LAW OF CONTRACT

Contracts are important in our daily lives, not just in business. They are like promises that
the law can make people keep. To have a contract, there are two things needed: an
agreement (which is like a promise) and the law's ability to make sure people stick to
their promises.
Some promises are not meant to be legally enforced. For example, when a husband
promises to give his wife a gift on her birthday, it's not a contract because it's a personal
promise.
There are different types of contracts:
Express and Implied Contracts: EXPRESS contracts are clearly written or spoken, while
IMPLIED contracts are understood from how people act.For example if you enter a
matatu ,you are expected to pay fare.
Valid, Void, and Voidable Contracts: Valid contracts follow all the rules and are legally
enforceable. Void contracts are not valid because they break the rules, and voidable
contracts can be canceled by one party if something unfair happens.
Illegal and Unenforceable Contracts: Contracts that break the law can't be enforced.
Unenforceable contracts are valid but have problems, like missing paperwork.
Unilateral and Bilateral Contracts: In some contracts, only one person has to do
something, like offering a reward for lost property. In bilateral , both people have
promises to keep.
Executed and Executory Contracts: An executed contract means both people did what
they promised. An executory contract means they still need to do what they promised.
Specialty and Simple Contracts: Speciality contracts are fancy with seals and signatures,
while others are simple and can be spoken or implied.
Contracts of Utmost Good Faith: Some contracts, like insurance, need both parties to
share all important information honestly. If they don't, the contract can be canceled.
Quasi Contracts: These are like unofficial contracts the law makes when it's fair to do so.
For example, if you find someone's lost stuff, the law says you should try to return it, even
if you didn't agree to do so.
Contracts of Record: These are contracts made by a court, like judgments or promises to
behave well when someone gets in trouble.
In simple terms, contracts are like promises that the law can make people keep. There are
many types of contracts, and some are more serious and enforceable than others.

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 ESSENTIAL ELEMENTS OF A VALID CONTRACT

In simple terms, a contract is like a promise that two or more people make to each other,
and it's only valid if it has certain important elements. One key thing to remember is that
not all promises are contracts. To make a contract, you need an agreement, but just
having an agreement isn't enough. It has to be a promise that the law can enforce. Here
are the essential things for a valid contract:

1. Offer and Acceptance: One person has to make a clear offer, and another person has to
accept it. You can't make an offer to yourself; there have to be at least two people
involved.
2. Capacity to Contract: Both parties have to be old enough, of sound mind, and not
banned from making contracts. For example, minors or someone declared bankrupt can't
enter into valid contracts.
3. Intention to Create Legal Relations: In most cases, the parties must intend for their
agreement to be legally binding. Business agreements are generally considered to have
this intent unless stated otherwise.
4. Lawful Objectives: The purpose of the contract must be legal and not against public
policy. You can't make a contract to do something illegal.
5. Lawful Consideration: Each party must get something in return for their promise. This is
called consideration. Without it, the contract is usually not valid.
6. Free Consent: Both parties must agree to the contract without being forced, tricked, or
influenced unfairly.
7. Possibility of Performance: The contract must be based on something that's possible to
do. If it's impossible, the law can't enforce it.
8. Other Formalities: The contract must follow any legal requirements, like being in writing,
having witnesses, or paying certain taxes if needed.
Types of Offers
1. Specific Offer: This is an offer made to a specific person or group, and only they can
accept it.
2. General Offer: This is an offer made to the public at large, and anyone who meets the
terms can accept it.
3. Cross Offers: When two parties make the same offer to each other without knowing
about each other's offer. These don't create a contract.
4. Counter-offer: If the person receiving an offer changes the terms in their response, it's a
counter-offer, and it cancels the original offer.
5. Conditional Offer: An offer with certain conditions that must be met for it to be
accepted.

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 Differences Between Offer and Invitation to Treat
An offer is a clear promise, while an invitation to treat is an invitation to negotiate or
make an offer. For example, displaying goods with prices is not an offer to sell but an
invitation for customers to make an offer to buy.

Termination of an Offer
An offer can end in several ways:

 By making a counter-offer.
 If one party dies or becomes incapacitated.
 If the offeror revokes the offer before it's accepted.
 If the offeree rejects the offer.
 If the offer has a time limit, and that time passes.
 If the offer is accepted.
Acceptance
Acceptance is when the person receiving the offer agrees to its terms. It must be
communicated to the offeror, be clear and unconditional, follow the mode prescribed,
and be made within a reasonable time.

Intention to Create Legal Relations

For a contract to be valid, the parties must intend for it to be legally binding. In business
agreements, this intent is usually presumed, but in personal or domestic agreements, it's
presumed that there's no legal intent unless stated otherwise.

Remember, these are the basic rules for a valid contract, and each contract can have its
unique details and requirements

Consideration
Consideration is something important in making agreements. It's like a benefit or a loss
that both parties agree to when they promise something to each other. If there's no
consideration in an agreement, it's not a valid agreement, except for some special cases.

There are three types of consideration:

1. Executed Consideration: This is when you give something or do something at the same
time you promise it. For example, if you get paid money to deliver goods, the money you
receive is the executed consideration for your promise to deliver the goods.
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2. Executory Consideration: This is when one party promises to do something in the future,
and the other party promises something in return for that future action. For instance, if
one person promises to deliver goods in the future, and the other promises to pay for
them when they arrive, that's executory consideration.
3. Past Consideration: This is when you do something or give something before making a
promise. If someone helps you, and later you promise to pay them for that help, it's past
consideration.

Usually, for a promise to be valid, it needs to be either executed or executory

consideration. Past consideration doesn't usually count as consideration, but there are
some exceptions:

a. If someone asked you to do something in the past, and you did it, and then they
promise to pay you for it, that's valid past consideration.

b. In some cases, even if someone wasn't legally obligated to do something, their promise
to do it can still be considered valid if it's based on a moral obligation.

c. If someone had a legal duty to do something, and they promise to do it, that promise is
valid because they were already legally obligated to do it.

d. In cases involving bills of exchange (a kind of financial document), a promise to pay an

old debt can still count as valid consideration.

e. When it comes to debts that are past the time limit for legal action (statute-barred
debts), if someone acknowledges in writing that they owe the debt, it becomes valid
consideration, and the debt is treated as if it's not past the time limit.

LEGAL RULES ABOUT CONSIDERATION

1. Real Consideration: The thing given as consideration must be real and not something
made up or imaginary. It doesn't have to be a lot, but it should have some actual value
that can be measured in money. Love and affection by itself doesn't count as
consideration.
2. Not Illegal: Consideration can't be illegal, wrong, or against what's considered good by
society. Promises involving illegal stuff don't count.
3. Not What's Already Required: If someone promises to do something they're already
legally or contractually obligated to do, it's not good consideration because it doesn't add
anything new. Like if you promise to do your homework, that's not a valid promise
because you're already supposed to do it.

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4. Doesn't Have to Be Equal: Consideration doesn't have to be the same value as what
you're getting in return. It's up to the people making the agreement to decide if it's fair.
But it should be something valuable under the law.
5. Not in the Past: Consideration should be something that happens either now or in the
future. Things that already happened in the past usually don't count, except for some
special cases.
6. Promisor's Desire: The action that's the consideration should be done because the person
who made the promise wanted it to be done. If someone else did it without being asked
by the person who made the promise, it might not count.
7. Comes from the Promisee: The consideration should come from the person who the
promise is made to, or it can come from a third person, but that person has to be part of
the contract too.
8. Different Forms: Consideration can be an action, like doing something, or it can be not
doing something you have the right to do (abstinence or forbearance), or it can be a
promise to do something in the future.

THE DOCTRINE OF PRIVITY (STRANGER) TO CONTRACT

In simple terms, the rule of privity in contracts means that only the people who make a
contract can sue or be sued based on that contract. It's like a special legal connection
between them.

There are two important things about this rule:

1. If you're not part of a contract, you can't take legal action about it, even if the contract
benefits you or you gave something for it.
2. A contract can't make someone else have legal responsibilities or rights if they weren't
part of the contract.

But there are some situations where these rules don't apply:

1. Trusts or Charges: If a contract creates something for someone's benefit, like giving
property to be held for another person, that person can use the contract even if they
weren't part of it.
2. Marriage, Family, or Property Agreements: If an agreement is made in connection with
marriage, dividing property, or arranging family matters, and it benefits someone, they
can use it in court even if they weren't part of the agreement. For example, if two brothers
agree to use some money for their mother's support during a property division, their
mother can enforce this agreement even though she wasn't part of it.

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3. Acknowledgment or Estoppel: If someone's actions or words make it seem like they're
working on behalf of another person, that other person can sue them. For example, if A
takes money from B to give to C and then admits to C that they got the money, C can
take legal action against A as if A was acting on C's behalf.
4. Assignment of Contract: If someone is given the rights and benefits of a contract, and the
contract doesn't require personal skills, they can enforce it even if they weren't part of the
original contract. For example, if someone holds a promissory note, they can demand
payment from the person who owes the money, even if they weren't part of the original
lending agreement.
5. Contracts Through Agents: If an agent makes a contract for someone else and has the
authority to do so, the person they represent can enforce the contract.
6. Covenants Related to Land: If land is sold, and the new owner knows about certain
agreements related to that land, they have to follow those agreements even if they
weren't part of the original contract.

CONTRACT WITHOUT CONSIDERATION IS VOID

In simple terms, most agreements need something valuable (consideration) to be legally

valid. But there are some special cases where an agreement can be valid even without
consideration. Here are those special cases:

1. Love and Affection: If family members agree in writing and register it out of natural love
and affection, the agreement can be legally binding, even if there's no valuable exchange.
For example, a father promises to give his daughter money because he loves her, and
they put it in writing and register it.
2. Compensation for Voluntary Services: If someone promises to pay another person for
something they did voluntarily in the past, it can still be a valid agreement. For instance, if
you find someone's lost wallet and return it, and they promise to pay you afterward, this
promise is enforceable, even though you didn't expect payment when you did the good
deed.
3. Promise to Pay Old Debts: If a debt is considered too old to be legally enforceable, but
the debtor writes and signs a promise to pay it, that promise becomes legally binding,
even without new consideration. For example, if someone owes money for a long time,
and they write a promise to pay it, that promise counts, even if they didn't give anything
new in return.
4. Completed Gifts: When someone gives a gift to another person without expecting
anything in return, it's a completed gift, and no consideration is needed for it to be valid.
5. Agency Contracts: Creating an agency relationship, where one person acts on behalf of
another, doesn't require consideration. It can happen even without a formal agreement
between the parties.

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6. Specialty Contracts: Some contracts are considered special and can be legally binding
even without consideration. These are usually contracts made under seal or deed. When a
contract is "under seal," it means it has an official seal or mark, and it's legally valid
without needing consideration.
THE DOCTRINE OF PROMISSORY OR EQUITABLE ESTOPPEL

In simple terms, most contracts need something valuable (consideration) to be valid.

However, there's a rule called "estoppel" that helps in situations where common contract
rules might be too strict.

Estoppel means that if someone makes a clear and honest statement to another person,
and the second person relies on that statement to their detriment, the person who made
the statement can't later deny it. This statement is legally binding, even without
consideration.

Imagine you promise your friend that you won't charge them rent for a year. Your friend
relies on this promise and doesn't look for another place to live. Later, you can't change
your mind and demand rent for that year because it would be unfair.

There are two famous cases that show how estoppel works:

1. Central London Property Trust Ltd vs. High Trees House Ltd (1947): The landlord
agreed to accept lower rent during World War II when the flats were hard to rent out.
Later, they demanded full rent. The court said the promise to accept less rent was binding
because it would be unfair to go back on it.
2. Century Automobile Ltd vs. Hutchings Bremer Ltd: The landlord promised the tenant
they wouldn't terminate the lease for several years. Based on this promise, the tenant
spent money on renovations. When the landlord tried to terminate the lease, the court
said they couldn't because of the promise.

For estoppel to apply, a few conditions must be met:

a) There must be an existing contract between the parties.

b) The promise made should be clear and unambiguous.

c) The person making the promise must have intended for the other party to rely on it. d)
The other party must have actually relied on the promise.

e) The other party's reliance on the promise must have caused them some harm or loss.

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 f) It must be unfair for the person making the promise to go back on it.

Estoppel has two limits:

i. It can only be used to defend yourself (like a shield) and not to start a
legal action against someone else (like a sword).
ii. ii. It's only available if the person using estoppel has acted fairly in the
situation. For example, in the first case mentioned, the tenant acted fairly
by reducing rent for their sub-tenants.

E).CAPACITY TO CONTRACT.
Capacity to contract means the ability of people making a contract to do so legally. For a
contract to be valid, the people involved must have the capacity to make it. They must be
old enough, mentally sound, and not prohibited by law from making contracts.

If someone lacks the capacity to contract, it can make the contract either void (completely
invalid), voidable (can be canceled), or unenforceable (hard to make it stick) depending on
the situation. But usually, the law assumes that everyone can make contracts unless
proven otherwise.

Here's how capacity to contract is looked at:

1. Minors or Infants: Minors are people under 18 years old. They are protected by the law
because they might not fully understand contracts. In most cases, contracts with minors
are void, which means they are not valid from the beginning. Even if a minor lies about
their age, the contract is still void. However, a minor can benefit from a contract, and the
other party can enforce it if it benefits the minor.
2. No Ratification: When a minor becomes an adult, they can't just agree to a contract they
made as a minor. They need to create a new contract with fresh consideration (something
valuable given in return).
3. Specific Performance: You can't force a minor to carry out a contract. But if a parent or
guardian makes a contract on behalf of a minor, and it's for the minor's benefit, it can be
enforced.
4. Partnerships: Minors can't enter into partnerships, but they can be admitted to existing
ones with everyone's consent.
5. Bankruptcy: Minors can't be declared bankrupt because they can't incur significant debts.
6. Agency: Minors can act as agents, but their parents or guardians aren't liable for their
contracts unless they specifically authorized them.
7. Liability for Necessaries: Minors are responsible for paying for things that are necessary
for them. It's their property, not them personally, that is liable for payment.
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8. Liability in Tort: Minors can be held responsible for their actions causing harm, but not if
the harm arises directly from a contract.

Liability for Necessaries: If a minor receives goods or services that are essential for their
well-being, they have to pay for those, but it's their property that is responsible for
payment, not the minor personally.

Types of Necessaries:

 Necessary Goods: These are items a minor needs for their condition in life, not just to
survive. For instance, a suit might be necessary for a wealthy minor, while it's a luxury for a
poor one.
 Necessary Services: Services like education, training, medical care, and legal services are
considered necessaries for a minor. If a minor contracts for these services, they are
responsible for payment, but again, it's their property, not them personally, that is liable.

In essence, minors are protected by the law when it comes to contracts because they may
not fully understand the consequences, but they are still responsible for essential goods
and services they receive.
2. PERSONS OF UNSOUND MIND
To put it simply, for someone to be considered mentally capable of making a contract,
they must understand the contract and make a rational judgment about how it affects
their interests.

