KENYATTAUNI

VERSI
TY

BBA302BUSI
NESSLAW 2

LECTURENOTES

LESSONONE

1.LAW OFPERSONS

1.
1Int
roduct
ion
I
nlawther
ear
etwot
ypesof"
per
sons"
,"nat
ural
-per
son"and"
art
if
ici
alPer
son/Legal
per
son

i
)Nat
ural
per
son
Natur
al-
personi
sdef
inedas"
Ahumanbei
ngwhohast
hecapaci
tyorr
ight
stodo
somet
hing

i
i
)Ar
ti
fi
cial
per
son/
Legal
per
son
Anar
ti
fi
cialper
son/
legalper
soni
sdef
inedas"
Alegalent
it
ywhi
chi
snotahumanbei
ng
butr
ecogni
zedasaper
soni
nlaw.Legalper
sonscansueandbesued,ownpr
oper
ty,
andent
eri
ntocont
ract
s. 
Howev
ert
hel
egalper
sonscannotv
ote,mar
ry,orhol
dpubl
i
c
of
fi
ce.(
Exampl
eofl
egal
per
soni
sCor
por
ati
ons/
Compani
es)

LegalorAr
ti
fi
ci
alPer
sonhasLegalPer
sonal
i
ty(
Legalr
ightorcapaci
tyt
oactashuman
bei
ng)
.Tohav
elegalper
sonal
i
tymeanst
obecapabl
eofhol
dingl
egalr
ight
sand
obl
i
gat
ionswi
thi
nacer
tai
nlegalsy
stem,suchasent
eri
ngi
ntocont
ract
s,sui
ng,and
bei
ngsued.

1.
2Ar
ti
fi
cial
Per
son/
Legal
Per
son(
Cor
por
ati
ons/
Compani
es)

Cor
por
ati
ons/
Compani
es
1.
2.1Def
ini
ti
onofaCompany

A companyi
sar
ti
fi
ci
alorl
egalper
sont
hathasasepar
atel
egalexi
stencef
rom i
ts
owner
s.Theowner
soft
hecompanyar
eknownasmember
sorshar
ehol
der
s.I
tsl
egal
st
atusgi
vesacompanyt
hesamer
ight
sasanat
uralper
sonwhi
chmeanst
hata
companycani
ncurdebt
,sueandbesued.Compani
esar
emanagedbycompany
of
fi
cer
swhoar
ecal
l
eddi
rect
orsandcompanysecr
etar
ies.

1.
2.2Char
act
eri
sti
csofaCompany

Acompanyasanent
it
yhasmanydi
sti
nctf
eat
ureswhi
cht
oget
hermakei
tauni
que
or
gani
zat
ion.Theessent
ial
char
act
eri
sti
csofacompanyar
efol
l
owi
ng:

i
.Separ
ateLegal
Ent
it
y

Thecompanyi
sdi
sti
nctanddi
ff
erentf
rom i
tsmember
sinl
aw.I
thasi
tsownsealand
i
tsownname,i
tsasset
sandl
i
abi
l
iti
esar
esepar
ateanddi
sti
nctf
rom t
hoseofi
ts
member
s.I
tiscapabl
eofowni
ng pr
oper
ty,i
ncur
ri
ng debt
,and bor
rowi
ng money
,
empl
oyi
ngpeopl
e,hav
ingabankaccount
,ent
eri
ngi
ntocont
ract
sandsui
ngandbei
ng
suedsepar
atel
y.

i
i
.Li
mit
edLi
abi
l
ity

Thel
i
abi
l
ityoft
hemember
soft
hecompanyi
sli
mit
edt
ocont
ri
but
iont
otheasset
sof
t
hecompanyupt
othef
acev
alueofshar
eshel
dbyhi
m.Amemberi
sli
abl
etopayonl
y
t
heuncal
l
edmoney(
shar
esmoneywhi
char
enotpai
d)dueonshar
eshel
dbyhi
m.I
fthe
asset
soft
hef
ir
m ar
enotsuf
fi
cientt
opayt
hel
i
abi
l
iti
esoft
hef
ir
m,t
hecr
edi
tor
scan
f
orcet
hepar
tner
stomakegoodt
hedef
ici
tfr
om t
hei
rper
sonal
asset
s.

i
i
i.Per
pet
ual
Successi
on(
Notaf
fect
edbychange,
deat
horbankr
uptofi
tsmember
s)

Acompanydoesnotceaset
oexi
stunl
essi
tisspeci
fi
cal
l
ywounduport
het
askf
or
whi
chi
twasf
ormedhasbeencompl
eted.Member
shi
pofacompanymaykeepon
changi
ngf
rom t
imet
oti
mebutt
hatdoesnotaf
fectl
i
feoft
hecompany
.Insol
vencyor
Deat
hofmemberdoesnotaf
fectt
heexi
stenceoft
hecompany
.

i
v.Separ
atePr
oper
ty

A companyi
sadi
sti
nctl
egalent
it
y.Thecompany
'spr
oper
tyi
sit
sown.A member
cannotcl
aim t
o beowneroft
hecompany
'spr
oper
tydur
ing t
heexi
stenceoft
he
company
.
v
.Tr
ansf
erabi
l
ityofShar
es

Shar
esi
nacompanyar
efr
eel
ytr
ansf
erabl
e,subj
ectt
ocer
tai
ncondi
ti
ons,sucht
hatno
shar
e-hol
deri
sper
manent
lyornecessar
il
yweddedt
oacompany
.Whenamember
t
ransf
ershi
sshar
est
oanot
herper
son,t
het
ransf
ereest
epsi
ntot
heshoesoft
he
t
ransf
erorandacqui
resal
lther
ight
soft
het
ransf
erori
nrespectoft
hoseshar
es.But
t
hisi
snott
hesamei
npr
ivat
ecompani
es.

v
i.CommonSeal

Acompanyi
sanar
ti
fi
ci
alper
sonanddoesnothav
eaphy
sicalpr
esence.Thus,i
tact
s
t
hroughi
tsBoar
dofDi
rect
orsf
orcar
ryi
ngouti
tsact
ivi
ti
esandent
eri
ngi
ntov
ari
ous
agr
eement
s.Suchcont
ract
smustbeundert
hesealoft
hecompany
.Thecommonseal
i
stheof
fi
cial
signat
ureoft
hecompany
.Thenameoft
hecompanymustbeengr
avedon
t
hecommonseal
.Anydocumentnotbear
ingt
hesealoft
hecompanymaynotbe
accept
edasaut
hent
icandmaynothav
eanyl
egal
for
ce.

v
ii
.Capaci
tyt
osueandbei
ngsued

Acompanycansueorbesuedi
nit
sownnameasdi
sti
nctf
rom i
tsmember
s.

v
ii
i.Separ
ateManagement

Acompanyi
sadmi
nist
eredandmanagedbyi
tsmanager
ialper
sonneli
.e.t
heBoar
dof
Di
rect
ors.Theshar
ehol
der
sar
esi
mpl
ythehol
der
soft
heshar
esi
nthecompanyand
neednotbenecessar
il
ythemanager
soft
hecompany
.

i
x.OneShar
e-OneVot
e

Thepr
inci
pleofv
oti
ngi
nacompanyi
soneshar
e-onev
otei
.e.i
faper
sonhas10shar
es,
hehas10v
otesi
nthecompany
.Thi
sisi
ndi
rectdi
sti
nct
iont
othev
oti
ngpr
inci
pleofa
co-
oper
ati
ve soci
ety wher
ethe "
One Member-One Vot
e"pr
inci
ple appl
i
es i
.e.
i
rr
espect
iveoft
henumberofshar
eshel
d,onememberhasonl
yonev
ote.

1.
2.3Cl
assi
fi
cat
ionofCompani
es
 Sect
ion 389 oft
he compani
es Actpr
ovi
des t
hat“
no company
,associ
ati
on or
par
tner
shi
psconsi
sti
ngofmor
ethan20per
sonsshal
lbef
ormedunl
essi
tisr
egi
ster
ed
asacompanyundert
hisAct
”.

Ther
ear
ethr
eet
ypesofcompani
espr
ovi
dedf
orundert
hissect
ion:
-

i
.Char
ter
edcompani
es
i
i
.St
atut
orycompani
es
i
i
i.Regi
ster
edcompani
es
(
i)
  
 Char
ter
edCompani
es
TheBr
it
ishgov
ernmenthadpowert
ocr
eat
eacor
por
ati
onbygr
ant
ingchar
tert
oa
per
sonorcor
por
ati
on.Nosuchcompani
escanbef
ormedi
nKeny
aaf
teri
ndependence
andsect
ion389onl
yser
veasar
emi
nderofEngl
i
shor
igi
nofourcompani
esAct
.

(
ii
) 
  
 St
atut
orycompani
es
Acompanymaybei
ncor
por
atedbymeansofaspeci
alActofpar
li
ament
.Ast
atut
ory
companyhasnoshar
ehol
der
sandi
tsi
nit
ialcapi
tali
spr
ovi
dedbyt
het
reasur
y.I
tis
expect
edt
ooper
ateaccor
dingt
ocommer
cialpr
inci
plesandt
omakepr
ofi
t.I
fitmakes
l
ossesand becomesunabl
eto payi
tsdebt
s,i
tspr
oper
tycanbeat
tached byi
ts
cr
edi
tor
sbuti
tcannotbewounduponappl
i
cat
ionofanycr
edi
tor
. Howev
er,t
he
gov
ernmentwi
l
lcomet
oit
sai
difi
thasnocashorot
herasset
stopayi
tscr
edi
tor
s.
Exampl
esi
ncl
ude-Kengen,
KP&L.
Co,
Keny
aPi
pel
i
ne,
Keny
aRai
l
way
s,KTDAet
c.

(
ii
i)
  
 Regi
ster
edcompani
es
Ar
egi
ster
edcompanyi
sfor
medbyr
egi
str
ati
onundert
heCompani
esActCap286.
Sect
ion2oft
heCompani
esActdef
inesacompanyas“
acompanyf
ormedand
r
egi
ster
edundert
hisAct
.”

Regi
ster
edcompani
esar
ecl
assi
fi
esi
ntoTWO

(
a) 
 
 Publ
i
ccompany–Acompanyf
ormedbyanysev
enormor
eper
sons.

(
b) 
 
 Pr
ivat
ecompany–Acompanyf
ormedbyanyt
woormor
eper
sons(
maxi
mum 50)
.

1.
2.4Pr
ivat
eandPubl
i
cCompani
es
 1.Pr
ivat
eCompany

Accor
dingt
osect
ion30(
1)oft
heAct
,apr
ivat
ecompanymeansacompanywhi
chbyi
ts
ar
ti
cles

(
a) 
 
 Rest
ri
ctst
her
ightt
otr
ansf
eri
tsshar
es.

(
b) 
 
 Li
mit
sthenumberofi
tsmember
sto50noti
ncl
udi
ngper
sonswhoar
einempl
oyment
oft
hecompany
.

(
c) 
 
Prohi
bit
sanyi
nvi
tat
iont
othepubl
i
ctosubscr
ibef
oranyshar
esordebent
uresoft
he
company
.Sect
ion30(
2)pr
ovi
dest
hatwher
etwoormor
eper
sonshol
doneormor
e
shar
esi
nacompanyj
oint
ly,
theyshal
l
,fort
hepur
poseoft
hissect
ion,
bet
reat
edasa
si
ngl
emember
.

a)Pr
ivi
l
egesofaPr
ivat
eCompany

(
i)Apr
ivat
ecompanymayconsi
stofami
nimum of2member
s.

(
ii
)Apr
ivat
ecompanyi
sent
it
ledt
ocommencebusi
nessi
mmedi
atel
yoni
ncor
por
ati
on.

(
ii
i)Apr
ivat
ecompanymayal
l
otshar
eswi
thouti
ssui
ngapr
ospect
usordel
i
ver
ingt
oa
r
egi
str
arast
atementi
nli
euofpr
ospect
us(
Sect
ion30(
1)(
all
otshar
e-i
ssueshar
es)

Apr
ospect
usi
sal
egal
documenti
ssuedbycompani
est
hatar
eof
fer
ingsecur
it
iesf
or
sal
e.

(
vi)Apr
ivat
ecompanyi
snotr
equi
redt
ohol
dast
atut
orymeet
ingorf
il
east
atut
oryr
epor
t
wi
tht
her
egi
str
ar.St
atut
orymeet
ingameet
ingt
hatmust
,byl
aw,
behel
dbet
weenone
andt
hreemont
hsaf
teracompanyst
art
sdoi
ngbusi
ness,

(
v)Apr
ivat
ecompanyneednothav
emor
ethant
wodi
rect
ors.

(
vi)Copi
esofbal
ancesheetandpr
ofi
tandl
ossaccountf
il
edwi
tht
her
egi
str
arcannot
bei
nspect
edbyt
hepubl
i
c.
Adv
ant
agesofPr
ivat
eCompany

i
. Li
mit
edLi
abi
l
ity
:Itmeanst
hati
fthecompanyexper
iencef
inanci
aldi
str
ess
becauseofnor
mal
busi
nessact
ivi
ty,
theper
sonal
asset
sofshar
ehol
der
swi
l
lnot
beatr
iskofbei
ngsei
zedbycr
edi
tor
s.
i
i
. Cont
inui
tyofexi
stence:
busi
nessnotaf
fect
edbyt
hest
atusoft
heowner
.
i
i
i. Mi
nimum numberofshar
ehol
der
sneedt
ost
artt
hebusi
nessar
eonl
y2.
i
v. Mor
ecapi
tal
canber
aisedast
hemaxi
mum numberofshar
ehol
der
sal
l
owedi
s
50.
v
. Scopeofexpansi
oni
shi
gherbecauseeasyt
orai
secapi
tal
from f
inanci
al
i
nst
it
uti
ons.

Di
  sadv
ant
agesofPr
ivat
eCompany

i
. Gr
owt
hmaybel
i
mit
edbecausemaxi
mum shar
ehol
der
sal
l
owedar
eonl
y50.
i
i
. Theshar
esi
napr
ivat
eli
mit
edcompanycannotbesol
dort
ransf
err
edt
oany
one
el
sewi
thoutt
heagr
eementofot
hershar
ehol
der
s.

2.Publ
i
cLi
mit
edCompany

A publ
i
cli
mit
edcompanyi
sacompanyt
hathasper
missi
ont
oof
feri
tsr
egi
ster
ed
secur
it
ies f
orsal
etot
he gener
alpubl
i
c,t
ypi
cal
l
ythr
ough a st
ock exchange,or
occasi
onal
l
yacompanywhosest
ocki
str
adedov
ert
hecount
er(
OTC)v
iamar
ket
maker
swhousenon-
exchangequot
ati
onser
vices.St
ockexchangeorshar
eexchange
orequi
ty)secur
it
iesar
euni
toff
inanceasshar
esorbondsordebent
ures

Char
act
eri
sti
csofPubl
i
cLi
mit
edCompani
es

i
. I
tmusthav
eatl
eastsev
enshar
ehol
der
s.
i
i
. Apubl
i
ccompanyi
snotaut
hor
izedt
obegi
nbusi
nessupont
hegr
antoft
he
cer
ti
fi
cat
eofi
ncor
por
ati
on(
li
censecer
ti
fi
cat
e).I
nor
dert
obeel
i
gibl
etost
art
busi
nessasacor
por
ati
on,
itshoul
dobt
ainanot
herdocumentcal
l
ed"
tr
adi
ng
cer
ti
fi
cat
e".
i
i
i. I
tshoul
dpubl
i
shapr
ospect
usorf
il
east
atementi
ninst
eadofapr
ospect
us
bef
orei
tcanst
artt
ransact
ingbusi
ness.
i
v. Apubl
i
ccompanyi
sneededt
ohav
eatl
eastt
hreedi
rect
ors.
v
. I
tshoul
dhol
dst
atut
orymeet
ingsandobt
aingov
ernmentappr
oval
fort
he
appoi
ntmentoft
hemanagement
.

Adv
ant
agesofaPubl
i
cLi
mit
edCompany

i
. Theshar
ehol
der
shav
eli
mit
edl
i
abi
l
ity
.
i
i
. Acompanycanr
aiseaddi
ti
onal
capi
tal
byi
ssui
ngmor
eshar
esordebent
ures.
i
i
i. Gr
eat
erbor
rowi
ngpower
.
i
v. Aboar
dofdi
rect
orswi
thexper
ience/exper
ti
secanbeappoi
nted.
v
. Shar
ehol
der
scansel
l
/tr
ansf
ert
hei
rshar
esf
reel
y.

Di
sadv
ant
agesofaPubl
i
cLi
mit
edCompany

i
. Ther
eisal
ossofov
eral
lowner
shi
p.
i
i
. Ther
eisal
ossofcont
rol
oft
hebusi
ness.
i
i
i. Deci
sionst
akel
ongerandt
her
emaybedi
sagr
eement
.
i
v. Theper
sonal
touchmaybel
ost
.
v
. Whenset
ti
ngupacompany
,si
gni
fi
cantex
pensesar
eincur
red.
v
i. Ther
ear
emor
est
atut
oryr
egul
ati
onst
oconf
orm.
v
ii
. Pr
ofi
tsar
eshar
edamongstaf
argr
eat
ernumberofpeopl
e.
v
ii
i. Publ
i
cdi
scl
osur
eoft
hef
inanci
alaf
fai
rsi
snecessar
y.

Di
sti
nct
ionbet
weenaPubl
i
ccompanyandaPr
ivat
ecompany

1.Mi
nimum numberofmember
s:

Forpubl
i
ccompanyi
ssev
enwher
easpr
ivat
ecompanyi
stwo.

2.
  Maxi
mum numberofmember
s:

Ther
eisnol
i
mitont
hemaxi
mum numberi
ncaseofpubl
i
ccompany
,butapr
ivat
e
companycannothav
emor
ethan50member
s.
3.Commencementofbusi
ness:
-

A pr
ivat
ecompanycan commencebusi
nessassoon asi
tisgi
ven cer
ti
fi
cat
eof
i
ncor
por
ati
onwher
easapubl
i
ccompanyshal
lnotcommencei
tsbusi
nessi
mmedi
atel
y
unl
essi
thasbeengr
ant
edt
het
radi
ngcer
ti
fi
cat
e.

4.
  I
nvi
tat
iont
opubl
i
c:-

Apubl
i
ccompanybyi
ssui
ngapr
ospect
usmayi
nvi
tepubl
i
ctosubscr
ibet
oit
sshar
es
wher
easapr
ivat
ecompanycannotext
endsuchi
nvi
tat
iont
othepubl
i
c.

5.
 Tr
ansf
erabi
l
ityofshar
es:
-

Ther
eisnor
est
ri
cti
onont
het
ransf
erofshar
esi
ncaseofapubl
i
ccompanywher
eas
pr
ivat
ecompanybyi
tsar
ti
clesmustr
est
ri
ctt
her
ightofmember
soft
ransf
err
ingt
he
shar
es.

6.
  
Numberofdi
rect
ors:
-

Apubl
i
ccompanymusthav
eatl
eastt
hreedi
rect
orswher
easpr
ivat
ecompanymay
hav
etwodi
rect
ors.

7.St
atut
orymeet
ing:
-

Apubl
i
ccompanymusthol
dast
atut
orymeet
ingandf
il
ewi
tht
her
egi
str
arast
atut
ory
r
epor
t,buti
ncaseofapr
ivat
ecompanyt
her
ear
enosuchobl
i
gat
ions.

8.Name:
-

Thenameofapr
ivat
ecompanymusti
ncl
udet
hewor
ds“
pri
vat
elt
d”att
heendofi
ts
name,
butapubl
i
ccompanyhast
ouset
hewor
ds“
lt
d”att
heendofi
tsname.

Wi
ndi
ngupoft
heCompani
es
TheCompani
esActCap.486doesnotdef
inet
het
erm wi
ndi
nguporl
i
qui
dat
ion,
howev
eri
tuses t
hem i
nter
changeabl
e,hence we assume t
hem as sy
nony
mous.
Wi
ndi
ngup,meansapr
ocessofput
ti
nganendt
othel
i
feofacompany
. I
tisa
pr
oceedi
ngbymeansofwhi
chacompanyi
sdi
ssol
vedandi
nthecour
seofsuch
di
ssol
uti
oni
tsasset
sar
ecol
l
ect
edandi
tsdebt
sar
epai
dof
foutoft
heasset
soft
he
companyorf
rom cont
ri
but
ionsbyi
tsmember
s,i
fnecessar
y. I
fanysur
plusi
slef
t,i
tis
di
str
ibut
edamongt
hemember
sinaccor
dancewi
tht
hei
rri
ght
s.

Wi
ndi
nguporl
i
qui
dat
ioni
sthepr
ocessbywhi
cht
hemanagementoft
hecompany
’s
af
fai
rsi
stakenoutofi
tsdi
rect
ors’
hands,
itsasset
sar
ereal
i
zedbyt
hel
i
qui
dat
orandi
ts
debt
sar
epai
doutoft
hepr
oceedsofr
eal
i
zat
ion.

ModesofWi
ndi
ngUp

Ther
ear
ethr
eemodes:

i
)Compul
sor
ywi
ndi
ngupbyt
hecour
t.

i
i
)Vol
unt
arywi
ndi
ngup:

(
a) 
  
 Member
s’v
olunt
arywi
ndi
ngup.

(
b) 
  
Credi
tor
s’v
olunt
arywi
ndi
ngup

(
ii
i)
  Wi
ndi
ngupundert
hesuper
visi
onoft
hecour
t.

1.
2.5I
ncor
por
ati
on
Def
ini
ti
onofI
ncor
por
ati
on'

I
ncor
por
ati
on i
sthe l
egalpr
ocess used t
ofor
m a cor
por
ate ent
it
yorcompany
.
I
ncor
por
ati
oni
nvol
vesdr
aft
ingl
egaldocument
scal
l
ed"
Art
icl
esofI
ncor
por
ati
on"t
hat
l
i
stt
hepr
imar
ypur
poseoft
hebusi
ness,i
tsnameandi
tsl
ocat
ion,andt
henumberof
shar
esandcl
assofst
ockbei
ngi
ssued,i
fany
.Incor
por
ati
onal
soi
nvol
vesj
uri
sdi
cti
on-
speci
fi
cregi
str
ati
oni
nfor
mat
ionandf
ees.

I
mpor
tanceofi
ncor
por
ati
on
1.Shi
eldy
our
sel
ffr
om l
i
abi
l
ity

Themosti
mpor
tantr
easont
oincor
por
atey
ourbusi
nessi
stopr
otecty
our
sel
ffr
om
busi
nessl
i
abi
l
iti
es.I
fyouar
eoper
ati
nganuni
ncor
por
atedbusi
ness,i
tscr
edi
tor
smay
beabl
etor
eachy
ourper
sonalasset
s.Asset
ssuchasy
ourper
sonalr
esi
denceand
per
sonal
bankaccountcanbeusedt
opaybusi
nessdebt
sort
osat
isf
yal
awsui
tagai
nst
y
ourbusi
ness.I
fyoui
ncor
por
ate,
busi
nesscr
edi
tor
scannotr
eachy
ourper
sonalasset
s,
asani
ncor
por
atedbusi
nessandi
tsowner
sar
esepar
ateent
it
ies.

2.Est
abl
i
shper
pet
ual
exi
stenceandt
ransf
erofowner
shi
p

Per
pet
ualexi
stencei
sanadv
ant
ageousaspectofani
ncor
por
atedbusi
ness.Per
pet
ual
exi
stencemeanst
hatt
hel
i
feandcont
inuat
ionoft
hebusi
nesswi
l
lnotbeaf
fect
edby
t
hewi
thdr
awalordeat
hofoneoft
heowner
s.Anuni
ncor
por
atedbusi
ness'
sexi
stence,
aswel
lasi
tsoper
ati
on,i
sgener
all
ydi
srupt
edbyt
hewi
thdr
awalordeat
hofoneoft
he
owner
s.Subt
ractt
hisr
iskf
rom y
ourbusi
nessbyi
ncor
por
ati
ng.

3.Gai
ntaxadv
ant
ages

I
fyoui
ncor
por
atey
ourbusi
ness,
ther
ear
etaxdeduct
ionsf
orawi
dev
ari
etyofoper
ati
ng
cost
swhi
ch wi
l
lsubst
ant
ial
l
ycutbacky
ourcompany
'sov
eral
ltaxl
i
abi
l
ity
.These
deduct
ionsmayi
ncl
udet
hecostofmat
eri
als/
product
ion,empl
oyeewages,t
hecostof
i
nsur
ance,t
hecostofr
eti
rementpl
ans,aswel
lasbusi
nesst
rav
elandent
ert
ainment
expenses.

4.Enhancet
hecompany
'si
mage

Anot
heressent
ialr
easont
oincor
por
atey
ourbusi
nessi
sthati
taddscr
edi
bil
i
tyt
oit
s
oper
ati
on.Theper
cept
ionofabusi
nessi
simpr
ovedbyi
tsi
ncor
por
ati
onanduseof
"
Inc.
,
""Co.
,
"or"
LLC"f
oll
owi
ngt
henameoft
hebusi
ness.Cust
omer
sar
emor
eli
kel
yto
t
rustanddealwi
thabusi
nesst
hathast
hisposi
ti
vei
mage.Mor
eimpor
tant
ly,t
he
busi
nesswi
l
lbemor
eat
tract
ivet
obanksandi
nvest
orsi
fandwhent
hebusi
nessseeks
out
sidef
inanci
ng.

5.I
mpr
oveabi
l
ityt
omanage

Thedeci
sion-
maki
ngaut
hor
it
yofani
ncor
por
atedbusi
nessi
scent
ral
i
zed,
whi
chusual
l
y
meanst
hatt
heshar
ehol
der
shav
evest
edt
heaut
hor
it
yinaBoar
dofDi
rect
ors.The
Boar
d ofDi
rect
ors can del
egat
ethi
s aut
hor
it
ytot
he company
's of
fi
cer
s.I
n an
uni
ncor
por
atedbusi
ness,
thepowerst
ruct
ureanddeci
sion-
maki
ngaut
hor
it
ymaynotbe
def
inedandmaybesubj
ectt
omani
pul
ati
onbyaco-
ownerorempl
oyee.

1.
2.6Uni
ncor
por
atedAssoci
ati
ons

Uni
ncor
por
atedassoci
ati
onsar
ethesi
mpl
estf
ormt
hatanon-
prof
itor
gani
zat
ion,
they
ar
esomet
imescal
l
edav
olunt
aryassoci
ati
on.Uni
ncor
por
atedassoci
ati
onsar
eusual
l
y
smal
lori
nfor
malcommuni
tyor
gani
zat
ions.Anygr
oupofpeopl
ewhoagr
eet
oact
t
oget
her
,usual
l
y because ofa shar
ed i
nter
estorpur
pose,mi
ghtbe cal
l
ed an
uni
ncor
por
ated associ
ati
on.An uni
ncor
por
ated associ
ati
on has no separ
atel
egal
i
dent
it
yfr
om t
hatofi
tsmember
s.I
tissi
mpl
yagr
oupofpeopl
ewhoassoci
atef
ora
par
ti
cul
arpur
pose,
forexampl
e,agr
oupofpeopl
ewhowi
sht
opl
ayf
oot
bal
lorl
obbyf
or
oragai
nstapar
ti
cul
ardev
elopmentand hav
ever
bal
l
yagr
eed t
o car
ryoutcer
tai
n
f
unct
ions.
 Usual
l
yitoper
atesaccor
dingt
oaconst
it
uti
onorr
ules.Anuni
ncor
por
ated
associ
ati
oncannotsueorbesued,i
tsasset
smustbehel
dbyt
rust
eesoni
tsbehal
f,
cont
ract
smustbemadef
ort
heassoci
ati
onbyt
hecommi
tt
eemember
sandt
hel
i
abi
l
ity
oft
hemember
s(especi
all
ythecommi
tt
eemember
sent
eri
ngi
ntot
hosecont
ract
s)i
s
gener
all
yper
sonal
andnotl
i
mit
edt
otheasset
soft
heassoci
ati
on.

