ATD 1 KASNEB WEBINAR REVISION – PRINCIPLES OF BUSINESS LAW

LAW OF CONTRACT

A contract is a legally binding agreement or enforceable law. Eg. Insurance, agency, trust.

Classification/types of contract

  • Contract of record.
  • Specialty contracts.
  • Simple contracts.
  • Contract uberrimae fidei (utmost good faith).
  • Written contracts.
  • Express and implied contracts.
  • Unilateral and bilateral contracts.
  • Executed and executory contracts.
  • Valid, void and voidable contracts.

Essential elements of a valid contract

 

1. Intention to create legal relations

Agreements which lack the desire on the parties to create legal relations are not enforceable.eg. Domestic agreements.

 

2. Lawful offer

Is an expression of willingness to enter into a contract on definite terms, as soon as these terms are accepted.

Rules of an offer

  • An offer can be made word of mouth, in writing or implied from the conduct of the parties.
  • An offer must be communicated to the intended party.
  • It may be conditional or absolute.
  • It may be general or specific

(May 2013 Question 4,c)rules governing offer

 

3. lawful acceptance

Its external manifestation of assent the offeree.

Rules of acceptance

  • Acceptance can be made made orally, in writing or implied from the conduct of the parties.
  • Acceptance must be communicated the manner prescribed.
  • Silence is not acceptance of an offer.
  • Once acceptance has been made cannot be revoked.
  • Acceptance must be made before the offer lapses.

(May 2015,Question 1,a)Characteristics of a valid acceptance)

4. Element of consideration.

  • It’s the price for which the promise of the other is bought.
  • It may be executed, executory or past consideration

Rules of consideration

  • Consideration must not be past.
  • Consideration must be legal.
  • Consideration must be real although it need not be adequate.
  • Pinnel’s rule/rule in Foakes Vs Beer -payment of a lesser sum than owed in satisfaction of entire debt is not sufficient consideration for the creditors promise to accept such sum in full settlement for the debt.

Exceptions to pinnel’s rule

  • Where a creditor accepts part payment of the debt from a 3rd party in full settlement this discharges the debt.
  • If the debtor makes a composition with his creditors, the creditors are bound.
  • If the debtor with the agreement of a creditor pays a smaller sum before the due date or at an earlier date in full settlement then the debt is discharged.
  • Where a creditor agrees to accept something different in kind.
  • Where payment is made at a different place at the request of the creditor.
  • Payment with a different currency.
  • Under the doctrine of equitable (Promisory/ defensive) estoppel

Privity of contract rule

Consideration must move from the promisee(privity of contract)-only parties to a contract can sue and be sued.

 

Exceptions to the doctrine of privity of contract

  • Under the Road Traffic Act, in case of 3rd party motor vehicle insurance persons specified in the insurance policy, may sue the insurance company even if they were not party to the contract of insurance
  • Legal assignment- the assignee of a debt may sue a debtor in his own name even if he was not party to the contract that caused the debt to be incurred.
  • A holder of a bill of exchange can sue the drawer or endoser if the bill is dishonoured.
  • In case of trusts, the beneficiary can sue the trustee to enforce the terms of the trust.
  • Agency relationship.

September 2015,Question 2,C) state the doctrine of privity of contract, explain four exceptions

Doctrine of equitable (Promissory/defensive) estoppel

The doctrine provides that where a person makes a promise to another which he intends to effect legal relations between them and the promisee acts on it, the court will treat the promise even if

it is not supported consideration as binding on the promisor to the extent that he will not be allowed to act inconsistently with it.

Conditions of promissory estoppel:

  • A legal relationship between the parties.
  • A new promise or representation is intended to be relied upon.
  • Reliance upon the representation.
  • Change in legal position as a result of reliance.
  • It would be unfair not to estop the maker of the representation

5. Contractual capacity

The contracting parties must be competent to contract.

Minors – a contract minors may be;

A) binding contract – the minor is liable on those contracts. Such as

  • Contract for the supply of necessaries
  • Educational contracts
  • Beneficial contracts of service

B) void contracts – they are not enforceable on minors

  • Loan contracts
  • Contracts for supply of goods other than necessaries

C) voidable contracts – the minor has an option to avoid the contract during infancy or within a reasonable time after attaining the age of majority. Such as;

  • Lease contracts
  • Partnership contracts

6. Contractual capacity

•Insane / Drunk persons

Contracts entered into insane persons other than for necessaries are voidable at the option of the aggrieved person. Such a person is bound a contract for necessaries and must pay a reasonable price for them. An insane person can make valid contracts during lucid intervals.. Before an insane person can escape liability on a contract, it must be proved that at the time of the contract:

  • He was suffering from mental disability
  • The other contracting party was aware of the fact A drunkard is treated as an insane person.