The law generally assumes that everyone is mentally capable unless proven otherwise. To
determine if someone is mentally sound, the courts look at two things:

1. Understanding the Contract: Can the person understand what the contract is about and
what it says?
2. Rational Judgment: Can the person make a reasonable decision about whether to enter
into the contract based on their own interests?

Now, let's look at different cases involving people who might not be mentally sound:

1. Lunatics: These are people who have periods of sanity and insanity due to mental issues.
They can make valid contracts during their sane periods but not when they're not in their
right mind.
2. Idiots: These individuals have completely lost their mental abilities and can't even
understand basic things. Idiots are permanently unable to make contracts, and any
contract they try to make is void from the beginning.
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3. Drunken or Intoxicated Persons: People who are so drunk or under the influence of
substances that they can't think clearly also can't make valid contracts at that time. Their
legal status is similar to lunatics; they can't enter into a contract when they are not in
control of their faculties.
3. CORPORATIONS
A corporation is like a make-believe person created by the law. It's completely separate
from the real people who make it up. There are two main ways a corporation can come
into existence:

1. By an Act of Parliament: These are called Statutory Corporations or state corporations.

These corporations have rules about what contracts they can make in their Memorandum
of Association. If they make a contract that goes against the law or their Memorandum of
Association, it's not valid.
2. By Registering Under the Companies Act (cap 486): These are Registered Corporations.
They also have rules they need to follow when making contracts.

In simple terms, a corporation is a legal entity created by the law, and it must follow
specific rules when making contracts. If it breaks these rules, the contract is not valid.
4. MARRIED WOMEN
Under the Common law of England, a married woman could not enter into a contract on
her own without involving the husband. However, through the application of the English
Law Reform Act of 1935, a married woman now can sue and be sued on all contracts
entered into by her without making the husband liable.
A husband is not liable for his wife’s contracts unless the contracts were entered into on
his behalf or at his request. Where a husband and wife are living together, the wife is
entitled by law to pledge his credit for necessary goods and services. A deserted wife can
also secure necessary goods and services on behalf of the husband and make her
husband liable to pay for them.
5. ALIEN ENEMIES
An alien means a person who is not the subject of the Republic of Kenya. He may be an
alien friend or an alien enemy. An alien friend means an alien whose country is at peace
with Kenya. Such a person can enter into a valid contract.
An alien enemy means an alien whose country is at war with Kenya. Such a person cannot
enter into a valid contract during the period of the war. Any contract entered into before
the outbreak of war are either suspended or dissolved.
6. TRADE UNIONS
Trade unions are incorporated associations established under the provisions of the
Labour Relations Act, 2007 as bodies corporate with capacity to sue and be sued, enter
into contracts and own property, both movable and immovable. Every trade union is
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 liable on any contracts entered into by it or by an agent acting on its behalf. However,
there are certain actions which cannot be entertained in the courts e.g. a trade union has
immunity from prosecution for any act done by it or its officials while pursuing trade
union objectives.
7. INSOLVENTS
When a debtor is declared insolvent or bankrupt, his property is vested in the Official
Receiver. Therefore, such an insolvent/bankrupt is deprived of his powers to deal with his
property.
In this case, it is the Official Receiver who can enter into the contracts relating to this
property and sue and be sued on it. Unless the court passes an order of discharge, the
insolvent suffers from certain disqualifications.
8. CONVICTS
These are persons who have been tried by competent courts for criminal acts and
sentenced accordingly. Such a convict is incapable of entering into a contract when he is
undergoing imprisonment. This incapacity comes to an end when the sentence expires or
when the convict is pardoned. However, the law of limitation does not apply and is held
in abeyance against the convict during the period of his sentence.

F).FREE CONSENT.
Consent means acceptance of an offer. It is essential that parties engage in agreements
freely. They must be ad idem i.e. they must agree upon the same thing in the same
manner at the same time and in the same sense. The consent must be free and genuine.
VITIATING FACTORS (Elements in a contract that may make it to be Void).
1. COERCION OR DURESS
Coercion takes place when a person is compelled to enter into a contract by the use of
force or under a threat. e.g. HUSBAND threatens to shoot WIFE if WIFE does not lend him
Kshs.10, 000. HUSBAND lends the amount to WIFE. This is coercion.
When consent to an agreement is obtained by coercion, the contract is voidable at the
option of the party whose consent was obtained by coercion.
2. UNDUE INFLUENCE
Undue influence happens when one person has a lot of power or control over another
person and uses that power to make the other person agree to something against their
will. This can happen in a few different ways:

1. Authority: The influencing person has real authority or seems to have authority over the
other person.
2. Trust Relationship: They are in a relationship of trust and confidence, like a trustee and
beneficiary.
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3. Exploiting Vulnerability: They take advantage of someone who is not in their right mind
because of age, illness, or stress.

The law assumes that undue influence exists in certain relationships, like between a parent
and a child or a doctor and a patient. But there's no assumption of undue influence in
relationships like between a husband and wife or a landlord and tenant.

Here are the key differences between coercion and undue influence:

1. Nature of Influence: Coercion involves threats or force, while undue influence is more
about using moral persuasion.
2. Physical vs. Moral: Coercion is physical, like someone physically forcing you to do
something. Undue influence is more about manipulating someone's feelings or thoughts.
3. Intention: Coercion aims to make someone do something against their will, while undue
influence is about getting an unfair advantage through a position of power.
4. Legal Consequences: Coercion is a criminal act, but undue influence is not a crime, just a
moral wrong.

When someone agrees to something because of undue influence, they have the option to
cancel the agreement. So, if someone uses undue influence to get you to agree to
something, you can choose to void the agreement.
3. MISREPRESENTATION
A "representation" is when someone says something during negotiations to persuade the
other person to make a contract. This can be a direct statement or something implied.
When a representation is made with good intentions but turns out to be false, it's called
"misrepresentation."

Misrepresentation is when someone says something they genuinely believe is true, or

they don't know it's false, and they say it to make the other person agree to a contract.
Here are the important things to know about misrepresentation:

1. Must Be About Important Facts: It's not just sharing an opinion; it's about saying
something important and factual.
2. Before the Contract: The statement must be made before the contract is finalized, with
the aim of getting the other person to agree.
3. Intention to Influence: The person making the statement must want the other person to
act based on what they said.
4. Actually Influences: The statement should genuinely affect the decision of the other
person and lead them to make the contract.

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5. No Deception Intention: Misrepresentation happens when there was no intention to
deceive or trick the other person.

When someone agrees to a contract because of misrepresentation, the injured party has
two options. They can cancel the contract or choose to keep it but ask for compensation
for any losses caused by the misrepresentation.
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4. FRAUD
Fraud is when someone knowingly tells a lie, doesn't believe what they're saying is true, or
is reckless about the truth, all with the aim of tricking someone into making a contract.

Here are the key things to understand about fraud:

1. Intentional Deception: It's all about intentionally trying to deceive or cheat the other
person.
2. False Statements: Fraud involves making false statements, not just opinions or rumors.
3. Material Facts: The false statements must be about important facts, things that matter,
not just personal opinions.
4. Before the Contract: These false statements must be made before the contract is
finalized.
5. Intent to Deceive: The person making these false statements must want to fool the other
party into agreeing to the contract.
6. Knowledge of Falsehood: They must either know what they're saying is false, not believe
it's true, or be careless about whether it's true or not.
7. Reliance and Loss: The other person has to believe these false statements, act on them,
and suffer some kind of loss as a result.

When a contract is based on fraud, the person who was deceived has some choices. They
can cancel the contract as long as no third party has gotten involved, demand the
contract be fulfilled while asking for compensation for their losses, or sue for damages.

Differences Between Fraud and Misrepresentation

Misrepresentation and fraud both involve providing false information, but they have
some important differences:

1. Intent to Deceive: In fraud, there's a clear intention to deceive the other party into
making a contract. In misrepresentation, there's no such intention; the person providing
the false information believes it to be true.

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2. Belief in Falsehood: In misrepresentation, the person making the false statement
genuinely believes it's true, while in fraud, they know it's false or don't believe it's true.
3. Remedies: When misrepresentation happens, the deceived party can usually cancel the
contract or ask for compensation but can't sue for damages. In the case of fraud, the
deceived party can cancel the contract, seek damages, or both.
4. Knowledge of Truth: If the deceived party could have easily found out the truth with
some basic research, they can't cancel the contract due to misrepresentation. But in fraud,
even if they could have found out the truth with some effort, they can still cancel the
contract.

So, the big difference is that fraud involves an intentional effort to deceive, while
misrepresentation doesn't have that intent but still involves false information given in
good faith.

5. MISTAKE
Mistake is when someone believes something that isn't true. There are two types:
mistake of law and mistake of fact.

 Mistake of law means not knowing or misunderstanding the rules of the law. Ignorance
of the law is not an excuse, which means not knowing the law doesn't get you off the
hook.
 Mistake of fact is when you're wrong about some important fact in a contract. There are
two kinds of mistake of fact:
1. Bilateral Mistake: This happens when both people in a contract are wrong about
something important. For example, if someone agrees to buy a car, but they don't
know the car was destroyed in a fire, that's a mutual mistake, and the contract is
canceled.
2. Unilateral Mistake: This is when only one person is wrong about the facts. In most
cases, a contract won't be canceled just because one person made a mistake. But
there are exceptions: if the mistake is about who they're making the contract with
or if they didn't understand what they were doing, then the contract can be
canceled.

So, basically, if you make a mistake because you didn't know the law, tough luck. But if
you and the other person both make a big mistake about the facts, the contract can be
canceled. And if you're the only one who messes up, it's usually not enough to cancel the
contract unless it's a really important mistake.

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 G). LEGALITY OF OBJECT

In any agreement, the purpose of the deal has to be legal, not immoral, and not
against what's good for society. If anY agreement breaks these rules, it can't be
enforced. The law doesn't support illegal deals.

There are different situations where the purpose of an agreement can be illegal or against
the law:

1. Forbidden by Law: If it's against the law, like a crime, the agreement is not valid. For
example, if someone promises to get another person a government job in exchange for
money, that's illegal.
2. Defeats Other Laws: If the agreement goes against other laws, even if it's not directly
illegal, it's still not okay. For instance, if someone agrees not to use the defense of time
running out in a lawsuit (which is allowed by law), it's not valid because it goes against the
law.
3. Fraudulent: If the agreement is meant to cheat or harm someone, it's illegal. For example,
if a person makes an agreement with creditors to avoid paying their debts, that's not
allowed.
4. Harmful to Others: If the deal hurts someone or their property, it's not valid. "Harm" here
means causing wrong or damage. For example, if a newspaper owner agrees with printers
to print false and damaging stories, that's illegal.
5. Immoral: If the agreement is related to immoral acts, it's illegal. Immoral acts include
sexual wrongdoing and other things society finds unacceptable. For instance, if someone
agrees to let their daughter be in an immoral relationship in exchange for something, it's
not valid.
6. Against Public Policy: If the agreement goes against what's good for society, it's not
allowed. In these cases, the agreement can't be enforced by law.

So, agreements must follow these rules to be valid and enforceable. If they break any of
these rules, they're not legal agreements.

Unlawful Agreements

Unlawful and illegal agreements are both not allowed by the law, but they have
some differences.

Illegal Agreements are against the law, like planning to commit a crime or agreeing to
do something harmful. These agreements are always unlawful. For example, agreeing to
steal is illegal.
15
 Unlawful Agreements break some law, but not necessarily criminal law. They might not
be fair or might harm someone's rights, but they don't involve direct criminal actions.

Here are some key points:

 Illegal agreements are always unlawful.

 Unlawful agreements may not always be illegal; they might just break other laws or be
unfair.

Now, what happens when an agreement is illegal or unlawful:

1. Taints Collateral Transactions: If an agreement is illegal, it makes other related

transactions illegal too, even if they would have been legal on their own.
2. No Legal Actions: You can't sue to get back money or property involved in an illegal
agreement, or for breaking such an agreement.
3. Equal Guilt: If both parties are equally guilty in an illegal agreement, the person who
breaks the agreement might have a better legal position than the one trying to enforce it.
Agreements opposed to Public Policy.

Agreements against public policy are those that go against what's considered good
or right for society. These agreements are not allowed by the law.

Here are some types of agreements that are against public policy:

1. Trading with the Enemy: Making agreements with enemies during war is illegal because
it can help the enemy.
2. Agreements to Commit Crimes: If you agree to do something illegal, the law won't
enforce that agreement.
3. Interfering with Justice: Agreements that try to interfere with the normal process of the
legal system are not allowed. This includes trying to bribe judges.
4. Maintenance and Champerty: These are agreements to help someone with a legal case
when you don't have a real interest in it. These are also not allowed.
5. Restraint of Legal Proceedings: If an agreement stops someone from using their legal
rights, it's not valid.
6. Trafficking in Public Offices and Titles: You can't make agreements about buying or
selling public jobs or titles.
7. Creating Interests Opposed to Duty: Agreements that create conflicts of interest with a
person's responsibilities are not allowed. For example, if a newspaper owner agrees not to
criticize a certain person, it's not allowed.

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8. Restricting Parental Rights: You can't make agreements that give up your rights as a
parent.
9. Restricting Personal Liberty: Agreements that limit a person's freedom are not valid. For
example, an agreement that says you can't change your job without permission.
10. Restraint of Marriage: Agreements that try to stop someone from getting married are
not allowed, except for minors.
11. Interfering with Marital Duties: Agreements that interfere with the responsibilities of
being married are not allowed. For example, an agreement to get a divorce and marry
someone else in exchange for money is not allowed.
12. Marriage Brokerage Agreements: Promising to find someone a spouse for money is not
allowed.
13. Defrauding Creditors or Tax Authorities: Any agreement meant to cheat creditors or
the government out of money is not valid.
14. Restraint of Trade: Agreements that stop people from working in a certain trade,
profession, or business are not allowed unless they're reasonable.

For example, if you sell your business and promise not to compete with the buyer, that
might be allowed if it's reasonable. The court looks at factors like how long the restriction
lasts, how far it goes, and the nature of the business.

In general, agreements against public policy are not enforceable, and they can have
serious legal consequences.

DISCHARGE OR TERMINATION OF CONTRACT

"Discharge of a contract" means ending a contract. It happens when the things both
parties promised to do in the contract are done, and they no longer have to keep
those promises.

This can happen in different ways, such as:

1. Performance: When both parties do what they agreed to do in the contract, the contract
is done.
2. Agreement: Sometimes, both parties agree to end the contract earlier than planned, and
they both say it's okay.
3. Breach: If one party breaks the contract (doesn't do what they promised), the other party
might decide to end the contract.
4. Frustration: If something happens that makes it impossible to carry out the contract (like
a fire destroying a concert venue), the contract can be ended.
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5. Operation of Law: Sometimes, the law itself might end a contract, like if it becomes
illegal to do what the contract says.

So, "discharge of a contract" just means ending a contract because the things in it are
done or because of other specific reasons.
1. DISCHARGE BY AGREEMENT/CONSENT.