Uni
ncor
por
atedassoci
ati
onsar
eeasyandf
reet
oest
abl
i
shandhav
ever
yfew oft
he
sameadmi
nist
rat
iveorl
egal
requi
rement
sofi
ncor
por
atedassoci
ati
ons.Member
smust
abi
debyt
her
ulesoft
heor
gani
zat
ion’
sconst
it
uti
on,
ifi
thasone.Theconst
it
uti
onmi
ght
bef
ormall
i
ket
hatofot
heror
gani
zat
ionsori
nfor
malandnotwr
it
tendownbutagr
eed
onbymember
s.Uni
ncor
por
atedassoci
ati
onsdonothav
eal
egali
dent
it
y:t
heycannot
hol
d asset
sint
hei
rname ort
he l
egalpr
otect
ions f
ormember
sthatcome wi
th
i
ncor
por
ati
on

1.
3Nat
ural
Per
son(
Par
tner
shi
pandCo-par
tner
shi
p)

A)Par
tner
shi
p

1.
3.1I
ntr
oduct
ion
Def
ini
ti
onofPar
tner
shi
p

Accor
dingt
oKent
,par
tner
shi
pisacont
ractoft
woormor
ecompet
entper
sonst
opl
ace
t
hei
rmoney
,labourandski
l
ltodi
vi
det
hepr
ofi
tsandbeart
hel
ossi
ncer
tai
npr
opor
ti
ons

Accor
dingt
oSi
rFr
edr
ickPol
l
ock,par
tner
shi
pisr
elat
ionwhi
chexi
stsbet
weenper
sons
whohav
eagr
eedt
oshar
ethepr
ofi
torl
i
abi
l
iti
esofabusi
nesscar
ri
edonbyal
loranyof
t
hem onbehal
fofal
l
.

Accor
dingt
opar
tner
shi
pActsect
ion3,
par
tner
shi
pist
her
elat
ionwhi
chexi
stsbet
ween
per
sonscar
ryi
ngonabusi
nessi
ncommonwi
thav
iewofmaki
ngpr
ofi
t.

I
ngener
alapar
tner
shi
pisasi
ngl
ebusi
nesswher
etwoormor
epeopl
eshar
eowner
shi
p;
eachpar
tnercont
ri
but
est
oal
laspect
soft
hebusi
ness,
incl
udi
ngmoney
,pr
oper
ty,
labor
orski
l
l.I
nret
urn,
eachpar
tnershar
esi
nthepr
ofi
tsandl
ossesoft
hebusi
ness.

1.
3.2Ty
pesofPar
tner
shi
ps 
  
  
  
 

Ther
ear
ethr
eet
ypesofpar
tner
shi
par
rangement
s:

i
. Gener
alPar
tner
shi
ps 

Gener
alPar
tner
shi
psassumet
hatpr
ofi
ts,
li
abi
l
ityandmanagementdut
iesar
edi
vi
ded
equal
l
yamongpar
tner
s.I
fyouoptf
oranunequal
dist
ri
but
ion,
theper
cent
agesassi
gned
t
oeachpar
tnermustbedocument
edi
nthepar
tner
shi
pagr
eement
.

i
i
. Li
mit
edPar
tner
shi
ps 

Li
mit
edPar
tner
shi
ps 
(al
soknownasapar
tner
shi
pwi
thl
i
mit
edl
i
abi
l
ity
)ar
emor
e
compl
ext
hangener
alpar
tner
shi
ps.Li
mit
edpar
tner
shi
psal
l
owpar
tner
stohav
eli
mit
ed
l
i
abi
l
ityaswel
lasl
i
mit
edi
nputwi
thmanagementdeci
sions.Thesel
i
mit
sdependont
he
ext
entofeachpar
tner
’si
nvest
mentper
cent
age.Li
mit
edpar
tner
shi
psar
eat
tr
act
ivet
o
i
nvest
orsofshor
t-
ter
m pr
oject
s.

i
i
i. Joi
ntVent
ures 
Aj
ointv
ent
ureoccur
swhent
woormor
eper
sonscomet
oget
hert
ofor
m at
empor
ary
par
tner
shi
pfort
hepur
poseofcar
ryi
ngoutapar
ti
cul
arpr
oject
.Joi
ntVent
ures 
actas
gener
alpar
tner
shi
p,butf
oronl
yal
i
mit
edper
iodoft
imef
orasi
ngl
epr
oject
.Par
tner
sin
aj
ointv
ent
urecanber
ecogni
zedasanongoi
ngpar
tner
shi
pift
heycont
inuet
hev
ent
ure,
butt
heymustf
il
eassuch.

1.
3.3Di
ff
erentTy
pesofPar
tner
s

1.Act
iveormanagi
ngpar
tner

Aper
sonwhot
akesact
ivei
nter
esti
ntheconductandmanagementoft
hebusi
nessof
t
hef
ir
misknownasact
iveormanagi
ngpar
tner
.Hecar
ri
esonbusi
nessonbehal
foft
he
ot
herpar
tner
s.I
fhewant
stor
eti
re,hehast
ogi
veapubl
i
cnot
iceofhi
sret
ir
ement
;
ot
her
wisehewi
l
lcont
inuet
obel
i
abl
efort
heact
soft
hef
ir
m.

2.Sl
eepi
ngordor
mantpar
tner
:

Asl
eepi
ngpar
tneri
sapar
tnerwho‘
sl
eeps’
,thati
s,hedoesnott
akeact
ivepar
tint
he
managementoft
hebusi
ness.Suchapar
tneronl
ycont
ri
but
est
otheshar
ecapi
tal
oft
he
f
ir
m,i
sboundbyt
heact
ivi
ti
esofot
herpar
tner
s,andshar
est
hepr
ofi
tsandl
ossesoft
he
busi
ness.Asl
eepi
ngpar
tner
,unl
i
keanact
ivepar
tner
,isnotr
equi
redt
ogi
veapubl
i
c
not
iceofhi
sret
ir
ement
.Assuch,hewi
l
lnotbel
i
abl
etot
hir
dpar
ti
esf
ort
heact
sdone
af
terhi
sret
ir
ement
.

3.Nomi
nal
orost
ensi
blepar
tner

Anomi
nal
par
tneri
sPer
sonwhohasani
nter
esti
nthesuccessofapar
tner
shi
pfi
rm but
,
l
egal
l
y,i
snotpar
tnerbecauseheorshenei
therownsapar
toft
hef
ir
m noract
ivel
y
par
ti
cipat
esi
nit
saf
fai
rs.Anomi
nalpar
tnerl
endshi
snamet
othef
ir
m,wi
thoutany
capi
talcont
ri
but
ions,anddoesn’
tshar
ethepr
ofi
tsoft
hebusi
ness.Heal
sodoesnot
usual
l
yhav
eav
oicei
nthemanagementoft
hebusi
nessoft
hef
ir
m.Of
tenanomi
nal
par
tneri
sawel
lknown,wel
lconnect
edi
ndi
vi
dualwhosenamel
endscr
edi
bil
i
tyand
r
ecogni
ti
ont
othef
ir
m,andi
spai
daf
eef
orusageofhi
sname.Al
socal
l
edl
i
mit
ed
par
tnerorost
ensi
blepar
tner
,out
sider
sper
cei
vehi
m asanact
ual
par
tner
Sl
eepi
ngv
s.Nomi
nal
Par
tner
s

I
tmaybecl
ari
fi
edt
hatanomi
nalpar
tneri
snott
hesameasasl
eepi
ngpar
tner
.A
sl
eepi
ngpar
tnercont
ri
but
escapi
talshar
espr
ofi
tsandl
osses,buti
snotknownt
othe
out
sider
s.Anomi
nalpar
tner
,ont
hecont
rar
y,i
sadmi
tt
edwi
tht
hepur
poseoft
aki
ng
adv
ant
ageofhi
snameorr
eput
ati
on.Assuch,
hei
sknownt
otheout
sider
s,al
thoughhe
doesnotshar
ethepr
ofi
tsoft
hef
ir
m nordoeshet
akepar
tini
tsmanagementbutget
s
cer
tai
nfeesf
oruseofhi
snameandr
eput
ati
on.

4.Par
tnerbyest
oppel
orhol
dingoutpar
tner

I
faper
son,
byhi
swor
dsorconduct
,hol
dsoutt
oanot
hert
hathei
sapar
tner
,hewi
l
lbe
st
oppedf
rom deny
ingt
hathei
snotapar
tner
.Theper
sonwhot
husbecomesl
i
abl
eto
t
hir
dpar
ti
est
opayt
hedebt
soft
hef
ir
misknownasahol
dingoutpar
tner
.Ther
ear
e
t
woessent
ialcondi
ti
onsf
ort
hepr
inci
pleofhol
dingout
:(a)t
heper
sont
obehel
dout
musthav
emadet
her
epr
esent
ati
on,bywor
dswr
it
tenorspokenorbyconduct
,thathe
wasapar
tner;(
b)andt
heot
herpar
tymustpr
ovet
hathehadknowl
edgeoft
he
r
epr
esent
ati
onandact
edoni
t,f
ori
nst
ance,
gav
ethecr
edi
t.

5.Par
tneri
npr
ofi
tsonl
y

Whenapar
tneragr
eeswi
tht
heot
her
sthathewoul
donl
yshar
ethepr
ofi
tsoft
hef
ir
m
andwoul
dnotbel
i
abl
efori
tsl
osses,
hei
sinownaspar
tneri
npr
ofi
tsonl
y.

6.Mi
norasapar
tner
Accor
dingt
otheKeny
apar
tner
shi
pact
.,Cap29sect
ion12&13,
aper
sonwhoi
sunder
t
heageofmaj
ori
ty(
18y
ear
s)cannotbemadeper
sonal
l
yli
abl
eforanyobl
i
gat
ionoft
he
f
ir
m;butt
heshar
eoft
hemi
nori
nthepr
oper
tyoft
hef
ir
misl
i
abl
efort
heobl
i
gat
ionsof
t
hef
ir
m.Aper
sonwhohasbeenadmi
tt
edt
othepar
tner
shi
pbef
oret
heageofmaj
ori
ty
wi
l
lbel
i
abl
eforal
lobl
i
gat
ionsaf
terheorsheacqui
ret
heageofmaj
ori
ty.

Ri
ght
sofaMi
nor

1.Aper
sonwhoi
sami
normaynotbeapar
tneri
naf
ir
m,but
,wi
tht
heconsentof
 al
lthepar
tner
sfort
het
imebei
ng,
hemaybeadmi
tt
edt
othebenef
it
sof
par
tner
shi
p.

2.Suchmi
norhasar
ightt
osuchshar
eoft
hepr
oper
tyandoft
hepr
ofi
tsoft
hef
ir
m
asmaybeagr
eedupon,
andhemayhav
eaccesst
oandi
nspectandoft
he
account
soft
hef
ir
m.

3.Suchmi
norshar
esar
eli
abl
efort
heact
soft
hef
ir
m,butt
hemi
norper
sonal
l
yis
notl
i
abl
eforanyact
.

4.Suchmi
normaynotsuet
hepar
tner
sforanaccountorpay
mentofhi
sshar
eof
t
hepr
oper
tyorpr
ofi
tsoft
hef
ir
m

5.Atanyt
imewi
thi
nsi
xmont
hsofhi
sat
tai
ningageofmaj
ori
ty,
maygi
vepubl
i
c
not
icet
hathehasel
ect
edt
obecomeapar
tneri
nthef
ir
m

7.Ot
herpar
tner
s

I
npar
tner
shi
pfi
rms,
sev
eral
othert
ypesofpar
tner
sar
eal
sof
ound,
namel
y,

i
)Secr
etPar
tnerwhodoesnotwantt
odi
scl
osehi
srel
ati
onshi
pwi
tht
hef
ir
mtot
he
gener
alpubl
i
c.Howev
er,t
hemomentpubl
i
ccomest
oknow aboutsecr
etpar
tner
,he
becomesl
i
abl
etomeet
ingdebt
soft
hef
ir
m.

i
i
)Out
goi
ngPar
tner
,whor
eti
resv
olunt
ari
l
ywi
thoutcausi
ngdi
ssol
uti
onoft
hef
ir
m.
Usual
l
y,anout
goi
ngpar
tneri
sli
abl
eforal
ldebt
sandobl
i
gat
ionsasar
eincur
redbef
ore
hi
sret
ir
ement
.

i
i
i)Li
mit
edPar
tnerwhoi
sli
abl
eonl
yupt
othev
alueofhi
scapi
talcont
ri
but
ionsi
nthe
f
ir
m,andt
hel
i
ke.Al
i
mit
edpar
tneri
sfoundi
nli
mit
edpar
tner
shi
ponl
yandnoti
ngener
al
par
tner
shi
p.

1.
3.4For
mingaPar
tner
shi
p  
  
  
  
  
  
  
  
  

i
)Tof
orm apar
tner
shi
p,ani
ndi
vi
dual
must
 r
egi
sterhi
s/herbusi
ness 
wit
hthest
ate.

i
i
)Needal
sot
oest
abl
i
sh 
busi
nessname,f
orpar
tner
shi
ps,t
hel
egalnamei
sthename
gi
veni
nthepar
tner
shi
pagr
eementort
hel
astnamesoft
hepar
tner
s.

i
i
i)Oncet
hebusi
nessi
sregi
ster
ed,
oneneedst
oobt
ainbusi
ness 
l
icensesandper
mit
s.
Regul
ati
onsv
arybyi
ndust
ry,
stat
eandl
ocal
i
ty.

1.
3.5Apar
tner
shi
pdeed/
Agr
eement

Apar
tner
shi
pdeed,
alsoknownasapar
tner
shi
pagr
eement
,isadocumentt
hatout
li
nes
i
ndet
ail
sther
ight
sandr
esponsi
bil
i
tiesofal
lpar
ti
est
oabusi
nessoper
ati
on.I
thast
he
f
orceofl
awandi
sdesi
gnedt
ogui
det
hepar
tner
sint
heconductoft
hebusi
ness.I
tis
hel
pfuli
npr
event
ingdi
sput
esanddi
sagr
eement
sov
ert
her
oleofeachpar
tneri
nthe
busi
nessandt
hebenef
it
swhi
char
eduet
othem.Thepar
tner
shi
pdeednor
mal
l
ycar
ri
es
t
henameoft
hebusi
ness,t
headdr
essofi
tspr
inci
pal
,pl
aceofbusi
nessandashor
t
summar
yofhowt
hepar
tner
sint
endt
ooper
ate.

Cont
ent
sofPar
tner
shi
pDeeds

i
)Par
tner
shi
pInv
est
mentI
nfor
mat
ion

Thedeedgi
vesi
mpor
tantf
inanci
aldet
ail
soft
hepar
tner
shi
p,suchast
heamountof
capi
tal
tobei
nvest
edbyeachpar
tner
,theowner
shi
pshar
est
hateachpar
tneri
sent
it
led
t
othr
ought
hisi
nvest
ment
,thesal
ari
est
obepai
dtoeachpar
tnerandt
hemet
hodof
di
str
ibut
ingt
hebusi
nessi
ncome.Thepar
tner
shi
pdeedal
sodocument
stheaccept
ed
met
hodofr
aisi
ngaddi
ti
onal
capi
tal
,i
fnecessar
y.

i
i
)Account
ingI
nfor
mat
ion

Thepar
tner
shi
pdeedpr
ovi
desf
ort
heaccept
edmet
hodofaccount
ingf
ort
hecashf
low,
pr
ofi
tandl
oss,andasset
sandl
i
abi
l
iti
esoft
hebusi
ness;i
tal
sodef
inest
hef
iscaly
ear
t
obeusedi
naccount
ingst
atement
sandhow t
hesest
atement
swi
l
lbedi
str
ibut
ed
amongt
hepar
tner
sandot
hershar
ehol
der
s.

i
i
i)Wi
thdr
awal
s

Thedocumentmustal
sopr
ovi
def
oract
ionst
obet
akeni
ncaseoft
hev
olunt
ary
wi
thdr
awalordeat
hofapar
tner
.Int
hiscase,
anaccount
ingi
ssuewi
l
lar
isei
nwhi
cht
he
asset
s,l
i
abi
l
iti
esandshar
esassi
gnedt
oeachpar
tnermustber
eval
ued.

v
i)Expul
sion

I
fapar
tneri
spr
ovi
ngt
obeahi
ndr
anceordet
ri
mentt
othebusi
ness,orl
osesl
egal
r
ight
sinabankr
upt
cyorot
hercour
tact
ion,t
heot
herpar
tner
smusthav
eapr
oper
met
hodofexpel
l
inghi
m,t
aki
ngcar
eofhi
sorherr
ight
.

v
)Di
ssol
uti
on

Thepar
tner
shi
pdeedshoul
dal
sodescr
ibet
hemet
hodsbywhi
cht
hepar
tner
shi
pand
busi
nesswi
l
lbedi
ssol
ved,i
fdesi
red,andhowt
heaccount
samongt
hepar
tner
swoul
d
beset
tl
edatt
het
ermi
nat
ionoft
hebusi
ness.

v
i)Ar
bit
rat
ion

As i
n al
lbusi
ness cont
ract
s,a par
tner
shi
p deed mustpr
ovi
de f
ort
he means of
ar
bit
rat
ionofdi
sput
es.Themai
ngoaloft
hedeedi
stoav
oidexpensi
vel
i
tigat
ionov
er
det
ail
sthathav
enotbeenf
ull
ywor
kedouti
nthesi
gnedagr
eement
.

1.
3.6Ri
ghtofaPar
tner
:

(
i)Ev
erypar
tnerhasar
ightt
otakepar
tint
heconductandmanagementoft
hebusi
ness.

(
ii
)Ev
erypar
tnerhasar
ightt
obeconsul
tedbef
oret
aki
ngi
mpor
tantdeci
sions.The
deci
si
onsshoul
dbet
akenbymut
ualconsent
.Ift
hedeci
sionsar
euni
mpor
tant
,then
t
heycanbeenf
orcedbymaj
ori
ty,butconsensusofal
lpar
tner
sisnecessar
yfort
aki
ng
i
mpor
tantdeci
sions.

(
ii
i)Thepar
tner
shav
ear
ightt
oinspectbooksofaccount
s.

(
iv)Ev
erypar
tnerwi
l
lhav
eanequal
shar
einpr
ofi
ts,
unl
essot
her
wisement
ioned,
in
par
tner
shi
pdeed.

(
v)Nonewpar
tnercanbeadmi
tt
edi
ntopar
tner
shi
pwi
thoutt
heconsentofal
lpar
tner
s.
(
vi)Ev
erypar
tnerhasar
ightt
orecei
vei
nter
estatacer
tai
nrat
eperannum ont
he
excessmoneysuppl
i
edov
erhi
scapi
tal
.

(
vii
)Ev
erypar
tnerhasar
ightt
obei
ndemni
fi
ed(
compensat
ed)byt
hef
ir
minr
espectof
expensesi
ncur
redorl
ossessuf
fer
edf
ort
henor
mal
conductoft
hebusi
ness.

(
vii
i
)Apar
tnerhasar
ightt
ogett
hef
ir
m di
ssol
vedunderappr
opr
iat
eci
rcumst
ances.

1.
3.7Dut
ies/
Obl
i
gat
ionsofaPar
tner

(
i)Ev
erypar
tnershoul
dcar
ryont
hebusi
nesst
othegr
eat
estcommonadv
ant
age.He
mustper
for
m hi
sdut
ieshonest
lyanddi
l
igent
ly.

(
ii
)Apar
tneri
snotent
it
ledt
ogetr
emuner
ati
onf
ort
heconductofbusi
ness,
unl
ess
ot
her
wisest
atedi
nthepar
tner
shi
pdeed.

(
ii
i)Apar
tnermusti
ndemni
fyt
hef
ir
mforl
osssuf
fer
edbecauseofhi
sfr
audul
ent
conductorwi
l
lful
negl
ect
.

(
iv)Apar
tneri
sboundt
okeepandr
endert
rueandcor
rectaccount
soft
hebusi
ness.

(
v)Apar
tnercannotcar
ryonacompet
ingbusi
ness.I
fhecar
ri
esonsuchbusi
nesshe
shal
laccountf
orandpayt
othef
ir
m al
lpr
ofi
tsmadebyhi
mint
hatbusi
ness.

(
vi)Apar
tneri
sboundt
oactwi
thi
nthescopeofhi
saut
hor
it
y.

(
vii
)Nopar
tnercanmakeasecr
etpr
ofi
toft
hepar
tner
shi
pbusi
nessbywayof
commi
ssi
on,
etc.I
fhedoesso,
hemustr
etur
nthemoneyt
othef
ir
m.

1.
3.8Char
act
eri
sti
csofpar
tner
shi
p

1.Exi
stenceofanagr
eement

Par
tner
shi
pist
heout
comeofanagr
eementbet
weent
woormor
eper
sonst
ocar
ryon
busi
ness.Thi
sagr
eementmaybeor
alori
nwr
it
ing.ThePar
tner
shi
pAct
,29cl
ear
ly
st
atest
hat“
ther
elat
ionofpar
tner
shi
par
isesf
rom cont
ractandnotf
rom st
atus.
”

2.Exi
stenceofbusi
ness

Par
tner
shi
pisf
ormed t
o car
ry on a busi
ness.“
Busi
ness”i
ncl
udes ev
eryt
rade,
occupat
ion,
andpr
ofessi
on.Busi
ness,
ofcour
se,
mustbel
awf
ul.

3.Shar
ingofpr
ofi
ts

Thepur
poseofpar
tner
shi
pshoul
dbet
oear
npr
ofi
tsandt
oshar
eit
.Int
heabsenceof
any agr
eement
,the par
tnershoul
d shar
e pr
ofi
ts(
and l
osses as wel
l
)in equal
pr
opor
ti
ons.I
n a busi
nessshar
ing ofpr
ofi
tsi
sasessent
ialcondi
ti
on,butnota
concl
usi
vepr
oof
,oft
heexi
stenceofpar
tner
shi
pbet
weenpar
tner
s.

4.Agencyr
elat
ionshi
p

Thepar
tner
shi
pbusi
nessmaybecar
ri
edonbyal
loranyoft
hem act
ingf
oral
l
.Thus,
the
l
awofpar
tner
shi
pisabr
anchoft
hel
awofAgency
.Tot
heout
sidepubl
i
c,eachpar
tner
i
sapr
inci
pal
,whi
l
etot
heot
herpar
tner
shei
sanagent
.Itmust
,howev
er,
benot
edt
hat
apar
tnermustf
unct
ionwi
thi
nthel
i
mit
sofaut
hor
it
yconf
err
edonhi
m.

5.Member
shi
p

Themi
nimum numberofper
sonsr
equi
redt
oconst
it
uteapar
tner
shi
pist
wowhi
l
ethe
maxi
mum i
s20and10i
nbanki
ng.

6.Nat
ureofl
i
abi
l
ity

Thenat
ureofl
i
abi
l
ityofpar
tner
sist
hesameasi
ncaseofsol
epr
opr
iet
orshi
p.The
l
i
abi
l
ityofpar
tner
sisbot
hindi
vi
dualandcol
l
ect
ive.Thecr
edi
tor
shav
ear
ightt
orecov
er
t
hef
ir
m’sdebt
sfr
om t
hepr
ivat
epr
oper
tyofoneoral
lpar
tner
s,wher
efi
rm’
sasset
sar
e
i
nsuf
fi
cient
.

7.Fusi
onofowner
shi
pandcont
rol

I
ntheey
esofl
aw,
thei
dent
it
yofpar
tner
sisnotdi
ff
erentf
rom t
hei
dent
it
yofpar
tner
shi
p
f
ir
m.Assuch,
ther
ightofmanagementandcont
rol
vest
swi
tht
heowner
s(i
.e.
,par
tner
s).
8.Non-
tr
ansf
erabi
l
ityofi
nter
est

Nopar
tnercanassi
gnort
ransf
erhi
spar
tner
shi
pshar
etoanyot
herper
sonsoast
o
makehi
m apar
tneri
nthebusi
nesswi
thoutt
heconsentofal
lot
herpar
tner
s.

9.Regi
str
ati
onoff
ir
m

Regi
str
ati
onofapar
tner
shi
pfi
rmi
snotcompul
sor
yundert
heAct
.Theonl
ydocument
orev
enanor
alagr
eementamongpar
tner
srequi
redi
sthe‘
par
tner
shi
pdeed’
tobr
ingt
he
par
tner
shi
pint
oexi
stence.

1.
3.9Adv
ant
agesanddi
sadv
ant
agesofaPar
tner
shi
p

Adv
ant
agesofaPar
tner
shi
p

 Easyand I
nexpensi
ve.
 Par
tner
shi
ps ar
e gener
all
yan i
nexpensi
ve and easi
l
y
f
ormedbusi
nessst
ruct
ure.Themaj
ori
tyoft
imespentst
art
ingapar
tner
shi
p
of
tenf
ocusesondev
elopi
ngt
hepar
tner
shi
pagr
eement
.
 Shar
edFi
nanci
alCommi
tment
. 
Inapar
tner
shi
p,eachpar
tneri
sequal
l
yinv
est
ed
i
nthesuccessoft
hebusi
ness.Par
tner
shi
pshav
etheadv
ant
ageofpool
i
ng
r
esour
cest
oobt
aincapi
tal
.Thi
scoul
dbebenef
ici
ali
nter
msofsecur
ingcr
edi
t,
orbysi
mpl
ydoubl
i
ngy
ourseedmoney
.
 Compl
ement
arySki
l
ls.
 Agoodpar
tner
shi
pshoul
dreapt
hebenef
it
sofbei
ngabl
e
t
out
il
izet
hest
rengt
hs,
resour
cesandexper
ti
seofeachpar
tner
.
 Par
tner
shi
p I
ncent
ives f
or Empl
oyees.
 Par
tner
shi
ps hav
e an empl
oyment
adv
ant
ageov
erot
herent
it
ies,i
ftheyof
ferempl
oyeest
heoppor
tuni
tyt
owor
kin
t
hei
rpar
tner
shi
pbusi
nesst
heyal
sobecomepar
tner
s.Par
tner
shi
pincent
ives
of
tenat
tracthi
ghl
ymot
ivat
edandqual
i
fiedempl
oyees.

