Answer key Business Law BBA 1ST SEMESTER

Q.1 Define Contract. Answer- A contract is an agreement that can be enforceable by law. An agreement is an offer and its acceptance. An agreement which can be enforceable by law must have some essential elements. According to Section 10 "All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void" As per the above section, a contract must have the following elements. Q.2Who are the disqualified persons to contract? Answer-It refers to statutory disqualification imposed on certain person in respect of their capacity to contract. 1. Alien enemies. An alien is competent to contract with citizens of the Indian living in India. He can maintain as action on a contract enter onto by him during peace him time. But if a war is declared, an alien enemy cannot enter into a contract with the Indian citizen. Contract entered into before the declaration of war are either stayed or terminated but contract into during the war are unenforceable. 2. Foreign sovereigns and ambassadors. These people are immune from the jurisdiction of local courts, unless they voluntarily submit to its jurisdiction. These persons have a right to contract but can claim the privilege of not being sued. The rules regarding suits by or against foreign sovereigns are laid down in section 84 to 87 of Civil Procedure Code. 3. Insolvent. An insolvent cannot enter into a contract as his property vests in the official receiver or official assignee. This disqualification of an insolvent is removed after he is discharged. 4. Convict. A convict while undergoing imprisonment in incapable of entering into a contract. But this disability comes to an end on the expiry of the sentence. 5. Corporations. A Corporation is an artificial person recognised by law. It exists only in the eyes of law. It is competent to enter into a contract only through its agent. 6. Married women. A woman is competent to enter into a contract. Marriage does not affect the contractual capacity of women. She can even bind her husband in cases of pressing necessity. A married woman may sue or be sued in her own name in respect of her separate property.

7. Professional persons. Doctors and advocates are included in the class. In England barristers are prohibited by the etiquettes of their profession from suing for their fees. Q .3 What is the difference between agreement and contract? Answer Difference between contract and agreement:

Contract 1. A Contract is defined under Sec.2 (h). 2. A Contract is an agreement enforceable at law. 3. Its scope is limited. 4. Only valid agreement are called 5. A contract is enforceable. 6. A contract arises out of an agreement. Therefore, a contract includes an agreement. 7. A contract must have all the essentials of a valid contract like consideration, capacity, free consent, etc. Agreement 1. An agreement is defined under Sec.2 (e) 2. Every promise or set of promises forming consideration for each other is an agreement. 3. Its scope is very wide. 4. An agreement and be both legal or illegal 5. An agreement may or may not be enforceable. 6. An agreement does not arise out of a contract. Therefore, an agreement does not include a contract. 7. An agreement has only an offer and its acceptance. It need not have other essentials. Q.4 What do you mean by sole trader? Answer:-A sole trader is one type of business organization. Or I would say a sole trader is among the many types of organization that exist in a business environment. If you are a sole trader, it means that you own the business, and any profits from the business belong to you. It's important to know that there are other types of business organizations like partnership or limited companies. A partnership is where you and another partner own the business. (it may not necessarily be 50% each, it depends on the agreement of each partner ). Limited companies on the other hand, are companies that can offer shares to raise capital. Although this is complicated, you need to understand that while sole trader can earn all the profits, it will face difficulties in raising funds for expansion, that's the reason limited companies are formed, they can raise funds from the public. Q.5 Define contingent contract Answer:-If any contract performance depends upon the happening of certain event of future is called contingent contract. An ordinary contract can become contingent contract. If its performance is made dependent upon the happening or non happening of an uncertain event, collateral to such contract. Contingent contract is also called conditional contract. Essentials: Following are the essentials of the conditional contract. (i) The performance of such contract depends upon the happening or non happening of some future uncertain event.

(ii) The event must be uncertain, (iii) The happening or non happening of the events must be collateral. Example: A contracts to pay B Rs. 2000 if B marries to C. This is contingent contract. Q.6 What is meant by revocation of offer? Answer:-Offer is an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed. Revocation refers to the canceling or annulling of something previously done. Revocation of offer is the withdrawal of an offer by the offeror so that it can no longer be accepted. Revocation takes effect as soon as it is known to the offeree. An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree. Q.7 When an agency irrevocable? Answer:-Irrevocable agency means an agency which cannot be terminated. An agency is irrevocable in the following cases: 1. Where agency is coupled with interest: Where the agent has himself an interest in the property which forms the subject-matter of agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest (Sec. 202).

2. Where the authority has been party exercised The principal cannot revoke the authority given to his agent after the authority has been partly exercised, so far as regards such acts and obligations as arisen from acts already done in the agency (Sec. 204). 3. Where the agent has incurred personal liability When the agent has purchased the goods on his personal liability, or where he made the payment of the good, the agency cannot be terminated. Q.8 Explain the nature of partnership? Answer: Partnership is a form of business in which two or more persons come together with their resources to invest in a common business with the purpose of sharing the profits of the business. There are some limitations of Sole proprietorship viz limited capital, no risk sharing, limited skill etc. Partnership is the solution to such problems faced by a sole proprietor. In a partnership a few persons can come together to start a new business with an agreement to share the profits and losses of the business. According to Section 4 of the Indian Partnership Act 1932, "Partnership is a relation Between persons who have agreed to share the profits of of a business carried on by all or any of them acting for all." Thus Partnership is the starting of a relationship among its members i.e. the partners who have agreed to share the profits of a business to be carried on by all or by any of them acting for all. Here we are giving some of the

basic features of a Partnership Firm. In the absence of any of these features, a business cannot be termed as a Partnership. 1. Two or more Persons 2. Agreement among Partners 3. Business

4. Agreement to share profits 5. Business is to be carried on by all or any of them acting for all Q.9 Define and explain consideration as defined in Indian contract act, 1872?
Answer: The section 25 of the Indian Contract Act, 1872 openly declares that an agreement made without

consideration is void I n o t h e r w o r d s t h e p r e s e n c e o f c o n s i d e r a t i o n i s a n essential for a contract to be valid. In England too promises without consideration are not enforced, because they are gratuitous. In England the contracts are divided into two categories: 1. Contracts under seal, or contracts in the form of a deed. Such contracts are valid even without consideration. 2. Simple contracts or parol contracts. For validity of such contracts the presence of consideration is needed. Consideration in simple words means something in return of a promise which may either be benefit gained by one party or something lost by the other. So generally there can be no doubt that for a valid contract, there must be consideration, and also free consent.

Section B
Q.1 Contract is an agreement enforceable by law. Discuss this statement by bringing out clearly the essentials of a valid contract. Ans - Essentials of a valid contract: 1.Intention to create legal relationship: The parties entering into a contract must have an intention to create a legal relationship. The there is no intention to create a legal relationship, that agreement cannot be treated as a valid contract. Generally there is no intention to create a legal relationship in social and domestic agreements. Invitation for lunch does not create a legal relationship. Certain agreements and obligation between father and daughter, mother and son and husband and wife does not create a legal relationship. An agreement wherein it is clearly mentioned that "This agreement is not intended to create formal or legal agreement and shall not be subject to legal jurisdiction in the law of courts." cannot be treated as a contract and not valid. Lawful Object: The objective of the agreement must be lawful. Any act prohibited by law will not be valid and such agreements cannot be treated as a valid contract. A rents out his house for the business of prostitution or for making bomb, the acts performing there are unlawful. Hence such agreement cannot be treated as a valid contract. Therefore the consideration as well as the object of the agreement should be lawful.

2.Agreement not expressly declared void: Section 24 to 30 specify certain types of agreement which have been expressly declared void. For example Restraint of marriage which has been expressly declared void under Section 26. If John promises to pay $50 to Mary if she does not marry throughout her life and Mary promise not to marry at all. But this agreement cannot be treated as a valid contract owing to the fact that, under section 26 restraint of marriage expressly declared void. Some of the agreements which have been expressly declared void are agreement in restraint of legal proceedings, agreement in restraint of trade, agreement in restraint of marriage and agreement by way of wager. 3.Proper offer and it s acceptance: To create a valid contract, there must be two or more parties. One who makes the offer and the other who accepts the offer. One person cannot make an offer and accept it. There must be at least two persons. Also the offer must be clear and properly communicated to the other party. Similarly acceptance must be communicated to the other party and the proper and unconditional acceptance must be communicated to the offerer. Proper offer and proper acceptance should be there to treat the agreement as a contract which is enforceable by law. 4. Free Consent: According to section 14, consent is said to be free when it is not caused by (I) coercion, (ii) undue influence (iii) fraud, (iv) misrepresentation, or (v) mistake. If the contract made by any of the above four reason, at the option of the aggrieved party it could be treated as a void contract. If the agreement induced by mutual mistake the agreement would stand void or canceled. An agreement can be treated as a valid contract when the consent of the parties are free and not under any undue influence, fear or pressure etc. The consent of the parties must be genuine and free consent. 5. Capacity of parties to contract: Parties entering into an agreement must be competent and capable of entering into a contract. If "A" agrees to sell a Government property to B and B agrees to by that property, it could not treated as a valid agreement as A is not authorized or owner of the property. If any of the party is not competent or capable of entering into the agreement, that agreement cannot be treated as a valid contract. According to Section 11 of the Act which says that every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. So it is clear that the party must be of sound mind and of age to enter into a valid agreement which can be treated as a valid contract. 6. Certainty of meaning: Wording of the agreement must be clear and not uncertain or vague. Suppose John agrees to sell 500 tons of oil to Mathew. But, what kind of oil is not mentioned clearly. So on the ground of uncertainty, this agreement stands void. If the meaning of the agreement can be made certain by the circumstances, it could be treated as a valid contract. For example, if John and Mathew are sole trader of coconut oil, the meaning of the agreement can be made certain by the circumstance and in that case, the agreement can be treated as a valid contract. According to Section 29 of the Contract Act says that Agreements, the meaning of which is not certain or capable of being made certain, are void. 7. Possibility of performance: As per section 56, if the act is impossible of performance, physically or legally, the agreement cannot be enforced by law. There must be possibility of performance of the agreement. Impossible agreements like one claims to run at a speed of 1000km/hour or Jump to a height of 100feet etc. Would not create a valid agreement. All such acts which are impossible of performance would not create a valid contract and cannot be treated as a valid contract. In essence, there must be possibility of performance must be there to create a valid contract. 8. Lawful consideration: An agreement must be supported by a consideration of something in return. That is, the agreement must be supported by some type of service or goods in return of money or goods. However, it is

not necessary the price should be always in terms of money. It could be a service or other goods. Suppose X agrees to buy books from Y for $50. Here the consideration of X is books and the consideration of Y is $50. It can be a promise to act (doing something) or forbearance (not doing something). The consideration may be present, future or can be past. But the consideration must be real. For example If John agrees to sell his car of $ 50000 to Peter for $20000. This is a valid contract if John agrees to sell his car not under any influence or force. It can be valid only the consideration of John is free. An agreement is valid only when the acts are legal. Illegal works like killing another for money, or immoral works or illegal acts are cannot be treated as a valid agreement. So, illegal works will not come under the contract act. 9. Legal formalities: The contract act does not insist that the agreement must be in writing, it could be oral. But, in some cases the law strictly insists that the agreement must be in writing like agreement to sell immovable property must be in writing and should be registered under the Transfer of Property Act, 1882. These agreements are valid only when they fulfill the formalities like writing, registration, signing by the both the parties are completed. If these legal formalities are not completed, it cannot be treated as a valid contract. Q.2 Competency of the people doing the agreement. (What do you understand by competency to contract? What protections are offered to minor? Ans- An agreement becomes a contract if it is entered into between the parties who are competent to contract. Every person is competent to contract (1) who is of the age of majority according to the law to which he is subject; (2) who is of sound mind; and (3) who is not disqualified from contracting by any law to which he is subject. Let us examine specifically who are competent to contract and who are not. Contracts by Minor Rules relating to a Minors contract According to section 3 of the Indian Majority Act 1875 a minor domiciled in India is one who has to complete his eighteen years of age. But in cases where a guardian of the minors person or property (or both) is appointed or where a minors property is taken over by a Court of Wards, the minority continues up to the completion of his age of twenty one years. Age of majority is to be determined by the law to which the minor is subject. A minor is not competent to contract. Minors contact is absolutely void: In Mohori Bibee v Dhurmodas Ghose (1903-30 Cal. 539) Privy Council had held that minors contract is void ab initio and not merely voidable. A minors agreement being absolutely void, neither he nor the other party acquires any right or incurs any liability under the agreement. So a minor is neither liable to perform that he has promised too under an agreement nor is he liable to repay money that he has received under it. The principle behind this ruling is, a minor is incapable of judging what is good for him. Even if a minor has received any benefit, he cannot be asked to compensate or pay for it. A minor is incapable of giving promise imposing a legal obligation upon him. . Specific performance of a minors contract: As a minors contract is absolutely void, there can be no specific performance of such a contract Even a minor cannot enforce specific performance as there is no mutuality. However, when such a contract is entered into by a guardian on behalf of a minor, for minors benefit it can be specifically enforced by or against the minor. Ratification of a minors contract: Ratification means consenting to a past contact entered into during minority at a future date on attaining majority. It relates back to the date of the making of the contract. Since a minors contract is void, there can be no question of ratifying it as the consideration given during the minority is held to be no consideration at all. It cannot be made valid by a subsequent ratification. A fresh contract can be entered into by a minor on attaining majority with a fresh consideration False representation by a minor-Estoppel: A minor cannot be stopped by a false representation as there can be no estoppels against a statute. A minor who falsely represents himself to be a major and thereby induces

