iv
erytakespl acewhent he personinpossessi
onoft hegoodsacknowl edgest hathe
hol
dst hatthegoodsonbehal fofandat thedisposaloft hebuyer.Fori nstance,the
sel
l
eragr eestoholdthegoodsasbai l
eef orthebuy er.Symboli
cdel
iveryismadeby
i
ndicati
ngorgi v
ingasy mbol.Her
ethegoodst hemsel vesarenot del i
ver
ed,butthe
meansof obt
aini
ngpossessi
onofthegoodsi sdeli
vered, e.
g.,t
hekeytot hewarehouse
wherethegoodsar estor
edishandedovertothebuy er,orthebil
lofladingwhichwil
l
ent
itl
etheholdertor
eceivet
hegoodsont hearr
ivaloft heshipisgi
ven.

1.Deli
veryshoul
dhavet
heeffectofput
tingt
hebuyeri
npossessi
on.Forexampl
ewhere
thewoodoff al
l
entr
eesissol
dt hebuyershoul
dbeabletocartawayt hewoodaf
ter
cutt
ingit
.

2.Thesel
l
ermustdel
i
vert
hegoodsaccor
dingt
othecont
ract
.

3.Apar
tfrom anyexpr
esscontr
act
,thesel
l
erofgoodsi
snotboundt
odel
i
vert
hem unt
il
thebuyerappli
esf
ordeli
ver
y.

4.Wheregoodsattheti
meoft hesaleareinthepossessi
onofathi
rdperson,ther
eis
nodeli
verybyt
hesel
lert
othebuyerunlessandunti
lsuchthi
rdper
sonacknowledgesto
thebuyert
hatheholdst
hem onhisbehalf.

5.Wher
eunderthecont
ractt
hesel
leri
sboundtosendthegoodst
othebuy
er,butno
ti
meisfi
xed,
thesel
l
ermustsendt
hem wit
hinar
easonabl
eti
me.

6.Demandbyt hebuy
erand t
enderbyt
hesel
l
erofdel
i
ver
ymustbemadeata
reasonabl
ehour
.

7.Apartf
rom anyexpr
esscontr
act,thegoodsar
etobedel i
ver
edatapl acewherethey
happen tobeattheti
meoft hecont r
actofsal
e,orifthecontracti
swi t
hrespectto
fut
uregoods,
attheplaceatwhichgoodsaremanufact
uredorproduced.

8.Thesel
l
erhast
obeart
hecostofdel
i
ver
yunl
esst
hecont
ractot
her
wisepr
ovi
des.

9.Wher egoodsar edeli

veredtoacar ri
erorwhar finger,thesellerisboundt oenterinto
ar easonablecontracton t he behalfoft he buy erwi t
ht he car r
ierfort he safe
transmissionoft hegoods; ifhefail
stodoso, thebuy ermaycl aim damagesi ncaset he
goodsar edest royed.Ifthet r
ansitwoul dbebysea,t hesellermusti nformthebuy erin
ti
mesot hathemayhav et hegoodsi nsured,orthe sel l
ermayi nsurethem onbehalfof
thebuy er.
10.Wher ethesel l
erisreadyandwi l
l
ingt odel i
verthegoodsandr equestthe
buy ertot ake del i
veryand t he buyerdoes notcompl ywi th hisr equestwi t
hina
reasonablet i
met hebuy erisli
abletot hesell
erf oranylossoccasi onedbyhi sneglect
,
andt oar easonabl echargeforthecareandcust odyoft hegoods.

Acceptanceofgoodsbyt heBuy er:Thebuy erhasarightt

ohav edel
i
ver
yasper
contr
act,andaccept
sthem when-
-theyareaccordi
ngtot
hecont
ract
.

Accept
ancebyt
hebuy
ert
akespl
acewhenhe:
(
1) i
nti
mat
est
othesel
l
ert
hathehasaccept
edt
hegoodsor

(2) doesanyactt
ot hegoodswhi
chi
sinconsi
stentwi
tht
heowner
shi
poft
hesel
l
er
e.g.
,pl
edgesorr
esel
lsthem;

(3) r etai
nsthegoods,af terthelapseofr easonabletime,withoutint
imat i
ngtothe
sell
erthathehasr ej
ectedthem.Whengoodsar edeli
veredtothebuy erwhichhehasnot
previ
ousl yexamined he i
s notdeemed t ohave accepted them untilhe has had
reasonable opport
unit
yt o examine them.Ifthe sell
ersends t ot he buyera l
arge
orsmallerquanti
tyofgoodst hanor
dered,thebuyermay -

(
1)r
ejectt
hewhol
e,or

(
2)acceptt
hewhol
e,or

(3)acceptthequant i
tyheor der
edandr ejecttherest.
Butwhatthebuy eraccept she
mustpayf oratthecontract
rate,
Ifthesell
erdeli
ver
swiththegoodsordered,goodsofa
wrongdescript
ion,thebuyermayacceptt hegoodsorder
edandr ej
ectther est
,orr ej
ect
thewhole.I
fabuy erhasar i
ghttorejectt
hegoods,heisnotboundtor et
urntherejected
goodst othe sell
er.butitissuffi
cienti
fhei nt
imatestothesell
erthather efusest o
acceptthem.

Whoi
sanunpai
dsel
l
er

RI
GHTSOFANUNPAI
DSELLER

A sellerisanunpai dseller
-(1)whent hewhol eoft hepr i
cehasnotbeenpai dor
tendered;or( 2)whenacondi t
ional
paymentwasmadebyabi llofexchangeorother
negotiabl
ei nstr
ument ,andthei nstr
umenthasbeendi shonour
ed.I
nsi mpl
ewor ds,an
unpaidsellerisonewhohassol dgoodsoncasht er
msandt owhom t hepriceofthe
goodsi spay abl
eimmedi at
ely
.Itdoesnoti ncl
udeasell
erwhohassol dgoodsoncr edi
t
andt heperiodofcr edi
thasnotexpi red.
Anunpaidsel
l
erhast wo-fol
dright
s:(A)agai
nst
thegoods, (B)againstthebuyerpersonal
ly.

(
A)Ri
ght
sagai
nstt
hegoods

Ri
ght
sofunpai
dsel
l
eragai
nstt
hegoods
Anunpaidsel
l
erofgoods,ev
enthoughthepr
oper
tyi
nthegoodshaspassedt
obuy
er,
hasfol
lowi
ngright
sagai
nstt
hegoods:

(
a) al
i
enont
hegoodsf
ort
hepr
icewhi
l
ehei
sinpossessi
onoft
hem;

(
b) ar
ightofst
oppagei
ntr
ansi
tincaseoft
hebuy
er’
sinsol
vency
;

(c) ri
ghtofresal
eundercer
tai
ncircumstances;
I
ftheproper
tyi
nthegoodshasnot
passedtheunpai
dsel
l
ercanwi
thhol
ddeliv
eryofthegoods.

Ri
ghtofLi
en

Anunpaidsel
lerofgoodsi
npossessionofgoodssoldbyhi
m mayexerci
sehisli
enon
thegoodsandrefuset
odel
iver
them t
othebuyerunt
ilf
ull
pay
mentortenderoft
hepri
ce
i
ncaseswhere

(
a) t
hegoodshav
ebeensol
dwi
thoutanyst
ipul
ati
onast
ocr
edi
t;

(
b) t
hegoodshav
ebeensol
doncr
edi
t,butt
het
erm ofcr
edi
thasexpi
red;

(c) the buyerhasbecomei nsol

vent ;
Thesellermayexercisehisr i
ghtofli
eneveni fhe
i
si npossessionofthegoodsasagentorbai l
eeforthebuy er.Li
encanbeexer cisedf or
theremai ni
ngpartofshi pment,wher et hesell
erhas al r
eadydel i
yer
edapar toft he
goods,l
i
encanbeexer ci
sedfornon-paymentort hepri
ce,andnotf oranyot
hercharges.
Forexampl e,t
hesell
ercannotclai
ml i
enf orgodownchar geswhi chhehadt oincurf or
stori
ngthe goodsi nexerciseofhi slienforthepr i
ce.Liendependsuponphy sical
possession.Ther
eforeanunpaidsellerloseshisli
enonthegoods:

(
a) whenhedel
iversthem t
oacarr
ierorotherbail
eeforthepur
poseoft
ransmi
ssi
ont
o
t
hebuyerwit
houtreservi
ngt
her
ightofdisposalofthegoods;

(
b) whent
hebuy
erorhi
sagentl
awf
ull
yobt
ainspossessi
onoft
hegoods;

(
c)bywai
veroft
hel
i
en.

Ri
ghtofst
oppagei
ntr
ansi
st

Ther i
ghtofstoppagei nt r
ansitisanext ensionoft herightofl i
en,butitar i
sesonl yon
thei nsolv
encyoft hebuy er.I
ti
sar i
ghttor egai npossessionofgoodsnotpai dfor,whil
e
i
nt r
ansit,i
ncaset hebuy erbecomesi nsolvent .Sotheri
ght ofstoppageint ransitbegi
ns
wher et herightofl i
en ends. Thegoodsar edeemedt obei ntransitfrom t hetime
theyar edeli
veredtothecar ri
erortothetimet heyar edeliveredtothebuy erorhi sagent.
Thegoodsar esti
llintransiti
ftheyarer ej
ect edby t hebuy er.
Ther i
ghtofst oppagein
transitcomest oanendassoonast hebuy erorhi sagent takesdeliv
ery oft hegoods
eitheratt hedestinati
onorbef oretheirarri
v alatt hedest i
nati
on.I
talsocomest oan
endif,afterthearri
valofthegoodsatt heirdestinati
on;thecar r
ieracknowl edgestothe
buyert hathehol dsthegoodsonhi sbehal f
.Ther i
ghtt ostopi ntransi
tal soendsi ft
he
carr
ierwr ongf
ull
yrefusestodel i
verthegoodst ot he buyerorhisagent .
Ifthebuyerhas
i
nt hemeant i
meobt ai
nedBi llofLadingorot herdocument soft i
tletot hegoodsand
assignedt hesamef orvaluet oabonaf i
depur chaser,ther i
ghtofst oppagewoul dbe
l
ost.Wher eAsell
sandconsi gnscertaingoodst oB,Abei ngstillunpaidBbecomes
i
nsol vent;whilet
hegoodsar eintransi
t .Bassignst heB/ Lforconsiderat
iont oC.Itwas
hel
d,t heB/ Li
sadocumentoft i
tl
et ogoods.Cwasnotawar eofb' si
nsol vencyandhe
hadreceiv edB/Lforconsiderati
on.Cgotagoodt i
tletothegoodsandAt houghhewas
anunpai dsel l
ercouldnotstopthegoodsi ntr
ansi t
.

Howst
oppagei
ntr
ansi
tisef
fect
ed

Therightt
ostopgoodsi ntr
ansitmaybeexer cisedeit
herbyt aki
ngactualpossessi
on
ofthegoodsorbygivingnot
iceofthesel
l
er’
sclaimt othecarri
erorotherpersonhavi
ng
contr
olofthegoods.Thecarri
eruponsuchnoticebeinggiven,
isboundtor e-
deli
vert
he
goodst ot
hesellerorhis agent.Theexpensesofr e-del
i
v er
yaretobebor nebythe
sel
ler
.

Ef
fectofsub-
sal
eorpl
edgebybuy
er

Theunpai dsel l
er’sr i
ghtoflienorst oppagei ntransitisnotaf f
ectedbyt hebuyer’
s
selli
ng or pl edging the goods,unless the sellerr ecogni
ses such sub-sal
e or
pledge.Whil
et hegoodsar eint r
ansi
t.ifthebuy ertransfersthedocumentoft i
tl
etothe
goodsorpl edgest hesamet oaper sont aki
ngt hem ingoodf ai
thandforconsider
ati
on
then,ifthetransacti
on i ssal
e,ther i
ghtofst oppagei nt ransi
tisdefeat
ed.Butifthe
transact
ionisapl edge,thesel
ler’
srighttostopintransitwi l
lbesubj
ecttothepledge.

Ri
ghtofr
e-sal
e

Theunpai
dsell
erwhohasr etai
nedpossessi
onofthegoodsinexerci
seofhisri
ghtof
l
ienorwhohasregai
nedpossessi
onfr
om thecar
ri
eruponinsol
vencyofthebuy
ercanre
-
sell
thegoods.

(
a) i
fthegoodsar
eofaper
ishabl
enat
urewi
thoutanynot
icet
othebuy
er;
and

(b) i
not
hercasesaft
ergi
vi
ngnoti
cetothebuy
er,cal
li
nguponhi
mtopayort
endert
he
pri
cewit
hinr
easonabl
eti
meranduponfai
lur
eofthebuyert
odoso.

Ift
hemoneyr eali
seduponsuchr e-
sal
eisnotsuff
ici
entt
ocompensat
ethesel
l
er,he
cansuet hebuyerfort
hebal
ance.Buti
fherecei
vesmorethanwhati
sduetohi
m,he
canret
aintheexcess.
Ri
ghtofr
e-sal
eisal
i
mit
edr
ight

Thesellermustgiv ethenot i
ceofsal etot hebuyerandheshoul dbegi venthefir
st
opport
unityt
opayf ort hegoods.Ar esal
edoesnotabsol vet hebuyerfr
om anyli
abil
it
ies
tocompensatet hesel l
erfordamageshemayhav esuff
ered.Thepersonwhobuy st he
goodsuponsuchr e-saleget sagoodt it
leev eni
fthesellerhasfail
edt ogivenoti
ceto
thefi
rstbuyer.Theonl yeffectoffail
uret ogivenoti
cebef oresel
l
ingt hegoodsisthat
thesell
ercannotsuet hef
irstbuyerfordamagesf orbreachofcont ractandmustpay
backtothefir
stbuy eranypr ofi
thehadr eali
sedfr
omt heresale.

(
B)Unpai
dSel
l
er’
sRi
ght
sagai
nstt
heBuy
er

Anunpai
dsel
l
erhast
hef
oll
owi
ngr
ight
sagai
nstt
hebuy
erper
sonal
l
y.

1.Wherethepropert
yinthegoodshaspassedt
ot hebuyer
, t
hesel
l
eri
sent
it
ledt
osue
forpr
ice,
whetherthepossessi
oni
swit
hthebuyerorthesel
ler.

2.Wherethepr
icei
spay
abl
eonacert
aindayir
respect
iveofdel
iv
ery
,thesel
l
ermaysue
forthepri
ce,i
fiti
snot
pai
donthatday,al
thoughthepropert
yinthegoodshasnot
passed.

3.Wher
ethebuy
erwrongf
ull
ynegl
ect
sorref
usest
oacceptt
hegoodsandpayf
ort
hem,
thesel
l
erhasari
ghtt
osuefordamages.

Auct
ionSal
e

Asalebyauct
ionisapubli
csal
e,wheregoodsar
eoffer
edt
obet akenbyt
hehi ghest
bi
dder.I
tisaproceedi
ngatwhi
chpeoplear
einvi
tedt
ocomplet
ef ort
hepurchaseof
pr
operty

bysuccessi
veof
fer
sofadv
ancedsums.

Thef
oll
owi
ngr
ules,
asgi
veni
nsect
ion64oft
heActappl
ytoauct
ionsal
es:

1.Wheregoodsareputupf orsaleinl
ots,eachl
oti
spr
imaf
aci
edeemedt
obet
he
subj
ectofasepar
atecont
ractofsal
e.

2.Thesal eiscompl etewhent heauctioneerannouncesi tscompletionbyt hefal

lofthe
hammerori nanyot her
customarymanner ;andunt i
lsuchannouncementi smade,the
biddermayr etracthis bid.Abidbyani ntendingbuy er
isanof f
er,itcanbewi t
hdr
awn
anyt imebef oreaccept ance,whichinanauct ionoccur sbythet ai
lofhammer ,or
any othercustomar ymanner ,e.
g.,one,two,t hree,or repeat
ingt hefinalofferorbid
threet imes.Sinceanof fercanber ef
used,andabi di sanof fer,itfol
lowst hatthe
auct i
oneerisnotboundt oacceptt hefinaloranyot herbid.Al
otcanbewi thdr
awnaf t
er
bidinghast akenpl aceforsomet i
me.
3.Arightt
obidmayber eservedexpr
essl
ybyoronbehalfoft
hesell
er.I
fsuchri
ght
expr
esslyr
eser
ved,
thesell
erorany
onepersononhi
sbehal
fmaybidatt
heaucti
on.