Di
sadv
ant
agesofaPar
tner
shi
p  
  
  
  
 

 Joi
ntandI
ndi
vi
dualLi
abi
l
ity
. 
Simi
l
art
osol
epr
opr
iet
orshi
ps,par
tner
shi
psr
etai
n
f
ull
,shar
edl
i
abi
l
ityamongt
heowner
s.Par
tner
sar
enotonl
yli
abl
efort
hei
rown
act
ions,
butal
sof
ort
hebusi
nessdebt
sanddeci
sionsmadebyot
herpar
tner
s.I
n
addi
ti
on,t
he per
sonalasset
s ofal
lpar
tner
s can be used t
o sat
isf
ythe
 par
tner
shi
p’sdebt
.
 Di
sagr
eement
sAmongPar
tner
s. 
Wit
hmul
ti
plepar
tner
s,t
her
ear
eboundt
obe
di
sagr
eement
s Par
tner
s shoul
d consul
teach ot
heron al
ldeci
sions,make
compr
omi
ses,
andr
esol
vedi
sput
esasami
cabl
yaspossi
ble.
 Shar
edPr
ofi
ts.
 Becausepar
tner
shi
psar
ejoi
ntl
yowned,eachpar
tnermustshar
e
t
hesuccessesandpr
ofi
tsoft
hei
rbusi
nesswi
tht
heot
herpar
tner
s.Anunequal
cont
ri
but
ionoft
ime,
eff
ort
,orr
esour
cescancausedi
scor
damongpar
tner
s.

1.
3.10Di
ssol
uti
onofaPar
tner
shi
p

The di
ssol
uti
on ofa par
tner
shi
pist
he pr
ocess dur
ing whi
ch t
he af
fai
rs oft
he
par
tner
shi
p ar
e wound up (
wher
ethe ongoi
ng nat
ure oft
he par
tner
shi
prel
ati
on
t
ermi
nat
es)
.Thi
sshoul
dnotbeconf
usedwi
tht
het
erm di
ssol
uti
onwhenappl
i
edt
oa
l
i
mit
edcompany
,whi
chi
stheev
entt
hatmar
kst
heconcl
usi
onoft
hewi
ndi
ng-
up.

Causesofgener
aldi
ssol
uti
onofpar
tner
shi
p

Thegener
aldi
ssol
uti
onofapar
tner
shi
pwi
l
lusual
l
ybei
nst
igat
edasar
esul
toneoft
he
f
oll
owi
ngev
ent
s:

1.Di
ssol
uti
onbyexpi
rat
ionornot
ice

(
a)I
fent
eredi
ntof
oraf
ixedt
erm,
byt
heexpi
rat
ionoft
hatt
erm;
(
b)I
fent
eredi
ntof
orasi
ngl
eadv
ent
ureorunder
taki
ng,byt
het
ermi
nat
ionoft
hat
adv
ent
ureorunder
taki
ng;
(
c)I
fent
eredi
ntof
oranundef
inedt
ime,byanypar
tnergi
vi
ngnot
icet
otheot
heror
ot
her
sofhi
sint
ent
iont
odi
ssol
vet
hepar
tner
shi
p.

2.Di
ssol
uti
onbybankr
upt
cyordeat
h
(
1)Subj
ectt
oanyagr
eementbet
weent
hepar
tner
s,ev
erypar
tner
shi
pisdi
ssol
vedas
r
egar
dsal
lthepar
tner
sbyt
hedeat
horbankr
upt
cyofanypar
tner
.

3.Di
ssol
uti
onbyi
l
legal
i
tyofpar
tner
shi
p
Apar
tner
shi
pisi
nev
erycasedi
ssol
vedbyt
hehappeni
ngofanyev
entwhi
chmakesi
t
unl
awf
ulf
ort
hebusi
nessoft
hef
ir
mtobecar
ri
edonorf
ort
hemember
soft
hef
ir
mto
car
ryi
toni
npar
tner
shi
p.

4.Di
ssol
uti
onbyt
hecour
t

Onappl
i
cat
ionbyapar
tner
,thecour
tmaydecr
eedi
ssol
uti
onoft
hepar
tner
shi
pinany
oft
hef
oll
owi
ngcases-
(
a)Whenapar
tnerbecomesl
unat
ic,
orper
manent
lyunsoundmi
nd.
(
b)Whenapar
tner
,becomesper
manent
lyi
ncapabl
eofper
for
minghi
spar
tdut
ies.
(
c)Whenapar
tner
,ot
hert
hant
hepar
tnersui
ng,
oper
atesasi
mil
arbusi
ness
(
d)whenapar
tner
,per
sist
ent
lycommi
tsabr
eachoft
hepar
tner
shi
pagr
eement
.
(
e)Whent
hebusi
nessoft
hepar
tner
shi
pcanonl
ybecar
ri
edonatal
oss;

5.Par
tnermaynot
if
ydi
ssol
uti
on
Ont
hedi
ssol
uti
onofapar
tner
shi
porr
eti
rementofapar
tner
,anypar
tnermaypubl
i
cly
not
if
ythesameandmayr
equi
ret
heot
herpar
tnerorpar
tner
stoconcurf
ort
hatpur
pose
i
nal
lnecessar
yorpr
operact
s,i
fany
,whi
chcannotbedonewi
thouthi
sort
hei
r
concur
rence.

6.Themut
ual
agr
eementoft
hepar
tner
s–whi
chmaybeanadhocagr
eement
,oran
agr
eementenshr
inedi
nthepar
tner
shi
pagr
eement(
wher
e,f
orexampl
e,i
twasagr
eed
t
hatt
hepar
tner
shi
pwoul
dbedi
ssol
vedaf
terapar
ti
cul
ardat
eoraf
teracer
tai
nev
ent
).
 
Suchanagr
eementmaybei
mpl
i
edr
athert
hanact
ual

7.Theexer
ciseofaspeci
fi
cpoweri
nthepar
tner
shi
pagr
eement–wher
e,f
orexampl
e,
t
hepar
tner
shi
pagr
eemental
l
owedamaj
ori
tyoft
hepar
tner
stoseekdi
ssol
uti
on.
 

B.Co-
Owner
shi
p

Co-
Owner
shi
pexi
stswher
ether
ear
etwoormor
epeopl
ewhosi
mul
taneousl
yenj
oyt
he
r
ight
sandr
esponsi
bil
i
tiesofowner
shi
pov
erapi
eceofl
and(
eit
heraf
reehol
dor
l
easehol
d).

Ty
pesofCo-
Owner
shi
p

1.TheJoi
ntt
enancy
2.TheTenancyi
nCommon

1.TheJoi
ntTenancy

UnderaJoi
ntt
enancyt
heco-
owner
sar
eregar
dedasasi
ngl
eent
it
yowni
ngt
hewhol
e
est
ate.I
ntheey
esoft
hel
awt
het
woormor
eowner
soft
hepr
oper
tywi
l
lber
egar
dedas
oneper
son.

2.Tenancyi
nCommon

Forat
enancyi
ncommont
oexi
st,
onl
ypossessi
oni
srequi
red.Eacht
enanti
ncommon
hasasepar
ateshar
eoft
hepr
oper
ty(
forexampl
eahal
foraquar
teroft
hepr
oper
ty)
whi
cht
heycandi
sposeofdur
ingt
hei
rli
fet
imeorwhent
heydi
e,Butt
hisi
sanundi
vi
ded
shar
e,basi
cal
l
ythesepar
ateshar
eisnotphy
sical
l
ysepar
atedorout
li
ned,
justt
he
per
cent
ageoft
hel
andi
sdet
ermi
ned.
 

Becauset
heshar
eisundi
vi
ded,
eacht
enanthast
her
ightt
ooccupyal
loft
hel
and.One
t
enanti
ncommoncannotexcl
udeanot
herf
rom acer
tai
npar
toft
hel
andorr
est
ri
ctt
he
useofanypar
toft
hel
andev
eni
fonet
enanti
ncommonmayhav
eal
argershar
ethan
t
heot
her
s. 

Di
sti
nct
ionbet
weenCo-
owner
shi
pandPar
tner
shi
p

1.Pr
ofi
tShar
ing

a)Par
tner
shi
p:I
nthepar
tner
shi
ppr
ofi
tshar
ingt
hebasi
cobj
ectoft
hepar
tner
shi
p
f
ormat
ion.
I
tist
her
elat
ionbet
weenper
sonswhohav
eagr
eedt
oshar
ethepr
ofi
tofabusi
ness.
Exampl
e:-Twoormor
eper
sonspur
chaseaBuswi
tht
hei
ntent
ionofgi
vi
ngi
tonhi
re
anddi
str
ibut
ingi
tsi
ncomeamongt
hepar
tner
s,i
sthecaseofpar
tner
shi
p.

b)Co-Owner
shi
p:I
ntheCo- owner
shiptherei
snoconceptofprofi
tandlossshar
ing.
Intheco-
owner
shi
pproper
tyisownedj oi
ntl
ywit
houtanyi
ntenti
ontocarryonbusiness.
Example:Twoormor
eper sonspurchaseacarwit
houtanyideaofgivi
ngitonhire,i
tis
co-owner
shi
p.

2.Cr
eat
ionagr
eement

a)Par
tner
shi
p:Agr
eementorcont
racti
sessent
ial
forpar
tner
shi
p.

b)Co-
Owner
shi
p:Agr
eementi
snotessent
ial
forco-
owner
shi
p.

3.Agentr
elat
ionshi
p

a)Par
tner
shi
p-Ev
erypar
tneri
sanagentofot
herpar
tneri
nthepar
tner
shi
p.

b)Co-
Owner
shi
p:Oneco-
owneri
snott
heagentofot
herco-
owner
.

4.Li
mitf
orMember
s

a)Par
tner
shi
p:I
nthepar
tner
shi
pther
eisr
est
ri
cti
onf
ort
hemaxi
mum numberof
par
tner
s.
b)Co-
Owner
shi
p:I
ntheco-
owner
shi
pther
eisnor
est
ri
cti
onf
ort
hemaxi
mum number
ofco-
owner
s.

5.Tr
ansf
erofRi
ght
s

a)Par
tnershi
p:I nt
hepart
nershi
papart
nercannott
ransf
erhi
sri
ght
stoanot
herper
son
wit
houtconsult
ingtheot
herpart
ner
s.

b)Co-Ownershi
p:I naco-
owner
shi
paco-
ownercant
ransf
erhi
sri
ght
stoanyone
wit
houtconsul
tat
ion.

6.Legal
Clai
m

a)Par
tner
shi
p:I
napar
tner
shi
papar
tnerhasl
egal
clai
m ont
hepr
oper
tyofpar
tner
shi
p.
b)Co-
Owner
shi
p:I
naco-
owner
shi
paco-
ownerhasal
egal
clai
m ont
hej
ointpr
oper
ty.

7.Di
vi
sionofPr
oper
ty
a)Par
tnershi
p:I
napartner
shipapartnerhasnor
ightt
odemandt
hesepar
ati
onof
pr
oper
ty.Hecanonl
ydemandtheshar
eofprofi
t.

b)Co-
Owner
shi
p:I
naco-
owner
shi
paco-
ownercandemandt
hesepar
ati
onofpr
oper
ty.

8.Di
ssol
uti
onRi
sk

a)Par
tner
shi
p:Par
tner
shi
pisaf
fect
edbyt
hedeat
h,i
nsol
vencyorr
eti
rementofany
par
tner
.
b)Co-
Owner
shi
p :Co-
owner
shi
p cannotbe di
ssol
ved due deat
h,i
nsol
vency or
r
eti
rement
.

9.Mi
norCase

a)Par
tner
shi
p:I
napar
tner
shi
pami
norcannotbecomear
egul
arpar
tner
.

b)Co-
Owner
shi
p:I
naco-
owner
shi
pami
norcanbecomear
egul
arco-
owner
.

1.
6Di
ff
erenceorDi
sti
nct
ionbet
weencompanyandPar
tner
shi
p

1.Apar
tner
shi
pisanagr
eementbet
weent
woormor
eper
sonswhocomet
oget
her
t
ocar
ryoutabusi
ness,andshar
epr
ofi
t&l
ossesmut
ual
l
y.Acompanyi
san
i
ncor
por
atedassoci
ati
on,
alsocal
l
edanar
ti
fi
cialper
sonhav
ingsepar
atei
dent
it
y,
commonseal
andper
pet
ual
successi
on.
2.Ther
egi
str
ati
onoft
hepar
tner
shi
pfi
rmi
snotcompul
sor
ywher
east
ofor
ma
company
;itneedst
ober
egi
ster
ed.
3.Fort
hecr
eat
ionofapar
tner
shi
p,t
her
emustbeatl
eastt
wopar
tner
s.Fort
he
f
ormat
ionofacompany
,ther
emustbeatl
east2member
sincaseofpr
ivat
e
compani
esand7i
nregar
dtopubl
i
ccompani
es.
4.Thel
i
mitf
ort
hemaxi
mum numberofpar
tner
sinapar
tner
shi
pfi
rmi
s20.Ont
he
ot
herhand,t
hemaxi
mum numberofpar
tner
sincaseofapubl
i
ccompanyi
s
unl
i
mit
edandi
nthecaseofapr
ivat
ecompanyt
hatl
i
miti
s50.
5.Apar
tner
shi
pfi
rm canbedi
ssol
vedbyanyoneoft
hepar
tner
s.I
ncont
rastt
othi
s,
t
hecompanycannotbewoundup,
byanyoneoft
hemember
s.
6.Apar
tner
shi
pfi
rmi
snotboundt
ouset
hewor
dli
mit
edorpr
ivat
eli
mit
edatt
he
 endofi
tsnamewhi
l
eacompanyhast
oaddt
hewor
d‘l
i
mit
ed’i
fiti
s apubl
i
c
companyand‘
pri
vat
eli
mit
ed’
ifi
tisapr
ivat
ecompany
.
7.Thel
i
abi
l
ityoft
hepar
tner
sisunl
i
mit
edwher
east
hel
i
abi
l
ityoft
hecompanyi
s
l
i
mit
edt
otheext
entofshar
eshel
dbyev
erymemberorguar
ant
eegi
venbyt
hem.
8.Asacompanyi
sanar
ti
fi
cialper
sonsot
hati
tcanent
eri
ntocont
ract
sini
tsown
name,t
hemember
sar
enothel
dli
abl
efort
heact
soft
hecompany
. 
Buti
nthe
caseofapar
tner
shi
pfi
rm,apar
tnercanent
eri
ntoacont
racti
nthei
rownname
wi
tht
hemut
ualconsentoft
heot
herpar
tner
s,andt
heycanal
sobesuedf
ort
he
act
sdonebyt
hef
ir
m.

LESSONTWO

2.SALESOFGOODS
Def
ini
ti
onof“
goods”

‘
Goods’i
sdef
inedas“
Ever
yki
ndofmov
abl
epr
oper
tyot
hert
hanact
ionabl
ecl
aimsand
money
;andi
ncl
udesst
ockandshar
es,cr
ops,gr
ass,andt
hingsat
tachedt
oorf
ormi
ng
par
toft
hel
andwhi
char
eagr
eedt
obesev
eredbef
oresal
eorundert
hecont
ractof
sal
e.”

Cl
assi
fi
edofGoods
1.
 
  
  
 
 Ex
ist
inggoods;
2.
 
  
  
 
 Fut
uregoods;
and
3.
 
  
  
 
 Cont
ingentgoods

1.
 Exi
sti
nggoods:
Att
het
imeofsal
esi
fthegoodsar
ephy
sical
l
yinexi
stenceandar
einpossessi
onoft
he
sel
l
ert
hegoodsar
ecal
l
ed‘
Exi
sti
ngGoods’
.
Exi
sti
nggoodscanbecl
assi
fi
edi
nto‘
speci
fi
corunascer
tai
ned.
’

(
a) Speci
fi
cgoods.
(Goodssepar
atedandi
dent
if
iedatt
het
imeoft
hecont
ract
)

Goodsi
dent
if
iedandagr
eeduponatt
het
imeoft
hemaki
ngoft
hecont
ractofsal
ear
e
cal
l
ed‘
speci
fi
cgoods’[
Sec.2(
14)
].I
tmaybenot
edt
hati
nact
ualpr
act
icet
het
erm
‘
ascer
tai
nedgoods’
isusedi
nthesamesenseas‘
speci
fi
cgoods,
’Forexampl
e,wher
eA
agr
eest
osel
ltoBapar
ti
cul
arr
adi
obear
ingadi
sti
nct
ivenumber
,ther
eisacont
ractof
sal
eofspeci
fi
corascer
tai
nedgoods.

(
b)Unascer
tai
nedgoods.
(Goodsnots
epar
atedatt
het
imeoft
hec
ont
rac
t)

Thegoods,whi
char
enotsepar
atel
yident
if
iedorascer
tai
nedatt
het
imeoft
hemaki
ng
oft
hec
ont
rac
t,ar
eknownas‘
unas
cer
tai
nedgoods
.’Theyar
eindi
cat
edordef
inedonl
yby
descr
ipt
ion.Forexampl
e,i
fAagr
eest
osel
ltoBonebagofsugaroutoft
hel
otofone
hundr
edbagsl
yi
ngi
nhi
sgodown;i
tisasal
eofunascer
tai
nedgoodsbecausei
tisnot
k
nownwhi
chbagi
stobedel
i
ver
ed.Assoonasapar
ti
cul
arbagi
ssepar
atedf
rom t
hel
ot
f
ordel
i
ver
y,i
tbec
omesas
cer
tai
nedors
pec
ifi
cgoods.Thedi
sti
nct
ionbet
ween‘
spec
ifi
c’or
‘
asc
ert
ained’and ‘
unas
cer
¬tai
ned’goods i
simpor
tanti
n connect
ion wi
tht
he r
ules
r
egar
ding‘
t
ransf
erofpr
oper
ty’
from t
hesel
l
ert
othebuy
er.

2.
 Fut
uregoods:
Fut
uregoodsar
egoodst
obemanuf
act
uredorpr
oducedory
ett
obeacqui
redbysel
l
er.
Ther
ecannotbepr
esentsal
einr
espectf
utur
egoodsbecauset
hepr
oper
tycannotpass.

Exampl
e

(
a) 
 
 Aagr
eest
osel
ltoBal
lthemi
l
kthathi
scowmayy
iel
ddur
ingt
hecomi
ngy
ear
.Thi
s
i
sacont
ractf
ort
hesal
eoff
utur
egoods.

(
b)Xagr
eest
osel
ltoYal
lthemangoes,
whi
chwi
l
lbepr
oducedi
nhi
sgar
dennex
tyear
.It
i
scont
ractofsal
eoff
utur
egoods,
amount
ingt
o‘anagr
eementt
osel
l
.’

3.Cont
ingentGoods:
Thoughat
ypeoff
utur
egoods,t
hesear
ethegoodsi
nwhi
cht
hei
racqui
si
ti
ondepends
uponacont
ingency(
possi
bi
li
ty
),whi
chmayormaynothappen.

Exampl
e;Aagr
eest
osel
lspeci
fi
cgoodsi
napar
ti
cul
arshi
ptoBt
obedel
i
ver
edont
he
ar
ri
valoft
heshi
p.I
ftheshi
par
ri
vesbutwi
thnosuchgoodsonboar
d,t
hesel
l
eri
snot
l
i
abl
e,f
ort
hecont
racti
stodel
i
vert
hegoodsshoul
dtheyar
ri
ve.

2.
1Cont
ractofSal
e

A‘
Cont
ractofSal
e’i
sat
ypeofcont
ractwher
ebyonepar
ty(
sel
l
er)ei
thert
ransf
ersor
agr
eest
otr
ansf
ert
heowner
shi
pofgoodsf
ormoneyt
otheot
herpar
ty(
buy
er)
.A
cont
ractofsal
ecanbeasal
eoranagr
eementt
osel
l
.Inacont
ractofsal
e,whent
her
e
i
sanact
ualsal
eofgoods,
iti
sknownasSal
ewher
easi
fther
eisani
ntent
iont
osel
lthe
goods,
iti
scal
l
edanAgr
eementt
osel
l
.

2.
1.1ASal
e

Asal
eisat
ypeofcont
racti
nwhi
cht
hesel
l
ert
ransf
erst
heowner
shi
pofgoodst
othe
buy
erf
oramoneyconsi
der
ati
on.Her
ether
elat
ionshi
pami
dstt
hesel
l
erandbuy
eri
sof
cr
edi
toranddebt
or.I
tist
her
esul
tofanagr
eementt
osel
lwhent
hecondi
ti
onsar
e
f
ulf
il
ledandt
hespeci
fi
edt
imei
sov
er.Ther
emustbeatl
eastt
wopar
ti
es;onei
sthe
buy
er,
andot
heri
sthesel
l
er.

Essent
ial
condi
ti
onsr
egar
dingSal
e:

1.Ther
emustbegoodorpr
oper
tyt
obesol
d,busi
nessofexchangi
ngmoneywi
th
ot
hermoneyi
snotasal
e
2.Ther
emustbeconsi
der
ati
oni
nter
msofmoneyknownaspr
ice.
3.Ther
emustbet
ransf
erabl
eofgoodsorpr
oper
tyf
rom sel
l
ert
obuy
er.
4.Al
lthenecessar
ycondi
ti
onsofav
ali
dcont
ractshoul
dbepr
esentl
i
kef
reeconsent
,
al
awf
ulobj
ect
,capaci
tyofpar
ti
es,
etc.

I
fthegoodsar
ebei
ngsol
dandt
hepr
oper
tyi
str
ansf
err
edt
othebuy
er,
butt
hesel
l
eri
s
notpai
d.Then,t
hesel
l
ercangot
othecour
tandf
il
easui
tagai
nstt
hebuy
erf
ort
he
damagesandt
hepr
icet
oo.Ont
heot
herhand,i
fthegoodsar
enotdel
i
ver
edt
othe
buy
ert
henhecanal
sosuet
hesel
l
erf
ordamages.

2.
1.2Agr
eementt
oSel
l

Anagr
eementt
osel
lisal
soacont
ractofsal
eofgoods,i
nwhi
cht
hesel
l
eragr
eest
o
t
ransf
ergoodst
othebuy
erf
orapr
iceatal
aterdat
eoraf
tert
hef
ulf
il
lmentofa
condi
ti
on.Whent
her
eiswi
l
li
ngnessoft
hebot
hthepar
ti
est
oconst
it
uteasal
ei.
e.t
he
buy
eragr
eest
obuy
,andt
hesel
l
eri
sreadyt
osel
lthegoodsf
ormonet
aryv
alue.I
nan
agr
eementt
osel
ltheper
for
manceoft
hecont
racti
sdoneataf
utur
edat
e,i
.e.whent
he
t
imeel
apsesorwhent
henecessar
ycondi
ti
onsar
esat
isf
ied.Af
tert
hecont
racti
s
execut
ed,i
tbecomesav
ali
dsal
e.Al
lthenecessar
ycondi
ti
onsr
equi
redatt
het
imeof
sal
eshoul
dexi
sti
nthecaseofanagr
eementt
osel
ltoo.I
fthesel
l
ercancel
sthe
cont
ract
,thent
hebuy
ercancl
aim damagesf
ort
hebr
eachofcont
ract
.Ont
heot
her
hand,
theunpai
dsel
l
ercanal
sosuet
hebuy
erf
ordamages.

2.
1.3Di
sti
nct
ionbet
weenSal
eandAgr
eementt
oSel
l

1.Whent
hev
endorsel
l
sgoodst
othecust
omerf
orapr
ice,andt
het
ransf
erof
 goodsf
rom t
hev
endort
othecust
omert
akespl
aceatt
hesamet
ime,t
heni
tis
knownasSal
e.Whent
hesel
l
eragr
eest
osel
lthegoodst
othebuy
erataf
utur
e
speci
fi
eddat
eoraf
tert
henecessar
ycondi
ti
onsar
eful
fi
ll
edt
heni
tisknownas
Agr
eementt
osel
l
.
2.Thenat
ureofsal
eisabsol
utewhi
l
eanagr
eementt
osel
li
scondi
ti
onal
.
3.ASal
eisanexampl
eofExecut
edCont
ractwher
east
heAgr
eementt
oSel
lisan
exampl
eofExecut
oryCont
ract
.
4.Ri
skandr
ewar
dsar
etr
ansf
err
edwi
tht
het
ransf
erofgoodst
othebuy
eri
nSal
e.
Ont
heot
herhand,r
iskandr
ewar
dsar
enott
ransf
err
edast
hegoodsar
est
il
lin
possessi
onoft
hesel
l
er.
5.I
fthegoodsar
elostordamagedsubsequent
ly,t
heni
nthecaseofsal
eiti
sthe
l
i
abi
l
ityoft
hebuy
er,buti
fwet
alkaboutanagr
eementt
osel
l
,iti
sthel
i
abi
l
ityof
t
hesel
l
er.
6.Taxi
simposedatt
het
imeofsal
e,notatt
het
imeofagr
eementt
osel
l
.
7.I
nthecaseofasal
e,t
her
ightt
osel
lthegoodsi
sint
hehandsoft
hebuy
er.
Conv
ersel
y,i
nagr
eementt
osel
l
,thesel
l
erhast
her
ightt
osel
lthegoods.

2.
1.4Compar
isonChar
tbet
weensal
eandagr
eement

Basi
sforCompar
ison Sal
e Agr
eementt
osel
l

Wheni nacont ractofsal

e,t
he Wheni nacontr
actofsal
ethepart
iest
o
exchangeofgoodsf ormoney contr
actagreet
oexchangethegoods
Meani
ng
considerati
ontakesplace forapriceataf
utur
especif
ieddat
eis
i
mmedi atel
y,i
tisknownasSale. knownasanAgr eementtoSell
.

Nat
ure Absol
ute Condi
ti
onal

Ty
peofCont
ract Execut
edCont
ract Execut
oryCont
ract

Tr
ansf
erofr
isk Yes No

I
nsale,theti
tl
eofgoodstr
ansf
ersI
nanagreementtosell
,theti
tl
eof
Ti
tl
e tothebuyerwit
hthetr
ansf
erof goodsremainswiththesell
erast
her
e
goods. i
snotr
ansferofgoods.

Ri
ghtt
osel
l Buy
er Sel
l
er
Basi
sforCompar
ison Sal
e Agr
eementt
osel
l

Consequencesof
subsequentlossor Responsi
bil
i
tyofbuy
er Responsi
bil
i
tyofsel
l
er
damaget othegoods

VATischar
gedatt
het
imeof
Tax Not
axi
slev
ied.
sal
e.

Thebuy ercanclaim damages

Suitf
orbreachof from t
hesellerandpr opri
etar
y Heret
hebuyerhast
her
ightt
ocl
aim
contr
actbythesel
lerremedyf r
om thepartyt owhom damagesonl
y.
thegoodsar esold.

Ri
ghtofunpai
dsel
l
erRi
ghtt
osuef
ort
hepr
ice. Ri
ghtt
osuef
ordamages.