However, partial or ordinary drunkard ness is not sufficient ground to avoid contracts. A person who contracts while drunk must avoid the contract as soon as the disability affected alcohol ceases, otherwise the contract will be binding on him.

7. Element of free consent

For a contract to be binding, the two parties must have “consensus ad ideam” i.e. agreement as to the same thing, otherwise there would be no contract

Vitiating factors – they are factor that interfere with the validity of the contract.

They include;

  • Mistake- renders a contract void.
  • Misrepresentation- it renders a contract voidable.
  • Duress –renders a contract voidable
  • Undue influence –renders a contract voidable

(May 2019,Qn 6.b) four factors that invalidate the contract.

Exemption (exclusion) clauses

The purpose of an exemption clause is to limit or extinguish the liability of one of the parties to a contract in the event of a loss. In ascertaining the validity or effectiveness of exemption clauses courts apply the following rules.

  • Where a clause is contained in an unsigned document, the person relying on it must proof that it was an integral part of the contract.
  • The clause must have been brought to the attention of the party affected before entering into the contract.
  • If the party affected has signed it he will be bound it even if he signed without reading.
  • If it is ambiguous it will be interpreted against the party who inserted it and who inserted it and who is relying on it.
  • As a general rule exclusion clause cannot be relied on a third party .
  • Where a party has fundamentary breached a contract he cannot rely on an exception clause successfully

(Nov 2018,Question,7,b)


Case study (May 2018 Ques. 5(a)

Abel Orina took his clothes to Anko Dry Cleaners Ltd. He was issued with a receipt which read in part that “the management shall not be liable for any damage to or loss of the  customer’s clothes”. The clothes were collected a different customer who cannot be traced. Abel Orina feels aggrieved and seeks your legal advice.

Analyse the legal principles applicable in the above case and advise Abel Orina.

Solution

  • The problem relates to law of contract, exception clauses.
  • A person relying on an exception clause must prove that it was an integral part of the contract.
  • The clause must have been brought to the attention of the party affected before entering into the contract.
  • In this case Anko Dry cleaners Ltd are relying on the exception clause unfairly to avoid their contractual obligation.
  • Abel Orina can succesfully sue Anko Dry Cleaners Ltd for damages.
  • Reference case L’Estrange v. Graucob

 

Discharge of a contract

  • Discharge performance
  • Discharge breach
  • Discharge operation of law
  • Discharge Mutual agreement
  • Discharge frustration/impossiblity acts

 

Remedies in breach of a contract

  • Damages
  • Quantum Meruit
  • Specific performance
  • Injunction
  • Rescission
  • Winding up of the company.

(Nov 2019,Ques 2.a) equitable remedies

LAW OF PROPERTY

The term property means the things which are capable of being owned although they need not exist in tangible form i.e they are things one has legal rights to the exclusion of all others. The term property in its widest sense embraces movable property, immovable property, tangible property (choses in possession) and intangible property (choses in action)

 

Classification of property

Movable property (personal property)

This is also known as personality. It is any property other than real property.

Personal property can be divided into: –

  • Corporeal personal property: This includes movable and tangible things e.g animals, furniture etc.
  • Incorporeal personal property: It consists of such things as shares.

 

2. Immovable (real property)

Immovable property includes all land whether covered water or not and things attached to the earth or permanently fastened to anything attached to

the earth.

 

3. Choses in possession – Capable of physical possession

There are movable chattels e.g furniture, all goods and merchandise. They are things capable of physical possession.

 

4. Choses in action (intangible)

It’s an intangible right which is not capable of physical possession.it include copyright, trademark, patent e.t.c

 (Nov 2012 Q,5,b,i) distinguish between choses in action and choses in posession

Ownership of land

Ownership means having all legal rights over land. This is the most extensive right allowed law to a person dealing with anything to the exclusion of all others. It (ownership) consists of 4 kinds of rights: –

  • Right to the use of the thing
  • Right to exclude others from using the thing
  • Right to dispense the thing
  • Right to destroy it

 

Acquisition of ownership

  • By asserting original claim to the land.
  • By derivative means-through purchasing.
  • Succession inheritance or transmission.
  • Adverse possession
  • Prescription
  • Gift.