4Wheret hesal
eisnotnotif
iedtobesubj
ecttoarightt
obi donbehalfofthesel
leri
t
shal
lnotbelawfulfort
hesell
ertobehimsel
fortoempl oyany .per
sontobidatsuch
sal
e.Theauct i
oneercannottakeanybidf r
om thesel l
erorhisnominee.Anysale
cont
raveni
ngthi
srulemaybet reat
edasfr
audul
entbythebuy er.

5.Thesal
emaybenoti
fi
edtobesubjecttoar eser
vedpri
ce,i
.e.t
heremaybeapr
ice
bel
ow whi
cht
hegoodswil
lnotbesol
d:Thereservepri
cemaybekeptsecr
et.

6.I
fthesel
lermakesuseofpr
etendedbi
ddi
ngt
orai
set
hepr
ice,
thesal
eisv
oidabl
eat
theopti
onofthebuy
er.

RI
GHTSOFTHEBUYER

1.Ri
ghtt
ohavedeli
ver
yaspercont
ract-
Thef
ir
str
ightoft
hebuy
eri
stohav
edel
i
ver
yof
goodsaspercont
ract
.

2.Righttorepudi
ate-
Unl
essother
wiseagr
eedt
hebuy
erofgoodsi
snotboundt
o
acceptdel
iv
eryther
eof
byi
nst
alment
s.

3.Righttoexami ne-Thebuy erhasar ightt

oexaminethegoodswhi chhehasnot
previ
ouslyexaminedbefor
eheaccept sthem.Thesell
eri
sboundt oaff
ordthebuyera
reasonabl
eoppor t
unit
yofexami ni
ngthegoodsfort
hepurposeofascer
tai
ningwhether
theyareinconf
ormi t
ywiththecontr
act.

4.Ri
ght
sagai
nstsel
l
erf
orbr
eachofcont
ract-

(
a)Sui
tfordamages(Sec.
57)wheret
hesell
erwrongf
ull
ynegl
ect
sorref
usestodel
i
ver
t
hegoodstothebuy
er,t
hebuyermaysuet
hesell
erfordamagesf
ornon-
del
iv
ery.

(b)Suitfordamages-Ifthebuy
erhaspai
dthepr
iceandt
hegoodsar
enotdel
i
ver
ed,
he
canr ecovertheamountpai
d.

(c)Suitf
orspeci
ficper
for
mance-Thebuyermaysuethesel
lerforspeci
fi
cperf
ormance
ofthecontractt
osellwhent
hegoodsarespeci
fi
corascert
ained.Thecourt
ymayorder
forthespecif
icperf
ormanceoft
hecontr
act.

(d)Suitf
orbreachofwarr
anty-Wherethereisabreachofwarr
antybythesel
ler
,or
wherethebuyerel
ect
sori
scompelledtotr
eatanybr
eachofcondi
ti
ononthepar
tofthe
sell
erasabreachofwar
ranty
,thebuyermay.
(1) setupagai
nstt
hesel
l
ert
hebr
eachofwar
rant
yindi
minut
ionorext
inct
ionoft
he
pri
ce;or

(
2) suet
hesel
l
erf
ordamagesf
orbr
eachofwar
rant
y.[
Sec.59]

5.Repuditionofcont
ractbefor
et he dat
e-Wher ethesetterrepudi
atesthecont
ract
beforethedateofdel
i
very,
thebuyermayei
thertr
eatthecontractassubsi
sti
ngandwait
ti
llt
hedat eofdel
iv
ery,
orhemayt reatt
hecontr
actasresci
nedandsuef ordamagesfor
thebreach.Thi
srulei
sknownast herul
eofanocipat
orybreachorcontract
,

6.Suitfori
nterest-
Wherether
eisbreachofcont
ractonthepar
tofthesel
lerandasa
resul
t,t
hepricehastoberef
undedt
ot hebuy
er,t
hebuyerhasal
ri
ghtt
oclai
mi nt
ereston
theamountoft heprice.

SELF-
CHECKTEST

(a) TheWarehousehast wor ooms,oneinnerandt heotherouter

.Thegoodswhich
havebeensol
dar el
yingintheinnerr
oom.Thesellerhandsovertothebuy
erthekeyto
theinnerr
oom andretai
nst hekeytotheouterroom.Hasdel i
ver
yofthegoodstaken
place?

(b) AboughtofBsomecar goonboar dashipatsea.Bendorsedthebil

lladi
ngrelati
ng
tothecargoandhandeditov ertoAal ongwithotherdocumentsagainstpayment .On
thearr
ivaloft
heshipatport,Af ai
l
st ogetdel
iv
eryofthegoodsf r
om theMast erofthe
shipandsuesB fornon-
deliveryofthegoods.IsAenti
tl
edtosueB?

(c) Aboughtahorsefr
om Bandpai dfori
t.BaskedAtol
endhimthehor
seforaweek
towhichAassentedandlet
him keepthehorseinhi
scust
ody.I
sther
eadeli
veryoft
he
horsetoA?

(d) Thecont r
actofsal eprovi
dedt hatonthearr
ivalofther ai
l
wayr ecei
ptandthe
i
nvoice,t
hebuy ershoul
dreceivethem onpaymentoftheprice.Thesell
ergavenoti
ce
ofthearr
ivalofthegoods,andawai tsdemandbythebuy erfordeli
ver
yanddoesnot
sendthegoodst othebuyer.Thebuyersuesthesel
l
erf or
damagesf orf
ailur
etodel
i
ver
thegoods.Wi l
lhesucceed?

(e) Aboughtsomegoodsf rom Bononeweek’ scr

editandleftt
hem wit
hD.Lat eron,
hesoldthem toCandgi v
ehimadeliveryorderonB.Cwasunabl etogetdel
iveryfrom B.
Meanwhi l
e,Aunawar eofthenon-deli
verypaidthepri
cet oB,andsuedCt or ecoverit
from hi
m ont hegroundthathehadt opayBbyt hefai
lureofCt oi
nform him ofnon-
deli
veryofthegoods.Wil
lAsucceedinget t
ingthepr
icefrom C?
(f) Asol d32l ogsofwoodtoBonappr oval
.Aft
erinspecti
onBr ej
ectedt helogs,
asked
At ot akethemawayandsuedf ortheret
urnofRs.300whi chhehadadv ancedonthe
transacti
on.The sui t was decreed but t
he goods wer e destroyed by f i
re.A
demandsf rom Bt hepr
iceofthegoodsont hegroundt hathehadfailedt osendback
thegoods.Wi llhesucceed?

(g) Asoldcert
aingoodstoBtobedel i
ver
edbyi nst
almentstobepaidforincash14
daysaft
erdeli
very?Duri
ngthecur
rencyoft hecontr
act,Bbecamei nsol
ventandthe
pri
ceofonei nstalmentwasunpai
d. Arefusedtodeliverfur
theri
nstal
ments.Ishe
j
usti
fi
edinhi
sact ion?

(h) Asoldcertaingoodst oBandhandedt hem ov

ertoBforexaminationonl
y.Whil
e
thegoodswerei nB’spossessionfort
hepur
pose,Bbecameinsol
vent,andAexerci
sed
hisr
ightofl
ien.Ishisacti
onv ali
d?

(i
) Asol dcer
taingoodst oBandf orwardtohim abi l
lofladi
ngendorsedi
nblank
toget
herwithabillofexchangeforthepr i
ceoft hegoodsf oraccept
ance.Bwit
hout
accepti
ngthebi
llofexchangemadeov erthebi
l
lofladingtoCwhoact i
ngingoodfai
th
paidhi
mf ort
hegoods.CanAst opthegoodsi ntr
ansit?

(j
) Asol dcert
aingoodst
oB,andBresol
dthem t
oCandthenbecamei
nsol
vent
.The
bi
llofladi
ngwasmadeoutint
henameofCbutnotdel
iv
eredtohi
m andsohehadnot
paidforthem.CanAstopt
hegoodsi
ntr
ansi
t?

(k) Aboughtf
rom BashipmentofnutsandBsenttoAt hebil
lofl
adi
ng.Ahandedt
he
bil
lofladi
ngtoCinret
urnforaloan,
andthenbecameinsol
vent.
Batt
empedtostopt
he
goodsintr
ansi
t,butCcl
aimedthem.Howwouldyoudecide?

Answer
s:

(
a) No,
ther
eisnosy
mbol
i
cdel
i
ver
yast
her
eisnoaccesst
othegoods.

(b) No,
Aisnotenti
tl
edtosueBfornon-del
i
ver
ybytheMast eroftheshi
p.Thehandi
ng
overoft
hebil
l
ofladi
ngtoAagainstpay
mentamount edtodel
iver
yofthegoods.Hecan
suetheshi
ppi
ngcompanyfordamagesandnotthesell
er.

(
c) Yes,
thehor
sehadbeendel
i
ver
edt
oA.

(d) No,al
thoughthesell
erhastobereadyandwill
i
ngtodel
i
vert
hegoods,hei
snot
boundtodeliver
unl
essthebuyerdemandsdel
iv
eryonpay
mentoft
hepr
ice.

(
e) No,Acannotgetthepri
cefrom Cbecause,alt
houghthegoodswer
epurchased
t
heywerenotdel
i
ver
ed,Alsoabuy
erwhohasnotobt ai
neddel
iv
eryi
snoti
nlawbound
t
oinf
ormthesell
ert
hathehasfai
ledt
oobtaindel
ivery.
(f) Ahasnorighttodemandthepr
iceofthegoodsfr
om Bwhohadr ej
ectedthem had
andalsoaskedBt or
emovethem.Abuy eri
snotboundtoreturnthegoodst hathehas
rej
ect
ed;andashei sonl
yabaileef
orthem,hei
snotresponsibl
ef oranylossofgoods
duetoacci
dents.

(g) Aisjusti
fi
edinhisref
usaltodel
iverfur
theri
nst
alment
s.Thesel
l
erneednotmake
fur
therdel
iver
iesunl
esst
hepr i
ceofthatinst
almenti
spaidandcashi
spaidagai
nstt
he
del
iver
yofsubsequentinstal
ments.

(h) Yes,
Acanexerci
sehisrightofl
ien;
forputt
ingthegoodsi
ntothepossessi
onoft
he
buyer onlyfor
examinati
ondoesamountt o sur
renderofl
ien.Thegoodsar esti
ll
deemedt obeinthepossessionoft
hesell
er.

(i
) No, Acannotst
opthegoodsi
ntr
ansi
t.Thet
ransf
eroft
hebil
lofl
ading(
document
ofti
tl
e)toasub-buyerwhopayst
hepri
cedestr
oystheri
ghtofthesel
l
ertostopthe
goodsintr
ansit
.

(j
) Yes,Acanst opthegoodsi
ntr
ansi
tforthepur
chasemoney.Thebi
llofladi
ng,
thoughmadeoutinthenameofCwasnotdeli
ver
edtohim sot
hathedidbecomethe
ownerofthegoods.

(
k) Cgotgoodtitl
etothegoodswhichdef
eat
edB’sri
ghttostopthem i
ntr
ansi
t.I
nthe
r
esul
t,Bcannot
stopthegoodsint
ransi
tandCcangetthei
rpossessi
onasowner.

PROMISSORYNOTE,BILLOFEXCHANGE,HUNDI
,CHEQUE-CROSSI
NGPARTI
ES TO
NEGOTIABLEI
NSTRUMENTS

I
ntr
oduct
ion

Negotiablei nstr
ument s aret he mostcommon cr editdev ices util
ized in business
soci
ety.Negot i
ableinst r
ument simpor tancel iesint hefactt hatt hesear emor er eadil
y
tr
ansferredt hanor dinaryclaimsorcont ractright
st hatthet ransfereeofanegot i
able
i
nstrumentmay acqui re greaterr ight st han woul d an or dinary assignee.Though
basi
cally,
negot i
ablei nstr
ument sar ewr it
tenpr omisesoror der stopaymoney ,suchas
promissor ynotes,bi l
lsofexchangeandchequeswhi chwheni npr operf or
m,maybe
tr
ansferred from per son to per son as a subst itut
ed ofmoney .
The l awrelati
ng to
negoti
abl einstr
ument sinIndiai sincor poratedinNegot iableInst r
umentAct ,1881.The
Actisnot compr ehensive.Itdoesnotaf fectthel ocalusageorcust oms.I fanyl ocal
usageorcust om i scont r
arytot hepr ov i
sionsoft hisact,thel ocalusageov erridesthe
Act.The acti ncludes onlyt hree i nstrument si ni t
sambi t,v iz.Bi l
lofexchange,
promissor
ynot e and cheque. But the act wi
l
l also be ext ended to other
i
nstruments possessing the char
acter
ist
icsofa negoti
abl
ei nstr
ument,bylocal
customs,forexampl
eHundi.Theactal
sodoesnotpr
ohibitt
hetransferofinst
ruments
byothermethods.e.
g.byassignment
.

Meani
ngofNegot
iabl
eInst
rument
s

Accor dingt osect i

on13( a) ,Negot i
ableInstrumentmeansapr omissor ynote,bi l
lof
exchangeorchequepay ableeithertoor derort obear er,whet herthe‘ words’orderor
‘
bear er’appearont hei nst rumentornot .Anyot herinstrumentcanbeaddedt ot hese
threei fitsati
sfiestwocondi t
ionsofnegot iabil
i
ty.Onei st hatitisbycust omsof trade
transferablebydel i
veryorbyendor sementanddel ivery;secondi sthati tiscapabl eof
beingsueduponbyt heper sonhol dingouti nhisownname. Thenat ureofnegot i
able
i
nst rumenti ssucht hatpr oper tyinitisacquiredbyev ery per
sonwho t akesitbonaf i
de
andf orv al
ue,notwithst andi nganydef ectoft i
tlei ntheper sonf r
om whom he t ook
i
t.Ont hi
sbasisanegot iablei nstrumentmaybedef inedasacont ractualobligat
ioni n
wr i
tingandsi gnedbyt hepar t
yexecuti
ngi t,cont ai
ninganuncondi tionalpromi seor
ordert opayasum cer taini n-moneyondemand, orataf ixedordeterminabl ef
uturet i
me,
pay abletobear erortot heor derofaspeci f
iedper son.

Essent
ial
Element
sofNegot
iabl
eInst
rument:

Tobenegot
iabl
eani
nst
rumentmusthav
ethef
oll
owi
ngel
ement
s:

1. Anegoti
abl
einst
rumentmustbei
nwr
it
ing,whi
chi
ncl
udest
ypi
ng,pr
int
ingand
engr
avi
ng.

2. Thei
nst
rumentmustbesi
gnedbyt
hemakerordr
awer
.

3. Ther emustbeapr
omi
sei
fiti
sapr
omi
ssor
ynot
eoror
dert
opayi
fiti
sabi
l
lof
exchange.

4. Thepr omiseoror
dermustbeuncondi
ti
onal
.Ifi
tiscondi
ti
onalt
hei
nst
rumenti
s
notnegot
iable.

5. Anegotiableinst
rumentmustcal
lforpaymenti
nmoney
.Ift
hepr
omi
seoror
deri
s
forany
thi
ngelse,t
heinstr
umenti
snotnegotiabl
e.

6. Thei
nst
rumentmustnotonl
ycal
lforpay
menti
nmoneybutal
sof
oracer
tai
nsum.

7. Anegotiableinst
rumentmustbepayabl
eatatimewhichiscer
taintoarr
ivewhi
ch
maybepayableei
therondemandorataparti
cul
arti
meoratadeterminabl
efutur
eti
me.
I
fiti
spayablewhenconv eni
ent
,t
heinst
rumentisnotnegot
iabl
ebecauset hedayof
paymentmaynotarr
ive.Therequi
rementthattheremustbeat i
mecert
aint
oar
ri
ve
doesnotmeant
hatt
hei nst
rumentmustspeci
fyafixeddat
eforpay
ment
.

8. Anegot i
abl
ei nstrumentmustbepay abletoorderorbearer:Withoutthewor ds
orderorbearer,t
hei nst
rumentwoul dnotbenegot iabl
ebecause,iftheywerenott here,
noonebutt hepayeecoul dpresentthem f
orpay ment.I
fiti
smer el
ypay ablet
oRam, i
tis
notnegotiabl
e.I tisnotnecessaryt hattheinst
rumentactual
l
yuset hewords‘or
der’or
‘
bearer’
.Andot herwor dsindicati
ngt hesamei ntent
ionaresuffici
ent.
Payto hol der
couldbeusedinpl aceof‘or
der’or‘bearer
’.

