Notesale: Turn your study into money

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

Course title: Business law
Credit hours: 3hours
Instructor: Khadar M
...
Business sometimes also called
commercial law, is simply a body of legal rules which relates to the conduct of business it is an
area that regulates business people and their activities
...

However this course is designed to understand the business students the basic concept of law
related to the business transactions
...
The students will learn principles
of business law and develop some degree of competence in applying them to business problems
...
That knowledge should be enable student to recognize
situations in which it is not safe to proceed without competent legal help, and to communicate
effectively with a lawyer if the need arises
...

Whatever there are many business law rules you must be familiar with to enjoy your legal rights
and avoid troubles in the performance of business activities
...


Lecturer: Khadar M
...
1
...

Definition of the term may vary due to the different types of purposes
sought to be achieved
...


According to Black’s Law Dictionary
...
These
rules are issued by an authority
...
Sanction or other legal consequence may
help the law to be abided by citizens
...
It does not specify the names of specific
persons or behaviours
...
The extent of its
generality depends on-on whom the law is made to be applicable
...
2
...
These are as follows:
➢ Permissive laws allow or permit their subjects to do the act they provide
...

➢ Directive law orders directs or commands the subject to do the act
provided in the law
...
Therefore, the subject has legal duty
to do it whether s/he likes it or not
...
They oblige the subject to act, as they
require him/her to act
...
If the subject does the act against the prohibition, an evil
Lecturer: Khadar M
...
All criminal code provisions
are prohibitive laws
...
Where there is violation the law sanction would follow
...
The main
purpose of sanction is to prompt a party (a wrong doer) to respond
...
Sanction may be criminal
...

If the fault committed is defined by criminal law, the person will be liable
to a sanction provided under the criminal law
...
3
...
Jurists have expressed different views about the purpose and function of
law
...
It must change with changes in the society
...

The end is securing of social justice
...
As Salmond rightly pointed out, “law is a body of
principles recognized and applied by the State in the administration of justice
...


The purpose or the object of law is to ensure justice
...
Distributive justice seeks to ensure fair distribution
Lecturer: Khadar M
...
Corrective
justice, on the other hand, seeks to remedy the wrong
...
This is corrective justice
...
It is important to control those behaviours and to
inculcate socially acceptable social norms among the members of the society
...
4
...
Within this
topic we shall discuss and analyze the hierarchies that based on in context
Somaliland as hereunder
...
Constitution
The constitution of the republic of Somaliland which is proclaimed in 2001,
serves as the supreme law and the main source of law of the land
...
The Constitution, being brief
by its very nature, contains only the basic principles of law
...


b
...
The term ‘legislation’ is derived from Latin words, legis meaning
law and latum which means “to make” or “set”
...
Legislation is that source of law, which consists in the
declaration of legal rules which passed by the house of parliament
...
Hussein

(Business law)

Page 4

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

Legislature is vested by the power to make the law the constitution
...
The two source materials of business law
namely the commercial code and the civil code fall under this category of the
sources

Legislation includes activities, which result into law making or amending,
transforming or inserting new provisions in the existing law
...

c
...
But it becomes
impractical and difficult for the law maker to issue laws on specific or detailed
matters
...
To avoid this problem, the legislature
routinely delegates the authority to make the laws to the counsel of ministries
...
5
...
For example rule stating a person who has injured
another through negligence must pay damages
Procedural establishes the methods of enforcing the rights and duties
established by the substantive law
...
And so on are all question of procedural law
...

Substantive law
Constitutional law
Contract law
Criminal law
Taxation
Administrative law and many others

Lecturer: Khadar M
...
Criminal law, adminstartive law and constitutional law, are generally
classified as a public law, because they deal with persons and their relation
with government
...
on the other hand
Private law regulates or governs the relationship between the private
individuals
...

Public law
Constitutional law
Criminal law
Law of taxation
Administrative law and many others

Private law
Contract law
Corporation law and law of partnership
Law of agency
Law of contract of sale of goods

Civil cases vs
...
Civil
cases are non-criminal cases which a private party seeks a remedy, against
another private party
...
The person who
injured is the plaintiff and the person to whom the civil action is brought is
called the defendant
...

Criminal case is very different from a civil case
...
The
person initiating criminal cases is thus the government, typically through the
public prosecutor or the police
...

The remedies the public prosecutor normally seeks are imprisonment, fine
(money given to the government as punishment)
...
Violation of criminal laws may lead to fines or
imprisonment, or both, whereas violation of civil law usually involve
compensating the parson harmed by paying money damages
1
...
Legal personality

Lecturer: Khadar M
...
And these can be classified into two: human beings (natural
persons) an artificial persons( or legal persons)
a) Natural persons
This category refers to human beings created by god
...

Also another question may arise when the legal personality of human beings
begins and when it ends
...
Starting from that time the child will be considered
to be the subject of law and begins to enjoy his/her legal rights
...
starting from the moment of his birth the child
...
But as you will find the next
chapter the child may have a legal representative who acts on behalf of him
...
If he is not capable the issue becomes the issue of legal
capacity but not legal personality
...
So the
termination of legal personality death brings an end to the personality of
human being
...


B
...
For different reasons the law may create different types of
artificial persons
...
The list goes on
...
Hussein

(Business law)

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

these associations are considered to be persons, i
...
entities having legal
personality
...
It is only organizations that are recognized as a
person’s that can perform the following and other similar activities:
➢ To sue and be sued their own name and capacity
➢ To own and administer their property in their own name
➢ To inter into contractual relation
➢ And generally to perform legal acts which are consistent with their
nature
Unlike the case of natural persons, it may not be easy to have one rule at the
beginning and end of legal personality of artificial persons
...
When the organization fulfills the legal
requirements sets under the law, an official, with authority to register
...


CHAPTER TWO
NATURES AND FORMATION OF CONTRACT
2
...
It’s formed two
or more parties who promise to perform or refrain from performing some acts
now or in the future
...
If the contractual is not fill-filed, the party who made is

Lecturer: Khadar M
...
Thus to determine whether there is a
contract or not, then we must check or understand whether the contract has
full-filled the elements of general contract, that we shall explain detail in the
coming topics within this chapter
Contracts are form of everyday life
...
We don’t even realize when we are making into such
contracts
...
Thus a
contract has consists of two main elements and these as follows:
i
...


Legal obligation

Contract is a legally enforceable promise or set of promises for the breach of
which the law gives a remedy or the performance of which the law recognizes in
some way as a duty
...
but only those
agreements which are enforceable by law are contracts
...
2
...
Comm
on-law scholars such as Fredrick Pollock defines obligation in its popular sense
as merely synonym for ‘duty’
...

Legal versus moral obligation

Lecturer: Khadar M
...
However, some scholars define it
based on their own legal system For instance French judges define the term
obligation as a legally binding relations to another party is obliged to give or to
do or not to do something
...

Thus a moral obligation is Mere domestic or social agreements are not usually
intended to be binding and, therefore, are not contracts
...
g
...
00 points in his first
semester exam
...
Ahmed invites jamal for diner in a restaurant
...
Jamal accepts the
invitation, on the appointment day
...

2
...
000

Somaliland shillings in every week, in such case if warsame fails to pay for
his son the promised amount, his son has no remedy against his father
...

A binding contract is usually in the nature of a commercial bargain, involving
some exchange of goods or service for a price
...
Hussein

(Business law)

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

Sources of legal obligations
Though there is various sources of obligation but their main sources are:
A) Contract
An obligation from contract it means you are legally obligated to undertake
the contractual terms that you have agreed upon through your own
consent
...

Obligation arising from the law it imposed on citizens without their consent
...


•

Obligation to care one’s children

Types of Obligations
Obligations can be classified based on the nature of activities, and the number
of parties legally bound by the obligation
...
For instance, if A and B owed C 1,000$ such parties to the obligation
perform or discharge the obligations by paying half (part) of the debt to C, which
is 500$ each
...
Hussein

(Business law)

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

2) Indivisible obligations
In this type of obligation, the performance of the obligation undertaken cannot
be divided into parts
...

3) Positive obligation
This is a situation where a person’s obligation is to do or to give some thing to
another
...

4) Negative obligation
...
Such obligations are also called obligations not
to do
...