"Just as people agree to make a contract, they can also agree to end it. This happens
when both sides decide they don't want to continue with the contract. They can
agree to end it in a few different ways:

1. Novation: This is when a new contract replaces the old one between the same people, or
one person agrees to pay someone else instead of the original person. For example, if A
owes money to B, they might agree that C will pay B instead. The old debt is gone, and a
new one is created with C.
2. Rescission: If both parties agree, or if one person doesn't do what they promised, they
can cancel some or all of the terms of the contract. For instance, if A promised to sell
certain goods to B in six months but those goods are no longer wanted, they can cancel
the contract.
3. Alteration: If both parties agree, they can change some parts of the contract. This change
means the old contract is no longer in effect.
4. Remission (Accord and Satisfaction): If one party accepts less than what was originally
promised as full payment, it can discharge the whole debt. For example, if someone owes
a debt, they might agree to accept a smaller amount as complete payment.
5. Waiver: When both parties decide to give up some rights they had under the contract, it
means they no longer have to follow the contract. They let go of those rights on purpose.
6. Merger: Sometimes, a better right a person has under the same or another contract
makes their previous rights less important. In this case, the old rights "merge" into the
new and better ones."

So, contracts can be ended by the agreement of both parties in these ways.

2. DISCHARGE BY PERFORMANCE.

"When people fulfill what they agreed to do in a contract, it's called 'performance.'
A contract is finished or 'discharged' when both sides do everything they promised.
Usually, this performance has to be exact and perfect. However, there are situations
where doing part of what was promised can still end the contract:

18
1. Divisible Contracts: If the contract can be split into smaller parts, like separate
agreements, each part can be discharged when it's completed. For example, if A orders
goods from B in multiple deliveries, each delivery can end the contract for that portion.
2. Prevented Full Performance: If one person in the contract is ready to do their part, but
the other person stops them from finishing, the contract ends. The person who was
stopped can sue for damages and ask to be paid for the work they did.
3. Accepting Partial Performance: If one party accepts part of what was promised as
enough, it can end the contract. This is like agreeing that the job is done, even if it's not
everything that was initially agreed upon.
4. Substantial Performance: If someone does most of what was agreed upon but not
everything, they can still get paid for the work they did, minus what it would cost to finish
the rest.
5. Tender of Performance: If one side is ready to do what they promised, but the other
side refuses to accept it, the contract ends because of that refusal.
6. Tender of Payment: When someone offers the exact amount of money they owe at the
right time and place, and it's refused, they are no longer responsible for delivering goods.
But if they offer money and it's refused, they still owe the money. To offer money
properly, it has to be in the right currency (notes or coins)."**

So, completing everything in a contract usually ends it, but there are exceptions where
partial or attempted completion can also finish the contract.

3. DISCHARGE BY FRUSTRATION/IMPOSSIBILITY.
In simple terms, if you agree to do something in a contract, but it turns out that it's
impossible to do, then the contract is invalid right from the start. This is because the law
doesn't make you do things that are impossible. There are two kinds of impossibility:

1. If both parties know something is impossible when they make the contract, it's called
"absolute impossibility," and the contract is void from the beginning.
2. If something becomes impossible to do after the contract is made, it's called "supervening
impossibility" or "frustration." In this case, the contract can be canceled if something
unexpected and beyond the control of both parties makes it impossible to carry out the
contract.

There are a few situations where a contract can be canceled due to impossibility:

a) If the thing that the contract is about gets destroyed through no one's fault, the
contract is canceled. For example, if a concert hall burns down before a concert, the
contract to use the hall for concerts is canceled.

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b) If someone's personal ability is crucial for the contract, and they die or become unable
to perform, the contract can be canceled. For instance, if a singer gets seriously ill and
can't perform, the concert contract can be canceled.

c) If a contract depends on a specific event happening or not happening, and that event
occurs or doesn't occur, the contract can be canceled. For example, if someone rents a
place to watch a parade, but the parade gets canceled, they might not have to pay rent.

d) If the law changes or the government does something that makes it impossible to
follow through with the contract, the contract can be canceled. For example, if a contract
relies on building something on land, but the government takes the land for a public
project, the contract might be canceled.

e) If a contract is made with an enemy during a war, it's illegal and can't be carried out.
Contracts made before the war might be put on hold during the war and reactivated
afterward. For instance, if you agree to bring something to a foreign country, but your
country goes to war with that country, the contract is canceled when the war starts.

Effects of Frustration

When something happens that makes it impossible to carry out a contract, the law in the
Contract Act of 1961 says that the contract doesn't continue into the future, but it's not
considered invalid from the very start. Here's what else happens:

a. If you've already paid money for the contract, you can get it back.

b. If you were supposed to pay money as part of the contract, you don't have to pay it
anymore.

c. If you did some of the things you were supposed to do in the contract before it got
messed up, you might be able to get compensated for that part.

4. DISCHARGE BYEXPIRY/LAPSE OF TIME.

Sometimes, people make a contract for a certain amount of time. When that time
is up, the contract ends on its own.

There's a law called the "Limitation of Actions Act," which says that if you have a contract
and it has a time limit for when things should happen, you need to do those things within
that time. If you don't and you don't take legal action within a certain time limit, you lose
your right to use the law to fix the contract. In that case, the contract is over.
20
 5. DISCHARGE BY OPERATION OF LAW.
Sometimes, a contract can end without the people involved wanting it to end. This
happens by the rules of the law. Here's when that can happen:
a)DEATH If someone involved in the contract passes away, and the contract depends on
their personal skills or abilities, the contract ends. In other cases, the rights and
responsibilities of the person who passed away get passed to their legal representatives.
b)INSOLVENCY If someone is declared bankrupt or insolvent, they're no longer
responsible for any contracts they made before that declaration. Those contracts are
canceled.
c)ALTERATION OF CONTRACT TERMS If one party to a contract changes the contract in
an important way without the other party agreeing, the other party can cancel the
contract.
d) BY MERGER OF RIGHTS AND RESPONSIBILITIES If the rights and responsibilities under
a contract end up in the same person's hands, like when a bill is accepted, the other
parties in the contract are let go. This is done to avoid complicated legal actions.

6. DISCHARGE BY BREACH OF CONTRACT.

Breach of contract means someone not doing what they promised to do in a contract. It
happens when one party doesn't fulfill their part of the deal without a good reason. When
this happens, the other party is no longer obligated to do their part and can take certain
actions to fix the situation. There are two main ways this breach can occur:

a) Anticipatory breach of contract:

 This happens when one party in a contract says they won't do their part before it's time to
do it or does something that makes it impossible to do their part. For example, let's say A
agrees to sing at B's restaurant on a specific date. But before that date, A signs a long-
term contract to sing at another restaurant. In this case, the contract with A and B is
canceled.
 But here's the key: the contract isn't automatically canceled when there's an anticipatory
breach. The other party has to decide if they want to cancel it or not. They can choose to:
 Say the contract is canceled, and they don't have to do their part.
 Take legal action, like suing for money or asking a court to stop the breaching
party from breaking the contract.

b) Actual breach of contract:

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 This happens when, during the contract, or when it's time to do what the contract says,
one party doesn't do what they're supposed to. The refusal can be clear, like saying it out
loud or in writing, or it can be implied from their actions or lack of action.
 For example, in a case where Cort agreed to supply a railway company with 3,900 tons of
railway chairs, and the company said they didn't need more after getting only 1,787 tons,
that's an actual breach of the contract by the company.
 When there's an actual breach, the party that's been hurt by it can take various actions,
like canceling the contract, suing for money, asking the court to make the other party do
what they promised, and more.

REMEDIES FOR BREACH OF CONTRACT

"When you have a right, you also have a way to make sure that right is respected. In a
contract, both sides have certain rights and responsibilities. These rights and
responsibilities wouldn't mean much if there weren't ways to make sure they are followed
when someone breaks them. So, a remedy is like a tool given by the law to protect these
rights and responsibilities. You use this tool through the legal system, like going to court.

When someone breaks a contract, the person who's been hurt by it can choose from
these actions:

 They can ask the court to make things right.

 They can seek financial compensation.
 They can request the court to force the other party to do what they agreed to do in the
contract.
 And more, depending on the situation."

1. RESCISSION/CANCELLATION OF CONTRACT.

When someone breaks a contract, the other person can go to court and ask to cancel the
contract. If the court agrees, it means the contract is no longer valid, and both parties are
freed from their obligations. For example, let's say A promised to give B 10 bags of corn
on a certain day, and B promised to pay for them when they arrive. But A doesn't deliver
the corn. In this case, B doesn't have to pay for the corn anymore.

The court can order the cancellation of the contract when:

22
 The person who wants to cancel the contract (plaintiff) can prove it's their right to do so,
or when the contract is illegal for reasons that are not obvious at first, and it's mostly the
other person's fault.
 However, the court might not cancel the contract if: a) The person wanting to cancel the
contract already agreed to it, either directly or indirectly. b) It's impossible to put both
parties back in the same position they were in before. c) Other people who didn't know
about the canceled contract have gained rights through it in good faith and for a fair
price. d) Only a part of the contract is being canceled, and that part can't be separated
from the rest of the contract.

When someone cancels a contract, they usually have to give back any benefits they
received from the contract to the other person. However, if someone rightfully cancels a
contract, they can also ask for compensation for any losses they suffered because the
other person didn't fulfill their part of the contract.

2. SUE FOR DAMAGES.

Damages are like money compensation given by the court when someone breaks a
contract. The idea is to try and put the person who got hurt by the broken contract back
in the same financial position they were in before the problem happened. We call this the
"doctrine of restitution."

There are different types of damages:

a) Ordinary damages: These are damages that naturally happen because of

the contract breach. For example, if someone promised to sell wheat at a certain
price and then didn't, the other person might get damages for the extra cost they
had to pay.
b) Special damages: These are damages that both parties could have thought
about when they made the contract. They can only be claimed if the special
circumstances causing a special loss are told to the other party. For instance, if
someone sent goods for an exhibition and they arrived late, causing a loss of
profit, they might get special damages if they told the transport company the
goods had to be there by a specific day.
c) Vindictive/Exemplary damages: These are more like punishment. Usually,
damages in contracts are meant to make up for losses, not punish someone. But
sometimes, in specific situations like when a bank wrongly dishonors a check, the
court might give these as a form of punishment.

23
 d) Nominal damages: When someone didn't really lose anything because of
the broken contract, but they still prove their case in court, they might get a very
small amount of money called nominal damages. It's more like a recognition that
they were right.
e) Liquidated/Unliquidated damages: Sometimes, in the contract itself, it
says that if the contract is broken, one of the parties has to pay a certain amount
of money. If this amount is a fair estimate of the likely loss, it's called liquidated
damages. If it's meant to make sure the contract is followed and not to estimate
losses, it's a penalty. Unliquidated damages, on the other hand, aren't specified in
the contract; the court decides how much they should be when the contract is
broken.
f)

3. SUE FOR INJUNCTION.

An injunction is like an official order from a court. It tells someone to either stop doing
something they're not supposed to do or start doing something they should do
according to a contract. It's a way the court can prevent someone from doing a harmful
thing.

For example, if someone promised not to sing at any other theater except one and then
broke that promise, the court might tell them not to sing at any other theater through an
injunction.

There are different types of injunctions:

1. Mandatory injunction: This tells someone they have to do a specific action according to
the contract. It can be temporary.
2. Prohibitory injunction: This tells someone not to do something. It can also be
temporary.
3. Interlocutory injunction: This is a temporary order the court gives while the case is still
being decided.
4. Perpetual injunction: This is a permanent order that comes after an interim or
interlocutory injunction.
5. Quai timet injunction: This is when the court acts to stop a problem before it even
happens, based on the plaintiff's fears.
6. Mareva injunction: This prevents someone from moving certain property outside of the
court's jurisdiction, usually out of the country.

4. SUE FOR SPECIFIC PERFORMANCE.

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 Specific performance is like a special court order that tells someone who broke a
contract that they have to do exactly what they promised in the contract. But this order is
not always given; it depends on certain conditions.

When an order for specific performance can be granted:

1. When the thing that was supposed to be done in the contract is so unique that money
can't really make up for it.
2. When it's hard to figure out how much money can compensate for not doing what was
promised.
3. When it's unlikely that you can even get money to make up for not doing what was
promised.

When an order for specific performance won't be granted:

 When giving money as compensation is enough to fix the problem.

 When the contract is not clear or fair to either party.
 When the contract can be canceled or changed.
 When trustees (people responsible for taking care of something for others) break their
trust.
 When it's a personal contract, like a marriage agreement.
 When a company goes beyond its powers in making the contract.
 When the court can't effectively make sure the contract is carried out, like in the case of a
building contract.
•

5. SUE UPON QUANTUM MERUIT.

Quantum meruit means getting paid for the work you did when there's no formal
contract in place. It's not about compensation for a broken contract, like damages, but
rather payment for the actual work you did. You can only ask for quantum meruit if you're
the one who did the work and the original contract has ended.

Here's when you can ask for quantum meruit:

1. When an agreement is found to be void: If a contract is declared void or becomes void,

and you've received benefits from it, you need to give back those benefits or compensate
the person who gave them to you. For instance, if someone worked for a company, but
later it's discovered they shouldn't have been hired, they can still get paid for the work
they did.
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2. When something is done without expecting it to be free: If you do something for
someone without intending to do it for free, and they benefit from it, they have to pay
you for it or return what you did.
3. When there's no agreement on payment: If there's a contract to provide services, but
there's no agreement on how much you should be paid, the court can decide a fair
amount as quantum meruit. For example, if you provide services to someone, but you
didn't agree on the price, the court will decide what's fair.
4. When one party prevents contract completion: If one party in a contract stops the
other from completing their part, the party not at fault can claim quantum meruit. For
example, if you hired someone to write a book, but you stop them from finishing it, they
can still get paid for the work they've done.
5. When the contract is divisible: If a contract can be divided into parts and one party
benefits from part of it, the other party can claim quantum meruit for the part they
completed. However, if the contract must be fully completed for payment, quantum
meruit won't apply. For example, if you hire someone to do several tasks, and they
complete some but not all, they can still get paid for the tasks they finished.
6. When an indivisible contract is poorly performed: If you have a contract where you're
supposed to get paid a set amount for the entire job, but you do it poorly, you can still
claim the full payment. However, the other party can deduct money for the poor quality
of work. For instance, if you're hired to repair a house for a fixed amount, but the repairs
are done poorly, you can still claim the full amount minus the cost to fix the mistakes.

6. RESTITUTION OF BENEFIT.
Restitution means giving back something or returning it. When someone cancels a
contract that they had the option to cancel, they must give back any benefit they received
from the other person. For example, if someone cancels a contract to sell a house
because of unfair influence, they have to give back any money they received as part of
the deal.

If an agreement or contract is found to be worthless or becomes worthless, anyone who

got something good out of it has to give it back or compensate the person who gave it
to them. This rule applies to worthless contracts that are discovered or become worthless,
but not to contracts that everyone already knows are worthless.

