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Business Law Notes 1ab
Business Law Notes 1ab
Law refers to the set of rules which guide our conduct in the society and is enforceable by the
state via public agencies.
Morality consists of prescriptions of the society and is not enforceable, however, rules of law are
enforceable. Wrongs in society are contraventions of either law or morality or both. However,
law incorporates a significant proportion of morality and to that extent morality is enforceable.
However, such rules/contraventions are contraventions of law for example murder, rape theft by
servant or agent.
characteristics of law
It is a set of rules.
It regulates the human conduct
It is created and maintained by the state.
It has certain amount of stability, fixity and uniformity.
It is backed by coercive authority.
Its violation leads to punishment.
It is the expression of the will of the people and is generally written down to give it
definiteness.
It is related to the concept of 'sovereignty' which is the most important element of state.
Law assists in the maintenance of peace and order. This is by promoting peaceful co-
existence among individuals
It is a standard setting and control mechanism. Law sets standards of behavior and
conduct in various areas such as manufacturing, construction and trade.
It protects rights and enforces duties by providing remedies whenever these rights or
duties are not honored.
It resolves social conflicts. Since conflicts are inevitable, the rule of law facilitates their
resolution by recognizing the conflicts and providing the necessary resolution
mechanism.
It controls and structures public power. Rules of law govern various organs of
Government and confer upon them the powers exercisable by them.
CLASSIFICATION OF LAW
Law may be classified as:
1. Written and Unwritten.
2. Municipal (National) and International.
3. Public and Private.
4. Substantive and Procedural.
5. Criminal and Civil
Private law
It consists of those fields or branches of law in which the state has no direct interest as the
sovereign eg law of contracts, law of tout, law of property, law of succession.
Private law is concerned with day to day transactions of legal relationships between
persons. It defines the rights and duties of parties.
Substantive and Procedural.
Substantive Law
It is concerned with the rules themselves as opposed to the procedure on how to apply
them. It defines the rights and duties of parties and provides remedies when those rights
are violated e.g. law of contract, negligence, defamation. It defines offences and
prescribes punishment e.g. Penal Code Cap 63.
Procedural Law
A source of law is the origin of the rule, which constitutes a law, or legal principle. The
phrase `sources of Kenya law' therefore means the origin of the legal rules which constitute the
law of Kenya.
1. THE CONSTITUTION
A Constitution is a public document, which regulates the relations between the state and its
citizens as well as the relations between the organs of the state. This is a body of the basic rules
and principles by which a society has resolved to govern itself or regulate its affairs. It contains
the agreed contents at the political system. A Constitution sets out the basic structure of
government. The Constitution of Kenya is a source of law from which all other laws derive their
validity. Any law which conflicts or is inconsistent with the Constitution is void.
• All other sources of law derive their validity from the Constitution and are therefore
• Any source of law if inconsistent with the Constitution is null and void to the extent
of its inconsistency.
• The Constitution is the supreme law of the Republic and binds all persons and all
• No person may claim or exercise State authority except as authorized under the
Constitution.
• It gives the functions of the various arms of the government and clearly indicates the
separation of powers.
• The Constitution establishes highest office in the land i.e. office of the President and
• The Constitution provides the fundamental rules and freedoms of individuals and
Legislation is the process of law making through Parliament or any other body specially
constituted for the purpose. Legislation can be direct or indirect. Direct legislation is the law
Parliament. Indirect legislation is where an individual makes law through powers derived
from the statute or Act, known as an Enabling Act. This Is referred to as delegated
legislation e.g. by-laws made by local authority. In Kenya, Parliament is the supreme law
The law making process begins by Bills being passed by the National Assembly.
BILLS
A Bill is a draft of a proposed Act of Parliament. When a Bill has been passed by the
National Assembly then it is presented to the President for his assent. Once the assent is
Types of Bills
Bills may be classified total
a) Public Bills
b) Private Bills
Public Bills: Public Bills deal with matters of public policy and their provisions affect the
Private Bills: Private Bills are those which are intended to affect or benefit some particular
Parliament. Such a member must move a motion seeking leave of the House to introduce
It is democratic in the sense that it reflects the wishes of Kenyans as to what the law should be.
This is because it is made by a Parliament which consists of representatives of the people who
are elected at intervals of not more than five years.