another person to enter into a contract with him, can plead minority as a defense. The infant is not stopped from setting up infancy. A minor cannot be sued on the ground that he falsely represented that he is of full age thereby induced other persons to enter into a contract because to allow an injured person to sue a minor person, would be giving him a indirect means of enforcing a void contract. However, it has been held by Andhra Pradesh High Court that equity requires a minor who seeks to avoid a contract which he induced the opposite party to enter into with him by a fraudulent misrepresentation as to his age to return the considerations which he received under it and this equitable principle is also fond statutorily embodied in section 39 and 41 of the Specific Relief Act. Therefore, the Court should not grant the relief to the minor without at the same time imposing conditions that he should return what he received under the contract. Q. 3 Explain the circumstances under which the title is transferred from seller to buyer? Answer:-Unless a different intention appears "(1) where there is a contract to sell unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied and may be given either before or after the appropriation is made. (2) Where in pursuance of a contract to sell, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to or holding for the buyer, he is presumed to have unconditionally appropriated the goods to the contract, except in the cases provided for in the next rule and in section 20. This presumption is applicable although by the terms of the contract, the buyer is to pay the price before receiving delivery of the goods, and the goods are marked with the words collect on delivery or their equivalents." 59 (a)Title passes upon appropriation of contract. Where the goods are unascertained, the title, as has been already noted, cannot pass. Upon ascertainment title passes according to the intention of the parties. Where pursuant to this contract to sell goods at present unascertained, certain goods in a deliverable state are set aside or designated or in any way appropriated to the contract, it is presumed, rebuttally, that the intention of the parties is to pass title upon such appropriation, subject to the other rules as to deliverable shape, goods to be put on cars by seller, etc. (b) Delivery to carrier or other bailee by seller. If the seller pursuant to the contract delivers goods to a carrier for transportation to the buyer, the delivery is presumed to be an appropriation and title passes then, if it has not passed before. The goods are while in transit the property of the buyer and not of the seller. We shall hereafter notice that if the seller undertakes, as a part of his contract, to make the delivery, title remains in him until such delivery is complete. That, however, means that the seller undertakes to pay the expense of the delivery and assumes the burden of its success. In the ordinary cases where the goods are at the seller's place of business, the seller assumes the task of putting the goods in the possession of a carrier, and such carrier is the agent of the buyer, and the risk of loss is upon the buyer and title has passed.61 Even though goods are appropriated to the contract, still so long as there remains something to be done by the seller to put them in a deliverable shape, title has not passed. In cases of shipment made by the seller, title is usually held not to pass until delivery to the carrier though necessarily before that time the goods had to be segregated; this is because where a number of things were to be done by the seller in the process of appropriating unascertained goods, it is presumed the intention of the parties was to defer transition of title until the last act.

(c) Goods shipped "C. O. D." Where goods are shipped "Collect on Delivery," this has no effect upon the passing of title. If by the rules discussed where goods are not so shipped title would pass, it will still pass notwithstanding such provision that the carrier must collect before delivery.63 Thus the carrier might be the buyer's agent to transport the goods and the seller's agent to maintain the lien for the price and collect the charges. Sec. 60. Rules For Ascertaining The Intention Of The Parties FIFTH RULE. Unless a different intention appears "if a contract to sell requires the seller to deliver the goods to the buyer, or at a particular place, or to pay the freight or cost of transportation to the buyer, or to a particular place, the property does not pass Delivery to carrier is ordinarily delivery to buyer and if it was understood from the express terms of the contract or from the circumstances that the seller was to deliver to the carrier, the seller would be under the obligation so to do and having done so, title would thereupon pass. But if the seller takes upon himself the more onerous contract of seeing that the goods reach a certain place, as where he undertakes to pay the freight, title does not pass in such case until the carriage to such place is complete. In this connection the initials "f. o. b." standing for the words "free on board," are often used, and are of importance in determining the intention. Sec. 61. Reservation, Upon Shipment, Of Title In Selle

The seller by the form of his contract with the carrier may reserve title in him notwithstanding delivery to such carrier. If the shipper has the bill of lading made out to himself or his agent, this effect retention of title in himself. A bill of lading is the evidence of title and by its form may indicate that though the seller made delivery to the carrier, yet he did not by that act finally appropriate the goods to the contract, but intended until a future time to reserve title in himself. This is sometimes referred to as the retention of the jus disponendi. One mode of retaining title by means of the bill of lading is to send the bill to some third person, usually a banker, with draft attached, which must be accepted, or, if a sight draft, paid, before the bill of lading can be secured. This reserves title even though the bill of lading names the buyer as consignee.67 65. Uniform Sales Act, Rule 19, and SEC. 15. 66. Deutzel v. Island Park Ass'n, 229 Pa. 403. Bills of lading are made out in two forms: the "straight" bill and the "order" bill. The first form is a bill made to some certain person. The second form is one made to the order of a certain person, or to a certain person or his order. As has been seen in the discussion of Documents of Title, straight bills of lading are made nonnegotiable; order bills are made negotiable, and where such distinction prevails the carrier is not protected in delivering the goods where an "order" form was used except upon presentment of the bill of lading properly endorsed; otherwise it is. To insure a valid retention of title, the shipper should therefore use the order form of bill of lading, unless he makes himself the consignee. See the subject of Documents of Title, supra, in this volume. Sec. 62. Risk of Loss

Unless there is an agreement to the contrary risk of loss attends the title.68 The risk of loss is usually upon the owner. The parties might indeed agree otherwise, but that is seldom done. This statement of risk does not include cases of loss on account of negligence of a seller or buyer having possession and not title. If title has passed while goods are in possession of the seller or his agent in that behalf, the seller would then be a bailee of the goods and liable as such to use due care for their safety. Assuming there is no question of negligence, it is almost always true that risk follows the title. Indeed the important reason in many cases for raising the question of transition of title is to decide upon whom the loss must fall. If, then, a specific article has been bought and title has really passed, the loss is on the buyer regardless of the fact that he may never have had possession. Thus, if pursuant to a contract of sale goods are shipped to A under such circumstances that title passed upon delivery to the carrier, the loss as between buyer and seller, is upon the buyer, but if by shipment "f. o. b." destination, or by retention of title by bill of lading, title is still in the shipper, then loss is upon him as between him and the buyer. In these cases, whether there is any recourse against the carrier is a different question and would depend on the nature of the cause of loss and the contract with the carrier. Cases have made exceptions to this rule in the cases in which title is reserved solely for purposes of security, possession and ownership for all other purposes being vested in the buyer. There are two classes of cases within this exception. There is also an exception where delivery has been delayed by the fault of either part. Risk is upon the party in fault. (1) Cases of conditional sales in which buyer is given possession but seller retains contract for purposes of security. In this case the risk of loss is on the buyer. Example 26. A sells books to B, delivering B the books under a contract whereby A is to have title until the last installment is paid. The risk is on B. He must pay although the goods are destroyed before the last installment.69 (2) Cases in which title is reserved during transit for purposes of security where except for such reservation title would have passed. Q.5 Explain the classification of contracts?
Answer:- Contracts on the basis of creation:

a) Express contract: Express contract is one which is made by words spoken or written. Example No. 1: X says to Y, will you buy a car for Rs. 100000? Y says to X, I am ready to buy you car for Rs. 100000. It is an express contract made rally. Example No. 2: X writes a letter to Y, I offer to sell my car for Rs. 100000 to you. Y send a letter to Y, I am ready to buy you car for Rs. 100000. It is an express contract made in writing. b) Implied contract: An implied contract is one which is made otherwise than by works spoken or written. It is inferred from the conduct of a person or the circumstance of the particular case. Example: X, a coolie in uniform picks up the bag of Y to carry it from railway platform to the ------ without being used by Y to do so and Y allow it. In this case there is an implied offer by the coolie and an implied

acceptance by the passenger. Now, there is an implied contract between the coolie and the passenger is bound to pay for the services of the coolie. c) Quasi or constructive contract: It is a contract in which there is no intention either side to make a contract, but the law imposes contract. In such a contract eights and obligations arise not by any agreement between the practice but by operation of law. e.g where certain books are delivered to a wrong address the addresses is under an obligation to either pay for them or return them. Contracts on the basis of execution: a) Executed contract: It is a contract where both the parties to the contract have fulfilled their respective obligations under the contract. Example: X offer to sell his car to Y for Rs. 1 lakh, Y accepts X offer. X delivers the car to y and Y pays Rs. 1 lakh to X. it is an executed contract. b) Executory contract: It is a contract where both the parties to the contract have still to perform their respective obligations. Example: X offers to sell his car to y for Rs. 1 lakh. Y accepts X offer. It the car has not yet been delivered by X and the price has not yet been paid by Y, it is an Executory contract. c) Partly executed and partly executory contract: It is a contract where one of the parties to the contract has fulfilled his obligation and the other party has still to perform his obligation. E.g X offers to sell his car to y for Rs. 1 lakh on a credit of 1 month. Y accepts X offer. X sells the car to Y. here the contract is executed as to X and Executory as to Y.

Contracts on the basis of enforceability: a) Valid contract: A contract which satisfies all the conditions prescribed by law is a valid contract. E.g. X offers to marry y. y accepts X offer. This is a valid contract. b) Void Contract: the term void contract is described as under section 2(j) of I.CA, 1872, A contract which cases to be enforceable by law becomes void when it ceases to be enforceable. In other words, a void contract is a contract which is valid when entered into but which subsequently became void due to impossibility of performance, change of law or some other reason. E.g. X offers to marry Y, Y accepts X offer. Later on Y dies this contract was valid at the time of its formation but became void at the death of Y. c) Void Agreement: According to Section 2(g), an agreement not enforceable by law is said to be void. Such agreements are void- ab- initio which means that they are unenforceable right from the time they are made. E.g. in agreement with a minor or a person of unsound mind is void ab-initio because a mino or a person of unsound mind is incompetent to contract. d) Voidable contract: According to section 2(i) of the Indian contract act, 1872, arrangement which is enforceable by law at the option of one or more of the parties thereon but not at the option of the other or

other, is a voidable contract. In other words, A voidable contract is one which can be set aside or avoided at the option of the aggrieved party. Until the contract is set aside by the aggrieved party, it remains a valid contract. For e.g. a contract is treated as voidable at the option of the party whose consent has been obtained under influence or fraud or misinterpretation. E.g. X threatens to kill Y, if the does not sell his house for Rs. 1 lakh to X. Y sells his house to X and receives payment. Here, Y consent has been obtained by coercion and hence this contract is void able at the option of Y the aggrieved party. If Y decides to avoid the contract he will have to return Rs. 1 lakh which he had received from X. If Y does not exercise his option to repudiate the contract within a reasonable time and in the meantime Z purchases that house from X for 1 lakh in good faith. Y can not repudiate the contract. e) Illegal Agreement: An illegal agreement is one the object of which is unlawful. Such an agreement cannot be enforced bylaw. Thus, illegal agreements are always void ab- initio (i.e. void from the very beginning)e.g. X agrees to y Rs. 1 lakh Y kills Z. Y kill and claims Rs. 1 lakh. Y cannot recover from X because the agreement between X and Y is illegal and also its object is unlawful. f) Unenforceable contract: It is contract which is actually valid but cannot be enforced because of some technical defect (such as not in writing, under stamped). Such contracts can be enforced if the technical defect involved is removed.