9. Inthecaseofabi llofexchangeorcheque,t
hedr aweemustbenamedor
descri
bedwithreasonabl
ecer
tai
nty
.Thepurposeofthi
sr equi
rementi
stoenabl
ethe
holderoft
heinst
rumenttoknowtowhom hemustgoforpayment.

Pr
esumpt
ionsast
oNegot
iabl
eInst
rument
s

Since t he phi losophy underl

yi
ng t he l aw of Negot i
able inst
rument
s i s that
businesst ransact i
onsshouldbefacil
itat
edbymaki ngavai
labl
eev i
denceofr i
ghtt o
moneyt hatwi l
lpass f r
eel
yfrom handt ohand.Inordert
ofacil
it
atethefr
eetransf
erof
negotiableinstrument sfr
om onepartyt oanother,Secti
on118oft heActprovi
desthat
untilt
hecont raryisproved,t
hefoll
owingpr esumptionsshal
lbemade:

1. Thatev er
y negoti
ableinst
rumentwas made ordr
awn,accept
ed,endor
sed
andnegot
iat
edort
ransf
err
edforconsi
der
ati
on.

2. Thati
tbear
sthedat
eonwhi
chi
twasmadeordr
awn.

3. Thateveryaccept
edbi
l
lwasaccept
edwi
thi
nar
easobl
eti
meaf
teri
tsdat
eand
bef
orei
tsmat
uri
ty.

4. Thatev
eryt
ransf
erofanegot
iabl
einst
rumentwasmadebef
oremat
uri
ty.

5. Thatt heendor
sement
sappear
ingoni
twer
emadei
ntheor
deri
nwhi
cht
hey
appeart
her
eon.

6. Wher
eaninst
rumenthasbeenl
ostordest
roy
ed,
thati
twasdul
yst
ampedandt
he
st
ampwasdul
ycancel
l
ed.

7. Thatt
hehol
deroft
hei
nst
rumenti
sahol
deri
nduecour
se.

Theobj ectoft hesepresumpt ionsistodecl ar

et heinstrumentasv al
idandi ngood
orderitasuitisf i
ledinrespectof anegoti
ableinstr
ument ,t
heCour twillpresumet hat
theinstr
umentwasi ngoodor derandv ali
d.Ifanypar t
ychal
lengesitsvalidi
ty,heshall
havet o provet ot he contr
ar y
.These pr esumpt i
ons are necessaryi nt he case
ofnegoti
ableinstruments,astheyar ecredi
tinstrumentsandi nt
endedt obecr eatedas
moneywhi
chcanpassf
reel
yfr
om handt
ohand.

Negot
iabl
einst
rument
sacti
ncl
udesonl
ythr
eet
ypesofi
nst
rument
s:

1.Pr
omi
ssor
ynot
e.

2.Bi
l
lofExchange.

3.Cheque.

Def
ini
ti
on

PROMI
SSORYNOTE(
Sec.4)

Promissor
y noteis defi
ned by Secti
on 4 oft he Negot
iabl
eInstr
uments Act.A
promissor
ynot eisaninstr
umenti nwrit
ingcont
aini
nganuncondit
ionalunder
taki
ng,
si
gnedbyt hemaker,topayacer t
ainsum ofmoneyonlytoortotheorderofacert
ain
personortothebear
eroftheinst
rument.

Ani
nst
rumentt
obeapr
omi
ssor
ynot
emustpossesst
hef
oll
owi
ngel
ement
s:

(
1) I
tmustbeinwri
ti
ng:Merev
erbalpromisetopaywil
lnotdo.Themet
hodofwr
it
ing
i
simpor
tant
,buti
tmustbei
namediat hatcannotbeal
ter
edeasil
y.

(2) Itmustcontai
nanexpresspromiseorclearunder
taki
ngtopay
:Apromisetopay
cannotbeinf
err
ed;itmustbeexpress.Amer eacknowledgementi
snotenough.The
fol
lowingarenotpr
omissor
ynotes,asther
eisnopromisetopay:

(
a) “
Mr.A.
I.
O.U.Rs.500”
.

(
b) “
Iam l
i
abl
etopayy
ouRs.1,
000”
.

(
c) “ Ihav
etakenfr
om youRs.150;whenev
ery
ouaskf
ori
t;Ihav
etopay
”Butt
he
f
oll
owi
ngisapr
omisetopay:

(
a) “
Ipr
omi
set
opayRam oror
derRs.
1,500.
”

(
b) “
Ram,
Iowey
ouRs.1,
500andpr
omi
set
opayt
hesamef
orv
aluer
ecei
ved.
”(c)“
I
promisetopayRam 1,
500atKanpur.”
Alt
houghthepromi
setopaymaybeopposedt o
publ
icpoli
cyandunenfor
ceabl
e,onceapromissor
ynotei
sexecut
edthepr
omisetopay
i
sperformedbecauseapromissor
ynoteamountsinlawtopayment
andwhatvi
ti
atesa
promisedoesnotvi
ti
ateapayment.

(3) Thepromisetopaymustbeuncondi t
ional:
Wehav eseenbeforethataninstr
ument,
tobenegot i
able,
mustcont ai
nanuncondi ti
onalpr omiseororder.Soapr omisetopay
contai
ned in anot emustbeuncondi ti
onal.A condi ti
onalundertaki
ng destr
oysthe
negoti
ablecharacterofanot her
wisenegot i
ableinst
rument.Butapr omisetopayata
part
icularpl
aceoraf t
eraspeci fi
edtimeoront hehappeningofanev entwhichmust
happeni snotconditi
onal.Forexample,Ipromi setopayBRs. 50sev endaysafterC’
s
deathisnotcondi
ti
onal,f
orCi scert
aintodiesomet i
meort heother.

(4) ThemakermustSi gnt hepromi ssorynot

e:Thepersonwhodr awsthei
nstr
ument
andsignsitisknownast hemakerandt hepersontowhom t hepromisei
smadei s
call
edthepayee.Thei nstrumentwi llbecomplet
eonlywheni ti
ssignedbythemaker
evenwhenitiswrit
tenbyhi m andhi snameappear si
nthebodyofinst
rument
.Si
gnat
ure
maybei nanypar toft hei nst
rument ,andmaybeexpr essedbyat humbmarkorany
othermark,
iftheexecutanti si
lli
ter
ate.

(5) Themakermustbeacer t
ainperson:Thenoteit
sel
fmustshowclearl
ywhoist
he
personengaginghimsel
ftopay,Wheret hepromi
sorsaremorethanonetheymaybi
nd
themsel
vesj oint
lyorj
oint
lyandsev
erall
ybutnotintheal
ter
nat
ive.

(6) Thepayeemustbecer
tai
n:Apr omissorynotemustcont ai
napromisetopayto
some personorper
sonsascert
ained bynameordesi gnat
ionortothei
rorder
.A
promi
ssor
ynot emadepayabl
et ot hemakerhi mselfitnulli
tybuti
fsuchanot eis
endor
sedbyhim,i
tbecomespayablet obearerandisval
id.

(7) Thesum pay abl

emustbecer t
ainandt heamountmustnotbecapabl eof
cont
ingentaddi
ti
ons orsubst
ract
ions.Thus,i
fApromisestopayRs.500andal
lother
sumswhi chshal
lbecomeduet ohim ortopay180andallf
inesaccor
dingt
orul
es,the
i
nstr
umenti snotapromissor
ynote.

(8) Paymentmustbei
nlegalmoneyoft
hecount
ry.Thusanagr
eementt
opaymoney
orgrai
nortodel
i
ver100tonsofi
roni
snotapr
omissorynot
e.

(9) Abanknoteoracur r
encynoteisnotapromissor
ynotewit
hinthemeaningofthis
secti
on.Theyareexpr
esslyexcl
udedf r
om t
hedefini
ti
on,ast
heyar etr
eat
edasmoney
andnotmer el
ysecuri
tiesformoney .Apromissorynoteoradr af
tcannotbemade
payablet
obearer
,nomat t
erwhetheri
tispayabl
eondemandorafteracert
ainper
iod.

(
10)Ot
hermat
ter
soff
orml
i
kenumber
,pl
ace,
dat
eet
c.,
areusual
l
yfoundgi
veni
nnot
es,
butt
heyar
enot
essent
ial
inl
aw.

Speci
mensofaPr
omi
ssor
yNot
e

Rs.
500.
00 Del
hi

Nov
ember4,
1998

Ondemand(orsi
xmonthsafterdat
e)IpromisetopayRam orordert
hesum off
ive
hundr
edr
upeeswi
thi
nter
estat6percentperannum unt
ilpay
ment
.

Sd/-

St
amp

Gopal

Gopal
ismakerandRam i
sthepay
ee.
Rs.
500.
00 Del
hi.

Nov
.4,
1998

OndemandIpr
omi
set
opayRam t
hesum off
ivehundr
edr
upeesonl
y.

Sd/-

Gopal

St
amp

Apr
omi ssor
ynotemustbeart hestampdutyasr equi
redundertheIndianSt
ampAct.I
t
i
sbetterift
hestampsaf
fixedal-ecancel
l
edbyt hemaker ’
ssi
gnature.Sui
tcannotbe
mai
ntainedonanunsuff
icientstampedpromissorynote.

BI
LLOFEXCHANGE
Def
ini
ti
on

Accordingt oSect ion5oft heNegot iableI nstrument sAct ,A bi l

lofexchangei san
i
nst r
umenti nwriti
ngcont aini
nganuncondi t
ionalor der,signedbyt hemaker ,direct
inga
certai
nper sont opayacer tai
nsum ofmoneyonl yto, ortotheor derof,acer t
ainper son
ort othebear eroft heI nstr
ument .Thedef ini
tionofBi llofExchangei sv erysimi l
ar
tothatofapr omissor ynot eandf ormostpur posest her ul
eswhi chappl yt onot es
are in gener alappl icablet obil
ls.The f undament alingredientsar et hesame.The
drawerl i
ket hemaker smustbecer t
ain,theor dert opaymustbeuncondi t
ional
,t he
amountofBi l
landt hepay eeandt hedr awer, mustbecer tainandt hecontractmustbe
i
nwr i
ti
ng.Themakerofanot ecorrespondst ot heaccept orofabi l
l,andwhenanot eis
endorsedi tisexact l
ysi mi l
artoabi l
l,fortheni tisanor derbyt heendor seroft henot e
upont hemakert opayt heendorsee.Theendor seris,asi twere,thedr awer,themaker ,
the accept orand t he endor see ist he pay ee.Buta bi l
ldi f
fersf r
om a not ei n
somepar ti
cul ar
s.Theusual form ofabi ll
ofExchangei sgi venbelow:

Rs.
700.
00 Del
hi

Nov
ember4,
1998

Thr
eemont hsaft
erdat
epayt
omeorBear
er/
oror
dert
hesum ofr
upeessev
enhundr
ed
onl
yforv
aluerecei
ved.
ToSul
tar
lSi
ngh

Ch.Ch.Del
hi

Sd/-

St
amp

XYZ

Her
eSul
tanSi
nghi
sthedr
aweeandXYZi
sthedr
awerormakeroft
hebi
l
l.

119
Rs.
500.
00 Del
hi

Nov
ember4,
1998

Threemonthsaf
terdat
epayt
oRam oror
dert
hesum off
ivehundr
edr
upeesf
orv
alue
recei
ved.

To

Sul
tanSi
ngh

Sd/-

St
amp

Espl
anadeRoad. X.YZDel
hi.

Her
eX.
Y.Z.i
sthedr
awer
,Ram i
sthepay
eeandSul
tanSi
nghi
sthedr
awee.

Essent
ial
sofaBi
l
lofExchange

1. I
tmustbei
nwr
it
ingandmaybei
nanyl
anguage.
2. I
tmustbeanor
dert
opaybyt
hedr
awert
othedr
awee.

3. Theor dertopaymustbeuncondi
ti
onal
.Ift
heor
dert
opayi
scondi
ti
onal
,thebi
l
lof
exchangebecomesinv
ali
d.

4. Ther
ear
ethr
eepar
ti
esi
nabi
l
lofexchange.(
a)Dr
awer
:Theper
sonwhomakest
he
bi
l
l.

(
b)Dr
awee:
Theper
sonwhoi
sor
der
edt
opayoronwhom t
hebi
l
lisdr
awn.

(
c)Pay
ee:
Theper
sonwhoi
stor
ecei
vet
hepay
ment
.

5. Thebi
l
lmustbesi
gnedbyt
hedr
awerot
her
wisei
twi
l
lbecomeani
nchoat
e
i
nstr
ument
.

6. Theor
dert
opaymustbeofacer
tai
nsum andi
tmustbei
nmoneyonl
y.

7. Thepay
eeanddr
aweemustbecer
tai
n.

8. I
tmustbepr
oper
lyst
ampedundert
heI
ndi
anSt
ampAct
.

Di
sti
nct
ionbet
weenBi
l
landNot
e

The bel
ow gi
ven di
ff
erences ar
e enumer
ated f
rom t
he abov
e meani
ngs ofbot
h
thei
nstr
ument
s—

(1) Inanot et her

ear eonl
ytwopar ti
es-themakerandt hepayee.Inabillther
eare
threepar
tiesnamely,drawer
,drawee,andpayee;
thought
wooutoft hreecapaci
tiesmay
bef i
ll
ed byoneandt hesameperson.Inabillt
hedraweri
st hemakerwhoor derst
he
draweetopayt hebilltoapersoncall
edthepay eeortohisorder
.Whent hedrawee
acceptst
hebi llheiscall
edtheacceptor
.

(2) Anotecannotbemadepay
abl
etothemakerhi
msel
f,whi
l
einabi
l
lthedr
awerand
payeeor
draweeandpayeemaybet
hesameperson.

(3) Anotecontai
nsanuncondi
ti
onalpromisebyt
hemakert
opayt
othepay eeorhi
s
order
;inabill
ther
eisanuncondit
ionalordert
othedr
aweetopayaccor
dingtothe
drawer’
sdir
ecti
ons.

(4) Anoteispresentedforpaymentwit
houtanypri
oraccept
ancet
ot hemaker
.Abil
l
payabl
eaf t
ersi
ghtmustbeaccept edbyt hedraweeorsomeoneel seonhisbehal
f
befor
eitcanbepr esent
edforpayment
.

(5) Theli
abi
l
ityoft
hemakerofanoteispri
mar
yandabsol
ute,butt
heliabi
l
ityoft
he
drawerofabi
l
li
ssecondar
yandcondi
ti
onal
.Hewi
llbel
i
abl
eonlyift
hebil
li
snot
accept
edorpai
dbyt
hedr
awer
.

(6) Themakerofthenot
estandsi
nimmedi
aterel
ationwi
ththepay
ee.whil
ethemaker
ordrawerofanaccept
edbil
lst
andsi
nimmediat
erelati
onwit
htheaccept
orandnotthe
payee.

(
7) Forei
gnbi
ll
smustbeprot
est
edfordi
shonourwheneachpr
otestisrequi
redtobe
madebythel
awoft
hecount
rywheret
heyar
edrawnbutnosuchprotesti
snecessaryi
n
t
hecaseofthenot
e.

(
8) Whenabil
lisdi
shonoured,duenoti
ceofdishonouri
stobegiv
enbythehol
dert
o
t
hedr
awerandt
heint
ermediateindor
ser
s,butnosuchnoti
ceneedbegi
veni
nthe

caseofanot
e.

Ty
pesofBi
l
lofExchange

Abi llofexchangemaybeanI nl
andbil
loraForeignbill.Ori
ginal
ly
,bil
lwasameansby
whichat raderinonecount r
ypaidadebtinanothercount rywi
thoutthetr
ansmi
ssi
onof
coin.AnI nlandbillisdrawnandpayableinIndiaordr awni nIndi
auponsomeper son
residentinIndia,eventhoughitismadepayableinaf or ei
gncountry
.Abil
lwhi
chisnot
Inl
andi saFor eignBill
(Sec.12).