For instance, if person A gives person B money to kill person C, A can't ask for the money
back because that contract is known to be worthless, and B is not obligated to return the
money to A.

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 7. RECTIFICATION OR CANCELLATION.
If a contract or written document doesn't show what the people involved actually agreed
to because of lies or a mistake, anyone involved can go to court to fix it. The court can
change the document to match what everyone really wanted if they find that there was a
lie or a mistake. However, they can only do this if it won't hurt someone who wasn't part
of the original agreement and got involved honestly and fairly.

Sometimes, a written document can cause serious problems for someone if it's not
changed. In that case, they can ask the court to say the document is no good and should
be canceled. For example, if person A lied about their ship being safe, and person B gave
them insurance money because of that lie, person B can ask the court to cancel the
insurance policy.
QUASI CONTRACTS
Sometimes, a person might get something that the law says really belongs to someone
else, even if there was no agreement between them. This kind of situation is called a
"quasi contract." Even though there's no official contract, the law treats them as if there
was one.

In English law, these are also called "quasi contracts" or "constructive contracts." The idea
behind them is that it's not fair for someone to unfairly benefit at the expense of another
person just because they didn't have a contract. Quasi contracts are all about making
things fair.

Technically, quasi contracts aren't real contracts because real contracts come from
agreements where both parties freely decide to do something. Quasi contracts are
different because they're created by the law without any formal agreement. In simple
terms, they're made by the law to make sure things are fair.

INSTANCES OF QUASI CONTRACTS

1. Supply of Necessaries: If someone provides essential things to a person who can't make
contracts (like a mentally ill person) and those things are suitable for their needs, the
provider can get their money back from the person's property.
2. Payment by an Interested Person: If someone pays money on behalf of another person
who's legally required to pay it, the person who made the payment can ask for
reimbursement from the one who should have paid.
3. Obligation to Pay for Non-gratuitous Acts: If one person does something for another
person or gives them something with the expectation of being paid, and the other person
benefits from it, they have to pay for it.

27
4. Responsibility of Finder of Goods: If someone finds another person's belongings and
takes care of them, they have to take good care of those items and try to find the owner.
They can sell the items in certain situations, like when they're about to be damaged.
5. Claim on Quantum Meruit: If someone does work for another person without a specific
agreement on how much they'll get paid, they can ask for a fair payment for their services.
6. Action for Money Had and Received: If someone gets money through fraud or
dishonest means that belongs to someone else, they have to give it back.
7. Money Paid on the Total Failure of Consideration: If someone pays money for
something, but they don't get what they paid for because the deal completely falls apart,
they can ask for their money back.
8. Payments made by Mistake or Coercion: If someone receives money or something else
by mistake or because they were forced to, they have to return it to the person who gave
it. However, if the money was supposed to go to a different person, the mistaken receiver
doesn't have to pay the real recipient.

CHAPTER SIX

LAW OF AGENCY

INTRODUCTION

In the modern business world, things can get so complicated that it's impossible for one
person to handle everything on their own. That's why we have agents. An agent is
someone who helps out with business tasks for another person or represents them when
dealing with others.

Think of it this way: Imagine you need someone to do something for you or represent you
in a deal. That person is your agent. The person they're working for or representing is
called the principal.

28
 An agent can make a contract between the principal and someone else. They're like a
bridge that connects the principal and the other person. But once the bridge is built (the
contract is made), the agent isn't part of the contract anymore. The contract is now
between the principal and the other person, just as if they had made it themselves.

Usually, as long as someone is of legal age and mentally sound, they can hire an agent.
This means that even a young person can be appointed as an agent because they're just
the middle person connecting the principal and others. However, certain people like
lunatics, minors, or those who are drunk can't be agents because they might not make
responsible decisions.

CLASSIFICATION OR KINDS OF AGENTS

Classification as per extent of authority

1. General Agent: This type of agent has the power to do almost anything related to a
specific trade, business, or job. For example, a manager of a company can make decisions
and take actions that are necessary for running the company. They have a wide range of
authority.
2. Special Agent: A special agent is hired for a specific task or job. Their authority is limited
to that particular task. For instance, if you hire an agent to sell your house, their authority
is limited to selling the house. Once the job is done, their authority ends. They can't make
decisions on other matters for you, and anyone dealing with them should make sure they
understand these limits.
3. Universal Agent: This agent has almost unlimited authority to act on behalf of the
principal. They can do a wide range of legal actions and make decisions on behalf of the
principal. However, their actions must still follow the laws of the land. They have broad
authority, but it's not entirely without limits.
Classification according to the Nature of Work

1. Brokers: These are people who help others buy or sell things, like goods. They don't
actually have the stuff they're dealing with, and they can't act or sue on their own. They're
just there to make deals between buyers and sellers, and they get paid a fee for their
service.
2. Factor: Factors are agents who take care of goods for selling. They can do all the usual
things needed to run this kind of business. They sell the goods as if they own them,
decide the terms of sale, and can even give credit. They also have the right to keep the
goods until they get paid.
3. Auctioneer: These are people hired by sellers to auction off their stuff to the highest
bidder. They earn a fee for this. At first, they work for the seller, but once the sale
happens, they also become agents for the buyer. If they're told to sell without a set
29
 minimum price, they can sell to the highest bidder. They can also keep the stuff until they
get paid their fee.
4. Commission Agent: These agents help others buy and sell things. They get paid a fee
(commission) for their work.
5. Del Credere Agent: These agents sell stuff for someone else and promise to cover any
losses if the buyers don't pay up. For this extra responsibility, they get a higher
commission.
6. Bankers: Bankers mostly lend and hold money for their customers, but they also act as
agents when they follow their customers' orders to pay money to someone else.
7. Forwarding Agents: These agents help importers and exporters by collecting and
delivering goods on their behalf. They know a lot about customs and rules for
international trade.
8. Non-commercial Agents: This category includes lawyers (attorneys), legal advisors
(solicitors), legal representatives (advocates), and insurance agents. They provide services
in legal and insurance matters but are not involved in buying or selling goods.

CREATION OF AGENCY RELATIONSHIP

The relationship of principal and agent (agency) may be created:-

1. By Express Agreement
2. By Implied Agreement
3. By Necessity
4. By Ratification
5. By Operation of Law

1. AGENCY BY EXPRESS AGREEMENT

Usually, when a boss (we'll call them the "principal") gives their worker (the "agent") the
power to do certain things for them, it's pretty clear. They either talk about it or write it
down. Sometimes, they use a special paper called a "power of attorney" to make it
official. This paper says, "I'm giving you the authority to represent me."

In simple terms, the boss tells the worker what they can do, and they both agree on it,
either by talking or writing it down on a special paper called a "power of attorney."
2. AGENCY BY IMPLIED AGREEMENT

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 Implied agency happens when it's not explicitly stated but can be understood from how
people act or the situation. It's like when you can tell someone is doing a job for another
person even though they didn't officially say so.

For instance, let's say two brothers, A and B, live in different cities. A, without being told,
takes care of B's house, collects rent, and sends it to B. Even though nobody said A is B's
agent, it's clear from their actions that A is helping B in that way.

Implied agency can also happen when the boss acts in a way that makes it seem like
someone is their agent, even if they didn't say it. There are two types:

1. Agency by Estoppel: This means the boss has said or done things that make someone
else believe they have an agent. If that person then acts on that belief, the boss can't later
say it's not true. For example, if an agent A tells a third party T that they work for the boss
P, and P doesn't disagree, then P has to pay T for things A buys on P's behalf.
2. Agency by Holding Out: This is similar to the first one. If the boss often lets someone
buy things on their behalf and then pays for them, even if one time they give that person
money to buy things but the person doesn't and buys on credit, the boss still has to pay
because they made it seem like that person was their agent before.
3. AGENCY BY NECESSITY
Sometimes, in urgent situations, the law allows a person to make decisions for someone
else because there's no time to ask that person for permission. This is called "agency by
necessity." To make it valid, a few conditions must be met:

1. There has to be a real need: The situation has to be so urgent that waiting to talk to the
person in charge isn't possible.
2. Communication is impossible: It must be clear that there's no way to reach the person
in charge quickly.
3. The person acting has to do it honestly and in the person's best interest: The person
making decisions on behalf of someone else must do it honestly and with that person's
best interests in mind.

This kind of agency comes up in a few situations:

1. Emergency Exceeding Authority: If someone is given fruit to deliver to another place,

but the fruit won't survive the trip, they can sell it to avoid it going bad. This is okay if it's
done in an emergency and with the best intentions.
2. Protecting Someone's Property: If someone is in charge of another person's things and
there's an accident or emergency, they can sell or use the things to save their value, even
if they weren't told they could do this.
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3. Providing for Survival: If a husband leaves his wife without giving her the means to
survive, she can use his credit for necessary things, even if he doesn't agree. In this case,
she's acting on his behalf because she has no other choice.

4. AGENCY BY RATIFICATION
Ratification is like giving a thumbs-up to something that was done without permission.
So, if someone does something for you without you telling them to, and you find out
about it later, you can either say "yes, I'm okay with it" or "no, I don't want it."

For example, if A buys five bags of maize for you, even though you didn't ask them to,
you can later decide if you're okay with the purchase or not. If you say "yes, I'm okay with
it," that means you're ratifying (approving) the action, and A becomes your agent by
ratification.

Essentials of a valid ratification

For ratification to be valid (meaning it's officially accepted), several conditions must be
met:

1. Agent's Representation: The person acting on your behalf (the agent) must clearly say
that they are acting as your agent when making a deal. An unknown boss (undisclosed
principal) can't suddenly show up and approve of what someone else did on their behalf.
2. Principal's Existence: You (the boss or principal) must exist at the time of the contract. If
you don't exist yet, like a company before it's officially formed, you can't approve
contracts made on your behalf.
3. Principal's Capacity: You must be legally capable of making contracts both when the
original contract is made and when you decide to approve it later. If you weren't legally
capable when the contract was made, you can't suddenly make it valid by approving it
later when you are capable.
4. Knowing the Facts: When you approve the contract, you should know all the important
details about it. However, if you're willing to take the risk of not knowing everything, you
can still approve it without all the facts.
5. Timely Approval: You should approve the contract within a reasonable amount of time
after it was made. Waiting too long makes the approval invalid.
6. Lawful Act: The contract you want to approve must be legal and not against the law. You
can't make a void or illegal contract valid by approving it later.
7. Complete Approval: You have to approve or reject the entire deal, not just parts of it.
You can't pick and choose which parts you like.
8. Communication: You need to tell the other party involved that you're approving the
contract they made on your behalf.
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9. Acts You Can Do: You can only approve acts that you had the power to do in the first
place. You can't make something valid if you didn't have the authority to do it.
10. No Harm to Others: Your approval shouldn't harm someone else or take away their
rights or interests. It shouldn't put another person in a bad situation.

5. AGENCY BY OPERATION OF LAW

Sometimes, without anyone explicitly appointing them, certain people automatically
become agents of a company or a business. Here's how:

1. Promoters of a Company: When a company is being set up, the people who get
everything ready (promoters) become agents of the company without anyone formally
appointing them. They act on behalf of the company during the formation process.
2. Partners in a Firm: In a business partnership, each partner is automatically considered an
agent of the entire partnership. This means that when a partner does something that's
part of the normal business activities of the partnership, it's as if the whole partnership is
doing it. So, their actions legally bind the entire partnership.

THE AGENT AND A SERVANT

An agent is not a servant of the principal. An agent is not a servant of the principal.
Agents and servants are different in several ways:

1. Contractual Relation: An agent's main job is to make deals and create legal relationships
between their principal and others. A servant's job doesn't necessarily involve creating
legal relationships for their employer.
2. Control by Principal: An agent has to follow the lawful instructions of the principal, but
they're not closely watched and directed by the principal in their day-to-day work. A
servant, on the other hand, follows direct supervision and control by their employer, and
they have to follow all reasonable orders related to their job.
3. Liability: If an agent does something wrong within the scope of their authority, the
principal is responsible for it. For a servant, the employer (master) is responsible for any
wrongs committed while they're on the job.
4. Number of Principals: An agent can work for multiple principals at the same time,
serving different people or companies. A servant, however, typically works for just one
employer (master).
5. Relationship: The relationship between an agent and their principal is known as
principal-agent. On the other hand, the relationship between a servant and their employer
is called master-servant.

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 RIGHTS AND DUTIES OF AGENTS
Duties of Agents:

1. Follow Instructions: The agent must do what the principal tells them to do within the
authority given. If there are no specific instructions, they should follow common practices
in that line of work.
2. Work Diligently: They must work with care, skill, and diligence. If they're careless,
unskilled, or neglect their duties, they may have to compensate the principal for any
losses.
3. Keep Accounts: The agent must keep accurate records of the principal's money or
property and show these accounts when asked by the principal.
4. Communicate Issues: If there are problems or difficulties, the agent should promptly
communicate with the principal and ask for instructions.
5. No Secret Deals: They cannot do business for themselves in the same area without
telling the principal and getting permission. If they do, the principal can choose to cancel
the deal or take its benefits.
6. Give Money to Principal: Any money received on behalf of the principal must be given
to the principal. They can deduct what they spent on business expenses and their agreed-
upon fee.
7. Protect Interests after Termination: If the agency ends because the principal dies or
becomes incapacitated, the agent must take steps to protect the principal's interests on
behalf of their representatives.
8. Share Information: Information obtained during the agency must be shared with the
principal. Using such information against the principal is not allowed, and if done, the
agent must compensate the principal.
9. No Secret Profits: Agents should not make extra money beyond their agreed-upon fee
without the principal's consent.
10. No Conflicting Interests: They must act in the principal's best interests and should not
put themselves in a position where their personal interests conflict with their duty to the
principal without the principal's knowledge and agreement.
11. No Delegation: Generally, agents cannot pass their responsibilities onto someone else
unless they have permission.

Rights of Agents:

1. Right to Keep Money: The agent can keep some of the money they receive on behalf of
the principal to cover their own fees, expenses, and advances made for the work they're
doing.
2. Right to Get Paid: They are entitled to the payment they agreed upon with the principal.
If there's no agreement, they still have the right to receive a reasonable payment for their
34
 work. They can claim this payment once they've completed the tasks they were supposed
to do.
3. Right to Hold Property: The agent can hold onto the principal's goods, papers, or other
property until they get paid their commission, expenses, and fees.
4. Right to Be Protected: The agent has the right to be protected by the principal for any
legal actions they take while doing their job. However, this doesn't cover actions the
agent knew were illegal.
5. Right to Compensation: If the principal's actions, like neglect or lack of skill, cause harm
or injury to the agent, the agent has the right to be compensated. For example, if the
principal sets up unsafe scaffolding and the agent gets hurt as a result, the principal has
to compensate the agent.
6. Right to Stop Goods in Transit: In two situations, the agent can stop goods:
 If the agent personally bought goods for the principal and used their own money,
they can stop the goods until the principal pays them back.
 If the agent owes the principal money for the price of goods sold, they can stop
the goods from being delivered to the buyer.