Types of contract
Based on the number of parties legally bound, obligations can be classified into
unilateral, bilateral, and multilateral obligations
...
However, only one of the parties is legally bound by the
contract for the benefit of the other contracting party
...
Accordingly, there are two promisors and two promises
...
This is a case where more than two persons
undertake to perform an obligation
...
Hussein

(Business law)

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

1) Simple joint obligation
2) Joint obligations
1) Simple joint obligation
...

2) Joint obligations
It arises from the contractual obligation in which more than two parties
participate and debtors are jointly liable for the debt secured as a result of the
obligation entered into with the creditor or creditors
...
3 Forms of contract
Express versus implied
An express contract is one that which terms of the agreement are fully
explicitly stated in words, oral or written, contract is an express contract when
the contracting parties are dealt each other directly, through verbal, oral and
written communication
...
For example, a bus stopping at a bus stop
implies that the owner of the bus is making an offer to a person waiting of the
bus stop
...

Formal versus informal contract
Formal contracts are contracts that require a particular or special form or
method of creation (formation) to be enforceable
...
A written contract may be considered sealed if both parties seal
already on it
...
Hussein

(Business law)

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

On the other hand informal contracts include all other contracts
...

2
...
FORMATION OF CONTRACTS
Introduction
Consent is a declaration of intention to be bound by an obligation
...
In modern times individuals have relative freedom
to decide on their own rights especially property rights with out the interference
of a state or another person
...
Contract is one of the major
areas of law that recognizes autonomy of individuals
...
e
...

So in a contract, a person should know the obligation he is going to carryout and
the benefit he is going to get / or lose
...
Agreement is not still enough
...

Unless a person clearly knows what rights and obligation are to be created,
varied, or extinguish it is impossible to claim that he has agreed
...

The following list briefly describes the basic requirement of contract
...


Lecturer: Khadar M
...
Agreement
...
One party
must offer enter into a legal agreement, and another party must accept
the terms of the offer
2
...
Any promise made by the parties must be supported by
legally sufficient and bargained-for consideration (something of value
received or promised, such money, to convince a person to make a deal)
3
...
Both parties entering to the contract must have
the contractual capacity to do so, the law must recognize them as
possessing characteristics’ that qualify them a competent parties
...
Free and genuine consent
...

5
...


These five requirements constitute what are normally known as the elements of
contract, they are also important to the formation and validity of the contract
...
Except where the law requires particular form of contract, then
the parties must be complied such particular form
...
1
...
The agreement doesn’t necessarily have to be in
writing
...

Once agreement is reached, the other elements of contract must present
(consideration, contractual capacity and legality of the object and form of contract
if the law requires so) agreement must contain reasonable definite terms,
otherwise it would be impossible for a court to enforce the contract
...
Generally a
contract must be include the following terms
1
...

2
...

3
...
The time of payment, delivery, or performance

Lecturer: Khadar M
...
4
...
1
...
The offeror or proposer expresses his willingness :to do : or :not to
do something with view to obtain acceptance of the other party offeree, thus the
parties may agree in either through express or implied acts
...

An offer may be defined as a definite undertaking or promise, made by one
party with the intention that it shall become binding on the party making it as
soon as it is accepted by the party to whom it is addressed
...
Thus all commercial transactions must involve an
offer and an acceptance
...
It is however noteworthy that a contact
comes into existence only between the parties, that is, the offeror and the
offeree
...
Indicating the
respective obligation of each party to the contract and informing the same to
them with the expectation of response from them
...

(a) The content of the contract “an offer must be definite a clear”
(b) the offeror must have a serious intention to become bound, if the other party
accepted the terms that offer contains
(c) Request of the offeror to the offeree to be bound by the offer
...


Lecturer: Khadar M
...
e by word of mouth either in the presence of each
other or by telephone, as well as by fax message or by writing
...

Specific offer: It is specific if made to a definite or particular person, and he
alone may accept it
...

Offer Distinguished from Invitation to Treat
It is necessary to distinguish a true offer from what is called an “Invitation to
treat”, because very often an invitation to make an offer (i
...
In other words, some problems arise in
distinguishing between certain expressions used by the parties which are
intended to lead to contractual relationship between then, on the one had, and
certain other statements made by the parties which are not intended to lead to
any legal consequence
...

The major distinctive feature between an offer and an invitation to treat is that
for a offer to be a true offer, the offeror must have completed his part in the
formation of a contract by finally declaring his readiness to undertake an
obligation upon certain conditions, leaving to the offeree the option of
acceptance or refusal
...
The essence of an invitation to
treat is that by it the supposed offerer is merely initiating negotiations from
which an agreement might or might not in time result
...

Lecturer: Khadar M
...

1
...

3
...

4
...

2
...
1
...
1 Termination of an Offer
The general rule in respect of termination of an offer is that once an offer is
made, it remains open for acceptance until an event known to law happens to
terminate it
...
REVOCATION:- An offer can be revoked (i
...
withdrawn) at any time
before it is accepted
...
In such a situation, the offeror can still
exercise his right of revocation even though the time the offer was left
open has expired
...


2
...
For example if Osman offers to sell a house to
Fadumo for $50000 and Fadumo says, “No, thank you” Fadumo’s rejection
puts Osman’s offer to an end
...

It follows that where an offer has been rejected, it cannot be accepted
subsequently unless a fresh offer is made by the offerer
...


In respect of a counter offer, it happens when the offeree attempts to accept the
offer on new terms, not contained in the offer
...
In

Lecturer: Khadar M
...

Secondly, a counter-offer replaces the original offer and becomes a new offer
capable of acceptance
...
If a contract is then to result, the
counter-offer must be accepted by the original offeror
...
LAPSE OF TIME: - If an offer is stated to be open for a fixed time, it clearly
cannot be accepted after that time
...
Where there is no fixed time within which the offer should
be accepted, the offer must be accepted within a reasonable time
...

4
...
However, the weight of academic and judicial opinions seems to
indicate the following positions
...

b) Death of the offeree before acceptance terminates the offer whether death is
notified to the offeror or not unless, on its true construction, the offer was
made to the offeree and his successes in title
...
LOSS OF CONTRACTUAL CAPACITY BY EITHER PARTY: - If either of the
parties loses his contractual capacity, for example through becoming insane,
before the offer is accepted, the offer lapses
...
4
...
2
...
e
...
In short acceptance is a
“Yes” answer to all the contents of the offer
...
So the offeree must take care in giving response to an offer
...
So
“where acceptance is made with reservation or does not exactly conform to the
terms of the offer” the offeree must remind himself that he is taking the
position of the offeror and the offeror then becomes an offeree
...
Hussein

(Business law)

Page 19

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

That means the offeree (the current offeror) is bound by the new offer he makes
until the time limit he fixes for acceptance expires or until he reasonably
expects the other party to decide on the new offer
...
The offeror has the right to choose
his trading partner
...

Cannot accept the offer
...

Unconditional acceptance: when we defined acceptance, we have
stated that there must be unqualified expression of assent
...
But in fact becomes it self counter-offer, which as recall, terminates
the original offer
...
It must be communicated to the offerror
...
As rule, al
forms of acceptance are valid
...
Must be obeyed an
acceptance must be made in the way the offeror specified
...

However acceptance of an offer can be communicated in any of the following
modes
...
The general rule in respect of this
point is that where a special mode of acceptance of an offer has been
prescribed by the offeror, the offeree is bound to comply with it
...

2) Where No Particular Mode is Prescribed: - The general rule in this respect is
that where the offeror does not state the mode of acceptance of the offer, the
form of communication will depend upon the nature of the offer and the
circumstance in which it is made
...
Hussein

(Business law)

Page 20

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

Generally, common sense, commercial efficiency and commercial risk demand
that the offeree should, as much as possible, accept the offer in the same mode
it was made
...
The same reasoning follows with regard to
offers made over the telephone, or by other electronic means
...
If the offeree uses another means than
chosen by the offeror the acceptance is defective since it does not exactly
conform to the offer
...