Accommodat
ionBi
l
l

Legiti
matelyspeaking,anaccommodat ionbi l
lisnotabi l
lassuch.I ti ssi mplyamode
ofaccommodat i
ngaf r
iendinbusi ness.Forexampl e,Amay be i n wantofmoney
andappr oachhisfriendBandCwho,i nsteadofl endi ngthemoneydi rectly,proposet o
drawan‘Accommodat ionBill
’inhisf avour.Apr omi sest oreimbur seCbef oret heperiod
ofthebil
li
sup( whichisgener all
y3mont hs).Ifthecr editofBandCi sgood, thisdev i
ce
enablesAt ogetanadv ancefr
om hi sbankeratt hecommer cialrat eofdi scount.The
realdebtorinthi
scasei snotC,t heaccept or,butAt hepayeewhohasengagedt ofind
themoneyf orit
sul ti
mat epayment ,andAi sher et hepr i
ncipaldebt orandt heot hers
mer el
ysuret
ies.Thus,asbet weent heor iginalpar t
iest othebi llt heonewhowoul d
pri
maf aciebepr i
ncipali
si nfact,thesur et
ywhet herhebedr awer, accept orori ndorser,
thatbil
li
sanaccommodat ionbill
.

Ri
ght
stoDupl
i
cat
eBi
l
l

Wherethebilli
snotov er
duebuthasbeenl ost,thepersonwhowashol derofitmay
applytothedrawer,togivehi
m anot
herbil
loft hesamet enor
,giv
ingsecur
it
ytot he
draweri
frequir
ed,toi
ndemni f
yhi
m agai
nstallpersonswhateveri
ncasethebil
lal
leged
tohavebeenl ostshal
lbef oundagai
n.Ifthedr awerrefusestogivesuchdupli
cate
bi
llmaybecompelledtodosobymeansofasui t.Holderistheper
sonwhocanaskf or
adupl
i
cat
e.

BankDr
aft

Ademanddr aftisabil
lofexchangedrawnbyabankonanot herbank,orbyitsel
fonits
own br anch,and is anegotiabl
einstrument.Iti sli
ke a cheque butdi f
fer
si n
certai
nrespects.Fi
rst
,itcanbedr awnonl ybyabankonanot herbankandnotbya
privat
ei ndivi
dualas int he case ofcheques.As agai nsta cheque,i tcannot
becountermandedeasi l
yei
therbyitspurchaserorbythebankt owhichitispresent
ed.
Finall
y,i
tcannotbemadepay abletobearer.Thesedaysiti
sapopul armodeofmaki ng
payment s.Bankschargeanomi nal
amountofcommi ssi
onforthi
sservice.

Bi
l
linSet
s

Foreignbi l
lsar egener al
lydr awni nsetsoft hreeeach.Accor di
ngt oS.132,bi l
lof
exchangemaybedr awni nparts,eachpartbeingnumber edandcont ai
ningapr ov
isi
on
thatitshal lconti
nuet obepay ablesolongast heot herpar
tremainsunpai d.All
thepart
s
toget hermakeasetbutt hewhol esetconst
itut esonebi l
landisextinguishedwhenone
oft hepar ts,ifasepar atebil
l,would beextingui shed.Thebil
ls are drawn in set
s,in
foreignt radei nor dert ofaci l
it
atepromptandeasypr esent
ationforacceptanceand
pay ment .Italsoreducest heriskoflossincour seof t
ransi
t.

HUNDI

Asst atedearl
ierint hi
schapt er,thenegot iableinstrumentactcov ersonl ythr
eet ypesof
i
nstrument s,vi
z.pr omissory note, bi
llofexchangeandcheque.Hundii snotgi veninthe
defi
nitionofanegot i
abl
ei nst rumenti nt heact .Hundii soneoft heol destinstrument
prevalentinIndianbusi nesswor ld.Hundi saregov ernedbyl ocalusagesorcust oms
butwher etheactiscont raryt ot hecust oms,thel ocalusagesorcust omswi l
lappl y
.But
i
nt heabsenceofanyusagesor customs, the prov i
sionsofthisactwi llappl
y.Thewor d
Hundii sderi
vedf r om theSanskr i
twor d‘ Hund’ ,whi chmeanst o‘ coll
ect’
.Hundi i s
generallydrawni nav er
nacul arlanguageaccor dingt oIndi
anmer cantil
ecommonl aw
andcust oms.Iti ssomet i
mesdr awn asa pr omi ssorynote.Somet i
mes,a hundii s
accompani edbyZI KRICHI T.Thezi krichiti
swr i
ttenbyt hedr aweroranyot herprior
partyandaddr essedt osomer espect ablepersonr equesti
nghimt ohonour -
thehundii f
i
tisdi shonouredf ornon- pay mentorf oranyot herr eason.Thusi tservesasal ett
erof
protection.

Ty
pesofhundi
s

1.Dar
shni
Hundi
:Iti
spay
abl
eatsi
ghtorondemand.Noday
sofgr
acear
eal
l
owed.

2.Nam JogHundi
:Itispay
abl
etotheper
sonnamedinitort
ohisorder
.Iti
salsocal
led
as‘f
armanj
oghundi’
.I
tcanbenegot
iat
edbyendor
sementanddel
iv
eryalonel
ikeabil
lof
exchange.

3.Muddat
iHundi:I
tispay
abl
eaf
tert
heexpi
ryofaf
ixedper
iod.Day
sofgr
acear
e
al
lowedasperl
ocal
cust
oms.

4.JawabiHundi:Theper sonwhohast oremitthemoneywr it

esalett
ertot hepay ee.
The pay eedir
ectshimt omakethepay mentonhi sorder
.Oncethepayeehasobt ai
ned
paymentaf terthear ri
valofthelet
ter
,hesendshi sreply(
jawab)forther eceiptof
payment .Throught hi
smet hodmoneycanbepassedonf r
om onepl acetoanot her
place.Forexampl e,AnandinDelhiowesRs.10, 000toBihar
iinKanpur,RarninMeer ut
owesRs. 10,
000t oAnandinDelhi,Ram wantstomakepay menttoAnand.Anandwr ites
toRam di r
ectinghimt o make pay menttoBihariandsendthe‘j
awab’inti
mat inghim
thepay menttoBi hari
.Simi
lar
ly Bihar
iisalsor
equestedtosendrepl
ysoonaf terhei s
paidbyRam.

5.ShahJogHundi:Thewor dshahmeansaper sonofr eput

eandweal th.Thishundiis
aninst
rumentpayabletobearer,
negoti
abl
ebydel i
v er
yaloneandpayableonlytoashah.
AshahJog hundipassesf rompersontopersonbydel iv
eryonl
y,si
rl
cenoendor sement
i
sneeded.Theshahaf termakingdueenqui r
iesregardi
ngitsval
idi
tywi l
lpresentitto
draweeforfi
nalsett
lement.Incaseofanyfr
aud, t
heshahi sboundtoref
undt heamount
ofhundiwit
hinter
est.

6.Dhani
jogHundi:I
tispay
abl
etothehol
derort
othebearerbutt
hepay
ermustensur
e
thati
tspaymenti
sbeingmadetot
hereal
ownerofhundi
.

7.Nishanj
ogHundi:Wherethedrawerdoesnotwri
tethenameofthepay
eebutsimpl
y
par
tsa pr i
vat
ecodeont hehundiwhichadr aweeshoulddeci
pherbeforemaki
ng
payment.Thisispayabl
e onl
ywhent hepay
eeproducesapersontothedraweewho
i
dentif
iest
hepay ee.

8.JokhmiHundi:I ti
sdrawnbyt hesell
erupont hebuyerinl i
euofthepr i
ceofgoods
sol
d.Thebuy eracceptsi
tforpaymentconditi
onaluponther ecei
ptofgoodsbought .I
t
i
ssomesor tofcombi nat
ionofbil
lofexchangeandinsurancepoli
cy.Str
ict
lyspeadi
ngit
cannotbeplacedinthecategoryofanegotiabl
einstr
umentbecausei ti
sconditi
onal.

9.Khot
iHundi:I
tisahundiwhosegenui
nenessi
sindoubtorwhi
chi
saf
orgedone.
10.
KhokaHundi:I
tisahundi
whoseamounthasbeenpai
d.

CHEQUES

Achequei
sabi
l
lofexchangedr
awnonaspeci
fi
edbankerandnotexpr
essedt
obe
pay
able ot
herwiset
hanondemand.Iti
sl i
keabil
lofexchangeal waysdr
awnonabank
pay
ableondemand.Therefor
e,itmustsati
sfyal
lther
equir
ement sofabil
l(sect
ion6).I
t
mustbeinwriti
ngandsi
gnedbyt hedrawer.I
tshouldcontainanuncondi
ti
onalorderto
aspeci
fi
edbankertopayacertainsum ofmoneyt oaparticul
arper
sonort ohisorder
ort
othebearerondemand.

Di
sti
nct
ionbet
weenBi
l
lsandCheques

1. A chequei
salway
sdr
awnonabanker
,whi
l
eabi
l
lmaybedr
awnonany
one,
i
ncl
udi
ngabanker.

2. Acheque’
spaymentismadewheni thasbeendemandedwher
easincaseofabil
l
i
tsnatur
emaybesuchthatpaymenthastobemadeondemandoraf t
ertheexpi
ryofa
cer
tai
nperi
odaft
erdateorsight
.

3. Incaseofachequeabearercangetpay
mentondemandbutabi
l
l'
spay
mentcan
notbedemandedbythebear
er.

4. Accept
anceofbi
lli
snecessar
yforthedemandofit
spay
ment
,incaseofcheque
accept
ancei
snotr
equi
redandisai
medforqui
ckpayment
.

5.I
ncaseofbi
l
lsor
dinar
il
yapr
ovi
sionf
orgr
aceday
sismade(
whi
chi
sgener
all
yof

3day
s)wher
easi
ncaseofchequesnosuchgr
acei
sal
l
owed.

6. I ntheabsenceofpr esent
mentofabi l
lforpay
menttheli
abi
l
ityofbill
’
sdr awer
ceases,whereasl
iabi
l
ity of cheque’
s dr
awerceases when t
he delay caused in
present
mentforpaymentresult
sindamages.

7. Noticemustbeser v
edwhent hebi
l
lisdi
shonour
ed,butwhenachequei
snot
honour
ed,nosuchnot
iceisnecessar
y.

8. Achequebeingar evocableordert
heaut hor
it
ymayber ev
okedbycounter
manding
payment
,andisdet
erminedbynot iceofthecustomer
’sdeat
horinsol
vency
.Incaseofa
bi
ll
theposit
ionisdi
fferent,
itcannotberevoked.

9. Achequemaybecr
ossedt
osecur
eit
spay
ment
,nosuchcr
ossi
ngcanbedonei
n
caseofabil
l
.

Li
abi
l
ityofaBanker

Abankeri
sonewhosebusi nessi
stohonourchequesdrawnuponhim bypersonsand
forwhom herecei
vesmoneyoncurrentaccount
s.I
fapersonopensacurrentaccount
bydeposi
ti
ng cer
tai
nmoneywi ththebanker ,arel
ati
onshi
p ofcredi
torand debtor
emergesbetweenthecust
omerandt hebankerandthebankerundert
akestohonour
thechequesdr awnbyt hecustomerso l ongithassuf fici
entfundst othecreditofthe
cust omer .I
fabankerwi thoutj
ustif
icat
ion,fail
st o obeyhiscust omer’smandatewhi ch
i
si ssuedi nthef orm ofacheque, hewi l
lbel i
abletocompensat et hedrawerforanyloss
ordamagesuf feredbyhi m.Butt hepay eeort heholderoft he chequehasnocauseof
actionagai nstt hebankerast heobl i
gationtohonourchequesi sonlyt owards the
drawer .Thecust omermay ,
howev er,beawar dedv eryheavydamages,i fheprovesloss
ofcr editonaccountoft hedishonour,andt heruleisthesmallert
heamountofacheque
dishonour ed the larger t he amountt he damages. There are numer ous cases in
whi chthebankermustr efusetohonourhi scust omer’scheques:

1.Whencustomercounter
mandspay ment.Whenacustomerafteri
ssui
ngacheque,
i
ssuesi
nst
ructi
onsnottohonouracheque,t
hebankermustnotpayit
.Ift
hebankpay
s
i
t,hewi
l
lbeli
abletomakegoodt hecustomer’
sl
oss.

2.When bankerrecei
vesnoticeofcustomer ’
sdeat
h.Not
iceofcust
omer
’sdeat
h
ter
minat
esbanker
’sauthor
it
ytohonourcheques.

3.When cust omerbecomes i nsol

vent.When a cust
omerhas been adj
udged an
i
nsolvent,allhisasset
svesti
ntheOf fi
cialAssi
gneeort
heCour
t,andthebankermust
ther
eafterrefusetopayhischeques.

4.Whenbankerr
ecei
vesnot
iceofcust
omer
’si
nsani
ty,
hemustnothonourhi
scheques.

5.Whenthebankerrecei
vesagarnisheeorderf
rom t
hecourtrel
ati
ngtothecust
omer’s
money,t
hebankershouldnothonourchequesdrawnagai
nstthecustomer’
saccount
.

6.Thebankershoul
dnothonourhiscust
omer’
schequesaf
tert
hecust
omerhasgi
ven
noti
ceofassignmentof
thecredi
tbal
anceofhi
saccount
.

7.Whent
hehol
der’
sti
tl
eisdef
ect
ive,
andbankercomest
oknowoft
hedef
ect
.

8.Whenthebankercomest
oknowt
hatt
hecust
omeri
sdr
awi
ngchequesf
orunl
awf
ul
pur
poses.

9.Whent
hebankerhasr
ecei
vedanot
icef
rom t
hecust
omerf
orcl
osi
ngt
heaccount
.

Whenbankermayref
usepayment
.Int
hef
oll
owi
ngcasest
hebankermay
,ifhel
i
kes,
r
efuset
ohonourt
hecheques:

1.Wher ethechequeispost -
dat
edandi spresentedbefor
et hedat
enot edoni t.The
bankerisrequi
redtopayt
hechequeont hedatewhi cht
hechequebearsandnotbef ore.
Infact,paymentbeforethatdateismadebyt hebankerathi sownr i
sk,f orifthe
customercounter
mandspay mentorissuesanotherchequebeari
nganear l
i
erdate,the
bankercannotdebi
tthecustomer’
saccountwit
ht heamountoft hepost
-datedcheque.
2.Wher
ethebankerhasnotgotsuf
fi
cientf
undsoft
hedr
awerwi
thhi
m.

3.Wheret hefundsint
hehandsoft hebankerarenotpr operl
yappli
cabl
etot he
paymentofthecust
omer’
scheque.
Forexample,thef
undsareheldbythecustomerin
tr
ust,
andthechequeisi
ssuedinbreachoft
rust,
thebanker
mayr ef
usetopay.

4.Wher
ethechequeisofdoubtfull
egal
ity
.Thebankermayr
efusetopayi
fthecheque
i
sirr
egul
aror
ambiguous,mater
iall
yalt
eredordr
awninadoubtf
ull
egal
it
y.

5.Wher
ethechequei
spr
esent
edaf
terof
fi
cehour
s.

6.Wher
ethechequeispresent
edatabr
anchwher
ethecust
omerhasnoaccountor
wher
ehisaccounti
sov
erdrawn.

7.Wheresomepersonshav
ejoi
ntaccountandthechequeisnotsignedbyal
lj
oint
ly,
or
byt hesur
viv
orsofthem.Buti
fthechequesar epayabletoEitherorsurvi
vorthen
thechr
quesi
gnedbyanyofthet
woparti
eswillbesuf
fi
cient
forpay
ment .

8.Wherethechequehasbeenal l
owedtobecomest al
e,i
.e.
,ithasnotbeenpresent
ed
forpaymentwi
thinareasonablet
imeaft
erthedatementi
onedi nit
.InIndi
a,acheque
present
ed6monthsormoreafterthedat
eisregar
dedasstat
e.

Cr
ossi
ngofCheques

A chequei sei t
heran “
Open cheque”ora“ crossed cheque”.An open chequei s
uncrossedandcanbepresentedbythepayeetot hebankeronwhom i ti
sdrawnandwi l
l
bepai doverthecount
er.Anopenchequei s,howev er
,li
abletogreatr
iski
ncour seof
cir
culati
on.Itmaybestolenorlostandthef i
ndermaygeti tcashed.I
nordertoav oid
thelossesincurr
edbyopenchequesget t
ingi ntothehands of wr ongpar ti
est he
custom ofcrossi
ngwasintr
oduced.