It enables Parliament to find legal solutions to any problem that the country may face.
(iii) Dynamic
It enables new challenges that emerge in the course of social development to be legally dealt
with by the passing of new Acts of Parliament, or amending some of the existing Acts.
It applies indiscriminately.
(vi) Publicity
Some Acts are imposed on the people and reflect the views of the Executive, in the ruling
political party.
Acts of Parliament do not reflect the wishes of the people (voters) but the wishes of the
individuals who constitute Parliament at any given time.
Some Bills are so bulky and technical that they are passed without sufficient debate because
Parliament lacks the time and knowledge to consider them in detail.
(iv) Formalities
The process of enacting a statute that would substantially conform to the wishes of the people
affected by it would be very slow. This is because very many public meetings must be held
before a consensus on the proposed law can be reached.
3. DELEGATED LEGISLATION
3. Statutory boards
4. Government ministers
These bodies make the laws in exercise of delegated legislative power conferred upon them
1. All delegated legislation is made under the express authority of an Act of Parliament.
3. Unless otherwise provided, delegated legislation must be laid before parliament for
approval and parliament is empowered to declare the delegated legislation null and
6. ISLAMIC LAW
This is the law based on the holy Koran and the teaching of the prophet Mohammed. This
law is applicable in Kenya under article 170, clause 5 of the constitution and then section 5
of the Kadhi’s court act 1967 when it is necessary to determine question of Muslims law
relating to Personal status, Divorce Marriage and Inheritance And the parties in the case
profess the Muslim religion and submit to the jurisdiction of the kadhi’s courts.
Dispute Resolution in Kenya
1. The Courts
The Courts operate two levels: Superior Courts and Subordinate Courts. The important aspects in
the Structure of Courts are:
i. The structure – The hierarchy or levels of Courts.
ii. Establishment – The composition or who presides in that Court.
iii. Jurisdiction – The powers of different Courts to hear and determine disputes.
Jurisdictions are either
Geographical / territorial limits of their powers
Functional powers -to hear Original matter, Appellate matter or both matters
subject matter -whether it is civil or criminal justice
Pecuniary -the range of monetary or financial value of subject
Matter.
ARBITRATION
This is an out of court method of settlement of civil disputes by arbitral tribunals which
make arbitral awards as opposed to judgments.
The law relating to arbitration in Kenya is contained in the Arbitration Act2,. Under the
Act, an arbitration agreement is an agreement between parties to refer to arbitration all or
certain disputes arising between them.
Principles of Natural Justice in Relation to Arbitration proceedings are a fundamental
requirement of justice in deciding a dispute between two or more parties.
An arbitration agreement must be written; it may take the form of a detailed agreement or
a clause in the agreement.
The Arbitration Act governs national and international disputes.
Disadvantages of arbitration
1. Likelihood of miscarriage of justice: Arbitral proceedings may at times not guarantee
justice, particularly if the question is complex and the arbitrator is not well versed in
law.
2. Arbitral awards have no precedential value i.e. cannot be relied upon in other disputes.
3. Arbitral tribunals exercise unregulated discretion.
MEDIATION
Mediation is an informal and confidential way for people to resolve disputes with the
help of a neutral mediator who is trained to help people discuss their differences. The
mediator does not decide who is right or wrong or issue a decision. Instead, the mediator
helps the parties work out their own solutions to problems.
Benefits of mediation
1. Cost
While a mediator may charge a fee comparable to that of an attorney, the mediation
process generally takes much less time than moving a case through standard legal
channels. While a case in the hands of a lawyer or a court may take months or years to
resolve, mediation usually achieves a resolution in a matter of hours. Taking less time
means expending less money on hourly fees and costs.
2. Confidentiality
While court hearings are public, mediation remains strictly confidential. No one but the
parties to the dispute and the mediator or mediators know what happened. Confidentiality
in mediation has such importance that in most cases the legal system cannot force a
mediator to testify in court as to the content or progress of mediation
3. Control
Mediation increases the control the parties have over the resolution. In a court case, the
parties obtain a resolution, but control resides with the judge or jury. Often, a judge or
jury cannot legally provide solutions that emerge in mediation. Thus, mediation is more
likely to produce a result that is mutually agreeable for the parties.