Q.4 What is crossing? State its kind. What is not negotiable crossing? A crossed cheque is a cheque that can only be deposited directly into an account with a bank and cannot be immediately cashed by a bank over the counter. The format and wording varies from country to country, but generally two parallel lines and/or the words 'Account Payee' or similar may be placed either vertically across the cheque or in the top left hand corner. By using crossed cheques, cheque writers can effectively protect the cheques they write from being stolen and cashed. Cheques can be of two types:1. Open or an uncrossed cheque 2. Crossed cheque Open cheque An open cheque is a cheque which is not crossed on the left corner and payable at the counter of the drawee bank on presentation of the cheque. Crossed cheque A crossed cheque is a cheque which is payable only through a collecting banker and not directly at the counter of the bank. Crossing ensures security to the holder of the cheque as only the collecting banker credits the proceeds to the account of the payee of the cheque. When two parallel transverse lines, with or without any words, are drawn generally, on the left hand top corner of the cheque. A crossed cheque does not affect the negotiability of the instrument. Types of crossing:

Cheque crossed generally Where a cheque bears across its face an addition of the words 'and company' or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words 'not negotiable', that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally. Cheque crossed specially Where a cheque bears across its face an addition of the name of a banker, either with or without the words 'not negotiable', that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker. This is called special-crossed cheque. Account-payee or restrictive crossing This crossing can be made in both general and special crossing by adding the words account payee. In this type of crossing the collecting banker is supposed to credit the amount of the cheque to the account of the payee only. The cheque remains transferable but the liability of the collecting banker is enhanced in case he credits the proceeds of the cheque so crossed to any person other than the payee and the endorsement in favour of the last payee is proved forged. The collecting banker must act like a blood hound and make proper enquiries as to the title of the last endorsee from the original payee named in the cheque before collecting an 'account payee' cheque in his account. The same can be done by place slanted parallel line in the top most left corner of the cheque - then writing over them "A/C payee only". Not-negotiable crossing The words 'not negotiable' can be added to general- as well as special-crossing and a crossing with these words is known as not negotiable crossing. The effect of such a crossing is that it removes the most important characteristic of a negotiable instrument i.e. the transferee of such a crossed cheque cannot get a better title than that of the transferor (cannot become a holder in due course) and cannot convey a better title to his own transferee, though the instrument remains transferable. Q. 5 Difference between sell and agreement to sell A "sale" is (colloquially) a completed transaction where the only remaining duties of the buyer may be timely rejection after inspection, and the only remaining duty of seller is to honor any express or implied warranty. This assumes the full price was paid during the sale and the goods were delivered, otherwise, the sale is not technically complete. An "agreement to sell" is a contract that envisions (or defines) a future sale, thus all conditions precedent and other terms (delivery, payment, etc), continue to be "executory", that is, are yet to be fully carried out. A breach of this contract could result in a court order of specific performance, or for damages caused by the loss of the opportunity to buy or sell.

DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL 1. Transfer of property (ownership): - In a 'sale' the property in goods passes to the buyer immediately at the time of making the contract in 'an agreement to sell' there is no transfer of property to the buyer at the time of the contract. 2. Risk of loss. The general rule is that unless otherwise agreed, the risk of loss primarily passes with property (Sec. 26). Thus in case of sale, if the goods are destroyed the loss falls on the buyer even though the goods may never have come into his possession because the property in the goods has already passed to the buyer. On the other hand, in case of an agreement to sell where the ownership in

the goods is yet to pass from the seller to the buyer, such loss has to be borne by the seller even though the goods are in the possession of the buyer.

Q.6 Explain the terms Agency, Agent and Principal. How is agency created and terminated? Agency is a special type of contract. Under ordinary contracts, the parties to the contract act entirely by themselves. When instead another person is engaged to do the acts under the contract, it is called agency. Section 182 of the Contract Act defines the terms Agent and Principal as follows: Agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is represented, is called Principal. The contract which creates the relationship of Principal and Agent is called an agency. Creation of agency: Contract of agency is like any other contract with the difference that there is no need of consideration in contract of agency. A contract of agency comes into existence in any of the following ways. 1. Agency by express Agreement: The contract of agency may be made orally or in writing. In most of the business dealings the agency is created by a word of mouth. If this form was not recognized by law, the trade and industry could hardly go on. Agency is also created by a contract in writing. Agency is normally preferred in the dealings of immovable property. The common form of an agreement in writing is power of Attorney whereby, authority is given to the power of attorney holder, either generally or specifically, to act on behalf of the Principal. A general power of attorney authorizes the Agent to do all things on behalf of the Principal i.e. to act generally in the business of the Principal. A specific power of attorney empowers the Agent to do or perform a single transaction e.g. selling of house or borrowing money on a mortgage etc. 2. Agency by implied Agreement: Implied agency may arise by conduct or situation of the parties of the circumstances of the case. Such an agency may take any of the following forms: a) Agency by estoppel: Such an agency is based on the principle of estoppel. The rule of estoppel can be stated thus: Where a person, by his words or conduct, has willfully led another to believe that certain set of circumstances or facts exist, and that other person has acted on that belief, he is estopped from denying the truth of such statements. In other words, estoppel arises when one is precluded from denying the truth of anything which he has represented as a fact, although it is not a fact. b) Agency by holding out: Such agency is based on the principle of holding out which is a part of the principle of estoppel. The only distinction is that in this case some affirmative conduct by the Principal is necessary. For example, a dealer in iron usually sent his employee to buy on credit and paid for it afterwards. On one occasion, he sent the employee with cash, who bought the iron on credit and pocketed the money. It was held that the iron merchant was liable to pay for the iron, as the previous dealings justified the seller in assuming that the Agent had authority to buy on credit. The employers conduct in holding out his employee to be his agent estops him from denying the existence of authority of the employee. However, if the Agent is held out as having only a limited authority to do acts, the Principal is not bound by an act outside the authority. c) Agency by necessity: In certain circumstances, the law authorizes a person to act as agent for another without any regard to the consent of the Principal. A wife deserted by her husband and forced to live separate from him, can pledge her husbands credit to buy all the necessaries of life according to the position of the husband even against the wish of the husband and the husband can be held liable for the same. In other cases where in order to save the property of another, one has to act before the instructions of the owner can be received, he is, by necessity, authorized to act as Agent and the consent of the owner as Principal is assumed in law. An Agent exceeding his authority, bona fide, in an emergency or the carrier of the goods acting as bailee and doing anything to protect or preserve the goods in an emergency, although there is no express authority, are the examples of implied agency by necessity. 3. Agency by ratification: Ratification means the subsequent adoption and acceptance of an act originally done without instructions or authority. Thus, where an Agent exceeds his authority (except

under emergency), the acts of the Agent are not binding on the Principal. The Principal, however, may afterwards confirm and adopt the contract so made and this is known as ratification. Section 196 of the Contract Act provides for ratification and states that where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority. Termination of agency An agency may be terminated either by 1) act of the parties, or 2) operation of law. By act of the parties: 1. By agreement: An agency, like any other contract, can be terminated at any time by a mutual agreement between the Principal and the Agent. 2. Revocation by the Principal: The Principal is empowered to revoke the authority of theAgent at any time. The agency stands terminated from the time such revocation is affected. Revocation can be express or implied. a. In the case of a continuous agency, it can be terminated by revocation only for the future. It cannot be revoked in relation to the acts already done by the Agent. In other words, revocation cannot be with retrospective effect. Reasonable notice should be given to the Agent and also the third parties before revocation. b. An agency, which is created for a fixed period, can be terminated by revocation even before the expiry of that period. However, the Principal is bound to pay compensation to the Agent, even if the authority is revoked after giving notice. 3. Renunciation by the Agent: It is the termination of the agency at the instance of the Agent, when he no longer wishes to continue working as Agent. The Agent has to give a reasonable notice to the Principal of his intention to renounce the agency; otherwise he is liable to compensate the Principal for any loss due to renunciation without notice. Further, if the agency is for a fixed period and the Agent renounces it without sufficient cause before the expiry of the period, he shall have to compensate the Principal for the resulting loss, if any. By operation of law: An agency comes to end automatically by operation of law in the following conditions: 1. Completion of business of agency: If the purpose for which the agency is created is served and achieved, the agency stands terminated, e.g. where an advocate is appointed to appear in a suit, his authority comes to end when the adjudication is complete and the judgment is delivered 2. Expiry of time: When the agency is created for a specified period of time, the agency comes to end with that period, even though the business or reason for which the agency was created continues. 3. Death of the Principal or the Agent: An agency is terminated automatically on the death of the Principal or the Agent. In the event of the death of the Principal, the Agent must take all reasonable care to protect the interests of the deceased Principal, which were entrusted to him. 4. Insanity of the Principal or the Agent: If the Principal or the Agent becomes of unsound mind, the agency is terminated automatically. Here also, in the case of insanity of the Principal, the duty of the Agent is the same as in the event of death of the Principal. 5. Insolvency of the Principal: When the Principal becomes insolvent, the agency is terminated. However, the termination of agency on the insolvency of the Agent is at the discretion of the Principal.

6. Destruction of the subject matter: Where the agency is created with reference to a particular property or subject matter, it stands terminated automatically with the destruction of that property. When the Agent is appointed for the sale of a house, the agency is terminated when the house is destroyed by fire. 7. Dissolution of a Company: It is like the death of the Principal or the agent. When Principal or the Agent is an artificial person created only in the eyes of law (such as incorporated companies), the agency is terminated with the dissolution of that company. 8. Becoming an alien enemy: If the Principal or the Agent is a citizen of another country and the war breaks between India and that country, the contract of agency is automatically terminated, as the continuance of the same is unlawful. Q.8 Analyze and explain the concept of free consent of parties. State its essentials and the impact on the formation of contract. Answer: Parties to the contract must give consent. Consent must be free. Free consent is one of the essential elements of a valid contract. According to section 13 of the Act two or more persons are said to consent when they agree upon the same thing in the same, sense. The whole agreement must be consented to in the same sense. When both parties agree upon the same thing in the same sense, they are said to be ad-idem. Where both the parties are not ad-idem or when the minds of both parties are directed to different objects, there is no consent. Some instances when consent is not free: 1) Where a person endorses a bill of exchange which, he was told was signing as a guarantee. 2) Where a document is read over, but it is different from the one pretended to be read over, signature thereon would be of no force. In one Blenkarn taking advantage of similarity of his name with Blenkiron & Co ordered goods from Lindsay & Co by writing his signature to look like Blenkiron. M/s Lindsay & Co mistook his order for that of Blenkiron. Blenkiron was a respectable firm. Lindsay & Co delivered the goods to Blenkarn. Blenkarn in turn sold the goods to Cundy and did not pay Lindsay & Co filed a suit against Cundy. It was held due to a mistake caused by Blenkarn, there was no real agreement between Blenkarn and Lindsay & Co. Cundy, therefore did not get any title to the goods as Blenkarn acquired no property in the goods. Free Consent When? Parties consenting to the same thing in the same sense are not sufficient. Consent must be free. Section 14 of the Act proceeds to define free consent as under: Consent is said to be free when it is not caused by (1) coercion (2) undue influence, (3) fraud, (4) misrepresentation, or (5) mistake. Consent is said to be so caused when it would not have been given but for the existence of such coercion undue influence, fraud, misrepresentation or mistake. When there is no consent there is no contract at all. When there is consent but not free consent, the contract is void at the option of the party whose consent was not free. If consent is given under the first four circumstances, then the contract is void at the option of the party whose consent was so caused. Undue Influence (Section 16)-When a person in a position to dominate the will of other uses this position to obtain an unfair advantage over another in a contract. Fraud (Section 17) - Every act, promise, omission intended to deceive forms fraud. A consent induced by false representation may not be free within the meaning of section 14, but it can nevertheless be real; and ordinarily the effect of fraud or misrepresentation is to render a transaction void only and most void. When consent is caused by mistake of both the parties, then the agreement is void. It will, therefore, be observed that consent under the first four circumstances, i.e. under coercion, undue influence, fraud and misrepresentation makes the contract void, while consent under mistake of both the parties makes the agreement void.