ACr ossingisadir
ecti
ont othepayingbankertopaythemoneygener all
ytoabankeror
toapar ti
cul
arbanker,asthecasemaybe,andnott opayt ot heholderacr osst he
counter.A bankerpay ing a cr
ossed cheque overthe count
erwil
lbe liablet ot he
customeri ft
heholderturnsouttobea per sonnotenti
tl
edtopetpay ment.Theobj ect
ofcrossi
ngi stosecur
epay mentt oabankerso t hatitcoul
dbet racedtot heperson
receivi
ngtheamountoft hecheque.

Therearetwot y
pesofcr ossi
ng-GeneralandSpecial.Tot hesemaybeaddedanot her
type-
Restr
icti
vecr ossing.Agener
alcrossi
ngi sonewher eachequebear sacrossits
facetwot ransverselineswithorwit
houtthewor ds“ andcompany”or“&Co. ”ortwo
paral
leltr
ansv erse l
ines wit
h orwithoutt he wor
ds “ notnegoti
abl
e”.Ifa cheque
i
scrossedgener all
y;the payi
ngbankershallpayonl
yt oabanker .
Aspecialcr
ossingis
defi
nedt hus: “
Whereachequebear sacrossi tsfaceanaddi ti
onoft henameofabanker ,
eit
herwi thorwi t
houtthewor d“notnegotiable”thataddit
ionshallbedeemedacr ossing
and t he cheque shallbe deemed t o be cr ossed speci all
yand t o be crossed t o
thatbanker.
”Inagener alcrossi
ngthepar all
eltransverselinesarenecessaryalthoughi n
aspeci alcrossi
ngtheyneednot bethere.Buti nthel at
ercase,t henameoft hebanker
i
sessent i
alt owhom ort owhosecol lectingagental onet hepaymentwi llbemade.
Restrict
ivecrossinghav ebeenadopt edby commer ci
alusagei nor dertoobv i
atet he
ri
skofat heirobtai
ningpay ment.Theyconsi stin addi ti
ont ot hegeneralorspeci al
crossingthewor ds‘AccountPayee’onl
y.Suchcr ossingv varnthecol l
ect
ingbankert hat
theproceedsar etobecr edit
edonl ytotheaccountoft hepay ee,
oft hepart
ynamed.

Ifachequei smadepay abletoapay eeandt ohi m only,

itbecomesnon- tr
ansf erabl
ein
thest r
ictsense.Hei st heonlyper sonwhocangetpay ment.Butwher eachequei s
crossedand bear st he word‘ notnegot i
able’i ti str
ansfer
able,buti tl oses its
specialf eat
ureofnegot i
abil
it
y.Suchachequei sli
keanygoods, thetransf
er eeof whi
ch
doesnotgetabet terti
tlethanthatoft hetransferor,t
het r
ansfereeforv alueandi n
goodf aithisnotaholderinduecour se.
Achequemaybecr ossedbyt hedr awnerorby
thehol der.Theholdermayaddt hewor ds‘notnegotiabl
e’toacr ossi
ng.Thewor dnot
negotiablerepr
esentthedesireoft hedrawert hatitshouldnotbenegot i
atedfurther.

Exampl
esofCr
ossi
ng

A. Gener
alCr
ossi
ng(
Sec.123)

&Co.
(i
) Twopar
all
elt
ransv
ersel
i
neswi
thorwi
thoutt
hewor
ds‘
&Co.
’acr
osst
hef
ace
ofacheque.

NotNegot
iabl
e(i
i
) Two par
all
elt
ransv
ersel
i
nesacr
osst
hef
aceofachequewi
th
t
hewor
ds‘
notnegot
iabl
e’
.

St
ateBankofI
ndi
aB.Speci
alCr
ossi
ng(
Sec.124)

Stat
eBankofIndi
aNotNegot
iabl
eTwopar
all
elt
ransv
ersel
i
nesacr
osst
hef
aceofa
chequewi
tht
henameofabanker.

A/
cPay
eeOnl
yC.Rest
ri
cti
veCr
ossi
ng
A/cPayeeOnl y
NotNegoti
abl
eAddi
ti
onofwor
ds‘
accountpay
eeonl
y’t
othewor
ds
gener
alorspeci
alcr
ossi
ng.

Whocandocr
ossi
ng

Accor
dingt
oSect
ion125f
oll
owi
ngper
sonscancr
ossacheque:

1. Thedr
awer
-gener
all
yorspeci
all
y.

2. Thehol derwhogetsanuncrossedchequecansubsequent
lycr
ossi
t.I
fheget
sa
general
ly
crossedcheque,hemaycr ossitspeci
all
y.Togeneral
l
yorspeci
all
ycr
ossed
cheques,hemayaddt hewords‘
notnegoti
able’
.

3. Wher eachequeisspeci
all
ycrossedtoabankert
hehol
dermayagai
ncr
ossi
t
speci
all
ytoanot
herbankort
ohisagentforcol
l
ect
ion.

4. Whereachequei scrossedspeci
all
ythebankertowhom i
tiscr
ossedmayagai
n
cr
ossi
tspeci
all
ytoanotherbankorhi
sagent,f
orcoll
ecti
on.

Pr
otect
ionofPay
ingBanker

Thepay ingbankerisinapr i
vil
egedposi t
ionasr egardst hepay mentofhiscust omer ’
s
cheques.Accor dingtosect i
on85wher eachequepay ablet oor dersignif
iest obe
i
ndor sedbyoronbehal foft hepay ee,t hebankeri sdischargedbypay menti ndue
course.Hecan debi ttheaccountoft hecust omerwi t
ht heamountev en t hough
theendorsementoft hepay eet urnsoutsubsequent lytohav ebeenf orged,ortheagent
ofthepay eewithoutauthorit
yindorsedi tonbehalfoft hepay ee.Itwouldseem t hatthe
payeei ncludesindorsers.Thi spr otecti
on isgr ant
edbecauseabankercannot be
expectedt oknow t hesi gnaturesofal lpersonsi nt hewor ld.Hei sonl yboundt o
knowt hesignat
uresofhi sowncust omers.Thereforet heforgeryofdrawer ’
ssignature
wil
lnotor di
nari
lypr otectthebanker
,butev eninthiscase,thebankermaydebi tthe
customer’
saccount ,ifhecanshowt hattheforgerywasi
ntimatel
yconnectedwiththe
negl
igenceofthecust omerandwast hepr oxi
matecauseofloss.Withregardtobearer
chequestheruleis‘onceabear erchequealwaysabearercheque’.Theref
ore,wherea
chequeisori
ginall
yexpr essedbythedrawerhimselftobepayabl
et obearer
.Thebanker
mayi gnor
eanyi ndor sementsont hecheque.Hewi l
lbedischar
gedbypay mentindue
course.

Butachequethatbecomesbearerbyasubsequenti
ndor
sementi
nthebl
anki
snot
cover
edbythi
ssecti
on(Sect
ion85)
.

CollectingBanker
:BySec.131,whereabankeringoodfaithandwi thoutnegl
igence
receivespaymentonbehal
fofacustomerofachequecrossedgenerall
yorspecial
lyto
himsel fandthecust
omerhasnot i
tl
etot
hecheque,
thebankerisprotectedagai
nstthe
clai
msoft r
ueowner.Thebankerwil
lbeprot
ect
edonly
ifheprov
esthat:

(
i)t
hechequecol
l
ect
edbyhi
m wascr
ossedbef
orei
treachedhi
shands,

(i
i
) thechequewaspresent
edbyoronbehal
foft
hecust
omerandt
hather
ecei
ved
paymentf
ort
hecust
omer.

(i
ii
)heact edingoodfai
thandwithoutnegli
gencei
ncoll
ect
ingthemoneydueonthe
cheque.
Theref
ore,i
fhecoll
ectsanuncrossedchequeoracrossedchequef
oranon-
customer
,hegetsnoprot
ecti
on.

I
nst
rumentpay
abl
eondemand—Thef
oll
owi
ngi
nst
rument
sar
epay
abl
eondemand:
—

1. Achequei
sal
way
spay
abl
eondemand.

2. Anot
eorbi
l
linwhi
chnot
imef
orpay
menti
sspeci
fi
ed.

3. Anot eorbi llexpressedpay able“ondemand” ,or“atsight”,or“onpr esentment”.

Instrumentwhi charenotpay abl
eondemandar eexpressedt obepay ableatcer tai
n
per i
od‘ aft
ersi ght’or‘afterdat e’
,oraf terhappeni ngof‘ anev ent’whi chi scer tai
nto
happen.Thus, abi llornotemaybemadepay abl
e30day saftersight
,60day safterdate,
or90day saftert he death ofA,andpay mentcanbedemandedonpr esentingiton
i
t smat uri
ty.
Somet imesi tmayhappent hatani nstrumenti ssowor dedt hatitcanbe
i
nt erpretedeit
herasa bi llof exchangeorasapr omissor ynote.Suchani nstrumentis
cal l
ed an Ambi guousI nstrument ,and t hehol dermayt r
eati t
eit
herasa bi l
lora
pr omissorynot e.Abilldrawnbyanagentonhi spr i
nci
pal,orbyonebr anchofabankon
anot heri
sanambi guousi nstrumentandt hehol dermayt reatitasabi lloranot e.
Again,
i
tmay happen t hata per son si gnsand del i
v erst o anothera paperst amped in
accor dancewi tht helaw r elati
ngt onegot iablei nstr
ument ,andei t
her whol l
ybl ankor
hav ingwr it
tent hereonani ncompl et
enegot i
abl einstr
ument ,hei ssai dt oissuean
InchoateI nstrument .Het hereby gi ves aut horit
yt ot hehol deroft hei nst r
umentt o
makeorcompl et euponi tanegot iabl ei nstr
ument ,foranyamountnotexceedi ngt he
amountcov er ed by t he st amp. A si gns a pr omi ssor y not e wi thoutst ati
ng t he
amount pay abl e,put sa25pai sest amponi tandhandsi tt ohi scl erkBf ormaki ng
certainpurchasesandaskshi mt oputt heamount .Bpur chasesgoodswor thRs. 400but
putsRs. 500i nt henot e.Thenot eisnegot iat
edt oC,whot akesi ngoodf ait
h andf or
value.Ccanr ecov erRs. 500f rom A. Mat urit
yofanI nst rument -Themat urityofabi llof
exchangeorapr omi ssor ynot eist hedat eonwhi chi tfallsdue.Ani nstr umentpay able
ataspeci fiedper i
odaf tersi ght,oraf t
erdat eor afterthehappeni ngofacer t
ainev entis
entit
ledtot hreeday sofgr ace.Suchabi l
lmat uresorf all
sdueont hel ast dayofgr ace,
andmustbepr esent edf orpay mentont hatday .Ifitisdi shonour ed, asui tcanbe f i
led
ont henext dayaf termat urity.
Whenanot eorbi l
lisexpr essedt obepay abl eatast ated
numberofmont hsaf tersight ,oraf t
er dat e;oraf t
ercer tainev ent,theper iodofpay ment
terminatesont hedayoft hemont hwhi chcor r
espondswi t
ht hedat eoft hei nstrument,
orwi ththedat eofaccept anceoft hebi l
lbeaccept ed,or ,presentedf orsi ghtornot ed
orprotestedf ornon- accept ance.Ifthemont hinwhi cht heper iodwoul dt er minatehas
oncor r
espondi ngday ,t heper i
odshal lbehel dt ot ermi nateont hel astdayofsuch
mont h.Ift hedat eofmat urit
yf all
sonapubl i
chol iday ,thei nstr
umenti spay ablet he
precedingbusi nessday .Thus,i fabi l
lisatmat uri
tyonaSunday ,itwi llbedeemeddue
onSat ur
dayandnotonMonday .

TheI
nst
rument
sent
it
ledt
oday
sofgr
acear
e:

(a) Abil
lofexchangeorpr
omi
ssor
ynot
epay
abl
eataspeci
fi
edday
.(b) Abi
l
lornot
e
payabl
eaft
ersi
ght,

(
c) Abi
l
lornot
epay
abl
eatacer
tai
nper
iodaf
terdat
e,and

(
d) Abil
lornot
epayabl
eatacert
ainper
iodaf
tert
hehappeni
ngofacer
tai
nev
ent
.The
I
nst
rumentswhi
char
enotent
it
ledtodaysofgr
ace:

(
a) Acheque,

(
b) Abi
l
lornot
epay
abl
eatsi
ghtoronpr
esent
mentorondemandand

(
c) Abi
l
lornot
einwhi
chnot
imei
sspeci
fi
ed.

Par
ti
est
oaBi
l
lofExchange

1. TheDr
awer
:theper
sonwhodr
awst
hebi
l
l.

2. TheDr
awee:
theper
sononwhom t
hebi
l
lisdr
awn.

3. TheAccept or
:thepersonwhoacceptst
hebil
l.Gener
all
y,t
hedr
aweeaccept
sthe
bi
l
l,butst
rangermayacceptonbehal
foft
hedrawee.
4. ThePayee:onet
owhom t
hesum st
atedi
nthebi
l
lispay
abl
e.Ei
thert
hedr
aweror
anyot
her
per
sonmaybethepay
ee.

5. TheHolderisei
thert
heorigi
nalpayeeoranyotherpersontowhom t
hepay
eehas
endor
sedt
hebil
l
.Incaseofthebearerbi
l
l,anybear
eristheholder
.

6. TheEndor
ser
:whent
hehol
deri
ndor
sest
hebi
l
ltoany
oneel
sehebecomest
he
endor
ser
.

7. TheEndor
seei
stheper
sont
owhom t
hebi
l
lisendor
sed.

8. Dr aweeincaseofneed:Besi desthesevenparties,anotherpersoncal
ledthe
draweeincaseofneed,maybei nt
roducedattheoptionoft hedrawer.Thenameof
suchapersonis addedtothebil
lsot hatwhenthebillisdishonouredeit
herbynon-
accept
anceorbynon-payment
,thebill
maybeacceptedorpai d.

9. AcceptorforHonour:apersonwhov olunt
ari
lybecomesapar
tyt
oabi
l
lasan
accept
ort
osavethehonouroft
hedraweratanyindor
ser.

Par
ti
est
oaPr
omi
ssor
yNot
e

1. TheMaker :theper
sonwhomakesorexecut
est
henot
epr
omi
singt
opayt
he
amountst
atedt
herein(
Debtor
).

2. ThePay
ee:
onet
owhom t
henot
eispay
abl
e(Cr
edi
tor
).

3. TheHol
der
:isei
thert
hepay
eeorsomet
owhom hemayhav
eendor
sedt
henot
e.

4,
5.TheEndor
serandEndor
sees:
Sameasi
nthecaseofabi
l
l.

Par
ti
est
oaCheque

1. TheDr
awer
:theper
sonwhodr
awst
hecheque.

2. TheDr
aweei
sal
way
sthedr
awer
’sbankeronwhom t
hechequei
sdr
awn.

3,
4,Thepay
ee,
Hol
der
,Indor
serandI
ndor
see:
sameasi
nthecaseofabi
l
lofexchange

5&6orpr
omi
ssor
ynot
e.

Hol
derandHol
deri
nduecour
se

Ahol derofnegoti
abl
einstrumentisapersonwhoisentit
ledtobelegal
lyi
npossession
oft he i
nstr
umentandt orecoverorr
ecei
vetheamountduet her
eonf r
om theparti
esto
thei nst
rument(Sec.
8).A per sonwhohasobt ai
nedpossessi
onoft heinstr
umentby
i
llegalmeans,e. g.byt heft,orundera forged i
ndorsement,i
s nota hol der
.He
cannot r
ecoveramountfrom thepart
iest
heret
o.Aholderinduecourseisapersonwho
obtainedpossessi
onoftheinstr
umentforv aluabl
econsider
ati
onbefor
eitsmaturi
ty,
(i
.e.befor
etheamountment i
onedinitbecomespay abl
e),andhadnocausetobeli
eve
thatanydefectexist
edintheti
tl
eoftheper sonf r
om whom hederi
vedtit
le(Sec.
9)I
t
foll
owsf r
om theabovet
hatapersoni
sahol derinduecourseif
:

(a) hehasobt
ainedt
heinst
rumentforv
aluableconsi
derat
ion.Wherethei
nst
rumenti
s
obtai
nedbygif
torbyi
ll
egalmeans,
theholdercannotbecomeahol deri
nduecour
se.

