Search for notes by fellow students, in your own course and all over the country.
Browse our notes for titles which look like what you need, you can preview any of the notes via a sample of the contents. After you're happy these are the notes you're after simply pop them into your shopping cart.
Document Preview
Extracts from the notes are below, to see the PDF you'll receive please use the links above
DRAFT
KENYATTA UNIVERSITY
INSTITUTE OF OPEN LEARNING
CBA 302:
BUSINESS LAW II
LECTURE NOTES BY
ELIUD OBERE
INSTITUTE OF BUSINESS STUDIES
2
...
It is mainly
based on the principle of contract
...
The module covers four lectures
...
It also discusses its formation, relationship between partners,
partnership and third party
...
Lecture two discusses sales of goods, throwing light to various
sections of sales of goods Act
...
e the relationship between an agent and
principal, their rights and liabilities to the third party
...
At the end of the module you will find
Illustrations mentioned in the module
...
Also consult any book on Business Law to further your reading on the
subject
...
Objectives
By the end of this lecture, the learner should be able to:• Understand the nature, characteristics and scope of partnership
...
• Know the types of partners and how they relate to the firm, other partners
and third parties
...
REFERENCES
- Partnership Act Cap 29 of 1962: Government Printer
...
Schmitthott and David
A
...
Sarre
- Mercantile Law – By V
...
Bafra & N
...
Kalva
- Any book in Business Law
4
LESSON 1
PARTNERSHIP
Definition:
According to Kent
Partnership is a contract of two or more competent persons to place their
money, labour and skill to divide the profits and bear the loss in certain
proportions
...
Sec
...
To prove existence of partnership the following three factors must be
established:
(i)
A business existence
(ii) Carrying on business in common with a view of making and slowing
profit
...
It means
any company or association registered under companies Act Cap 486
or any other Act of Parliament are not considered as partnership ( Sec
...
(iii) Intention of partners
Sec
...
Mere joint ownership of goods or
property is not enough to constitute the owners into partners- its
immaterial whether or not they share profits
...
- Profit motive:- Sharing of profits is prime facie evidence of partnership,
something more than this must be proved in order to establish the
existence of a partnership
...
e a person receiving payment out of profits
5
of a business, whether as a gift or legacy, or in return for services
rendered e
...
(Section 4)
Essential Features of Partnership
(i)
It comes into existence as a result of agreement
(ii) It is entered into between persons
(iii) It is a business, the profits of which are shared
(iv) It is entered into to share profits
(v) It is carried on by all or any of them action for all
Agreements:- these must be a voluntary contractual nature of partnership
...
The agreement
may not be formal or written
...
Illustration Pg
...
But essentially agreements should be in writing
...
Persons are of two types i
...
natural and artificial
...
Only those persons may be partners who have
capacity to enter into a contract
...
To regard an activity as
business, there must be a trade, profession or occupation, course of dealings,
either actually continued or contemplated to be continued with profit motive
and not for sport or for pleasure
...
Relationship between partners:
Partners are agents to one another in common by all the partners or by one of
them acting for all i
...
Each
partner is the agent for other partners for the purpose of conducting the
partnership ordinary business
...
- Each partner whether active or sleeping is liable for the acts of other,
done in the course of business
...
Maximum and minimum limits:
Partnership is the agreement between persons
...
Sharing of profits:
The sharing of profit is an essential element in partnership
...
Everyone who takes a
share in the profit of partnership is not liable as a partner to outside
creditors unless the business is being carried on by him or by another
on his account, and also there is mutual agency
...
Hence it will
be taken for consideration
...
There is an agreement between the parties
...
They share profits of a business
...
There is a mutual relation that creates an agency
...
These people are referred to as persons
having non-partnership interest
...
Joint Owners sharing gross receipts of profits – owners of property who
jointly share profits or gross return arising out of the property don’t
become partners
...
Money Lenders: - If a person has advanced money to another person or a
firm on interest on an agreement that in addition to a specific rate of
interest, he will get the same percentage of profit earned by the firm, he
cannot be regarded as a partner in such business
...
Servant or agent receiving some profit
...
d
...
Such a widow or child does not become
a partner in the firm or business
...
Seller of goodwill: - Where a person who sells his business with goodwill
is given some share of the profits of the business sold, such a person
cannot be a partner in the business
...
Share of profits given to workers as Remuneration: - Where workers get
a share of profit of the business in addition to his her salary, he does not
become a partner
...
The true
test is whether all or any of them carries on the business acting for all i
...
whether there is mutual agency between them
...
6
Persons who have entered into partnership with one another are called
individually “partners” and collectively “firm”, and the name under which
their business is carried out is called the “firm name”
...
When a partner dies, the
firm is dissolved
...
Formation of Partnership
Partnership may be formed by oral or by written agreement or it can be
inferred from the conduct of parties
...
Hence all the essential elements of valid contract must be
present in it i
...
- The law of partnership is nothing but an extension of the law of agency
and thus no consideration is required to create a partnership
...
8
•
•
•
•
•
•
•
•
•
•
•
•
•
Partnership Deed
Is based on agreement
...
The deed contains provisions relating to:
The nature and principal place of business
The name of the firm
The name and addresses of the partners
The date commencement and the duration of the firm
Profit-sharing ratio
Interest on capital and drawings (not always)
Valuation of goodwill on death or retirement of a partner
Whether the business continue upon death or retirement
...
The amount of capital to be contributed by each partner and methods of
raising finance in future if so required
Salaries, commission etc payable to partners (if provided)
...
Duration of Partnership
There is no fixed duration of partnership
...
Fixed Term Partnership
- Are partnerships for a fixed period
...
But if the partners intend to continue they can do so
with the same right and liabilities, however now the partnership will
become partnership at will
...
These are called temporary partnerships
...
When the
partnership is at will, it can be dissolved at any time, by any partner just by
giving unambigous written intimation to dissolve the partnership to all other
partners
...
The firm shall be deemed
to have been dissolved from the date mentioned in the notice, if no date is
mentioned, then from the date of communication of the notice
...
This kind of partnership ends with the ending of
the specified adventure or undertaking
...
In case of
banking business, the number of partners is limited to ten (10)
...
Registration of Firms
The Partnership Act does not make registration of firms compulsory nor
does it impose penalties such as are imposed under the English Act, yet the
effect of the rules relating to the consequences of non-registration practically
necessitate the registration of the firms at one time or another
...
Procedure of Registration
The application for registration should be on the prescribed form and
accompanied by the prescribed fee
...
The Registration of Business Names Act ( Cap
...
For the registration of the firm name, the following
particulars must be submitted to the Registrar
...
This certificate must be displayed at the firms
principal place of business
...
- The firm name should not be of a style already in existence especially
when fradulent intentions are there
...
Effect of Non-Registration
Suits between Partners and Firm
A person cannot bring a suit to enforce a right arising from the contract of
Partnership or conferred by the Partnership Act against the firm or his copartners
...
Ban to Claim of Set-off
An unregistered firm cannot sue a third person to realise any amount due
under some contract
...
If
the third party file a suit against an unregistered firm for the recovery of
debt, the firm cannot claim a set-off, if any
...
(i)
(ii)
The right of the third party to sue an unregistered firm or a partner of
such firm
...
No activities
...
No assignments (questions)
3
...
11
Illegal Partnerships:
The partnership may be declared illegal in the following
circumstances:(i)
When the number of members are more than 20 for any business or 10
for banking business
...
(iii) When the members are residence of an enemy country
...
N/B (i)
The members of an illegal partnership cannot call upon each
other for contribution or appointment with regards to losses
paid by one or more of them on account of the partnership
...
These are:(i)
Relation by contract
(ii) Relation by good faith
Relation by Contract
The relations between the partners are governed by the terms of a contract
...
Such contract may be
varied by consent of all the partners, which again may be expressed or
implied by a course of dealings
...
The mutual trust and confidence among
the partners, therefore is a necessary condition of their relationship
...
- Refer to chapter IV of the partnerships Act
...
Duties of Partners
Partners are bound by utmost faith
...
Every partner must use skill and knowledge of whatever march for the
benefit of firm
...
The principal duties of the partners are:
(i) To act to the Greatest Common Advantage
...
It is the primary duty to every partner to produce to the firm the
13
maximum benefit which he can
...
(ii)To be just and Faithful
The basis of every partnership is trust and mutual confidence, without which
no partnership can conclusively be carried on
...
The duty of good faith also
pertains to persons negotiating for the partnership between whom no
partnership as yet exists
...
The legal heirs of a deceased partner are
entitled to an account from the servicing partners
...
The Partnership Act states that
“Every partner shall indemnify the firm for any loss caused to it by his fraud
in the conduct of the business of the firm”
...
But where the loss to
the firm is not caused by fraud but occassioned by any of his acts within the
course of the business of the firm, he is not bound to idemnify the loss
...
The
Act states:
“ Subject to contract between the partners, if a partner deliver any profit
for himself from any transaction of the firm, or from the use of the property
or business connection of the firm or firm name, he shall account for that
profit and pay it to the firm”
...