DUTIES AND RIGHTS OF PRINCIPALS

Duties of Principals

Here are the duties of a principal toward their agent:

1. Cover for Legal Actions: The principal must protect the agent from any legal
consequences that arise from the agent's lawful actions while doing the job the principal
assigned.
2. Support for Good-Faith Actions: If the agent acted in good faith (honestly and with
good intentions) but faced negative outcomes, the principal should still provide support
and protection.
3. Compensation for Injuries: If the agent gets hurt or faces harm because of the
principal's negligence or lack of skill, the principal must take responsibility and
compensate the agent for the injuries.
4. Payment for Services: The principal needs to pay the agent the agreed-upon
commission or other payment for the work they did.
Rights of Principal
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 Here are the things a principal can do or expect from their agent:

1. Get Compensation for Agent's Mistakes: If the agent makes mistakes due to not having
the necessary skills, care, or diligence, the principal can claim damages for any losses
suffered.
2. Check for Secret Profits: The principal can investigate and recover any profits the agent
made secretly and can also oppose the agent's request for payment.
3. Challenge Agent's Claims: If the agent asks the principal to cover their costs for
something they did, the principal can dispute these claims.
4. Give Instructions: The principal can provide instructions to the agent and expect them to
be followed.
5. Receive Accurate Accounts: The agent should give the principal accurate records of the
work they've done and the money involved.
6. Hold Back Payment: If the agent behaves badly, the principal can withhold their
payment or remuneration.
7. Expect Care and Skill: The principal can anticipate that the agent will work with
reasonable care, skill, and diligence.
8. Be Consulted in Emergencies: In case of an emergency, the agent should consult the
principal for guidance.
9. Have Property Returned: If the principal becomes unable to handle their affairs, the
agent should return their property or any money from the agency to their representatives.

THE DOCTRINE OF UNNAMED PRINCIPAL

The "unnamed principal" rule comes into play when the agent tells others that they're
working for someone else (the principal), but they don't reveal the principal's name. In
this case:

 If the agent admits they're acting for a principal, even without naming them, the contract
they make still binds the principal. The agent kind of steps aside, even if they don't say
who the principal is.
 When the principal's identity eventually comes out, it's just like when the principal's name
was known from the start, unless there's a special rule or tradition that makes the agent
responsible instead. However, if the agent refuses to say who the principal is, they
become personally responsible for the contract.

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 THE DOCTRINE OF UNDISCLOSED PRINCIPAL

When an agent keeps both the principal's identity and their agent status a secret, it leads
to the concept of an "undisclosed principal." In this situation:

 The agent makes it seem like they're making the contract on their own, not as someone's
agent.
 Here's what happens in such a contract: a) Since the agent appears to be contracting on
their own, they are personally responsible to the third party. The third party can sue the
agent for any issues with the contract, and the agent can also sue the third party. b) If the
third party finds out about the principal before getting a judgment against the agent,
they can choose to sue either the principal, the agent, or both. c) The principal can step in
and sue the third party for not following through on the contract, but they can't use this
right to harm the third party. d) If the principal reveals themselves before the contract is
fully carried out, the third party can refuse to continue with the contract if they can prove
that knowing the principal's identity or that the agent wasn't the principal would have
made them decide not to enter into the contract.

EXTENT OF AGENT’S AUTHORITY

The authority of an agent is like their permission or ability to make decisions for the
person they represent (the principal). They can only make decisions that fall within this
permission. This authority can be of two types:

1. Actual or Real Authority: This is the authority the agent gets from the principal, either
through clear words (spoken or written) or by implication (based on the situation). For
example, if a principal tells an agent, "You can sign contracts on my behalf," that's express
actual authority. If it's not explicitly stated but understood from the circumstances, that's
implied actual authority.
2. Ostensible or Apparent Authority: When someone hires an agent for a specific job, people
who deal with that agent can assume they have the authority to do everything necessary
for that job. This assumed authority is called ostensible authority.

The important thing to note is that the scope of an agent's authority is determined by
their ostensible authority. If an agent does something beyond their actual authority but
still within their assumed authority, the principal is responsible for it. This concept is based
on the idea that if someone hires an agent for a particular role, they can't secretly take
away that authority later. However, if the third party knows about limitations on the

37
 agent's authority, the principal won't be held responsible for actions that go beyond
those limits.

PERSONAL LIABILITY OF AGENTS

The general rule is that only the person the agent represents (the principal) can enforce or
be held responsible for a contract made by the agent. However, there are cases where the
agent can be personally liable:

1. When the contract explicitly says so: If someone making a contract with an agent clearly
states in the contract that they'll hold the agent personally responsible for any breaches,
and the agent agrees to this, then the agent becomes personally liable.
2. When the agent acts for a foreign principal: If the agent makes a contract for buying or
selling goods on behalf of a person who lives in another country, the agent is personally
liable. But this personal liability can be avoided if the contract specifically states otherwise.
3. When the agent acts for an undisclosed principal: If an agent works for someone secretly,
without revealing the principal's identity, the agent is personally responsible for the
contract. However, once the third party discovers the principal, both the agent and the
principal can be held liable.
4. When the principal can't be sued: If the principal is legally unable to enter into a contract
(e.g., they are a minor or mentally incapable), the agent becomes personally liable. This is
because the credit is assumed to have been given to the agent, not the principal.
5. When the agent signs a contract in their own name: If an agent signs a contract without
any indication that they are representing someone else, they are considered to have
made the contract personally, unless the contract itself suggests otherwise.
6. When the agent acts for a principal who doesn't exist yet: For example, when the
organizers of a company make contracts on behalf of the company before it's officially
formed, they are personally responsible in such cases because the company doesn't
legally exist yet.
7. When the agent's authority is linked to their own interest: If an agent has a personal
interest in the contract, their authority is tied to that interest. They can sue and be sued,
but only for matters related to their own interest in the contract.
8. When the agent goes beyond their authority: If the agent exceeds the powers they were
given (both actual and apparent), they become personally liable for the part that goes
beyond their authority.
9. When there is a trade custom: If there is a customary practice in a particular industry or
trade that makes agents personally liable, then they are unless there's a different
agreement in the contract.

38
10. When there's a mistake or fraud with money: If an agent receives money from a third
party due to a mistake or fraud, they are personally responsible to the third party.
Likewise, if they mistakenly or fraudulently pay money to a third party, they can sue the
third party to get it back.

DELEGATION OF AGENT’S AUTHORITY

The general rule is that an agent cannot pass on their authority to someone else without
the permission of the person they represent (the principal). This is because of the saying
"delegation non potest delegare," which means the person given authority cannot pass it
on to another. However, there are some exceptions to this rule:

1. Sub-agent: An agent can appoint a sub-agent and let them do some of the work if there
is a customary practice or trade tradition for it, or if the nature of the work requires it. A
sub-agent is someone employed by and under the control of the original agent.
2. Unforeseen Emergencies: When unexpected emergencies come up, and appointing a
sub-agent becomes necessary.
3. Principal's Awareness: If the principal knows about the agent's plan to appoint a sub-
agent and doesn't object to it.
4. Ministerial Tasks: When the task is simple and doesn't require much skill, discretion, or
trust, the agent can delegate it.
5. Principal's Permission: If the principal allows the appointment of a sub-agent.

Co-agent or Substituted agent: A co-agent or substituted agent is a person named by

the agent, with the principal's authority (either expressed or implied), to act on behalf of
the principal. They are not sub-agents but agents of the principal for the specific part of
the agency's business they are responsible for. They are agents of the principal even
though the agent named them at the principal's request.

Differences between Sub-agent and Substituted agent:

1. Control: Sub-agents work under the control of the agent, while substituted agents follow
the principal's instructions directly.
2. Contract: There's no direct contract between the sub-agent and the principal, but there is
a contract between the principal and the substituted agent.
3. Responsibility: The agent is responsible to the principal for what the sub-agent does, but
the agent is not responsible for the actions or mistakes of the substituted agent.

39
 TERMINATION OF AGENCY

Agency can come to an end in two ways:

1. Termination by Agreement/Act of parties: Just like any other agreement, the

relationship between a principal and an agent can be ended if both parties agree to it.
They can decide to stop working together.

2. Termination by Act of Law/Operation of Law: Sometimes, the law itself can end the
agency relationship:

 Completion of the Task: If the agency was created for a specific purpose, it ends when
that purpose is achieved or becomes impossible to achieve. For example, if a lawyer is
hired to handle a lawsuit, the agency ends when the court makes its final decision.
 Expiration of Time: If the agent was hired for a certain period, the agency ends when
that time is up, even if the work isn't finished.
 Death or Insanity: If either the principal or the agent passes away or becomes mentally
ill, the agency is terminated. In this case, the agent must still protect the interests of the
principal.
 Bankruptcy: If the principal goes bankrupt, the agency ends. It's generally accepted that
if the agent goes bankrupt, it also ends the agency unless the agent's tasks are just
formalities.
 Destruction of Subject Matter: If the agency is about something specific, like insuring a
house, and that thing is destroyed (like the house burning down), the agency ends.
 Company Dissolution: If either the principal or the agent is a company, the agency ends
when that company is dissolved or ceases to exist.
 Principal Becoming an Enemy: If both the principal and agent are from different
countries and a war breaks out between their countries, the agency ends.
 Termination of Sub-agent's Authority: If the main agent's authority ends, it also ends
the authority of any sub-agents they may have appointed.

Remember that the agency ends when the agent, principal, or other parties involved find
out about the termination. It doesn't end immediately when the event happens; people
need to be informed for it to take effect.

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IRREVOCABLE AGENCY

When an agency cannot be terminated or put to an end, it is said to be an irrevocable

agency. An agency becomes irrevocable when it can't be canceled or ended. Here are
three situations where this happens:

1. When the Agency Is Coupled with Interest: This means the agent has a personal
interest or benefit beyond their regular payment. For example, if A tells B to sell P's land
and use the money to pay a debt A owes to B, A can't change their mind and cancel B's
authority. Even if A becomes mentally ill or passes away, B's authority stays because B has
a personal interest in it.

2. When the Agent Has Personal Liability: If the agent takes on personal responsibility
or liability, the agency can't be revoked. If the principal cancels the agency, the agent
would still be on the hook for the risk or responsibility they've already taken.

3. When the Agent Has Already Started Acting: Once the agent has started doing what
they were told, the principal can't suddenly cancel their authority for those specific tasks.
For instance, if A tells B to buy 1000 bales of cotton using A's money and B buys the
cotton in his own name (making himself responsible for the payment), A can't change
their mind and cancel B's authority for paying for the cotton.

END OF UNIT

CHAPTER 3: SALE OF GOODS

NATURE OF CONTRACT OF SALE
The sale of goods is a crucial part of business contracts, as people buy and sell goods in
every society. In Kenya, there are laws about selling goods, and they are found in the Sale
41
 of Goods Act (Cap.31). When you make a contract to sell goods, it follows general
contract principles like making an offer, accepting it, having the ability to make a contract,
having legal reasons for the contract, agreeing on a fair price, and making the agreement
willingly.

According to Section 3(1) of the Sale of Goods Act, a sale of goods is when a seller agrees
to give the buyer ownership of goods in exchange for money, which is called the price.
Goods refer to things you can move, like products, stocks, crops, etc. However, things like
debt claims or money itself are not considered goods. Property in goods means
ownership.

You don't need any specific legal process to make a contract for selling goods. You can
do it orally (by talking), in writing, or even just through your actions and the relationship
you have with the other party. But if the value of the goods is Kshs. 200 or more, you
should have a written record of the contract or some evidence in writing.
ESSENTIAL ELEMENTS OF CONTRACT OF SALE

1. Regulation by Contract: Selling goods involves making an agreement, so it follows the

basic rules of contract law, like agreeing on terms, having the ability to make an
agreement, and being fair and legal.
2. Two Parties: When you sell goods, there are two different sides involved. One is the
seller, and the other is the buyer. These can be individuals or businesses, but they must be
separate from each other.
3. Movable Property: The things being sold must be items that can be moved around, like
products or objects. Land or buildings, which can't be moved easily, can't be sold as
goods.
4. Money Payment: In a sale of goods, payment is made with money. This means using
cash or coins. If you exchange goods for other goods, it's not a sale of goods; it's called
barter trade.
5. Ownership Transfer: The contract should transfer the ownership of the goods from the
seller to the buyer. Ownership means having the right to own or use the goods.
6. Sale and Agreement to Sell: When you talk about selling goods, it covers both selling
where the ownership passes immediately to the buyer (Sale) and cases where ownership
transfers at a later date, as agreed upon in the contract (Agreement to Sell).

CLASSIFICATIONS /TYPES OF GOODS

1. Existing Goods: These are goods that the seller already has at the time of the sale.

There are two types:

42
 a) Ascertained/Specific Goods: These are goods that can be easily identified, like a
unique painting or a distinct ring.

b) Unascertained/Generic Goods: These are goods described but not individually

identified.
2. Future Goods: These are goods that the seller will acquire, make, or produce in the future
after the sale. For example, if someone agrees to sell all the corn they will grow in their
garden next year, these are future goods.
3. Contingent Goods: These are goods that depend on something uncertain or conditional.
For instance, if someone agrees to sell 200 bags of corn only if their crops grow
successfully, these are contingent goods. Contingent goods fall under the category of
future goods.
SALE AND AGREEMENT TO SELL
Sale is a contract whereby the property in goods (ownership) is transferred from the
Seller to the Buyer immediately the contract is concluded. In this case, ownership of
goods passes to the Buyer immediately even if the price is to be paid at a later date or
delivery is to be given in future. Agreement to sell is a contract whereby the transfer of
property in goods (ownership) is to take place at a future date or subject to some
condition to be fulfilled later. Following are the distinctions between Sale and an
Agreement to sell:-

Sale:

 In a sale, ownership of the goods immediately moves from the Seller to the Buyer when
the contract is made.
 Sale typically involves existing and specific goods.
 If the goods are lost without any fault, the Buyer bears the loss.
 If the Buyer breaches the contract, the Seller can sue for both the price and damages.
 If the Buyer goes bankrupt before paying, the Seller must deliver the goods to the Official
Receiver.
 If the Seller goes bankrupt, the Buyer can recover the goods if they've paid for them.
 The Seller can't resell the goods, and if they do, the subsequent Buyer doesn't get any
rights to them.
 Sale creates rights against everyone.

Agreement to Sell:

 In an agreement to sell, ownership of the goods will transfer at a future date or upon
certain conditions being met.

43
 It often involves future or contingent goods.
 If the goods are lost without any fault, the Seller bears the loss.
 If there's a breach, the Seller can only sue for damages, not the price.
 If the Buyer goes bankrupt before paying, the Seller doesn't have to deliver the goods.
 If the Seller goes bankrupt, the Buyer can only claim a share of what's left (like other
creditors).
 The Seller can resell the goods and pass title to another Buyer.
 Agreement to sell creates rights against the Seller personally.
.

IMPLIED TERMS IN CONTRACT OF SALE

Conditions and Warranties in Sales Contracts:

 These are like the unwritten rules in every goods-selling deal.