(
b) hehasobt
ainedt
hei
nst
rumentcompl
eteandr
egul
ari
nal
lrespect
s.

(
c)hehasbecomet
hehol
derbef
orei
tsmat
uri
ty.

(d) hehasobt
ainedt
hei
nst
rumenti
ngoodf
ait
h.Goodf
ait
hsi
mpl
ymeanst
hata
person

takestheinstrumentwi
thoutsuff
ici
entcauset obeliev
et hatanydefectexi
stedinthe
ti
tleofthepersonfr
omwhom itisreceived.Sowhereaninstrumentwastornintopi
eces
andt henpastedortheamountont hebill
waserased,itshouldhavearousesuspi
cion
andt heholdermaynotbecall
edhol derinduecourse.

Speci
alRi
ght
sorPr
ivi
l
egesofaHol
deri
nduecour
se

Accordi
ngtoSec.53oftheAct,onceanegot i
abl
einstrumentpassesthr
oughthehands
ofaholderinduecour
se,i
tget
scl eansedofal
ldefects,unl
esshehimsel
fwasapartyto
fr
audori l
legal
it
y commi t
tedr egardi
ngtheinstrument.Ther
ight
sofahol deri
ndue
coursecanbesummedupasf ollows:

1. Heget sagoodt i
tlet
otheinst
rumenteventhoughthetitl
eofthetr
ansf
erori
s
defect
ive.Thus,
hemaygetabettert
it
lethant
hatofthetr
ansferor
;e.
g.ifAst
eal
sabi l
l
fr
om Bandendor sestoC,aholderduecourse,C canrecovertheamountfrom B,
al
thoughAcannotr ecov
erfr
om B.

2. Ev er
ypr i
orpartyt
oanegotiabl
einst
rumenti
sli
abl
ether
eont
oahol
deri
ndue
cour
seunti
ll
theinst
rumenti
sdul
ysati
sfi
ed.

3. Ahol
deri
nduecour
secansueal
lthepar
ti
esl
i
abl
etopayi
nhi
sownname.

4. Thehol derinduecour segetsagoodt i

tl
eev enthought heinstrumentwas
ori
ginal
lyandinchoatest
ampedi nst
rumentandthetr
ansfer
orcompl et
edt heinstr
ument
forasum greaterthanwhatwasi nt
endedbythemaker.Hecanr ecoverthef ul
lamount
provi
dedthestampsaf f
ixedweresuff
ici
ent
tocovertheamount.

5. Whereabi l
lisdrawnpay abl
etodrawer’
sorderi
nfi
cti
ti
ousnameandendorsedby
thesameasdrawer’
ssignatur
e,theaccept
orcannotpl
ead,bywayofdef
ence,t
henthe
bil
li
sdrawninfict
it
iousname.
6. I
ntheey
esoft
hel
aw,ev
eryhol
deri
sahol
deri
nduecour
seunl
esspr
oved
ot
her
wise.

7. Ev enthoughbetweentheimmediatepart
iestoaninst
rumentitwascausedby
fr
audetc.,oncet
heinst
rumentpassest
hroughthehandsofaholderinduecourse,
iti
s
purgedofalldef
ect
s,andanypersonacquir
ingi
ttakesi
tfreeofalldef
ects,unl
esshe
washimselfapartt
othefraud.

8. The makerofpr omissor

y note,the dr
awerofbi l
lofexchange orcheque,
andacceptorofabi
llf
orthehonourofthedrawer,i
nasuitther
eonbyt
heholderi
ndue
course,i
snotper mit
tedtodenythev al
i
dit
yoft heinst
rumentasori
ginal
l
ymadeor
drawn.(Aminorcanpleadminor
ity
).

9. Thei ndorserofanegoti
abl
einstr
ument
,inasui
tther
eonbythehol
deri
ndue
course,course,i
snotall
owedtodenythesi
gnatur
eort
hecapaci
tyt
ocontr
actofany
pri
orpartytot heinst
rument
.

10. Incaseoffor
gedi nst
rument
,aholderinduecoursewillgetnot i
tl
ebecausei
t
amountstocompl
eteabsenceofti
tl
erat
herthanameredefecti
ntit
le.(
Sec.58)
.

Pay
menti
nduecour
se

Thepay mentofanegot iablei nstrumentshoul dbemadet ot heri

ghtper sonbyt he
payjngbankerort heaccept oroft hebil
l,other wi
set helat
tershallberesponsibl
eforthe
same.Thepay mentofanegot i
ableinstr umenti snotwi t
houtcert
ainr i
sks.Thus,the
Negot iableInst
rumentActpr ovidesprotect i
ont othepay i
ngbankerort hedr aweeofa
bil
l,
prov i
dedt hepay menti smadeasr equi redint heAct.Suchpay menti scall
edas
paymenti nduecour se.
Accor dingtoSect ion10“ paymentinduecour se”ispay mentin
accor dancewi t
ht heappar entt enoroft he instrumentin good f ait
h and without
negligence t o any person i npossessi ont hereofundercircumstanceswhi chdonot
aff
or dar easonablegroundf orbel i
evi
ngt hathe i s notenti
tledtoreceivepaymentof
theamountment i
onedt herein.

Apay
menti
nduecour
sehast
hef
oll
owi
ngessent
ial
feat
ures:

1. Thepay mentshoul
dbemadeaccor dingtothetruei
ntenti
onsoftheparti
estothe
negoti
ableinstr
ument,asisappar entfr
om t hedocumentitsel
f.Paymentmaybemade
ei
therincashort hroughacleari
nghouseorbyadr af
t.I
fthebankermakespay mentof
apost -
datedchequebef orethedatementionedtherei
norpay sacrossedchequeatthe
counter,thenheact sagainstthet r
ueintenti
onsofthedrawerandhencet hepayment
wil
lnotbet r
eatedaspay mentinduecour se.

2. Thepaymentshoul
dbemadeingoodfait
handwi thoutnegli
gence.Thebanker
shoul
dmadet
hepay
mentint
hegoodf
ait
h,i
.e.
,honest
lyandnotfraudul
entl
y.Heshould
takeal
lnecessar
yprecaut
ionsandactasar
easonabl
eper
sonwi
l
lacti
nthepar
ti
cul
ar
cir
cumstancesofacase.

3. Pay mentmustbemadet ot heper soninpossessionoft hei nst

rumentin
ci
rcumst anceswhi chdonot arousesuspicionabouthi sti
tl
etopossest heinst
rument
andr eceivepaymentt hereof .Thepay mentoft heor
derchequeshouldbemadet othe
ri
ghtper sonafterproperidentif
icati
on.Somet imestheappearanceandbehavi
ourofthe
personpr esenti
ngthechequeatt hecountermayar ouseasuspicioni
nthemi ndofthe
bankeraboutt hevalidi
tyofthef ormers’authori
tytorecei
vepayment.

Capaci
tyofPar
ti
es(
whocanbepar
ti
est
onegot
iabl
einst
rument
)

Thecapaci t
yt omakedr aw,accept ,negot iateandi ndor seanegot iableinstr
ument
dependsupont hecapaci t
yt oent erint
ocont ract s.Ther efore,ever yper soncompet entto
contractmayi ncurl i
abili
ty bybecomi ngapar tytoanegot iableinst r
ument .Thus,a
minor,l unati
coradr unkenper sondoesnoti ncurl i
abi li
tyandcannotbecomeapar ty
tothenegot i
ableinst r
ument ,buthecanacqui rer ightsunderi t.Soi fachequei sdr awn
i
nf avourofami nor, i
.e.,hei sapay ee,hecanr ecov ert heamountst atedinthecheque.
Alsot heabsenceofcapaci tyofoneormor eoft hepar t i
estoanegot i
ablei nstr
umenti n
nowaydi minishest heliabili
tyoft hecompet entpar t
ies.Adr awsachequei nfavourof B,
ami nor .Bendorsesi tinf avourofC, whoi nt urnendor sesi tinf avourofD.Thecheque
i
sdi shonouredbyt hebank.Dcanr ecov erfrom CandA, butnotf rom B, themi nor;and
Ccanr ecoverfrom Abutnotf r
om B. Ani nsol ventpersoncannotdr aw,make,acceptor
i
ndor seanegot i
ablei nstrument ,althoughi fhe i ndorsesi taspay eet oahol derindue
course,t helett
ercanr ecov erf r
om al lparties,exceptt he i nsolv ent.Acor porati
onor
company canincurliabili
ti
esunderanegot i
abl ei nstrumenti fitissoempower edbyi t
s
memor andum ofassoci ation.At radingcompanyhas,howev erani mpl i
edauthorityto
execut eanegot i
ablei nstrument ,whi l
eanon- tr
adingcompanyhasnosuchi mpl i
ed
author i
ty.
TheKar taormanagerofJoi ntHi nduFami l
ycanbi ndt heJoi ntFami l
yby
execut i
nganegot iableinstrument ,pr ov i
dedt het r
ansact ioni sf ort hebenef itoft he
familyori sf
orlegal necessi ty.

Li
abi
l
ityofPar
ti
es

1. Themakerofapr omi
ssor
ynot
eandt
heaccept
orofabi
l
lofexchangear
epr
imar
il
y
responsi
blef
ort
hepay
mentdue.

2. Thedr awerofabi l
lorchequeisboundincaseofdi
shonourbyt hedraweeor
accept
orthereof
,tocompensat
ethehol
der,pr
ovi
dedduenot
iceofdishonourhasbeen
gi
vento,orrecei
vedbythedrawer.

I
nconsequence,t
hemakerofanote,t
hedrawerofacheque,t
hedrawerofabi
l
lunti
l
accept
ance,and t
heaccept
orar
erespect
ivel
yli
abl
eont heinst
rumentaspri
nci
pal
debtor.Theotherpar ties i.
e.,the intermediateindorses anddrawerofa bi llafter
acceptance,areliablethereonassur etiesforthemaker,draweroraccept or.I
nbet ween
parti
esareli
ableassur eti
es,eachpr iorpartyisalsoli
ablethereonasapr incipaldebt or
i
nr espectofeachsubsequent endorsement .Adrawsabillpayabletohisownor deronB,
whoaccept sit.Aaf ter
war dsindorsest hebillt
oC, CtoDandDt oE.Asbet weenEandB,
Bist hepri
ncipaldebt or,andA, CandDar ehissecur i
ti
es.Asbet weenEandA, Aist he
pri
ncipaldebtorandCandDar ehissur et
ies.As between EandC,Ci st hepr i
ncipal
debtorandDi shi ssurety.Themakerofanot eandt heacceptorbeforemat urit
yofabi l
l
areboundt opayt heamountatmat urityt
otheholder.Theacceptorofabi l
latoraf ter
mat uri
tymustpayt heamountt othehol derondemand.Thedr awerof acheque( i.
e.,
t he
payingbanker )mustpayi twhenpr esentedf orpaymenti fthedr awerhassuf fi
cient
fundstohiscreditwi t
ht hebanker .

NEGOTI
ATI
ON

Negot i
ati
onofani nstr
umenti stheprocessbywhi cht heowner shi
pofani nstrumenti s
transf err
edfrom oneper sontoanother
.Accor di
ngtoSect ion14oft heAct ,whenanot e,
billorchequei st r
ansferr
edt oanyper son,soast oconsti
tutethatper sont hehol der
ther eof,theinstrument i ssaidt obenegot i
ated.A negotiableinst
rumentcanal so
bet ransferr
ed(byasepar atedeedofassi gnment);buti nthatcase,t hepr i
v i
legesof
negot iati
onwi l
lnotbeav ail
abletotheassignee,i.
e.,hewi llnotenjoyt heright s ofa
hol derinduecour se.Theobjectofnegot i
ation ofinstrument sand theirassi gnment
i
st he same,i.e.,thet r
ansferofowner shipfrom oneper sont oanotherbutt herear e
somepoi ntsofdisti
ncti
onbet weenthetwowhi chareasunder:

Negot
iat
ionandAssi
gnmentDi
sti
ngui
shed

1.

Negot
iat
ion

Meredel
i
veryi
ncaseofbear
eri
nst
rumentandi
ndor
sementanddel
i
ver
yincaseofan
or
deri
nstr
umentar
e
1.

Assi
gnment

Asepar
atedeedofassi
gnmenti
sessent
ial
.

2.

suf
fi
cientt
otr
ansf
ert
it
le.

Not
iceoft
ransf
eri
snot
requi
redt
odebt
or.

2.
Not
iceofassi
gnmentmustbegi
vent
othedebt
or.

3.

Consi
der
ati
oni
spr
esumedi
ncaseofnegot
iabl
einst
rument
.

3.

Consi
der
ati
onmustbepr
ovedby
theassi
gnee.

4.

Thet
ransf
eree,
ashol
deri
nduecour
semaygetabet
ter
ti
tl
ethanhi
str
ansf
eree.

4.

Theassi
gneeget
sonl
yther
ight
oft
ransf
eror
.

5.

TheNegot
iabl
einst
rumentAct
deal
wit
htr
ansf
erofi
nst
rument
bynegot
iat
ion.
5.

TheNegotiabl
einst
rumentAct
doesnotdeal wi
tht
ransf
erof
negot
iabl
einst
rument
s
bynegot
iat
ion.

HowNegot
iat
ioni
sEf
fect
ed

Anegot i
abl einstrumentpay abletobear ercanbenegot i
atedbymer edel i
veryi .
e.,by
mer elyhandi ngov ertheinstrumentt othetransferee,andnowr iti
ngisnecessar y.When
anegot iableinst r
umenti spay ablet oorder,i
tisnegot i
at edbyt hehol derbyi ndorsement
anddel i
v ery.Endor sementorI ndor sementmeanssi gnat ureoft heholder madewi t
ht he
objectoft ransferri
ngt hei nsturment .Endorsementmaybemadeont hebackorf aceof
theinst rument .Ifthereisnospaceon t hei nstrumentt heendor sementmaybemade
onasl i
pofpaperat t
achedt oit.Suchasl i
pa cal led Al l
onge.Itwillbenot i
cedt hat
deli
v eryoft hei nstrumentt ot het ransfereeorhi sagenti sessent ialofbot hthebear er
andor deri nstrument s.Thus,wher eAendor sesabi llinf avourofBandput sitinhi s
desk- drawer ,therei snonegot i
ati
onast hebi l
lhasnotbeendel i
veredt oB.I fAdi esand
thebi l
li sf oundbyBi nt hedr awer ,Bcannotsueoni t,becauset hebi llwasnev er
deli
v eredbyAt oB. Deliveryoft heinst r
umentmustbev oluntaryont hepar toft heholder
andmustbemadewi tht heintenti
onofpassi ngpr oper t
yi ntheinstrumentt ot heper son
towhom i tisdel i
vered.Sot hatat hiefcannotgetagoodt itl
etot heinstrument ,norcan
afinderofal ostinst r
ument .
Anegot iabl
einstrument canbenegot i
atedt i
llpay mentor
sati
sf act i
on.Af terpay mentorsat i
sf acti
onitcannotbenegot i
ated.

ENDORSEMENT

Whent hemakerorholderofanegotiablei
nstr
umentsignsthesameot herwi
sethanas
suchmakef orthepur
poseofnegot i
ati
on,onthefaceorbackthereof
,orasli
pofpaper
annexed t
heret
o call
ed al
longeorso si gnf
ort hesamepur poseast amped paper
i
ntendedtobecompl etedas a negotiabl
einstr
ument,heissaidtoendorsethesame
andiscall
edasendorser.(
Sec.15)
.

Cl
assesofEndor
sement

Anendorsementmaybe( i
)Generalorbl
ank,(
ii
)Speci
alorFul
l(i
i
i)Rest
ri
cti
ve,
(iv
)
Par
ti
al,
or(v)Condi
ti
onal
orqual
i
fied.

1.Anendorsementisblankorgener
alwheretheendor
sermerel
ywri
teshi
ssignat
ure
onthebackofthei
nstr
ument,e.
g.,
abil
lpay
ableto“Ram oror
der
”andhewri
tesonback
ofi
tsback“
Ram”
,iti
sendor
sementi
nbl
ankandt
hebi
l
lhasbecomepay
abl
etobear
er.