(November 2012,Question 5,d,ii) way of acquiring property)

Forms of ownership

  1. Sole ownership – land in question is owned one person.
  2. Joint ownership – where property is owned two or more persons jointly.

Four unities of title

  • Unity of possession: Each tenant much be entitled to possession of the land equally with the others.
  • Unity of interest: Each tenant must have the same interest in the land.
  • Unity of title: Each tenant must take under the same title.
  • Unity of time: Each tenant must hold from the same time and for the same time.

3. Common ownership/co-ownership-its ownership of separate but undivided shares in land

Classification of Rights and Ownership in Land

At common law, land rights were divided into 3 categories and these were: –

1.Estates – (freehold and leaseholds).

A right attached to a parcel of land which allows the proprietor of the land either:

  • To uses the land of another in a particular manner.
  • To restrict its use to a particular extent.

2. Servitudes – (Easement)-These are rights in alieno solo i.e right conferring a power on another’s land for the benefit of the right holder or his estate.

3. Encumbrances – (Mortgages/charges). These are rights in alieno solo which constitute burdens on the property.

 

Classification of estate

FREEHOLDS:

It is the holding of land free of nay encumbrances to exclusion of all others.

LEASEHOLDS:

  • Lease refers to a transaction which creates the relationship of landlord and tenant between the grantor and grantee. The formal document which this is done is a lease.
  • Leasehold is a quantum of rights which a lease grants to the lease. It is a secondary interest in land derived from a primary interest. Confers upon the lease/tenant exclusive possession of another land.

Types of freeholds

a. Estate in fee simple

It is the greatest interest a person can have in land. It’s equivalent to complete ownership. It’s grant confers full rights of possession, enjoyment and disposition during life and by

will.

b. Estate in fee tail

It does not come to an end at the death of its holder and passes to heirs but only the heirs of his body or descendant. The line of descent may be restricted making the

estate. “Estate in male” (may be inherited males) while “estate in tail female) may only be inherited females.

c. Life estate

It is one granted to a person for his own life only. It’s enjoyed the person to whom it is granted during his lifetime. If the grantee (granted person) dies the estate reverts to the granter (giver).

d. Estate per outré vie

It is one of the enjoyment of which depends on the life of another person.

 

TYPES OF TENANCIES OR LEASES

1. Fixed Tenancy -A tenancy created for a fixed duration.

2. Periodic tenancy -Tenancy/lease which continues indefinitely from a period to period e.g 1 year.

3. Tenancy at will -Tenancy wherethe tenant occupies premises on the terms that either party may determine the relationship at any time.

4. Tenancy at sufferance -Arises whenever a fixed period tenancy holds over or remains occupation without the landlord’s consent.

5. Service tenancy -Created to enable the tenant perform a particular service

DUTIES OF LANDLOARD/LESSOR/GRANTOR

  • Duty not to derogate from the grant
  • Duty to ensure quiet enjoyment
  • Duty to grant premises fit for purposes
  • Duty to suspend or adjust rent
  • Duty of repair
  • Duty to put the tenant in possession

DUTIES OF TENANT/LESSEE/GRANTEE

  • Duty To Pay The Rent Reserved
  • Duty Not To Erect Fixtures
  • Duty not to transfer, sublet or part with possession
  • Duty To Pay Rates and Taxes
  • Duty Not to Commit Waste
  • Duty To Make Material Disclosure
  • Duty to permit Landlord to View The Premises.
  • Duty To Put the Landlord in Possession

TERMINATION OF TENANCIES/LEASES

•By Notice

Applicable where the tenancy is for a fixed duration or where either party desires to terminate the leases before the duration expires.

•Lapse Of Time/Expiration Of Time

A fixed period tenancy terminates on expiration of the duration.

•Forfeiture

This is the right of the lessor to re-enter the premises and there-prematurely determine the lease in the event of certain breaches

•Surrender

The giving up the tenant, to the landlord, of the leased premises.

•Merger

A lease determines if the lessee or some other person becomes entitled to the property as of right.

•Enlargement Or Conversion

-A lease determines if it is converted into some other interest e.g freehold in accordance with the law.

•Frustration

A lease is terminable frustration if the property or part therefore is rendered unusable.

•Disclaimer

Right of the lessee/tenant to disclaim the lease. He can only do so if authorized statute. On doing so the lease terminates.