Ex
...
Delivery and
payment date is on January 20, 2011 in Berbera”
What do you think is meaning of the silence of the offerree on the face of the
offer made to him? Shall we consider it as an acceptance, thereby completing
and forming an agreement? Or shall we consider as it rejection, in which case
there is no agreement? Silence of the offerree as a rule it amounts, amounts as
a rejection
...
The fact she kept quit signifies that she doesn’t into the agreement
proposed by the offeror
...
In Such like where is preexisting contractual relation
Preexisting Contractual Relation Silence may also amount to acceptance
where
i)
The content of the offer is to vary, supplement or complement
preexisting contractual relation
...
Variation of contract itself is a contract and hence needs
consent of parties
...

the offer is made in writing
...
But silence can be interpreted as acceptance only if the

Lecturer: Khadar M
...

ii)

The offer should be written on special document
...

The offeror should also expressly indicate in his offer that he
considers the silence of the offeree as acceptance after expiry of
time limit indicated in the offer or reasonable period
...
4
...
CONSIDERATION
Definition
Consideration is usually defined as the value (such as money) given in return
for a promise (such as a promise to sale a house)
...

The “something of legal value” may consists of a return promise that is
bargained-for
...

The general principle of contract, contract is bargain, and a person who wishes
to enforce a given contract must show that he or she has given consideration
...
This is the essence of
consideration
...
The buyer’s
consideration is the money he pays or promises to pay for the goods the
transfer of title to the goods or possession of them to the buyer represents a
benefit to him, moving from the seller, conversely, the promise to pay money or
actual payment represents a benefit to the seller, moving from the buyer
...

The general rule of law of contract in relation to the concept of consideration is
that unless an agreement is under seal, it cannot be enforced
...
A
gratuitous promise, not made under seal cannot constitute a contract
...
Hussein

(Business law)

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

Consideration is termed executory, When the offer and acceptance consist of
promises – the offeree making a promise in return for the offeror’s promise
consideration is regarded as executory
...

Both parties became bound in the contract, prior to actual performance
...
The whole transaction
remains in the future
...
That means (give and take) both parties have
performed according to their respective promises:
Past consideration
Promises made with the respect to events that have already taken place are
unenforceable
...
In short you can bargain to take place now or
in the future, but not for something that has already taken place
...
4
...
CONTRACTUAL CAPACITY
Capacity to a contract is the ability to make legally binding agreements
...

Know that capacity to contract requires understanding of the nature and effect
of actions, as well as the legal ability to form a contract on one’s own behalf
...

Such like those below statutory age of majority, 18 years and persons with
mental disability, this one of the essential elements of a valid contract is that
the parties to the contract must be competent to the contract
...
of Somaliland civil code provides that “every person is competent to
contract who is the age of majority according to the law which he is the
Lecturer: Khadar M
...

Who Are Incompetent to contract?
Thus incompetent to a contract may arise from (A) minority (b) mental
incompetency (C) juridical interdicted person
Minor
A minor is a person of either sex below the age of eighteen
...
To this effect minors are considered to be incapable of entering into
contract (for that matter they are generally incapable of performing other acts
bringing about legal consequences)
...

According to, article Art 109
...
A minor is not competent to a
contract
So as a rule if minor inter into a contract, the contract may be invalidated
based on the ground of the capacity by the request of his relatives
...
However the contract
will be invalid if one of the contracting parties is insane person or unsound
person
...

(a)Certified Insanity
Lecturer: Khadar M
...
If the court finds that the individual isn’t normal
...
After that the property of insane person falls under the
control and responsibility of his family or legal agent
...

(b)Factual insanity (insanity not certified by courts)
In this case the persons are insane but they are not certified so by the courts of
law
...
These facts must be proved by the family or legal representative
of the insane person before the invalidation is ordered
...


Juridical and legal interdicted person
Like minors and mental incompetent person, there are also some other persons
who are incompetent to contract, partially or wholly, so that contracts of such
persons are void
...


2
...
4
...
Valid and free consent must contain it as fallows
Consent is one of the basic elements in the formation of contract
...
Hussein

(Business law)

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

the same sense
...

Example
1
...
000 B
...
In this case there is a valid contact since A and B has
consented to the same subject matter
...
A, who own three villa houses in hargaisa offers to sells one, ‘’say villa
house x” to B for $50
...
B agrees to buy the villa house for the price
thinking that A is selling ‘’ villa y’’ there is no consent and hence no
contract, because A and B have not agreed to the same thing but to
different things
...
Without any influence, and outside pressure
...


A
...
Under the law,
mistakes as to identity of the subject matter and mistake to existence of the
subject mater of the contract are considered to be
...
But unknown to
both , the subject matter of their contract is in fact very different from what
they believed it to be
...

Example
Lecturer: Khadar M
...
This mistake is fundamental and the contract is invalid
2) A agrees to sell B specific cargo of goods suppose the goods is to be on
the way from London to hargaisa, but unfortunately that goods lost,
neither the party was aware of the facts
...
Dear students, mutual
mistake arises when one party is thinking about one type of subject matter and
the other another type of subject matter, neither party is aware that he is
misunderstanding the other
...

Example
1) A who owns four land cruisers, offers to sell his ‘car x” for 12000
...
there is a mistake as to
the identity of the subject matter hence there is no contract
(3)Unilateral mistake: is a mistake whereby one party to a contract makes a
mistake which will unfairly advantage the other party to a contract
...


B
...
the consequences of the type of misrepresentation may vary
accordingly
...
They can be
briefly defined as follows:
- Innocent – a false statement made in the honest belief that it is true
...
In the civil sense, it means a statement made
knowingly or without belief in its truth, or made recklessly to the extent that
the party does not care whether it is true or false
...
As you will see later, under the traditional principles of
tort law, there was no liability for negligent misrepresentation unless it could
Lecturer: Khadar M
...

(1) Innocent Misrepresentation
At common law, an innocent representation does not give a party the right to
damages
...
The essence of rescission
is to place the parties in the position they were in prior to the making of the
contract
...
The equitable remedy of rescission may be applied and the
parties restored to their original positions by transferring the property and
paying back any monies paid
...
In fraudulent misrepresentation, the statement is being
made with knowledge of its falsity, without belief in its truth, or by recklessly
not caring whether it is true or false: Rescission is available, as with innocent
misrepresentation, but only if the misrepresentation is made fraudulent will a
claim for damages,
A fraudulent misrepresentation gives the Victim a right to damages
...
The quantum or
amount of damages is based not in contract law, but in tort (arising from
deceit)
...


(3) Negligent Misrepresentations
Negligence is probably the most important of al torts as it has an impact on
many aspects of our lives, professional and personal
...

In studying negligent misrepresentation it should be borne in mind that this is
particularly relevant to you in your professional capacity in the business world
...
Hussein

(Business law)

Page 28

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

change
...

The law gives a right to damages for a negligent misrepresentation, whether
rescission is claimed or not
...

C
...
The effect of duress is similar to that of undue influence; the contract
is voidable at the option of the victim party
...

A contract may be deemed lacking free consent, and be void, if threats or
violence has influenced a party to the contract, or if a party to the contract has
been in any other way improperly pressured into the terms of a contract
...
Under such conditions the agreement is subject to
challenge
...
Undue Influence
Undue influence is the domination of one party over the mind of the other
party to such a degree as to rob him his free will
...
Therefore, if the claim
of undue influence is successfully made by the weaker party, the resulting
contract will be set aside, unless of course the dominant party can convince
the court that he did not unduly influence the other
...
Hussein

(Business law)

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2
...
5
...
It is the
obligation of both parties to the contract
...
So, object
of a contract is the agreement of the parties to act, not to act, or to give
...
In contract of sale of house;
the obligation of the seller is to transfer ownership and possession to the buyer
and the obligation of the buyer is to pay price
...
For example, in the above case, the work and the
house are subjects of the contract
...
Clarity of object is therefore; not limitation of freedom of contract
rather it is parties failure to exercise freedom of contract
...
Parties’ freedom does not allow them to bind themselves
to perform humanly impossible things
...
For example, if a person agrees to raise a dead
body; to duplicate money by mystery, to bring audio visual image of dead
body; to make a person very rich etc the object of the contract is impossible
...

c) Legality of the object: no person can be bound by contract to violate any
law of the country since such is contradiction in terms
...
So nobody can bind himself to violate criminal law of
the country
...
Hussein

(Business law)

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2
...
6
...
It
answers the question as to how third parties such as court could know the
agreement of parties
...
When contract is in written form, a court or third parties know the
agreement by reading a paper on which it was written
...
In an case offer and acceptance was given orally, by conduct or by
sign and not reduced into writing the contract is said to be made orally since it
is to be proved by oral witnesses
...
But these people
forget that they have entered into so many contracts in their life without following
written forms
...
So contract can be valid if consent, object and capacity
requirements are fulfilled
...
The freedom may be limited by law or the
offeror
...
Similarly
he can propose written form
...
If the written form is rejected then the offer itself
is rejected
Written Form of Contracts
Written form
More over; there are forms other than written form
...
The contract may exist only the
recollection of the spoken words of the contracting parties, or it may be recorded
in a written document or stored in a computer
A contract is said to be in writing where the contract contains as fallows
•

The content of a contract is written i
...
the content is readable
...
Hussein

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•

FACULTY OF BUSINESS ADMINISTRATION

The writing is made on a special form
...
Therefore; if a paper
contains another contract or other things such paper is not a special
document
...