2.Anendor sementi sful

lorspecialwheretheendorsermenti
onsthenameoft he
persontowhom t hemoneydueont heinstr
umenti
stobepaid.Whereabilli
spayabl
e
to“Ram ororder”andRam writ
esont hebackoft
heinstr
ument‘
PaytoSham’or‘
Payto
Sham ororder’
,andsigns,
iti
saf ul
lendorsement
.

3.Anendorsementisrest
ri
cti
veifi
trestr
ict
sfurt
hernegoti
ati
onofani nst
rument
,
e.
g.,
‘
PaySham onl
y’
,or
‘PaySham f
ormyuse’or‘
PaySham onaccountofRadha’
.

4.AnendorsementisPartial
whichpurportst
otransfertotheindor
seeapartonlyofthe
amountpay abl
eont heinstr
ument;butapar ti
alendorsementdoesnotoper at
easa
negoti
ati
onoftheinstr
ument ;e.
g.,Asel l
sabillf
orRs.1000endorsesitt
hus:‘PayBor
orderRs.
500’or‘
PayRs.500t oBandRs. 500toC’,t
heendor sementispar
ti
alandinv
ali
d.

5.Anendor sementiscondit
ionalorqualif
iedwhichli
mi tsornegativ
est heli
abil
it
yofthe
endorser.Forexample,wherethei ndorsermakesi tcleart hathedoesnoti ncurthe
l
iabi
lit
yofan endor sertowardst hei
ndorseeorsubsequenthol der
shemakesa‘ Sans
Recourse’or‘
Wi t
houtRecourse’endorsement .Hemay endorsethus:‘PaySham ororder
SansRecour se’,or‘
PaySham oror derwi t
houtrecoursetome’ .I
nt hesecases,i
fthe
i
nstrumentisdishonouredhecannotbecal ledupontopay .

Whent heendorserbyexpr
esswordsabandonssomeri
ghtori
ncr
easehi
sli
abi
l
ityunder
a negoti
ableinstrumentiscal
l
ed Facul
ati
ve :e.
g.,‘
PaySham ororder
.Not i
ce of
di
shonournotr equir
ed’
.

Requi
sit
iesofv
ali
dendor
sement

1. I
tshoul
dbedoneont
hei
nst
rumentoral
l
onge.

2. I
tmustbedonebyt
hemaker
/dr
awer
/pay
ee/
hol
der
/i
ndor
seroft
hei
nst
rument
.

3. I
tmustbesi
gned.

4. Thoughnospecif
icwordsareprescr
ibedforendor
sementyetthewor
dsusedmust
cl
earthei
ntent
ionofthei
ndorsert
ot r
ansfert
heownershi
poftheinstr
ument
.

5. I
tmustbecompl
etedbysubsequentdel
i
ver
yoft
hei
nst
rumentt
otheendor
see.

Legal
prov
isi
onsr
egar
dingendor
sement
s

TheNegot
iabl
eInst
rumentActcont
ainsmanypr
ovi
sionsr
egar
dingendor
sement:

1. Ef fectofEndor
sement.Theendorsementofanegoti
abl
einstr
umentf oll
owedby
del
iver
y,t ransf
erstot
he endor
see the proper
tyt
herei
n wi
tht he r
ights offur
ther
negoti
ati
on.Thustheendorseeacqui
respropert
yori
nter
esti
nt heinstrumentast he
holder
.Hecanal
sonegot
iat
efur
theri
fnotr
est
ri
ctedbyar
est
ri
ctedendor
sementbyt
he
endorser
.

2. Whocanendor se.Accordi
ngtosection51.‘Everysol
emaker ,dr awer,pay
eeor
endorseeorallofsever
aljoi
ntmakers,drawers,payeesorendor sees,ofnegot i
abl
e
i
nstrumentmayendor seandnegoti
atethesame’.Thus,incasethei nstrumentishel
d
j
ointl
ybyanumberofper sons,endor
sementbyal lofthem i
sessential,onecannot
presentt
heother.

3. Ti
me.Anegot
iabl
einst
rumentmaybenegoti
atedunt
ilit
spaymenthasbeenmade'
byt
hemaker
draweeoraccept
oratoraf
termat
uri
tynotaf
t eri
tspay
ment.

4. Endor sementf orapartoft heamount .Thei nst

rumentmustbeendor sedf orits
entir
eamount :Accor di
ngtosect ion56‘nowr i
ti
ngonanegot iabl
einst
rumenti sv ali
d
forthepur poseof negot i
ati
oni fsuchwr i
ti
ngpur por
tstot ransferonl
yapar toft he
amountappear i
ngt obedueont heinstr
ument ’
.Thusanendor sementforapar toft he
amountoft heinstrumentisi nvali
d.Butincaseswher eani nstr
umenthasbeenpar tl
y
paid,i
tmaybenegot i
atedforthebalanceoft heamountpr ovi
dedanot etothateffectis
giv
enont hei nstr
ument .Iftheendor serintendstot r
ansfert hedocumenttot woor
mor eendorsessepar atel
y,i
twill
notconst it
uteav al
idendorsement .

5. Thel egalr
epr esentativ
eofadeceasedper soncannotnegot i
atebydeliv
eryonlya
promissorynote,bil
lofexchangeorchequepay abletoor derandendor sedbyt he
deceasedbutnotdel ivered.Thusiftheendor
serdi esafterendorsi
ngthei nst
rument
payabletoorderbutwi thoutdeli
veri
ngthesamet otheendorsee,
theendorsementisnot
vali
dand hi sl egalrepr esent
ati
vecannotcompl etethenegot i
ati
onbymer edeliv
ery
ther
eof.

6. Unl
esst hecontrar
yisproved iti
spr esumed undersect
ion 118 that‘
the
endorsementsappeari
nguponanegoti
ablei
nstr
umentwer emadeintheorderinwhich
theyappearther
eon’.Itmeanst
hattheendorsementwhi
chappearsont heinstr
ument
fi
rsti
spresumedt ohavebeenmadeearli
ert
othesecondone.

OnceaBear
erCheque,
Alway
saBear
erCheque

Ifanegotiabl
ei nstr
umentisendor sed i
nbl ankori spayablet o bearer
, i
tisbearer
i
nstrument.Thehol dermaynegoti
atebymer edel i
very.Butifthehol derendor sesit
special
lyt
o aper sonand makesi tpayablet ot heor derofsuchper son,t hent he
endorseri
nf ullcannotbesuedbyanyper sonexceptt hepersoni nwhosef avourhe
endorsedit.But asr egar
dsallparti
espriort othe endor serinf ull
,thei nstrument
remainstranferablebymer edeliv
ery.A,t
hepay eeofabi ll
,endorsesi tinbl ankand
deli
versitt o B who endor ses speciall
yt o C, or or der C wi thout any
endorsementtransfersitt
oD.Dast hebear erisentit
ledtorecei
vepay ment .Incaseof
dishonourDi sentit
ledt osuethedr awer andt heaccept oroft hebi llandalsoAandal l
i
ndor ser
spriort oA,ifany.Hecannot ,howev er,sueBorC. Wher eachequei sori
ginall
y
drawnpay ablet obearer,thedrawee( t
hepay i
ngbanker )isdi schargedbypay menti n
duecour set
ot hebearer,eveni ftherear eanysubsequentendor sement.Ther uleis
‘
onceabear erchequeal waysabear ercheque’ whichmeanst hatifachequei sori
ginall
y
drawnpay ablet obearer,i
tremai nsbear er,event houghi tissubsequent l
yendorsedi n
full
.Thisrul
ei snotappl i
cableifachequeor igi
nallymadepay ablet oor
derbecomes
payabletobear erbybl ank endorsement .Wher ea,bear ernegot iatesaninstrumentby
mer edeli
very,anddoesnotput hi
ssi gnaturethereon, heisnotl i
abletoanypar t
ytot he
i
nst r
umentincasei tisdishonouredashehasnotl enthiscredittoit .

For
gedI
nst
rument
sandFor
gedEndor
sement
s

Thegener allawi st hatfor ger,conf er

snot i
tle,sot hattheforgedsignat ureoft hemaker
ofa pr omi ssor ynot e,orof t
hebi lloroft hechequedoesnotgi v
et othef or geranyt i
tl
e
what ev er,ast hef orgedi nst rumenti sanul lityfromt heverybeginning.Nobodyhasany
ti
tlet oi tandt her ei snohol deri nduecour se.A’ ssignatureisforgedonachequeasa
drawer .Ai snotl iableont hecheque,nordoesal lypartyacquireanyr ightunderi t.
Ifan
i
nst rumenti spay ablet oor derorendor sedinf ull,itcannotbenegot iatedexceptbyan
endor sementsi gnedbyt heper sont owhomort owhoseor dertheinst
r umenti spayable,
fort heendor seer eceivest itl
eonl ythroughhi sendor sement .Hence,ifthesi gnatureof
transf erorisf or gednoper soncl aimingt hrought hatforgedsi gnat
ur eget sanyt it
le,
ev eni fheobt ainedi tforv alueandi n goodf aith.Ai sthepay eeofabi l
l.Itisst ol
enbyB,
whof orgesA’ ssi gnat ureandt r
ansf erst
hebi lltoCf orvalue.Ci snotahol derindue
cour se,ev eni fheobt ainst hebi llwithoutnot i
ceoft heforgedendorsement ,andcannot
recov ert heamountont hebi l
l.Andi ftheaccept oroft hebillpaystoConmat uri
ty,heis
not dischargedandA,ast hehol deri nduecour se,canr ecovertheamountf rom the
accept or.

ACCEPTANCE

Afterabi l
lhasbeeni ssued, thehol dershouldpr esentittothedr awerf oracceptancet o
fi
ndoutwhet herthedr aweei swi l
li
ngt ocarryoutt heor deroft hedr awer.Ifthedrawee
agreest oobeyt he dr aweror derhei ssai
dt oaccept t
hebill,whichhedoesbysi gning
his name on t he billand wr i
ting the wor d“ accepted”.Accept ance is defi
ned as
theindicati
onbyt hedr aweeofhi sassentt ot heor derofthedr awer .Af
teraccept ance
thedr aweei sknownast heaccept or .Thedraweebecomesl iableont hebi l
lonlyaft
erhe
hasaccept editanddel i
veredi tovert othehol derorhasgi vennot i
ceofaccept ancet o
him. Anaccept ancemaybeei t
herGener alorQual i
fi
ed.Anaccept anceisgener al
wheni t
i
suncondi ti
onalorunqual i
fied.Thati stosay ,whent he dr
aweeaccept sliabi
li
tytopay
theamountoft hebi
llinf ul
lwi t
houtanycondi tionorl i
mitat
ion.Anaccept anceissai dto
bequal ifi
edwhen
(
1)acceptorat
tachessomecondi
ti
onst
otheaccept
ancee.
g.,“
accept
edpay
abl
ewhen
i
nfunds”or

(
2)iti
spart
ial
i.
e.,
forpar
tonlyoft
heamountoft
hebi
l
le.
g.,
abi
l
l,dr
awnf
orRs.
1,000as
“
acceptedf
orRs.
500only”
,or

(
3)i
smadel
ocal
i.
e.,
topayatapar
ti
cul
arpl
aceor

(4)isqualifi
edast oti
me,e.g.,abil
lisdr awnpay abl
e3mont hsaf t
erdat eis“accepted
payable6mont hsaf t
erdat
e”.Acceptancef orpay
ment sini
nstall
ment sorbysomeoft he
draweesonl yisal soaqualif
iedaccept ance.Theholderofthebillmayr ef
uset otakea
quali
fiedaccept anceandmayt r
eatthebi l
lasdishonouredbynon- acceptance,andsue
thedrawerf orpay ment.I
theaccept sthe“ qual
if
ied,acceptance,itbindshi m andt he
accept or
,butthedr awerandendorseesar enotboundorar edi schargedunlesst hey
assentt oit
.

Whocanacceptabi
l
l?

1. Thedr
aweeoft
hebi
l
l.

2. Al lorsomeoft hesev
eraldr
awees;buti
fal
lthedr
aweeshav
etobel
i
abl
eal
lof
them mustaccepti
t.

3. Adr
aweei
ncaseofneed.

4. Theagentofanyoft
heper
sonsnamedabov
e.

5. Anacceptorforhonouri
.e.
,per
sonwhoaccept
sfort
he,honourofany par
ty
al
readyl
i
abl
eonthebi
ll
.

6. Theagentoft
heaccept
orf
orhonour
.

Anaccept orf orhonour:Whenabi l

lhasbeennot edorpr otestedf ornon-accept ance,
anyper sonwhoi snotalreadyapar t
yt othebi l
l,maywi tht heconsentoft hehol der ,
accepti tf
ort he honourofanypar ty
ther
eto.Anaccept orforhonourenj oysasl i
ght l
y
bett
erposi t
ion than an or di
nary-accept
or.Hi sl i
abili
tyi s condi ti
onal
,
because hi s
acceptanceisi nthenatureofaqua1i fi
edaccept ance.Heunder takest opayonl ywhen
thebillhasbeendul ypresentedatmat ur
it
ytot hedr aweeforpay mentandt hedr awee
hasr efused to payand t hebillhasbeen not edorpr ot
est ed fornon pay ment .
On
acceptancet heri
ghtsandl iabi
l
iti
esoft heaccept orforhonourar et hesameast hoseof
thepar t
yforwhosehonourheaccept s.Heisliablet oallpar
t i
essubsequentt ot hepar ty
forwhose honourheaccept stopayi ncaset hedr aweef ailstopay .Onpayingt hebi l
l
forhonourheacqui r
es alltherightsofahol derforwhom hepay sandi senti
tledt oall
theremedi esoftheholderoft heinst r
ument.Thoser emediesareav ail
abl
eonlyagai nst
thepar t
yforwhosehonourhepay sandallpar t
iespr iortosuchper sonsandal lparties
subsequentt
osuchper
sonar
edi
schar
ged.

Pr
esent
ment

Pr
esent
menti
smadef
ort
wopur
poses:

(
i) Pr
esent
mentf
oraccept
anceand,

(
ii
)Pr
esent
mentf
orpay
ment
.

Onlybi
llofexchangeofcert
ainkindsrequir
epresentmentforaccept
ance.Bil
lspayable
demand oratsightneednotbepresented.Butthefol
lowingbil
l
smustbepr esent
edf or
accept
ance,otherwi
setheparti
est ot
hebi l
lwil
l
beliableonit
.

1. Abi
l
lpay
abl
eaf
tersi
ght
.Pr
esent
menti
snecessar
yinor
dert
ofi
xmat
uri
tyoft
he
bi
l
l.

2. A bi
l
linwhi
cht hereisanexpr
esssti
pul
ati
ont
hati
tshal
lbepr
esent
edf
or
accept
ancebef
orei
tispresent
edf
orpayment
.

Butev eni ncaseswher epresentmenti sopt ional,itisdesirabl

etogeti taccept edas
soonaspossi bl
e.Thebi llmustbepresent edforaccept ancebef or
et hedat eofpay ment
andwi thinar easonabl etimeafteri
tisdr awn.Thedr aweecant ake48hour st oaccepti t,
but af ter 48 hour s are over he must r eturnt he bi l
lt ot he hol der wi th or
without acceptance.I ftheholderal l
owst hedr aweemor et han48hour st odeci de
whet hert oacceptornot ,al
lpri
orpartiestothebi llaredischarged from theirliabil
iti
es
undert hebi l
l.
Ifthedr awee,afterar easonabl esear ch,cannotbefound,t hebi l
lcanbe
tr
eateddi shonour ed.Ifabi l
lisdirectedt ot hedr aweeatapar t
icularplace,i tmust
bepresent edatt hatplace.Ifabi l
l,whi chr equiresaccept ance,isnotpr esentedf or
accept ance;thedr awerandallendorseesar edi schargedfrom thei
rliabil
i
tyt othehol der.