4. Compliance
Because the result is attained by the parties working together and is mutually agreeable,
compliance with the mediated agreement is usually high.
5. Mutuality
Parties to a mediation are typically ready to work mutually toward a resolution. In most
circumstances the mere fact that parties are willing to mediate means that they are ready
to "move" their position. The parties thus are more amenable to understanding the other
party's side and work on underlying issues to the dispute. This has the added benefit of
often preserving the relationship, the parties had before the dispute.
6. Support
Mediators are trained in working with difficult situations. The mediator acts as a neutral
facilitator and guides the parties through the process. The mediator helps the parties think
"outside of the box" for possible solutions to the dispute, broadening the range of
possible solutions
NEGOTIATION
Negotiation is any form of direct or indirect communication whereby parties who have
opposing interests discuss the form of any joint action which they might take to manage
and ultimately resolve the dispute between them. Negotiations may be used to resolve an
already-existing problem or to lay the groundwork for a future relationship
between two or more parties.
Negotiation has also been characterized as the “preeminent mode of dispute resolution”,
which is hardly surprising given its presence in virtually all aspects of everyday life,
whether at the individual, institutional, national or global levels. Each negotiation is
unique, differing from one another in terms of subject matter, the number of participants
and the process used.
Given the presence of negotiation in daily life, it is not surprising to find that negotiation
can also be applied within the context of other dispute resolution processes, such as
mediation and litigation settlement conferences.
Characteristics of a negotiation
Negotiation is:
i. Voluntary: No party is forced to participate in a negotiation. The parties are free to
accept or reject the outcome of negotiations and can withdraw at any point during the
process
ii. Bilateral/Multilateral: Negotiations can involve two, three or dozens of parties.
iii. Non-adjudicative: Negotiation involves only the parties. The outcome of a
negotiation is reached by the parties together without recourse to a third-party
neutral.
iv. Informal: There are no prescribed rules in negotiation. The parties are free to adopt
whatever rules they choose, if any.
v. Confidential: The parties have the option of negotiating publicly or privately.
vi. Flexible: The scope of a negotiation depends on the choice of the parties. The parties
can determine not only the topic or the topics that will be the subject of the
negotiations, but also whether they will adopt a positional-based bargaining approach or
an interest-based approach.
LAW OF CONTRACT
DEFINITION OF CONTARCT
A contract is an agreement of promises which is legally binding or enforceable by law
CLASSIFICATION OF CONTRACTS
Contracts may be of various types. These may be classified as under: -
1. Express and Implied Contract
An express contract is one in which the parties specifically agree about the
nature and terms of their relationship. There is then said to be an express agreement. For
example, if A agrees to sell his goods to B for KSH. 10,000/= and B agrees to buy the
goods at that price, there is said to be an express contract for the sale of goods at an
agreed price.
7. Contracts of Record
A contract of record consists of the judgment of court. Such contracts are formed by an
entry on the court records. The rights and obligations of the parties are put on court
record and the resultant relationships between them are said to constitute a contract of
record.
8. Executed contract
A contract is said to be executed when both the parties to a contract have completely
performed their share of obligation and nothing remains to be done by either the party
under the contract.
For example, when a bookseller sells a book on cash payment it is an executed contract
because both the parties have done what they were to do under the contract.
9. Executory contract
It is one in which both the obligations are understanding, one on either party to the
contract, either wholly or in part, at the time of the formation of the contract. In other
words, a contract is said to be executory when either both the parties to a contract have
still to perform their share of obligation or there remains something to be done under the
contract on both sides.
For example, T agrees to coach R, a C.P.A student, from first day of the next month and
R in consideration promises to pay to T Kshs. 1,000 per month, the contract is executory
because it is yet to be carried out.
FORMATION OF A CONTRACT
A contract is formed by an offer by one person and the acceptance of this offer by
another person. The intention of both parties must be to create a legal relationship and
they must have the legal capacity to make such a contract. There must be also some
consideration against the contract between the two parties. The formation of contract
involves the following factors:-
a) The offer
b) The Acceptance
c) Consideration
d) Contractual capacity
e) Intention To Create A Legal Relationship
The Offer
An offer is defined as an expression of willingness to enter into a contract on definite
terms, as soon as these terms are accepted. It is made by a person known as the offeror
and addressed to the offeree. Thus, if A writes to B stating his desire to sell his property
to B at a specified price,
A is said to have made an offer to B. A is the offeror and B the offeree.