•

Parties to the contract sign the special document
...
Here, two things
are interesting firstly the law does not allow the use of mechanical
process such as stamp; secondly, thumb mark never binds unless it is
made in the presence of notary, registrar or a judge acting in discharge
of his duty
...
The
witnesses should have contractual capacity
...
It is true that there are special
forms other than written forms
...
But the thing on which the readable content is found may be
a special document, scrape of paper, electronics or any other thing
...
There
is no need of witness to sign
...
Signing or
issuing a commercial instrument is concluding a contract
...
Parties may also agree that the content of contract be
concluded when both parties write a letter signed and sealed
...

Lecturer: Khadar M
...
5
...
Sanctity of contract indicates that parities are bound by their
agreement
...
There is Latin saying “pacta sunt servanda’ which means that a person is
bound by his words
...
Any agreement which parties did not intend to create legally binding
obligation is not a contract
...
However, for a contact, the law makers are mainly the parties so
...
e
...
e
...

2
...
PERFORMANCE OF THE CONTRACT
Performance of the contract refers the fulfillment of the obligations by the
parties
...
For
instance If the obligation is to “do something”, doing what was provided in the
contract exactly in the same way as provided, must to be done it for their
contractual obligations
...
However; the law never mention about performance of a
contract by a third party not authorized by debtor, court or law
...
However, there are two cases under which the promiser him
self must perform his obligation personally
...
Hussein

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A First one is where the contractual terms imposes on such restriction
...
He
must discharge his obligations personally
...

Performance by delegation in this case is not allowed totally
...

Personal performance of the debtor is essential where the performance of the
obligation involves or special qualification, for example we can take a case of
employment contract in which the worker, has employed as an medical doctor
for Adna Aden hospital in return for the monthly payment of 1200$
...

To whom shall performance be made?
The performance can be validly made to the creditor or any third person
authorized by the creditor or the law
...

Since the creditor due to with out his consent is not duty bound to receive
payment from a person not authorized by debtor or court of law, he is free to
accept or reject such payment without any effect on his right against the debtor
...


Lecturer: Khadar M
...
For example where a person having entered into
contractual obligations became incapable due to lack of contractual capacity
like minor insanity etc in this case the debtor is expected to perform his
obligation to the legal representatives having the authority to act on behalf of
the incapable creditor
For instance if the debtor performs his obligation knowingly or unknowingly
into some one who is under the age of majority (minor) or insane person, In
such case the debtor’s performance is invalid and he is required to do his
obligation again to the other people having the authority to act on behalf of the
incapable creditor
...
In the case of insolvency the official receiver or
assignee acquires to perform the contract
...

WHAT TO PERFORM
It is a rule of law that performance must exactly be with the same with the
contract
...

For instance when the parties are agreed upon for the payment in money the
performance requires the exact amount of money
...
Like wise one the contract requires
delivery of sonny computer model 2007
...
For instance if is delivered with
the same sonny computer but in different model for ex like model 2000
...
The debtor may also have the right to sue for the
creditor to the non-performance of his contractual obligation or he may
demand to compensate all damages incurred due to for his reason
Finally; The debtor shall deliver the thing agreed
...
If the creditor accepts the new
Lecturer: Khadar M
...
So rather than the quality of the alternative thing delivered what is
important is the consent of the parties
...

Abdurahman agreed to sell omaar white flour to jama, But since Abdurahman
is unable to get oomaar white flour
...
jama can refuse the delivery
...
Where the time of performance has been specified and the promisor has
undertaken to perform it without the application of the creditor, the
debtor must perform on the fixed day during the usual business hours
...
In this case mussa has to perform his contractual
obligation on the day fixed
...
What will happen if there is no agreed time? In case the contracting
parties misses to fix the time of the performance
...
In each particular
case have is a question of fact
...
In such
case performance must apply for the proper place prescribed into terms of the
contract
...
Hussein

(Business law)

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Muna offers to deliver certain goods to fadumo at her business place in
hargaisa on 15-1-2011 within the usual business hour
...

Finally, the civil code provides three alternatives; agreed place, residence of
the debtor and place where the thing situates
...
The law encourages the parties to determine place
of performance in their contract

2
...
DISCHARGE OF CONTRACTS
The cases in which the contract is discharged may be classified as fallows:
A
...
By mutual consent
C
...
By operation of law
E
...
This is known as
discharge by performance
...
Thus
where Ayaan contracts to sell her car to C
...
fatah
...
fatah pays the agreed price for it; the contract
comes to an end by performance

(B) By mutual consent
Know that when parties to a contract mutually agree not to complete a
contract, the result is
discharge by mutual agreement
...
Hussein

(Business law)

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contracts agree to substitute a new contract for it , or to rescind it or alter it,
the original contract is discharged
...

1
...
The new
contract may be substituted the same parties or between different
parties
...
Rescission: rescission means cancelation of all or some of the
terms of the terms of the contract, the obligation of the parties
there under terminate
3
...
By death
...
By insolvency
...
Breach of a contract may arise
into two ways (a) anticipatory breach (b) actual breach
(I)Anticipatory breach of a contract
Anticipatory breach of a contract when a party repudiates it before time fixed
for the performance has arrived or when party his own act disables himself
from performing the contract
...
He will be liable for its breach
...
Hussein

(Business law)

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Breach during the performance of the contract
...

2
...
GENERAL REMEDIES

OF

NON-PERFORMANCE

A contract formed lawfully binds the parties as if it were law, which means that
the parties shall perform (discharge) their obligations according to their contract
and the law
...

Thus, non-performance refers to parties’ failure to perform contractual
obligations in conformity with the terms of the contract and the law
...
This failure/breach may be total, where a party totally
fails to honor the terms of contract
...
It may also relate to delay in
performance
...


Delivering a thing that does not

conform to the contract or delivering a defective thing also amount to breach of
contract
...

It is clear that breach by one party affects the interest of the other party, which
usually is referred to as the “Victim party”
...
As discussed
elsewhere, one function of contract law is to enforce contracts
...
Otherwise parties would be reluctant to enter in to a contract
...

Lecturer: Khadar M
...
These kinds
of remedies may be enforced by the law
...
These are called
legal remedies
...
The interest that is affected by non-performance
of the contract is the benefit, which could have been gained, had the contract
been performed
...
As such,
in most legal systems, the law of contract generally recognizes three remedies
...
This remedy is designed to
satisfy the victim party by enforcing the terms of the contract
...
The former is usually referred to as forced
performance, while the latter is called substituted performance
...
This
may take place either court judgment (judicial cancellation) or unilateral act of
the victim party
...
In
all other cases, the victim party may apply to court for declaration of cancellation
and it is the court that has the ultimate power to declare cancellation or not
...
Hussein

(Business law)

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had the contract not been made
...
In addition to this, he may claim compensation
...
The victim party can claim
compensation for the damage or loss he has incurred as a result of nonperformance
...
1 NATURE AND

FORMATION OF CONTRACT OF SALES OF GOODS

So far there is no universally accepted definition of sales contract
...
The Roman
law which is considered to be the origin of civil law legal system, for example,
defined sales as "a contract by which one person becomes bound to deliver a
subject to another with the view of transferring the property in consideration of
money" this definition seems to include the basic elements
...
Hussein

(Business law)

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•

consideration expressed in money

•

deliver with the purpose of transferring ownership

3
...
1
...
Contract
of sale is a special kind of contract
...
Thus the parties must be
capable, that is they should not be minor, insane and infirm, judicially
interdicted person, or legally interdicted person
...
The
consent of the parties, which is expressed through offer and acceptance, should
also be free from defect
...
The obligations of both
the buyer and the seller must be defined, lawful and possible
...