The term neglect means the
omission to perform a duty and implies:
- That a partner does something which he ought not to do at all or
- That a partner omits to do something which he ought to have done
...
Thus wilful neglect means that a partner knew that he should do a particular
act but he deliberately abstrained from doing it
...
(vii)Not to carry on Business Competing with the firm:A partner can not carry lawfully cerry on for his own benefit any business
which will complete with the firm to which he belongs
...
The above however will hold only:(i)
(ii)
(iii)
If the business is of the same nature
...
If there is no agreement to the contrary
...
However, where undue labour and extra trouble is
imposed on one or more of the partners by another partner’s wilful, neglect
of the business, the partner or partners so burdened are entitled to
compensation
...
In the absence of any agreement to the contrary, the partners are
liable to contribute equally to the losses sustained by the firm
...
Where he exceeds the authority conferred on him and the firm
suffers a loss, he shall have to compensate the firm for any such loss
...
If He however can assign
...
15
(xi) To be liable jointly and severally:- Every partner is liable jointly will all
the other partners and also severally , for all the acts of the firm done while
he is a partner
...
Partnership however concerned confers the following rights on partners:
(i)
To take part in the conduct of Business/ participate in the management
of business
“ Every partner has a right to take part in the conduct of the business of the
firm”
...
(b) Majority rule:- Any difference arising as to ordinary matters
connected with the business may be decided by a majority of the
partners, and every partner shall have the right to express his
opinion before the matter is decided, but no change may be made
in the nature of the business without the consent of all the
partners
...
(d) Fundamental matters:- these are, the question of any alteration of, or
addition to the business of the firm and the admission of a new partner
or expulsion of some one
...
(ii)
(iii)
(iv)
(v)
To
Access to Books of the Firm:- Every partner has a right to have
access to and inspect and copy any of the books of the firm
...
But none of the partners is entitled to use any
information so obtained for an improper use
...
a
be indemnified by the firm
16
- The firm shall indemnify a partner in respect of payments made and
liabilities incurred by him
...
-Right to object to any person being introduced as partner without the
consent of the other partner(s)
...
2a)
(vi)
To carry on competing business- this right is specifically given to the
retiring partner
...
Reconstitution:- (Rights and duties to remain the same)
In the absence of contract to the contrary, the mutual rights and duties of
partners will continue to remain the same as they were originally in the
following case:(a) When a change occurs in the constitution of the firm
...
Some Distinctions
(i)
Partnership and co-ownership
1
...
Business
Co-Ownership
Agreement is not essential
ingredient of co-ownership
The existence of business
is not necessary in case
of co-ownership
...
The existence of business in partnership is necessary, without business
there cannot be partnership
...
Mutual Agency
One co-owner is not the
agent of other co-owner
There is mutual agency between
partners, each partner is agent
for
4
...
Transfer of Share A co-owner can transfer
his share to an outsider
without the consent of
other co-owners
other partners
Sharing of profits is necessary in
case of partnership
In the case of partnership, a partner
cannot transfer his share without
the consent of other partners
6
...
e he can
ask for the partition of the property
ask for partition in specie
in specie
...
Lien on property One co-owner has no lieu
A partner being an agent has a lieu
...
8
...
Remedies
The obligation to render
A partner has more extensive
true accounts and full
remedies against his co-partners
information in case of
co-owner is less extensive
than those which one partner
has against his co-partner
(ii) Partnership and company
-----------------------------------------------------------------------------------------------------------Company
1
...
Status
Partnership
A company is formed and
A partnership is formed just by an
created by registration under agreement which may be written,
the Companies Act
oral, express or implied
...
A company, when registered,
A partnership even if registered is
18
is regarded as a person-
not a separate legal entity or a
person
a separate legal entity
...
Status of members Being a juristic person, a
company is separate from
the members composing it
...
A partnership firm is a collective
name of all partners
...
In case
of a partnership, the property belongs
to all persons in common
...
Minimum and
Maximum
In case of partnership the maximum
number of members is 10 in case of
banking business and 20 in case of
other business
...
5
...
The minimum
is two in case of a private
company and 7 in case of
a public company
...
It means
if there is no unpaid money
on the shares, the liability
of members is nil
...
Again in case the
Company is a guarantee
Company, liability of the
Members is upto the amount
Guaranteed by them
...
They are
liable jointly and severally to the
creditors of the firm
...
6
...
e
the shareholders need not
ask anybody before
transferring their shares to
a third man
...
7
...
Any act beyond this is ultra
The partners can do any business
(except illegal) to which they agree
19
Vires
...
Authority of
Members
The company is managed by
a few directors elected from
amongst the shareholders
...
9
...
e it has
a perpetual succession
...
10
...
In case of partnership, the management is in the hands of all partners
...
Even if the deed limits the
powers of some partner, for an
outsider it does not make any
difference until and unless he
(outsider) has got a proper notice to
this effect
...
Moreover, the death or insolvency of
a partner automatically dissolves the
partnership
...
11
...
in which he is holding shares
...
Varying of the
terms
A company neither can alter
its share capital nor buy its
shares, except under special
circumstances and subject
to the Companies Act
...
A
partner may buy another partner’s
share too
...
Audit of Accounts A company has to maintain In case of partnership, the maina particular set of accounts, tenance and audit of accounts is left
hold meetings and file
to the discretion of the partners
...
Moreover its
accounts have got to be
certified and audited by a
recognised chartered
Accountant
20
Partnership and Clubs
Clubs are associations of a special nature; they are not partnerships
...
Moreover, their members as such are not liable for each other’s acts
...
The club members are not liable
beyond their subscription required under the rules
...
The member just has a right of admission and enjoyment and
nothing more
...
LESSON 3
LIABILITY OF PARTNERS
Sec 11 of partnership act states that “every partner in a firm is liable jointly
with the other partners for all debts and obligations of the firm incurred
while he is a partner, and upon his death his estates is also severally liable
for us have as the desk remain unsatisfied, but a person who admitted as a
partner into an existing firm does not thereby become liable to the creditors
of the firm for anything done before he became a partner, and after his death
his estate is also severally liable in the due course of administration for those
debts and obligations, so far as they remain unsatisfied, but subject to the
prior payment of his separate debts’
Misapplication of Money Received
Under Sec 15, a firm is liable for the misapplication of money received in
the following cases: i
...
Where a firm in the course of its business receives money or property
of a third person, and the money or property so received is misapplied
by one or more of the partners while it is in the custody of the firm
...
21
Property of the Firm
In deciding which property belongs to the firm, the following should be
considered
...
Property originally brought into the common stock at the
commencement of business belongs to the firm
...
The property acquired by the purchase or otherwise, by or for the
firm, or for the purposes and in the course of the business of the firm,
belongs to the firm
...
Where a property is purchased with the money of the firm, but in the
name of a partner, it will be considered to be the property of the firm
...
The personal property of parties in the firm’s use does not become the
property of the firm, unless there is an express or implied agreement
by the partners
...
Partnership
property must be held and applied by the partners exclusively for the
purposes of the partnership and in accordance with the agreement
...
25 further provides that “unless the contrary intention appears,
property bought with money belonging to the firm is deemed to have
been bought using the firm’s money, is presumed to be partnership
property
...
This becomes necessary for several reasons:(i)
(ii)
(iii)
(iv)
On the dissolution of a firm, the firm debts are first paid out of joint
asset
...
During the subsistence of the partnership no partner can deal with any
portion of the property as his own
...
22
Power to bind the firm
...
(Section 7)
...
NB/
(i)
A firm is not an Agent of the partnership:- Though a partner is an
agent of the firm yet the firm is not an agent of the partners
...
(ii) A Partner is an agent for the purposes of business of the firm
...
That the act was an act for carrying on business in the usual way
...
- A person dealing with a partner is not affected by any secret restriction
on his power, unless he is aware of such restrictions
...
10
Implied Authority of A Partner
The authority of a partner to bind the firm is called the implied ordinary,
apparent, and ostensible authority
...
It means authority of the partnership to bind the firm
...
Cockburn CJ observed,
23
In order that one member of a partnership may bind another by drawing
of accepting a bill, he must have authority either express or implied by law
to do so
...
A partner has implied authority to:
1
...
Engage employees for the firm
3
...
4
...
5
...
N\B
1
...
2
...
Illustration page 375( Saleemi)
Mercantile credit co
...
This authority is extended provided only when:(i)
There is emergency
(ii) The emergency is such as would result in loss to the firm, if some act
is not done to protect the firm
...
- This authority does not extend to the act of acquisition of gain to the
firm
...
24
- It does not expect the ideal presence of mind, accurate judgement but
only that which a person of ordinary prudence might in those
circumstances have probably done
...