Coercion: Coercion is committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the lawful detaining, or threatening to detain to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. It is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed (Sec 15). Illustration: A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. A afterwards sues B for breach of contract at Calcutta. A has employed coercion although his act is not an offence by the Law of England and although section 506 of the Indian Penal Code was not in force at the time when or at the place where the act was done. When can coercion be established? Essentials For an act to be forbidden by the Indian Penal Code, there must not be merely a threat, but the act should be such as to be punishable under the Indian Penal Code. In Amiraju v. Seshama ( 1918 41 Mad. 38) an interesting question on the point arose. A husband held out the threat of suicide to wife and son if they refused to execute a release in his favor. The wife and son executed a release in consequences of that threat. It was held that release was obtained by coercion. Coercion implies committing or threatening to commit some act which is contrary to law. Q.9 Define indemnity. Distinguish between a contract of indemnity and a contract of guarantee. Answer:- Indemnity and guarantee are two important ways to safeguard ones interests when entering into a contract. There are many similarities between the two concepts though they differ a lot also. This article will highlight the differences between Indemnity and guarantee to enable readers to choose one of the two depending upon circumstances and requirements. Indemnity When you agree to an indemnity agreement, you agree to assume all responsibility and liability for any injuries or damages to someone else. Whenever there is an indemnity contract and one party suffers any losses, the other has the liability to indemnify for the consequences. The common phrases that are included in indemnity contracts say that the person agrees to indemnify and hold harmless or to defend, indemnify and hold harmless. If there is a clause or obligation to defend, you should also get a clause included requiring the person who is being indemnified to tender the defense to you. At least you should get the clause of right to control defense. In the absence of these provisions, the party that you are indemnifying can cost you dearly by raking up huge attorney fees and other sundry expenses. But if you are controlling the defense, you can have a say in the selection of attorney thereby minimizing litigation costs. In general indemnity agreement covers damages, loss, costs, expenses and fees of attorneys. If there is no mention of attorney fees, the court may not require the person promising to indemnify to pay attorney fees. Guarantee In sharp contrast to an indemnity, a guarantee is a promise to answer for debt, default or other financial liability of another. You promise to pay for any damages or default in the event of the principal person refusing to do so or when he cannot do so. If you are a guarantor, once you have paid the principal obligation, your obligation is terminated. Guarantee clause is not the main agreement and is generally collateral to some other obligation or debt. You are held accountable or liable for this debt or obligation after you have fulfilled your obligation as a guarantor. It is therefore prudent to study all clauses or underlying contract before signing any guarantee contract. Difference between Indemnity and Guarantee 1. A guarantee is a promise to someone that a third party will meet its obligation to them. If they do not pay you, I will pay you. 2. An indemnity is a promise to be responsible for another persons loss and to agree to compensate them for any loss or damage on mutually agreed terms. For example, one agrees to pay the difference of repairs if they exceed a certain limit.

3. An indemnity is a primary obligation. It is an express obligation to compensate someone for loss or damage and is independent of the obligations of the party whose covenants are being reinforced by the provision of the indemnity. 4. A guarantee is a secondary obligation. A guarantor will only be liable on a guarantee if the party whose obligations have been guaranteed has failed to perform its primary obligations.

Section C
Q.1 What are the remedies to the breach of contract? Ans Remedies for a breach of contract The remedies are: 1. Suit for recession: The breach of contract no doubt discharges the contract, but the aggrieved party may sometimes need to approach the court to grant him a formal recession, i.e. cancellation, of the contract. This will enable him to be free from his own obligations under the contract. 2. Suit for damages: The word damages means monetary compensation for loss suffered. Whenever a breach of contract take place ,the remedy of damages is one that comes to mind immediately as the consequences of the breach. A breach of contract may put the aggrieved party to some disadvantage or inconvenience or may cause a loss to him. The court would desire the guilty part to accept responsibility for any such loss for the aggrieved party and compensate him adequately. The quantum of damages is determined by the magnitude of loss caused by the breach. Keeping in view the provisions of sec.73 of the act and the court judgments, the aggrieved party would be entitled to one of the following types of damages, depending upon the circumstances of the case: a) General or ordinary damages: Such losses would be called the general or ordinary losses which can be seen as arising naturally and directly out of the breach in the usual course of the things. They would be the unavoidable and logical consequences of breach. The damages for such losses are called general and ordinary damages. An aggrieved partys right to damages applies most naturally for the direct or general losses. There can be no damages for indirect and remote losses. b) Special damages: Special damages would be the compensation for the special losses caused to the aggrieved party by the special circumstances affecting him and tell him that if the contract is not performed properly, he would suffer some particular types of losses because of those special circumstances. If the other party still proceeds to make the contract, it would imply that he has agreed to be responsible for the special losses that may be caused by an improper performance of his obligation. Compensation for such special losses is called special damages. c) Exemplary and vindictive damages: Sometimes the court awards damages for mental and emotional suffering also caused by breach. Such damages are called exemplary and vindictive damages. These may be taken as an exception to the general principle that damages are awarded only for the financial loss caused by breach of conduct. In a case addies vs. gramophone co.ltd. The court stated that in three cases mental suffering and pain of the aggrieved party can also be taken in to account: i) Unjustified dishonor of a cheque ii) Breach of promise of marriage iii) Failure of vendor of real state to make title. d) Nominal damages:

If the breach of contract causes no loss to the aggrieved party, no damages need to be awarded to him. However in order, to record the fact of breach of guilty party, the court may award nominal or token damages, e.g a compensation of rs 10. They would be called nominal damages. 3. Suit for quantum meruit: The term quantum meruit means as much as earned. It implies a payment deserved by a person for the reason of actual work done. When a party has done some work under a contract, and the other party repudiates the contract or somehow the full performance of the contract becomes impossible, than the party who has done the work can claim remuneration for the work under a suit for quantum meruit. 4. Suit for specific performance: The suit for Specific Performance is regulated by the Specific Relief Act, 1963. Specific Performance means the actual carrying out of the contract as agreed. The Court may grant for specific performance where it is just and equitable to do. Specific Performance may be granted under the following grounds. 1. Lack of standard for ascertaining the damages 2. Where compensation is not adequate relief 3. Substantial work done by the plaintiff. The Court cannot grant the remedy of specific performance in the following situations. 1. Where monetary compensation is an adequate relief 2. Where the Court cannot supervise the actual execution of the work 3. Where the Contract is for personal services 4. Where the Contract is not enforceable by either party against the other. 5. Suit for injunction: Injunction is an order of the Court restraining a person from doing a particular act. Where the defendant is doing something which he is promised not to do, then the injured party will get a right to file a suit for injunction

Q.2 Define bailment and state the duties of bailor and bailee? Bailment means a legal relation that arises whenever one person delivers possession personal property to another person under an agreement by which the later is under an obligation to return the property to the former. Meaning: The term bailment is derived from a French word baillor which means to deliver. Definition: According to contract act Sec 148: A bailment is the delivery of goods by one person to another for some purpose upon a contract that they shall when the purpose is accomplished be returned or otherwise disposed of according to the directions of the person delivering them." General definition: A bailment is the delivery of goods by one person to another for some purpose upon the understanding that the goods shall be returned when the purpose is completed. In a contract of bailment delivery is for temporary purpose. Kinds of bailment: Following are the kinds of bailment. (i) Deposit: It is a simple bailment of goods by one person to another person to keep for bailors use. (ii) Commodation:

In this kind of bailment goods lent to a friend graits to be used by him. When the goods are delivered to the bailee for hire. When goods are delivered to another person by way of security of money borrowed. When goods are delivered be carried or something to be done about these for reward payable to the bailee. Parties of the contract of bailment: There are two parties in the contract of bailment. (a) Bilor: The person who parties in the contract of bailment. (b) Bailee: The person to whom the goods are derived is called bailee. Essentials of contract of bailment: Following are essential of contract of bailment. (I) Contract: It is basic essential for bailment. (II) Moveable property: Property must be moveable in contract of bailment. (III) Delivery of goods: The delivery of goods should be made for some purpose under a contract. (IV) Change of possession: In bailment possession is changed from one person to another person. (V) Specific purpose: The goods are delivered for some specific purpose to another person. (VI) Ownership is not changed: The ownership is not change. It remain to bailor. (VII) Parties of contract: There are two parties to the contract of bailment bailor and bailer. (VIII) Returnable: The goods must be returned to the owner of property are disposed according to the direction of bailor. Duties or responsibilities: Following are the duties or responsibilities of bailee. (I) Care of goods: Bailee is bound to take as much as care as the man take care of his own good. (II) Act according to the contract: Bailee is bound to act according to the contract of bailment. (III) Not deny the title: Bailee cannot deny the title of the goods delivered to him. (IV) Return the goods: It is the duty of bailee to return or deliver the goods to bailor or according to his directions. (V) Return at proper time: Bailee should return the goods at proper time. (VI) Return of profit: Baliee should return the increase or profit to bailee. (VII) Proper use of goods: He should use the goods according to the contract of bailment. Rights of bailee: Following are the rights of bailee. (I) Recovery of loss: A bailee is entitled to recover damages if he suffers any loss. (II) Recovery of compensation: A bailee is entitled to receive compensation from the bailor for any loss resulting from the defect of bailor title. (III) Recovery of expenses:

Bailee is entitled to recover all expenses for any purpose of the bailment. (IV) Rights to retain: Bailee has right to retain the goods until debtor claim is paid. (V) Right against third person: He has right to receive the amount of indemnity from bailor for any loss which may sustain by reason that the bailor was not entitled to make the bailment. (VI) Right against third person: If a third person wrongfully deprives the bailee of the use or possession of the good bailed. He can file suit against such person. (VII) Right of remuneration: He is entitled to lawful charge for providing services. Conclusion: To conclusion it can be said that, the person to whom the goods are delivered under the contract of bailment is called bailee. He is bound to act accordingly the direction of bailee. Bailor and bailee have right and duties under the contract act. Q. 3 Explain the rights of an unpaid seller.? An unpaid seller has two-fold rights, viz.,; I. Rights of unpaid seller against the goods, and II. Rights of unpaid seller against the buyer personally. 1. Rights of Unpaid Seller against the Goods. An unpaid seller has the following rights against the goods notwithstanding the fact that the property in the goods has passed to the buyer: 1. Right of lien; 2. Right of stoppage of goods in transit; 3. Right of resale [Sec. 46 (1)]. 1. Right of lien (Sec. 47) Lien is the right to retain possession of goods and refuse to deliver them to the buyer until the price due in respect of them is paid or tendered. An unpaid seller in possession of goods sold is entitled to exercise his lien on the goods in the following cases: (a) Where the goods have been sold without any stipulation as to credit; (b) Where the goods have been sold on credit, but the term of credit has expired: (c) Where the buyer becomes insolvent, even though the period of credit may not have yet expired. In the case of buyers insolvency the lien exists even though goods had been sold on credit and the period of credit has not yet expired. When he goods are sold on credit the presumption is that the buyer shall keep his credit good. If, therefore, before payment the buyer becomes insolvent, the seller is entitled to exercise this right and hold the goods as security for the price. The effect of buyers insolvency is that all stipulations as to credit are put to an end and the seller has a right to say, I will not deliver the goods until I see that I shall get my price paid (Griffiths vs Perry2) The unpaid sellers lien is a possessory lien, i.e., the lien can be exercised as long as the seller remains in possession of the goods. He may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer [Sec. 47(2)]. Transfer of property in the goods or transfer of documents of title to the goods does not affect the exercise of this right, provided the goods remain in the actual possession of the seller. In fact when property has passed to the buyer then only retaining of goods is called technically lien. Where the property in goods has not passed to the buyer and the title is still with the seller then it is, strictly speaking, anomalous to say that the seller has a lien against his own goods. The sellers lien when property has not passed to the buyer is termed as a right of withholding delivery. Accordingly, Section 46(2) provides:

The term insolvent here does not mean a person who has been adjudged insolvent under the Insolvency Law. In Sale of Goods Act a person is said to be insolvent who has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due, whether he has committed an act of insolvency or not [Sec. 2(8)]. But if the buyer has transferred the documents of title to a bonafide purchaser, the sellers lien is defeated (Sec. 53). Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transit where the property has passed to the buyer. This right of lien can be exercised only for the non-payment of the price and not for any other charges, i.e., maintenance or custody charges, which the seller may have to incur for storing the goods in exercise of his lien for the price. This right of lien extends to the whole of the goods in his possession even though part payment for those goods has already been made. In other words the buyer is not entitled to claim delivery of a portion of the goods on payment of a proportionate price. Further, where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien (Sec. 48). Also, the lien can be exercised even though the seller has obtained a decree for the price of the goods [Sec. 49(2)]. When lien is lost? As already observed, lien depends on physical possession of goods. Once the possession is lost, the lien is also lost. Section 49 accordingly provides that the unpaid seller of goods loses his lien thereon in the following cases: (a) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods; or (b) When the buyer or his agent lawfully obtains possession of the goods; or (c) When the seller expressly or impliedly waives his right of lien. An implied waiver takes place when the seller grants fresh term of credit or allows the buyer to accept a bill of exchange payable at a future date or assents to a sub-sale which the buyer may have made. It may be noted that right of lien, if once lost, will not revive if the buyer redelivers the goods to the seller for any particular purpose. Thus, where a refrigerator after being sold was delivered to the buyer and since it was not functioning properly, the buyer delivered back the same to the seller for repairs, it was held that the seller could not exercise his lien over the refrigerator ( Eduljee vs John Bros.). 2. Right of Stoppage of Goods in Transit: Meaning of Right of Stoppage of Goods in Transit: The right of stoppage in transit means the right of stopping the goods while they are in transit, to regain possession and to retain them till the full price is paid. Lord Cairns LJ in case of Schotsmans v. Lances and Yorks Rly. Had made the following observation in this regard: The essential feature of stoppage in transit is that the goods should be in the possession of a middleman or some other person intervening between the vendor who has parted with and the purchaser who has not received them. Conditions under which Right of Stoppage in Transit can be Exercised [Section 50]: The unpaid seller can exercise the right of stoppage in transit only if the following conditions are fulfilled: (i) The seller must have parted with the possession of goods, i.e., the goods must not be in the possession of seller. (ii) The goods must be in the course of transit. (iii) The buyer must have become insolvent. Note: The buyer is said to be insolvent when he has ceased to pay his debts in ordinary course of business, or cannot pay his debts as they become due, whether he has committed an act of insolvency or not. Note: The sellers right of stoppage in transit is based on the principle that one mans goods shall not be applied to the payment of other mans debt. [Lord Reading in Booth Steamship Co Ltd. V. Cargo Fleet Iran Co.]

Duration of Transit [Section 51(1)]: Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee. Note: The carrier must hold the goods in the capacity of an independent person and not in the capacity of an agent for the seller or buyer. If the carrier holds the goods as an agent for the seller, there is no question of exercising the right of stoppage in transit because the seller can exercise his right of lien. If the carrier holds the goods as an agent for the buyer, the seller cannot exercise the right of stoppage in transit because the delivery to the carrier amounts to delivery to buyer.. 3. Right of Resale The right of resale is a very valuable right given to an unpaid seller. In the absence of this right, the unpaid sellers other rights against the goods, namely, lien and stoppage in transit, would not have been of much use because these rights only entitle the unpaid seller to retain the goods until paid by the buyer. If the buyer continues to remain in default, then should the seller be expected to retain the goods indefinitely, especially when the goods are perishable? Obviously, this cannot be the intention of the law. Section 54, therefore, gives to the unpaid seller a limited right to resell the goods in the following cases: (a) Where the goods are of a perishable nature; or (b) Where such a right is expressly reserved in the contract in case the buyer should make a default; Q.4 Write a note on: (A) Auction sales Auction sales are events whereby personal or commercial property and merchandise are sold at the highest price to bidders who place monetary offers on the items. Auction sales can take many forms from selling wholesale merchandise on an online auction site to holding an auction at a particular location to sell off unwanted belongings or settle debts. Some auction sales are conducted remotely by unseen bidders via the computer or telephone while other auctions sales are live and bidders place their bids in person in a fast-paced fashion. Auction sales generally use similar formats, in that property is presented as available for viewing and purchase to others. The property can be anything from personal or household belongings to vehicles, real estate and promised goods or services. Many times, auctions are good ways for buyers to find bargains on the items they most want and make purchases that are far below current market value. (B)Registration of partnership The law relating to a partnership firm is contained in the Indian Partnership Act, 1932. Under Section 58 of the Act, a firm may be registered at any time ( not merely at the time of its formation but subsequently also ) by filing an application with the Registrar of Firms of the area in which any place of business of the firm is situated or proposed to be situated. Application shall contain: name of the firm place or principal place of business names of any other places where the firm carries on business. date on which each partner joined the firm name in full and permanent address of partners. duration of the firm Application shall be signed and verified by all the partners or their duly authorized agents. Application shall be accompanied by prescribed fee as well as the following documents: Prescribed Registration Form for Incorporation of a Company. (Form No. 1 and Specimen of Affidavit)

Certified true copy of the Partnership deed entered into. ownership proof of the principal place of business Name of the firm should not contain any words which may express or imply the approval or patronage of the government except where the government has given its written consent for the use of such words as part of the firms name. Under Section 59 of the Act, when the Registrar of Firms is satisfied that the provisions of section 58 have been duly complied with, he shall record an entry of the statement in the Register of Firms and issue a Certificate of Registration. penalty for furnishing false particulars (Section 70) - Any person who signs any statement, amending statement, notice or intimation under this Chapter containing any particular which he knows to be false or does not believe to be true or containing particulars which he knows to be incomplete or does not believe to be complete, shall be punishable with imprisonment which may extend to three months, or with a fine or with both. Any alterations, subsequent to Registration shall be notified to the registrar:o o

Change in firm name and principal place of business (Section 60) shall require sending of a new application form along with the prescribed fee, duly signed and verified by all the partners. Change relating to opening and closing of branches. (Section 61) When a registered firm discontinues business at any place or begins to carry on business at any place, such place not being its principal place of business, any partner or agent of the firm may send intimation thereof to the Registrar. Change in the name and permanent address of any partner (Section 62) When any partner in a registered firm alters his name or permanent address, an intimation of the alteration may be sent by any partner or agent of the firm to the Registrar. Change in the constitution of the firm and its dissolution [Section 63(1)] when change occurs in the constitution of the firm, any of the new, continuing or the outgoing partner, while when a registered firm is dissolved , any person who was a partner immediately before the dissolution or the agent of any such partner or person specially authorized on his behalf, may give notice of such a change to the Registrar, specifying the date thereof. Under Section 63(2), when a minor who has been admitted to the benefits of partnership in a firm attains majority and elects to become or not to become a partner, he or his agent specially authorized in this behalf, may give notice to the Registrar that he has or has not become a partner. Accordingly, the various forms prescribed under the Indian Partnership Act, 1932, for the alterations in the registered partnership firm are:a. Form No. II :- For change of principle place of business & change in the name of the firm. b. Form No. III :- For change of the other then principle place of business. c. Form No. IV :- For change of name of the partners & permanent address of the partners. d. Form No. V :- For change of constitution of forms & addition or retirement of partner. e. Form No.VI :- For dissolution of the firm f. Form No. VII :- For minor partner attains the age of majority.

Partnership Act, 1932 does not provide for compulsory registration of firms. It is optional for partners to set the firm registered and there are no penalties for non-registration. However, Section 69 of the Act which deals with the effects of non-registration denies certain rights to an unregistered firm. Under the Act :o

A partner of an unregistered firm cannot file a suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm. No suits to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm. An unregistered firm or any of its partners cannot claim a set off (i.e. mutual adjustment of debts owned by the disputant parties to one another) or other proceedings in a dispute with a third party. Hence, every firm finds it advisable to get itself registered sooner or later.

However, non-registration of a Partnership firm shall not affect:o o

The rights of third parties to sue the firm and/or its partners. The firms or partners in the firms which have no place of business in the territories to which this Act extends, or whose places of business in the said territories are situated in areas to which the act does not apply. any suit or claim or set-off not exceeding one hundred rupees in value which, in the Presidencytowns, is not of a kind specified in Section 19 of the Presidency Small Cause Courts Act, 1882 (15 of 1882), or outside the Presidency- towns, is not of a kind specified in the Second Schedule to the Provincial small Cause Courts Act, 1887 (9 of 1887), to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim. the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realize the property of a dissolved firm. the powers of an official assignee, receiver or Court under the Presidency-towns Insolvency Act, 1909 (3 of 1909), or the Provincial Insolvency Act, 1920 (5 of 1920), to realize the property of an insolvent partner.

Rectification of mistakes (Section 64 of the Act)

o

The Registrar shall have power at all times to rectify any mistake in order to bring the entry in the Register of Firms relating to any firm into conformity with the documents relating to that firm filed under this Act. On application made by all the parties who have signed any document relating to a firm filed under this Act, the Registrar may rectify any mistake in such document or in the record or note thereof made in the Register of Firms.

Inspection of Register and filed documents (Section 66 of the Act:) The Register of Firms shall be open to inspection by any person on payment of such fee as may be prescribed.

All statements, notices and intimations filed under this Act shall be open to inspection, subject to such conditions and on payment of such fee as may be prescribed.

Grant of copies (Section 67 of the Act) The Registrar shall on application furnish to any person, an payment of such fee as may be prescribed, a copy, certified under his hand, of any entry or portion thereof in the Register of Firms. ( C) Quasi Contract A quasi-contract (or implied-in-law contract) is a fictional contract created by courts for equitable, not contractual, purposes. A quasi-contract is not an actual contract, but is a legal substitute for formed to impose equity between two parties. The concept of a quasi contract is that of a contract that should have been formed, even though in actuality it was not. It is used when a court finds it appropriate to create an obligation upon a non-contracting party to avoid injustice and to ensure fairness. It is invoked in circumstances of unjust enrichment,[4] and is connected with the concept of restitution. Generally the existence of an actual or implied-in-fact contract is required for the defendant to be liable for services rendered, and a person who provides a service uninvited is an intermeddler who is not entitled to compensation. "Would-be plaintiffs cannot deliver unordered goods or services and demand payment for the benefit....A corollary is that one who does have an enforceable contract is bound by the contract's terms: subject to a few controversial exceptions, she cannot sue for restitution of the value of benefits conferred..." However, in many jurisdictions under certain circumstances plaintiffs may be entitled to restitution under quasi-contract (as in the example of Oklahoma below). Quasi-contracts are defined to be "the lawful and purely voluntary acts of a man, from which there results any obligation whatever to a third person, and sometime a reciprocal obligation between the parties." (D) When the condition is to be treated as a warranty: Answer:- (1) In England or Ireland (a)Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition, or may elect to treat the breach of such condition as a breach of warranty, and not as a ground for treating -the contract as repudiated: (b)Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated, depends "in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract: (c)Where a contract of sale is not severable, and the buyer has accepted the goods, or part thereof, or where the contract is for specific goods, the property in which has passed to the buyer, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there be a term of the contract, express or implied, to that effect. (2)In Scotland, failure by the seller to perform any material part of a contract of sale is a breach of contract, which entitles the buyer either within a reasonable time after delivery to reject the goods and treat the contract as repudiated, or to retain the goods and treat the failure to perform such material part as a breach which may give rise to a claim for compensation or damages. (3)Nothing in this section shall affect the case of any condition or warranty, fulfilment of which is excused by law by reason of impossibility or otherwise. (E) Performance of the Contract of Sale It is the duty of the seller and buyer that the contract is performed. The duty of the sellers is to deliver the goods

and that of the buyer to accept the goods and pay for them in accordance with the contract of sale. Unless otherwise agreed, payment of the price and the delivery of the goods and concurrent conditions, i.e., they both take place at the same time as in a cash sale over a shop counter., Delivery (Sections 33-39) Delivery is the voluntary transfer of possession from one person to another. Delivery may be actual, constructive or symbolic. Actual or physical delivery takes place where the goods are handed over by the seller to the buyer or his agent authorised to take possession of the goods. Constructive delivery takes place when the person in possession of the goods acknowledges that he holds the goods on behalf of and at the disposal of the buyer. For example, where the seller, after having sold the goods,may hold them as bailee for the buyer, there is constructive delivery. Symbolic delivery is made by indicating or giving a symbol. Here the goods themselves are not delivered. but the "means of obtaining possession" of goods is delivered, e.g, by delivering the key of the warehouse where the goods are stored, bill of lading which will entitle the holder to receive the goods on the arrival of the ship. Rules as to delivery The following rules apply regarding delivery of goods: (a) Delivery should have the effect of putting the buyer in possession. (b) The seller must deliver the goods according to the contract. (c) The seller is to deliver the goods when the buyer applies for delivery; it is the duty of the buyer to claim delivery. (d) Where the goods at the time of the sale are in the possession of a third person, there will be delivery only when that person acknowledges to the buyer that he holds the goods on his. behalf. . (e) The seller should tender delivery so that the buyer ca~ take the goods. It is no duty of the seller to send or carry the goods to the buyer unless the contract so provides. But the goods must be in a deliverable state at the time of delivery or tender of delivery. If by the contract the seller is bound to send the goods to the buyer, but no time is fixed, the seller is bound to send them within a reas9nable time. (f) The place of delivery is usually stated in the contract. Where it is so stated, the goods must be delivered at the specified place during working hours on a working day. Where no place is mentioned, the goods are to be delivered at a place at which they happen to be at the time of the contract. of sale and if not then in existence they are to be delivered at the price they are produced. (g) The seller has to bear the cost of delivery u~less the contract otherwise provides. While the cost of obtaining delivery is said to be of the buyer, the cost of the putting the goods into deliverable state must be borne by theeseller. In other words. in the absence of an agreement to the contrary, the expenses of and incidental to making delivery of the goods must be borne by the seller, the expenses of and incidental to receiving delivery must be borne by the buyer. (h) If the goods are to be delivered at a place other than where they are, the risk of deterioration in transit will, unless otherwise agreed, be borne by the buyer. (i) Unless otherwise agreed, the buyer is not bound to accept delivery in Installments. (F) Lien contract The right to retain the lawful possession of the property of another until the owner fulfills a legal duty to the person holding the property, such as the payment of lawful charges for work done on the property. A mortgage is a common lien.