Case study Nov 2016,Qn 5,b)

Herbert Mapesa,a rich but illiterate freehold property owner, has leased his property for a number of years to Kamau Wekesa. Herbert Mapesa wishes to repossess the property for his own use and seeks to know the various legal ways through which a lease might be terminated.

Advise Herbert Mapesa

EASEMENTS

A right attached to a parcel of land which allows the proprietor of the land either:

  • To uses the land of another in a particular manner
  • To restrict its use to a particular extent

CHARACTERISTICS OF AN EASEMENT

  • There must be a dominant and a servient tenement
  • Dominant and servient tenement must be owned/occupied different persons
  • Easement must accommodate the dominant Tenement.
  • Easement must be capable of forming the subject matter of the grant.eg lease

INTELLECTUAL AND OTHER INTANGIBLE PROPERTY

Intellectual property rights are rights awarded society to individuals or organizations principally over creative works. They give the creator the right to

prevent others from making unauthorized use of their property for a limited period of time.

 

I.P Rights include:

Patents:

A patent is the name given to a bundle of monopoly right which give the patentee the exclusive right to exploit the invention for a given period of time.

COPYRIGHT

These are economic rights given to creators of literary and artistic works including the right to reproduce the work, make copies therefrom, perform or display the work publicly, after which the work is said to enter the public domain.

Trademarks.

A trademark is any word or sign used to indicate the correlation between goods, services and the owner. Trademarks are closely related to trade names, certification marks, collective marks, domain names and service marks.

Industrial design

Is any composition of lines or colours or any three dimensional form whether or not associated with lines or colours, provided that such composition or form gives a specia appearance to a product of industry or handcraft and can serve as pattern for a product of industry or handicraft

TRADE SECRET

LAW OF TORT

A tort is thus a civil wrong independent of contract for which the remedy is a common law action for unliquidated damages (those determined the court) The person committing a tort is called a tort feasor.

Elements of tort

To constitute a tort 3 things must exist:

  • There must be some wrongful act or omission the defendant
  • There must be a legal damage to the plaintiff i.e. a violation of his legal rights
  • He wrong must be of such a nature as to give rise to a legal remedy in the form of an action for damages.

GENERAL DEFENSES IN TORT

1. Volenti Non fit Injuria

It is also called the doctrine of voluntary assumption of risk. It provides that a person shouldn’t complain of injuries resulting from the risk he voluntarily consented to run. The rule protects a footballer or a boxer who injures his colleague in the ordinary course of the game. It also protects a surgeon, who may have a patient die during an operation.

For the defendant to avail himself, this defense, he must prove that the plaintiff:-

  • Knew the risk involved
  • Appreciated it in all respect
  • Assumed it voluntarily

2. Private defense

It is the right of a person to protect himself, his property or family against unlawful harm.

3. Necessity

The defense of necessity is founded on the maxim ‘salus populi suprema lex’ i.e. the welfare of the people is supreme law. Thus in some cases damage caused deliberately to individuals may not give rise to any legal action if it was intended to prevent a greater evil.

4. Act of God (vis major)

This is an unfortunate accident not connected with human agency and is caused elementary forces of nature

5. Inevitable accident

It is one which can not be prevented the exercise of ordinary care, caution or skill. It is caused through human agency.

6. Statutory authority

A statute may authorize persons to do that which would otherwise have been a tort.

7.Mistake

A mistake of fact is a defense if it arises from reasonable suspicion

8. Disclaimer/ exemption clauses

The aim of such clauses is to reduce or extinguish the liability of the defendant. They will be a good defense if fairly applied e.g. beware of slippery floor

TORT OF NEGLIGENCE

A breach of duty caused the omission to do something which a reasonable man would do or doing something which a prudent or reasonable person would not do.

Elements of negligence

In order to maintain an action for negligence, the plaintiff must prove the following:

  • Legal duty of care – it’s a precaution expected of a reasonable man to avoid injuring another.
  • Breach of duty- failure to observe a duty of care.
  • Legal injury to the plaintiff.

(May 2019,Question 6.a) Explain the three elements of the tort of negligence)

TORT OF DEFAMATION

This is the publication of a false statement regarding another person without lawful justification.

A defamatory statement may either be slander or libel.

Differences between slander and Libel(Nov 2017 Qn.2.a,ii)

Differences between Slander and Libel

Ingredients of defamation

To constitute defamation, the statement complained of must be:

  • False
  • Defamatory
  • Referable to the plaintiff
  • Published

Defenses for defamation

Defenses

  • Truth or justification
  • Fair comment
  • Privilege
  • Apology

Remedies:

  • Apology
  • Damages
  • Injunction

 

Tort of Nuisance

It is the tort committed when a person is wrongfully disturbed in the use of his land or some right over it or in connection with it.

