Faculty of commerce

English section
Grade two

Answer of
Commercial law sheet
1
1- the meaning of law
Law has been defined as those principles and rules that govern and
regulate social conduct of persons, observance of which is enforced by or
through; the authorities of the state.
Private law is that complex norms and rules which regulate the different
relationships of private persons. Civil law is that part of private law which
embrace the majority of subjects dealt with by private persons. In Egypt the
scope of civil law is wide enough to include beside family relations ( status
persona) all other relations of pecuniary nature ( status reel ) like contracts or
obligations real estate, personal, property and torts. That is why civil law
becomes the general rule to be applied on all matters of private law in every case
not subjected to any other specific statuary law. The most significant branch of
private- law which constitutes of exception to civil law rules is however
commercial law or mercantile law.

2- the law of property

a) property:
the possessor of a negotiable instrument is presumed to be the owner of
the right contained therein. The property in a negotiable instrument can be
transferred without any formality.
In the case of a bearer instrument the property passes by mere delivery to
the transferee. in the case of an order instrument, endorsement and delivery are
required for the transfer of property.

3- characteristics and sources of commercial law

According to law no 17 of 1999
(1) the agreement between parties shall be applied in the
commercial subjects. In the absence of such agreement the
provisions of this code or any other commercial statutes will be
applied "if not" the commercial custom and usage of trade. In
the absence of a custom or usages the rules of civil law must be
appled.
(2) No agreement between the parties custom, or usage can be
applied if they are in contradiction with public policy of Egypt.

1) the contract between parties:

the law no 17 of 1999 presumes that most of statutory rules are facultative so
according to the general rule those statutes can be disclaimed by agreement
however no agreement will be applied if it violates the public policy or the
mandatory rules of Egyptian law.
The commercial statutes consists of many rules which are mandatory or those
provision which require certain form of the commercial contracts and papers. In
1

such cases parties. Must follow the exact rule of the new enacted code or the
agreement in null and void .
 2) Egyptian commercial statutes:
Statutes history
In November 16, 1883 tw different codes had been enacted, the trade code
and the maritime trade code. They were a mere and bad translation of the
French code promulgated in the year 1807.
These two codes had been for a long time, the main legislations, when the
commercial necessities urged more alterations and modifications another several
separate legislations have been enacted, the most important of those statutes are.

3) customs and usage of trade:

the third important source of commercial law is customs and usage f trade.
The legal expression once written by the roman lawyers custom is the best
interpreter of law is still right. We mentioned before that custom was the only
source of commercial law until codified by the French code of 1807.
Custom is a long and generally observed course of conduct. It is the usage or
the practice of the people which by common adoption and acquiescence and by
long and unvarying habit has become compulsory and had acquired the force of
a law with respect to the place or subject matter to which it relates. As applied to
the usage of trade and business a custom is one that is followed in all cases by all
persons in the same business in the same territory and which has been so long
established that persons sought to be charged thereby and all others living in the
vicinity maybe presumed to have knowledge of it the requisites of law.

4) civil law rules

the new code of 1999 makes the civil code rules the last and final course of
law for commercial transactions. However, we shall see on our study that civil
code rules still interferes in certain subjects specially those rules related to
company and obligations.
In the absence of a substantive rules in the present commercial statutes, civil
code provisions are applicable only if there are no custom to the contrary
existence of certain usage of trade will also exclude the application of the civil
code exact provisions even if those rules m mandatory.

4- legal effects of the application of commercial law

We have already noted that France Egypt and other countries maintain two
distinct law rules which may be applicable to a contract or transaction. If this
contract is civil or commercial. The classification will depend upon the kind and
parties to the contract. So the contract including a real estate sale is a civil one
notwithstanding the parties to the contract while sale of goods between a
wholesaler and a retailer is a commercial one.
documentary evidence ( statutes of fraud)
the general dominating civil code rule provides that evidence as to the
1