2.
2Hi
re-
Pur
chase

Underhi
repur
chaseagr
eement
,thegoodsar
edel
i
ver
edt
othehi
repur
chaserf
orhi
s
useatt
het
imeoft
heagr
eementbutt
heowneroft
hegoodsagr
eest
otr
ansf
ert
he
pr
oper
tyi
nthegoodst
othehi
repur
chaseronl
ywhenacer
tai
nfi
xed numberof
i
nst
all
ment
sofpr
icear
epai
dbyt
hehi
rer
.Ti
l
lthatt
ime,
thehi
rerr
emai
nst
hebai
l
eeand
t
hei
nst
all
ment
spai
dbyhi
m ar
eregar
dedast
hehi
re-
char
gesf
ort
heuseoft
hegoods.
I
fther
eisadef
aul
tbyt
hehi
repur
chaseri
npay
ingani
nst
all
ment
,theownerhasar
ight
t
oresumet
hepossessi
onoft
hegoodsi
mmedi
atel
ywi
thoutr
efundi
ngt
heamount
r
ecei
vedt
il
lthen,becauset
heowner
shi
pst
il
lrest
swi
thhi
m.I
tmaybenot
edt
hatmer
e
pay
mentofpr
icebyi
nst
all
ment
sunderanagr
eementdoesnotnecessar
il
ymakei
ta
hi
re-
pur
chase,buti
tmaybeasal
e.Forexampl
e,i
nthecase,of"
Inst
all
mentPur
chase
Met
hod,
"ther
eisasal
e,becausei
nthi
scaset
hebuy
eri
sboundt
obuywi
thnoopt
iont
o
r
etur
nandt
hepr
oper
tyi
ngoodspassest
othebuy
eratonce.

2.
2.1Di
sti
nct
ionbet
weenSal
eandHi
re-
Pur
chase

1.I
nasal
e,pr
oper
tyi
nthegoodsi
str
ansf
err
edt
othebuy
eri
mmedi
atel
yatt
het
imeof
cont
ract
,wher
easi
nhi
re-
pur
chase,t
hepr
oper
tyi
nthegoodspassest
othehi
rerupon
pay
mentoft
hel
asti
nst
all
ment
.
2.I
nasal
e,t
heposi
ti
onoft
hebuy
eri
sthatoft
heowneroft
hegoodsbuti
nhi
re
pur
chase,
theposi
ti
onoft
hehi
reri
sthatofabai
l
eet
il
lhepay
sthel
asti
nst
all
ment
.

3.I
nthecaseofasal
e,t
hebuy
ercannott
ermi
nat
ethecont
ractandi
sboundt
opayt
he
pr
iceoft
hegoods.Ont
heot
herhand,i
nthecaseofhi
re-
pur
chase,t
hehi
rermay
,ifhe
sol
i
kes,t
ermi
nat
ethecont
ractbyr
etur
ningt
hegoodst
oit
sownerwi
thoutanyl
i
abi
l
ity
t
opayt
her
emai
ningi
nst
all
ment
s.

4.I
nthecaseofasal
e,t
hebuy
ercanpassagoodt
it
let
oabonaf
idepur
chaserf
rom
hi
m buti
nahi
re-
pur
chase,
thehi
rercannotpassanyt
it
leev
ent
oabonaf
idepur
chaser
.

5.I
nasal
e,sal
est
axi
slev
iedatt
het
imeoft
hecont
ractwher
easi
nahi
re-
pur
chase,
sal
est
axi
snotl
evi
abl
eunt
ili
tev
ent
ual
l
yri
pensi
ntoasal
e(K.
L.Johar&Co.v
s.Dy
.
Commer
cial
TaxOf
fi
cer
).

2.
3Bai
l
ment

Essent
ial
l
y,i
nabai
l
mentcont
ract
,thebai
l
orgi
vest
hegoods,asset
sorpr
oper
tyt
othe
bai
l
eef
oraspeci
fi
camountoft
ime.Howev
er,t
hegoods,asset
sorpr
oper
tyst
il
l
bel
ongst
othebai
l
or.

2.
3.1Ty
pesofBai
l
ment

Bai
l
mentmaybr
oadl
ybecl
assi
fi
edi
ntot
wocat
egor
ies,
namel
y,

1. Gr
atui
tousbai
l
ment
2. Non-
grat
uit
ousbai
l
ment
.

1.Gr
atui
tousBai
l
ment

A bai
l
mentwi
thno consi
der
ati
onsi
scal
l
ed agr
atui
tousbai
l
ment
.Int
hiski
nd of
bai
l
mentnei
thert
hebai
l
or,
nort
hebai
l
eei
sent
it
ledt
oanyr
emuner
ati
onorr
ewar
d.Such
abai
l
mentmaybef
ort
heexcl
usi
vebenef
itofei
therpar
ty,
i.
e.,
thebai
l
orort
hebai
l
ee.
Bai
l
mentf
ort
heexcl
usi
vebenef
itoft
hebai
l
or

I
nthi
scaset
hebai
l
ordel
i
ver
sthegoodsf
ort
heexcl
usi
vebenef
it
sandt
hebai
l
eedoes
notder
iveanybenef
itoutofi
t.Forexampl
e,“
A”l
eav
eshi
spet
swi
th“
B”,hi
snei
ghbour
t
obel
ookedaf
terdur
ingA’
sphy
sicalabsence.I
nthi
scase,Aal
onei
sbei
ngbenef
it
ed
byt
hebai
l
ment
.Or
,ify
oupar
kyourcari
nyournei
ghbour
’spr
emi
sest
obet
akencar
ein
y
ourabsence,
youasabai
l
order
ivet
heexcl
usi
vebenef
itf
rom t
hebai
l
ment
.

Bai
l
mentf
ort
heexcl
usi
vebenef
itoft
hebai
l
ee

Thi
sist
hecasewher
eabai
l
ordel
i
ver
sthegoodst
othebai
l
eef
ort
heexcl
usi
vebenef
it
s
oft
hebai
l
eeanddoesnotgai
nany
thi
ngf
rom t
hecont
racthi
msel
f.Forexampl
e,y
ou
l
endy
ourbookt
oaf
ri
endofy
our
sforaweekwi
thoutanychar
georf
avour
.Int
hiscase
t
her
eci
pientoft
hebookasabai
l
ee,i
sthesol
ebenef
ici
aryoft
hist
ransact
ionof
bai
l
ment
.

2.Non-
Grat
uit
ousBai
l
ment

Cont
rar
ytogr
atui
tousbai
l
ment
,anon-
grat
uit
ousbai
l
mentorbai
l
mentf
orr
ewar
disone
t
hati
nvol
vesomeconsi
der
ati
onpassi
ngbet
weent
hebai
l
orandt
hebai
l
ee.Obv
iousl
yin
t
hiscaset
hedel
i
ver
yofgoodst
akespl
acef
ort
hemut
ualbenef
itofbot
hthepar
ti
es.
Forexampl
e,“
A”hi
res“
B’s”car
.Her
eBi
sthebai
l
orandr
ecei
vest
hehi
rechar
gesandA
i
sthebai
l
eeandenj
oyst
heuseoft
hecar
.Si
mil
arl
y,wheny
ougi
vey
ourPCorl
apt
opf
or
r
epai
rtosomet
echi
e,bot
hyouandt
hecomput
ert
echi
ear
egoi
ngt
obebenef
it
edby
t
hiscont
ract–whi
l
eyougety
ourcomput
err
epai
red,
heget
shi
sfeesorchar
ges.

2.
3.2Di
sti
nct
ionbet
weenSal
eandBai
l
ment

1.Sal
eandBai
l
mentar
etwodi
ff
erentt
ypesofcont
ract
s.Acont
ractofsal
eisast
rai
ght
f
orwar
dcont
ractwher
eaper
sonmaybuygoods,ser
vicesorpr
oper
tyf
rom asel
l
eri
n
exchangef
orr
emuner
ati
on,usual
l
yint
hef
orm ofmoney
.Thi
samounti
sdeci
ded
bet
weent
hebuy
erandsel
l
erasappr
opr
iat
efort
hev
alueofgoods,
ser
vicesorpr
oper
ty.

2.Bai
l
ment
,ont
heot
herhandi
ssl
i
ght
lydi
ff
erentt
hansal
e.Thedef
ini
ti
onof'
Bai
l
ment
'
st
atest
hati
tis“
thecont
ract
ualt
ransf
erofpossessi
onofasset
sorpr
oper
tyf
ora
speci
fi
cobj
ect
ive.I
nbai
l
ment
,thedel
i
ver
eroft
heasseti
sthebai
l
or,
andt
her
ecei
veri
s
t
hebai
l
ee.I
nabai
l
mentt
ransact
ion,owner
shi
pisnev
ert
ransf
ered,andt
hebai
l
ori
s
gener
all
ynotent
it
ledt
ouset
hepr
oper
tywhi
l
eit
'si
npossessi
onoft
hebai
l
ee.I
nthese
way
s,bai
l
mentdi
ff
ersf
rom gi
ft
ingandl
easi
ng.
”

3.I
nvest
opedi
aexpl
ains'
Bai
l
ment
'as“
Bai
l
menti
sal
egalr
elat
ionshi
pbet
weent
wo
par
ti
es,wher
ebyt
heownerr
etai
nsf
ullr
ight
stot
heasset
sorpr
oper
ty.Forexampl
e,
whenabankhol
dsabor
rower
'sassetascol
l
ater
alf
orasecur
edl
oan,t
hisi
saf
orm of
bai
l
ment
.Int
hiscase,
thebanki
sthebai
l
eeandt
hebor
roweri
sthebai
l
or.
”

Essent
ial
l
y,i
nabai
l
mentcont
ract
,thebai
l
orgi
vest
hegoods,asset
sorpr
oper
tyt
othe
bai
l
eef
oraspeci
fi
camountoft
ime.Howev
er,t
hegoods,asset
sorpr
oper
tyst
il
l
bel
ongst
othebai
l
or.Thebai
l
eej
usthast
hepossessi
onoft
hegoodsf
ort
het
imebei
ng.
Thebai
l
eemaynothowev
eruset
heassetanywayhel
i
kes,i
tmustbeusedast
he
bai
l
ori
nst
ruct
ed.Thebai
l
ormayal
sogi
vet
heasset
stot
hebai
l
eef
orsaf
ekeepi
ng.Af
ter
t
heagr
eedupont
imei
spassed,t
hebai
l
eemustr
etur
nthepr
ocessi
onoft
hegoods,
asset
sorpr
oper
tybackt
othebai
l
or.

2.
3.3Det
ail
edcompar
isonbet
weenSal
eandBai
l
ment

  Sal
e Bai
l
ment

Possessi
onofgoodsi
s Possessi
onofgoodsi
str
ansf
err
edt
othe
Possessi
on
t
ransf
err
edt
othebuy
er. bai
l
ee.

Owner
shi
pist
ransf
err
edt
o
Owner
shi
p Owner
shi
presi
deswi
tht
hebai
l
or.
t
hebuy
er.

Usage Thebuy
ermayuset
hegoodsAbai
l
eecanuset
hegoodsonl
yaccor
ding
i
nanywayhel
i
kes. t
othedi
rect
ionsoft
hebai
l
or.
 Ther
eisnor
etur
nofgoods
Thegoodsar
eret
urnedaf
tert
hespeci
fi
ed
Ret
urn f
rom t
hebuy
ert
othesel
l
er,
t
imeoraccompl
i
shmentoft
hepur
pose.
unl
esst
her
eisbr
each.

Theconsiderat
ioni
sanundertaki
ngto
Consi
der
ati
oTheconsi
der
ati
oni
sthepr
ice
ret
urnthegoodsaftert
heaccomplishment
n i
nter
msofmoney.
ofthepurpose.

Thequest
ionofanychar
ges
Thebai
l
orhast
orepayt
hechar
geswhi
ch
t
obepai
dbyt
hesel
l
ert
o
Char
ges t
hebai
l
eehasi
ncur
redi
nkeepi
ngt
hegoods
buy
erorv
isev
ersadoesnot
saf
e.
ar
ise.

Oncet
hesal
eist
ransact
ed,
Tempor
ary
.Thebai
l
eehast
oret
urnt
he
t
hebuy
erkeepst
hegoods
Dur
ati
on goodst
othebai
l
oroncet
hespeci
fi
edt
ime
unt
ilhedeci
dest
osel
lthem
i
spassed.
t
oanot
her
.

2.
5Condi
ti
onandWar
rant
y

2.
5.1Condi
ti
on

Condi
ti
onsar
ecer
tai
nter
ms,obl
i
gat
ions,andpr
ovi
sionst
hatar
eimposedbyt
hebuy
er
andsel
l
erwhi
l
eent
eri
ngi
ntoacont
ractofsal
e,whi
chneedst
obesat
isf
ied.The
condi
ti
onsar
eindi
spensabl
etot
heobj
ect
iveoft
hecont
ract
.

Twot
ypesofcondi
ti
onsi
nacont
ractof
 sal
e

i
)Expr
essedCondi
ti
on:
Thecondi
ti
onswhi
char
ecl
ear
lydef
inedandagr
eeduponbyt
he
par
ti
eswhi
l
eent
eri
ngi
ntot
hecont
ract
.
i
i
)Impl
i
edCondi
ti
on:Thecondi
ti
onswhi
char
enotexpr
essl
ypr
ovi
ded,butasperl
aw,
somecondi
ti
onsar
esupposedt
obepr
esentatt
het
imemaki
ngt
hecont
ract
.Howev
er,
t
hesecondi
ti
onscanbewai
vedof
fthr
oughexpr
essagr
eement
.Someexampl
esof
i
mpl
i
edcondi
ti
onsar
e:

 Thecondi
ti
onr
elat
ingt
othet
it
leofgoods.
 Condi
ti
onconcer
ningt
hequal
i
tyandf
it
nessoft
hegoods.
 Condi
ti
onast
owhol
esomeness.
 Sal
ebysampl
e
 Sal
ebydescr
ipt
ion.

2.
5.2War
rant
y

Awar
rant
yisaguar
ant
eegi
venbyt
hesel
l
ert
othebuy
eraboutt
hequal
i
ty,f
it
nessand
per
for
manceoft
hepr
oduct
.Iti
sanassur
ancepr
ovi
dedbyt
hemanuf
act
urert
othe
cust
omert
hatt
hesai
dfact
saboutt
hegoodsar
etr
ueandati
tsbest
.Manyt
imes,
ift
he
war
rant
ywasgi
ven,
prov
esf
alse,
andt
hepr
oductdoesnotf
unct
ionasdescr
ibedbyt
he
sel
l
ert
henr
emedi
esasar
etur
norexchangear
eal
soav
ail
abl
etot
hebuy
eri
.e.as
st
atedi
nthecont
ract
.

Awar
rant
ycanbef
ort
hel
i
fet
imeoral
i
mit
edper
iod.I
tmaybeei
therexpr
essed,i
.e.
,
whi
chi
sspeci
fi
cal
l
ydef
inedori
mpl
i
ed,whi
chi
snotexpl
i
cit
ly 
prov
ided,butar
ises
accor
dingt
othenat
ureofsal
eli
ke:

 War
rant
yrel
atedt
oundi
stur
bedpossessi
onoft
hebuy
er.
 Thewar
rant
ythatt
hegoodsar
efr
eeofanychar
ge.
 Di
scl
osur
eofhar
mful
nat
ureofgoods.
 War
rant
yast
oqual
i
tyandf
it
ness

2.
5.3Di
sti
nct
ionsbet
weenCondi
ti
onandWar
rant
y

1.A condi
ti
on i
s an obl
i
gat
ion whi
ch r
equi
res bei
ng f
ulf
il
led bef
ore anot
her
pr
oposi
ti
ont
akespl
ace.Awar
rant
yisasur
etygi
venbyt
hesel
l
er 
regar
dingt
he
 st
ateoft
hepr
oduct
.
2.Thet
erm condi
ti
oni
sdef
inedi
nsect
ion12(
2)oft
heI
ndi
anSal
eofGoods,Act
1930wher
easwar
rant
yisdef
inedi
nsect
ion12(
3).
3.Thecondi
ti
oni
svi
tal
tot
het
hemeoft
hecont
ractwhi
l
eWar
rant
yisanci
l
lar
y.
4.Br
eachofanycondi
ti
onmayr
esul
tint
het
ermi
nat
ionoft
hecont
ractwhi
l
ethe
br
eachofwar
rant
ymaynotl
eadt
othecancel
l
ati
onoft
hecont
ract
.
5.Vi
olat
ingacondi
ti
onmeansv
iol
ati
ngawar
rant
ytoo,
butt
hisi
snott
hecasewi
th
war
rant
y.
6.I
nthecaseofbr
eachofcondi
ti
on,
thei
nnocentpar
tyhast
her
ightt
oresci
ndt
he
cont
ractaswel
lasacl
aimf
ordamages.Ont
heot
herhand,
inbr
eachofwar
rant
y,
t
heaggr
iev
edpar
tycanonl
ysuet
heot
herpar
tyf
ordamages.

2.
5.4Compar
isonChar
tbet
weenCondi
ti
onandWar
rant
y
Basi
sfor
Condi
ti
on War
rant
y
Compari
son

Arequirementorev entt
hatshoul
d Awar r
antyisanassurancegivenby
beperformedbeforet he thesel
lertothebuyeraboutthestat
e
Meani
ng
completionofanotheracti
on,i
s oftheproduct,
thattheprescr
ibed
knownasCondi ti
on. fact
saregenuine.

I
tisdi
rect
lyassoci
atedwi t
hthe I
tisasubsidi
aryprov
isi
onrel
atedt
o
Whati
sit
?
obj
ect
iveofthecontract
. t
heobjectofthecontr
act.

Resul
tofbr
each Ter
minat
ionofcont
ract
. Cl
aim damagesf
ort
hebr
each.

Viol
ationofcondi
tioncanbe
Viol
ati
onofwarr
ant
ydoesnotaf
fect
Vi
olat
ion regardedasav i
olati
onoft
he
thecondi
ti
on.
warranty.

Remedyav ai
labl
eto
Repudiat
ethecont
ractaswel
las
theaggri
evedparty Cl
aim damagesonl
y
cl
aim damages.
onbreach

2.
5.5Remedyf
orbr
eachofwar
rant
y

1.Wher
ether
eisabr
eachofwar
rant
ybyt
hesel
l
er,
thebuy
eri
snotent
it
ledt
orej
ectt
he
goods;
buthemay

Suet
hesel
l
erf
ort
hedamages

LESSONTHREE

3.TRANSFEROFPROPERTYANDTI
TLE

Rul
esr
egar
dingTr
ansf
erofPr
oper
tyi
nCont
ractofSal
e

1.Whent
her
eisacont
ractf
ort
hesal
eofunascer
tai
nedgoods,nopr
oper
tyi
nthe
goodsi
str
ansf
err
edt
othebuy
erunl
essandunt
ilt
hegoodsar
eascer
tai
ned.

2.Whent
her
eisacont
ractf
ort
hesal
eofspeci
fi
corascer
tai
nedgoods,
thepr
oper
tyi
n
suchgoodspassest
othebuy
eratt
het
imet
hepar
ti
esi
ntendi
ttopass.Thet
ermsof
t
hecont
ractandt
heci
rcumst
ancesoft
hecasewi
l
lindi
cat
ethei
ntent
ionoft
hepar
ti
es.

3.Whent
her
eisanuncondi
ti
onalcont
ractf
ort
hesal
eofspeci
fi
cgoodsi
nadel
i
ver
abl
e
st
ate,
thepr
oper
tyi
nthegoodspassest
othebuy
erwhent
hecont
racti
smade.Thef
act
t
hatt
het
imeofpay
mentoft
hepr
iceort
het
imeofdel
i
ver
yofgoodshasbeen
post
poneddoesnotpr
eventt
hepr
oper
tyi
ngoodst
opasst
othebuy
er.

4.Whent
her
eisacont
ractf
ort
hesal
eofspeci
fi
cgoodsnoti
nadel
i
ver
abl
est
ate,t
he
pr
oper
tyi
nthegoodsdoesnotpassunt
ilt
hesel
l
erhasmadei
tinadel
i
ver
abl
est
ate.

5.Whent
her
eisacont
ractf
ort
hesal
eofspeci
fi
cgoodsi
nadel
i
ver
abl
est
ateandt
he
sel
l
erhast
owei
ghormeasur
ethegoodst
odet
ermi
net
hepr
ice,t
hepr
oper
tyi
nsuch
goodsdoesnotpassunt
ilt
hepr
icei
sdet
ermi
ned.

3.
1Per
for
manceofCont
ractofSal
e

Theper
for
manceofacont
ractofsal
eimpl
i
esdel
i
ver
yofgoodsbyt
hesel
l
erand
accept
anceoft
hedel
i
ver
yofgoodsandpay
mentf
ort
hem byt
hebuy
er,i
naccor
dance
wi
tht
hecont
ractagr
eement
a)Del
i
ver
yofGoods

'
Del
i
ver
y'hasbeendef
inedasv
olunt
aryt
ransf
erofpossessi
onofgoodsf
rom one
per
sont
oanot
her
.

b)Howi
sDel
i
ver
yMade?

Del
i
ver
yofgoodssol
dmaybemadebydoi
ngany
thi
ngwhi
cht
hepar
ti
esagr
eeshal
lbe
t
reat
edasdel
i
ver
yorwhi
chhast
heef
fectofput
ti
ngt
hegoodsi
nthepossessi
onoft
he
buy
eroranyot
herper
sonaut
hor
izedbyhi
m.

c)ModeofDel
i
ver
y

1.Act
ual
del
i
ver
y:

Act
ualdel
i
ver
ymeansphy
sicalt
ransf
erofgoodsbyt
hesel
l
ert
othebuy
er.Thedel
i
ver
y
maybemadebyt
heagentoft
hesel
l
ert
otheagentoft
hebuy
er.

2.Sy
mbol
i
cdel
i
ver
y:

Wher
ethegoodsar
ebul
ky,i
tisusualf
ort
hesel
l
ert
ogi
vesy
mbol
i
cdel
i
ver
y.For
exampl
e,wher
ethet
imberi
sly
ingi
nawar
ehouse,t
hedel
i
ver
yofkeyi
sregar
dedas
sy
mbol
i
cdel
i
ver
ywhi
chhast
heef
fectofput
ti
ngt
hebuy
eri
npossessi
onoract
ual
cont
roloft
hegoods.I
tshoul
dbenot
edt
hatt
hekeymustgi
vecompl
eteaccesst
othe
goods.I
fforexampl
e,t
hekeyofar
oom i
nwhi
cht
hegoodsar
ekepti
sgi
venbutt
hekey
oft
hemai
ngat
eordoori
snotgi
ven,
iti
snotr
egar
dedasav
ali
ddel
i
ver
y

3.Const
ruct
ivedel
i
ver
y:

I
npl
aceofact
ualorsy
mbol
i
cdel
i
ver
y,t
hegoodsmaybedel
i
ver
edwi
thoutanychange
i
nthei
ract
ualorv
isi
blecust
ody
.Forexampl
e,wher
ethegoodsatt
het
imeofsal
ear
ein
possessi
onofat
hir
dper
sonandsucht
hir
dper
sonacknowl
edgest
othebuy
ert
hathe
hol
dst
hegoodsonhi
s(buy
er'
s)behal
f,t
hedel
i
ver
yiscal
l
edconst
ruct
ivedel
i
ver
y.

Exampl
e:
Asal
est
oB100bagsofr
icel
yi
ngi
nC'
swar
ehouse.Cacknowl
edgest
oBt
hathei
s
hol
dingt
hese100bagsonbehal
fofB.I
tisconst
ruct
ivedel
i
ver
ybyAt
oB.

Rul
esRegar
dingDel
i
ver
y

1.Del
i
ver
y,accept
anceandpay
ment

I
tist
hedut
yoft
hesel
l
ert
odel
i
vert
hegoodsandoft
hebuy
ert
oacceptandpayf
ort
he
goodsdel
i
ver
ed.

2.Del
i
ver
yandpay
mentar
econcur
rentcondi
ti
ons

Unl
ess ot
her
wise agr
eed,del
i
ver
yofgoods and pay
mentofpr
ice ar
e concur
rent
condi
ti
ons,i
.e.
,att
hesamet
imeorr
eci
procal
l
y.Thesel
l
ershal
lber
eadyandwi
l
li
ngt
o
del
i
vert
hegoodsandt
hebuy
ershal
lber
eadyandwi
l
li
ngt
opayt
hepr
icei
nexchange
f
ordel
i
ver
yoft
hegoods.

3.Modeofdel
i
ver
y

Thi
shasbeendi
scussedi
ndet
aili
near
li
erpar
agr
aphs.Thedel
i
ver
ymaybeact
ual
,
sy
mbol
i
corconst
ruct
ive.Thepar
ti
esmayagr
eet
oanymodeofdel
i
ver
yexpr
essl
yor
i
mpl
i
edl
y.

4.Ef
fectofpar
tdel
i
ver
y

Adel
i
ver
yofpar
toft
hegoods,
int
hepr
ocessoft
hedel
i
ver
yoft
hewhol
e,hast
hesame
ef
fect
,fort
hepur
poseofpassi
ngt
hepr
oper
tyi
nsuchgoods,
asadel
i
ver
yoft
hewhol
e.
Howev
er,
del
i
ver
yofpar
toft
hegoods,
wit
hani
ntent
ionofsepar
ati
ngi
tfr
om t
hewhol
e,
doesnotconst
it
uteasadel
i
ver
yofwhol
e.

Exampl
e:

Ashi
par
ri
vedatt
hepor
tladenwi
thacar
goofwheat
.Theownerendor
sedt
hebi
l
lof
l
adi
ngt
oA.Themast
eroft
heshi
prepor
tedt
othecust
omst
hatt
hecar
gowasf
orA.
Nextday
,Amadeent
ryoft
hewheati
nhi
snameatt
hecust
omshouse.Ther
eupon,
par
t
oft
hecar
gowasdel
i
ver
edt
oA.Hel
d,t
hisconst
it
utedadel
i
ver
yoft
hewhol
e.

5.Del
i
ver
ytobemadeonr
equestoft
hebuy
er

Apar
tfr
om anyexpr
esscont
ract
,asel
l
eri
snotboundt
odel
i
vert
hegoodsunl
essand
unt
ilr
equest
edbyt
hebuy
er.I
fthesel
l
erf
ail
stodel
i
vert
hegoodsont
heappl
i
cat
ionof
t
hebuy
er,
thesel
l
eri
sgui
l
tyofbr
eachofcont
ract
.

6.Pl
aceofdel
i
ver
y

I
ntheabsenceofanyagr
eement
,expr
essori
mpl
i
ed,
thegoodssol
dar
etobedel
i
ver
ed
att
hepl
aceatwhi
cht
heyar
eatt
het
imeofsal
e.Thegoodsagr
eedt
obesol
dar
etobe
del
i
ver
edatt
hepl
aceatwhi
cht
heyar
eatt
het
imeoft
heagr
eementt
osel
l
,ori
fnot
t
heni
nex
ist
ence,
att
hepl
aceatwhi
cht
heyar
emanuf
act
uredorpr
oduced.

7.Ti
meofdel
i
ver
y:

I
fanyt
imei
sspeci
fi
edbyt
hepar
ti
es,t
hegoodsmustbedel
i
ver
edbyt
hatt
ime.I
fthe
sel
l
eri
sboundt
osendt
hegoodst
othebuy
erandnot
imehasbeenf
ixedbyt
hepar
ti
es,
t
hegoodsmustbedel
i
ver
edwi
thi
nar
easonabl
eti
me.Whati
sreasonabl
eti
mei
sa
quest
ionoff
acti
neachcase?