Generally, it rises from the duties owed to the neighboring occupiers of land. The two main types are:-

  • Private nuisance
  • Public nuisance

Tort of trespass

It is the unlawful interference with a person his property or goods without any lawful justification.

Types of trespass

1. Trespass to person;

  • Assault
  • Battery
  • False imprisonment

2. Trespass to land-

This is the unjustifiable interference with the possession of or unjustified entry on the land of another person, independent of any intention to trespass

3.Trespass to goods – It occurs where there is wrongful interference with the goods of another. It consist of;

  • Detinue – It is the wrongful withholding of goods of another.
  • Conversion – It occurs where a person acts inconsistently with the right of another person’s ownership of the goods.

LIMITATION OF ACTIONS IN TORT

It refers to the period within which legal action can be instituted against wrong doers for damages. It is governed the limitation of Actions Act. The period of limitation runs either from the time the wrongful act is committed or from the time the plaintiff first sustained actual damage (injury).

Provisions of the Act

  • Action in tort must be brought within 3 years from the time the tort was committed. Where damage doesn’t become immediately apparent (observable), time begins to run (count) from the time damage becomes apparent.
  • When the plaintiff is under disability e.g. infancy insanity, illness etc. time doesn’t start running until such disability ceases. Once time begins running any subsequent disability cannot stop it.
  • Where the tort committed consists of a continuing wrong, the right of action arises daily from when the tort is committed.
  • Where the right of action is based on fraud or concealed fraud, limitation runs from the time when such fraud would have been discovered had the plaintiff not been negligent.
  • Incase of defamation, libel or slander limitation period is 12 months.

(Nov 2019,question 6.a) describe rules that govern limitation of actions in tort)

NEGOTIABLE INSTRUMENTS

It means a written document which represents money transferable from one person to another mere delivery or delivery and endorsement. Eg a cheque

Features of a negotiable instrument

  • It is freely transferable.
  • The title to a certain right of a negotiable instrument is passed delivery.
  •  No notice is required for transfer to be complete.
  • The holder of instrument can sue in his own name over the instrument. its an exception to privity of contract
  • A bonafide transferee acquires good title free from the transferors defect in title. Its an exception to the rule of Nemo dat.
  • Valuable consideration may be constituted past consideration. Its an exception to the rule of past consideration

TYPES OF NEGOTIABLE INSTRUMENTS

  • A bill of Exchange
  • Cheque
  • Promissory note

BILL OF EXCHANGE

It is defined under the Bill of exchange Act as an unconditional order, in writing, addressed one person to another, signed that person requiring that other person to pay on demand or at a fixed date or at a future determinable time, a sum certain in money, to pay on order of a specified person or to the bearer.

Characteristics of a bill of exchange

  • Its unconditional order to pay.
  • It must be in writing.
  • Must be signed the drawer.
  • Must require payment to be made to a specific person or his order.
  • Must contain an order to pay certain amount of money.
  • If the order is not to pay on demand, the time of payment is fixed or determined.
  • Its addressed from one person to another.
  • It consist of three parties i.e drawer, drawee and payee

Types of bills

  • Order Bill – this is a bill which is payable to a named payee or specific person.
  • Bearers Bill – bill which is not payable to any specific person and can be presented any person. A bill that has an unexisting person named will also be known as a bearer bill.
  • Inland Bill – it is a bill that is written and is payable within East Africa.
  • Foreign Bill – Bill written and payable outside East Africa.
  • Overdue Bill – Bill which has a date for payment, whichdate has passed or expired before it is presented such a billis still negotiable but a transferee will not get a better tittle than the holder

PARTIES TO A NEGOTIABLE INSTRUMENT

Drawer – Person who draws the instrument
Drawee – person who is addressed the instrument i.e. one instructed the drawer ie Banker. i.e. one ordered to pay.

Payee – one who receives payment.

Bearer – is a person in possession of a bill.ie not a specific person.

Acceptor – one who accepts liability and in most cases the drawer.

The Endorser – The person who transfers his right to be paid to another person. In most cases will in the 1st instance be the Payee.

Endorsee – person who receives payment after a person has transferred his right to be paid.

A holder in due course – A holder in due course takes the bill in the following ways.