existence of an act or as to its extinction can not be given by witnesses where the
value involved exceed LE 100 or is not fixed. More evidence by witnesses is not
admitted if it is required to disprove a written document.
 interest of money
if the debt is commercial in nature creditor may have some advantages. From
one hand the legal interest rate is 5% per annum comparing to civil debts
interest which is 4% P.A. only. Although contractual interest rate can not exceed
7% p.a. for both civil and commercial " transactions commercial statutes can be
found consisting of several exceptions
Grace periods
Judge may in exceptional cases grant to a debtor when his position so
requires one or more reasonable delays for the performance of his obligation
provided that no serious prejudice is thereby cased to the creditor.
bankruptcy
bankruptcy is procedure by which a merchant who is unable to pay his debts
( cased to pay ) may be declared by the court a bankrupt, after which all his
assets are to be surrounded to a trustee or receiver appointed by the court for
administration. After several investigations, these assets are to be sold and the
price will be distributed to his creditors by the court.
solidarity between debtors or creditors
another consequence of this distinction between civil and commercial acts is
solidarity. Solidarity between debtors means that a creditor may take action
against ail debtors jointly or severally. So he can demand payment of all debt
from any one of them. The latter can not claim the division of debt between his
codebtor or the benefit of discussion. Solidarity between creditors means that
payment to anyone of them release the debtor.
subrogation of rights:
a creditor can assign or transfer his rights against his debtor to a new
creditor. This assignment is not effective in civil law against the debtor unless it
has been accepted by him or to be notified to him across a court official.
- statutes of limitation : (Prescription)
There are another effects of the application of commercial law. The fact that
most of civil obligations extinguished by prescription term of fifteen years does
not work for commercial transactions.

5- individual commercial moperations

The new project of commercial code makes the individual commercial
operations are only four:
According to the new code the following are commercial acts:
a. purchasing the movables, whatever their kind with the intention of
resale, or hire in their existing state, or after their transformation in
another form. Also the acts of sale, or hire itself.
b. Hiring the movables, with the purpose of renting them. The same for
the act of hiring.
c. The establishment of commercial companies. The code added maritime
1

and air operations.

 There is a controversy about commercial papers where some authors
consider them individual operations, are going to discuss this later.
I must be noted also that a single contract may be commercial from the
side of one party to the contract and may be civil transaction to the second
party. For example the selling of a certain sum of com by a fanner to a trader
will be a civil the trader who is going to resale it afterwards .

6- commercial papers.
Commercial papers or negotiable instruments are written or order to pay
a sum certain in money and no other promise. Thus shares and bonds are not
commercial papers where as checks and promissory notes and bills of exchange
are of this kind.
Commercial papers are the invention of usage of trade hence it is
approved by everyone that custom may produce another paper constitutes the
main specification or requirements which are:
1. a writing signed by the maker or the drawer it must contain.
2. unconditional.
3. promise or order.
4. to pay a sum certain of money.
5. payable in demand or at a definite time.
6. it muse be payable to bearer or to the order beneficiary.

kinds of commercial papers:

1. checks: A draft drawn upon a bank and payable demand on signed by the
maker or drawer containing unconditional promise to pay a sum certain in
money to the order of the payee. If the check is drawn by a bank on it self
and signed by authorized official it is called cashier's check. The purpose
of this form of checks being to make it available for immediate use in
banking circles.
2. letter ( bill of exchange): three party instrument in which the first party
the drawer ) draws an order for the payment of sum certain of money on a
second party ( the draw) for payment to third party at a definite future
time ( the payee).
3. promissory note: A promise or engagement in writing to pay a specified
sum at a time there in limited or one demand or at sight to creditor or to
his order or bearer . here the interment contains two, names only the
primrose ( the maker ) and the promise ( the payee)
–-
7- banking operations and currency exchange
- Banking in general
The business of banking as define by law and custom consists in the issue
of notes payable on demand intended to circulate as money when the banks are
1

banks of issue, in receiving deposits payable on demand ( savings banks) in

discounting commercial papers, making loans of money on collateral security,
buying and selling of bill of exchange; dealing in negotiable securities or stocks
issued by the government; municipal and other corporations.
Currency exchange is another business undertaken by both banks and
cashiers companies. According to the law only joint stock companies can ruen a
bank or currency exchange operations.
Currency exchange is another business undertaken both banks. According
to the law – only joint stock companies can run a bank or currency exchange
operations.

bank accounts
we can distinguish between two dins of accounts:
1. bank deposits
means the placement of money in a bank thereby creating contract between
bank and depositor. Deposit may be payable at demand. At certain time or
subject to a previous notice. The money placed with a bank on deposit by a
customer may be subject to be drawn out on the latter's check.
2. current account
in, general an account is a detailed statement of the mutual demands in the
nature of debit and credit between parties arising out of contract or fiduciary
relation. Current account is an open or running or unsettled account between
the bank and custom where there are mutual payments from both sides.