Restrictions Imposed by statute:
In the absence of any usage or custom of trade, to the contrary, the implied
authority of a partner does not empower him to:(a) Submit a dispute relating to the business of the firm to arbitration
(b) Compromise or relinguish any claim or portion of claim by the
firm
(c)Open a banking account on behalf of the firm in his own name
(d)Withdraw a suit, or proceedings filed on behalf of the firm
(e)Admit any liability in a suit or proceeding against the firm
(f) Acquire immovable property on behalf of the firm
(g)Transfer immovable property belonging to the firm
(h) Enter into partnership on behalf of the firm
Restrictions by contract between partners
The implied authority of a partner can by contract between the partners, be
extended or restricted
...
Liability of Firm for Torts
Whereby the wrongful act or omission of a partner acting in the ordinary
course of the business of a firm or with the authority of his partner, loss or
injury is caused to any third party, or any penalty is incurred, the firm is
liable therefore to the same extent as the partner i
...
Within the scope of the apparent or implied authority of the partner
...
Liability of the firm for breach of contract
In the event of a breach of contract the firm together with the partners will
be joint and severally liable
...
Its activities binds the partners and the firm,
to property are the property of both partners as the firm
...
Upon
reconstitution, the rights and liabilities of the incoming and outgoing
partners are to be determined
...
Since the contract of partnership is based on personal
confidence, and personal consideration, no new partner can be introduced
without the consent of all the existing partners and in accordance with a
contract already entered into between the partners for the admission of a new
partner
...
He however may assume liability for past debts by
novation i
...
by a triplicate agreement between
(a) The creditors of the firm
(b) The partners existing at the time the debt was incurred
(c) The incoming partners
26
N\B
1
...
Sec 21(1)
2
...
e
...
A
person leaves the firm:(i)
By retirement
(ii) By expulsion
(iii) By insolvency
(iv) By death
By retirement
The word retirement refers to cases where a partner withdraws from a firm
while remaining partners continue to carry on the business of the firm
without dissolution
...
However he may be discharged from any
liability to the third party provided he entered into an agreement with
creditors, partners of reconstituted firm and himself
...
(b) Shall be liable to third parties for all such transactions of the firm which
had started but were unfinished at the time of his retirement
...
The consequences of giving no
public notice are:(i)That the retiring partner shall continue to remain liable for all the acts of
the firm done after his retirement until the date of public notice
...
Rights of Outgoing Partner
(i)
Right to carry on competing business
(ii) Right to share subsequent profits in certain cases
NB (page 377 Saleemi)
A partner who retires from the firm does not cease to be liable for
partnership debts or obligation incurred before his retirement
...
Thus:(i)
He is an agent for other partners in the ordinary course of business of
the firm
...
Sleeping or Dormant Partner
A dormant or sleeping partner is one who does not take an active part in the
conduct of the business of the firm:(i)
He invests capital and is in a position to claim a share in the profits of
the firm
...
(iii) He is not required to give public notice of his retirement from the firm
inorder to absolve himself from liability for acts of other partners after
he ceases to be a partner
...
(v) He is not liable for any act of the firm done after his retirement
...
He has no real interest in the firm, he
does not share profit of the firm, does not contribute any capital
...
- Distinguish between Nominal Partner and Dormant Partner
(i)
A dormant partner is one whom the public does not know to be a
partner, he contributes capital and shares profits and losses of the
firm
...
Both partners are
liable for all acts of the firm
...
29
Partner in Profits only
This partner is one who has abundance of capital and who is not ready to
take risk of losses
...
However he is liable to
outsiders for all the acts of the firm
...
Sub-Partner
When one of partners agree to share his share of profit of the firm with some
stranger, such stranger is termed as a sub-partner
...
He is
not also liable for the debts of the firm
...
Such a partner is commonly known as a working partner
...
Other partners remain liable to third parties for all acts
...
- To establish liability for holiding out, the following conditions must be
satisfied:(i)
The person, either by words or by conduct must have represented
himself to be a partner
...
30
Representation may either be direct or indirect
- The representation is direct if a person by his words or conduct leads a
third party to believe that he is a partner
...
(iii) Must have given credit on the faith of representation to the firm
...
If the person without the knowledge of representation gives credit to the
firm, or does not believe the representation as true and gives credit to the
firm, he cannot make the person liable under the doctrine of holding not
...
Sec 12 of the Act provides that a person who is under the age of 18yrs may
be admitted to the benefits of partnership, but he cannot be made personaliy
liable for any obligation of the firm
...
Sec
...
N/B Liability extents from the date he was admitted into partnership
...
Thus consent may be express or implied i
...
these must be either: i
...
An express agreement between the partners
...
i
...
31
Has a right to share property and profits
...
Has a right to access books of accounts of the firm and to inspect and copy
them
...
Has a right to sue for accounts on severing his connection with the firm
...
A minor is not personally liable for any act of the firm during his minority,
he cannot be declared insolvent if the debts of the firm cannot be satisfied
with the property of the firm
...
After attaining Majority
i
...
If a minor
fails to give such public notice, he shall be deemed to have become a
partner in the firm in the expiry of the said period
...
- His rights and liabilities shall continue to be those of a minor upto the
date of public notice
...
- Shall be entitled to sue the partners for his share of the property and
profits
...
LESSON 5
32
ASSIGNMENT OF SHARES IN PARTNERSHIP
...
The assignee however is not entitled to: - Interfere in the management or administration of the partnership
...
He however is entitled to: - Receive the share of profits in respect of assigned shares
...
NOTE:
i
...
He however can be indemnified by the
assignee in respect of the losses
...
In the vent of dissolution of the partnership, the assignee is entitled to
receive the share of the assignor
...
Partnership can be dissolved in accordance with the provisions of Sec 36,
37, 38 and 39 of the Act
...
By expiration of Notice
...
b
...
The death of a partner dissolves the partnership unless there is an agreement
to the contrary
...
Sec 37(1) “Subject to any agreement between the partners, every partnership
is dissolved as regards all partners by the death or bankruptcy of any
partner
...
Sec 37(2) “A partnership may, at the option of the partners, be dissolved if
any partner suffers his share of the partnership property to be charged for his
separate debt
...
Effect of Insolvency
- The partner declared insolvent ceases to be a partner on the date on which
the order of adjudication
...
- The estate of the insolvent is not liable for any act of the firm subsequent
to the date of the order of adjudication
...
By illegality
Sec 38 – “ A partnership is in every case dissolved by the happening of any
event which makes it unlawful for the business of the firm to be carried on
or for the members of the firm to carry it on in partnership
...
- A partner other than the suing becomes permanently incapable of
performing his part of the partnership contract or guilty of conduct
calculated prejudicial to affect the carrying on of the business or
willfully, or persistently commits a breach of the partnership agreement
or where it is not reasonably practicable for the other partners to carry on
the business in partnership with him
...
- Where in the opinion of the court it’s just and equitable that the
partnership be dissolved
...
Application of Property on Dissolution on dissolution of partnership: - Its property must be applied in payment of the firm’s debts and liabilities
...
- Sec 43 – Any partner or his representative may on the termination of the
partnership apply to the court to wind up the business and affairs of the
firm
...
- Sec 48 (b) – Losses, including losses and deficiencies of capital, are
payable first out of profits, and lastly, if necessary, by the partners
individually in the proportion, which they were entitled to share, profit
...
A firm may terminate its operations automatically, and act of its parties or
by law
...
By Agreement
A firm may be dissolved with the consent of all the partners or partners or in
accordance with a contract between the partners
...
ii
...
- By the happening of an event which makes the existing business of the
firm unlawful
...
Dissolution on the happening of certain conditions (By Law)
When the firm is constituted for a fixed term, it dissolves at the expiry of
that period
...
When the firm constituted for carrying for carrying out one or more
adventures or undertaking, then it stands dissolved at the completion of the
adventure
...
e
...
Insolvency of a partner will have the effect of dissolving the partnership
...
Where the partnership is at will, one partner giving notice of his intention to
dissolve the firm may dissolve the firm
...
Dissolution by court
36
Where there is a difference of opinion among the partners regarding
dissolution of the firm owes some pointly the court intervenes
...
ii
...
iv
...
When one of the partners becomes insane
...
When some partner(s) is responsible for conduct injurious to the
business
...
When a partner transfers his interest in the firm to an outsider without
the consent of the other partners
...
- The firm has to pay off liabilities, sell the assets and distribute surplus, if
any, among partners or their representatives
...
- A partner is liable to share any profit drawn from the partnership with
other partners
...
If he was induced to join the firm by fraud, the whole premium will be
paid
...
In case of partnership at will, no premium will be paid
...
In case of a partnership for a fixed term and has to be dissolved due to
the death of a partner, no premium is refundable
...
Where there is an agreement not to refund the premium, it will not be
refunded
v
...
- Being counted as creditor of the firm
...
37
1
...
3
...
5
...
Questions
Key words
...
Condition
...
Objectives
By the end of this lecture the learner should be able to:• Understand and define sales of goods
...
• Understand conditions and warranties as used in the contract of sale
...
• Understand the rights, liabilities of unpaid seller and the buyer
...
G
...
31) of 1962
"A contract whereby the seller transfers or agrees to transfer the property in
goods to the buyer for a money consideration called the price"
...