The Acceptance
An acceptance is an assent to the terms of an offer. It must correspond with the terms of
an offer, and it is for this reason that a counter offer, cross-offer or conditional assent is
not an acceptance in the legal sense of the word.
Consideration
The offer and acceptance are not enough to bring about a valid and binding contract. In
the case of simple contracts, these are required to be supported by consideration,
otherwise the contract is void. Specialty contracts are an exception.
The rationale behind this requirement is that the law of contract generally enforces
only bargains and not bare promises for which no value is given. This follows from the
fact that; the law of contract is generally intended to promote commercial relations. These
are relations which necessarily impose an element of bargain, an element without which
there would be no commerce at all.
Contractual Capacity
An essential ingredient of a valid contract is that the contracting parties must be
‘competent to contract’. Every person is competent to contract who is of the age of
majority and who is of sound mind, and is not qualified from contracting by any law.
Only a person who has contractual capacity be a party to a contract. This includes
artificial as well as natural persons.
Mistake
Mistake may be defined as an erroneous belief concerning something. It may be of two
kinds:
(i) Mistake of law
(ii) Mistake of fact
Mistake of law
Mistake of law may be further classified as;
i. Mistake of general law of the country,
ii. Mistake of foreign law
iii. Mistake of private rights of a party relating to property and goods.
A mistake of law can never be pleaded as a defence. But mistake of foreign law and
mistake of private rights may be treated as mistake of fact.
Mistake of fact
A mistake of fact is also known as an operative mistake. Under common law an operative
mistake renders a contract void ab initio, ie. where an operative mistake is proved the
legal position is that the parties are in the same position as if the contract was never
entered into; the contract was void, right from the beginning
Misrepresentation
At representation means a statement of fact made by one party to the other, either before
or at the time of contract, relating to some matter essential to the formation of the
contract, with an intention to induce the other party to enter into contract, with an
intention to induce the other party to enter into the contract. It may be expressed by
spoken or written or implied from the acts or conducts of the parties) e.g. non-disclosure
of a fact).
A representation when wrongly made, either innocently or intentionally, is termed as a
misrepresentation.
Duress
Duress refers to actual violence or threats violence calculated to produce fear in the mind
of the person threatened. The requirement of agreement in the establishment of a
contractual relationship presupposes that each of the parties is free contracting agent. But
the freedom of the party subjected to duress (or coercion) is obviously restricted. Duress
as such, is a vitiating factor which is actionable at common law (and is sometimes
referred to as legal duress).
For a threat to amount to duress, it must be a threat to the person, not to goods. It must
also relate to an unlawful thing; a threat to do a lawful thing is immaterial, subject only to
the requirements of public policy. Also, the threat must have induced the threatened party
to enter into the contract.
The dominant view is that contract entered into under duress (or coercion) is voidable at
the instance of the party coerced.
Undue Influence
“A contract is said to be induced be undue influence where,
(i) the relations subsisting between the parties are such that one of the parties is in a
position dominate the will of the
other, and
ii) he uses the position to obtain an unfair advantage over the other”.
Undue influence is another factor which tends to restrict the freedom of a party in
entering into a particular contract. It is based on the equitable principle that no person
may take an unfair advantage of the inequalities between him and another party so as to
force an agreement on the other party.
A person who seeks to rely on undue influence as a defence must prove that the other
party has in fact influence over him and that he would not otherwise have entered into the
contract. But where a confidential (or fiduciary) relationship exists between the parties,
undue influence is presumed, and the burden is shifted on to the other party to prove that
there has been no undue influence on his part.
The following are relations in which undue influence is presumed: -
1. Parent and Child
2. Doctor and Patient
3. Trustee and Beneficiary
4. Advocate and Client
5. Guardian and Ward
6. Religious Adviser and Disciple
It should be noted that Husband/Wife relationships do not raise the presumption of undue
influence; undue influence must in this case be specifically proved by the party seeking to
rely on it.
Where undue influence is sufficiently proved to have existed at the time of the contract,
the contract is voidable at the instance of the party unduly influenced and may on this
ground be set aside.
Illegality
An illegality contract is one which is prohibited by law e.g. making a contract to break
into a house to steel goods is an illegal contract.