 Conditions are super important terms. If they're broken, the deal is canceled.
 Warranties are not as critical. If they're violated, you can't cancel the deal but can ask for
compensation.
 Conditions and Warranties can be agreed upon when the deal is made (express) or added
automatically by law or tradition (implied).
 Buyers can choose to ignore a condition or treat it as a warranty.
 Some conditions and warranties are set by law to protect consumers.
They are examined as follows:-
Implied Conditions In a Sale of Goods:

1. Condition as to Title: The seller must have the right to sell the goods. This protects
buyers from purchasing stolen goods.
2. Sale by Description: If goods are sold based on a description, they must match that
description. For example, if a machine is described as new but turns out to be old, the
buyer can reject it.
3. Condition as to Quality (Fitness for Purpose): Goods must be reasonably fit for the
purpose the buyer wants them for. This applies when the buyer relies on the seller's
expertise and makes known their specific purpose for the goods.
4. Condition as to Merchantability: If goods are sold by description from a seller who
deals in such goods, they must be of merchantable quality, suitable for their intended
purpose. However, if the buyer examines the goods and should have noticed defects, this
condition doesn't apply.
5. Sale by Sample: When goods are sold by sample, the bulk of the goods must match the
sample in quality, and the buyer should have the chance to compare them. The goods
should also be free from defects.

44
6. Condition as to Wholesomeness: For edible foods, there's an implied condition that
they must be safe for human consumption.

Implied Warranties in the Sale of Goods:

1. Warranty of Quiet Possession: The buyer is assured that they will have peaceful and
undisturbed possession of the goods they purchase. If someone challenges their right to
the goods, the buyer can sue the seller for damages but cannot cancel the contract.
2. Warranty of Freedom from Encumbrances: This warranty ensures that the goods are
free from any claims or rights held by third parties. It protects the buyer from undisclosed
defects in the seller's title at the time of the contract.
3. Warranty as to Quality or Fitness: There is an implied warranty that the goods must be
of good quality and suitable for their intended purpose, especially when there's a
customary expectation in the trade for such quality.
4. Disclosure of Dangerous Nature of Goods: The seller must inform the buyer if the
goods being sold are dangerous. They must provide warnings about potential hazards.
Failure to do so can lead to the seller being held liable for damages.

TRANSFER OF PROPERTY IN GOODS

When does property or ownership pass from the Seller to the Buyer?

Transfer of Ownership in Sales:

1. Definition: "Property" here means ownership of goods. Knowing when ownership passes
from the seller to the buyer is important because it determines when the risk shifts, when
the seller can sue for damages or price, and in cases of bankruptcy or insolvency.
2. Rules for Transfer of Ownership:
 Ascertained/Specific Goods: Ownership is transferred when both parties intend it
to pass, as stated in the contract or inferred from their conduct or trade/custom.
 Unascertained/Generic Goods: Ownership isn't transferred until goods are
identified or specified.
 Specific Goods in Deliverable State: If there's an unconditional contract for
specific goods in a deliverable state, ownership passes to the buyer immediately
upon contract formation, regardless of delivery or payment.
 Specific Goods not in Deliverable State: If the seller needs to do something to
make goods deliverable, ownership passes when that action is completed, and the
buyer is informed.
 Specific Goods to be Measured, Tested, etc.: If specific goods are in a
deliverable state but need measurement, testing, etc., ownership passes when the
required action is done, and the buyer is notified.
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  Goods sent on Approval: Ownership transfers when the buyer approves, when an
agreed time elapses without approval, or when the buyer takes actions against the
seller's interests (e.g., reselling).
 Unconditional Appropriation: Ownership passes when one party unconditionally
identifies the specific goods, with the other party's consent, either before or after
the appropriation.

These rules determine when ownership of goods moves from the seller to the buyer in a
sale contract.
PERFORMANCE OF CONTRACT OF SALE
Performance of a Sale Contract:

1. For the Seller: The seller's performance in a sale contract involves delivering the goods to
the buyer as specified in the contract.
2. For the Buyer: The buyer's performance means accepting the delivered goods and
paying for them as per the contract terms.
3. Contract Terms: The parties can set their own terms in the contract, including details
about when, where, and how the goods will be delivered, accepted, and paid for.
4. Default Rules: If the contract doesn't specify these terms, the Sale of Goods Act (Cap. 31)
provides default rules.
5. Delivery of Goods: This means willingly transferring possession of goods from one
person to another. It must result in the goods being in the buyer's or their agent's
possession.
6. Types of Delivery:
 Actual Delivery: Handing over physical goods.
 Symbolic Delivery: For bulky goods, like giving a key to a warehouse.
 Constructive Delivery: When goods are with a third party, and that party
acknowledges holding them for the buyer.

In simple terms, for sellers, it's about giving the goods, and for buyers, it's about
accepting them and paying, all following the contract terms. If the contract doesn't say
how, the Sale of Goods Act provides rules.
Rules of Delivery of Goods.

Delivery of Goods in a Sale Contract Simplified:

1. Types of Delivery: Goods can be delivered in different ways – actual, symbolic,

constructive, or by a third party. The aim is to put the goods in the buyer's control.

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2. Delivery and Payment: Usually, delivery and payment happen at the same time unless
the contract says otherwise.
3. Place of Delivery: If the contract specifies a place, goods must be delivered there during
business hours on a working day. Otherwise, it's where the goods are when the sale
happens.
4. Time of Delivery: If no delivery time is set, the seller must send the goods within a
reasonable time, depending on the situation.
5. Delivery Costs: Unless stated otherwise, the seller covers all expenses related to delivery,
including making goods ready for delivery. But the buyer pays for getting the goods
delivered to them.
6. Part Deliveries: Delivering part of the goods is like delivering the whole unless there's a
different agreement.
7. Buyer's Request for Delivery: The seller usually isn't obliged to deliver until the buyer
asks. If the buyer delays, they might have to pay for storage.
8. Goods Held by a Third Party: If someone else has the goods, it's not considered
delivered until they acknowledge they hold them for the buyer.
9. Delivery by Instalment: The seller can't deliver by instalments unless the contract allows
it. If they do, the buyer doesn't have to accept them unless the contract says so.
10. Wrong Quantity: Goods must match the contract exactly. If too much or too little is
delivered, the buyer can accept all, reject all, or accept some and reject the rest.

Acceptance of Goods Simplified:

1. Buyer Accepts Goods When:

 They say they've accepted them.
 They treat the goods as their own against the seller's rights.
 They keep the goods for a long time without rejecting them.
2. Buyer Rejects Goods: If they reject goods, they must tell the seller. They don't have to
return them.
3. Buyer Delays Acceptance: If the buyer delays, they may be liable for damages and
storage costs.
4. Rejection Doesn't Cancel the Contract: Rejecting goods doesn't cancel the contract. The
seller can offer the correct goods again, and the buyer must accept.
5. Short (Less) Delivery: If the buyer accepts less than the contracted quantity, they can
claim damages for it.
NEMO DAT QUOD NON HABET RULE

Imagine this: You buy something from someone who doesn't really own it. Well, you
won't magically become the real owner either. There's a saying in law, "Nemo dat quod

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 non habet," which means, "No one can transfer a better title than they have." It's like
saying, "You can't give what you don't have."

In simple terms, when you buy something, the purpose is to transfer ownership from the
seller to you. But if the seller didn't really own it, your ownership will also be in trouble
because their ownership was a problem.

The law follows this rule, and it's found in the Sale of Goods Act (Section 23). It says that if
someone sells goods they don't own, and they didn't have permission from the real
owner, you as the buyer won't get better ownership rights than that seller had. Unless, of
course, the real owner somehow acted like they gave permission for the sale.

This rule is here to protect real owners from people selling their stuff without permission.

But, there's a twist: Sometimes, the law has to decide whether to protect the real owner or
the person who bought the item honestly, not knowing about the problem with the
seller's ownership. In those cases, two principles come into play:

1. Protect the Real Owner: The law wants to make sure the real owner's rights are safe. For
instance, if someone steals something and sells it to you, even if you didn't know it was
stolen, you won't get the real ownership because the seller had a problem with their
ownership.
2. Protect Honest Buyers: On the other hand, if you buy something in good faith and for a
fair price, without knowing about any ownership issues, the law might give you better
ownership rights, even if the seller had issues.

So, the law tries to balance the rights of real owners and people who buy stuff honestly to
keep both sides happy.
Exceptions to the NEMO DAT QUOD NON HABET RULE

Imagine you're buying something from someone. You want to make sure you're really
getting what you're paying for. Well, there are certain situations in the law where you can
be sure you're getting a good title to what you buy.

1. Sale by a Mercantile Agent: If you buy something from a person who, as part of their
regular job, can sell or consign goods or raise money using goods as security, and they
have the authority to do so, you'll get a good title. For example, if a car salesman sells you
a car, you'll own it for real.
2. Sale by One of Several Owners: If there are a bunch of people who own something
together, and one of them sells it with the others' permission, you can get a good title as
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 long as you buy it honestly, for a fair price, and didn't know about any problems with the
seller's ownership.
3. Sale by an Unpaid Seller: If a seller hasn't been paid for the goods they're selling, and
they still have them, you can get a good title to those goods when you buy them.
4. Sale in a Market Overt: This one doesn't apply in Kenya but is worth knowing. In some
places, if you buy something in a public market on certain days and times, and you didn't
know about any issues with the item's ownership, you can get a good title.
5. Sale under a Voidable Contract: If someone sells you something that they got through a
contract that could be canceled but hasn't been canceled yet, you can get a good title as
long as you buy it honestly, for a fair price, and didn't know about any problems with the
seller's ownership.
6. Sale by a Court Order: If a court or law allows someone to sell goods, and you buy those
goods legally, you get a good title.
7. Title by Estoppel: If the owner of goods makes you believe that the person selling them
has the right to do so through their words or actions, and you buy in good faith, you'll get
a good title. The owner can't suddenly say, "No, you don't own it."
8. Sale by Seller in Possession after Sale: If a seller, who had already sold something, still
has the goods and sells them again to you without you knowing about the first sale, you'll
get a good title, but the seller must act as a seller, not just a hirer or keeper.
9. Sale by Buyer in Possession: If a buyer has already bought something and has it in their
possession with the seller's consent, and you buy it in good faith without knowing about
any other claims, you'll get a good title.
10. Sale under Statutory Power of Sale: Sometimes, the law gives special power to sell
goods under certain circumstances. For example, the Disposal of Uncollected Goods Act
allows for the sale of goods left uncollected. If you buy such goods legally, you get a
good title.

These rules help make sure that when you buy something, you really own it and don't
have to worry about someone else's ownership claim.

RIGHTS AND DUTIES OF THE BUYER IN A SALE OF GOODS

Right of the Buyer.

Your Rights as a Buyer When You Purchase Goods Explained:

When you buy something, you have certain rights to make sure you get what you paid
for. Here they are in simple terms:

49
1. Get What You Agreed To: You have the right to get the goods you bought, and they
should match what you agreed upon in the contract.
2. Reject Bad Goods: If the goods are not the right quantity or quality, you can say no and
not accept them.
3. Check the Goods: You can look at the goods to make sure they are what you expected
and meet the contract terms.
4. No Surprise Instalments: Unless you agreed to it, the seller can't suddenly deliver your
goods in pieces (instalments) without your say-so.
5. Demand Damages: If the seller doesn't deliver the goods as promised, you can ask for
compensation.
6. Force the Sale: If the goods are specific or well-defined in the contract and the seller
doesn't deliver, you can take them to court to make them follow through with the deal.
7. Ask for a Refund: If you've paid for the goods, but they aren't delivered, you can ask for
your money back.
8. Get Interest: If you don't get your money back, you can also ask for extra money
(interest) on top of the refund.

These rights help make sure that when you buy something, you're protected and get what
you're supposed to.

Duties of the Buyer.

1. Accept and Pay: Your main job is to accept the goods when they're delivered and pay for
them as agreed upon.
2. Ask for Delivery: Unless you've agreed differently, you should request delivery of the
goods when you're ready.
3. Choose a Good Time: You can ask for the goods to be delivered at a reasonable time
that suits both you and the seller.
4. Be Timely: Once the seller offers delivery, you should accept the goods within a
reasonable timeframe.
5. Say No Properly: If you decide not to accept the goods, you need to tell the seller.
6. Pay as Agreed: You should pay the price as laid out in the contract.
7. Pay for Refusing: If you wrongfully refuse to accept and pay for the goods, you may
need to pay damages.
8. Risk of Damage: If you choose to accept delivery at your own risk, you'll be responsible if
the goods get damaged.

These responsibilities help ensure that both you and the seller can complete the
transaction fairly and smoothly.
vii. .
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 RIGHTS OF AN UNPAID SELLER IN A SALE OF GOODS

When a Seller Is Unpaid for Goods Explained:

Imagine you're selling something, like a phone. You're considered "unpaid" when:

1. Not Fully Paid: The buyer hasn't paid you the full price for the phone.
2. Bad Check: If you got a check (like a payment slip) that later turned out to be no good,
you're still unpaid.

Now, let's talk about what the seller can do when they're in this situation:

1. Rights Over Goods: They can take action against the goods they sold, like taking them
back.
2. Rights Against Buyer: They can also go after the buyer personally to get the money
they're owed.

These rights help the seller make sure they're treated fairly when they haven't been paid
for what they sold.

Rights Against the Goods.

Seller's Rights When the Buyer Doesn't Pay Explained:

Let's break down what happens when a buyer doesn't pay for goods they've agreed to
buy, and what rights the seller has:

1. Right of Lien: This means the seller can keep the goods and refuse to give them to the
buyer until they get paid. But once the buyer pays, the seller has to hand over the goods.

2. Right of Stoppage in Transit: If the buyer goes broke (insolvent) and the goods are
on their way but not delivered yet, the seller can stop the delivery until they get paid.

3. Right of Withholding Delivery: If the buyer hasn't fully paid, the seller can hold onto
the goods until they're paid, even if the goods are still with the seller.

4. Right of Resale: If the goods are perishable, if the contract says the seller can resell in
case of default, or if the seller gives notice and the buyer still doesn't pay, the seller can

51
 resell the goods. If they make a loss, they can ask the buyer to cover it, but if there's extra
money from the resale, the seller can keep it.

These rights help sellers when buyers don't follow through with payment for the things
they agreed to buy.

Rights Against the Buyer.

Seller's Options When the Buyer Doesn't Pay or Accept Goods Explained:

Here's what a seller can do when a buyer doesn't pay or doesn't accept the goods they
agreed to buy:

1. Sue for Price: If the buyer already owns the goods and refuses to pay, the seller can
sue the buyer for the price, even if the goods haven't been delivered yet.

2. Sue for Damages: If the buyer refuses to accept or pay for the goods, the seller can
sue for damages caused by the buyer's refusal. This is a way to get compensated for the
trouble.

3. Sue for Breach of Contract: If the buyer breaks the contract before the delivery date,
the seller has two choices. They can wait until the delivery date and see if the buyer
changes their mind, or they can treat the contract as canceled and sue for damages for
the buyer's breach.