letter of guaranty
letter of guaranty is a written promise issued by the bank (the obligor) upon
the order of a person ( the customer ) to pay some determined or determinate of
money to another person – called beneficiary ( oblige) and upon the latter
request within the period specified in the letter notwithstanding and protest or
opposition by the customer who orders the letter.

documentary credit
it is a credit given by a bank extended on documents of title where the
document represents the good specified there in.
it is a tripartite arrangement, where by a bank ( the issuing bank) acting at
the request, and on the credit of his customer is to make payment to a third
party ( the beneficiary) against stimulated documents, provided that the terms
and conditions of the credit are complied with.

8- accessory commercial operations.

- the accessory theory
We have already pointed out that the character o: those acts mentioned in the
precedents sections does not depend upon the character of theperson who
practiced them. That mean those acts are deemed commercial because of their
1

inherent nature or because they imply the desire for profit ( speculation) or
circulation of goods and service which are the main elements of trade.. in the
other words the legislator followed an objective criterion in determine what acts
are commercial. However the legislator does not follow this " objectivity" to the
end of nthe line.
 the operations carried out by the merchant related to his
commerce are deemed commercial.
 Every act carried out by a merchant, is seemed to be / related to
his business.
So certain pure civil acts may be consider commercial if they are (1)
practiced by a merchant (2) and was connected with his business. Should a
trader by a car an equipment, make a lease or an insurance policy against fire
risks which may affect his plant, store or his goods, all these acts are considered
commercial. On the contrary if he buys a car or any appliance for his own or his
family use this act should be a civil one.
The theory of accessory, has been applied mby the courts in Egypt and
France. The courts decisions are founded upon equity and practical necessities
rather than a pure legal justifications.

the scope of the theory:

the conditions required by the courts and the new code decisions for the
application of the theory determine the scope of the theory.
First condition the act must be performed by a merchant. T is sufficient that
one party of the contract is a trader even if the second party is not. A merchant
is a man. Who practices one of the commercial acts. Regularly and takes this
business as a profession.
Second condition the act, contract, or operation must be related to his
business. The act – of purchase ( even without the intention to resale ) of apiece
of furniture for the office, the contract of a plant or store ( fends de commerce)
even if it is not byh a merchant is commercial accessory operation as it is the
first step to start a commercial business.
On the contrary we must exclude any contract or act not related to traders'
business but to his family affairs ( contracts of marriage purchases for his house,
gifts etc….)

9- Franchising
" a Franchise operation is a contractual relationship between the franchisor
and franchise in which the franchisor offers or is obliged to maintain a
continuing interest in the business of the franchisee in such areas as known hw
and training, where in the franchisee operates under a common trade name,
format and /or procedure owned or controlled by the franchisor association of
southern Africa.
"franchise is a grant by the franchisor the franchisee entitling the latter to
the use of a complete business package containing all the elements necessary to
establish a previously untrained person in the franchise business to enable him
1

or her to run it on an ongoing basis according to guidelines supplied efficiently

and profitably"
 It is clear from these definitions that franchising involves an ongoing activity,
which is unlike the situation in, for example, a contract of male. So franchisors
are obliged continuously to allow franchisees to operate the business system and
to use the intellectual property which are part of the business system. Usually,
franchisors are also obliged, on a continuing basis, to provide support services,
market the "business system, and develop it to adapt new and changing market
conditions. Franchisees, in turn; are also obliged, apart from the initial amount
which must be paid when the contract is concluded, to pay royalties on a
continuous basis to the franchisor for te duration of the franchising agreement.