  • When it is complete and regular
  • When it is not overdue
  • In good faith and for value
  • Without notice of any defect in title

Advantages of bill of exchange

  • Easy transferability.
  • It acts as a legal evidence of credit transaction wherethe buyer has obtained goods from the seller on credit.
  • Provides a framework for facilitating credit transactions between the creditor and debtor on agreed basis.
  • Creditor and debtor are fully aware of the date which they will have to receive or pay the money.
  • Safe to use.

(May 2019,Question 7.b) State four advantages of a bill of exchange

 

Endorsement of a bill

Endorsement refers to a situation in which the payee declines payment and transfers his right to be paid to another person; the payee therefore becomes an endorser and that other person an endorsee

Rules of endorsement

  • Must be written on the bill itself
  • It may be in ink print or permanent form. The use of pencils and rubber stamps is not allowed.
  • It must be in respect to the entire bill i.e. endorsement must be for the whole amount.
  • When there are several payees all payees must endorse the bill.
  • The manner of endorsement must correspond with the drawing e.g. if a name was miss pelt, the endorsement must also misspell the name.
  • If there is no space for further endorsement, an additional paper can be used and attaché on the bill. This paper will be known as an Alonge.
  • Endorsement may be blank, special, restrictive or conditional.

Types of Endorsement

  • Blank endorsement – is where the endorser signs at the back of the instrument specifying no endorsee.
  • special endorsement –  is where the endorser indicates the name of endorsee.
  • Restrictive endorsement – One where the right to transfer is limited or restricted so that there can never be farther endorsement i.e. ‘pay x only’
  • Conditional endorsement – One which is made subject to certain conditions.

Classification of acceptance

1.General acceptance – is acceptance without conditions or qualifications

2. Qualified – is acceptance with certain conditions and qualifications

Forms of qualified acceptance

  • Conditional Acceptance – This is acceptance made subject to deduction of a certain sum of money e.g. expenses.
  • Partial acceptance -This is acceptance to pay part of the specified sum of money
  • Local acceptance or qualified as to time -This is acceptance which is to be paid only at a particular place
  • Qualified acceptance as to time -This is acceptance that is payable within a particular specified time e.g. within 6 months

DISCHARGE OF A BILL

  • By payment in good faith and in the ordinary course of business
  • Merger – When an acceptor becomes the holder of all rights in a bill
  • Renunciation/waiver – the holder.
  • Intentional cancellation holder or his agent
  • Material alternation
  • Non presentation for payment.  (November 2018,Ques.6(a))

CHEQUES

A cheque is defined as unconditional order addressed one person known as drawer to a banker to pay sum certain in money to a person known as payee, its payable on demand only. The payee can be specified or can be a bearer.

 

Types of cheques

  • Ordinary/open cheque – issued in the ordinary course of business.
  • Stale cheque – a cheque that has been in circulation for more than 6 months
  • Overdue cheque – cheque in circulation for an unreasonable time
  • Undated cheque – cheque not dated.
  • Post dated cheque – cheque which is payable in future and the bank is entitled to pay when that date falls due.
  • Crossed cheque – cheque which has some crossings on it giving specific instructions.
  • Inchoate cheques —incomplete cheques.

Crossing of cheque

  • General Crossing – crossing that has 2 parallel lines on a cheque without any additional words between the lines. The effect of such a crossing is to make the cheque payable only to the collecting bank.
  • Special crossing – a crossing which has 2 parallel lines on the cheque with words specifying the paying bank. The effect of this crossing is that the paying bank must be the one specified in the crossing.
  • Restrictive endorsements – these are Crossing with the words “Not negotiable” or payee only – the effect of such crossing is to limit the negotiability of a cheque

 

Duties of a customer

  • Duty to take reasonable care while writing instructions to the bank.
  • Duty to take reasonable care of his cheque book.
  • Duty to inform the bank of any forgeries.
  • Duty to examine statements regularly.


Duties of the bank

  • Duty to honour cheque drawn the customer.
  • Duty not to pay without authority.
  • Duty not to be negligent.
  • Duty of secrecy ie duty not to disclose a customers account. This duty has the following exceptions;
  • Disclosure is allowed if it is pursuant to a court order.
  • Disclosure is allowed if it is for the public interest.
  • Disclosure is allowed if its with customers consent.
  • Disclosure is allowed if its for the protection of public interest

Termination of a banker’s authority to pay cheques drawn its customers

  • Notice of a customer’s death
  • Notice of a customer’s insanity
  • Notice of a customer’s bankruptcy
  • Notice of a Garnishee order – (attachment of debts)
  • When the customer counter marks payment
  • When there is material alteration
  • When there is insufficient funds in customer’s account

 

PROMISSORY NOTES

This is an unconditional promise in writing one person and signed that person engaging or promising to pay on demand or at a fixed date or at a determinable future date a sum certain in money to a specified person or a bearer.