The first essential element of a contract of sale is that there must be two
parties – a seller and a buyer
...
Money here refers to the recognized currency in circulation
...
Actionable means claims which can be enforced by a legal action
...
There must be two parties
This is based upon the principle that a person cannot buy his own goods
...
e
...
(b) Execution of a decree:-
39
When the goods of a person are being sold in execution of a degree, he
is allowed to buy his own goods
...
2
...
Property here means "ownership's"
i
...
3
...
Goods means and includes all chattels other than things in action and money,
and all embezzlements, industrial, growing crops and things attached to or
farming part of the land which are agreed to be severed before sale of under
the contract of sale
...
4
...
If goods are sold or exchanged for other goods the transaction is barter and
not sale of goods
...
5
...
6
...
Some distinctions
Following are the other main points of distinction between the two:
Sale
Agreement to Sell
_____________________________________________________________________
Sale
agreement to sale
40
1
...
Transfer of ownership
3
...
Risk of Loss
5
...
Seller’s Insolvency
Buyer’s Insolvency
A sale is an executed
contract
In the sale of property in
goods posses to the
buyer immediately at the
time of the contract
...
In a sale, the seller may
sue for price or specific
performance of the
contract, if the buyer
commits default
...
e
...
In case of sale, the buyer
immediately becomes
the owner; he, therefore,
becomes responsible for
any loss to the goods
because the general rule
is that otherwise agreed,
the risk prima facie
passes with property
...
In a sale, if the buyer an
insolvent without paying
the price, the property in
goods having passed to
the buyer, the seller will
have to deliver the goods
to the official receiver or
assignee except where he
has a right of lien over
the goods
...
In an ‘agreement to sell’ there is
no transfer of property at the
time of contract
...
In an agreement to sell, he can
sue only for damages for the
breach of contract
...
e
...
In an agreement to sell, the seller
remains the owner and,
therefore, is responsible for all
the risks to the goods
...
The
subsequent buyer gets a good
title even though he knew about
the previous agreement to sell
...
In an agreement to sell, the seller
can refuse to deliver the goods to
the official assignee or receiver
...
A hire-purchase
agreement is a contract whereby the seller of the goods agrees to transfer the
property in the goods to the hire-purchaser after a certain fixed number of
installments of price are paid by the buyer
...
The
installments paid so far are assumed to be the hire for use of the goods
...
Hire-purchase Agreement
In a hire- purchase agreement, it
becomes the property of the buyer only
after a certain agreed number of
is paid
...
2
...
Instalments
...
Insolvency of the
In a sale, the seller takes the risk In a hire-purchase, the owner is not at
buyer-risk of loss
of any loss resulting from the
any risk because if the hirer does not
insolvency of the buyer
...
4
...
It is however, subject to
the provided in the hire-purchase
agreement
...
Sales tax
A sale is subject to levy of sale
sales tax is not leviable on a hire tax at the
time of contract of sale
...
6
...
If the
seller is towards the price of goods
...
1
...
Hire purchase and an Agreement to sell
...
Under it the
42
owner of the goods is bound to transfer the property in goods to the
buyer, after all the installments have been paid to him, i
...
he is bound to sell
the gods to the buyer
...
The hire cannot be compelled to buy
...
Another point of distinction is that in a hire-purchase
agreement, delivery of goods to the hire purchase is necessary while it is not
so in an ‘agreement to sell’
...
Where property in goods is transferred from
the seller to the buyer against a price, it is called a sale
...
But where the
consideration for transfer of property is partly in goods and party in money,
it is sale
...
The distinction between the two depends upon the nature and substance of
the contract
...
In case the essence of the contract
is rendering of skill and labour, it is a contract of work and labour
...
One
the other hand, if the nature of the contract is such that property is goods is
intended to be transferred; the contract is that of sale even though some
labour may have been involved in preparing
...
Sale Distinguished from Gift
...
In the case of a gift, the property in goods
is transferred from one person to another without any consideration
...
The essence of sale is that the property in goods is transferred from the
seller to the buyer for a price , while a bailment is the delivery of goods by
one person to another for some purpose upon a contract that they shall when
the purpose is accomplished, be returned or otherwise disposed off
43
according to the directions of the person delivering them
...
Nature of contract
In a sale, the property in goods is
transferred from the seller to the buyer
...
2
...
In bailment, the consideration is an undertaking
To return the goods after the accomplishment of
purpose
...
3
...
In bailment, the goods are to be returned (as the
property in goods remains with the bailor) after
The purpose is accomplished
...
Returning of goods
Goods once sold normally cannot be
returned unless there is a breach of
some condition
...
SALE AND AN AGREEMENT TO SELL
Section 3 (4) of act provides:"where under a contract of sale the property in the goods is transferred
from the seller to the buyer the contract is called a sale: but, where the
transfer of the property in the goods is to take place at a future time or
subject to some conditions thereafter to be fulfilled, the contract is
called an agreement to sell"
...
However the offer
and acceptance must be relating to buying or selling goods for a price
...
Section 5 of the Act states that
A contract of sale may be made in writing (either with or without seal) or by
words of mouth or partly in writing and partly by word of mouth, or may be
implied by the conduct of parties
...
In the sale of contract, the Subject matter is,
Goods may be classified as: (a) Existing goods
...
(c) Contingent goods
...
(a) Existing goods
These are goods which are physically in existence and which are in the
seller's ownership and possession at the time of entering the contract of sale
...
(b) Ascertained goods: - Are goods, which have become ascertained
subsequently to the formation of the contract
...
(c) Generic or unascertained goods: these are goods not separately
identified or ascertained at the time of the making of a contract
...
(b)Future goods
Future goods means goods to be manufactured or produced or acquired by
the seller after making the contract of sale
...
Note
(a) It may be noted that where by a contract the seller purports to effect the
present sale of future goods, the contract operates as an agreement to sell
...
(c)Contingent goods
There may be a contract for the sale of goods the acquisition of which by
the seller depends upon the contingency which may or may not happen
...
A contract for the
sale of contingent goods also operates as an agreement to sell
...
Section 9 of the act states where there is an agreement to sell specific
goods, and subsequently the goods without any fault on the part of the
seller or buyer, perish before the risk passes to the buyer, the agreement is
thereby avoided
...
Some of these terms are so vital
that their nonperformance may amount to a breach of the contract as a
whole, such terms are called condition
...
e
...
Thus a stipulation in a contract of sale may
either be a condition or a warranty
Condition section 13 (2)
A condition is a stipulation essential to the main purpose of the contract
the breach of which gives the aggrieved party a right to repudiate the
contract itself
...
Warranty section 13(3)
A warranty is a stipulation collateral i
...
Stipulation as to time
Stipulation as to time in a contract of sale fall under the following:(a) Stipulation relating to time of delivery of goods
...
As regards to the time fixed for the delivery of goods, time is usually
held to be the essence of the contract
...
The buyer therefore may refuse to
accept the delivery and may put and end to the contract
...
Note
As regards the time fixed by the delivery of goods, time is usually held to be
the essence of the contract
...
Stipulation regarding time of payment of price
...
However, this rule is subject to the intention of the parties
...
The language of the agreement
...
The nature of the property sold
...
The conduct of the parties and surrounding circumstances at or before
the contract
...
(II) Stipulation as to time except those relating to time of
payment, are deemed to be of the essence of the contract in
the commercial contracts
...
Where the parties have expressly agreed to consider it
as of the essence of the contract
...
Where delay operates as an injury and
c
...
(IV) A party in whose favor the stipulations are may waive them
if so waived, he has no right to rescind the contract
...
Purpose
A condition is a stipulation which is
essential to the main purpose of the
contract
...
2
...
A breach of warranty gives only
the right to sue for damages
...
3
...
A breach of warranty cannot be
Treated as a breach of condition
...
Damages
The buyer has an option to claim
damages, instead of repudiating the
contract
...
If there is a breach of
warranty, he can only claim
damages
...
Root of the Contract
It goes direct to the root or substance of the contract
...
WHEN CONDITION SINKS TO THE LEVEL OF A WARRANTY
...
But a
warranty is a stipulation not so essential to the main purpose of the contract
and its breach simply gives rise to a claim for damages and not to a right to
reject the goods and treat the contract as repudiated
...
These circumstances are
i
...
ii
...
He cannot in these
circumstances repudiate the contract, he can only claim for damages
...
This
however, is subject to the following conditions: The contract of sale is not reversable
There is no contrary term of the contract, express or implied, to that
effect
...
When the buyer intimates the seller that he has accepted the goods
...
When the goods have been delivered to him and he does any act in
relation to them which is inconsistent with the ownership of the seller
...
When after the lapse of a reasonable time, he retains the goods without
any intimation to the seller
...
Express and implied conditions and warranties
...
Implied conditions
Unless otherwise agreed, the law incorporates a contract of sale of goods the
following implied conditions
...
They are said to be “implied” when the law deems their
existence in the contract
...