DISCHARGE OF CONTRACT
A contract is said to be discharged (or terminated) when the parties to it are freed from
their mutual obligations. A contract may discharge in any of the following ways: -
1. Discharge by performance
2. Discharge by Agreement
3. Discharge by Frustration
4. Discharge by Breach
5. Discharge by Operation of Law
Discharge by Performance
When a contract is duly performed by both the parties, the contract comes to happy
ending and nothing more remains. The contract, such a case, is discharged or terminated
by due performance.
Discharge by Agreement
Where a contract is still executory, i.e. where each of the parties is yet to perform his
contractual obligation, the parties may mutually agree to release each other from their
contractual obligation: each party’s promise to release the other is consideration for the
other party’s promise to release him.
Discharge by Frustration
A contract is said to be frustrated if an event occurs which brings its further fulfillment to
an abrupt end; and upon the occurrence of the frustrating event the contract is
immediately terminated and the parties discharged. But the doctrine of frustration only
relates to the future.
This means that the parties are discharged from their future obligation under the contract
but remain liable for whatever rights that may have accrued before the frustration. Thus,
goods supplied or services rendered before the frustration must be paid for, although the
parties are both excused from further performance of the contract.
Parties to a contract are under a duty to fulfill their respective obligations created by the
contract.
The fact that an event or events may subsequently occur, introducing hardships or
difficulties in the performance of the contract is not in itself sufficient to discharge the
contract:
It is difficult to determine the frustrating events. Some examples of frustrating events are
given below: -
i) Destruction of subject Matter
ii) Death or Incapacity
Just as the destruction of the subject-matter of the contract terminates it, the death or
serious indisposition of a party whose personal services were contemplated by the
contract will similarly terminate it
Discharge by Breach
“Breach” brings to an end the obligations created by a contract on the part of each of
the parties. Of course the aggrieved party i.e. the party not at fault can sue for damages
for breach of contract as per law; but the contract as such stands terminated.
A breach of contract may take place when a party:
(i) Repudiates his liability before performance is due.
(ii) Disables himself from performing his promise.
(iii) Fails to perform his obligations.
Specific Performance
This is an equitable remedy. Specific performance means the actual carrying out of the
contract as agreed. Under certain circumstances an aggrieved party may file a suit for
specific performance, i.e. for a decree by the court directing the defendant to actually
perform the promise that he has made.
Injunction
“Injunction” is an order of a court restraining a person from doing a particular act. It is a
mode of securing the specific performance of the negative terms of the contract. To put it
differently, where a party is in breach of negative term of the contract (i.e. where he is
doing something which he promised not to do), the court may, by issuing an injunction,
restrains him from doing, what he promised not to do. Thus “injunction” is a preventive
relief. It is particularly appropriate in cases of “anticipatory breach of contract” where
damages would not be an adequate relief. Illustration: A agreed to sing at B’s theatre for
three months from 1 st April and to sing for no one else during that period. Subsequently,
she contracted to sing at C’s theatre and refused to sing at B’s theatre. On a suit by B, the
court refused to order specific performance of her positive engagement to sing at the
plaintiff’s theatre, but granted an injunction restraining A from singing elsewhere and
awarded damages to B to compensate him for the loss caused by A’s refusal (Lumley vs.
Wagner).
Rescission
When there is a breach of contract by one party, the other party may rescind the contract
and need not perform his part of obligations under the contract and may sit quietly at
home if he decides not to take any legal action against the guilty party. But in case the
aggrieved party intends to sue the guilty party for damages for breach of contract, he has
to file a suit for decision of the contract.
LAW OF AGENCY
An agent is a person employed to do any act for another or to represent another in dealings
with third persons. The person for whom such is done, or who is represented, is called the
principal”. The contract which creates the relationship of ‘principal’ and ‘agency’ is called an
‘agency’
Characteristics of agency
1. The agent performs a service for the principal
2. The agent represents the principal
3. Acts of the agent affects the legal position of the principal.
TYPES OF AGENTS
1. General Agent: He is an agent engaged to perform a particular task or transaction on behalf
of the principal in the ordinary course of his business, trade or profession as an agent.
2. Special Agent: This is an agent whose authority is restricted to the performance of a
particular act not being in the ordinary course of his business, trade or profession.