8.Del
i
ver
yofgoodsi
npossessi
onoft
hir
dper
sons

Wher
ethegoodsatt
het
imeofsal
ear
einpossessi
onofat
hir
dper
son,t
her
eisno
del
i
ver
ybyt
hesel
l
ert
othebuy
erunl
esssucht
hir
dper
sonacknowl
edgest
othebuy
er
t
hathehol
dst
hegoodsonhi
sbehal
f.I
tshoul
dbenot
edt
hatt
hisr
uledoesnotaf
fect
t
het
ransf
erofgoodsbymeansofadocumentoft
it
leofgoods,
e.g.
,wher
egoodshav
e
beensol
dbyabi
l
lofl
adi
ng,
consentoft
het
hir
dpar
tyi
snotnecessar
y.

9.Expensesofdel
i
ver
y:

Unl
essot
her
wiseagr
eed,t
heexpensesofput
ti
ngt
hegoodsi
ntoadel
i
ver
abl
est
ate
shal
lbebear
edbyt
hesel
l
er.I
ncaset
hebuy
eri
scompel
l
edt
opayt
heseexpenses,he
canr
ecov
ert
hesamef
rom t
hesel
l
er.
10.Ef
fectofdel
i
ver
yofwr
ongquant
it
y

(
i)Lesserquant
it
ydel
i
ver
y

Wher
ethesel
l
erdel
i
ver
slesserquant
it
ythancont
ract
edf
or,
thebuy
erhast
heopt
iont
o
acceptorr
ejectt
hewhol
e.Nat
ural
l
y,whenheaccept
s,hemustpayf
ort
hem att
he
cont
ractpr
ice.

Exampl
e:

Aor
der
edBt
osuppl
y10bagsofr
ice.Bsuppl
i
edonl
y6bags.Ai
satl
i
ber
tyt
oaccept6
bagsorr
ejectt
hem.Whenheaccept
sthem,hemustpayf
ort
he6 bagsatt
he
cont
ract
edpr
ice.

i
i
)Excessquant
it
ydel
i
ver
y

Wher
ethesel
l
erdel
i
ver
sexcessquant
it
ythancont
ract
edf
or,t
hebuy
erhast
heopt
ion
t
oacceptandpayt
her
equi
redquant
it
y,acceptt
opayt
heexcessorr
ejectt
hewhol
e.

Exampl
e:

Aor
der
edBt
osuppl
y10bagsofr
ice.Bsuppl
i
ed15bags.Ahast
heopt
iont
oaccept10
bagsandpayf
ort
hem.Hemayacceptev
en15bagsandpayf
orhi
m.Hei
sent
it
ledt
o
r
ejectt
hewhol
eItshoul
dbenot
edt
hatt
her
ightt
orej
ectt
hegoodsi
nexcessoft
he
cont
ractdoesnotappl
ywher
ethev
ari
ati
oni
snegl
i
gibl
e.

(
ii
i)Del
i
ver
yofmi
xedgoods

Wher
ethesel
l
erdel
i
ver
stot
hebuy
ert
hegoodshecont
ract
edt
osal
emi
xedwi
thgoods
ofadi
ff
erentdescr
ipt
ionnoti
ncl
udedi
nthecont
ract
,thebuy
ermayacceptt
hegoods
whi
char
einaccor
dancewi
tht
hecont
ractandr
ejectt
her
est
,ormayr
ejectt
hewhol
e.

Exampl
e:

Cer
tai
nspeci
fi
car
ti
cl
esofChi
nawer
eor
der
ed.Thesel
l
eri
naddi
ti
onsentsomeofhi
s
ar
ti
clesofChi
na.Hel
d,t
hebuy
ercoul
drej
ectt
hewhol
e.
11.Del
i
ver
ybyi
nst
all
ment

Unl
ess ot
her
wise agr
eed,t
he buy
erofgoods i
s notbound t
o acceptdel
i
ver
yin
i
nst
all
ment
s.Hemay
,ifhesodesi
res,
ref
uset
hegoods.

Exampl
e:

25t
onsofpepperOct
ober
/Nov
embershi
pmentwassol
d.Thesel
l
ershi
pped20t
onsi
n
Nov
emberand5t
onsi
nDecember
.Hel
d,t
hebuy
erwasent
it
ledt
orej
ectt
hewhol
e.

12.Del
i
ver
ytocar
ri
erorwhar
fi
nger

(
i)Uncondi
ti
onal
del
i
ver
ytocar
ri
erorwhar
fi
ngermeansdel
i
ver
ytot
hebuy
er

Wher
eindi
schar
geofacont
ractofsal
e,t
hesel
l
eri
saut
hor
izedorr
equi
redt
osendt
he
goodst
othebuy
er,
del
i
ver
yofgoodst
oacar
ri
erf
ort
hepur
poseoft
ransmi
ssi
ont
othe
buy
ert
hegoodsconsi
der
edt
ohav
edel
i
ver
edt
othebuy
er.

(
ii
)Sel
l
er'
sdut
ytoconf
ormt
other
ulessav
edel
i
ver
y

Wher
ethegoodsar
edel
i
ver
edt
oacar
ri
erorwhar
fi
nger
,iti
sthedut
yoft
hesel
l
ert
o
r
easonabl
ysecur
ether
esponsi
bil
i
tyoft
hecar
ri
erf
ort
hesaf
edel
i
ver
yoft
hegoods.I
n
caset
hesel
l
erf
ail
stodoso,
hewi
l
lbel
i
abl
eforanyl
ossofgood

Exampl
e:A,hadt
odel
i
vert
hreecasksofoi
ltoBbyr
ail
way
.At
akest
hreecasksofoi
l
di
rect
edt
oBt
other
ail
wayst
ati
onandl
eav
est
hem t
her
ewi
thoutconf
ormi
ngt
othe
r
uleswhi
chmustbecompl
i
edwi
thi
nor
dert
orendert
her
ail
waycompanyl
i
abl
efort
hei
r
saf
ecar
ri
age.Thegoodsar
elostont
heway
.Ther
ehasnotbeenasuf
fi
cientdel
i
ver
yto
char
geBi
nasui
tfort
hepr
ice.

(
ii
i)Sel
l
er'
sdut
ytoi
nfor
mthebuy
ert
ogett
hegoodsi
nsur
edi
ncaset
hegoodsi
nvol
vea
seat
ransi
t

Wher
ethegoodsar
esentbyt
hesel
l
ert
othebuy
erbyar
out
einv
olv
ingseat
ransi
t,t
he
sel
l
eri
sboundt
ogi
vesuchnot
icet
othebuy
erasmayenabl
ehi
mtoi
nsur
ethegoods
dur
ingseat
ransi
t.Fai
l
uret
odosowi
l
lmeant
hatt
hegoodsar
eatt
hesel
l
er'
sri
skdur
ing
t
het
ransi
tandt
hesel
l
erwi
l
lhav
etomakegoodt
hel
osssuf
fer
edbyt
hebuy
er.

13.Accept
anceofdel
i
ver
ybyt
hebuy
er:

Buy
er'
shasr
ightt
oexami
net
hegoodsbef
oreaccept
ingt
hem

Wher
egoodsar
edel
i
ver
edt
othebuy
erwhi
chhehasnotpr
evi
ousl
yexami
ned,
hei
snot
deemedt
ohav
eaccept
edt
hem unl
essandunt
ilhehashadar
easonabl
eoppor
tuni
tyof
exami
ningt
hem f
ort
hepur
poseofascer
tai
ningwhet
hert
heyar
einconf
ormi
tywi
tht
he
cont
ract
.

3.
2Ri
ght
sofanunpai
dsel
l
er
Theunpai
dsel
l
erhasf
oll
owi
ngt
wor
ight
s.

 
1)Ri
ght
sagai
nstt
hegoods.
2)Ri
ght
sagai
nstbuy
erper
sonal
l
y

1)Ri
ght
sagai
nstt
hegoods.
i
)Ri
ght
sofl
i
en
 
i
i)Ri
ghtofst
oppageofgoodsi
ntr
ansi
t
 
i
ii
)Ri
ghtofr
esal
e
 
i
)Ri
ght
sofl
i
en
Ther
ightofl
i
enmeansl
awf
ull
yri
ghtt
oret
aint
hegoodspossessi
onunt
ilt
hef
ull
pri
cei
s
r
ecei
ved.
Anunpai
dsel
l
ercanexer
cisehi
sri
ghtofl
i
eni
nfol
l
owi
ngcases.
i
)Wher
ethegoodshav
ebeensol
dont
hecashbasi
s.
 
i
i)Wher
ethegoodshav
ebeensol
doncr
edi
tbasi
sandt
het
erm ofcr
edi
thasexpi
red.
 
i
ii
)Wher
ethebuy
erhasbecomei
nsol
ventev
eni
ftheper
iodofcr
edi
thasnotbeen
expi
red.

Ot
herr
ulest
osat
isf
ythecondi
ti
onsf
ort
hisr
ightar
e:
i
)Theunpai
dsel
l
ermustbei
nact
ual
possessi
onoft
hegoodssol
d.
 
i
i)I
tcanbeexer
cisedev
enI
fthedocument
soft
it
lehav
ebeendel
i
ver
edt
othebuy
er.
 
i
ii
)Itcanbeexer
cisedf
ort
hepr
iceandnotf
orot
herexpenses
 
i
v)I
fthesel
l
erdel
i
ver
ssomegoods,
itcanbeexer
cisedont
her
emai
ning.

Ri
ghtofLi
eni
ster
minat
edi
nfol
l
owi
ngcases
 
i
)Whenhedel
i
ver
sthegoodst
othecar
ri
erorwhar
fi
ngerf
ort
ransmi
ssi
ont
othebuy
er
 
i
i)Whent
hebuy
erorhi
sagentl
awf
ull
yobt
ainst
hepossessi
onoft
hegoods
 
i
ii
)Whensel
l
erwai
ves(
sur
render
s)hi
sri
ghtofl
i
enont
hegoods
 
 i
v)Whent
hebuy
erf
urt
hersal
est
hegoodsandt
hesel
l
eragr
ees

i
i
)Ri
ghtofst
oppageofgoodsi
ntr
ansi
t 

I
tmeansst
oppageofgoodswhi
l
etheyar
eint
ransi
ttot
akepossessi
onunt
ilt
hepr
icei
s
d.Un
pai pai
dsel
l
ercanst
opt
hegoodsi
ntr
ansi
tint
hef
oll
owi
ngcases.
 
i
)Whi
l
ethebuy
erbecomesi
nsol
vent
 
i
i)Whi
l
ethegoodsar
eoutofact
ualpossessi
onofsel
l
er,
buthav
enotr
eachedbuy
er’
s
possessi
oni
.e.goodsar
eint
ransi
twi
thcar
eer
.
 
i
ii
)Theunpai
dsel
l
ercanst
opt
hegoodsi
ntr
ansi
tonl
yforpay
mentoft
hepr
iceoft
he
goodsandnotf
oranyot
herchar
ges.

Theunpai
dsel
l
ercannotst
opgoodsi
ntr
ansi
tinf
oll
owi
ngcases.
i
)Whent
hegoodsr
eachest
hedest
inat
ion.
 
i
i)Whi
l
ethebuy
erorhi
sagentt
akespossessi
onofdel
i
ver
yev
eni
fiti
snotr
eached
dest
inat
ion.
 
i
ii
)Incaset
hecar
ri
eri
sagentoft
hebuy
er,t
het
ransi
tcomest
oanendt
hei
nst
ance
car
ri
err
ecei
vest
hegoodsandsel
l
ercannotst
opt
het
ransi
ti
on
 
i
v)Car
ri
er’
swr
ongf
ulr
efusal
todel
i
vergoodst
othebuy
er.

i
i
i)Ri
ghtofr
esal
e
I
fabuy
erf
ail
stopayorof
fert
hepr
icewi
thi
nar
easonabl
eti
me,t
heunpai
dsel
l
erhas
t
her
ightt
oresel
lthegoods.
Ci
rcumst
anceswhi
chunpai
dsel
l
erhasr
ightt
oresel
lgoods
 
a)Wher
ethegoodsar
eofper
ishabl
enat
ure.
 
b)Wher
etheunpai
dsel
l
erhasexer
cisedhi
sri
ghtofl
i
enorst
oppagei
ntr
ansi
tand
gi
vesanot
icet
obuy
erofhi
sint
ensi
onofr
esel
lthegoods.
 
c)Wher
etheunpai
dsel
l
erhasexpr
essl
yreser
vedhi
sri
ghtofr
esal
e.
 
d)Wher
esel
l
ergi
vesnot
icet
othebuy
erofhi
sint
ensi
ont
oresel
landt
hebuy
erdoes
notpaywi
thi
nar
easonabl
eti
me.
Exampl
e:
 
a)“
X”sel
l
sveget
abl
eto“
Y”oncr
edi
t,“
Y”doesnotpay
,“X”canr
esel
ltoanyot
her
per
son.
 
b)“
M”sel
l
s100bl
anket
sto“
N”andgi
veshi
m oneweekf
orpay
ment
.“N”doesnotpay
.
“
M”canr
esel
lthoset
oanyot
herper
son.
2)Ri
ght
sagai
nstbuy
erper
sonal
l
y
 
i
)Suef
orpr
ice
 
i
i)Suef
ordamagesf
ornon-
accept
ance
 
i
ii
.Suef
orSpeci
fi
cper
for
mance
i
i
i)Suef
orspeci
aldamagesandi
nter
est

i
)Suef
orpr
ice

Wher
eowner
shi
poft
hegoodshaspassedt
othebuy
erandt
hebuy
err
efusest
opayt
he
pr
iceaccor
dingt
othet
ermsoft
hecont
ract
,thesel
l
ercansuet
hebuy
erf
orpr
ice,
i
rr
espect
iveofdel
i
ver
yoft
hegoods.(
Pri
ceofapr
oduct
)

i
i
)Suef
ordamagesf
ornon-
del
i
ver
y

Wher
ethebuy
err
efusest
oacceptandpayf
ort
hegoods,t
hesel
l
ermaysuehi
mfor
damagesf
ornon-
accept
ance.Thesel
l
ercanr
ecov
erdamagesonl
yandnott
hef
ull
pr
ice.Thedamagesar
ecal
cul
atedi
naccor
dancewi
tht
her
ulescon¬t
ainedi
nKeny
a
Cont
ractAct
,thati
s,t
hemeasur
eofdamagesi
stheest
imat
edl
ossar
isi
ngdi
rect
lyand
nat
ural
l
yfr
om t
hebuy
er’
sbr
eachofcont
ract
.
i
i
i.Suef
orSpeci
fi
cper
for
mance(
fai
l
uret
oful
fi
ll
promi
se)

Unpai
dsel
l
ermayal
sosuebuy
erf
orspeci
fi
cper
for
manceofcont
racti
ncaseofa
br
eachofcont
ractandt
hev
erdi
ctpassedcanbeuncondi
ti
onalwi
thoutgi
vi
ngt
he
def
endantt
he opt
ion ofr
etai
ning t
he goods on pay
mentofdamages.Speci
fi
c
per
for
mancemeansf
ulf
il
li
ngapr
omi
semadeunderacont
ractasagr
eed.Asui
tfor
speci
fi
cper
for
mancecanbef
il
edbyanypar
ty,
inacour
tofcompet
entj
uri
sdi
cti
on,
who
hassuf
fer
edl
ossduet
onon-
per
for
manceofcont
ractonpar
toft
heot
herpar
tyt
othe
cont
ract
.Remedyofspeci
fi
cper
for
mancewhi
chi
saf
fect
edi
ncaseofbr
eachof
cont
ract
sispr
ovi
dedbyt
heequi
tycour
ts.

i
v)Suef
orspeci
aldamagesandi
nter
est
 (
damagesknownbef
oret
hecont
ract
)

Thesel
l
ercansuet
hebuy
erf
orspeci
aldamageswher
ethepar
ti
esar
eawar
eofsuch
damagesatt
het
imeofcont
ract
.Theunpai
dsel
l
ercanr
ecov
eri
nter
estatar
easonabl
e
r
ateont
het
otalunpai
dpr
iceof
 goods,f
rom t
het
imei
twasdueunt
ili
tispai
d.Speci
al
damagesar
easpeci
fi
cty
peofdamagesav
ail
abl
eforbr
eachofcont
ract
. Whena
cont
racti
sbr
eached,speci
aldamagesmaybe awar
ded t
o compensat
ethe non-
br
eachi
ngpar
tyf
ordamagest
hatr
esul
tindi
rect
lyf
rom,ort
hat“
fl
owf
rom”t
hebr
each.
 
Speci
aldamagesawar
dscov
erl
ossesbesi
dest
hecont
ract
uall
osses;t
hismayi
ncl
ude
abr
oadr
angeofl
ossessuchasl
ossofpr
ofi
tsordamaget
obusi
nessr
eput
ati
on.

3.
3Buy
er’
sri
ghtagai
nstsel
l
er

i
)Suef
ordamagesf
ornon-
del
i
ver
y(monet
aryl
ossi
ncur
red)

Whent
hesel
l
erwr
ongf
ull
yref
usest
odel
i
vert
hegoodst
othebuy
er,
thebuy
ermaysue
t
hesel
l
erf
ordamagesf
ornon-
del
i
ver
y(damages-
monet
aryl
ossi
ncur
redbecauseof
br
eachofacont
ract

i
i
)Suef
orspeci
fi
cper
for
mance(
uni
queorr
aregoods)
Wher
ether
eisabr
eachofcont
ractf
orsal
eofspeci
fi
cgoods,t
hebuy
ermayf
il
easui
t
f
orspeci
fi
cper
for
mance.Ther
emedyi
sgr
ant
edwhensubj
ectmat
teroft
hecont
racti
s
r
aregoods,say
,api
ctur
ebyadeadpai
nter
.Speci
fi
cper
for
mancemeansf
ulf
il
li
nga
pr
omi
semadeunderacont
ractasagr
eed.Speci
fi
cper
for
mancei
sgener
all
yal
l
owed
wher
ethegoodsar
eofspeci
alsi
gni
fi
canceorv
aluee.
g.ar
arepai
ning,auni
quepi
ece
ofj
ewel
l
ery
,et
c.(
damagei
smonet
aryl
osscausedbybr
eachofcont
ract
)

i
i
i)Suef
ordamagesf
orbr
eachofwar
rant
y

Wher
ether
eisabr
eachofwar
rant
y,t
hebuy
eri
sent
it
ledt
osuef
ordamagesi
fhehad
pai
dthepr
icet
othesel
l
er.Buti
fhehasnotpai
dthepr
icey
et,
hemayaskt
hesel
l
erf
or
ar
easonabl
ereduct
ioni
nthepr
ice.Br
eachofwar
rant
yref
erst
othef
ail
ureofasel
l
ert
o
f
ulf
il
lthet
ermsofapr
omi
se,cl
aim,orr
epr
esent
ati
onmadeconcer
ningt
hequal
i
tyor
t
ypeoft
hepr
oduct
.Thel
awassumest
hatasel
l
ergi
vescer
tai
nwar
rant
iesconcer
ning
goodst
hatar
esol
dandt
hatheorshemustst
andbehi
ndt
heseasser
ti
ons.

i
v)Suef
orcancel
l
ati
onanddamagesf
orbr
eachofcont
ract
 

Wher
ether
eisabr
eachofcont
ractbyt
hesel
l
er,t
hebuy
ermayav
oidt
hecont
ractand
cl
aim damages.

v
)Suef
orr
ecov
eryofpr
icewi
thi
nter
est
.

I
fthebuy
erhasal
readypai
dthepr
icet
othesel
l
erandt
hesel
l
erdoesnotdel
i
vert
he
goodst
othebuy
er,
hecansuet
hesel
l
erf
orr
efundofpr
iceandi
nter
estatar
easonabl
e
r
ate.

3.
4Doct
ri
neofCav
eatEmpt
or(
lett
hebuy
erbewar
e)

Cav
eatempt
ori
saLat
int
ermt
hatmeans"
lett
hebuy
erbewar
e."Si
mil
art
othephr
ase
"
sol
dasi
s,
"thi
ster
m meanst
hatt
hebuy
erassumest
her
iskt
hatapr
oductmayf
ailt
o
meetexpect
ati
onsorhav
edef
ect
s.I
not
herwor
ds,t
hepr
inci
pleofcav
eatempt
or
ser
vesasawar
ningt
hatbuy
ershav
enoobl
i
gat
ionwi
tht
hesel
l
eri
fthepr
oductdoes
notmeett
hei
rexpect
ati
ons.
3.
4.1Except
ionst
otheDoct
ri
neofCav
eatEmpt
or

1.I
mpl
i
edCondi
ti
onr
egar
dingQual
i
tyorFi
tness

Whent
hesel
l
eri
sawar
eoft
hepur
posef
orwhi
cht
hebuy
err
equi
rest
hepr
oductand
whent
hebuy
err
eli
esont
hej
udgmentandski
l
loft
hesel
l
er,t
her
eisani
mpl
i
ed
condi
ti
ont
hatt
hepr
oductpur
chasedser
vest
hepur
posef
orwhi
chi
twasbought
.

2.Sal
eofGoodsbyDescr
ipt
ion

Asal
eofgoodbydescr
ipt
ioni
sasal
ethati
smadewi
thoutt
hebuy
erseei
ngt
hegoods
andhav
ingonl
yadescr
ipt
ionoft
hem f
rom t
hesel
l
er:I
nsal
esbydescr
ipt
ion,
ther
eisan
i
mpl
i
edcondi
ti
ont
hatt
hegoodsshal
lcor
respondwi
tht
hedescr
ipt
ioni
nthecat
alogue.

3.UsageofTr
ade(
fol
l
owi
ngt
heaccept
abl
ebusi
nesspr
ocedur
e)

Pr
oofofr
easonabl
eusageorcust
om oft
rademayal
soest
abl
i
shani
mpl
i
edcondi
ti
on
wi
thr
egar
dtoqual
i
tyorf
it
nessofgoodsf
orapar
ti
cul
arpur
pose.

4.ConsentbyFr
aud(
misr
epr
esent
ati
on)

Thedoct
ri
neofCav
eatEmpt
orshal
lnotappl
ytoal
lthosepur
chases,whi
chhav
ebeen
madebyabuy
erunderacont
ractwher
ethesel
l
erobt
ainedhi
sconsentbyf
raud.A
sel
l
er,
whoi
sgui
l
tyoff
raud,
shal
lhav
enopr
otect
ionoft
hedoct
ri
neofcav
eatempt
or.

5.Sal
eunderaPat
entorTr
adename

I
nthecaseofacont
ractofsal
eofspeci
fi
edgoodsunderi
tspat
entort
radename,
ther
e
i
sani
mpl
i
edcondi
ti
ont
hatt
hepr
oducti
sfai
rl
yfi
tforanyspeci
fi
cpur
pose.

6.Sal
ebySampl
e

Whenabuy
er,hav
ingsat
isf
iedwi
tht
hequal
i
tyoft
hesampl
eof
fer
edbyt
hesel
l
er,
pur
chasesi
nbul
k,t
heDoct
ri
neof
 Cav
eatEmpt
orwi
l
lnotappl
ywhenhef
indsdef
ect
sin
t
hebul
kori
fthebul
kdoesnotcor
respondwi
tht
hepr
oductsampl
eof
fer
edt
ohi
m.The
Doct
ri
neofCav
eatEmpt
orwi
l
lnotappl
yift
hebuy
erdi
dnothav
eachancet
over
if
ythe
bul
kwi
tht
hesampl
e,ofi
fther
eisanyhi
ddendamagedpr
oduct
.

7.Mi
srepr
esent
ati
on

Wher
ethesel
l
erhasmadeaf
alser
epr
esent
ati
onr
elat
ingt
othegoodsandt
hebuy
er
hasr
eli
eduponi
t,t
hedoct
ri
neofCav
eatEmpt
orwi
l
lnotappl
y.Suchacont
ractbei
ng
v
oidabl
eatt
heopt
ionoft
hei
nnocentpar
ty,
thebuy
erhasar
ightt
oresci
ndt
hecont
ract
.

3.
5Nemodatquodnonhabet(
Noonegi
veswhathedoesn'
thav
e)

Nemodatquodnonhabet
,li
ter
all
ymeani
ng"
noonegi
veswhathedoesn'
thav
e"i
sa
l
egalr
ule,somet
imescal
l
edt
henemodatr
ule,t
hatst
atest
hatt
hepur
chaseofa
possessi
onf
rom someonewhohasnoowner
shi
pri
ghtt
oital
sodeni
est
hepur
chaser
anyowner
shi
pti
tl
e.

Except
ionsofNemodatquodnonhabet

1)Est
oppel(
owneract
edi
nasuchwayt
hatbuy
erbel
i
evedt
hesel
l
erhasr
ightt
osal
e
t
hegoods)

Theexpr
essi
onest
oppel
sisder
ivedf
rom aFr
enchwor
d‘Est
oup’
whi
chmeans“
shutt
he
mout
h”.A per
son,whodoesanacti
ngoodf
ait
hatt
hewor
ds/
conductofanot
her
,
shoul
dnotbesuf
fer
edordecei
ved.Whent
heowneroft
hegoodsbyhi
sactoromi
ssi
on
orconductal
l
owst
hebuy
ert
obel
i
evet
hatt
hesel
l
erhasar
ightt
osel
lthegoods,he
(
thet
rueowner
)cannotdenysuchsal
esubsequent
ly.Forexampl
ewhenaper
sonsol
d
hi
smot
her
’sgoodsi
nherpr
esence,
shemaki
ngnoobj
ect
ion,
shewasnotsubsequent
ly
per
mit
tedt
odenyherson’
saut
hor
it
ytosel
landt
hesal
ewasbi
ndi
ngonher
.Est
oppel
ar
isesf
rom ar
epr
esent
ati
ont
hatt
hesel
l
erhadt
heaut
hor
it
ytosel
l
.Andwhent
hat
r
epr
esent
ati
oni
sinnocent
lyact
eduponbyt
hebuy
er,i
tbecomest
ool
atet
odenyt
he
sel
l
er’
saut
hor
it
y.Repr
esent
ati
onmayar
isef
rom wor
dsordecl
arat
ionsori
tmayar
ise
f
rom anactoromi
ssi
on.Anomi
ssi
ont
oper
for
m one’
sdut
ymaycr
eat
eanest
oppel
.

Est
oppel
ari
sesf
rom

a.actoromi
ssi
on-buti
tshoul
dbeal
egal
obl
i
gat
ion
b.Negl
i
gence–notmer
enegl
i
gencebuti
tshoul
dbei
nregar
dtot
heper
son.

Est
oppel
byactoromi
ssi
on

Af
ir
m ofmer
chant
spl
edged cer
tai
nrai
l
wayr
ecei
ptswi
thabankagai
nstal
oan.
Subsequent
lyt
heyt
ookbackt
her
ecei
ptsf
orcl
ear
ingt
hegoodsandst
ori
ngt
hem i
nthe
bank’
swar
ehouse.Butt
heyf
raudul
ent
lyr
e-pl
edgedt
her
ecei
ptswi
thanot
herbankf
or
anot
herl
oan.Thesecondbankcont
ent
edt
hatt
hef
ir
stbankshoul
dnothav
eret
urned
t
her
ecei
ptswi
thouti
mpr
essi
ngupont
hent
hem t
hei
rst
ampofpl
edge.Thei
romi
ssi
on
t
odosoenabl
edt
hemer
chant
stor
e-pl
edget
her
ecei
ptsandt
her
efor
ethef
ir
stbank
shoul
dbest
oppedf
rom deny
ingt
hev
ali
dit
yoft
hesecondpl
edge.Butt
hePr
ivyCounci
l
r
uledot
her
wise.Thecour
thel
dthatt
hedut
ytoi
mpr
esst
hest
ampofpl
edgewasnota
l
egaldut
y.I
twasadut
yofcommer
cialor
igi
nandi
tsomi
ssi
ondi
dnotcr
eat
eal
egal
est
oppel
4.