4. Sue for Interest on Price: If the contract says the buyer has to pay interest on the
price from a specific date, the seller can claim that interest. If there's no such agreement,
the seller can charge interest starting from a date they notify the buyer.

These options help sellers get compensated when buyers don't follow through on their
part of the deal.
REMEDIES FOR BREACH OF CONTRACT OF SALE.

Seller's Remedies:

1. Sue for Price: The seller can take legal action to get the agreed-upon price from the
buyer.
2. Sue for Damages for Non-Delivery: If the buyer doesn't take the goods, the seller can
sue for damages caused by the non-delivery.

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3. Sue for Damages for Early Contract Termination: If the buyer cancels the contract
before the agreed-upon date, the seller can sue for damages resulting from this breach.
4. Sue for Interest: If the contract specifies interest on the price from a certain date, the
seller can claim that interest.

Buyer's Remedies:

1. Sue for Damages for Non-Delivery: If the seller doesn't deliver the goods, the buyer can
sue for damages caused by the non-delivery.
2. Sue for Specific Performance: The buyer can demand that the seller follows through
with the contract and delivers the goods as agreed.
3. Sue for Breach of Warranty: If the seller breaches any warranties (promises) related to
the goods, the buyer can take legal action.
4. Sue for Early Contract Termination: If the seller cancels the contract before the agreed-
upon date, the buyer can sue for damages resulting from this breach.
5. Sue for Recovery of Price: If the buyer has paid but didn't receive the goods, they can
sue to get their money back.
6. Sue for Interest: Just like the seller, if the contract specifies interest on the price from a
certain date, the buyer can claim that interest.
7. Rejection of Goods: If the goods don't meet the contract's terms and are rejected by the
buyer, they can return them
.
THE DOCTRINE OF CAVEAT EMPTOR (``BUYER BEWARE’’)

"Caveat Emptor" is a fancy Latin term that means "Buyer Beware." It's a concept that says
when you're buying something, it's your responsibility to be careful and check what
you're getting. The seller doesn't have to tell you about every little problem with the item
they're selling. You need to look closely and make sure it's what you want.

If you end up with something you don't like or that doesn't work for your needs, you can't
blame the seller or ask for compensation. That's because the seller isn't automatically
promising that the item will be perfect for your specific use. So, when you buy something,
be smart and choose wisely. If you make a bad choice, it's on you, unless the seller lied or
did something wrong.
Exceptions to the Doctrine of CAVEAT EMPTOR.

The "caveat emptor" rule, which means "Buyer Beware," has some exceptions:

1. Misrepresentation: If the seller lies or gives false information about the product, and the
buyer relies on these lies to make the purchase, "caveat emptor" doesn't apply. The buyer
can cancel the deal.
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2. Fraud: If the seller tricks the buyer, for instance, by hiding a defect that the buyer couldn't
reasonably find, "caveat emptor" doesn't protect the seller. Fraudulent actions make the
contract invalid.
3. Goods Sold by Description: When you buy something based on a description, and it
doesn't match that description, "caveat emptor" doesn't hold. If the goods are unfit for
their intended use and you relied on the description, the seller is responsible. But if you
checked the goods yourself, you're responsible for any defects you could have spotted.
4. Goods Sold by Sample: If you buy goods based on a sample and the rest of the batch
doesn't match that sample, or if there are hidden problems, "caveat emptor" doesn't
apply.
5. Relying on Seller's Expertise: If you tell the seller what you need the goods for, and you
trust their expertise, but the goods turn out to be unsuitable for that purpose, "caveat
emptor" doesn't protect the seller. They are responsible for providing goods fit for your
specified purpose.
6. Trade or Usage Conditions: When there are industry standards or common expectations
about the quality or fitness of goods, and the seller doesn't meet those standards, "caveat
emptor" doesn't apply.
7. Sale under Patent or Trade Name: If a product is sold under a patent, trademark, or
specific trade name, it must meet the specifications associated with that patent or name.
If it doesn't, "caveat emptor" doesn't protect the seller.

SALE BY PUBLIC AUCTION.

Certainly! An auction is like a public competition to buy something. Many people come to
bid and try to offer the highest price for the item they want. The person in charge of the
auction, called the auctioneer, works for the owner of the item. The auctioneer's
relationship with the owner is like an agent who acts on their behalf.

Here's how an auction typically works:

1. Advertising: First, they advertise the auction, telling people what's going to be sold and
the rules.
2. Auction Day: On the set day and time, people who want to buy things gather. The
auctioneer shows the items one by one and asks for offers (bids).
3. Bidding: People raise their hands or call out their offers. Each offer is like saying, "I'll pay
this much for it." The auctioneer keeps track of the offers.
4. Highest Bid Wins: The item goes to the person who offers the most money for it. The
auctioneer usually signals this with a special action, like hitting a hammer or blowing a
whistle.

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5. Contract: At this point, a deal is made. The person with the highest bid is now the buyer,
and they're obligated to pay that amount. Before this moment, anyone can change their
mind and take back their offer.

So, an auction is a way to buy things in a competitive way, and once the auctioneer
accepts the highest offer, a binding agreement is formed.
Rules of Auction Sales.

1. Goods Sold in Lots: If items are grouped into lots for sale, each group is treated as a
separate sale.
2. Sale Completion: The sale is finished when the person in charge (auctioneer) says so,
usually by hitting a hammer or using another signal.
3. Seller's Right to Bid: The person selling the items can also bid, but only if they say so in
advance. Sneakily getting someone to raise prices is not allowed unless they said they
might do it.
4. Reserve Price: Sometimes, they say an item won't be sold for less than a certain price. If
that price isn't reached, the item won't be sold.
5. Fake Bidding: If the seller tricks people by pretending to bid and push up the price, the
buyer can choose to cancel the deal.
6. Knock Outs: Sometimes, a group of people at the auction agrees that only one of them
will bid on an item, and they'll sort things out privately later. This is called a "knock out."
It's okay as long as they're not trying to cheat someone else.
Damping.

Damping is when someone tries to stop a buyer from bidding at an auction in a

dishonest way. This is against the rules, and the auctioneer can take the item off the
auction if they catch someone damping.

Damping can happen in a few sneaky ways:

 Pointing Out Problems: Someone might try to discourage a buyer by pointing out flaws
in the item.
 Messing with the Price: They might do something to make it hard to figure out the real
price of the item.
 Scaring People Away: Sometimes, they use tricks to make potential buyers leave the
auction.

In short, damping is cheating at an auction, and it's not allowed.

• Implied Warranties in an Auction Sale.

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 When an auctioneer sells items, they promise to do these things:

1. They promise they have the right to sell the items they put up for auction.
 This means they won't sell things that don't belong to them.
2. They promise they don't know about any problems with who owns the items.
 In other words, they won't sell something if they know someone else might claim it
later.
3. They promise to give the items to the buyer after the buyer pays.
 Basically, they'll hand over the stuff once you've paid for it.
4. They guarantee that the buyer can use the items without any trouble.
 They promise that no one will bother you about the items you bought from them.

CHAPTER 4:HIRE-PURCHASE LAW

INTRODUCTION.

Hire-Purchase Agreement - Buying without Paying Everything Upfront

Imagine you want to buy something, like a phone or a TV, but you don't have all the
money right away. So, you talk to the person who owns that thing, and you make a deal.

Here's how it works:

1. You agree to rent (hire) the item from the owner with a plan to eventually buy it.
2. There are rules for this deal, and these rules are controlled by a law called the Hire-
Purchase Act.
3. The law only applies to deals where the item's value is not too high, like if it's worth
less than a certain amount of money.

56
4. This law doesn't cover companies or special government programs for buying things
like cars.
5. The law says a hire-purchase agreement is when you get to use something (like a
phone) but can choose to buy it later.
6. Sometimes, in this deal, there's also a contract of guarantee. That's like a promise
from another person to pay for the item if you can't. It's like having a backup plan.
7. This deal is good because you don't have to pay all the money at once. You can take
your time paying in smaller amounts.
8. The owner still owns the item until you make all the payments. You can decide to buy
it or give it back.

So, a hire-purchase agreement lets you get things without emptying your wallet right
away. You rent it for a while and then decide if you want to keep it or return it.

THE NATURE OF A HIRE-PURCHASE AGREEMENT

Hire-Purchase Agreement - Rent First, Buy Later

Imagine you want a fancy gadget, like a laptop, but you can't pay for it all at once. So, you
make a special deal with the store.

Here's how it works:

1. You agree to rent (hire) the laptop from the store.

2. You can decide to buy it later, but you don't have to.
3. You'll pay for the laptop in smaller amounts, like monthly payments.
4. When you sign the agreement, you get to use the laptop, but you don't own it yet.
5. The store still owns the laptop until you finish paying all the money.
6. If you miss a payment, the store can take back the laptop. You can't get your previous
payments back, though. They're like rent for using the laptop.
7. You can also choose to return the laptop and end the deal early if you follow some
rules.
8. You only fully own the laptop when you make the last payment.

So, a hire-purchase agreement lets you use something and decide later if you want to
keep it. You pay in small parts until you own it completely.
REQUIREMENTS OF A HIRE-PURCHASE AGREEMENT

Hire-Purchase Agreement Rules - Protecting the Hirer

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 Imagine you're renting something with an option to buy it later, like a car. There are rules
in place to make sure you understand the deal and are protected. These rules come from
the Hire-Purchase Act.

Here's what you need to know:

1. Know the Prices: Before you sign anything, the seller must tell you in writing:
 The full cash price of the item (what it costs if you buy it outright).
 The hire-purchase price (what you'll pay in total, including any initial payments).
2. Written Agreement: The whole deal must be written down in English, and you need to
personally sign it. You can't have someone else sign it for you. Spoken agreements won't
count. You also need to make sure it's properly stamped if it requires a stamp for legal
purposes.
3. What's in the Agreement: The written agreement must include all this info:
 Cash price of the item.
 Hire-purchase price.
 How much each payment will be.
 Due dates for each payment.
 Your rights under the agreement.
 A good description of the item.
 Limits on the seller's right to take back the item.
4. Get Copies: You should get at least one copy of the agreement you signed. If you can
end the agreement early, you should get two copies. They need to be sent to you within
21 days of making the deal, either by mail or in person.
5. Register the Agreement: There's a public office with a Registrar that handles hire-
purchase agreements. You and the seller must deliver the agreement for registration
within 30 days of signing it. The Registrar will issue a certificate to the seller. If it's not in
English, not properly stamped, or you're late in registering, the Registrar might not accept
it. They can extend the registration period if there's a good reason for the delay.

Consequences of Not Registering: If the seller doesn't register the agreement, these
things can happen:

 They can't force you to follow the agreement.

 They can't use legal action to take back the item.
 Any security you or a guarantor provided isn't enforceable against you or the guarantor.

So, these rules make sure you're informed, and your rights are protected when you're
renting with an option to buy something.

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 VOID PROVISIONS IN HIRE-PURCHASE AGREEMENTS

The Hire-Purchase Act has certain rules to protect people who rent-to-buy. Section 7 of
this act says that some rules in rental agreements are not allowed. These include:

1. The owner or their agent can't just come into your place and take back the stuff you're
renting.
2. The owner or their agent can't avoid being responsible when they come to your place to
take back the stuff.
3. You can't be prevented from ending the rental agreement if you want to.
4. You can't be made to pay more than half of the total price if you decide to end the rental
agreement.
5. The owner can't avoid being responsible for the actions of anyone working for them when
making the agreement.

These rules are there to make sure rental agreements are fair and protect your rights.

HIRE-PURCHASE AND CREDIT SALE AGREEMENTS

A Credit Sale Agreement is when you buy something and can pay for it in a few
installments, usually four or five. You own the item right away after the first payment.

A Hire-Purchase Agreement is more like renting something with an option to buy it or

return it. It's regulated by different laws, and the people involved are called Owners and
Hirers instead of Sellers and Buyers. Ownership of the item in a Hire-Purchase Agreement
doesn't happen until you make the final payment.

Here are some key differences:

1. Nature of Agreement: In a Credit Sale Agreement, it's about selling goods on a payment
plan. In a Hire-Purchase Agreement, it's about renting with an option to buy.
2. Laws: Credit Sale Agreements follow the Sale of Goods Act, while Hire-Purchase
Agreements follow the Hire-Purchase Act.
3. Parties: In a Hire-Purchase Agreement, you have Owners and Hirers. In a Credit Sale
Agreement, you have Sellers and Buyers.
4. Ownership: Ownership transfers right away in a Credit Sale Agreement after the first
payment. In a Hire-Purchase Agreement, it only transfers after the final payment.
5. Risk of Loss: If something happens to the item without anyone's fault in a Hire-Purchase
Agreement, the Owner is responsible. In a Credit Sale Agreement, it's the Buyer's
responsibility.

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6. Repossession: Owners can take back the item in a Hire-Purchase Agreement if the Hirer
misses payments. In a Credit Sale Agreement, the Seller can't take back the item but can
sue for unpaid amounts.
7. Returning the Item: In a Hire-Purchase Agreement, the Hirer can return the item at any
time if they meet certain conditions. In a Credit Sale Agreement, the Buyer can't return the
item unless there's a problem with it.
8. Reselling: Hirers can't sell items in a Hire-Purchase Agreement. Buyers can sell items in a
Credit Sale Agreement.
9. Number of Payments: You can have as many payments as you want in a Hire-Purchase
Agreement, but Credit Sale Agreements are limited to four or five payments.
10. Registration: Hire-Purchase Agreements need to be in writing and registered. Credit Sale
Agreements can be in writing or even spoken, and they don't need registration.

HIRE-PURCHASE AND CONDITIONAL SALE AGREEMENTS

A Conditional Sale Agreement is like a promise to buy something, but you pay for it in
installments. You only fully own it when you meet certain conditions set by the seller or
the law. These conditions might be about making payments or other things mentioned in
the agreement.

Here's the difference between a Conditional Sale Agreement and a Hire-Purchase

Agreement:

In a Conditional Sale Agreement, you must buy the item. In a Hire-Purchase Agreement,
you have a choice to buy it if you want.

Both of these agreements are similar because you don't fully own the item until you meet
certain conditions or pay all the installments. But they have different rules. Conditional
Sale Agreements follow the Sale of Goods Act, while Hire-Purchase Agreements follow
the Hire-Purchase Act.

Remember, most of the differences between Hire-Purchase and Credit Sale Agreements
also apply to Conditional Sale Agreements, except for things like when you own the item,
who's responsible if it's damaged, and whether you can resell it.
IMPLIED TERMS IN A HIRE-PURCHASE AGREEMENT

(Conditions and Warranties)

In a Hire-Purchase Agreement, there are two important things: conditions and warranties.

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 A condition is like a super important rule that must be followed. If it's not followed, the
whole agreement can be canceled.

A warranty is also a rule, but it's not as important as a condition. If a warranty is broken,
you can't cancel the agreement, but you can ask for compensation.