10. the relationship between principal and agent creates

obligation for both parties
Discuss the nature of the agent's obligations to the principal and remedies
available to the principal if these are not fulfilled
The agent shall follow the instructions of the principal if he contravenes then
without acceptable justification, the principal may refuse the deal.
A) he must carry out his principal's lawful instructions, unless he is acting
gratuitously
If the agent does not disclose the Existence of the principal
a. the agent maysue and be sued on the contract.
b. The undisclosed principal may also sue on the contract
provided:
1. the agent's authority to act for him existed at the date
of the contract, and
2. the terms of the contract are compatible with agency.
c. He must exercise reasonable care and skill in the
performance of his duties. The degree of skill expected of him
depends on the circumstances. More skill is expected of a
professional person than of a layman who merely advises a
friend. If a payment is made this will also be taken info account
in assessing the care and skill expected but even an unpain agent
may be liable in tort for negligence if he give bad advice ( hedley
byrne v heller (1964)
d. He must act in good faith and for the benefit of his
principal.
1. the agent may not designate himself as another party
to the deal he is charged to conclude except in the following cases:
a. if he is so permitted by the principal.
b. If the instructions of the principal regarding
the deal are explicit and the agent carries out the operation
precisely as instructed.
c. Of the deal is connected with a commodity
1

having a fixed price in the market and the agent bought it or sold
it at that price.
 2. the agent, in the cases mentioned in the previous
clause, shall not receive any pay in return for the agency.
ii. he must not make a secret profit, i.e. he must hot use his position to secure a
benefit for himself.
iii. he must not misuse confidential information regarding his principal's affairs.
If the principal fears that the agent will destroy or dispose of confidential
information the principal may apply for an anton pilier in junction, authorizing
the principal's representative t enter the agent's premises to remove the
confidential material. An anton filler injunction is an exparte injunction i.e. it is
granted on then application of the principal without the agent being represented
the name derives from the case.

11- in what circumstances will a contract in restrain of

trade be held to be valid?
- restraints, of trade on the franchisee and franchisor
The maintenance of standard and the striving towards uniformity, also
requires that franchise agreements contain terms which place restraints of trade
Territorial restraints for example, be placed on the franchisee. The
franchisee may be obliged to restrict the operation of the business to certain
premises or territories.
There may also be price restraints in terms of which the franchisee is
obliged to supply the franchise products or services at a prescribed price to the
public.
The franchisor may also place restraints on the franchisee with regard to
products and sales. The franchisee may, for example, be obliged t buy products
or other necessities from the franchisor or another supplier designated by the
franchisor. The franchisee may be obliged to carry on business only in certain
products and services.
There may also be a provision in terms of which the franchisee is not
allowed to change the nature of the commodities or services supplied, of the
nature of the business system. Also, a so- called lying agreement may be
concluded: in term of such agreement the franchisor will supl;y a particularly
necessary product or service to the ( franchisee, only on condition that a certain
requirement has been met, such as that the franchisee also buys another product
from the franchisor.
Other restraints may relate to the franchisee's right to advertise , or to
competition ( for example, the franchisee may not have an interest in a business
which competes with the franchised business ) during the term of the franchise
agreement or for a certain period of time after termination.
Restraints of trade are also placed on the franchisor. The purpose of these
restraints is usually to offer the franchisee protection against competition by the
franchisor or third parties. If the franchisee is granted an exclusive territory he
1

franchisor may be obkiged not to operate, or grant other person the right to
operate, the same franchise wthin that territory. The franchisor may also be
obliged not to sell products to the franchisee's competitors at a price lower than
that at which products are sold to the franchisee. He may even be obliged to
provide and supply products only to the franchisee.

12- when will a contract of agemncy be terminated

The transfer of the property in the goods to the buyer
Property ( ownsership) and possession must be distinguished since the
property in goods sold may pass to the buyer although the seller retains
possession of the goods. The moment property passes is important for several
reasons.
There is a contract for the sale of unascertained goods, ( i.e goods defined
by description only, and hot identified until after the contract is made) , no
property passes to the buyer unless and until they are ascertained. Thus if a
large consignment of moods goods, no property passes until the carrier he done
so because until then he; goods are unascertained
Either party to the commercial agency contract may terminate the
contract at all times . the compensation shall not be payable unless the
termination of the contract occurs without prior notice or at an unsuitable time.
If the contract is for a definite time, its termination shall be based on a serious
and acceptable reason otherwise the compensation shall be payable.

by the act of the parties

- a. the parties may at any time mutually agree to terminate the agency .
- the principal may revoke the agent's authority at any
- if the agent is also an employee then proper notice must the given to
terminate his contract of employment .
- the principal should give notice of the revocation to third parties with
whom the agent has dealt, otherwise he wil be estopped from denying the
capacity of the agent, should the agent make subsequent contracts with
these third parties.
- A termination in breach of contract will, entitle the agent to the damages