Est
oppel
bynegl
i
gence

Mer
ecar
elessnessmaynotcr
eat
eanest
oppel
s,negl
i
gencei
nor
dert
ogi
ver
iset
oa
def
enceundert
hissect
ionmustbemor
ethanmer
ecar
elessnessont
hepar
tofa
per
soni
ntheconductofhi
sownaf
fai
rs,andmustamountt
oadi
sregar
dofhi
s
obl
i
gat
ionst
owar
dst
heper
sonwhoi
sset
ti
ngupt
hedef
ence.I
nConv
ent
aryShepher
d&
Cov
.Gr
eatEast
ernRl
y.
Co5,
thedef
endantcar
elessl
yissuedt
wodel
i
ver
yor
der
srel
ati
ng
t
othesameconsi
gnmentofgoods,
thusenabl
i
ngt
heper
sont
owhom t
heywer
eissued
t
oobt
ainanadv
ancef
rom t
hepl
aint
if
fandt
hedef
endant
swer
ehel
dtobeest
oppedas
agai
nsthi
mfr
om deny
ingt
hef
actt
hatt
hegoodsment
ionedi
ntheor
derwer
ehel
don
behal
foft
heassi
gnorsomeonewhoput
sdocument
soft
hisnat
urei
ntoci
rcul
ati
on
owesadut
ytot
hosei
ntowhosehandst
heymaycome.

2)Sal
ebyMer
cant
il
eAgent

Abuy
erofgoodsf
rom amer
cant
il
eagentacqui
resgoodt
it
lei
fthecondi
ti
onsl
aiddown
i
nsect
ion27(
2)ar
esat
isf
ied.

a)Heshoul
dbeamer
cant
il
eagent
b)I
npossessi
onasMer
cant
il
eagent

c)Wi
thowner
sconsent

d)Mustsel
lwhi
l
eact
ingasmer
cant
il
eagent

e)Goodf
ait
handwi
thoutnot
ice

a)Mer
cant
il
eagent

Sect
ion2(
9)def
inesmer
cant
il
eagent
.A mer
cant
il
eagenthav
ingi
nthecust
omar
y
cour
seofbusi
nessassuchagentaut
hor
it
ywi
thert
osel
lgoods,
ort
oconsi
gngoodsf
or
t
hepur
poseofsal
e,ort
obuygoodsort
orai
semoneyont
hesecur
it
yofgoods.I
not
her
wor
dsmer
cant
il
eagenti
sanagentwhoi
sent
rust
edwi
tht
hepossessi
onofgoodsor
document
s.Hehasanaut
hor
it
ytosel
lthegoodsorconsi
gnt
hem f
orsal
e.Eg.Fact
or,
Br
oker
,Auct
ioneeret
c.

I
nFol
kerV.Ki
ng6,t
hepl
aint
if
fdel
i
ver
edhi
scart
oamer
cant
il
eagentt
osel
litf
ornot
l
esst
han575pounds.Butt
hemer
cant
il
eagentsol
ditt
othedef
endantf
orpound140
andmi
sappr
opr
iat
edt
heamount
.Inanact
ionbyt
hepl
aint
if
fitwashel
dthatt
he
def
endant(
buy
er)hadagoodt
it
let
othegoods.

b)I
npossessi
onasmer
cant
il
eagent

Themer
cant
il
eagentshoul
dbei
npossessi
onoft
hegoodsasmer
cant
il
eagent
,ift
he
goodsar
eent
rust
edt
ohi
minanyot
hercapaci
ty,hecannotconv
eyagoodt
it
le.Thi
s
washel
dinSt
aff
sMot
orguar
ant
eeLt
dv.Br
it
ishwagonLt
d7.Adeal
eri
nsecondhand
car
ssol
dhi
slor
ryt
oacompanyandt
heni
mmedi
atel
ytooki
tbackf
rom t
hecompany
underahi
re-
pur
chaseagr
eement
.Het
henr
esol
dthel
orr
ytoanot
hercompany
,whi
ch
cl
aimedt
hati
thadgoodt
it
let
othel
orr
yhav
ingbr
oughti
tfr
om amer
cant
il
eagenti
n
goodf
ait
h.Butt
hecour
tref
usedt
osust
aint
hiscl
aim,t
hel
orr
yhadbeenhandedback
t
othedeal
ernotasanagentbutasahi
rerandt
her
efor
easi
tsbai
l
ee,sot
hebuy
er
cannotgetagoodt
it
le.
c)Wi
thowner
’sconsent

Thegoodsmustbei
nthepossessi
onoft
hemer
cant
il
eagentwi
tht
heconsentoft
he
owner
.Thi
srequi
rementi
s sat
isf
ied when i
tis shown t
hatt
he t
rue ownerdi
d
i
ntent
ional
l
ydeposi
tint
hehandsoft
hemer
cant
il
eagentt
hegoodsi
nquest
ion.I
nsuch
casei
tisi
mmat
eri
alwhet
hert
heconsenti
sobt
ainedbyf
raud.

I
nPear
sonv
.RoseandYoungLt
d8,acarwasl
eftwi
thamer
cant
il
eagentand
aut
hor
izedhi
m onl
ytor
ecei
veof
fer
sandnott
osel
l
.Theagentobt
ainedt
her
egi
str
ati
on
bookf
rom t
heownerwi
thoutconsentandsol
dtot
hedef
endant
.Itwashel
dthatt
he
sal
ewi
thoutr
egi
str
ati
onbookwoul
dnothav
ebeenagoodsal
eandt
her
egi
str
ati
on
bookwasobt
ainedwi
thoutconsentoft
heowner
,ther
efor
ethebuy
erdi
dnotacqui
rea
goodt
it
le.

d)Mustsel
lwhi
l
eact
ingasmer
cant
il
eagent

Themer
cant
il
eagentmustsel
lthegoodswhen act
ing i
ntheor
dinar
ycour
seof
busi
nessofamer
cant
il
eagent
.Thati
stosaywi
thi
nbusi
nesshour
satapr
operpl
aceof
busi
nessandi
not
herr
espect
sint
heor
dinar
ywayi
nwhi
chamer
cant
il
eagentwoul
d
act
.InDeGor
sterv
.Geor
geAt
tenbor
ough&son9abr
okerwasent
rust
edwi
thcer
tai
n
di
amondsf
orsal
e,hedi
dsot
hroughaf
ri
end,
andt
het
ransact
ionwashel
dinv
ali
dashe
cannotaskaf
ri
endt
odot
het
ransact
ionwhi
chhewasent
rust
edwi
th.

e)Goodf
ait
handwi
thoutnot
ice

Thebuyermustacti
ngoodf
ait
handshoul
dnothav
enot
icet
hatt
hesel
l
erhadno
aut
hor
it
ytosel
l.

Sect
ion28-Sal
ebyoneoft
hej
ointowner
s

I
foneofsev
eralj
ointowner
sofgoodshast
hesol
epossessi
onoft
hem byper
missi
on
oft
heco-
owner
s,t
hepr
oper
tyi
nthegoodsi
ntr
ansf
err
edt
oanyper
sonhowbuy
sthem
ofsuchj
ointowneri
ngoodf
ait
handhasnotatt
het
imeoft
hecont
ractofsal
enot
ice
t
hatt
hesel
l
erhasnotaut
hor
it
ytosel
l
.
 

LESSONFOUR

HI
REPURCHASELAW

4.
1Whati
sHi
rePur
chase?

Hi
repur
chasei
sanar
rangementf
orbuy
ingexpensi
veconsumergoodsoncr
edi
t,wher
e
t
hebuy
ermakesani
nit
ialdeposi
tsordownpay
mentwi
tht
hebal
ancebei
ngpai
din
i
nst
all
ment
s pl
us i
nter
est
.Hi
re pur
chase agr
eement
s ar
eat
ype ofcr
edi
t,most
commonl
yused bypeopl
eto pur
chase goods such as car
s,orl
arge househol
d
appl
i
ances.
 Underahi
repur
chaseagr
eement
,thecr
edi
torr
emai
nst
hel
egalownerof
t
hegoodsunt
ily
ouhav
erepai
dthesumsdueundert
heagr
eement
. 
Att
heendoft
he
agr
eement
,youast
hedebt
orhav
etheopt
ionpur
chaset
hegoodsorr
etur
nthem t
othe
cr
edi
tor
.

Somet
imes,t
hehi
repur
chaseagr
eement
smaybechal
l
engeabl
ebyv
irt
ueoft
hef
act
t
hatt
heydonotcompl
ywi
tht
hest
ri
ctconsumercr
edi
tlegi
slat
ion,r
ender
ingt
hem
unenf
orceabl
e. 
Howev
er,whathappensi
fyouf
allbehi
ndony
ourr
epay
ment
s,andt
he
agr
eementcompl
i
eswi
tht
heconsumercr
edi
tlegi
slat
ion?

Wheny
ouf
allbehi
ndony
ourr
epay
ment
s,acr
edi
torwi
l
lof
tent
ryt
orepossesst
he
goods f
rom y
ou,and nor
mal
l
y asks y
ou t
o consentt
oret
urni
ng t
he goods t
o
t
hem.
 Howev
er,t
hiswi
l
lnotendy
ourl
i
abi
l
ityundert
heagr
eement
,asev
enwhent
he
goodshav
ebeenr
epossessedandsol
d,t
hecr
edi
torwi
l
lpur
suey
ouf
oranyot
her
moni
esout
standi
ngont
heagr
eement
.
4.
2Feat
uresofHi
rePur
chase:

1.Thepay
menti
stobemadebyt
hehi
rer(
buy
er)t
othehi
ree,
usual
l
ythev
endor(
sel
l
er)
,
i
ninst
all
ment
sov
eraspeci
fi
edper
iodoft
ime.

2.Thepossessi
onoft
hegoodsi
str
ansf
err
edt
othebuy
eri
mmedi
atel
y.

3.Thepr
oper
tyi
nthegoodsr
emai
nswi
tht
hev
endor(
hir
ee)t
il
lthel
asti
nst
all
menti
s
pai
d.Theowner
shi
ppassest
othebuy
er(
hir
er)whenhepay
sal
li
nst
all
ment
s.

4.TheHi
reeort
hev
endorcanr
epossesst
hegoodsi
ncaseofdef
aul
tandt
reatt
he
amountr
ecei
vedbywayofi
nst
all
ment
sashi
rechar
gedf
ort
hatper
iod.

5.Thei
nst
all
ment
sinhi
repur
chasei
ncl
udei
nter
estaswel
lasr
epay
ment
sofpr
inci
pal
.

6.Usual
l
y,t
hehi
reechar
gesi
nter
estonf
latr
ate.

4.
3Ter
minat
ionofHi
re-
Pur
chaseAgr
eement

Thehi
re-
pur
chaseagr
eementcanbet
ermi
nat
edi
nanyoft
hef
oll
owi
ngway
s:-

i
. I
nter
ms of t
he agr
eement
-The hi
re-
pur
chase agr
eementst
ipul
ates t
he
ci
rcumst
ancesi
nwhi
cht
heagr
eementcanbet
ermi
nat
ed.Theagr
eementi
s
gener
all
yter
minat
edbyr
etur
noft
hegoodsbyt
hehi
rer
,not
iceoft
ermi
nat
ionby
t
heowneronaccountofhi
rer
sbr
eachofcondi
ti
onsornot
iceoft
ermi
nat
ionby
t
hehi
rer
.

i
i
. Byper
for
mance-Thehi
re-
pur
chaseagr
eementi
ster
minat
edbyper
for
manceon
t
heexer
ciseoft
heopt
iont
opur
chaset
hegoodsbyt
hehi
rer
.

i
i
i. Byr
enewal-Thepar
ti
est
oanagr
eementmayent
eri
ntoaf
reshagr
eement
t
ermi
nat
ingt
hehi
re-
pur
chaseagr
eement
,whi
chhasnotal
readybeent
ermi
nat
ed.

i
v. Not
icebyei
therpar
ty-Thehi
re-
pur
chaseagr
eementcanbet
ermi
nat
edbynot
ice
gi
venbyei
therpar
ty.

v
. Byaccept
anceofr
epudi
ati
onbyot
herpar
ty-Anagr
eementi
ster
minat
ed,
whena
 par
tyt
oanagr
eementr
enounceshi
sfut
ureobl
i
gat
ionsundert
heagr
eementor
commi
tsabr
eachoft
heagr
eement
,whi
chi
ndi
cat
est
hathedoesnotwantt
o
r
emai
nboundbyi
tspr
ovi
sions,andt
heot
herpar
tyaccept
sther
enunci
ati
onor
br
eachasdi
schar
gingt
hecont
ract
.

v
i. Byr
elease-Wher
eonepar
tyt
oanagr
eementr
eleasest
heot
herpar
tyf
rom t
he
per
for
manceoft
heobl
i
gat
ionsbyhi
m undert
heagr
eement
,theagr
eement
comest
oanend.

v
ii
. Byf
rust
rat
ion-Whenper
for
manceoft
heagr
eementbecomesi
mpossi
bleby
r
easonofsomeactorev
entoccur
ri
ngsubsequentt
othef
ormat
ionoft
he
agr
eement
,comest
oanendandt
hepar
ti
eswi
l
lbedi
schar
gedf
rom f
urt
her
obl
i
gat
ionsundert
heagr
eemente.
g.whent
hegoodsar
edest
roy
eddur
ingt
he
cur
rencyofhi
re-
pur
chaseagr
eementwi
thoutnegl
i
genceont
hepar
toft
hehi
rer
,
t
heagr
eementcomest
oanend.

v
ii
i. Byef
fl
uxoft
ime-Whent
hehi
reri
sgi
vent
imet
oexer
ciseopt
iont
opur
chaset
he
goodswi
thi
nast
atedper
iodandhedoesnotexer
ciset
heopt
ionwi
thi
nthesai
d
per
iod,
theagr
eementcomest
oanend.

4.
4Adv
ant
agesanddi
sadv
ant
agesofHi
rePur
chaseSy
stem

Adv
ant
agesofHi
rePur
chaseSy
stem

(
1)Conv
eni
encei
nPay
ment
:

Thebuy
eri
sgr
eat
lybenef
it
edashehast
omaket
hepay
menti
ninst
all
ment
s.Thi
s
sy
stem i
sgr
eat
lyadv
ant
ageoust
othepeopl
ehav
ingl
i
mit
edi
ncome.

(
2)I
ncr
easedVol
umeOfSal
es:

Thi
s sy
stem at
tract
s mor
e cust
omer
s as t
he pay
menti
sto be made i
n easy
i
nst
all
ment
s.Thi
sleadst
oincr
easedv
olumeofsal
es.

(
3)I
ncr
easedPr
ofi
ts:
Lar
gev
olumeofsal
esensur
esi
ncr
easedpr
ofi
tst
othesel
l
er.

(
4)Encour
agesSav
ings:

I
tencour
agessav
ingamongt
hebuy
erswhoar
efor
cedt
osav
esomepor
ti
onoft
hei
r
i
ncomef
ort
hepay
mentoft
hei
nst
all
ment
s.Thi
sincul
cat
est
hehabi
ttosav
eamongt
he
peopl
e.

(
5)Hel
pful
ForSmal
lTr
ader
s:

Thi
ssy
stem i
sabl
essi
ngf
ort
hesmal
lmanuf
act
urer
sandt
rader
s.Theycanpur
chase
machi
ner
yandot
herequi
pmentoni
nst
all
mentbasi
sandi
ntur
nsel
ltot
hebuy
er
char
gingf
ull
pri
ce.

(
6)Ear
ningOfI
nter
est
:

Thesel
l
erget
sthei
nst
all
mentwhi
chi
ncl
udesor
igi
nalpr
iceandi
nter
est
.Thei
nter
esti
s
cal
cul
atedi
nadv
anceandaddedi
ntot
ali
nst
all
ment
stobepai
dbyt
hebuy
er.

(
7)LesserRi
sk:

Fr
om t
hepoi
ntofv
iewofsel
l
ert
hissy
stem i
sgr
eat
lybenef
ici
alasheknowst
hati
fthe
buy
erf
ail
stopayonei
nst
all
ment
,hecangett
hear
ti
cleback.

Di
sadv
ant
agesofHi
rePur
chaseSy
stem

(
1)Hi
gherPr
ice:

A buy
erhast
opayhi
gherpr
icef
ort
hear
ti
clepur
chasedwhi
chi
ncl
udescostpl
us
i
nter
est
.Ther
ateofi
nter
esti
squi
tehi
gh.

(
2)Ar
ti
fi
cial
Demand:

Hi
repur
chasesy
stem cr
eat
esar
ti
fi
cialdemandf
ort
hepr
oduct
.Thebuy
eri
stempt
edt
o
pur
chaset
hepr
oduct
s,ev
eni
fhedoesnotneedoraf
for
dtobuyt
hepr
oduct
.
(
3)Heav
yRi
sk:

Thesel
l
err
unsaheav
yri
skundersuchsy
stem,
thoughhehast
her
ightt
otakebackt
he
ar
ti
clesf
rom t
hedef
aul
ti
ngcust
omer
s.Thesecondhandgoodsf
etchl
i
ttl
epr
ice.

(
4)Di
ff
icul
ti
esi
nRecov
eryofI
nst
all
ment
s:

I
thasbeenobser
vedt
hatt
hesel
l
ersdonotgett
hei
nst
all
ment
sfr
om t
hepur
chaser
son
t
ime.Theymaychoosewr
ongbuy
erswhi
chmayputt
hem i
ntr
oubl
e.Theyhav
eto
wast
eti
meand i
ncurext
raexpendi
tur
efort
her
ecov
eryoft
hei
nst
all
ment
s.Thi
s
somet
imesl
edt
oser
iousconf
li
ctsbet
weent
hebuy
ersandt
hesel
l
ers.

(
5)Br
eakUpOfFami
l
ies:

Thesy
stem put
sagr
eatf
inanci
albur
denont
hef
ami
l
ieswhi
chcannotaf
for
dtobuy
cost
lyandl
uxur
iousi
tems.Recentst
udi
esi
nwest
erncount
ri
eshav
erev
eal
edt
hat
t
housandsofhappyhomesandf
ami
l
ieshav
ebeenbr
okenbyhi
repur
chasebuy
ing’
s.

LESSONFI
VE

LAW OFI
NSURANCE

5.
1Whati
sInsur
ance?

I
nsur
ancei
sacont
racti
nwhi
chonepar
ty(
the"
insur
ed"
)pay
smoney(
cal
l
edapr
emi
um)
andt
heot
herpar
typr
omi
sest
orei
mbur
set
hef
ir
stf
orcer
tai
nty
pesofl
osses(
il
lness,
pr
oper
tydamage,
ordeat
h)i
ftheyoccur
.

5.
2Thr
eemaj
orcat
egor
iesofI
nsur
ancel
aw

1.Fi
rst
,thei
nsur
ancecompanywi
l
lhi
rel
awy
erst
orepr
esentt
hei
nsur
edi
ncaseshei
s
suedf
orsomet
hingr
elat
edt
oheri
nsur
ancecont
ract
.Thesear
eknownas"
insur
ance
def
ensel
awy
ers.
"Forex
ampl
e,anaut
omobi
l
einsur
ancecompanywi
l
lhi
reanl
awy
ert
o
r
epr
esentani
nsur
eddr
iverwhensheget
ssuedf
orcausi
nganot
herdr
iver
'si
njur
ies.
2.Thesecondcat
egor
yofi
nsur
ancel
awhel
psi
nsur
edpeopl
edet
ermi
newhenan
i
nsur
ancecompanymustpayacl
aim.

3.Thi
rd,
insur
ancecompani
est
ypi
cal
l
yhi
rel
awy
ert
omakesur
ethecompanycompl
i
es
wi
thal
lappl
i
cabl
elawsandr
egul
ati
ons,
whi
chcanv
arybyst
ate.

5.
3Fourmai
nty
pesofI
nsur
ance

1.Li
feI
nsur
ance

Thegr
eat
estf
act
ori
nhav
ingl
i
fei
nsur
ancei
spr
ovi
dingf
ort
hosey
oul
eav
ebehi
nd.Thi
s
i
sext
remel
yimpor
tanti
fyouhav
eaf
ami
l
ythati
sdependentony
oursal
aryt
opayt
he
bi
l
ls.I
ndust
ryexper
tssuggestal
i
fei
nsur
ancepol
i
cyshoul
dcov
er"
tent
imesy
oury
ear
ly
ncome.
i "Thi
ssum woul
dpr
ovi
deenoughmoneyt
ocov
erexi
sti
ngexpenses,f
uner
al
expensesandgi
vey
ourf
ami
l
yaf
inanci
alcushi
on.Thatcushi
onwi
l
lhel
pthem r
e-gr
oup
af
tery
ourdeat
h.

2.Heal
thI
nsur
ance
The Keny
a Heal
th Pol
i
cy 2012-
2030 of
fer
s gui
del
i
nes t
o ensur
e moment
ous
i
mpr
ovementi
nthest
atusofheal
thi
nKeny
a,i
nli
newi
tht
hepr
ovi
sionoft
henew
const
it
uti
onofKeny
a2010,Vi
sion2030,andot
hergl
obalcommi
tment
s.Thepol
i
cy
exhi
bit
sKeny
a’sheal
thsect
or’
sobl
i
gat
ion,undert
henat
ionalgov
ernmentsuper
visi
on,
t
oensur
ethatKeny
aat
tai
nthehi
ghestpossi
blest
andar
dsofheal
th,
inr
esponset
othe
needsofi
tsci
ti
zens.Heal
thPol
i
cy2012-
2030i
sdesi
gnedt
obeal
l
-i
ncl
usi
ve,bal
anced,
andr
ati
onal
.
3.Long-
Ter
m Di
sabi
l
ityCov
erage

Thi
sist
heonei
nsur
ancemostust
hinkwewi
l
lnev
erneed,asnoneofusassumeswe
wi
l
lbecomedi
sabl
ed.Yet
,st
ati
sti
csf
rom t
heSoci
alSecur
it
yAdmi
nist
rat
ionshowt
hat
t
hreei
n10wor
ker
sent
eri
ngt
hewor
kfor
cewi
l
lbecomedi
sabl
ed,andwi
l
lbeunabl
eto
wor
kbef
oret
heyr
eacht
heageofr
eti
rement
.Oft
hepopul
ati
on,12% ar
ecur
rent
ly
di
sabl
edi
nsomef
orm,
andnear
ly50%oft
hosewor
ker
sar
eint
hei
rwor
kingy
ear
s.

4.Aut
oInsur
ance
Mot
ori
nsur
ancepr
otect
sthei
nsur
edagai
nstf
inanci
all
ossi
ntheev
entt
hatt
hemot
or
v
ehi
cl
eisi
nvol
vedi
nanacci
dent
,bur
ntorst
olen.

a)Thi
rdPar
ty:Thi
spol
i
cycov
erst
hir
dpar
tybodi
l
yinj
uryandpr
oper
tydamagear
isi
ng
outofuseofmot
orv
ehi
cle.

b)Thi
rdpar
tyFi
re&Thef
tcov
erext
endst
ocov
ert
hef
t,f
ir
e,t
hir
dpar
tybodi
l
yinj
uryand
pr
oper
tydamage.

c)Compr
ehensi
vecov
ercov
erst
hir
dpar
tyl
i
abi
l
ityandpr
oper
tydamaget
othev
ehi
cle
i
.e.damagear
isi
ngoutoff
ir
e,t
hef
tandacci
dent
aldamaget
othev
ehi
cle.

5.
4Sev
enMostI
mpor
tantPr
inci
plesofI
nsur
ance

1.Nat
ureofcont
ract
:

Nat
ureofcont
racti
saf
undament
alpr
inci
pleofi
nsur
ancecont
ract
.Ani
nsur
ance
cont
ractcomesi
ntoexi
stencewhenonepar
tymakesanof
ferorpr
oposalofacont
ract
andt
heot
herpar
tyaccept
sthepr
oposal
.

2.Pr
inci
pal
ofut
mostgoodf
ait
h:

Undert
hisi
nsur
ancecont
ractbot
hthepar
ti
esshoul
dhav
efai
thov
ereachot
her
.Asa
cl
i
enti
tist
hedut
yoft
hei
nsur
edt
odi
scl
oseal
lthef
act
stot
hei
nsur
ancecompany
.Any
f
raudormi
srepr
esent
ati
onoff
act
scanr
esul
tint
ocancel
l
ati
onoft
hecont
ract
.

3.Pr
inci
pleofI
nsur
abl
eint
erest
:

Undert
hispr
inci
pleofi
nsur
ance,
thei
nsur
edmusthav
eint
eresti
nthesubj
ectmat
terof
t
hei
nsur
ance.Absenceofi
nsur
ancemakest
hecont
ractnul
landv
oid.I
fther
eisno
i
nsur
abl
eint
erest
,ani
nsur
ancecompanywi
l
lnoti
ssueapol
i
cy.
4.Pr
inci
pleofi
ndemni
ty:

I
ndemni
tymeanssecur
it
yorcompensat
ionagai
nstl
ossordamage.Thepr
inci
pleof
i
ndemni
tyi
s such pr
inci
ple of i
nsur
ance st
ati
ng t
hatan i
nsur
ed may notbe
compensat
ed by t
he i
nsur
ance company i
n an amountexceedi
ng t
he i
nsur
ed’
s
economi
closs.I
nty
peofi
nsur
ancet
hei
nsur
edwoul
dbecompensat
ionwi
tht
he
amountequi
val
entt
otheact
ual
lossandnott
heamountexceedi
ngt
hel
oss.

5.Pr
inci
pal
ofsubr
ogat
ion:

Thepr
inci
pleofsubr
ogat
ionenabl
est
hei
nsur
ert
ocl
aimt
heamountf
rom t
het
hir
d
par
tyr
esponsi
blef
ort
hel
oss.I
tal
l
owst
hei
nsur
ert
opur
suel
egalmet
hodst
orecov
er
t
heamountofl
oss,Forexampl
e,i
fyougeti
njur
edi
nar
oadacci
dent
,duet
oreckl
ess
dr
ivi
ngofat
hir
dpar
ty,t
hei
nsur
ancecompanywi
l
lcompensat
eyourl
ossandwi
l
lal
so
suet
het
hir
dpar
tyt
orecov
ert
hemoneypai
dascl
aim.Subr
ogat
ioni
sat
erm descr
ibi
ng
al
egalr
ighthel
dbymosti
nsur
ancecar
ri
erst
olegal
l
ypur
sueat
hir
dpar
tyt
hatcaused
ani
nsur
ancel
osst
othei
nsur
ed.Thi
sisdonei
nor
dert
orecov
ert
heamountoft
he
cl
aim pai
dbyt
hei
nsur
ancecar
ri
ert
othei
nsur
edf
ort
hel
oss.