The fact that contract of sale is a contract does not, however, mean that it does
not have peculiar natures to which the coverage of general contract is not
enough
...
Such peculiarity can be inferred from the
definition
...

Two Parties: There must be two distinct parties to a contract of sale, as a person
cannot buy his own goods
...
Two persons is the minimum
requirement
...
Badde, Balayah, and Nasir are
sellers and have to discharge the obligation of the seller jointly
...
Hussein

(Business law)

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Badde, Harun and Naleye are buyers and they should jointly pay the price and
take delivery of the refrigerator
...
The seller is the person
who assumes the obligation to deliver a thing while the buyer is the person
who assumes the obligation to pay money as a price
...
1
...
Delivery and Transfer of ownership
The owner of the thing must agree with the other person to deliver and transfer
ownership of the thing
...
The seller must transfer or agree to transfer
ownership so that contract of sale is concluded
...
1
...
The Thing
The definitional provision also puts “things” as an essential element of sale
...
Normally all things
cannot be subject matter of sales contract if they cannot be appropriated by
human beings
...
The word thing shall, accordingly, refer to goods, as it is only
goods, which can be possessed and owned
...


(A)Existing goods
Existing goods are goods, which have physical existence
...
It does not matter that the thing is in possession of third
party
...

(B)Future goods

Lecturer: Khadar M
...
Goods to be
produced manufactured or acquired by the seller after the formation of the sale
contract are termed as “future goods”
...

If for example Mr
...

If Mr
...

(C)Contingent goods
There are also special future goods, which are called contingent goods
...
The specialty with contingent goods is that the seller may
or may not acquire the goods depending on the condition
...
1
...
The Price
In addition to goods consideration expressed in terms of money is also an
essential element of the definition
...
This consideration in cash is price
...

Thus, a contract of sale must involve consideration in return for transfer of
ownership
...


Lecturer: Khadar M
...

If there is no consideration, it is a contract of donation not a contract of sale
...

? Can you say there is a contract of sale if the party agreed that part of the
price should be paid in kind?
Abdulah sold his Acer® desktop computer to Bile
...
Abdulah has taken delivery of the TV sets and Bile has also taken
delivery of the Computer
...


3
...
FORMATION OF CONTRACT OF SALES
Having seen a general introduction to contract of sales and its definition, it is
worthy discussing the formation of contract of sale
...
In addition,
the peculiar elements of the formation of sales contract will be analyzed and
discussed
...
That is to say, the
contract of sale is completed when the parties have expressed their consent to
the terms of the contract
...
The parties must define the subject

Lecturer: Khadar M
...

As a contract, a sales contract is regulated by general contract provisions
...
Generally
for the formation of contract offer and acceptance are indispensably required
...
The buyer or seller to which proposal to enter
into a contract has been made should also express his assent without
reservation
...
The
pretence of the parties is not again a sufficient formation of the contract of sale
...

According to this definition, a contract of sale is formed when parties specify
the price in their contract
...


For example, Aden agreed to buy a used computer from Bushra
...
Thus, Aden agreed to pay the price
determined by Guled who is a mechanic
...
Unfortunately,
...


3
...
PERFORMANCE OF CONTRACT OF SALES OF MOVABLES
Lecturer: Khadar M
...
Having made these considerations,
discussion on performance of sales contract will be made
...
3
...
Obligations of the seller
The seller has certain obligations which shall be performed
...
These obligations are the
obligation to deliver, the obligation to transfer ownership, the obligation to
warrant the buyer against dispossession defects and non-conformity to the
contract and other obligations
...
In addition to these obligations the seller does have shared
obligations with the buyer
...
Obligation to deliver
The seller assumes certain obligations under the contract of sale
...
Failure to
perform these obligations amounts to non- performance of sales contract
...
Delivery
generally refers to transfers of possession willingly
...
It consists of
handing over in not only the principal subject of the contract but also its

Lecturer: Khadar M
...
The thing to be delivered shall, however, be the agreed thing in
quantity and type
...
These
modes of delivery can be actual delivery, constructive delivery, (constitutum
possessorium), traditio longa manu and symbolic delivery
...

Actual delivery is the physical handing over of the thing directly to the buyer or
his representative
...

This shows the possibility of actual delivery by entitling the party to whom
delivery is made the actual control over the thing
...
But ; when the thing is to remain in
possession of the seller after the contract of sale or where the things is in the
possession of the third party and the buyer decided to keep the thing with that
third party
...
Traditio longa manu does not again show actual handing
over of the thing
...
The buyer can take the thing when ever he/she pleases
...

Symbolic delivery is similar to constructive delivery in that it does not effect the
physical handing over of the thing sold
...
Hussein

(Business law)

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the things sold
...
Similarly, giving bill of lading to the buyer is a
symbolic delivery
...

B
...
Ownership transfers upon
transfer of possession
...
Thus, the necessary
step to be taken by the seller to transfer ownership is to deliver the thing to the
buyer in any of the modes of delivery discussed in the previous section
...
The seller must be the
owner of the thing sold
...
For example, if
Keyse steals a watch from Daud and sells it to Barre, Barre has no greater title
to the watch than Keyse possessed
...
This principle is called nemo dat quod non habet in Latin
...

C
...
Warranty is a contractual promise by the seller
regarding the quality, character, or suitability of the goods he has sold
...

(I)

Express warranty is created when the seller makes a statement of facts
or a promise to the buyer concerning the goods that become part of the
bargain
...
Hussein

(Business law)

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does not create an express warranty
...
If the seller deals in the types of goods he is selling and the buyer
does not deal in such goods and knows little about them, a statement
by the seller about the quality or character of the goods might be
interpreted as an express warranty
...

In negotiating, a seller may use descriptive terms to convey to the buyer an idea
of the quality or characteristics of the goods Similarly a seller might use pictures,
drawings, blue prints or technical specification or in some cases a sample or
model
...
Implied warranty arises whether or not the
seller has made express promises as to the quality of the goods
...
The seller shall warrant the buyer against any
total or partial dispossession, which he might suffer in consequence of a third
party exercising a right he enjoyed at the time of the contract
...


Lecturer: Khadar M
...
There are circumstances where the
seller gives an express warrant against defect
...
Express warranty can be given in a limited manner
...

It must be born in mind that the fact that the seller has given express warrant
does not necessarily mean that he has the obligation to warrant
...

Warranty of fitness for normal use obliges the seller to deliver goods that are fit
for the ordinary purpose
...
The chair should also
withstand other things people commonly do with chairs, such as occasionally
standing on them or dragging them across the floor
...

C)
...

For example, if the seller agrees to deliver 500 kilograms of sugar, the seller
breaches the warranty against non-conformity if he delivers a thing different
from that provided in the contract or a thing of different species
...


Lecturer: Khadar M
...
3
...
Obligation of the Buyer
The main obligations of the buyer under the contract of sale are the obligation
to pay price and the obligation to take delivery of the thing sold
...
Obligation to pay price
The buyer has the obligation to pay the price and take delivery of the thing
...
It is the cost at which a thing is bought
...
Obligation to take delivery of the thing
These necessary steps include the obligation to go to the place of the business of
the seller and physically receive the thing from the seller or to keep the buyer’s
store opened if delivery is to be made at the buyer’s place
...
The buyer may take deliver by
only telling the seller to keep the thing on his behalf
...
The buyer’s failure
to pay the price might be equated to failure to take delivery when payment of the
price is a precondition for delivery
...
3
...
Common Obligations of the Seller and the Buyer
In the preceding discussions, we have discussed the respective obligations of
seller and buyer
...
They have some obligations in common like obligation to pay
expenses, obligation to preserve the thing and obligation to bear unpreventable
risk of loss and deterioration
...

Obligation to pay expenses
Lecturer: Khadar M
...
For
example, when you buy a jacket, you pay the price and take the jacket
...
However, when
contract of sale involves a lot of money, the parties usually make their contract
in writing
...