49
In a contract of sale, unless the circumstances of the contract are such as
to show a different intention, there is an implied condition on the part of the
seller that, in the case of sale, he has a right to sell the goods and that in the
case of an agreement to sell, he will have a right to sell the goods at the time
when the property is to pass
...
Sale by description
...
(II) He may be the owner yet due to certain reasons he may not
have the right to sell i
...
if the sale is illegal or without
jurisdiction the seller may not have a right to sell
...
E
...
when a person sells
not as the owner but in some special capacity and the buyer is aware of this
special capacity
...
The protection to the buyer under this section is available subject to two
conditions: i
...
ii
...
The section represents a general principle of law which if you contract to
sell, you cannot
...
The term sale of goods by description applies to cases where the buyer has
not seen the goods
...
50
Example
If a buyer buys two pictures described to be by a renowned artist, he is
allowed to reject these if it is discovered that they are not the work of that
artist
...
(2) The court generally insists in substantial compliance of commercial
contracts though they may allow or ignore microscopic deviations
...
” If they do not do so, the buyer may reject them
even if the contract specially provides that the buyer shall not reject
the goods
...
A person to buy a thing different from what he contracted to
buy
...
When under a contract of sale, goods are to be supplied according to a
sample agreed upon, the implied conditions are: i
...
ii
...
iii
...
Illustration
A retailer purchased a number of plastic toy catapults from a wholesaler in a
sale by sample
...
When the boy tried
to play with the toy, it broke and injured his left eye which had ultimately to
be removed
...
He in turn,
claimed compensation from the wholesaler
...
It was held
that the goods were unmerchantable and, therefore, the wholesaler was liable
to indemnify the retailer for the loss suffered by him
...
The basic insistence of the act is "correspondence with description"
...
Section 16 (1) however,
provides that in a contract of sale, a condition will be implied that the goods
shall be reasonably fit for the buyers purpose if the following conditions are
fulfilled: i
...
ii
...
iii
...
If the above conditions are fulfilled and the goods are not suited to that
particular purpose, then the buyer is entitled to reject the goods
...
The purpose need not be expressed if the goods are fit for one particular
purpose only if the nature of the goods itself dictates the purpose by
implication
...
The implied condition as to fitness applies only in the case of sale of goods
to a normal buyer
...
Implied condition annexed by the usage of trade:An implied condition as to quality or fitness for a particular purpose may be
annexed by the usage of trade
...
If the buyer purchases the goods under some patent or
trade name and the seller supplies the genuine goods asked for, he will not
be liable if the goods are found to be not fit for the buyer's purpose
...
If he relies on the skill and judgement of the seller,
implied conditions as to the fitness or quality of goods for buyer's purpose
will apply
...
For making this condition applicable, the sale must not only be by
description, the following conditions must also be satisfied
...
The seller should be a dealer in goods of that description
...
The buyer must have an opportunity if examining the goods
...
When the goods are purchased for self use, they must be reasonably fit for
the purpose for which the goods in question are generally use
...
Implied warranties
The law incorporates into a contract of sale of goods the following implied
warranties: Warranty of quiet possession (section 14 (b)
In a contract of sale, unless contrary intention appears, there is an implied
warranty that the buyer shall have and shall enjoy quiet possession of the
goods
...
The rule of implied warranty also applies in cases
where the seller has no right to sell
...
It is more than a covenant for title
...
This rule applies also in cases where the seller has no right to sell
...
If the buyer knows about
...
It is an implied warranty on the part of the seller to warn the ignorant buyer
of the probable danger in the goods in case the goods sold are dangerous
...
Express agreement between the parties
...
The course of dealing between them or
iii
...
54
LESSON 4
DOCTRINE OF CAVEAT EMPTOR
The maxim of "caveat emptor" means, "let the buyer beware"
...
e
...
Exceptions
The doctrine of ‘caveat emptor’ is subject to the following exceptions:
1
...
Such a contract being
voidable at the option of the innocent party, the buyer has a right to
rescind the contract
...
Where the seller makes a false representation amounting to fraud and the
buyer relies on it, or where the seller actively conceals a defect in the
goods so that the same could not be discovered on a reasonable
examination, the doctrine of caveat emptor does not apply
...
3
...
4
...
5
...
6
...
7
...
8
...
55
Transfer of property and title
A contract of sale is a contract whereby the seller transfer or agrees to
transfer property in the goods to the buyer for a price
...
Rules regarding transfer of property
(a) Transfer of property is specific or ascertained goods (section 19
(1) (2)
Where there is a contract for the sale of specific or ascertained goods, the
property in them is transferred to the buyer at such time as the parties to the
contract intend it to be transferred
...
The intention of
the parties is gathered from:(a) The terms of the contract
...
(c) The circumstances of the case
...
Section 20 when goods are in a deliverable state
...
Hence: i
...
ii
...
iii
...
Section 20 (b) specific goods to be put into a deliverable state
...
56
Section 20 (c) specific goods in a deliverable state when the seller has
measure or to ascertain the price
...
Section 20 (a) when goods are delivered on approval
...
When he signs his approval or acceptance to the seller
...
When he does any act amounting to adoption of transaction
...
If he retains the goods, without giving notice of rejecting beyond the
time fixed for the return of goods, if no time is fixed, the property
passes to the buyer on the expiry of a reasonable time
...
Section 20 (e) (I) (ii)
Where goods contracted to be sold are not ascertained or where they are
future goods, the property in goods does not pass to the buyer unless and
until the goods are ascertained or unconditionally appropriated to the
contract so as to bring them in a deliverable state, either by the seller or by
the buyer
...
Ascertainment of goods: means establishing their identity, it’s a
condition precedent to the passing of property
...
Appropriation of goods
After the goods have been ascertained, the next process is to appropriate
Stands for common intention of the parties to attach the contract irrevocably
to those goods so that those goods and no others are the subject of the sale
and become the property of the buyer
...
57
It requires the mutual assent of the seller and the buyer
...
Appropriation by the seller may be done in the following manner
(a) By putting the quantity contracted into suitable receptance e
...
(b) By delivering to the carrier, port office, railway companies etc
Distinction between ascertainment and appropriation
Ascertainment is a unilateral act and is usually done by the seller alone
...
Reservation of Property
The property in goods whether specific or ascertained does not pass if the
seller reserves a right of disposal of the goods
...
(ii) Where the seller sends bills of exchange for the price of the goods to the
buyer for his acceptance, together with the bill of lading, the property in the
goods does not pass to the buyer unless he accepts the bill of exchange
...
Passing of risk
The act states that
"Risk prima-facie passes with property"
...
Hence delivery of the goods is immaterial, the most important thing to be
considered in each case is the stage or moment when the property passes
...
Goods at the risk of party at fault where delivery has been delayed
through the fault of either buyer or seller, the goods are at the risk of the
party in fault as regards any loss which might not have occurred but for
such fault
...
Trade custom– risk and property may be separated by a trade custom
...
By agreement– the parties may by agreement separate the risk from the
property
...
I
...
no one can give a better title than he himself has
...
If a person purchases stolen property, the true owner can recover it from
him
...
Hence if the seller has
no title or has a defective title, the buyers title will be equally wanting or
defective even though he may be a purchaser bona fide and for value
...
Contrasted with above maxim is the principle that a person who buys in
good faith for value and without notice should get a title
...
Therefore the law relating to transfer of title seeks to balance
these two conflicting principles to meet the interest of trade and commerce
in modern times
...
Estoppels; when one person has by – his declaration, act or omission or
intentionally caused or permitted another person to believe a thing to be
true, and act upon such belief, neither he nor his representative shall be
allowed in any suit or proceeding between himself and such person or
his representative to deny the truth of that thing
...
Sale by a mercantile agent–a mercantile agent having any authority
to sell goods conveys a good title to the buyer, even though he sells the
goods without having any authority from the principal to do so provided
the following conditions are fulfilled
...
(b) He must be in possession of the goods or of a document or of a title to the
goods
...
(d) He must be acting in the ordinary course of business of a mercantile
agent
...
N/B Mercantile agent means an agent having in the customary course of
business an authority either to sell the goods or to consign the goods for
purposes of sale, or to buy goods, or to raise money on the security of goods
...
Sale by one of several joint owners
...
A buyer can acquire good title, but this can only be so when:a
...
b
...
The buyer buys in good faith and has not at the time of contract of sale
notice that the seller has no authority to sell
...
Sale by a person in possession of goods under avoidable contract
...
However, where a contract under which the seller, obtains goods in void,
then even an innocent buyer of the goods from such a seller does not acquire
title to the goods
...
Sale by seller in possession after sale
Where a seller, having sold goods, continue to be in possession of the goods
or of the documents of title to the goods and sells them either himself or
61
through a mercantile agent to a person who buys them in good faith and
without notice of the previous sale, the buyer gets a good title
...
Note
The seller here does is not required to have physical possession of the goods,
it is enough that he should have such control over the goods as to transfer
possession by making over a document of title
...
vi
...
vii
...
(b) When the lawful charges of the finder, in respect of a thing found
amount to two-thirds of its value
viii
...