Outline four requirements of a promissory note

  • Unconditional promise – the promise to pay must be unequivocal i.e. must be a promise to pay and nothing else.
  • Must be in writing.
  • Signed the maker.
  • Payable either on demand, fixed date or future determinable date i.e. there is certainty of time when it is payable.
  • It requires delivery.
  • It consists two parties that is maker and payee.

(Nov 2019 Ques. 7,b) Outline four features of promissory

SALE OF GOODS

Sale of goods is defined as a contract wherethe seller transfers or agrees to transfer the property [ownership] of the goods to the buyer for a price. This definition captures four characteristics of a sale:

  • Two parties – There must be the seller and the buyer.
  • Transfer of property or ownership – In this case, ownership moves from the seller to the buyer.
  • Goods – This is every moveable property other than actionable claims of money.
  • Price – This is the consideration for the contract for the sale of goods except for barter trade, price is usually inform of money

IMPLIED TERMS OF CONTRACT

Implied warranties- a warranty is a term of lesser importance and does not go to the root of the contract. Its breach entitles the aggrieved party to claim damages.

  • Warranty of quiet possession – the buyer should enjoy the goods without interruption, interference or disturbance from the seller.
  • Warranty of freedom from charge or encumbrances – The seller in every contract of sale must not have used the item he sells as a security in borrowing a loan

Implied conditions:

A condition is a term of greater purpose and goes to the root of the contract. Its breach entitles the aggrieved party to repudiate the contract. Conditions include;

  • Right to sell –its implied condition that the seller has right to sell. i.e is the owner
  • Sale description – Where there is a sale of goods description,there is an implied condition that the goods shall correspond with the description in terms of quality or characteristics.
  • Sale sample – Where goods are sold there is an implied condition that the bulk of the goods shall correspond with the sample.
  • Condition as to merchantability / saleable – The goods supplied to the buyer must be in a saleable condition.
  • Condition as to fitness of purpose – Though the general rule is “caveat emptor” [buyer be aware] where the buyer mentions to the seller the purpose for which he is buying the goods, the seller must supply goods which best fit the purpose for which they are being bought.

DOCTRINE OF CAVEAT EMPTOR

•This literally means “buyer beware.” This is a common law principle to the effect that in the absence of a fraud or misinterpretation, the seller is not

liable if the goods sold do not have the qualities the buyer expected them to have. A buyer buys the goods as they are.

Exemptions to caveat emptor- they are conditions and warranties

1) In a sale description, the goods must correspond to the description.

2) The condition of fitness for purpose.

3) Goods should be of mercantile quality.

4) In a sale sample:

  • The bulk should correspond with the sample in quality.
  • The buyer shall be offered a reasonable opportunity to compare the bulk and the sample.
  • The goods shall be free from any defects that may render them unmerchantable.

NEMO DAT QUOD NON HABET

Transfer of title from the seller to the buyer

The general rule is that if the seller of the goods does not have a title to the goods, even the buyer does not acquire one. This is based on the maxim “Nemo dat quad non habet.” i.e. No one can give what he does not have.

EXCEPTIONS TO THE RULE OF NEMO DAT QUAD NON HABET

They include:

  • Sale under avoidable title – Where the seller has avoidable title to the goods but does not avoid, any buyer to such goods acquires them.
  • mercantile agent/factor.
  • Sale buyer in possession.
  • Re-Sale a seller in possession.
  • Sale court order.
  • Title estoppels – Where the owner of the goods conducts himself in a manner that makes a buyer belief that the seller has the right of selling, then the owner cannot later on deny that the seller had no right of sale.
  • Sale in a market overt – Where goods are sold in an open air market in any legally constituted market usually held at periodic intervals, the buyer obtains a good title.