Sometimes

the

conclusion

of

the

contract

may

involve

brokers
...
When the
contract of sale involves expenses, the buyer should cover such expense
...
The obligation to pay price like obligation to open
credit account and the obligation to provide bank security are always
accompanied by expenses
...

3
...
TRANSFER

OF RISK UNDER CONTRACT OF SALES OF MOVABLES

Risk is the liability of loss or deteriorations of a thing sold
...
Floods, tornadoes or other
natural catastrophes may destroy it
...
General principle of
economic analysis of contract tells us that risk shall be borne by the person who
is in a better position of avoiding the risk or shared when none of the parties is
in a batter position of avoiding the risk
...

Lecturer: Khadar M
...
1
...

During one’s business career or private life, one may be involved in the
selling of goods or services to the general public
...

The question may therefore arise as to whether all such representatives are
necessarily agents of the person they claim to represent
...

The issue is, when can it be said that an agency relationship has come to
existence?
...

In the Oxford Companion Law, the term agency is defined as:
“The relationship between one person, the agent, having authority to act,
and having consented to act on behalf of another, the principal, in
contractual relations with a third party
...

In the same vein, the American Restatement on Law of Agency describes the
term as:
“………
...

4
...
FORMATION OF THE AGENCY RELATIONSHIP
Obviously, an agent is a person who has the authority to act in the name
and on behalf of another person called the principal
...
By juridical act, we
mean acts having effects before the law
...
That means
the rights and obligations of the contract are that of the principal and the
third party
...
Hussein

(Business law)

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and hence cannot be held liable for the non-performance by both the
principal and the third party
...

There is no single whole definition of authority in the existing written
materials
...
In ordinary words authority is the
right to exercise powers
...

Generally, no formalities are required to create an agency; an agency
relationship can arise by the acts of the parties in one of the four ways
discussed in the following section
...
Agency by agreement
Agency which is derived from a contractual relationship is the most usual
kind of agency
...

Under this topic, we would like to point out that we are referring to the
agency arising out of bilateral agreements between principal and agent as
articulated in the civil code
...
Hussein

(Business law)

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are of necessity, applicable to the agency relationship
...

These elements are
A
...

B
...

C
...


Therefore, the formation of a valid agency relationship requires the
existence of certain essential elements
...
Accordingly, parties to the agency
relationship must have the capacity to enter into the contract, their consent
must be sustainable at law, the object of the contract of agency relationship
must be sufficiently defined, possible and lawful, and finally the contract of
agency must be made in a prescribed form if any
...
Agency by ratification
On occasions’, a person who is in fact not an agent may make a contract a
contract on behalf of another (principle)
...
Ratification is a question of intent, and intent can be expressed
by either words or by conduct
...
Agency by estoppel
This when a principle causes a third person to believe that another person
is his/her agent, and the third persons deals with the supposed agent ,the
principle “estoped to deny” the agency relationship
...
Hussein

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situation, the principles actions create the appearance of an agency that
doesn’t exist in fact
...
Agency by Operation of Law
...
Apart from this usual source, agency relationship could
emanate from the operation of the law, that is, agency authority is derived
from the law itself
...
This
usually happens where a person to be represented is not in a position to
appoint his agent for one thing or another
...
Further,
agency is created by operation of the law, as opposed to agency created as a
result of agreement of the principal and agent; there is already a single
contract, that is, a contract which is concluded by the representative, on
behalf of the one represented, with the third party
...

4
...
SCOPE OF AGENT’S AUTHORITY

Depending on the scope of the power conferred on the agent the authority one
has received may be general agency
...
In such cases, however it is not an easy task to classify a power
conferred either as a general or special agency is an agency conferred to the
agent in such a way that the former is empowered to manage the affairs of
the principal
...


Lecturer: Khadar M
...
The exercise of such authority binds the
principal if the agent acted within his actual (real) authority or his apparent
(ostensible) authority
...
A general agent is given the power to do a number of
transactions involving a continuity of service
...

Hence, such agents have a limited power less of disposing the rights of the
person represented
...

Sometimes, this authority is named as act of disposition
...
Usually, it does not involve continuity of services unlike general
agency
...
In the case of special agency the act to be performed by
the agent is specifically provided, like: sale of a house, lease of a land etc
...

Actual or real authority
The actual or real authority refers to the authority of the agent to do that
which the principal has agreed that the agent should do for or on his behalf
...
Such

Lecturer: Khadar M
...

Therefore, the actual or real authority of the agent described as the legal
relationship which subsists between the principal and the agent created by
consensual agreement to which they alone are parties
...
He went further to state that such authority may be express
when it is given by express words or implied when it is inferred from the
conduct of the parties or from the surrounding circumstances of the case
...
It is essential that the appearance of such
an authority emanated from an independent act of the principal manifested
to a third party
...

An agent who has apparent authority may or may not have actual authority,
though it may coincide or sometimes exceed it
...

Finally we might understand from the above definition that an apparent
authority is not an authority arising from the consent of the principal whether
express or implied according to the rules discussed in the preceding section
...
It is an authority
which apparently exists, having regard to the conduct of the parties
...
In these circumstances

Lecturer: Khadar M
...


4
...
LIABILITY AND REMEDIES AVAILABLE THE PRINCIPLE AND
AGENT
Liability and remedies of the Principal
The liability of the principal under the doctrine of respondent superior is
strict and the principal is so responsible notwithstanding his exercise of due
care and diligence in selecting the agent or supervising him or probing the
act or omission concerned
...

However, to make the principal liable, the act of the agent must have been
committed in the course of the agent’s employment
...

Remedies Available to the Principal
In situations where the agent by some misconduct or otherwise commits a
breach of a term of his agency relationship with the principal, the latter may
avail himself of one or more of a number of remedies stated below
...
Dismissal: The principal may determine or bring the agency relationship
to an end or otherwise dismiss the agent from his employment without
notice
...
Rescission and Damages: The principal may also rescind any contract
made on his behalf by the agent without authority or in breach of his duty
and this may include claims for damages
...
The agent is liable directly as the perpetrator of the wrongful act
or omission and jointly with his principal
...

Remedies Available to the Agent

Lecturer: Khadar M
...

Damages: The agent may sue the principal to recover any loss or injury he
may have suffered as a result of the principal’s failure to perform any of his
duties under the agency arrangement
...


4
...
GENERAL DUTIES

OF AGENT AND PRINCIPLE

In modern commerce, the relationship of principal and agent is primarily
consensual
...
Hence, there exist rights and obligations with attendant duties
on both parties to one another
...
5
...
Duties of agent to the principle
A
...
thus: “It is the duty of an agent to carry out the
business he had undertaken
...
”
However, where the agent fails to perform his duties or to do so in
accordance with the terms of his contract, he is generally liable only for the
breach of his agency agreement
...
Such liability may take the form of an
action for damages for the loss suffered by the principal, or an indemnity or
contribution from the agent in favour of the principal
...
If he was unable to perform
his duty, he must promptly inform his principal or any other person having
authority to receive such information
...
Duty of Obedience or Loyalty
When an agent is executing the terms of his agency, he is obliged to carry
out such instructions as may be given to him by the principal relating
thereto
...
Hussein

(Business law)

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

C
...

The degree of care, skill or diligence required of an agent may sometimes
depend on whether he is a gratuitous agent or acting for reward
...
If he was a professional, agent or holds himself out as possessing a
professional qualification, he must exhibit such car, skill or diligence as is
usual or necessary or for the proper conduct of the trade, business or
profession in which he is employed
...

D
...
Agency relationship is one of confidentiality of principal and the
agent, and the agent is generally expected to perform his duties as an agent,
personally
...
In
Exceptions
The recognized exceptions to this general rule include:
A) Where a custom or usage of the trade, business or profession of the
agent or within which he operates allows
...

C) Where the principal ratifies the act of the agent in appointing a subagent or an act or omission of the supposed sub-agent either directly or
otherwise
...
Duty to Act in Good Faith
This duty of an agent arises principally from the fiduciary nature or
character of the principal-agent relationship
...
The principal employs an agent normally because he requires that
Lecturer: Khadar M
...
He will usually depend on the agent for
the due performance of those services
...

The duty of good faith has many corollaries
...

2) The agent should not make any secret profit or other benefit from his
position as agent in excess of his agreed commission or remuneration
...

In cases where the giving or receiving of bribe is established against the
agent, the principal could exercise the following options:
a) Dismiss the agent immediately and without notice
...