If the pawner makes default in payment of the debt or performance, at the
stipulated time of the promise, in respect of which the goods were pledged,
the Pawnee may sell the thing pledged on giving the pawner a reasonable
notice of the sale
...
ix
...
x
...
62
Where goods are sold in market overt the buyer acquires a good title to
them though the seller may not be having a good title if the following
conditions are satisfied: i
...
ii
...
xi) Under the negotiable instrument Act
Under the negotiable instrument Act, a holder in due course gets a
better title than that what endorser had
...
e
...
LESSON 6
PERFORMANCE OF THE CONTRACT OF SALE
It is the duty of seller to deliver the goods and of the buyer to accept and pay
for them
...
Unless they do so, the seller should be ready and
willing to pay the price of the goods in exchange for possession of the
goods
...
He (the seller) is not bound to deliver the goods until the buyer
applies for delivery
...
-Delivery of goods this means a voluntary transfer of possession of goods
from one person to another
...
Symbolic Delivery- Delivery is said to be symbolic when without a change
in actual possession of the goods, they are put in the possession of the buyer
or his authorised agent bill of lading, a rail may receipt examples of
symbolic delivery
...
e the
person having the physical and actual custody of the goods agrees to hold
them on behalf of the buyer
...
(ii) When the buyer is in possession of the goods and the seller agrees to
the buyers holding the goods as owner
...
Rules as to Delivery
The following are rules as regards delivery
...
(ii) Delivery and payment are concurrent conditions
...
e
...
(iii) The buyer to apply for delivery: unless otherwise, the seller is not
brand to delivery goods till the buyer applies for delivery
...
(iv) Place of delivery- The place of which the delivery of the goods is to
take place must be stated in the contract
...
64
(v) Time of delivery- where the seller is bound to send the goods to
the buyer, but no time for sending them is agreed, the seller is bound
to send them within a reasonable time
...
(vii) Delivery of Goods in Possession of Third Persons- where the goods at
the time of sale are in possession of a third person, there is no delivery
by the seller to the buyer unless and until such third person
acknowledges to the buyer that he holds the goods on his behalf
...
Reasonable Hour of Delivery – Demand of or tender of delivery must be
made at a reasonable hour
...
Delivery of wrong Quantity- The delivery of quantity of goods contracted
for should be strictly in accordance with the terms of contract
...
(b) Where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell, the buyer may accept the goods included in the
contract and reject the rest or he may reject the whole
...
Delivery of Mixed Goods- Where the seller delivers to the buyer the goods
he contracted to sell mixed with goods of a different description not included
in the contract, the buyer may accept the goods which are in accordance with
the contract and reject the rest, or may reject the whole
...
Seller’s Duty
Unless the buyer requires to dispatch the goods at owners risk, it is the duty
of the seller, when he delivers the goods to the carrier to enter into a
65
reasonable contract on behalf of the buyer for the safety of the goods and
if he fails to do so and the goods are lost or damaged, the buyer may decide
to treat the delivery to the carrier as a delivery to himself or may hold the
seller responsible for damages
...
If the seller fails to give the notice, the goods shall be at his risk during the
sea transit
...
Deterioration During Transit
Where the seller of goods agrees to deliver the goods at his own risk at a
place other than that where they are when sold, the buyer shall, nevertheless,
take any risk of deterioration in the goods necessarily incidental to the
course of transit
...
This
however does not apply to goods delivered to a distant place
...
Any risk of deterioration in the goods necessary incidental to the course of
transit fall in the buyer
...
(ii) A buyer is not allowed to reject the goods after he has accepted them
...
(a) When he intimates to the seller that he has accepted them
...
Buyer’s Right
(i)
To examine the goods before accepting them
...
(ii) To take delivery in conformity with the contract
...
(iv) To file a suit against the seller so as to recover damages or price of
goods if he wrongfully neglects or refuses to deliver the goods
...
Duties of Buyer
(i)
To take delivery and pay for the goods
...
Any loss caused by his neglect or refusal to take delivery and
2
...
LESSON 6
UNPAID SELLER AND HIS RIGHTS
Unpaid seller: A seller of goods is deemed to be an unpaid seller within the
meaning of the Sales of Goods Act
...
67
(b) When the bill of exchange or other negotiable instruments has been
received as conditional payment, and the conditions on which it was
received has not been fulfilled by reason of the dishonour of the
instrument or otherwise
...
The term “seller” includes any person who is in the position of a seller
...
-He must be unpaid either wholly or partially
...
Rights of Unpaid Seller
(i)
In case the property in goods has not passed
...
(ii) In case the property in Goods has passed to the Buyer
-Where the property in goods has passed to the buyer, the unpaid seller has
the following rights:(i)
A lien on the goods for price when he is in possession of them
...
N/B
These rights of an unpaid seller do not depend upon any agreement , express
or implied between the parties
...
Right of lien on goods
Lien means the right to retain possession of the goods
...
Hence the unpaid seller of goods who is in possession of good is
entitled to retain them until payment or tender of price in the following
circumstances:(a) Where goods have been sold against cash only i
...
sold without
stipulation to credit
...
68
(c) Where the buyer becomes insolvent
...
- The right of lieu can be exercised only when:(i)
The ownership has passed to the buyer
(ii) The goods must be in possession of the seller or under his control or
bailee
...
(iii) The whole or part of the price must remain unpaid
...
(ii) The lien of unpaid seller is a particular lien
(iii) It is a personal right which can be exercised only by him and not his a
signee or his creditors
...
(ii) When the buyer or his agent obtains the possession of the goods
larrfully
...
NOTE:
Express waiver is when the sale provides that the seller shall not retain
possession of goods even of the price remains unpaid
Implied waiver means that the seller by his conduct waives the right
of lien
...
Lien
in this case revives in the expiry of the new credit term
...
Right of Stoppage in Transit
The seller has right of stopping the goods in transit after he has parted
with the possession of the goods
...
69
This right can be exercised subject to the following conditions:
(a) The seller must be unpaid
(b) The buyer must have been declared insolvent
...
(d) The goods must be in transit
...
e the buyer must have not
acquired the goods which are not in the possession of the seller
...
Goods are deemed to be in the course of transit from the time when
they are delivered to carrier or other bailee for the purpose of
transmission to the buyer, until the buyer or his agent takes delivery of
them (on his behalf) from that carrier
...
When the carrier or other Bailee acknowledges to buyer that he holds
the goods on his behalf
...
The unpaid seller may effect stoppage of good in transit by:(a) actually taking possession of the goods
(b) giving notice of his claim to the carrier or other bailee in whose
possession the goods are
...
(iii) When the seller has expressly reserved the right of re-sale in case the
buyer fails to pay
...
(b) The buyer refuses to pay at the day or time agreed
...
Damages for non-acceptance
70
Buyer’s rights against the seller
A buyer has the following rights against the seller:(i)
right for damages for non-delivery
...
NB:
When goods are readily available in the market, the buyer is entitled
to get damages equal to the difference between the contract price and the
market price
...
This however is allowed where: (a) the contract is for sale of specific or ascertained goods
...
LECTURE THREE:
AGENCY
71
Introduction
In this lecture we are going to discuss principles, characteristics and
formation of Agency
...
Lastly will be
liabilities, rights and duties of agents, principal and third party, and how
agency relationship is terminated
...
• Know how agency relationship is terminated
...
e The agent can enter into a contract
on behalf of another party ( principal) as his/her agent
...
Illustration
If P enters into a contract with K as an agent of W, P is not generally liable
for the contract for the contract has been made between W and K
...
72
- An agent is a person who brings his principal into contractual
relations with third parties, he does not make a contract on his behalf,
hence it is not necessary that he should have contractual capacity
...
Definitions
Agent- Is a person employed to do any act for another or to represent
another in dealings with third persons
...
- The contract that creates the relationship of principal and agent is called
an agency
...
However things which are of purely
personal nature cannot be done by an agent
...
e He who does through another ,
does by himself” ( the acts of the agent are, for all legal purposes, the
acts of the principal”
...
Essential Elements of Agency
- The principal appointing the agent must be competent to contract
...
e no consideration is necessary to create an agency
- Any person can be appointed as an agent i
...
- The principal has the right to direct what the agent has to do, a master on
the other hand has the right to say how it should be done
...
- A master is liable for the wrong of his servant if it is committed in the
course of the servants’ employment, a principal is liable for his agent’s
wrong done within the scope of authority
...
Agent and Bailee distinguished
- The relationship of bailor and bailee exists only when the bailee holds
goods belonging to bailor, the existence of agency however may be as a
bailee as well as an agent
...
Agent and Independent Contractor distinguished
- The contractor does not represent his employer in relation to other
persons
...
- The agent does represent his principal in relation to other third parties
and can bind the principal by contracts entered into with other persons
within the scope of his authority
...
- The property, which a trustee manages is vested in him, an agent deals
not with his own property but with the property of the principal
...
- An agent represents and acts for his principal, a trustee represents and
acts for the beneficiary
...
By Express agreement / appointment
An agent may be appointed by an express agreement either verbally or in
writing
...