Whenpr
esent
mentf
oraccept
ancenotnecessar
y

1. Whenaf
terar
easonabl
esear
cht
hedr
aweecannotbef
ound.

2. Whent hebil
lisdrawnonaf
ict
it
iousper
sonoronaper
sonwhoi
sincapabl
eof
ent
eri
ngi
ntocont
racts.

3. Whent
hedr
aweei
sinsol
ventordead.

4. Wher e,alt
hought
hepr
esent
menti
sir
regul
ar,accept
ancehasbeenr
efusedon
someot
herground.

Pr
esent
mentf
orpay
ment

The negot
iabl
einst
rumentmustbe pr
esent
ed f
orpay
ment
.The r
uler
egar
ding
pr
esent
mentf
orpay
mentar
easf
oll
ows:

1.Promissorynotes,bi
l
lsofexchangeandchequesmustbepr esentedforpay
mentt o
themaker ,acceptorordraweether
eofrespect
ivel
y,byoronbehal foftheholder.I
f
defaul
tinpresentmenti
smadenopar tyot
herthanthemaker
,acceptorordr
aweewi l
lbe
l
iablet
ot heholder.

2.Apronot
e,pay ableatacertai
nperiodaft
ersight,mustbepr esent
edt
othemakerby
a per
son whoi sentit
ledtodemandpay ment,withi
nar easonableti
meaft
eri
tismade
andduri
ngbusinesshour sonabusinessday.I
fpresentmentisnotmade,nopart
yther
e
toi
sli
ableonittot hepersonfai
li
ngtopresent.

3.Whereapronoteispayabl
eondemandandi
snotpay
abl
eataspeci
fi
edpl
ace,no
present
menti
snecessar
y.

4.Apronot
eorbillmadepayableataspeci
fi
edper
iodaf
terdat
eorsi
ght
,mustbe
pr
esent
edforpay
mentatmaturi
ty.

5.A not
eorbillmade,drawn oraccepted payabl
eataspecif
ied pl
acemustbe
pr
esent
edforpaymentat
thatpl
aceother
wi sethemakerort
hedr
awerwillbel
i
abl
eon
i
t.

6.Anote,bi
llorchequemade,accept
edordrawnpayabl
eat“Speci
fi
edplaceandnot
el
sewhere”mustbepresent
edatt
hatpl
ace,
otherwi
senopart
ytoitwi
llbel
i
able.

7.Apronat
epayabl
ebyi nst
almentsmustbepr
esent
edf
orpay
mentont
het
hir
dday
aft
ert
hedatef
ixedfor
eachinstal
l
ment.

8.Anoteorbi
llnotmadepay abl
eataspecif
iedplacemustbepr
esent
edf
orpaymentat
theplaceofbusiness,
ifany
orattheusualresi
dence,
ofthemaker
,dr
aweeoraccept
or
ther
eof,ast
hecasemaybe.

9.Achequemustbepresent
edatthebankuponwhi chi
tisdrawnbefor
et herel
ati
on
bet
weenthedrawer
andhisbankerhasbeenalter
edt ot
heprejudi
ceofthedrawer.If
def
aul
tismadethedrawerbedi
schargedf
rom l
i
abil
it
y.

10.Ift
hechequei
snotpresent
edt othebankerf
orpaymentwithi
nareasonabletime,
thenall par
ti
esothert
hanthedrawerwi l
lbedischarged.
Del
ayinpr esentmentfor
accept
anceorpay
mentisexcused,i
fiti
scausedbycir
cumstancesbey
ond t hecontr
ol
ofthehol
der.

Presentmentforpaymentnotnecessary
:Presentmentf
orpaymenti
snotnecessar
yin
thefoll
owingcases.I
nall
suchcasestheinst
rumentisdeemedtobedi
shonour
edatthe
duedatesopr esent
mentfor
paymentisnotnecessar
y:
1. Ifthemaker
,dr
aweeoraccept
ori
ntent
ional
l
ypr
eventpr
esent
mentoft
he
i
nstr
ument
.

2. Ifthei
nstr
umentbei
ngpayabl
eathisplaceofbusi
ness,
hecl
osessuchpl
aceona
busi
nessdayduri
ngt
heusual
businesshour
s.

3. Iftheinstr
umentbeingpayabl
eatsomeot herspeci
fi
edpl
ace,neit
herhenorany
ot
herpersonauthor
isedt
opayitatt
endsatsuchpl
aceduri
ngtheusualbusi
nesshour
s.

4. I ftheinstr
umentisnotpayabl
eataspeci
fi
edpl
aceandt
hedr
aweroraccept
or,
cannot
,afterduesear
ch,bef
ound.

5. Wher
ether
eisnopr
omi
set
opaynot
wit
hst
andi
ngnon-
present
ment
.

6. Wher ethepr esent

mentiswaiv
edbyt hepartyenti
tl
edtopr
esent
mentbecomes
i
mpossi
blebecauseofimpossi
bil
i
tyoril
l
egal
i
t yorper
formance.

7. Wher
ethe dr
awercoul
d notpossi
blyhav
e suf
fer
ed anydamage bynon-
pr
esent
ment.

8. Wher
ethedr
aweei
saf
ict
it
iousper
son,
oronei
ncompet
entt
ocont
ract
.

9. Wher
ethebi
l
lhasbeendi
shonour
edbynon-
accept
ance.

10. Wher
et hetermsofagreementdonotr equi
reanypresentmentfort
heinstr
ument.
I
nallthe abovecasesnopresentmentforpaymentisnecessaryandtheinst
rumenti
s
deemedtobedishonouredattheduedat
e.

DI
SHONOUR

Abi l
lofexchangemaybedishonour
edeit
herbynon-
accept
anceorbynon-payment.A
pronoteorchequei
sdi
shonouredbynon-
paymentasaccept
ancei
snotrequir
edinthei
r
case.

Whenaninst
rumenti
sdishonour
edtheholdermustgi
venot
iceofdishonourt
othe
dr
awerormakerorhi
spr
evi
ousholder
sifhewant
stomaket
hem li
abl
e.

Dishonourofabil
lbynon-
accept
ance(
Sec.
91):Abi
l
lissai
dtobedi
shonour
edbynot
acceptancewhen:

1. t
hedr
aweedoesnotaccepti
twi
thi
n48hour
sfr
om t
het
imeofpr
esent
mentf
or

accept
ance;
2. pr
esent
mentf
oraccept
anceasexcusedandt
hebi
l
lremai
nsunaccept
ed;

3. t
hedr
aweei
sincompet
entt
ocont
ract
;

4. t
hedr
aweei
saf
ict
it
iousper
son;

5. t
hedr
awee,
aft
erar
easonabl
esear
ch,
cannotbef
ound;
and

6. t
heaccept
ancei
squal
i
fiedandt
hehol
deropt
stot
reati
tasdi
shonour
ed.

Dishonourofani nstr
umentbynon- payment( Sec.92):Apr omissor ynot e,abi l
lof
exchangeorchequeI Ssaidt obedi shonouredbynon- paymentwhent hemakeroft he
note,accept oroft hebillordraweebankeroft hechequemakesdef aulti
npay menton
beingdul yr equiredtopay t hesame.Anegot iablei nst
rumenti s also deemed t o be
dishonoured by non- payment whenpr esent mentf orpay menti sexcusedandt he
i
nst rumentr emains unpaid on mat uri
ty;and i nstr
umentwhen ov er
due,r emains
unpai d.
EffectofDi shonour: Thedrawerandal ltheendor sersofthebi l
lareliabletothe
holderift hebi llisdishonour edeit
herbyt henon- acceptanceorbyt henon- payments
prov i
dedthehegi vesthem not i
ceofdi shonour .Thedr aweei sli
ableonlywhent her
eis
dishonourbynonpay ment .Consequenceoff ail
uret ogiv enoti
ce:Anyper sont owhom
noticeofdi shonouri snotgi venisdi
schar gedf r
om hi sobl i
gati
onsundert heinst r
ument.
Hei snotli
abl et opayandnosui tcanbef il
edagai nsthim.

Whennoti
ceofdi shonouri
sexcused:Iti
snotnecessar
ytogi
venot
iceofdi
shonouri
n
t
hefol
lowingcasesandt ot
hefol
lowingpart
ies:

1. Tot
hemakerofadi
shonour
edpr
omi
ssor
ynot
e.

2. Tot
hedr
aweeoraccept
orofadi
shonour
edbi
l
lorcheque.

3. Wheni
tisdi
spensedwi
thbyt
hepar
tyent
it
ledt
oit
.

4. I
nor
dert
ochar
get
hedr
awerofachequewhenhehascount
ermandedpay
ment
.

5. Whent
hepar
tychar
gedcoul
dnotsuf
ferdamagef
orwantofnot
ice.

6. Whent
hepar
tyent
it
ledt
onot
icecannotbef
ound.

7. Tochar
get
hedr
awerwhent
heaccept
ori
sal
sot
hedr
awer
.

8. Whent
hepr
omi
ssor
ynot
eisnotnegot
iabl
e.

9. Wher
ethepar
tyent
it
ledt
onot
icepr
omi
sest
opayt
heamountaf
tert
hedi
shonour
.

10.Whent
heomi
ssi
ont
ogi
venot
icei
scausedbyunav
oidabl
eci
rcumst
ances.

Modeofgi
vi
ngNot
iceofdi
shonour
1. Anot iceofdi
shonourmaybegi
vent
oadul
yaut
hor
isedagentoft
heper
sont
o
whom i
tisr
equir
edt
obegi ven.

2. I ft
heper sononwhom noti
ceistobeservedhasdied,i
tshouldbegi
vent
ohi
s
l
egal
represent
ativ
e,ori
fhehasbeendecl
aredi
nsol
vent
,tohisassi
gnee.

3. Thenot
icemaybeor
alorwr
it
ten.I
fiti
swr
it
teni
tmaybesentbypost
.

4. Thenot i
cemaybei nanyfor
m butthepartytowhom itisgivenmustbeinfor
med,
ei
ther i
nexpresstermsorbyr easonabl
eintendment,thatthei nst
rumenthasbeen
di
shonouredandinwhatwayandthathewill
beheldli
ablethereon.

5. I
tmustbegi
venwi
thi
nar
easonabl
eti
meaf
terdi
shonour
.

6. Thenot
iceofdishonourmustbegivenatt
hepl
aceofbusi
ness,orift
hepar
tyhas
nopl
aceofbusi
ness,attheresi
denceoft
hepar
tyf
orwhom i
tisi
ntended.

7. Ifthenoti
ceisdulydi
rect
edandsentbypostbuti
smi
scar
ri
ed,suchmi
scar
ri
age
doesnotr
enderthenot
icei
nval
id.

8. Whenthepartyt
owhom noti
ceofdi
shonouri
sdespat
chedi
sdeadbutt
hesender
i
signor
antofhi
sdeat
h,t
henot
icegiv
enwil
lbesuff
ici
ent
.

9. Whent heinst
rumentisdeposit
edwithanagentf orpresentment,t
heagenti s
ent
itl
edtothesametimetogiv
enoticetothi
sprinci
palasifhewast heholdergiv
ing
not
iceofdi
shonourandthepri
nci
palisent
itl
edt
oaf urt
herli
keperiodtogivenoticeof
di
shonour
.

10. Anypar tyreceivingnot iceofdi shonour ,inor dert or enderanypar tyliablet o

himsel f
,shoul dgi venoticeofdi shonourt osuchpar tywi thi
nar easonabl et i
me,unl ess
such par tyot herwiser eceivesduenot i
ce.Not ing( Sec.99):Whenapr omi ssorynot eor
abi llofexchangei sdi shonoured.t hehol deri sentit
led,af tergi vi
ngduenot i
ceof
dishonour ,tosuet hedr awerandt heendor ser s.
Inor dert ohav ethef actofdi shonour
authent i
cated,thehol dermaygeti tr ecordedont hei nst r
ument ,oronapaperat tached
toit,byaNot aryPubl i
c.Suchr ecordingornot icemustbedonewi thinar easonabl et i
me
afterdishonour ,andmustcont aint hefactoft hedi shonour ,t hedat eOfdi shonour ,the
reason i fany ,assignedf orsuchdi shonour .I fthei nst r
umenthasnot beenexpr essly
dishonour ed,thereasonwhyt hehol dertreatsi tasdi shonour edshoul dbenot edaswel l
ast henot ary’
scharges.Not i
ngi sopt i
onal.Itist otheadv antageoft hehol dertogett he
noticedone becausei tisanev i
denceof dishonour .
Prot est(Sec.100):Whenapr onot e
orbi llhasbeendi shonour ed,thehol dermay ,wi t
hinar easonabl et ime,causesuch
dishonourt obenot edandcer ti
fi
edbyanot arypubl ic,suchcer tif
icate i scal l
eda
protest.Thedif f
erencebet weennot ingandpr ot estist hatnot i
ngi smer elyar ecor dof
thef actofdishonour .Whent henot arypubl icissuesacer t
if
icat estati
ngt hepar ti
culars
regardingthedi shonour ,itiscalledapr otest.
Notingandpr otestarenotcompul sory,in
thecaseofani nlandbillornot e,butaf oreignbil
lmustbepr otested,i
fsorequir
edby
thelawoft heplacewher eitisdrawn.ProtestforBet terSecuri
ty.Whent heaccepptorof
abi l
lof exchangehasbecomei nsol
vent,orhi s cr edithasbeenpubl i
clyi
mpeached,
beforet hemat uri
tyoft hebi l
l,
theholdermaywi thinar easonabletime,employanot ar y
publictodemandbet tersecur i
tyoftheaccept orandoni t
srequest,maycausef actst o
benot edandcer tif
iedwi t
hinar easonablet i
me.Suchcer tif
icatei
scalleda “Prot
estf or
bettersecur i
ty”
.

Not
aryPubl
i
c

Thenot
arypubl
i
cisanoff
icerappoi
ntedbyt
heGov
ernmentt
oexer
ciset
hef
unct
ionsof
not
ingandprot
est
,et
c.

Di
schar
geofPar
ti
esf
rom Li
abi
l
ites

Theli
abi
li
tyofapart
ytoanegot
iabl
einst
rumentmaybedi
schar
gedort
ermi
nat
edi
n
anyoneofthef
oll
owi
ngway
s-

1. Bypay
menti
nduecour
seoft
heamountdue.

2. Byt
hehol
derdi
schar
gingorr
eleasi
ngt
hemaker
,accept
ororendor
ser
.

3. Bycancel
l
ati
onofapar
ty’
snamebyt
hehol
der
.

4. Byoper
ati
onofl
aw,
e,g.
,byt
hei
nsol
vencyoft
hedebt
or.

5. Byt
hehol
deral
l
owi
ngt
hedr
aweemor
ethan48hour
sofaccept
ingt
hebi
l
l.

6. Byt
aki
ngqual
i
fiedaccept
anceal
lpr
evi
ouspar
ti
esar
edi
schar
ged.

7. Bynon-pr
esent
mentofachequeforpay
mentwi
thi
nar
easonabl
eti
meofi
tsi
ssue,
i
fthebankf
ail
s,t
hedraweri
sdi
schar
ged.

8. Byendorsementofanorderchequebypay
eethebankeri
sdi
schar
gedbypay
ment
i
nduecourse,ev
enift
heendorsementtur
nsouttobeafor
gery
.

9. Bymat eri
alal
ter
ati
on.Anymater
ialal
ter
nati
onofanegot iablei
nst
rumentrender
s
thesamevoidasagai
nstanyonewhoi sapartytheret
oatt hetimeofalt
ernat
ionand
doesnotconsentt
heret
o.SomeexamplesofMateri
alAlt
erat
ion:

Al
ter
ati
onof

(
1)t
hedat
eoft
hei
nst
rument
sori
ndor
sement
s

(
2)t
hesum ofpay
ment
,
(
3)t
het
imeofpay
ment
,

(
4)t
hepl
aceofpay
ment
,

(
5)t
her
ateofi
nter
est
,

(
6)t
headdi
ti
onofanewpar
ty,

(7)thet earingoft heinstr

umenti namat erialpart
,aremat eri
alalt
erat
ion.Acor r
ecti
on
ofami stake,oranal terati
onmadet ocarryoutt hecommoni nt
enti
onoft heparti
es
madebef orethei nstr
umenti sissuedorwi t
ht heconsentoftheparti
esdoesnotamount
toamat eri
alal terati
on.Itdoesnotmaket hei nst
rumentv oid.Whenaper sonaccepts
analteredinst r
ument ;hecannotaf ter
wardsr ai
seobjecti
onst othosealterati
onswhich
exi
stedatt het i
meofaccept i
ngtheinstr
ument .Whereanymat eri
alalt
er ati
onismade
by an endor see itdi scharges his endorserf r
om alll i
abili
tyto himi nr epectof
considerati
ont hereof(Sec.87) .