In its widest meaning this term includes every case in which real or personal property is charged with the payment of any debt or duty; every such charge being denominated a lien on the property. In a more limited sense it is defined to be a right of detaining the property of another until some claim be satisfied. The right of lien generally arises by operation of law, but in some cases it is created by express contract. There are two kinds of lien; particular and general. When a person claims a right to retain property, in respect of money or labor expended on such particular property, this is a particular lien. Liens may arise in three ways: 1. By express contract; 2. From implied contract, as from general or particular usage of trade; 3. By legal relation between the parties, which may be created in three ways: 1. When the law casts an obligation on a party to do a particular act and in return for which, to secure him payment, it gives him such lien; common carriers and inn keepers are among this number; 2. When goods are delivered to a tradesman or any other, to expend his labor upon, he is entitled to detain those goods until he is remunerated for the labor which he so expends; 3. When goods have been saved from the perils of the sea, the salvor may detain them until his claim for salvage is satisfied; but in no other case has the finder of goods a lien. General liens arise in three ways: 1. By the agreement of the parties; 2. By the general usage of trade; 3. By particular usage of trade. How Liens May Be Acquired. To create a valid lien, it is essential: 1. That the party to whom or by whom it is acquired should have the absolute property or ownership of the thing or, at least, a right to vest it; 2. That the party claiming the lien should have an actual or constructive, possession, with the assent of the party against whom the claim is made; 3. That the lien should arise upon an agreement, express or implied and not be for a limited or specific purpose inconsistent with the express terms or the clear, intent of the contract; e.g., when goods are deposited to be delivered to a third person or to be transported to another place. The Debts Or Claims To Which Liens Properly Attach. 1. In general, liens properly attach on liquidated demands and not on those which sound only in damages; though by an express contract they may attach even in such a case as where the goods are to be held as an indemnity against a future contingent claim or damages. 2. The claim for which the lien is asserted, must he due to the party claiming it in his own right and not merely as agent of a third person. It must be a debt or demand due from the very person for whose benefit the party is acting and not from a third person, although the goods may be claimed through him. How A Lien May Be Lost. 1. It may be waived or lost by any act or agreement between the parties, by which it is surrendered or becomes inaplicable. 2. It may also be lost by voluntarily parting with the possession of the goods. But to this rule there are some exceptions; e.g., when a factor by lawful authority sells the goods of his principal and parts with the possession under the sale he is not, by this act, deemed to lose his lien, but it attaches to the proceeds of the sale in the hands of the vendee. The Effect Of Liens. In general, the right of the holder of the lien is confined to the mere right of retainer. But when the creditor has made advances on the goods of a factor, he is generally invested with the right to sell. In some cases where the lien would not confer power to sell, a court of equity would decree it. And courts of admiralty will deCree a sale to satisfy maritime liens.

Judgments rendered in courts of record are generally liens on the real estate of the defendants or parties against whom such judgments are given. Liens are also divided into legal and equitable. The former are those which may be enforced in a court of law; the latter are valid only in a court of equity. The lien which the vendor of real estate has on the estate sold for the purchase money remaining unpaid, is a familiar example of an equitable lien. Lien Of Mechanics And Material Men. By virtue of express statutes in most states, mechanics and material men or persons who furnish materials for the erection of houses or other buildings, are entitled to a lien or preference in the payment of debts out of the houses and buildings so erected and to the land, to a greater or lessor extent, on which they are erected. Q.5 What is meant by discharge of contract? Discuss in brief the modes in which a contract may be discharged. Answer: Termination or Discharge of Contract:When we say that contract has been discharged or terminated, it means that rights and liabilities created by law under contract has been finished. METHODS TO DISCHARGE THE CONTRACT 1. Discharge by Performance:When all the duties required in the contract are performed by all the parties, the contract comes to an end. It is called discharge by performance. Example: - Mr. Nick agree to sell a piece of land to Mr. Ram for Rs. One lac. Mr. Nick delivers the plot and Mr. Ram makes the payment. 2. Discharge By Breach of Contract:When one party violates the conditions of lawful contract it is called breach of contract. When there is a breach by one party the other party gets a right not to perform his obligations it may also take action against the other party who has failed to perform. Example: - "A" agrees to deliver one cycle to "B" on Sunday. He does not deliver the cycle on Sunday. There is breach of contract. 3. Contract Declared Void:If any contract is declared void by law then the parties involved to such contract are discharged from the liabilities. 4. Discharge By Lapse of Time:Contract also discharges by lapse of time. Sometimes contract is not performed within prescribed period. In that case injured party should bring suit within three years as mentioned in the limitation act for the recovery of debt. 5. Discharge Due to Impossibility:If the performance of contract is not possible then contract is void and contracting parties are discharged from their obligations.

Example: - Suppose Mr. Carry and Miss. Niky contract to marry each other, on 10th March, 2011. Miss Niky dies before the 10th March. The contract becomes void because now marriage is impossible. 6. Discharge By Insolvency:If court declares insolvent to any person, he gets free from debts payable to others. Example :- Mr. Heris promises to sell his factory to Mr. Frank for Rs. 70 lac. Before the performance of the contract Mr. Heris is declared insolvent by court. The contract is discharged. 7. Discharge by Alteration:When the alteration is made in the written contract without mutual consent it becomes unauthorized. Such type of alteration discharges the contract by law. 8. Discharge by Merger:When you merge the smaller contract in the larger contract it is called merger. The smaller contract is discharged by law automatically. Example :- When ad-hock doctor is made permanent doctor the contract of ad-hock doctor-ship is discharged by merger. 9. Discharge By Consent :A contract may be terminated with the mutual consent of the contracting parties. 10. Discharge By Remission :Remission means pardoning of offense or cancelling of the whole or any part of some obligation. Example :- In the case of life sentence remission is provided to prisoner for his good behavior in prisoner 11. Discharge By Waiver :It means to relinquish the claim or right. Sometimes promisee himself surrenders his rights to the contract and releases the promisor from his obligations. Example :- Mr. Maddy promises to make a shirt for Mr. Salu and Mr. Salu afterward forbids him to do so. Mr. Maddy agrees. The contract is discharged by waiver. 12. Discharge By Novation :If the parties substitute a new contract it is called novation. In this case contract may be discharged by such as an alteration in its condition as substitutes a new contract, for the old one. 13. Discharge By Recession :It means remedy for inducing a contract which is rejected one or all the terms of the contract are cancelled. It discharges to parties from obligations of the original contract. Example :- Mr. Richard promises to deliver a house to Mr. Singh on Friday. Before the Friday both agree that the contract will not be performed. The parties have cancelled the contract.

Q.6 What is partnership deed? What are the essential elements of a partnership deed? Discuss the rules which are applicable in the absence of a partnership deed. Section 4 of the Partnership Act defines a partnership as follows: Partnership is the relati on between persons who have agreed to share the profits of a business carried by all or any of them acting for all. A partnership, as defined in the Act, must have three essential elements: 1. There must be an agreement entered into by two or more persons. 2. The agreement must be to share the profits of a business. 3. The business must be carried on by all or any of them acting for all. Essential Elements of A Partnership 1. Voluntary Agreement The first element shows the voluntary contractual nature of partnership. A partnership can only arise as a result of an agreement, express or implied, between two or more persons. Where there is no agreement there is no partnership. But a partnership cannot be formed with more than ten persons in banking and twenty persons in other types of business. A partnership with persons exceeding the above limits must be registered under a Companies Act. Partnership is not created by status: Section 5 states that, The relation of partnership arises from contract and not from status. In particular the members of a Hindu undivided family carrying on a family business, as such, are not partners in such business. Example: The sole proprietor of a business dies leaving a number of heirs. The heirs inherit the stock in trade of the business including the goodwill of the business but do not become partners until there in an agreement, express or implied, to carry on the business as partners. 2 Sharing of Profits of a Business The second element states the motive underlying the information of a partnership. It also lays down that the existence of a business is essential to a partnership. Business includes any trade, occupation or profession. If two or more persons join together to form a music club it is not a partnership because there is not business in this case. But if two or more persons join together to give musical performances to the public with a view to earning profit, there is a business and a partnership is formed. 3. Mutual Agency The third element is most important features of partnership. It states that persons carrying on business in partnership are agents as well as principals. The business of a firm is carried on by all or by any one or more of them on behalf of all. Every partner has the authority to act on behalf of all and can, by his actions, bind all the partner of the firm, each partner is the agent of the others in all matters connected with the business of the partnership. The law of partnership has therefore been called a branch of the law of agency.

Rules which are applicable in the absence of partnership: 1. # All partners will divide profit and loss equally. 2. # If any partner gave loan to firm, partnership firm will give 6% interest on that loan.

3. # No salary is given to any partner for participation in the work of partnership firm. 4. # No interest will be given on the capital of partners. 5. # Partnership firm will not take interest on his given amount in the form of drawing to any partner. Q.7 What are the rights of surety against the creditor, principal debtor and co sureties? Answer:-Rights of surety are discussed under the following three heads : (1) Against the principal debtor. (2) Against the creditor, and (3) Against the co-sureties. Rights of the surety against the principal debtor The surety can exercise the following two rights against the principal debtor 1. Right of subrogation [Section 140] Soon after making a payment and discharging the liability of the principal debtor, the surety is clothed with all the rights of the creditor which he can himself exercise against the principal debtor. This right of the surety is called the right of subrogation. The surety steps into the shoes of the creditor. The surety who pays off the debt is entitled to all the remedies which the creditor could have enforced not merely against the principal debtor but also against all persons claiming under him. Thus, if the creditor has the right to stop goods in transit or has a sellers lien, the surety, on payment of all he is liable for, would be entitled to exercise these rights, but it is only on payment of the debt, that the surety can claim to walk into the shoes of the creditor. Example : A mortgages a house to B. C offers himself as a surety for B. A fails to pay. B recovered the amount from C. C can get into the shoes of the creditor B and enforce the mortgage itself against A.