No
particular form is required, however where the agent is to make a contract
under seal, power of attorney must be given
...
By Implication of conduct
If the person by words or conduct holds out another as having authority to
make contracts on his behalf, he will be bound by such contracts as if he had
expressly authorised them
...
- Implied agency may take the following ways:(a) Agency by estoppel:Agency by estoppel is based on the “doctrine of estoppel” which may be
stated as “ where a person by his words or conduct has willfully led another
to believe that certain set of circumstances or facts exists, and that other
person has acted on that belief, he is estopped or precluded from denying the
truth of such statements, although such a state of things did not in fact exist”
...
The principal however will be bound by such acts or obligations if he ( the
principal) has by his words or conduct induced such third persons to believe
that such acts and obligations were within the scope of the agents authority
...
B sells
them to C in violation of orders from A
...
(ii) O consigns goods to B for sale and gives him instructions not to sell
under a fixed price
...
O is bound by the contract
...
In this case, some affirmative or positive
act or conduct on the part of the principal is required to establish agency
...
NB/ Where the agent is ‘held out’ as having only a limited authority to do
acts, the principal is not bound by acts outside the authority
...
This rule covers only these acts which are done on the ground
of extreme necessity
...
The law assumes the consent of
the owner to the creation of the relationship of principal and agent
...
There must be an actual or defined and definite commercial necessity
the creation of the agency
...
The agent must adopt a reasonable and practicable course under the
circumstances
...
76
Agency by necessity however occurs in the following circumstances
...
- Where a husband improperly leaves his wife without providing proper
means for her survival
...
The person on whose behalf
the act is done if accepted the acts, the agency by ratification is created
...
Ratification goes
back to the original making of the contract
...
Essentials of a Valid Ratification
- A contract can be ratified under the following conditions:- /ess
(i)
The agent must expressly have contracted as agent
...
(iii) The agent must have a principal who was actually existing at the time
when the contract was made
...
e a person who has defective knowledge of the facts
cannot make a valid ratification
...
(vi) Ratification of part of a transaction means ratification of the whole of
the transaction
...
(vii) An act which is void abinited cannot be ratified
...
e
The act states that:“ An act done by one person on behalf of another, without such other
person’s authority which if done with authority, would have the effect
of subjecting a third person to damages, or of terminating any right or
interest of a third person to damages, or of terminating any right or
77
interest of a third person, cannot by ratification, be made to have such
effect”
...
- The ratification relates back to the original date in which the contract was
created or made by the agent
...
On the other hand the authority is said to be implied when it is
to be inferred from the circumstances of the case i
...
Illustration
“ A” owns shop in Nairobi, but living in Thika and visiting the shop
occassionally
...
B has an implied authority
from A to order goods from C in A’s name for the purpose of selling these
goods in the shop
...
e the authority which the third parties dealing with the agent can
presume to be with the agent in relation to a particular business, ( authority
to do every lawful thing which is necessary in order to do such act of
business)
...
Breach of Implied Authority by the Agent
(i)
When an agent does more than he is authorised to do, and when the
part of what he does, which is within his authority, can be separated
from the part which is beyond his authority, so much only of what he
does as is within his authority, is binding as between him and his
principal
...
(ii) Where an agent does more than he is authorised to do, and what he
does beyond the scope of his authority cannot be separated from what
is within it, the principal is not bound to recognize the transaction
...
Where an agency has been terminated but notice of termination has
not been received by the other parties concerned
...
- Authority given to an agent to sell goods does not of necessity imply
authority to receive payment of the price
...
Commission agents act on their own names but for the account of the
principal
...
Auctioneer- is one who is authorised to sell goods of his principal to the
highest bidder at a public sale for a commission
...
- An auctioneer acts in a double capacity
...
He has an implied
authority to sell the goods without any restrictions ( sell “without
reserve”), hence a sale by him in violation of instructions is binding on
the owner
...
He differs from mercantile agent by not having possession of goods,
hence he has no lieu and he cannot sue in his own name on the contract
...
He receives commission or brokerage for his service
...
These goods are
under his control on behalf of the principal
...
He can sell them at
such times and prices as he thinks best
...
A factor has a general lieu on the goods in his possession
for all charges and expenses incurred by him
...
He gets a higher rate of commission than other
agents
...
He
however does not make himself liable to his principal if the buyer refuses
to take delivery of the goods
...
General agents are appointed by executing
a general power of attorney which gives them authority to do certain things
...
They are appointed by executing a special power of attorney which
authorises him to do specific acts or things
...
- NB/ Power of attorney must be written and stamped
...
Hence the legal
consequences of the dealings or position of principal and agent with regards
to their dealings with third parties is:1
...
e name and existence of
principal is disclosed to third party
...
Any notice given or information obtained by the agent is the cause of
his authority and business transacted by him on behalf of the
principal, shall be between the principal and the third party and hence
shall have the same legal consequence as if given or obtained by the
principal
...
The principal is liable for unauthorised acts of an agent if the principal
has by his act induced such third person to believe that such acts and
obligations are within the scope of the agents authority
...
Unnamed Principal i
...
(i)
The principal not agent will be brand
...
(ii) Where the agent fails or expresses inability to disclose the name of the
principal when asked by the third party, he shall become personally
and completely liable to the third party
...
82
Personal Liability of Agent
The position is that an agent cannot personally enforce contracts entered into
by him on behalf of his principal nor is he personally bound by them
...
Exceptions to this rule
- When an agent makes a contract for a merchant residing a broad, there is
general presumption that the agent undertake personal liability, however
where an agent contracts in a manner showing an intention not to incur
personal liability, he will not be liable to the third party
...
- If the agent has personal interest or special interest in the subject matter
of the contract or has a beneficial interest in the contract, he can sue on
the same, in such case he is personally liable to the extent of his interest
...
- Where an agent exceeds his authority or professes to act as an agent but
has no authority from the allaped principal, he shall be personally liable
for breach of warranty of authority
...
- Where a person induces the principal to act on the belief that the agent
only will be held liable, he cannot afterwards hold the principal liable on
the contract
...
- The agent has a right of lieu i
...
Until the amount due to the agent for
commission, disbursements and services in respect of the same has been
paid
...
Also against consequences of acts done in good faith
...
e rights to retain net of the sum received
in behalf of the principal all monies due to him in respect of his unpaid
remuneration or advances made or properly incurred in the cause of
conducting the business of agency
...
- An agent has a right to be compensated for injuries sustained by him
during the cause of his employment or due to principal’s neglect or
warrant of skill
...
- He must disclose to his principal anything coming to his knowledge
which is likely to influence the principal in making of the contract
...
- Not to let his interest conflict with his duty
...
e he is accountable to his principal for any profit
which he makes without the principals’ consent , however he is not
accountable when the information or knowledge is not of a special or
secret character and is not dealing with the property of his principal
...
84
(b) To refuse to pay the agent his commission or other remuneration
...
- To idemnify the agent for acts lawfully done and liabilities incurred in
the execution of his authority
...
It may be irrevocable:(a) - Where the agency is coupled with interest i
...
Illustration
A gives authority to D to sell A’s land, and to pay himself, not of the proceeds,
the debt due to him A
...
- To constitute an agency coupled with interest it is necessary that:(i)
The agent’s interest in the subject-matter must be substantial
...
(iii) The purpose of creating an agency should be at secure some gain or
benefit over and above ordinary commission or remuneration
...
(c) Where the agent has already partly exercised the authority, given to by
the principal, the principal cannot revoke the agency
...
However where the agency has been
created by a fixed period, and the principal revokes it, without sufficient
notice or cause, the principal will be bound to pay compensation to the
agent for any loss suffered due to the revocation
...
However the agent must
give sufficient notice of his intention to terminate the agency, otherwise
he will be liable to compensate the principal for any damage resulting
due to termination of agency
...
When an agency is for a specific time, it terminates at the expiry of
that time
...
(iv) It also terminates when the agent dies or becomes mentally
disordered
...
(vi) When the subject-matter of an agency is destroyed, the agency is
terminated
...
86
LECTURE FOUR: HIRE-PURCHASE AGREEMENTS
Introduction
In this lecture, we will discuss nature of hire-purchase agreements,
requirements, registration, formation and termination of hire-purchase
agreements
...
Until the option is exercised
there is no agreement to buy the goods
...
(ii) An option enabling the hirer to use purchase the goods after payment
of periodical instalments
...
- Hire Purchase Act( cap
...
Hire-Purchase Agreement:- means on agreement for the bailment of goods
under which the bailee may buy the goods or under which the property in the
goods will or may pass to the bailee
...
Hire-Purchase Business:- means a business, whether carried on alone or with
other business of entering into hire purchase agreements, whatever the hirepurchase price under any agreement
...
Contract of guarantee:- means a contract made at the express or implied request
of the hirer, to guarantee the performance of the hirer’s obligation under the
hire purchase agreement
...
- A credit sale agreement does involve the customer in a legal obligation to
buy and contains no express provision us to the transfer of property, with
the result that property transfers to the buyer at the time the contract is
made
...