Both types derive their authority from the terms of appointment
TRUST This is an equitable relationship whereby a party known as trustee expressly, impliedly
or constructively holds property on behalf of another as beneficiary.
BAILMENT
This is a contract whereby a party known as bailor delivers goods to another known as bailee
with specific instructions that the goods be dealt with in a particular manner or be returned as
soon as the purpose for which they were bailed is accomplished. Bailment includes:
1. Deposit or storage for safe storage
2. Contract of hiring
3. Pledge
4. Contract for work or repair
5. Carriage of goods
It differs from agency in that:
1. The bailee does not represent the bailor
2. Acts of the bailee do not affect the legal position of the bailor
CREATION OF AGENCY
Once an agency relationship is created, an agent comes into existence. An agency relationship may
come into existence in the following ways;
2. By ratification
3. By estoppel
4. By necessity
1. AGENCY BY AGREEMENT
2. AGENCY BY RATIFICATION
Agency by ratification arises after the “agent” has acted. It comes into existence when the
person on whose behalf the agent purported to act and without whose authority he acted
adopts the transaction as if there had been prior authorization. By ratifying the transaction
3. AGENCY BY ESTOPPEL
It arises where a party by word or conduct represents other 3rd parties as his agent and the 3rd parties
deal with the agent. The other party is estoppel from denying the apparent agency
4. AGENCY OF NECESSITY
This is a category of agency created by law in circumstances of necessity where one party is
a) Commercial.
b) Domestic.
commercial agency arises where a party is in possession of another’s goods whether perishable or not
and an emergency arises requiring immediate action in relation to the goods and it is impossible for the
party in possession to seek instruction from the other
It is presumed where a man and woman are living together in circumstances which portray them as
husband and wife, the woman is presumed to be an agent and can pledge the man’s credit for
necessaries.
i. Cohabitation: The two persons must be living together as husband and wife.
ii. Domestic establishment: The persons living together in a domestic establishment in
the presumption of agency to arise. In Debenham v. Mennon where the parties were
cohabiting in a hotel, it was held that the presumption of agency could not arise and
the woman was liable.
iii. Necessaries: The woman’s authority is restricted to pledging a man’s credit for
Necessaries
RIGHTS AND DUTIES OF THE PARTIES
TERMINATION OF AGENCY
An agency relationship may terminate in any of the following ways: -
1. Agreement
Where the relationship is consensual, the parties therefore may enter into a new
agreement to discharge the agency.
Businesses and consumers are usually free to contract on whatever terms they see fit.
However, contracts involving sales of goods can be subject to a range of statutory
provisions.
Types of Goods
a. Ascertained/Specific goods and Unascertained
b. Existing and Future Goods
Specific or Ascertained Goods
These are goods that have specifically been identified and agreed upon by the
parties at the time when the contract of sale is made. Other goods which haven’t
been identified are unascertained goods
Existing Goods
These are goods owned or possessed by the seller at the time when the contract of
sale is made.
Future Goods
These are goods to be manufactured or acquired by the seller after the contract of
sale is made
The terms in these contracts can be classified as conditions and warranties. Since
express terms are dependent upon the contracting parties we shall look at implied
terms.
Implied terms are terms which though not expressly agreed to by the parties, are an
integral part of the contract.
WARRANTIES
1. The goods are free from any undisclosed charge or encumbrance.
2. The purchaser will enjoy quiet possession of the goods. This acts as an ongoing
assurance that no one will interfere with the buyer’s right to possess or use the
goods.
ACCEPTANCE
The term acceptance can be used in two senses
1. The buyer’s acceptance of the goods which will deprive him the right to reject
them for breach of condition
2. The buyer has contractual duty to accept delivery of goods in accordance to the
contract.