6.Doubl
einsur
ance:

Doubl
einsur
ance denot
es i
nsur
ance ofsame subj
ectmat
terwi
tht
wo di
ff
erent
compani
es orwi
tht
he same companyundert
wo di
ff
erentpol
i
cies.I
nsur
ance i
s
possi
blei
ncaseofi
ndemni
tycont
ractl
i
kef
ir
e,mar
ineandpr
oper
tyi
nsur
ance.Doubl
e
i
nsur
ancepol
i
cyi
sadopt
edwher
ethef
inanci
alposi
ti
onoft
hei
nsur
eri
sdoubt
ful
.The
i
nsur
edcannotr
ecov
ermor
ethant
heact
uall
ossandcannotcl
aimt
hewhol
eamount
f
rom bot
hthei
nsur
ers.

7.Pr
inci
pleofpr
oxi
mat
ecause:
Pr
oxi
mat
ecausel
i
ter
all
ymeanst
he‘
near
estcause’or‘
dir
ectcause’
.Thi
spr
inci
plei
s
appl
i
cabl
ewhent
hel
ossi
sther
esul
toft
woormor
ecauses.Thepr
oxi
mat
ecause
means;t
hemostdomi
nantand mostef
fect
ivecauseofl
ossi
sconsi
der
ed.Thi
s
pr
inci
plei
sappl
i
cabl
ewhent
her
ear
eser
iesofcausesofdamageorl
oss.
5.
5Benef
it
sofi
nsur
ancei
nBusi
ness

i
. Pr
event
ionandmi
nimi
zat
ionoff
inanci
all
osses

I
nsur
ancehel
psy
out
oreducef
inanci
all
osseswhenunf
ort
unat
eev
ent
soccur
.For
i
nst
ance,whent
her
eisabr
eakdownofequi
pmenty
ourcompanymi
ghtnotbeabl
eto
f
unct
ionpr
oper
lyandt
hismi
ghtl
eadt
oal
ossofr
evenuebuty
oucanuseabusi
ness
i
nter
rupt
ioni
nsur
ancepol
i
cyt
ogui
deagai
nstt
hissucht
hatt
hei
nsur
ancecompany
cov
ersf
oranyl
ossesi
ncur
reddur
ingt
heper
iod.

i
i
. Pr
omot
esbusi
nesscont
inui
ty

Whensomecompani
esar
ehi
twi
thsuddenunf
ort
unat
eoccur
rences,
itmayl
eadt
othe
endi
fnotpr
oper
lymanagedbuti
nsur
ancehel
pst
omi
nimi
zer
iskssot
hatt
hebusi
ness
cont
inuest
ooper
ateandgr
owr
egar
dlessofwhathappens.

i
i
i. Ri
skshar
ing

I
nsur
anceal
sohel
psi
nri
skorl
ossshar
ingi
nbusi
ness.Sucht
hatwhenacompany
makesl
ossesi
nst
eadofpr
ofi
ts,t
hei
nsur
ancecompanycancomet
other
escue.Al
so,
whenbusi
nessesar
ehi
twi
thmi
sfor
tunes,t
heymaynotbeabl
etosol
elyaf
for
dthe
cost
sofget
ti
ngbackupandr
unni
ngagai
nbutwhent
hebusi
nessi
sinsur
ed,t
her
isks
ar
eshar
edbet
weent
hecompanyandi
nthei
nsur
ancecompanysucht
hatbot
hpar
ti
es
cancol
l
ect
ivel
ygett
hebusi
nessupandr
unni
ngagai
n.

i
v. Pr
otect
ionofbusi
nessi
mage

Whenabusi
nessgoesdown,i
tisnotonl
ythebusi
nesst
hatsuf
fer
s;t
hecust
omer
s,
st
akehol
der
s,shar
ehol
der
sandt
hepubl
i
car
eaf
fect
edt
oo.Ther
efor
e,i
nsur
ancehel
ps
t
omanagebadoccur
rencessot
hatcust
omer
sandev
eryot
herper
sonat
tachedt
othe
busi
nesscanbepr
otect
ed.

v
. Pr
otect
sthebusi
nessagai
nstdebt
ors

Somet
imes,debt
orsal
soposer
iskst
othebusi
nessandi
nsur
ancecanhel
ptopr
otect
t
hebusi
nessagai
nstdef
aul
ter
s.
v
i. Ef
fect
iveuseofhumanr
esour
ce

I
nsur
anceal
sohel
pst
opr
omot
eandensur
ethathumanr
esour
cesar
eputt
othebest
use.Fori
nst
ance,
heal
thi
nsur
ancehel
pst
oensur
ethatempl
oyeesar
eofper
fectheal
th
andhappysot
hatt
heycanputi
nthei
rbest
.

v
ii
. Pr
ovi
desassur
ancet
ost
akehol
der
sandi
nvest
ors

Al
so,whenacompanyi
sinsur
ed,i
tpr
ovi
desaki
ndofassur
ancet
opeopl
ewhomay
consi
derdoi
ngbusi
nesswi
tht
hem.I
nsur
ingy
ourcompanyat
tr
act
sshar
ehol
der
sand
cust
omer
stoy
ourbusi
ness.

5.
6Cr
it
ici
sm ofI
nsur
ance
i
. Fai
l
uret
oacknowl
edge,
topay
,ordenycl
aimswi
thi
nspeci
fi
edt
imef
rames
i
i
. Fai
l
uret
ocancel
pol
i
ciesornon-
renewpol
i
ciesi
naccor
dancewi
thr
equi
rement
s
i
i
i. Fai
l
uret
opr
ovi
der
equi
redcompl
i
antdi
scl
osur
esi
nunder
wri
ti
ngpr
ocesses
i
v. Fai
l
uret
opr
ocesst
otal
losscl
aimspr
oper
ly
v
. Fai
l
uret
opr
ovi
der
equi
redcompl
i
antdi
scl
osur
esi
ncl
aimspr
ocessi
ng
v
i. I
mpr
operdocument
ati
onofunder
wri
ti
ngf
il
es
v
ii
. Fai
l
uret
o adher
eto pr
oducer appoi
ntment
,ter
minat
ion and/
or l
i
censi
ng
r
equi
rement
sandadj
ust
erl
i
censi
ngr
equi
rement
s
v
ii
i. Fai
l
uret
opaycor
rectamountunderpol
i
cy
i
x. I
mpr
operdocument
ati
onofcl
aimf
il
es

5.
7Impor
tantTer
msi
nInsur
ance

i
. Pol
i
cy:Thecont
ractwhi
chout
li
neswhatt
hei
nsur
ancecompanywi
l
lpayi
ncase
ofl
oss.
i
i
. Benef
it
:Themoneyorser
vicesani
nsur
ancecompanypr
ovi
desi
ncaseofl
oss.
i
i
i. I
nsur
ed:Theper
sonwhor
ecei
vest
hei
nsur
ancebenef
it
.Howev
er,i
nthecaseof
l
i
fei
nsur
ance,t
he"
insur
ed"i
stheper
sonwhosel
i
fei
sinsur
ed,andt
heper
son
whor
ecei
vest
hebenef
iti
scal
l
edt
he"
benef
ici
ary
."
i
v. Pr
emi
um:
Themoneyt
hei
nsur
edpay
sthei
nsur
ancecompany
.
 v
. Cl
aim:
Arequestf
orbenef
it
swhenl
ossoccur
s.
v
i. Cov
erage:
Thet
ypesofl
osseswhi
cht
hei
nsur
ancecompanywi
l
lrei
mbur
se.
v
ii
. I
nsur
anceAgent
:Aper
sonwhoi
sli
censedt
osel
li
nsur
ancei
napar
ti
cul
arst
ate.

LESSONSI
X

NEGOTI
ABLEI
NSTRUMENTS

6.
1Whati
sNegot
iabl
eInst
rument
?
Anegot
iabl
einst
rumenti
sadocumentguar
ant
eei
ngt
hepay
mentofaspeci
fi
camount
ofmoney
,ei
therondemand,oratasett
ime,wi
tht
hepay
ernamedont
hedocument
.
Mor
especi
fi
cal
l
y,i
tisadocumentcont
empl
atedbyorconsi
sti
ngofacont
ract
,whi
ch
pr
omi
sest
hepay
mentofmoneywi
thoutcondi
ti
on,
whi
chmaybepai
dei
therondemand
orataf
utur
edat
e.Negot
iabl
einst
rumentmeanst
ransf
erabl
edocumentwhi
chcanbe
usedi
nmoneyt
ransact
ion.

6.
2Thr
eeMaj
ort
ypesofNegot
iabl
eInst
rument

i
)Bi
l
lofExchange
i
i
)Pr
omi
ssor
yNot
e

i
i
i)Cheque

i
)Bi
l
lofExchange

A Bi
l
lofExchangei
sawr
it
tendocumentwhi
chi
sdul
yst
ampedandsi
gnedbyt
he
dr
awercar
ryi
nganuncondi
ti
onalor
derwhi
chdi
rect
s(notcommands)aper
sont
o paya
speci
fi
camountt
oapar
ti
cul
arper
sonort
otheor
deroft
hepar
ti
cul
arper
sonort
he
hol
deroft
hei
nst
rument
.

i
i
)Pr
omi
ssor
yNot
e

A pr
omi
ssor
ynot
eis a negot
iabl
einst
rument
,cont
aini
ng a wr
it
ten uncondi
ti
onal
pr
omi
se,
dul
yst
ampedandsi
gnedbyt
hedr
awer
,topayaspeci
fi
ed 
sum ofmoneyt
oa
par
ti
cul
arper
sonort
heor
deroft
hepar
ti
cul
arper
son.I
tismadebyt
hedebt
ort
o
bor
rowmoneyf
rom t
hecr
edi
tor
.Thef
eat
uresofapr
omi
ssor
ynot
ear
easunder
:

 Thenot
emustbei
nwr
it
ingcar
ryi
ngwr
it
tenpr
omi
set
opaymoneyt
othecr
edi
tor
.
 Si
gnat
ureoft
hepr
omi
sori
.e.dr
aweroft
henot
emustbet
her
e.
 Thedat
eonwhi
cht
henot
eispay
abl
eshoul
dbef
ixed.
 Bot
hthepr
omi
sorandpr
omi
seeneedst
obecer
tai
n.
 Thesum ofmoneymustbedef
ini
te.
 Thecount
ry’
slegal
cur
rencyshoul
dbeusedt
odi
schar
get
hedebt
.

Pr
omi
ssor
yNot
edoesnoti
ncl
udeacur
rencynot
eorabanknot
e.

i
i
i)Cheques

Chequesar
econsi
der
edasani
mpor
tantnegot
iabl
einst
rumenti
nint
ernat
ionalsal
es.
Chequesar
epr
imar
il
yapay
mentdi
rect
ionandi
tisnotacr
edi
tinst
rument
.Cheque
pl
aysani
mpor
tantr
olei
nthemechani
sm ofbanki
ng.Ther
efor
e,chequesar
edeepl
y
r
oot
edi
nther
elat
ionshi
psoft
hebankandt
hecust
omer
.

The nat
ure oft
he cheque i
sthatwhen i
tis pr
esent
ed,t
he pay
menti
s al
most
i
mmedi
atel
ymade.

i
. t
hechequescanbepai
donl
ytot
henamedpay
eeorhi
sendor
see.
i
i
. Thechequecannotbenegot
iat
edt
oat
hir
dpar
ty

Thecr
ossedchequemustbepr
esent
edt
hroughabankaccountf
orpay
ment
;thehol
der
ofacr
ossedchequecannotpr
esenti
tinper
sonf
orcash.Thebankdoesnotacceptt
he
chequeonwhi
cht
heyar
edr
awn.

Thechequemaybeconsi
der
edasadebi
tinst
rument
.Fort
hepay
ment
,thecheque
mustbepr
esent
edt
othepay
ingbanki
.e.t
hebankwher
ethedr
awerkeepshi
saccount
.
Thechequewheni
tispr
esent
edf
orpay
mentgoest
hroughacl
ear
ingsy
stem wher
ethe
col
l
ect
ingbanki
sent
rust
edt
ocol
l
ectt
heamountoft
hechequeonbehal
foft
he
cust
omerandl
atercr
edi
tsi
ttohi
sownaccount
.Chequespl
ayaf
undament
alpar
tint
he
banki
ngf
iel
d.Nor
mal
l
y,t
hechequesar
enotdi
scount
ed.

Condi
ti
onst
obe 
ful
fi
ll
edi
nNegot
iabl
eInst
rument

i
. Thebi
l
lshoul
dbepr
oper
lydat
ed.
i
i
. I
tmustcont
ainanor
der
,i.
e.t
hedr
aweroft
hei
nst
rumentdi
rect
sthedr
aweet
o
payacer
tai
nsum t
othepay
ee.
i
i
i. Mustbesi
gnedbyt
hemakeroft
hebi
l
l.
i
v. Thedr
aweemustacceptBi
l
l.
v
. Or
dert
opaymoneyonl
yaswel
last
heamountshoul
dbedef
ini
te.
v
i. Del
i
ver
ingt
hebi
l
ltot
hepay
eei
samust
.

Thecr
edi
tormakesBi
l
lofExchange.I
tisusedi
nbusi
nesst
oset
tl
ethedebtbet
ween
t
hepar
ti
es.

Char
act
eri
sti
csofNegot
iabl
eInst
rument

1.Pr
oper
ty

Thepossessoroft
henegot
iabl
einst
rumenti
spr
esumed t
o bet
heowneroft
he
pr
oper
tycont
ainedt
her
ein.Anegot
iabl
einst
rumentdoesnotmer
elygi
vepossessi
onof
t
hei
nst
rumentbutr
ightt
opr
oper
tyal
so.Thepr
oper
tyi
nanegot
iabl
einst
rumentcanbe
t
ransf
err
edwi
thoutanyf
ormal
i
ty.I
nthecaseofabear
eri
nst
rument
,thepr
oper
ty
passed by mer
e del
i
ver
ytot
he t
ransf
eree.I
nthe case ofan or
deri
nst
rument
,
endor
sementanddel
i
ver
yar
erequi
redf
ort
het
ransf
erofpr
oper
ty.

2.Ti
tl
e

Thet
ransf
ereeofanegot
iabl
einst
rumenti
sknownashol
deri
nduecour
se.
’Abonaf
ide
t
ransf
ereef
orv
aluei
snotaf
fect
edbyanydef
ectoft
it
leont
hepar
toft
het
ransf
eroror
ofanyoft
hepr
evi
oushol
der
soft
hei
nst
rument
.Thi
sist
hemai
ndi
sti
nct
ionbet
weena
negot
iabl
einst
rumentandot
hersubj
ect
sofor
dinar
ytr
ansf
er.Thegener
alr
uleofnemo
datquodnonhabetdoesnotappl
ytonegot
iabl
einst
rument
s.

3.Ri
ght
s

Thet
ransf
ereeoft
henegot
iabl
einst
rumentcansuei
nhi
sownname,i
ncaseof
di
shonor
.

Anegot
iabl
einst
rumentcanbet
ransf
err
edanynumberoft
imest
il
li
tisatmat
uri
ty.The
hol
deroft
hei
nst
rumentneednotgi
venot
iceoft
ransf
ert
othepar
tyl
i
abl
eont
he
i
nst
rumentt
opay
.

4.Pr
esumpt
ions

Cer
tai
n pr
esumpt
ions appl
yto al
lnegot
iabl
einst
rument
s e.
g.a pr
esumpt
ion t
hat
consi
der
ati
onhasbeenpai
dunderi
t.

5.Pr
omptPay
ment

A negot
iabl
einst
rumentenabl
est
hehol
dert
o expectpr
omptpay
mentbecausea
di
shonormeanst
her
uinoft
hecr
edi
tofal
lper
sonswhoar
epar
ti
est
othei
nst
rument
.
6.
3KeyDi
ff
erencesbet
weenbi
l
lofexchangeandPr
omi
ssor
yNot
e

Thef
oll
owi
ngar
ethemaj
ordi
ff
erencesbet
weenbi
l
lofexchangeandpr
omi
ssor
ynot
e:

1.Bi
l
lofexchangei
saf
inanci
ali
nst
rumentshowi
ngt
hemoneyowedbyt
hebuy
er
t
owar
dst
hesel
l
er.Pr
omi
ssor
yNot
eisawr
it
tendocumenti
nwhi
ch 
thedebt
or
pr
omi
sest
hecr
edi
tort
hatt
heamountduewi
l
lbepai
dataf
utur
especi
fi
eddat
e.
2.I
nabi
l
lofexchange,t
her
ear
ethr
eepar
ti
eswhi
l
eint
hecaseofapr
omi
ssor
y
not
ethenumberofpar
ti
esi
s2.
3.Cr
edi
torcr
eat
es Bi
l
lofExchange.On t
he ot
herhand,Pr
omi
ssor
y Not
eis
pr
epar
edbyt
hedebt
or.
4.Thel
i
abi
l
ityoft
hemakeroft
hebi
l
lofexchangei
ssecondar
yandcondi
ti
onal
.
Conv
ersel
y,t
hel
i
abi
l
ityoft
hemakeroft
hepr
omi
ssor
ynot
eispr
imar
yand
absol
ute.
5.Bi
l
lofExchangecanbemadei
ncopi
es,
butPr
omi
ssor
yNot
ecannotbemadei
n
set
s.
6.I
nthecaseoft
hebi
l
lofexchanget
hedr
awerandpay
eecanbet
hesameper
son
whi
chi
snotpossi
blei
ncaseoft
hePr
omi
ssor
yNot
e.
7.Thenot
iceofdi
shonorofabi
l
lofexchangemustbegi
vent
oal
lthepar
ti
es
concer
ned,howev
er,i
nthecaseofpr
omi
ssor
ynot
esuchnot
iceneednotbe
gi
vent
othemaker
.

6.
4Compar
isonChar
tofBi
l
lofexchangeandPr
omi
ssor
yNot
e
Basi
sfor
Bi
l
lofExchange Pr
omi
ssor
yNot
e
Compari
son

Bil
lofExchangeisaninstr
umentinApromissorynoteisawr i
tt
enpromise
wri
tingshowingtheindebt
edness madebyt hedebtortopayacertai
nsum
Meani
ng
ofabuy ert
owardsthesell
erof ofmoneyt othecredi
toratafut
ure
goods. speci
fi
eddate.

Sect
ion5ofNegot
iabl
eInst
rumentSecti
on4ofNegot
iabl
eInst
rumentAct
,
Def
inedi
n
Act,
1881. 1881.
 Basi
sfor
Bi
l
lofExchange Pr
omi
ssor
yNot
e
Compari
son

Thr
eepart
ies,
i.
e.dr
awer
,dr
awee
Par
ti
es Twopar
ti
es,
i.
e.dr
awerandpay
ee.
andpay
ee.

Dr
awnby Cr
edi
tor Debt
or

Li
abi
l
ityofMaker Secondar
yandcondi
ti
onal Secondar
yandcondi
ti
onal

Canmakerand
pay
eebethesame Yes No
per
son?

Promissor
yNot
ecannotbedr
awni
n
Copi
es Bi
l
lcanbedr
awni
ncopi
es.
copi
es.

Noti
ceisnecessar
ytobegi
vent
o Not
icei
snotnecessar
ytobegi
vent
o
Di
shonor
al
lthepar
ti
esinvol
ved. t
hemaker.

6.
5Ot
hert
ypesofNegot
iabl
eInst
rument

Tr
easur
yBi
l
ls

Tr
easur
ybi
l
lisaki
ndofnegot
iabl
einst
rumentwhi
chi
susedbyt
hegov
ernment
.The
gov
ernmenti
ssuesi
ttor
aiset
heshor
tter
mloans.Thesebi
l
ls,usual
l
y,mat
urei
nless
t
hanay
earandt
hebi
l
lsdonotpayi
nter
estbef
oret
hemat
uri
ty.Ther
efor
e,t
hebi
l
lsar
e
usedbyt
hebankasasour
ceofshor
tter
mfundi
ng.Tocr
eat
eaposi
ti
vef
iel
dof
mat
uri
ty,t
hesebi
l
lscanbesol
datadi
scount
edr
atecompar
edt
othepr
esentv
alue.
Thesebi
l
lsar
eissuedev
eryweekwhi
char
ecal
l
edas‘
regul
arweekl
ytr
easur
ybi
l
ls'
wit
h
t
hemat
uri
tyday
sli
ke28day
s,91day
s,182day
sand364day
s.Thet
reasur
ybi
l
lsar
e
l
argel
ypur
chasedbybanksandot
herf
inanci
ali
nst
it
uti
on.

Banker
'sDr
aft

Banker
'sdr
afti
sa dr
afti
n whi
ch t
hef
undsar
edi
rect
lyt
aken f
rom t
hef
inanci
al
i
nst
it
uti
oni
nst
eadoft
aki
ngi
tfr
om i
ndi
vi
dualdr
awer
'saccount
.Thedr
aftcanbepai
dat
headof
fi
ceoranybr
anchof
fi
ceoft
hesamebank.Thi
sbanker
'sdr
afti
smai
nlyusedi
n
commer
cialt
ransact
ionst
omakepay
ment
s.Thebanker
'sdr
aftcannotbeconsi
der
ed
asl
egalchequebecauset
hedr
awerandt
hedr
aweear
ethesameper
son.“
Butt
he
chequesAct
,1957,
thepr
otect
ionofbanker
spay
ingandcol
l
ect
ingsuchi
nst
rument
sis
aswi
thv
ali
dcheques.
”

Di
vi
dendWar
rant
s

Di
vi
dendwar
rant
scanbedef
inedasdemanddr
aft
swhi
char
edr
awnbyacompanyona
bankor
der
ing t
o payast
ockhol
derorshar
ehol
derwi
th asum ofmoneywhi
ch
r
epr
esent
shi
spr
ofi
tint
heshar
eoft
hecompany
.Theshar
ehol
derwi
l
lbeent
it
ledwi
tha
shar
eoft
hedecl
areddi
vi
dend.Suchamountcanbedr
awnei
theri
nthef
orm ofa
chequeorabanker
'sdr
aft
.

Shar
eWar
rant
s

Thepubl
i
candt
hepr
ivat
ecompani
es,i
faut
hor
izedbyt
hei
rar
ti
clesi
ssuei
nrespectof
f
ull
ypai
dshar
es.Ashar
ewar
rantunderacommonl
awwhi
chst
ates,
thatt
hebear
erof
t
heshar
ewar
ranti
sent
it
ledt
otheshar
ewhi
chi
sspeci
fi
edi
nit
.Whenacompany
i
ssuesashar
ewar
rant
,itmustst
ri
keoutt
henameoft
heshar
ehol
derf
rom t
her
egi
str
y
ofmember
s.Ashar
ewar
ranti
sal
sonegot
iabl
e,becausei
tpassesat
it
lef
reef
rom
def
ect
sint
het
it
leofpr
evi
oushol
der
suponmer
edel
i
ver
y.Thei
mpor
tantf
eat
ureand
adv
ant
ageofashar
ewar
ranti
sthatt
heowneroft
heshar
ewar
rantcannotbei
dent
if
ied
byany
oneev
eni
ftheyl
ooki
ntot
hecompani
es'
publ
i
crecor
ds.Thesewar
rant
sar
eeasy
t
otr
ansf
er.

Bear
erScr
ip

Thi
sisat
ypeofnegot
iabl
einst
rumentwhi
chi
snot
hingbutacer
ti
fi
cat
ewhi
chi
sbeen
i
ssuedwhenapay
menti
sdeposi
ted.Thebear
erscr
ipi
ssuedt
oanexi
sti
ngshar
ehol
der
i
ndi
cat
est
hat
,theshar
ehol
deri
sent
it
ledf
ort
hepay
mentoff
urt
heri
nst
all
ment
s.The
bear
erscr
ipi
susual
l
y,usedbyt
hegov
ernmentandpubl
i
ccompani
es.
Bear
erDebent
ure

Bear
erdebent
uresar
enegot
iabl
einst
rument
swhi
char
etr
ansf
erabl
efr
eef
rom equi
ti
es
uponmer
edel
i
ver
y.Ther
eisnoneedt
ogi
vet
hecompanyanot
iceoft
ransf
er.I
nter
est
s
ar
epai
dbyat
tachi
ngt
hecoupont
othedebent
ure.Thesecouponsar
ethei
nst
ruct
iont
o
t
hecompani
es'
bankerwhi
chassi
stt
opayt
hebear
erasum ofmoneywhi
chi
sst
ated
on t
he coupon af
tera cer
tai
n dat
e.Onl
y by adv
ert
isement
,the company can
communi
cat
ewi
tht
hehol
der
sofbear
erdebent
ure.Thehol
der
sofbear
erdebent
ure
mayexchanget
hem f
orr
egi
ster
eddebent
ures.Adebent
urecanal
sobei
nthef
orm of
pr
omi
ssor
ynot
es.

Bear
erBonds

I
tisaki
ndofnegot
iabl
einst
rument
swhi
chact
sasasecur
it
yfordebtwhi
chi
sissued
byagov
ernmentoracor
por
ati
on.Thesebear
erbondsar
ecompl
etel
ydi
ff
erentf
rom
ot
hercommont
ypei
nvest
mentsecur
it
ies.Thi
sinst
rumenti
snotr
egi
ster
edandt
her
e
ar
enor
ecor
dsoft
heowneroft
hebondandnocl
uer
egar
dingt
het
ransact
ionsi
nvol
vi
ng
owner
shi
p.Theper
sonwhophy
sical
l
yhol
dst
hepaperonwhi
cht
hebondi
sissuedi
s
t
heowneroft
hei
nst
rument
.So,i
fther
eisanyl
ossordest
ruct
ionoft
hisbear
erbond,
r
ecov
eri
ngt
hev
aluei
snotpossi
ble.

Fl
oat
ingRat
eNot
e

Fl
oat
ingr
atenot
esar
ethet
ypeofbondswhi
chhav
eav
ari
abl
ecoupon.Thesecoupons
ar
eequalt
oamoneymar
ketr
efer
encer
ate.Theyal
sohav
ear
atewhi
chr
emai
ns
const
ant
.Mostoft
hef
loat
ingr
atenot
esar
equar
ter
lycoupons.Theyar
ecal
l
edso
becauset
heypaybackt
hei
nter
estonl
yaf
terev
eryt
hreemont
hs.I
nit
ial
l
y,ev
erycoupon
per
iodi
scal
cul
atedbyt
aki
ngi
ntoaccountt
hef
ixi
ngoft
her
efer
encer
ate,whi
chi
s
t
her
efor
e,t
hatdayandbyaddi
ngar
ate,
whi
chr
emai
nsconst
ant
.Thef
loat
ingr
atenot
es
car
ryani
nter
estr
ater
iskwi
tht
hem.
Cer
ti
fi
cat
eOfDeposi
t

Thi
snegot
iabl
einst
rumentcanbeexpl
ainedasaf
inalpr
oductwhi
chi
scommonl
y
of
fer
ed t
o consumer
sbybankand cr
edi
tuni
ons.Thecer
ti
fi
cat
eofdeposi
tshas
speci
fi
edf
ixedt
erm andt
het
ermsar
eval
i
dforaper
iodl
i
ket
hreemont
hs,
6mont
hsor
1–5y
ear
s.Theyal
sohav
eaf
ixedr
ateofi
nter
est
.Ift
hecer
ti
fi
cat
eofdeposi
tiskeptt
il
l
t
hemat
uri
tydat
e,t
hemoneycanbewi
tht
hedr
aweri
ncl
udi
ngt
heaccr
uedi
nter
est
.If
t
hemoneyi
skeptasadeposi
tforanagr
eedt
erm,
wecangetahi
gherr
ateofi
nter
est
.
Themai
nrequi
rementofacer
ti
fi
cat
eofdeposi
tisami
nimum deposi
twhi
chmayof
fer
hi
gherr
atef
orl
argerdeposi
ts.I
nter
est
sar
epai
dper
iodi
cal
l
ythr
oughchequeormaybe
t
ransf
err
edi
ntot
hesav
ingsaccountaccor
dingt
othewi
shoft
hepur
chaser
.
LESSONSEVEN

LAW OFAGENCY

7.
1Whati
sAgencyLaw?