2. Right to indemnity [Section 141] As between the surety and the principal debtor there is an implied promise to indemnify the surety. Under section 145 the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee. The surety can recover from the debtor not only the actual amount he has paid to the creditor, but also interest thereon. The reason is that the surety is entitled to full indemnification. Examples : (a) B is indebted to C and A is surety for the debt. C demands payment from A and on his refusal sues him for the amount. A defends the suit having reasonable grounds for doing so, but he is compelled to pay the amount of the debt with costs. He can recover from B the amount paid by him for costs, as well as the principal debt. (b) A guarantees to C, to the extent of Rs. 2000, payment for rice to be supplied by C to B. C supplied to B rice to a less amount than Rs. 2000 but obtains from A payment of the sum of Rs.2000 in respect of the rice supplied. A cannot recover from B, more than the price of the rice actually supplied. The actual payment made by the surety entitles him to demand indemnity from the principal debtor. But a promissory note i.e. a promise to pay certain sum at a future date, given by the surety will not entitle him to claim indemnification from the principal debtor Right of a surety against the co-surety (Sec 146):

Where two or more persons are co-sureties for the same debt or duty, either jointly or severally and whether under the same or different contracts, and whether with or without the knowledge of each other, the co-sureties, are liable, as between themselves to pay each an equal share of the whole debt or of that part of it which remains unpaid by the principal debtor. Illustrations: 1. A, B and C are sureties to D for the sum of Rs 3,000 lent to E. E makes default in payment. A, B and C are liable between themselves to pay Rs 1,000 each. 2. A, B, and C are sureties to D for the sum of Rs 1,000 lent to E, and there is a contract between A, B, and C that A is to be responsible to the extent of one quarter, B to the extent of one quarter and C to the extent of onehalf. E makes default in payment. As between the sureties, A is liable to pay Rs 250, B Rs 250, and C Rs 500. The co-sureties are entitled to share in the rights which any one of them has obtained from the principal, for example, share in the right to benefit of creditors securities or indemnity. Claim of one co-surety against other co-sureties arises only when i) he has paid more than his share of the debt to the principal debtor; or ii) suit is decreed for full amount against one of co-sureties, and any payment by him will entitle him to contribution from other co-sureties. Co-sureties bound in different sums: Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit (Sec 147) Rights of Surety against the Creditor 1. Ask the creditor to sue the debtor: On the guaranteed debt having fallen due for payment, the surety may ask the creditor to sue the debtor to collect the due amount, but he cannot compel him to do so. But he must then indemnify the creditor against any risk or delay arising as a consequence. 2. Require the creditor to terminate the debtors services: In the case of the fidelity guarantee, if the principal debtors dishonesty comes to light, the surety can require the creditor to terminate the principal debtors services so as to save him from further loss. 3. Claim to any set off: The surety on being called upon to pay, can claim any set-off to which the principal debtor is entitled from the creditor. 4. Access to the securities of the debtor with the creditor: The surety can, after paying the guaranteed debt, compel the creditor to assign to him all the securities taken by the creditor either before or at the time of the contract of guarantee, whether the surety was aware of them or not. 5. Right to Share Reduction: On debtors insolvency the surety is entitled to claim the proportionate reduction of his liability by the amount of dividend claimed by the creditor (from the Official Receiver of the Principal debtor). Similarly, debtors debt obligation is scaled down by subsequent legislation; the creditor is entitled to claim proportionate reduction in his liability. Q.8 What are negotiable instruments said to be dishonored? To whom and how should notice of dishonor be served? In what circumstances is notice of dishonor unnecessary? Answer: - "Negotiable Instruments means a promissory note, bill of exchange or cheque payable either to order or to bearer. Negotiable Instruments passes by mere delivery, if it is payable to bearer and by endorsement and delivery, if it is payable to order. The transferee getting the instrument for consideration and in good faith is not affected by any defect of title of his transferor or any prior party.

Presumptions of consideration Sections 118 and 119 of the Negotiable Instruments Act provide that until the contrary is proved, the following presumptions shall be made in respect of negotiable instruments: (a) Of consideration - That every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, endorsed, negotiated or transferred was accepted, endorsed, negotiated or transferred for consideration. If the execution of promissory note is admitted, the burden to prove that promissory notes were not supported by consideration shifts on defendants. (b) As to date - That every negotiable instrument bearing a date was made or drawn on such date. (c) As to time of acceptance - That every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity. (d) As to time of transfer - That every transfer of a negotiable instrument was made before its maturity. (e) As to order of endorsements - That the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon. (f) As to stamps - That a lost promissory note, bill of exchange or cheque was duly stamped. (g) That holder is a holder in due course - That the holder of a negotiable instrument is a holder in due course, provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for an unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him. (h) Presumption on proof of protest - In a suit upon an instrument, which has been dishonored, the court shall on proof of the protest, presume the fact of dishonor, unless and until such fact is disproved. Cheque A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. The essential elements of a cheque are as under i. ii. iii. iv. v. Drawn on a specified banker - A cheque is drawn on a specified banker. Always payable on demand - The cheque is payable on demand without any day of grace. No acceptance required - The cheque does not require acceptance. Drawn on balance - The cheques are presumed to be drawn on the balance in the hands of the banker. However, the drawer can draw a cheque on credit, if the banker has allowed credit to the drawer. Notice of dishonor not required - If the cheque is dishonored, no notice of dishonor is required. However to initiate prosecution against the drawer for dishonor of cheque for insufficiency of funds, the payee or the holder in due course of the cheque should make a demand for the payment of the said amount of money by giving a notice in writing to the drawer of the cheque within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid. However, prosecution can be initiated against the drawer of the cheque, if he has drawn a cheque for the discharging in whole or in part of any debt or other liability. Revocable mandate - A cheque is a revocable mandate and the drawer may countermand the payment.

vi.

vii.

viii. ix.

Drawer's liability not discharged by non-payment - If the payee does not present the cheque within the stipulated time, the drawer is not discharged from liability, unless drawer has sustained damages by non-presentation of the cheque. May be crossed or bearer - A cheque may be crossed or bearer. Presentment for payment - The promissory notes, bills of exchange and cheques must be presented for payment to the maker, acceptor or drawee thereof respectively by or on behalf of the holder. In default of such presentment, the other parties thereto are not liable thereon to such holder.

Dishonor of negotiable instrument Dishonor by non-payment - A promissory note, bill of exchange, cheque is said to be dishonored by nonpayment, when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same. When the presentation of an instrument for payment is excused and the instrument having becoming overdue remains unpaid the instrument is presumed to be dishonored for nonpayment. Notice of dishonor - When a promissory note, bill of exchange or cheque is dishonored by non-acceptance or non-payment, the holder thereof, or some party there to who remains liable thereon, must give notice that the instrument has been so dishonored to all other parties whom the holder seeks to make severally liable thereon, and to some one of several parties, whom he seeks to make jointly liable thereon. The notice of dishonor is served to inform the party liable on the instrument about the liability which accrues as a result of the dishonor of the instrument. The service of notice is necessary, whatever the nature of the instrument may be. If the holder does not serve the notice of dishonor within a reasonable time from the date of dishonor all the parties who are liable on the instrument and entitled to notice are discharged. (i) Person who can give notice -The notice of dishonor can be given by the holder, or any of the parties liable on the instrument. The notice may be given by an endorsee or an agent but a stranger cannot give notice. Any party receiving notice of dishonor must in order to render any prior party liable to himself, give notice of dishonor to such party within a reasonable time, unless such party otherwise receives due notice. If an instrument is deposited with an agent for presentation, the agent is entitled for the same time to give notice to his principal as if he were the holder giving notice of dishonor and the principal is entitled to a further like period to give notice of dishonor. (ii) To whom notice of dishonor should be given - Notice of dishonor may be given to all other parties whom the holder seeks to make severally liable and to some one of several parties whom he seeks to make jointly liable thereon or to duly authorised agent of the person to whom it is required to be given, or where he has died, to his legal representatives or where he has been declared an insolvent, to his assignee. If there are two or more parties jointly liable as drawers or endorsers, notice to one of them will make all of them liable. No notice is required to be given to the maker of the dishonored promissory note, or the drawee or acceptor of the dishonored bill of exchange or cheque. (iii) Form of notice of dishonor - The notice of dishonor may be in any form, but it must inform the party to whom it is given, either in express terms or by reasonable intendment that the instrument has been dishonored and in what way and that he will be held liable thereon. The notice should specifically state that the instrument

was presented for payment or acceptance and the instrument has been dishonored. (iv) Notice how given - The notice must be given within a reasonable time after dishonor, at the place of business or (in case such party has no place of business) at the residence of the party for whom it is intended. If the notice is duly directed and sent by post and miscarries, such miscarriage does not render the notice invalid. Issuing Legal Notice - based on scanned documents and history of each individual case and instructions received from our clients through ONLINE, the team advices our clients in drafting the legal notice and sending across the same which not only saves money, time and energy but action is taken on time, without attracting further delay. Q. 9 All the things are bill of exchange whereas all bills of exchange are not cheques are not cheques. Discuss this statement. Answer:- The bill of exchange Unlike other legal deeds, the bill of exchange, which is a credit title, is characterized by the observance of strict forms, as briefly presented below. Via the Technical Norms No. 5/2008 NBR has introduced, as of September 1st 2008, a new standard form for usage in the relationships with commercial banks. Any lack of clarity in the bill of exchange may not be solved by reference to other legal deeds, by way of consequence being susceptible to render such null. a) The name bill of exchange This name must be expressly mentioned in the title and, in any case, it must be placed above the signature of the drawer. b) The order of payment for a determined amount The order of payment must be clear, exact and unconditioned. Any conditions, limitations or counterprestation added to the order of payment may lead to the nullity of the bill of exchange. The value of the amount to be paid must be clearly specified, not allowing the insertion of criteria that may serve to the subsequent determination of the amount. c) The name of the drawee and of the beneficiary It is recommended for the name of the drawee or of the beneficiary natural/legal person be specified as in the identity card, or, as the case may be, as registered with the Trade Registry, otherwise the banks could deny the entrance of the bill of exchange in the banking compensation circuit. d) Specification of the maturity date The maturity date must be unique. In case the maturity date is not specified on the bill of exchange, it is reputed to having been issued at sight. Furthermore, the bill of exchange may have the maturity date on a certain period of time since the sight, on a certain period of time since the issue or, most frequently, on a calendar day indicated as such. e) Specification of the place of payment In case the place of the payment is not specified, it is considered as place of payment the domicile of the drawee. As a principle, the place of payment will be the bank where the drawee has open accounts. f) Date and place of issue of the bill of exchange The date of issue must be entirely and certainly specified, the absence hereof could lead to the nullity of the bill of exchange. In case the bill of exchange does not specify the place of issue, it is considered to having been issued in the place indicated near the name of the drawer. In case this mention is also absent, the bill of exchange will be null. g) Signature of the drawer

This is the most important mention of the bill of exchange. A bill of exchange bearing the signature of the drawer only may be considered valid as a signed blank bill of exchange, case in which the right to fill in the missing mandatory mentions falls upon the owner of the bill of exchange. The signature must be autograph and personally executed by the drawer or the representative hereof. It must be explicit, including the first and last name of the individual assuming the obligation, or, if the case may be, the name of the legal person and the first and last name of the legal representative. In case the drawer is a legal entity, NBR Norm No.7/2008 expressly provides that the authorized signature of the legal representative suffices, the stamp not being necessary. The promissory note The promissory note, being essentially a simplified bill of exchange, therefore a credit title also, must follow in principle the same formal requests, but in accordance with the characteristics hereof. As in the case of the bill of exchange, NBR has established a new standard form for the promissory note as of September 1st 2008. In order for the promissory note to be valid, it must include the following: (i) the name promissory note must be included in the title; (ii) unconditioned promise from the issuer to pay a determined amount; (iii) specification of the maturity date; (iv) specification of the place where the payment must be made; (v) specification of the person the payment must be made to; (vi) signature of the issuer. The cheque Unlike the bill of exchange and the promissory note, the cheque is not a credit title, but a simple payment instrument. However, most of the principles governing the regime of the bill of exchange and of the promissory note, especially regarding the issuance forms, are also applicable for cheques.345 Bill of exchange, Promissory Note and Cheque The conditions requested for the validity of the cheque are as follows: (i) the drawee may only be a banking company, except for the situation when the cheque is drawn and payable abroad, when the drawee may be a person other than a banking company; (ii) the drawer may issue the cheque only if having a cash deposit with the drawee set up prior to the issue of the cheque and of a value at least equal to the cheque; (iii) the drawer should have signed a convention with the drawee, prior to the issuance of the cheque, where the latter allows to pay the cheque; (iv) the name cheque must be included in the title and expressed in the language used to write the title; (v) the cheque must include the unconditioned order of payment of a certain amount of money; (vi) the cheque must specify the name of the drawee; (vii) the cheque must specify the place where the payment will be made; (viii) the cheque must specify the issuance date and place; (ix) the cheque must include the signature of the drawer. It should be mentioned that, unlike the bill of exchange, the cheque does not include two of the mandatory mentions hereof, namely the specification in writing of the beneficiarys first and last name and the maturity date of the payment obligation. Furthermore, in the absence of the mention regarding the place of the payment or the issuance place of the cheque, the law offers certain remedies in view of maintaining the validity of the title. Transfer of the rights resulting from the bill of exchange The endorsement