The buyer will be considered to have accepted the goods if;
i. He intimates to the seller his acceptance
ii. He does any act in relation other goods which is inconsistent with the seller’s
ownership
iii. He retains the goods after the expiration of the stipulated or reasonable time without
intimating his rejection
The nemo dat rule is that the transferor of goods cannot pass a better title than he
himself possesses. In simpler terms one cannot give what he/she does not have.
where goods are sold by a person who is not their owner, and who does
not sell them under the authority or with the consent of the owner, the buyer acquires
no better title to the goods than the seller had, unless the owner of the goods is by his
conduct precluded from denying the seller’s authority to sell
The contract of Sale of goods imposes upon the parties certain obligations:
i. Put the goods into a deliverable state-The seller is bound to ensure that the goods
are in a condition in which the buyer is bound to take delivery when the contract is
made and unless otherwise agreed, the cost of doing so is borne by the seller.
ii. Pass a good title- It is the duty of the seller to pass a clean title to the buyer failing
iv. Supply goods of the right quality- The seller is bound to ensure that the quality of
v. Supply goods of the right quantity –The seller must deliver goods of the quantity
1) Take delivery- it is the duty of the buyer to take delivery of goods, the subject matter
2) Pay the price-it is the duty of the buyer to pay the price of the goods failure to which
the seller may maintain an action against him for the price
In this type of contracts, the remedies available to the injured party can be classified into
two, i.e.
1) Real remedies
2) Personal remedies
REAL REMEDIES
These are remedies against the goods and are enforceable without any court action.
1. Lien
This is the right of unpaid seller in possession of the buyer’s goods to retain them as a
b. Where goods have been sold on credit but the term of credit has expired.
Loss of Lien
The unpaid seller losses the right to retain the buyer’s goods in the following ways: -
i. by waiver thereof
ii. If the buyer or his agents obtain lawful possession of the goods.
iii. If the seller delivers the goods to a common carrier for transmission to the buyer
2. Stoppage in transit
This is the right of unpaid seller who has already parted with possession of the goods to
resume the same as long as the goods are still in the course of transit to the buyer. The
exercise of this right enables the seller to resume possession of the goods. The rights are
3. Rights of Resale
Unpaid seller in possession of the buyer’s goods is entitled to re-sell them to recover the
price. A re-sale of the goods by the seller passes a good title to the buyer in the following
circumstances
c. When the seller notifies the buyer his intention to resale the goods but the buyer
These are remedies against the buyer and are enforceable by court action namely: -
2. Specific Performance- if the seller refuses to deliver specific goods, the buyer may
maintain an action for the decree of specific performance which the court may grant
if circumstances justify.
5. Rejection of Goods
The buyer is entitled to reject the goods delivered by the seller in certain circumstances
c. Where the goods delivered are mixed with goods of another description.
NEGOTIABLE INSTRUMENTS
Negotiable instrument is a document which represents money and the title in it passes to a bona fide
transferee free from any defect.
consideration.
negotiated.
1. CHEQUES
2. It is payable on demand
5. It is less negotiable
1. Bearer cheque: This is a cheque whose proceeds are payable to the holder.
2. Order Cheque: This is a cheque whose proceeds are payable to specified person or
his order.
3. Open Cheque: This is a cheque whose proceeds are payable across the counter.
4. Crossed Cheque: Is a cheque that contains two parallel lines on its face. A crossing is an instruction to
the banker not to pay the proceeds across the counter
2. PROMISSORY NOTES
A promissory note is an unconditional promise in writing made by one person to another and signed to
pay on demand or at a fixed future time, a certain sum of money to a specified person.
Characteristic/Elements
It is a promise to pay made by the debtor It does not require presentation for
3. BILL OF EXCHANGE
A bill of exchange is an unconditional order in writing addressed by one person to another and
signed by the person giving it requiring the person to whom it is addressed to pay on demand or
at a fixed or determinable future time a certain amount of money to or to the order of a
specified person or to the bearer.
Discounting a bill:
it is the receipt by the payee of the amount of the bill from a bank or
financial institution less the discount for the unexpired duration. The bank becomes the
payee.
Negotiation of bills:
A bill is negotiated when it is transferred from one person to another in such a manner as to
constitute the transferee as the holder of the bill.
A bill may be negotiable in 2 ways namely:
Delivery
Endorsement and Delivery
Bearer Bills are negotiable by delivery. Order bills are negotiable by endorsement and
delivery.
Endorsement of bills is the signing or executing a bill by a party for purpose of negotiating it to
another. The party so doing is the endorser while the party to whom it’s endorsed is the
endorsee.
Discharge of a bill
A bill of exchange is said to be discharged when all rights on it are extinguished.
However, a party may still be held liable on it depending on the method of discharge.
A bill may be discharged in any of the following ways: -