Agencyl
awr
efer
stot
her
elat
ionshi
pbet
weenaper
son,or“
agent
,”t
hatact
sonbehal
f
ofanot
herper
son,company
,orgov
ernment
,usual
l
ycal
l
edt
he“
mast
er”or“
pri
nci
pal
.”
Anagencyi
sfor
medwhenapr
inci
palasksani
ndi
vi
dualt
omakeadel
i
ver
yornames
someoneasanagentt
hroughacont
ractl
eadi
ngt
other
esponsi
bil
i
tyoft
hepr
inci
palf
or
act
ionsmadebyt
heagentwhi
l
etheagent
’sact
ionsar
eaki
ntot
hoseoft
hepr
inci
pal
.
Thi
sfor
m ofagencycanbe,
andof
teni
s,enf
orcedbywr
it
tenagr
eement
smadet
hrough
apowerofat
tor
ney
.

Anagencyr
elat
ionshi
pisgener
atedbyt
heconsentofbot
htheagentandt
hepr
inci
pal
.
Noper
soncanunwi
l
li
ngl
ybecomeanagentf
oranot
her
.Awr
it
tencont
racti
scommon,
butnotnecessar
il
yessent
ialwheni
tiscl
eart
hatbot
hpar
ti
esi
ntendt
oacti
nthei
r
r
espect
ivepr
inci
palandagentr
oles.Thei
ntentoft
hepar
ti
escanbei
nfer
redf
rom t
hei
r
wor
dsori
mpl
i
edbyt
hei
ract
ions.

7.
2For
mat
ionofAgency

Ther
ear
efourt
ypesoff
ormi
ngagency
1.Agencybyappoi
ntment

2.AgencybyEst
oppel
(impl
i
edappoi
ntment
)
3.Agencybyr
ati
fi
cat
ion

4.Agencyofnecessi
ty

1.Agencybyappoi
ntment

i
)Anagencyi
scr
eat
edbyexpr
essappoi
ntmentwhent
hepr
inci
palappoi
ntst
heagent
byexpr
essagr
eementwi
tht
heagent
.Thi
sexpr
essagr
eementmaybeanor
alorwr
it
ten
agr
eementbet
weent
hepr
inci
pal
andt
heagent
.

i
i
)Cont
ractl
awpr
inci
plesappl
ytoanagencyagr
eement
.Anagentmayagr
eet
oacti
n
consi
der
ati
onf
orar
ewar
d.Ont
heot
herhand,
anagencyi
sgr
atui
tousi
ftheagent
agr
eest
oactf
ornoconsi
der
ati
on.

i
i
i)Thegener
alr
ulei
sthatagencymaybecr
eat
edor
all
yandt
her
eisnof
ormal
i
tyf
ort
he
cr
eat
ionofagencybyex
pressagr
eement
,exceptf
oronesi
tuat
ionwhi
chi
sdi
scussed
bel
ow.Thi
sgener
alr
uleappl
i
esev
ent
ocasesofappoi
nti
ngagent
sfort
hesi
gni
ngof
agr
eement
sforsal
eandpur
chaseofi
mmov
abl
epr
oper
ty,whet
heronbehal
foft
he
v
endorort
hepur
chaser
.
Theoneexcept
ioni
swher
eanagenti
sappoi
ntedt
oexecut
eadeedonbehal
foft
he
pr
inci
pal
.Int
hiscase,t
heagentwi
l
lhav
etobeappoi
ntedbydeed,whi
chi
scal
l
eda
powerofat
tor
ney
.

2.AgencybyEst
oppel
(impl
i
edappoi
ntment
)

a)Agencybyest
oppelar
iseswhenAmakesar
epr
esent
ati
ont
oat
hir
dpar
ty,whet
her
bywor
dsorconduct
,thatBi
shi
sagent
,andsubsequent
lyt
hatt
hir
dpar
tydeal
swi
thB
asA'
sagenti
nrel
i
anceonsuchr
epr
esent
ati
on.Awi
l
lnotbeper
mit
ted(
isest
opped)t
o
denyt
heexi
stenceoft
heagencyi
ftodosowoul
dcausedamage(
usual
l
yfi
nanci
all
oss)
t
othatt
hir
dpar
ty.

b)Theper
sonwhomakessuchr
epr
esent
ati
on(
"A"i
npar
agr
aph(
a)abov
e)i
str
eat
edas
hav
ingcr
eat
edanagencyr
elat
ionshi
pbet
weenhi
msel
fast
hepr
inci
pal
andt
heot
her
per
son(
"B"i
npar
agr
aph(
a)abov
e)ashi
sagent
,al
thought
her
eisi
nfactnoagr
eement
bet
weent
het
wopar
ti
es(
"A"and"
B"i
npar
agr
aph(
a)abov
e)ast
othecr
eat
ionoft
he
agencyr
elat
ionshi
p.Agencybyest
oppel
issomet
imescal
l
edi
mpl
i
edappoi
ntmentof
agent
.

c)I
nagencybyest
oppel
,theaut
hor
it
yoft
heagenti
sdescr
ibedasonl
yappar
entor
ost
ensi
blebutnotact
ual
,ast
hepr
inci
pal
has,
inf
act
,notgr
ant
edt
heagentsuch
aut
hor
it
ytoactont
hepr
inci
pal
'
sbehal
f.

d)Theext
entofappar
entorost
ensi
bleaut
hor
it
yoft
heagenti
nanagencybyest
oppel
dependsl
argel
yupont
hecont
ent
soft
her
epr
esent
ati
onmadebyt
hepr
inci
pal
tot
he
t
hir
dpar
tywhor
eli
esandact
sont
her
epr
esent
ati
on.Thepr
inci
pal
issai
dto"
hol
dout
"a
per
sonashi
sagentwi
thsuchaut
hor
it
yast
hepr
inci
pal
mayi
nducet
het
hir
dpar
tyt
o
bel
i
eveandi
sest
oppedf
rom deny
ingt
heexi
stenceofagency
.

3.Agencybyr
ati
fi
cat
ion

a)Agencybyr
ati
fi
cat
ionar
iseswhenaper
son(
thepr
inci
pal
)rat
if
ies(
thati
s,appr
oves
andadopt
s)anactwhi
chhasal
readybeendonei
nhi
snameandonhi
sbehal
fby
anot
herper
son(
theagent
)whoi
nfact
,hadnoact
ualaut
hor
it
y(whet
herexpr
essor
i
mpl
i
ed)t
oactonhi
s(t
hepr
inci
pal
'
s)behal
fwhent
heactwasdone.

b)Rat
if
icat
ionbyi
tsel
fonl
ycr
eat
esanagencyr
elat
ionshi
pbet
weent
hepr
inci
pal
and
t
heagenti
nrespectoft
heactr
ati
fi
edbyt
hepr
inci
pal
,butnoti
nrespectofanyot
her
act
,whet
herpastorf
utur
e.

c)Theper
sonwhor
ati
fi
esanactofanot
herper
sonmusthav
ebeeni
nexi
stenceand
hav
ethel
egal
capaci
tyt
ocar
ryoutt
hatacthi
msel
fbot
hatt
het
imewhent
heactwas
doneandatt
het
imeofr
ati
fi
cat
ion.Aper
sonmayl
ackl
egal
capaci
tyongr
oundsof
bankr
upt
cy,
inf
ancyorment
ali
ncapaci
ty.

4.Agencyofnecessi
ty

a)Agencyofnecessi
tyar
iseswhenaper
son(
"A"
)isf
acedwi
thanemer
gencyi
nwhi
ch
t
hepr
oper
tyofanot
herper
son(
"B"
)isi
nimmi
nentj
eopar
dyandi
tbecomesnecessar
y,
i
nor
dert
opr
eser
vet
hepr
oper
tyf
orAt
oactf
orandonbehal
fofB.I
nthi
scase,
Aact
s
asanagentofnecessi
tyofB.
b)Agencyofnecessi
tyar
isesonl
ywheni
tispr
act
ical
l
yimpossi
blef
ort
heagentt
o
communi
cat
ewi
tht
hepr
inci
pal
bef
oret
heagentact
sonbehal
foft
hepr
inci
pal
.(Thi
s
woul
dbedi
ff
icul
ttoest
abl
i
shwi
tht
oday
'sadv
ancedcommuni
cat
ionsy
stemsandi
sthe
r
easonwhyagencyofnecessi
tydoesnotof
tenar
ise.
)

c)Aut
hor
it
ytoacti
ncaseofemer
genci
escannotusual
l
ypr
evai
lov
erexpr
ess
i
nst
ruct
ionst
othecont
rar
ygi
venbyt
hepr
inci
pal
.

7.
3Ty
pesofAgent
s

Ther
ear
esi
xty
pesofagent
s.

(
a)Gener
alagent
.Thi
sisanagentwhohast
hepr
inci
pal
’
sunl
i
mit
edaut
hor
it
ytocar
ry
outcont
ract
sonbehal
foft
hepr
inci
palwi
thoutr
ecour
set
othepr
inci
paloneachand
ev
erypoi
nti
nat
ransact
ion.

(
b)Agentofnecessi
ty.Her
e,t
heagencycomesi
ntobei
ngasar
esul
tofci
rcumst
ances.
Ther
eisnof
ormalappoi
ntment
,expr
essorot
her
wise.Theagentst
epsi
ntot
heagency
wi
thav
iewt
omi
nimi
sedamagesorl
osst
othegoodsofpr
inci
pal
.

(
c)DelCr
eder
eagent
.Thi
sagentunder
takest
oguar
ant
eet
hegoodsori
ndemni
fyt
he
pr
inci
pal
foranyl
ossesar
isi
ngf
rom t
heagencyt
ransact
ion.I
nret
urnf
ort
hisassur
ance,
t
heagentr
ecei
vesanext
rar
emuner
ati
onf
rom t
hepr
inci
pal
.

(
d)Fact
or.Thebasi
cfeat
ureoft
heagenti
sthatt
heagenthaspossessi
onoft
hegoods
bef
oresal
e.I
nthi
scase,suchanagentcansel
linhi
s/herownnameandmayev
en
pl
edget
hegoodsassecur
it
ytor
aisemoneyi
nthenameoft
hepr
inci
pal
.

(
e)Speci
alAgent
.Thi
sisan agentwho hasbeen appoi
nted t
o car
ryoutonl
ya
desi
gnat
edt
ask.Oncompl
eti
onoft
het
ask,t
heagencyt
ermi
nat
es.Exampl
e,apol
l
ing
agent
.

(
f)Br
oker
.Thi
sisanagentwhodoesnothav
epossessi
onoft
hegoodsatt
het
imeof
sal
e.The t
ransact
ion concl
uded by such an agenton behal
foft
he pr
inci
pal
,
nev
ert
hel
essbi
ndst
hepr
inci
pal
.

7.
4Ty
pesofAgencyr
elat
ionshi
p

Themostcommonagencyr
elat
ionshi
psar
e:

i
. Buy
er’
sAgency
i
i
. Sel
l
er’
sAgency
i
i
i. Dual
Agency
.

i
)Buy
er’
sAgency

I
nabuy
er’
sagencyr
elat
ionshi
p,t
hebuy
eri
sconsi
der
edt
hecl
i
ent
. Abuy
er’
sagenthas
t
obel
oyal
,mai
ntai
nconf
ident
ial
i
ty,beobedi
ent
,pr
ovi
der
easonabl
ecar
eanddi
l
igence,
andgi
veaccount
ingf
oral
lfunds.

i
i
)Sel
l
er’
sAgency

Asel
l
er’
sagencyr
elat
ionshi
prepr
esent
sthesel
l
eri
nthet
ransact
ionandt
hesel
l
eri
s
consi
der
edt
hecl
i
ent
. Asel
l
er’
sagenti
sal
soknownasal
i
sti
ngagent
. Thesel
l
er’
s
agentpossessest
hesamef
iduci
aryr
esponsi
bil
i
tiest
othesel
l
erast
hebuy
er’
sagent
hast
othebuy
er.
 Inasel
l
er’
sagency
,thecl
i
entr
elat
ionshi
pisest
abl
i
shedt
hrougha
l
i
sti
ngagr
eement
.

i
i
i)Dual
Agency

Adualagency
,anagentr
epr
esent
sbot
hbuy
erandsel
l
eri
nasi
ngl
etr
ansact
ionand
car
ri
esf
iduci
aryr
esponsi
bil
i
tiest
obot
hpr
inci
pal
s. Themi
stakeofanagentact
ingasa
dualagentbecomesamut
ualmi
stakeoff
actbybot
hpr
inci
pal
s. Thi
spr
event
sone
pr
inci
palt
omaket
heot
herpr
inci
pall
i
abl
efort
hemi
stakeoft
heagent
.Howev
er,
knowl
edgeornot
icet
oadualagenti
snoti
mput
edi
ftheagentact
edadv
ersel
yor
f
raudul
ent
ly,
 
dualAgencyi
sonl
yper
mit
tedwi
tht
hei
nfor
medandv
olunt
aryconsentof
bot
hthebuy
erandt
hesel
l
er.

7.
5Rel
ati
onshi
pbet
weenAgentandPr
inci
pal

Whoi
saPr
inci
pal
?

Anyper
sonwhohast
hel
egalcapaci
ty(
meani
ngt
hatt
heyar
enoti
nsane,ori
ncer
tai
n
ci
rcumst
ancesami
nor
)toper
for
m anactmaybeapr
inci
palandempoweranagentt
o
car
ryoutt
hatact
.Per
sons,cor
por
ati
ons,par
tner
shi
ps,not
-f
or-
prof
itor
gani
zat
ions,and
gov
ernmentagenci
esmayal
lbepr
inci
pal
sandappoi
ntagent
s.

Whoi
sanAgent
?

Anyi
ndi
vi
dualcapabl
eofcompr
ehendi
ngt
heactt
obeunder
takeni
squal
i
fiedt
oser
ve
asanagent
.

7.
6Whati
sthepur
poseoft
hisr
elat
ionshi
p(cal
l
edAgency
)?

Acont
ractt
obemadebyanagentonbehal
fofapr
inci
pali
sconsi
der
edt
obet
he
cont
ractoft
hepr
inci
palandnott
hatoft
heagent
.Ital
l
owst
hepr
inci
palt
oaut
hor
ize
somebodyt
ocar
ryoutherdut
ies,
eit
herf
oraspeci
fi
cpur
pose(
i.
e.,
pur
chasi
ngahouse)
orgener
all
y(i
.e.
,toconductmanyt
ransact
ions)
.Theagencyr
elat
ionshi
pisusual
l
y
ent
eredi
ntobyi
nfor
malagr
eement
,butal
socanoccurbyf
ormalagr
eement(
incer
tai
n
cases,
theagencyr
elat
ionshi
pmustbespeci
fi
edi
nwr
it
ing)
.Theact
smustbel
egal(
i.
e.,
pr
inci
pal
cannothi
reagentt
oki
l
lthepr
ofessor
).

7.
7Whati
sthebasi
soft
heAgencyr
elat
ionshi
p?

I
nher
enti
nthePr
inci
pal
-Agent(
P-A)r
elat
ionshi
pist
heunder
standi
ngt
hatt
heagentwi
l
l
actf
orandonbehal
foft
hepr
inci
pal
.Theagentassumesanobl
i
gat
ionofl
oyal
tyt
othe
pr
inci
palt
hatshewi
l
lfol
l
owt
hepr
inci
pal
sinst
ruct
ionsandwi
l
lnei
theri
ntent
ional
l
ynor
negl
i
gent
lyacti
mpr
oper
lyi
ntheper
for
manceoft
heact
.Anagentcannott
akeper
sonal
adv
ant
ageoft
hebusi
nessoppor
tuni
ti
est
heagencyposi
ti
onuncov
ers.Apr
inci
pal
,in
t
urn,
reposest
rustandconf
idencei
ntheagent
.Theseobl
i
gat
ionsbr
ingf
ort
haf
iduci
ary
r
elat
ionshi
poft
rustandconf
idencebet
weenPandA.

7.
8Whatar
etheobl
i
gat
ionsoft
heAgentt
othePr
inci
pal
?

Anagentmustobeyr
easonabl
einst
ruct
ionsgi
venbyt
heP.TheAmustnotdoact
sthat
hav
enotbeenexpr
essl
yori
mpl
i
edl
yaut
hor
izedbyt
heP.TheAmustuser
easonabl
e
car
eandski
l
linper
for
mingt
hedut
ies.Mosti
mpor
tant
ly,t
heAmustbel
oyalt
otheP.
TheAmustr
efr
ainf
rom put
ti
ngher
sel
finaposi
ti
ont
hatwoul
dor
dinar
il
yencour
agea
conf
li
ctbet
weent
heagent
sowni
nter
est
sandt
hoseoft
hepr
inci
pal(
not
e:onemi
ght
r
efl
ectont
her
oleofcer
tai
nEnr
onexecut
ivesonout
sidel
i
mit
edpar
tner
shi
pst
hatdi
d
busi
nesswi
thEnr
oni
ntheear
ly2000s)
.TheAmustkeept
hePi
nfor
medast
oal
lfact
s
t
hatmat
eri
all
yaf
fectt
heagencyr
elat
ionshi
p.

7.
9Ri
ght
sdut
iesandobl
i
gat
ionofagentandpr
inci
pal

Anagencyi
sthecr
eat
ionofacont
ractent
eredi
ntobymut
ualconsentbet
weena
pr
inci
palandanagent
. Byagency
,apr
inci
palgr
ant
saut
hor
it
ytoanagentt
oacton
behal
fofandundert
hecont
roloft
hepr
inci
pal
.
 Ther
elat
ionbet
weenapr
inci
palandan
agenti
sfi
duci
aryandanagent
’sact
ionsbi
ndt
hepr
inci
pal
.Thel
aw ofagencyt
hus
gov
ernst
hel
egalr
elat
ionshi
pinwhi
chanagentdeal
swi
that
hir
dpar
tyf
orhi
s/her
pr
inci
pal
.

Pr
inci
pal
’
sdut
ies

Apr
inci
pal
owescer
tai
ncont
ract
ual
dut
iest
ohi
s/heragent
. Cor
rel
ati
vewi
tht
hedut
ies
ofanagentt
oser
veapr
inci
pal
loy
all
yandobedi
ent
ly,
apr
inci
pal
’
spr
imar
ydut
iest
o
hi
s/heragenti
ncl
ude:

i
. Tocompensat
etheagentasagr
eed.
 i
i
. Toi
ndemni
fyandpr
otectt
heagentagai
nstcl
aims,
li
abi
l
iti
es,
andexpenses
i
ncur
redi
ndi
schar
gingt
hedut
iesassi
gnedbyt
hepr
inci
pal
i
i
i. Actofgoodf
ait
handf
airdeal
i
ng.
i
v. Acti
naccor
dancewi
tht
heexpr
essandi
mpl
i
edt
ermsofanycont
ractbet
weena
pr
inci
pal
andanagent
.

Whenanagentact
swi
thi
nthescopeofact
ualaut
hor
it
y,t
hepr
inci
pali
sli
abl
eto
i
ndemni
fyt
he agentf
orpay
ment
s made dur
ing t
he cour
se oft
he r
elat
ionshi
p
i
rr
espect
iveofwhet
hert
heexpendi
tur
ewasexpr
essl
yaut
hor
izedormer
elynecessar
yin
pr
omot
ingt
hepr
inci
pal
’
sbusi
ness.

Agent
’sRi
ght
s
Fol
l
owi
ngar
ethei
mpor
tantr
ight
sofanagent
1.Ri
ghtofRemuner
ati
on
I
tisbasi
cri
ghtofanagentt
hatheshoul
drecei
vet
her
emuner
ati
onofhi
sser
vices.
2.Ri
ghtofCompensat
ion
I
ncaseofi
njur
ycausedt
oagentbyt
henegl
i
genceoft
hepr
inci
pal
maybe
compensat
edbyt
hepr
inci
pal
.
3.Ri
ghtt
oRet
ainMoney
I
nconduct
ingt
hebusi
nessi
fanagentadv
ancesorspendssomemoneyf
ort
he
bet
ter
mentofabusi
ness.Hehasal
sor
ightt
oret
aint
hatamountf
rom t
het
otal
sum
r
ecei
vedbyhi
m onaccountoft
hepr
inci
pal
.
4.Ri
ghtofLi
en
Anagenthasal
soar
ightt
oret
aint
hegoodsorpr
oper
tyofapr
inci
pal
til
lthepay
menti
n
duei
srecei
vedbyhi
m.
5.I
ndemni
tyRi
ght
Anagenthasar
ightt
obei
ndemni
fi
edagai
nstt
hel
i
abi
l
iti
esf
all
sonhi
m.

Dut
iesofanAgent
Fol
l
owi
ngar
ethei
mpor
tantdut
iesofanagent:
1.Obeyt
heI
nst
ruct
ion
I
tist
hebasi
cdut
yofanagentt
hatheshoul
dactupont
hel
awf
uli
nst
ruct
ionsoft
he
pr
inci
pal
.
2.Conduct
ingBusi
ness
I
tist
hedut
yofanagentt
hatheshoul
dconductt
hebusi
nessofapr
inci
pal
.Whi
l
e
per
for
mingt
heser
vicesheshoul
dkeepi
nvi
ewt
hedi
rect
ionsoft
hepr
inci
pal
or
pr
evai
l
ingcust
omsi
nbusi
ness.
3.Showi
ngofAccount
s
I
tist
hedut
yofanagentt
hatheshoul
dmai
ntai
ntheaccount
spr
oper
lyandsubmi
titt
o
t
hepr
inci
pal
onhi
sdemand.
4.Ret
urnofUnduePr
ofi
t
I
fanagenthasear
nedunduepr
ofi
tfr
om t
hebusi
ness,
heshoul
dret
urni
ttot
he
pr
inci
pal
.
5.UseofSki
l
landKnowl
edge
I
tist
hedut
yoft
heagentt
hatheshoul
dper
for
m hi
sdut
ieswi
thasmuchski
l
land
knowl
edgeasi
sgener
all
yshownbyanor
dinar
ypr
udencei
nsi
mil
arbusi
ness.
6.Communi
cat
ionWi
thPr
inci
pal
I
tist
hedut
yoft
heagentt
hatheshoul
dgi
veal
lthei
nfor
mat
ion'
saboutt
hebusi
nesst
o
t
hepr
inci
pal
.Heshoul
dseeki
nst
ruct
ionsf
rom hi
spr
inci
pal
.Heshoul
dnotkeep
any
thi
ngsecr
etsf
rom hi
spr
inci
pal
.
7.Pay
mentofAl
lSum
I
tist
hedut
yofanagentt
opayhi
spr
inci
pal
all
thesumsr
ecei
vedonhi
saccount
.
8.Pr
inci
pal
Deat
hCase
I
fpr
inci
pal
diesorbecomesi
nsane,
iti
sthedut
yoft
heagentt
hatheshoul
dpr
otector
sav
ethegoodsashewasdoi
ngi
nthel
i
feoft
hepr
inci
pal
.Nowhewi
l
lpr
otectt
he
i
nter
estoft
hel
egal
hei
rs.
9.Separ
ateAccount
Anagentshoul
dnotmi
xhi
saccountwi
tht
hepr
inci
pal
.Iti
sthedut
ythatheshoul
dkeep
t
heaccount
sofapr
inci
pal
separ
ate.
10.Per
for
manceWi
thHonest
y
I
tist
hedut
yofanagentt
hatheshoul
ddeal
thebusi
nesshonest
ly.I
fheconduct
sthe
busi
nessdi
shonest
lyt
henhei
snotent
it
ledt
orecei
vet
her
ewar
dofhi
sser
vices.
Per
sonal
Liabi
l
iti
esorGr
oundsonwhi
chanAgentcanbeSued
1.Wher
ehedoesnotdi
scl
oset
henameoft
hepr
inci
pal
.
2.Whent
heagentr
ecei
vesmoneybymi
stakeorf
raud.
3.Whenagentper
for
msanyactwi
thoutt
heaut
hor
it
yoft
hepr
inci
pal
butpr
etendst
obe
anagent
.
4.I
fanagenthasmadeacont
ractwi
tht
hef
orei
gner
sfort
hesal
eandpur
chaseof
goods.
5.I
fagentmakesacont
ractonhi
sownnamei
nst
eadofhi
spr
inci
pal
.
6.I
ftheagenthasagr
eedt
oacceptt
hel
i
abi
l
ityoft
het
hir
dpar
ty.
7.Wher
etheagenthasper
sonal
deal
i
ngwi
tht
het
hir
dpar
ty.
8.I
fanagentsi
gnsont
hebi
l
lofexchangewi
thoutt
ell
i
ngt
hathei
ssi
gni
ngont
he
behal
foft
hepr
inci
pal
.

Pr
imaf
aci
e;basedont
hef
ir
sti
mpr
essi
on;
accept
edascor
rectunt
ilpr
ovedot
her
wise.

Li
en;ari
ghttokeeppossessi
onofpr
oper
tybel
ongi
ngt
oanot
herper
sonunt
iladebt
owedbythatper
soni
sdischar
ged.

Est
oppel
;Alegalpr
inci
plet
hatbarsapart
yfrom denyi
ngoral
l
egi
ngacer
tai
nfactowi
ng
tot
hatpar
ty'
sprevi
ousconduct,
all
egat
ion,ordeni
al.

Propert
yRi ght
; A gener icter
mt hatreferstoanyt y
peofr i
ghttospecifi
cproperty
whetheritispersonalorrealproperty
,tangibl
eorint
angible;e.
g.,
aprofessi
onalat
hlete
hasav aluabl
epr oper
tyrightinhisorhername,phot ograph,andimage,andsuchright
maybesal eablebytheat hl
ete.
Li
tigat
ion……………l awaction,courtcaseorl awsui
t

Ar
bit
rat
ion………….
.set
tl
ementormedi
ati
on

I
ndemni
fy…………….
compensat
e(someone)f
orhar
m orl
oss.

Cav
eatEmpt
or.Lat
inf
or"
lett
hebuy
erbewar
e."Adoct
ri
net
hatof
tenpl
acesonbuy
ers
t
hebur
dent
oreasonabl
yexami
nepr
oper
tybef
orepur
chaseandt
aker
esponsi
bil
i
tyf
or
i
tscondi
ti
on.Especi
all
yappl
i
cabl
etoi
temst
hatar
enotcov
eredunderast
ri
ctwar
rant
y.