- A conditional sale agreement involves the buyer in a legal obligation to
buy but contains own express provision preventing the property from the
passing to the buyer until he has paid his instalments, sold the goods
under a conditional sale agreement the buyer sold the goods to a good
faith purchaser, the latter obtains good title by virtue of sale of Goods
Act
...
Nature of Hire Purchase
Agreement
The buyer signs Hire purchase agreement firms where he undertakes to pay for
the commodity in instalments
...
- As soon as he completes payments of agreed instalments, the ownership
of the commodity revert to him ( i
...
- In Hire-purchase, the sale is complete only when the buyer pays the final
instalment
...
6 of the Act provides that before a hire purchase agreement is entered
into, a statement of the cash price must be furnished by the owner to the
hirer, otherwise the contract and any guarantee or security based on it
will not be enforced
...
The court however may
dispense with any of such requirements on being satisfied that the hirer has
not been prejudiced
...
This is referred to as downpayment
...
With the introduction of check off system, minimum payment clause is
gradually becoming irrelevant
...
5 of the Act, every hire-purchase agreement must be
submitted for registration to the Registrar within thirty days
...
- If the hire-purchase is not registered then:(i)
(ii)
(iii)
The Person shall be entitled to enforce the agreement against the hirer
or against the guarantor
...
No security given by the hirer or by a guarantor shall be enforceable
against the hirer or the guarantor by the holder thereof
...
Warranty that the hirer shall have and enjoy quiet possession of
goods
...
Where the hirer expressly or by implication makes known the
particular purpose for which the goods are required, there shall be
implied condition, that the goods will be reasonably fit for that
purpose
...
(b) Warranty is, a stipulation collateral to the main purpose of the contract,
the breach of which gives rise to a claim for damages but not for a right
to reject the goods and treat the contract are replediated
...
It is terminated in
accordance with its terms if the hire-purchase exercises his option to
return the goods to the owner
...
Debtor’s Statutory right of termination
Sec
...
(i)
He may terminate the agreement by returning the goods to the owner
and
(ii) By giving him written notice of termination of the agreement
...
(iii) He will be liable to pay damages if he failed to take reasonable care of
the goods
...
Right of Completion of Agreement
Sec
...
He will however
pay the next instalment due to the owner under the agreement on a specified
day
...
92
In this case the hirer is to pay to the owner the expenses incurred by him
in taking possession storage or repair of goods
...
15)
Under this section, if the hirer has already paid a sum equal to or in excess to
two thirds of the hire-purchase price, the owner cannot take any step to
recover possession of the goods in the event of default, he can however only
recover the goods through court decision,if the contract has been terminated
by the hirer
...
(b) Hirer shall be entitled to recover from the owner all sums paid by
the hirer under the agreement or under any security given by him
...
- If the suit is filled by the owner, the court may make one of the
following orders:
(a) For the delivery of all goods to the owner
(b) For the delivery of part of goods to the owner and postpone the operation
of the order on condition that the hirer or any guarantors pays the unpaid
balance of the hire-purchase price at specific times
...
34 provides that any person who knowingly gives false information in any
proposal form or document is guilty of an offence and liable to a fine not
exceeding five thousand shillings or to imprisonment not exceeding six
months or to both such fine and such imprisonment
...
S and S were iron masters and corn merchants in a partnership named “B”
Smith and Sons
...
Under this compromise, the
property of the firm was assigned to a few creditors selected as trustee
including cox
...
Now Cox never acted while other trustee were carrying on the business
...
Hickman filed a suit against the
trustees including Cox for the recovery of his debt
...
The trustees were
not liable because they were not partners
...
Adultry with a co-partner’s wife is a breach of the duty imposed upon the
partners to be just and faithful to each other and may be a ground for
dissolution of partnership
...
Kuria and Kamau agreed to buy a piece of land for Ksh 100,000 with
a view of reselling it at a profit
...
But Kuria sold the land to Winas Co
...
He however did not disclose this to Kamau
...
4
...
Ford was the managing partner
...
Ford was asked to sell stock of cotton bales by Cragg
immediately, but he delayed the sale, later, the bales had to be sold of a
much lower price
...
It was
held that Ford was not liable to indemnify the loss as in delaying the sale he
acted bonafide and in exercise of his discretion, the loss cannot be borne
only by Ford, but ought to be shared by Cragg also
...
If a partner deals with a third party in a matter not within the scope of
the partnership, he deals with that not as an agent of the firm but in his
private account
...
SALES OF GOODS
6
...
The contract is for unascertained goods
since a particular byscle which shall be the subject matter of sale is not
separated at the time of contract of sale
...
7
...
This is a
contract for sale of future goods
...
Kaunda purchased a motor car from Kimbo and used the car for many
months
...
When the true owner surfaced,
Kaunda had to return the car to the true owner
...
It was held that
Kaunda was entitled to recove the while of the price paid by him despite
the fact that he had used the car for some months
...
A buyer asked the seller to supply feeding barley’which he required for
feeding cons
...
The barley so supplied was unfit for
feeding cons
...
10
...
The hot
water bottle is generally used for applying heat to human body
...
It was
held that the seller impliedly knew the purpose of the buyer and therefore
these was a breach of implied condition, hence the seller was liable to
pay compensation to Owino
...
Eliud wanted a car for lowering purpose
...
Later on Eliud found the car
was not suitable for touring purposes
...
It was held that Eliud could return the car
...
12
...
A lodged these bags in an open
track but did not cover them
...
It
was held that B was entitled to claim damages from A in the ground that
the goods were not of merchantable quality
...
Where a computer is purchased and the purchaser also spends some
money on its repairs
...
14
...
Kuria required the horse for riding
but he did not mention this fact to Ben
...
Kuria can neither reject the
horse nor claim compensation from B
...
The terms of the contract of sale of a motor-care provided for the
payment of price by monthly instalments
...
It
was held that the parties intended the property in the car would not pass
until the price was paid
...
Okelo agreed to sell to Omolo 2000 bags of cement not of a larger
quantity lying in Okelo’s store
...
Unless and until the required quantity of 2000
bags of cement is separated from the larger quantity and the goods are
thus ascertained, the property cannot pass from the seller to the buyer
...
What is a partnership? Discuss its essential elements
...
“The general concept of partnership still is that a firm is not an entity
or persons in law but is only an association of individuals”
...
3
...
4
...
5
...
(ii) Explain the type of partners in a partnership
...
(i)
Discuss the rights and liabilities of incoming and outgoing
96
(ii)
partner
...
7
...
1
...
2
...
4
...
6
...
In sales of goods what do you understand by the terms warranty and
conditions?
Explain the rule of “correct emptor” and menodatquod non habet and
discuss their exceptions
...
(i)
Who is an unpaid seller of goods?
(ii) Discuss the rights of an unpaid seller and remedies available to
buyer and seller
...
Discuss in details the ways in which the agency relation may be
formed and terminated
...
Explain the effects and requisites of ratification
...
Explain the extent of the agents authority and discuss the modes in
which this authority may be terminated
...
Explain the duties and liability of an agent a genest the firm, other
partners and the third party
...
Discuss the position of principal and agent with regard to their
dealings with third parties in the following cases:(i)
Named or Disclosed principal
(ii) Unnamed principal
(iii) Undisclosed principal
97
CASES
1
...
In your opinion does this agreement
constitute a partnership between Kamau, Otieno and Ismael? Discuss
...
Decide the following problems, giving reasons in each case
...
D without the knowledge of
P and Q obtained for his own benefit a lease of a house in
which partnership business is carried on
...
Omolo starts a competing business with that of the firm (while
still a partner) in the same market
...
Auchiel and Ben are working in partnership as accountants
...
100,000 for investment in some good security
...
Kuria files a suit on the firm for the recovery of his Ksh
...
In
your opinion, will he succeed? Give reasons
...
X and Y were carrying on a business, as partners
...
P gave Ksh
...
The firm was declared insolvent on 16th July 1961
...
On the same year ‘T’ also become
major , however he has not given a notice to remain or not to remain a
partner
...
SALES OF GOODS
98
1
...
No rabate was allowed if food was not take
...
Discuss giving
reasons for your judgement
...
Daudi agrees to supply to Benson a certain quantity of timber of halfinch thickness
...
The timber is merchantable and
commercially fit for the purpose for which it was ordered
...
In your opinion is his action justified?
Explain with reference to sales of goods Act
...
Paul contracted to purchase timber from oak tree which belongs to
Kimani
...
Kimani had to
remove the rejected portions from the tree according to the custom of
the trade
...
Can Paul take away selected portion? Explain
...
Owino agreed to keep a cow after selling it to Maina who agreed to
pay the charges for the upkeep of the cow
...
Was there delivery? Explain
...
Tom sells to John 100 quintals of grain nut of a large quantity lying in
his store
...
Jack forwarded delivery order from John to
Tom, who informs Jack that he will send the grain in due course
...
Can Tom refuse to deliver the 60
quintals of grain to Jack? Give reasons for your answer