The endorsement represents the typical way of transmitting rights resulting from the bill of exchange. It must be unconditioned and referring to the whole amount. Until recently the endorsement was usually written on the back of the bill of exchange or on attachment hereof, named extension or allonge. Via NBR Norm No. 6/2008 and Norm No.7/2008 implementing a new standard form for bills of exchange, promissory notes and cheques, the endorsement is written on the front of the bills of exchange, promissory notes or cheques. It is valid even if the beneficiary (endorsee) is not specified on the title, provided that there is the signature of the transferor (endorser). The endorser acquires the right to cash the amount provided in the bill of exchange, but unlike the debt assignment, its right is autonomous, meaning it may not be opposed by the debtor in the bill of exchange with the exceptions resulting from the relations hereof with the drawer or with other previous holders of the bill of exchange, except for the case when the endorser has knowingly acted for the debtors loss. There are certain endorsement options by which the exchange rights are only partly transferred. Thus the endorsement may be transferred with a for proxy clause or with an equivalent clause, in which case the endorsee will represent the endorser in exercising the exchange rights. In case the bill of exchange is intended for use as a pledge, the endorsement may be done with the mention value in pledge or another equivalent. The bill of exchange may also be endorsed after the maturity date. In case the endorsement takes place following the protest for failure to pay or at the expiry of such term, it will be reputed to have the effects of a debt assignment. As a principle, the endorsee will be liable to all subsequent endorsee in case the acceptant drawee (the issuer, in the case of the promissory note) does not fulfill its obligation. Such a consequence may be removed by inserting the no appeal clause or of another equivalent in the endorsement. The rules applicable to the endorsement of the bill of exchange are also applicable to the endorsement of the promissory note. Also by endorsement may be transmitted the stipulated cheque payable to a specified person, if the cheque includes the express clause on demand or in the cumulative absence of this clause and of the contrary express clause not on demand. Debt assignment Usually, in accordance with the Civil Code, the rights regarding the payment of an amount are transferred by debt assignment. The bill of exchange or, if the case may be, the promissory note may be usually transferred by debt assignment when the endorsement is not possible, respectively in the case of a title issued with the not on demand clause or when the transfer takes place after the conclusion of the protest for failure to pay or after the expiry of such provided term. Unlike the endorsement, the debt assignment may also take place by a deed separated from the bill of exchange. The transfer of the bill of exchange by debt assignment presents advantages for the acceptant drawee, because in this case he will be able to oppose the holder all the defenses the latter could raise towards any of the successive holders of the bill of exchange, which, in principle, is not possible in case of endorsement. The debt assignment provided by the Civil Code is also applicable in the case of transferring the cheque including the name of the beneficiary, issued with the express clause not on demand or an equivalent clause.347 Remittance The cheque stipulated with the mention bearer or with the mention or bearer, as well as the cheque that does not mention the beneficiary may be transferred by simple remittance of the title. Acceptance

The acceptance is the deed by which the drawee to whom the drawers order of payment has been addressed assumes the obligation to pay in conditions established by the bill of exchange. The acceptance usually takes place by placing the handwritten signature of the acceptant on the front of the title and not via a separate deed. By acceptance, the drawee becomes main debtor with the bill of exchange. The acceptance must always be expressed with the word accepted or equivalent idioms such as: I will pay it will be executed. In case such specification is missing, the signature may not be taken into consideration. The acceptance of the bill of exchange may be done by another person then the drawee that can be specified by the drawer or that may intervene at its own initiative. In case the bill of exchange is not accepted, the bearer of the bill of exchange will see that a protest of nonacceptance is performed. In the case of the promissory note the acceptance is not necessary, since the issuer has the legal position of the drawee for the bill of exchange. The cheque, being payable at sight, that is upon the presentation of the title, is not subject to the procedure of acceptance from the drawee. As a consequence, the drawee does not hold the quality of debtor towards the holder of the cheque, the liability for failing to pay the cheque falling on the drawer. The guarantee The guarantee is the specific method by which an individual, foreign to the bill of exchange or, if the case, to the promissory note, or who is a part of the signatories thereof, named guarantor, guarantees the fulfillment of the payment obligation provided by the bill of exchange. In most cases the guarantor is a bank. The guarantee may be given for the drawee, drawer or any of the successive holders of the bill of exchange, or for the issuer, in the case of the promissory note, and the guarantor will be liable jointly and similarly with the individual it had undertaken to guarantee. The guarantee is given on the bill of exchange or the promissory notes and is expressed by the words for guarantee or others equivalent. The simple signature on the front of the bill of exchange, with no other mention will be interpreted as a given guarantee for the drawer (for the issuer, in the case of the promissory note).As a principle, the guarantee procedure is applicable to the cheque in a similar way, with the difference that a guarantee from the drawee is not admitted. Doing Business Romania Presentation on payment Term The bill of exchange or the promissory note with the maturity date at sight may be presented for payment any time within a year as of issuance. In case the bill of exchange is due on a fixed day or within a certain interval since the date of the issuance at sight, it must be presented for payment in the maturity day or in one of the two following working days. The cheque is payable at sight, any contrary provision being considered unwritten. As a payment instrument, the cheque benefits of shorter terms for the presentation on payment of the cheque issued and payable in Romania: 15 days. In case the cheque payable in Romania is issued in another country, the terms are obviously longer: 30 days for European countries, respectively 70 days for non-European countries. Procedure As a principle, the presentation on payment occurs in the place mentioned in the bill of exchange, or, should such a mention lack, at the domicile of the drawee, at the domicile of the acceptant or at the domicile of the person indicated if need be. In case the payment of the bill of exchange is to take place by bank account, about one week before the maturity date the holder will register the bill of exchange at the bank where holding an account, together with a document named encashing slip. Subsequently, the bill of exchange enters the banking circuit, being presented for payment at the bank where the acceptant drawee has an open account.

In case the bill of exchange is entirely paid, it will be delivered to the drawee. In the case of a partial payment, mention hereof may be made on the title, but it will be refunded to the creditor with the bill of exchange. The procedure for cheque payment is similar. In order to execute a valid payment, the drawee must verify the fulfillment of all formal conditions of the cheque, as well as, in the case of the cheque that may be endorsed, the regularity of the endorsers succession. The payment of the cheque may be entire or partial, in this last case, the drawee having the possibility to put on the document a mention for partial payment, also issuing the invoice. Pursuant to the recent amendments brought to Law No. 58/1934 and Law No. 59/1934, bills of exchange, promissory notes and cheques may also be electronically processed according to the operation called truncation (in Romanian: Trunchiere). If truncation cannot be performed, the cheques, bills of exchange and promissory notes may be processed on an inter-banking basis, pursuant to the structure of the central clearing house located in Bucharest or by submission of the original copy for collection, directly to the 349Bill of exchange, Promissory Note and Chequedrawee credit institution or to the beneficiary credit institution, as the case may be, according to the procedures set forth in the agreements concluded between the relevant credit institutions. In case the processing via truncation is not possible due to the paper not having a good material state or the mentions thereof not being legible, the payment will be done via manual processing, i.e. by submitting the original of the bill of exchange, promissory note or cheque at the drawee credit institution. The effects of failing to present on payment In case the bill of exchange is not presented for payment, the debtor of good faith may record the due amount to the Romanian Savings Bank (CEC Bank), filing the receipt to the court of the place of payment. After the expiry of the fixed terms for the presentation of a bill of exchange at sight or within a certain interval since the sight or for the presentation on payment in case the bill of exchange includes the provision no expenses, the holder loses the rights against all of the debtors and creditors with the bill of exchange, except for the acceptant (the issuer, in the case of the promissory note) and for the guarantors hereof. For the cheque, failure to respect the presentation terms does not lead to the loss of the beneficiarys right to demand the drawee to pay the amount, which may be put to value within the prescription term, but only to the loss of the regress right against the endorsers and the endorsees. Procedure in case of failure to pay Protest for failure to pay The protest for failure to pay is the authentic document proving the non payment of the bill of exchange or, if the case, of the promissory note or of the cheque. In the case of the cheque, the refusal to pay may be certified whether by a protest for failure to pay, or by a declaration of the drawee, written and dated on the cheque, or by an official dated confirmation from acompensation office. a) Terms The protest for failure to pay of a bill of exchange payable on a determined term, or on a certain term since the date of issue or on a certain term since the demand is drafted in one of the two working days following the day when the bill of exchange is payable. When the bill of exchange is payable at sight, the protest may take place within a year since the date of issue of the bill of exchange. The bearer must notify the endorser or/and the drawer about the failure to pay within four working days following the day of the protest or of the presentation, when the bill of exchange includes the clause with no protest. In the case of the cheque, the refusal to pay of the drawee opens the way of the regress action against the endorsers, the drawer and of the others obligated to regress. For the exercise of the regress action, the 350Doing

Business Romania cheque should have been presented for payment in due time, and the refusal to pay should have been certified according to the law. In its turn, the protest or the equivalent certification must be fulfilled before the expiry of the presentation term. b) Procedure The protest is drafted by the bailiff or by the notary public. The text of the protest is written, in principle, on an attachment to the bill of exchange or on a separated deed, with the mention of effecting the protest on the bill of exchange. The protest of the cheque may also be drafted at the court of the place of payment, if the domicile/registered office of the drawee or of the individual indicated for payment may not be found. The protest must be registered in a special register kept in court, and the original counter part of the protest is handed to the holder of the bill of exchange. At the beginning of every week, the courts are mandated to submit to the Chamber of Commerce and Industry of the county or, if the case, of Bucharest, a table with the protests for failure to pay of the bills of exchange of the previous week. c) Effects of not drafting the protest There is no obligation for drafting the protest in case the bill of exchange includes the no protest or no expenses clause or any other equivalent. If the protest is mandatory, after the expiry of the fixed terms for protest, the holder loses the rights over the debtor and creditor with the bill of exchange, except for the acceptant drawee (the issuer, in the case of the promissory note) and the guarantors hereof. In the case of the cheque, although the protest or the equivalent certification of the protest were not executed, the holder maintains the right of regress against the drawer. The regress action is prescribed by a 6 months term since the expiry of the presentation term for payment of the cheque. Execution In case of failure to pay, the bill of exchange, the promissory note and the cheque are deemed by law writs of execution for the capital, as well as for the accessories, interest and expenses incurred respectively. Additionally, Law No. 58/1934 and Law No. 59/1934 provide that bills of exchange, promissory notes and cheques must be previously rendered enforceable by the judge, i.e. vested with executory formula. Nevertheless, the Romanian Civil Proceedings Code provides that documents representing writs of execution by the effect of law, may be executed without the necessity of investing them with executory formula. Within 5 days from the receipt of the execution summons, the debtor may oppose, on which occasion it may raise exceptions as regards the validity of the title. The court in charge with hearing the opposition may not decide the suspending of the execution unless the debtor fails to acknowledge the signature, thus being included in the category of forgery or fails to acknowledge the power of attorney of the person who signed the title on its behalf.

The procedure to follow if the title is lost In case of loss, theft or destruction of a bill of exchange or promissory note, the holder may immediately notify the drawee and may request the annulment of the title by an application addressed to the chairman of the court where it is payable. The chairman of the court, after reviewing the claim and the supporting evidence, as well as the right of the holder, will pass, in the shortest time available, an ordinance whereby, specifying the data related to the title, will declare such null and void whomever may hold it and will authorize the payment after elapsing the 30-day term from the publishing of the ordinance in the Official Gazette, if the titles maturity date is exceeded or is at sight, or within 30 days from its maturity date, if such date is subsequent to the publishing in the Official Gazette of Romania and only if, in the meantime, the holder of the title did not oppose such. The Ordinance will

be communicated to the drawee and published in the Official Gazette, upon insistence and on account of the applicant. This procedure is similar for the cheque, specifying that a cheque issued under the mention no transmittable may not be quashed, but its receiver may ask the drawee and the drawer to replace it with a duplicate.