And others

f
...
Thus he must be willing and ready at all times to
render an account of all transactions undertaken by him for and on behalf
of his principal
...
However,
some individual obligations of the agent his principal relating to the duty to
account flow from the general duty to account: These are:
1) Duty to keep proper account
...

3) Duty to keep his personal monies separate from his principal’s money
...
5
...
Duties of the Principal to the Agent
A
...
Such duties arise whenever the agent is employed under
such circumstances as would reasonably justify the expectations that he
should be paid
...

However, the duty to remunerate is not absolute for the agent’s right to
receive it accrues only if he is entitled to it in accordance with the agency
Lecturer: Khadar M
...

The right to reasonable remuneration may sometimes be implied from the
express terms of an agreement, the custom and usage of the particular
trade, business or profession of the agent
...

B Duty of Re-Imbursement and Indemnity
In every agency relationship, there is by implication, a duty on the principal
to indemnify the agent of all loses, damages or liabilities sustained by the
agent in the course of discharging his authorized duties
...
All reasonable expenses incurred by the agent and
any incurred by him when he engages the services of a sub-agent or
substitute with the approval of the principal are payable
...
7 TERMINATION OF AGENCY
4
...
1
...

Such an act may be an agreement between the two parties or a unilateral
act of either of them
...
These three aspects of termination
require further elucidation for better assimilation of their nature, effect and
significance
...
It is generally considered as good sense to allow the parties the
freedom to be able to terminate their relationship when it is no longer
beneficial to them or fulfilling their purpose
...

Revocation by Principal
An agency relationship is generally presumed to have been created, formed
or established for the benefit of the principal
...
Hussein

(Business law)

Page 64

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

generally also free at any time to revoke the agency or any authority granted
to the agent when he considers that the object or purpose is no longer
attainable or when that benefit is no longer accruing to him
...

While a revocation may be valid and effective and the authority granted to
an agent terminated, the principal may also be liable in damages to the
agent or a third party who has dealt with the agent for any loss, injury or
damage sustained as a result of such revocation
...
This right is implied in every agency
relationship if the agent so wishes except in cases of irrevocable authority
...
This would however not prevent the
renunciation from being valid and effective to terminate his authority and
duties as an agent
...
However, the agent may renounce his authority without
notice where the principal is equally guilty of misconduct or breach of duty
to the agent
...

3) By simply refusing to act
...


4
...
2
...
When such is the
case the agency relationship automatically comes to an end
...

By Performance
In cases where an agent is given an authority to accomplish or achieve a
specific result reason demands that the authority terminates upon the
object of the power being accomplished
...
Hussein

(Business law)

Page 65

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

It is also generally expected that the authority of an agent which was
conferred on him for a specific period of time terminates or ceases
automatically upon the expiration of that period of time
...

Where no time is specified or agreed upon by the parties in their agency
arrangement, a reasonable time is implied by the parties and the authority
terminates at the expiration of such reasonable time or period
...

By Frustration
Where an agency agreement exists between the principal and the agent, it
may be terminated by the operation of the doctrine of frustration
...
When the
subject matter comes to an end by reason of circumstances beyond the
control of the parties
An agency relationship will automatically terminate if its object or subject
matter or the authority of the agent;
a) becomes unlawful or illegal
...

c) The principal or agent becomes an alien enemy
...
Save in cases of
irrevocable authority, the death of a principal or agent terminates the
agency relationship unless there is an express or implied stipulation to the
contrary in their arrangement
...

In essence, termination of agency relationship by death of the principal or
agent is automatic
...

By Insanity of Principal or Agent
One of the basic ingredients of a valid contract is that the parties to such
an agreement must be of sound mind
...
Hussein

(Business law)

Page 66

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

also applicable and where the insanity or mental incapacity of the principal
or the agent occurs, the relationship is terminated except in cases of
irrevocable authority
...
Where the principal becomes
bankrupt his estate by law falls to be administered by his trustee in
bankruptcy
...
In deciding this question, the entrepreneur (one who
initiates and assumes the financial risk of a new enterprise) needs to consider
the advantages and disadvantages associated with each other
...
We look at
several of these forms here;

The meaning of business
Def: A business is an activity, which is primarily pursued with the object
of earning profits
...


Lecturer: Khadar M
...
A “business may be defined as human
activities directed to words providing or acquiring wealth through buying
and selling goods” the emphasis of this definition is on buying and selling
activities
Business may be defined as activity in which different persons exchange
something of value, whether goods or services or mutual gain or profit
...
1
...
He takes all the profits and bears all risk
alone
...
In addition is often easer
and less costly to start the sole-proprietorship than to start any king of
business
...
This business form also entails
more flexibility than a partnership or corporation
...
Hussein

(Business law)

Page 68

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

Disadvantages of sole proprietorship
The major disadvantage of sole-proprietorship is that the proprietor alone
, as the firm’s sole owner
...
In other words the sole proprietor
has unlimited liability, or legal responsibility, for all obligations incurred
in doing business
...
When the owner
dies, so does the business automatically is dissolved
...
2
...
The partnership
may come into existence as a result of the expansion of the sole-trading
concern or by means of an agreement between two or more persons
desirous of a forming a partnership
...
H
...
“The relationship between persons who agree to carry on a
business in common view to private gain” Haney has given more emphasis
on sharing of gains
...

(A)GENERAL PARTNERSHIP:

General partnerships are usually referred to simply as partnerships
...
Hussein

(Business law)

Page 69

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

express or implied, between two or more persons to carryout on business
profit
...
”
No particular form of partnership agreement is necessary for the creation
of the partnership, although the partners should put their agreement in
writing as long as the partner agreed
General Partnership has unlimited liability
...


(B)LIMITED PARTNERSHIP
A limited partnership consist at least one general partner and one or
more limited partners
...
In other words,
the general partners, unlike limited partners, are personally liable to the
partnership’s creditors
...

The formation of a limited partnership must be by a written memorandum
of association signed by the partners and registered by the official in
charge of the commercial register
...
Hussein

(Business law)

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

The memorandum of association, in addition to the particulars required to
be, must contain a clause indicating the identity of the general partners
as well as the limited partners
...
The reason why a limited partner is prohibited
from acting as a manager even under a power of authority is that it is
dangerous to allow them to act as a manager, because it leads to confusion
as to the legal status of the partner in his relations with third parties
...
3
...
The company or corporation is a creature of
a statute, and it therefore has an independent legal entity
...

One of the key advantages of the corporate form of business is that liability
of owners ( share holders) is limited to their investment
...

A key disadvantage of the corporate form of business is that any
distributed, corporate income is taxed twice
...
Hussein

(Business law)

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

taxes on the firms income, and when the income is distributed to the share
holders, the shareholders again pay taxes on that income
Aboard of directors elected by the shareholders manages the business
...


DISTINCTION BETWEEN PRIVATE LIMITED AND SHARE COMPANY
1
...
There is no limit on the maximum number of members
in Share Company
...


2
...


3
...


4
...

Private Limited Company be registered by fully paid-up capital
...
Hussein

Sole
proprietorships

(Business law)

Page 72

UNIVERSITY OF HARGIESA

1

Method

FACULTY OF BUSINESS ADMINISTRATION

of

creation
2

Legal status

Charter issued by state-

Created

created

agreement of the

by

statutory

authorization

parties

Separate legal entity

Not

by

Separate

legal entity
Owner

Created by will
of the owner
Not

separate

legal entity

is

the

business
3

Number

of

Pvt
...
Co –minimum -2

members

- maximum
-50
Share

Minimum – 2
Maximum

Manimum-1
no

Maximum-1

limit

Company

–

minimum -5
- minimum no lint
4

Liability

Limited

5

Transferability

Subject

of interest

restrictions

6

Management

to

some

Share company vests in

Unlimited

Unlimited

Can not transfer

Interest can be

interest without

transferred but

the consent of

individuals

all

proprietorship

other

partners

end

- Ownership

- Completely at

the board of directors

and

owners

Pvt
...
Co managers

management

discretion

in the same
hands
...
Hussein

(Business law)

Page 73

UNIVERSITY OF HARGIESA

7

Implied agency

FACULTY OF BUSINESS ADMINISTRATION

No member can act as an

-

Every

-

implied agent and bind the

partner has

company

an

implied

authority to
bind

the

firm by his
act
...
4
...
Several other organizational forms exist
...
We look at several of these forms here
...
Unless otherwise agreed, join venture’s share lost and profit
equally
...
A joint venture is not made known to third parties
...