Transfer of property in goods (Risk in goods)

  • Rule 1: Where there’s an unconditional contract for the sale of specific goods in a deliverable state, property passes at the time of the contract and it is immaterial whether payment or delivery of the goods is postponed.
  • Rule 2: Where there’s a contract for the sale of specific goods not in a deliverable state and the seller has to do something to the goods to  put them in a deliverable state, property does not pass until that thing is done.
  • Rule 3: Where there’s a contract for the sale of specific goods in a deliverable state but the seller has to do something e.g. weighing, measuring, etc. for the purpose of determining the price property does not pass until that thing is done and the price is determined.
  • Rule 4: Where goods are sold on sale or return basis property does not pass unless The buyer intimates to the seller that he has accepted the goods. The buyer does something to the goods which is inconsistent with the seller’s right of ownership e.g. attempting to sell the goods.
  • Rule 5: Where there’s a contract for the sale of unascertained or future goods description, property does not pass until the goods become ascertained. (Nov 2015 Qn,4,b)

Rights and remedies of the parties

Rights of unpaid seller

The unpaid seller has two rights:

  • Rights against goods(real remedies)
  • Rights against the buyer(personal remedies)

Rights against the goods

  • Right to withhold delivery
  • Right of Lien over the goods in his possession
  • Right of stoppage in transitu.
  • Limited right of resale
    (May 2018,Question 6,b)explain two remedies available to an unpaid seller against,(i)The goods(ii)The buyer

Difference between stoppage in transit and lien

  • The right to stop goods in transit arises only when the buyer is insolvent while lien is exercisable whether the buyer is insolvent or not.
  • Lien is only available when the goods are in actual possession of the seller while stoppage in transit is exercisable when goods are in the process of delivery.
  • Stoppage in transit can be exercised in spite of credit having been agreed upon while a stipulation to credit destroys the lien.

(Nov 2017 Ques. 2.c)Explain three differences between lien and stoppage in transitu)

Rights against the buyer

  • Action for price- The seller can sue the buyer where property had passed to the buyer.
  • The seller can also maintain an action for damages  where the buyer refuses to accept the delivery

Rights of the buyer

  • He has a right of taking action against the seller where he fails to deliver the goods
  • The buyer can recover the price where he has paid for the goods and they have not been delivered.
  • Where the goods are of a special nature the court can grant specific performance.
  • In case of breach of a warranty the buyer can recover the damages
  • In case of breach of condition the buyer should treat the contract as rescinded.

Sale Auction

Rules governing sale auction

  • Where goods are put for sale in lots, each lot is deemed to be the subject of a separate sale.
  • The sale is complete when the auctioneer announces its completion the fall of the hammer or any other customary manner.
  • It is unlawful for the seller to bid on his own behalf or to employ somebody else to bid on his behalf unless otherwise agreed.
  • Sale auction may be subject to a reserved price.
  • If the seller makes use of pretended bidding to raise the price, the contract is voidable at the option of the buyer.

(Nov 2011,Qn,4,b) discuss the rules that govern sale auction


INTERNATIONAL TRADING CONTRACTS


IMPORTANCE OF INCO TERMS;

They are international communication terms

  • Determines the duties of buyers and sellers.
  • Determines the party who takes care of insurance, license and all other formalities.
  • Determines the part when the cost and risk passes.
  • Determines the party who takes care of transport.

Inco terms include:

1. FOB (Free on Board)

Signifies that the purchase price shall include the expenses of delivery to the ship. The seller must undertake to bear all expenses of putting the goods on a ship named the buyer unless the seller is authorized to select one. In such contracts the property in goods passes to the buyer immediately the goods are loaded on the ship.

2.CIF (Cost Insurance, Freight) contract – It implies that the purchase price shall include the payment of insurance & Freight charges the seller. The seller is under

duty to ensure that the goods are delivered to the shipping company and send the bill of lading and insurance policy together with the invoice to the buyer’s bank. The

buyer has to pay the CIF price to the bank to obtain the documents for the goods.

The property passes to buyer as soon as goods are put on board the ship and buyer bears the loss of subsequent deterioration

3. FAS  (Free Alongside Ship) – Seller carries the goods to port of embarkation at his own expense and notifies the buyer immediately that the goods have been delivered alongside property passes once the goods reach the port.

4. Ex ship contract – It is a contract wherethe seller accepts the responsibility of delivery to the buyer from the ship which has arrived at the port of delivery. The risk

in goods throughout the transit vests in the seller. Property passes when the buyer actually receives the goods.

5. Ex works contract – In this contract the goods are sold at factory price. The buyer is required to take delivery at the place of the seller. The seller’s responsibility is

extinguished as soon as he puts them into a deliverable state. It is the buyer’s duty to arrange their collection from the seller’s factory and arrange for freight & insurance. Property passes as soon as they are put into a deliverable state.

 



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