13. as a geral rule where goods are sold by a person who

is not their owner, and who does not seli them under the
authority or which the consent of the owner, they buyer
acquires no better title to the gods than the seller had.
Outline the principal exceptions and qualification to this rule
Sale by a person who is not the owner.
The basic common law rule is
Literally translated this means " no man gives that which is not his own" . if
there is a " sale" by a person who is not the owner , the buyer will generally
aquire no title and will have to return the goods to the goods to the true owner.
The buyer may of course sue the seller for breach, but is not entitled to any
1

compensation from the true owner unless money was spent improving the good s
before the buyer discovered they were not his. The basic nemo dat rule, which
provides that where goods are sold by a person who is not the owner, the buyer
acquires no better title than the seller unless:
a. the seller had the authority or consent of the owner, or
b. the owner is precluded by his conduct from deriving the seller's authority
to sell. For example
in estern distributops v coloring (1957) M owned a van and he wanted to buy a
car from c. however he did not even have enough money for a hire – purcjase
deposit, M and C therefore devised a scheme whereby c would pretend, to a
finance company (ED) that he owned both the car and the van-he would sell
then both to ED, and then buy both back on hire-purchase .
Note that:
i. where there is an estoppel the effect is to pass title to the buyer.
j. The mere feet that the owner gives possession of the goods to a third party
does not stop him from denying that person's authority to sell.

14. discuss the meaning of negtioability and explain the

main characteristics of bills of exchange and promissory
notes.
1. definitions:
Negotiable instruments, or commercial papers as they are " usually called, are
not defined anywhere in our commercial code. Egyptian authors however
usually define a commercial paper as " a documemtn evidencing an obligation to
pay a certain amount of money at a definite date.
Commercial papers can be enumerated as follow:
1- a document – meaning an instrument in writing.
2- This document must contain an obligation to pay a certain amount of
money at a determined or determinable term.
3- It must be transferable by endorsement or by delivery
4- It must be acceptable as a means of payment in commercial transaction.

A negotiable instrument enable him to get payment prompt payment. The

law gives the holder a lot of guarantees to enable him to get payment at the eixed
date
Only promissory notes and bills of exchange are means of short term
credit cheques are not means of credit since they are payable immediately .
Main attributions of the holder of a commercial paper.
These attribution are:
A- property.
B- Title.
C- Rights.
D- prompt payment.
1

The promissory note

1. definition:
 A promissory note is an instrument in writing containing an unconditional
undertaking.
If any of these essentials is lacking, the document would not be considered as
a promissory note, and consequently will not be subjected to commercial law
Promissory note and bill of exchange compared:
1- parties. There are only two parties in a promissory note, while there are
three parties to a bill of exchange: the drawer, and the payee.
2- Nature of payment. in a promissory note there is a promise to pay,
while in bill of exchange there is an order to pay.
3- Acceptance. A bill of exchange may be presented to the drawer for
acceptance by payee before it is presented for payment.
4- Liability. Then liability of the maker of a promissory note is primary
and absolute while the liability of a drawer of a bill of exchange is
secondary and conditional. It is only when the drawer fails to pay that
the drawer would be liable as a surety.

15- what is the extent of the protection afforded by the

low to:
a. a paying banker who pays a cheque to a person who is not its rightful owner,
and
b. a collecting banker who collects a chque for the person who is not its rightful
owner?

Definition:
A cheque is a kind of a bill of exchange but it has two different characteristics
1- the cheque is always drawn on a bank.
2- the cheque is always payable on demand, and hence it has only one date: the
date of drawing of the cheque
The cheque is an instrument of payment only . it is not an instrument of credit,
since it is payable on demand. The cheque dose not require any acceptance.

Kinds of commercial papers:

1- checks: a draft drawn upon a bank and payable demand on signed by the
maker or drawer containing unconditional promise to pay a sum certain
in money to the order of the payee. If the check is drawn by a bank on
itself and signed by authorized official it is called cashier's check. The
pujrpose of this form of checks being to make it available for immediate
use in banking circles
Check
Bank Misr ( Azhar branch)
Cairo on January 15, 1997 (L.E 500)
Pay to the order of Y Five Hundred Egyptian pounds
1

Signature
M
 2- letter (bill of exchange ) : three party instrument in which the first party
( the drawer) draws an order for the payment of sum certain of money on
a second party ( the draw) for payment to third party at a definite future
time ( the payee).
1