A joint venture does not have legal personality
...
That is to say, a joint venture may not have a
firm-name; may not have a head office; cannot sue or be sued in its firmname; cannot be declared bankrupt
...
Hussein

(Business law)

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UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

A franchise is any arrangement in which the owner of the trade mark,
trademark’s name or copy right has licensed others to use it in selling
goods or services
...
In other words the franchisee can
operate an independent business person
...

A chain style business franchise results when a franchisee operates
under the franchisors trade mark name and is identified as a member of
select group of dealers that engages in the franchisors business
...
Often the franchisor requires the franchisee
maintain certain standards of operation
...
The franchisee then markets either at whole sale or
retail in accordance with the franchisors standards’
...


THE FRANCHISE AGREEMENT
The franchise relationship is created by contract between the franchisor
and franchisee
...


BUSINESS ORGANIZATION AND QUALITY CONTROLS

Lecturer: Khadar M
...
Depending on the franchisors agreement, the franchisor may
specify particular requirement concerning the form of business
structure
...
Although the day to day activities of franchisee
business is normally left up to the franchisee, the franchisee agreement
may provide for whatever amount of supervision and control is agreed on
by the parties
...


TERMINATION OF THE FRANCHISOR
The duration of the franchisor is a matter determined between the
parties, often the franchise will start out for a short period, such as a
year, so that the franchisor and franchisee can determine whether they
want to stay the business with each other
...

Most of franchise agreement the notice of termination must be given, if
no set time for termination is given, then reasonable time with notice will
be implied
...

The termination provisions of franchise contracts are generally more
favorable to the franchisor
...
Because he franchisor owns the
trade mark a

5
...
MEMORANDUM AND ARTICLES OF ASSOCIATION

Lecturer: Khadar M
...
It
contains the fundamental conditions upon which alone the business
organization is allowed to be incorporated
...
Inside that area
the shareholders may make such regulations for their own government as
they think fit
...


Contents of memorandum of association
The following are very important and common for memorandum
(a) Name clause:- A company being a legal person, must have a name to
establish its identify
...
But no company registered by name
which in the opinion of the registration office is undesirable and in
particular which is identical with or which too nearly resemble the
name of an existing company
...
Hussein

(Business law)

Page 77

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

of unfair trade computation and can be restrained by injunction from
doing so
...
Stating the object of the
company in the memorandum is not a mere legal technicality but is a
necessity of great practical important
...
To give this
information the statement of the objects should be clear
...

(c)

Liability clause:- This clause has to state the nature of liability that
the members incur
...
If his shares are fully paid up his liability is nil

(d)

Capital Clause:- The memorandum of a company limited by shares
must state the prescribed and paid-up capital and nominal value of
each share
...


Lecturer: Khadar M
...
It services two
purposes:
1
...
Thus,
he can find out from the memorandum the field in, or the purpose
for which his money is going to be used by the company and what
risk he is taking in making the investment
...


Any one who deals with the company shall know without reasonable
doubt whether the contractual relation into which he contemplates
entering with the company is one relating to a matter within its
corporate objects
...
In
short, the memorandum enables the shareholders/ partners,
creditors and all those who deal with the company/ to know what its
powers are and what the range of its activities is:-

ARTICLES OF ASSOCIATION
The articles of association are the rules and regulations of a company
framed for the purpose of internal management of its affairs
...
The articles are framed for
carrying out the aims and objects of the memorandum of association
...


The

memorandum

of

association

contains

only

the

fundamental conditions up on which alone the company is allowed to be
incorporated
...
Hussein

(Business law)

Page 79

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

company cannot go, inside that area, the shareholders may make such
regulations for their own government as they think fit
...

Articles must not contain any thing the effect of which is to alter a
condition contained in the memorandum or which is contrary to its
provisions
...
They accept the memorandum of association as the charter,
of incorporation of the company and so accepting it, the articles proceed
to define the duties, the rights and the powers of the governing body as
between themselves and the company
...
If they do,
they would be ultra virus the memorandum of the law and will be null and
void
...

(b) Articles in relation to memorandum:- The memorandum of
association is the charter of the company and an extremely important
document in relation to the affairs of the company
...
The memorandum
contains the most important provisions setting out the sort of
activities which the company can carry on
...
Thus
Lecturer: Khadar M
...


CHAPTER SIX:

NEGOTIABLE INSTRUMENTS

Def: The word negotiable means ‘transferable by delivery’ and the word
‘instruments’ means a written document by which a right is created in
favor of a person
...

Negotiable instruments also represent one kind of contract as every
instrument embodies a contract or promise to pay a certain amount of
money or to deliver goods according to terms agreed up on
...
1
...
Hussein

(Business law)

Page 81

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

Def: Commercial instruments are negotiable instruments incorporating
rights for payment of a specified amount of money
...
Hence,
they are used as a substitute for money
...
Such as bills of exchange,
promissory notes, checks and certificates of deposits;
In accordance with this definition, commercial instruments are documents
containing right for payment of money
...
1
...

Bills of exchange, therefore, involve an order to pay money rather than a
promise to pay money
...

Accordingly, a bill of exchange must contain;
The term “bill of exchange”

Lecturer: Khadar M
...

The signature of the person who issues the bill (drawer)
A bill of exchange that does not contain any one of the above requirements
shall not be valid and the drawer or any other party to the instrument can
raise defect of form against any person who claims based on the bill
...
A bill which does not mention the
place of payment, shall be deemed to be payable at the domicile or at the
address of the drawee, and a bill which does not provide place of issue, is
deemed to have been drawn at the place mentioned beside the name of the
drawer
...

This, definition implies that promissory notes are promise to pay money
and they are only two parties i
...
, the maker of the promise and the payee
to whom payment is effected
...
Hussein

(Business law)

Page 83

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION


...

Thus, a promissory note must contain;
The term “promissory note”
An unconditional promise to pay a sum certain in money
The time of payment
The place of payment
The name of the person to whom or to whose order payment is
to be made
The date when and the place where the note is issued
The signature of the person who issues the instrument
These requirements should be observed for promissory note to be
negotiable instrument
...
Accordingly, a
promissory note which does not specify time of payment, shall be deemed
to be payable at sight or on demand, a promissory note which fails to
indicate the place of payment is presumed payable at the address of the
maker of the promise and note which does not indicate the place of
issuance deemed to have been drawn at the place indicated beside the
name of the maker
...
e
...
Finally, promissory
notes involve two parties only as opposed to bills of exchange that under
normal circumstances involve three parties
...
Hussein

(Business law)

Page 84

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

(C)CHECKS
A check is the most widely used form of commercial instrument
...

The following are the main differences between checks and bills of
exchange
...

Acceptance is not necessary for a check since it is payable on demand as
opposed to bills of exchange which may be made payable at fixed or
determinable future time presentment for acceptance may be necessary
...
A check may be crossed generally or specially
...
The
crossing shall be special where the name of a specific bank is inserted
between the lines
...

A check crossed specially can only be paid to the bank specified in the
crossing
...
Where
the bank whose name appears in a special crossing is the drawee itself,

Lecturer: Khadar M
...

However, a bank may not collect crossed checks on behalf of persons other
than their customers or other banks
...
It also helps to avoid or at least minimize
risks associated with loss or theft of checks i
...

However, the fact that a check is crossed does not mean that it cannot be
negotiated as open checks
...
However, the drawer or holder may
prohibit negotiation by inserting words such as ‘not negotiable’ or 'not
transferable’ in the same manner as the drawer or endorser of an open
check
...


(D)CERTIFICATES OF DEPOSIT
A certificate of deposit is a form of commercial instrument issued by a
bank
...
When a person deposits money in a bank he will be given the
document showing the deposit of money which could be withdrawn by the
depositor or the holder of the certificate
...
Hussein

(Business law)

Page 86

UNIVERSITY OF HARGIESA

FACULTY OF BUSINESS ADMINISTRATION

Under our law, a certificate of deposit is not considered as a commercial
instrument
...


Lecturer: Khadar M

---