So, in every Hire-Purchase Agreement, there are these rules:

 Conditions: Really important rules. If not followed, the whole agreement can be canceled.
 Warranties: Less important rules. If broken, you can't cancel the agreement, but you can
ask for compensation.
Implied Condition In Hire-purchase Agreements:

In every Hire-Purchase Agreement, there are some important rules:

1. Right to Sell: The owner must have the right to sell the goods when the hirer pays the last
installment.
2. Good Quality: The goods must be of good quality, except if they are second-hand and it's
stated in the agreement.
3. Fit for Purpose: If the hirer tells the owner what they need the goods for, the goods must
be suitable for that purpose.
4. Ownership: The hirer will own the goods once they pay the last installment.
Implied Warranties In Hire-Purchase Agreements:

1. Peaceful Use/QUIET Possession: The hirer is guaranteed peaceful and undisturbed use of
the goods while they have them.
2. No Hidden Charges/free of charge: The goods must not have any hidden debts or claims
against them when the hirer is supposed to become the owner.

DUTIES OF OWNERS AND HIRERS OF GOODS

The duties of the parties to a Hire-Purchase Agreement may be summarized as follows:-

Duties of OWNERS of Goods InHire-Purchase Agreements.

In a Hire-Purchase Agreement, the Owner (the one who lets you hire the goods) must:

1. Tell you the prices in writing before or when you make the agreement.
2. Reveal any hidden problems with the goods.
3. Give you the goods as agreed.
4. Register the agreement within 30 days.
5. Provide you with copies of the agreement within 21 days.
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6. Accept your payments on time.
7. Cover any losses or problems caused by defects in the goods or issues with the Owner's
ownership of the goods.
Duties of HIRERS of Goods In Hire-Purchase Agreements

As the Hirer in a Hire-Purchase Agreement, you must:

1. Sign the agreement yourself, not through someone else.

2. Check that the goods you're hiring are suitable for your needs.
3. Receive the goods at an agreed location.
4. Take good care of the goods while they're with you.
5. Make payments as agreed and on time.
6. Stick to the agreed rental period unless you decide to end or complete the agreement
early.
7. Let the Owner know in writing if you want to end or complete the agreement early.
8. Inform the Owner if your address changes.
9. Pay for any repairs or damages if you don't take good care of the goods.
TERMINATION AND COMPLETION OF HIRE-PURCHASE AGREEMENTS

Termination happens when the Hirer decides to end the agreement early.

Completion occurs when the Hirer wants to meet all the agreement terms ahead of
schedule or when the Owner takes back the goods, and the Hirer wants them back.

There are specific rules for both Termination and Completion in Hire-Purchase
Agreements.
These rules are:

Rules of Termination of Hire-Purchase Agreement

The Hirer can end a Hire-Purchase Agreement before the final payment, but there are
rules to follow:

1. Write a notice to the Owner saying you want to terminate the agreement.
2. Pay all due instalments plus enough to cover at least half of the total price, unless the
agreement says less.
3. If you didn't take good care of the goods, be ready to pay for any damages.
4. Return the goods to the Owner's place where you got them or where the Owner tells you
to.
5. The Owner must give you back any extra money you spent to return the goods, like
transport costs.
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 Rules of Completion of Hire-Purchase Agreement

The Hirer can complete the Hire-Purchase Agreement in two situations:

a) Anytime during the agreement:

 Write a notice to the Owner saying you want to complete the agreement.
 Pay the remaining amount you owe on a specified day.

b) Within 28 days after the Owner takes back the goods:

 Write a notice to the Owner within 28 days of them taking the goods back.
 Pay the remaining amount you owe on a specified day.
 Pay the Owner for the costs of taking back the goods.
 Cover expenses for storage, repair, and maintenance of the goods.
 Pay any extra interest according to the agreement.

RECOVERY OF POSSESSION OF GOODS

The Hire-Purchase Act allows the Owner to take back the goods if the Hirer misses
payments or breaks the agreement. But there are rules to protect the Hirer:

1. If the Hirer has paid at least two-thirds of the total price, the Owner can't take the goods
back.
2. There are exceptions: a) If the Hirer ended the agreement but didn't return the goods. b)
If the Owner gets a court order to take back the goods.

If the Owner takes back the goods against these rules:

 The agreement is considered ended.

 The Hirer doesn't owe anything more.
 Any guarantor is released from their responsibilities.
 Any security given is released.
 The Hirer can sue the Owner to get back all the money paid, including the deposit.
 A guarantor can also sue the Owner to get back all the money paid under the guarantee.

The Owner can only take back the goods with a court order if the Hirer has paid more
than two-thirds of the price. If the Owner goes to court, they might get orders to protect
the goods, like stopping their use or returning them to the Owner. The court can also set
conditions for the Hirer or guarantors to pay any remaining amounts.
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 Note:

 If the Hirer refuses to return the goods after a written request from the Owner, they can
be liable for damages.
 The Owner can temporarily move the goods to protect them if two or more payments are
due, without it counting as repossession.
 If the Owner legally takes back the goods, they must sell them for a fair price and return
any extra money to the Hirer.
 Even if the Owner goes bankrupt or is liquidated, the agreement still stands and the
trustee or liquidator takes over the Owner's role.

REQUEST FOR INFORMATION BY HIRER.

If the Hirer wants information about the agreement, they can ask for it in writing. The law
says the request should be sent by registered mail, and the Owner has to pay for the
reply.

The Owner must respond within 14 days with a signed statement that includes:

a) How much is left to pay on the agreement.

b) A list of all payments made and when they were made.

c) Details about the unpaid instalments and when they are due.

d) The total cost of the agreement.

e) Information about future instalments and when they're due.

If the Owner doesn't provide this information when asked:

a) The Owner can't enforce the agreement against the Hirer or guarantor.

b) The Owner can't take back the goods from the Hirer.

c) Any security given by the Hirer or guarantor can't be enforced.

Also, it's important to know that giving false information when entering into a Hire-
Purchase Agreement is against the law and can result in fines or even imprisonment.

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 PROTECTION OF PARTIES UNDER THE HIRE-PURCHASE ACT (CAP.507)

The Hire-Purchase Act is a law that looks out for consumers. It has rules to protect both
the people who own goods (Owners) and the people who are buying them (Hirers).

Owners need protection because they give their goods to Hirers and can't always control
what happens to them. Hirers also need protection because they're making payments for
goods that still belong to the Owners. Here are some of the protections that the Hire-
Purchase Act provides for both Hirers and Owners:
Protections to Hirers of Goods

The Hire-Purchase Act has several rules to protect people who are buying goods using a
hire-purchase agreement. These rules make sure both the buyers (called Hirers) and the
sellers (called Owners) are treated fairly. Here are some of these important rules that
protect the buyers:

1. Notification of Cash Price: Before a hire-purchase agreement is signed, the Owner must
tell the Hirer how much the goods cost in cash and how much it will cost if they choose
the hire-purchase option. This helps the Hirer make an informed decision.
2. Written and Signed Agreement: All hire-purchase agreements must be written down
and signed by the Hirer personally, as well as by the Owner or someone on their behalf.
This written agreement is proof of what was agreed upon.
3. Copy of Agreement: The Owner has to send the Hirer a copy of the agreement by
registered mail within 21 days after it's made. This allows the Hirer to review the
agreement and know their rights and responsibilities.
4. Registration of Agreement: The Owner must register the agreement with a special office
called the Registrar of Hire-Purchase Agreements within 30 days of making it. If they
don't, the agreement becomes unenforceable, meaning the Owner can't make the Hirer
pay, take back the goods, or use any security given under the agreement. This protects
the Hirer.
5. Implied Terms: The Act automatically includes certain conditions and warranties in the
agreement. These include the right to sell the goods, that the goods should be in good
condition, and that they should be fit for their intended purpose. This ensures the goods
are of acceptable quality.
6. Two-Thirds Payment Rule: If the Hirer has paid at least two-thirds of the hire-purchase
price, the Owner can't take the goods back without going to court or unless the Hirer
ends the agreement. If the Owner takes the goods unlawfully, the agreement is
considered ended, and the Hirer is free from any obligations.

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7. Best Resale Price: If the Owner legally takes back the goods, they must sell them at a
reasonable market price and give the Hirer any extra money made from the sale. This
prevents the Owner from making an unfair profit.
8. Bankruptcy of Owner: Even if the Owner goes bankrupt or is in liquidation, the hire-
purchase agreement remains valid and is binding on the new person in charge. This
ensures the Hirer's rights are protected.
9. Termination of Agreement: The Hirer can end the hire-purchase agreement at any time
before its due date. This allows them to get out of the contract and avoid further
obligations.
10. Request for Information: The Hirer can ask the Owner for information about the
agreement, like how much they've paid and how much is left. The Owner must provide
this information. This keeps the Hirer informed about their agreement.

These rules help make sure that both Hirers and Owners are treated fairly and know their
rights in hire-purchase agreements.
Protections to Owners of Goods

The Hire-Purchase Act has various rules that protect Owners of goods as well. These rules
make sure Owners are not taken advantage of in hire-purchase agreements. Here are
some important rules that safeguard the interests of Owners:

1. Contract of Guarantee: The Owner can ask for a guarantee in the agreement. This means
someone else, called a guarantor or surety, promises to pay if the Hirer doesn't fulfill their
obligations. This helps ensure the contract is honored even if the Hirer defaults.
2. Change of Address: The Owner can require the Hirer to provide their addresses and
notify any changes. This helps the Owner know where the goods are and how to contact
the Hirer.
3. Repossession of Goods: If the Hirer hasn't paid at least two-thirds of the total hire-
purchase price, the Owner can take back the goods if the Hirer misses an installment,
without needing to go to court. The Owner can also take back the goods to protect them
from damage or loss if two or more installments are unpaid. These rules protect the
Owner's interests.
4. Implied Terms: In some cases, the implied condition of goods being fit for use doesn't
apply. For instance, if the goods are second-hand and it's stated in the agreement, or if
the Hirer could have found defects by examining the goods. The Owner can also exclude
the condition of fitness for purpose through an express agreement with the Hirer. This
protects the Owner when selling different types of goods.
5. Rights on Termination: While the Act allows the Hirer to terminate the agreement
before its due date, there are rules in place to protect the Owner. The Hirer must follow
specific termination rules, like giving written notice to the Owner, paying a portion of the
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 price, returning the goods at their own cost, and covering repair charges if the goods are
damaged. These rules balance the interests of both parties.
6. Licensing and Registration: The Act requires all businesses involved in hire-purchase to
get a license from a designated officer. This safeguards Owners from unauthorized
competition. Additionally, all hire-purchase agreements must be registered with the
Registrar, making it easier for Owners to prove the validity of their agreements in case of
disputes.
7. False Information: Anyone providing false information in documents related to a hire-
purchase agreement can be fined or imprisoned. This provision helps ensure that the
information exchanged in these agreements is truthful, benefiting both Owners and
Hirers.
8. Removal of Goods out of Kenya: The Owner can specify in the agreement that the Hirer
cannot take the goods out of Kenya without the Owner's written consent. This ensures
that the goods remain within the reach of Kenyan courts and protects the Owner's rights.
Violating this provision is considered an offense.
9. Adverse Possession by Hirer: If the Hirer refuses to return the goods after a written
request from the Owner, they can be held responsible for keeping the goods against the
Owner's rights and may be liable for damages. This provision safeguards the Owner's
property rights.

These rules help make sure that Owners of goods in hire-purchase agreements are also
treated fairly and have legal protections in place.
CHAPTER 5: NEGOTIABLE INSTRUMENTS
INTRODUCTION
 Explain the nature and meaning of negotiable
instruments.
 Describe the characteristics of negotiable instruments. 
Outline the types of negotiable instruments.

The Nature and Meaning of Negotiable Instruments

A "negotiable instrument" is like a special kind of document used in business and money
dealings. If it meets certain conditions, it can be easily transferred from one person to
another in exchange for something valuable, usually money. Think of it as a way to pass
on a debt or a promise to pay.

In Kenya, the laws about negotiable instruments are found in the Bill of Exchange Act and
the Cheque Act. These laws are based on English law and court decisions. According to
Justice Willis, a negotiable instrument is something that anyone who gets it in good faith
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 and in exchange for something valuable can own, even if the person who gave it to them
had some problems with their ownership.

Thomas adds that a negotiable instrument is something that:

1. Can be passed to someone else by giving it to them or signing it over to them.

2. Can be used in court by the person who has it, without notifying the person who owes the
money (the debtor).
3. The new owner gets full ownership of, even if the previous owner had some problems
with it.

Here are some important things to know about negotiable instruments:

1. Easy to Transfer: You can easily give it to someone else without a lot of paperwork. Just
handing it over or signing it is usually enough.
2. Clean Ownership: If you get it in good faith and for something valuable (a holder in due
course), you become the rightful owner, even if the person who gave it to you didn't have
a perfect claim to it.
3. Legal Action: You can take legal action to collect the money it promises to pay, and you
don't have to tell the person who owes the money in advance.
4. Presumptions: The law assumes certain things about negotiable instruments unless
there's proof to the contrary:
 They were created for a good reason (consideration).
 They were made on the date written on them.
 They were accepted or agreed to in a reasonable time.
 They were transferred before they were due.
 The endorsements (signatures on the back) were done in order.
 They had the right amount of tax stamps.
 The current holder is a holder in due course.
 If one is dishonored (not paid), it's presumed to be true until proven otherwise.

In simple terms, negotiable instruments are like special documents that can be easily
passed from person to person, and the law assumes they're made and used fairly unless
there's proof otherwise. They're mainly used in financial transactions to promise payments
and debts.
Types of Negotiable Instruments

Negotiable instruments come in two types:

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1. Negotiable by Law/Statute: These are negotiable instruments that the law recognizes,
like the Bill of Exchange Act and the Cheques Act. The law identifies three types of these
instruments: bills of exchange, promissory notes, and cheques.
2. Negotiable by Custom: Some other instruments become negotiable because of business
customs or common practices. These can include things like treasury bills, share warrants,
dividend warrants, bearer debentures, banknotes, and circular notes. But remember, not
everything falls into this category. Money orders, postal orders, share certificates, letters
of credit, and similar items are not negotiable instruments.

BILLS OF EXCHANGE
 What is bill of exchange?
 Outline the essentials or characteristics of a bill of exchange.
 Highlight the advantages or importance of a bill of exchange.
Meaning of bill of exchange

A bill of exchange is a written document that's like a money order. It has three main
people involved:

1. The Drawer: This is the person who creates the bill and orders someone else to pay
money.
2. The Drawee: This is the person who is supposed to pay the money on the bill.
3. The Payee: This is the person who should get the money from the bill.

If the drawer or the payee has the bill, they're called the holder. The holder has to show
the bill to the drawee to get their agreement to pay. When the holder puts their signature
on the bill, it's called endorsing it. The person they give the bill to is called the endorsee.
Specimen of a bill of exchange

Kshs. 200,000 Nairobi, June 28, 2022

Three months after date pay to Kyliam or order the sum of two hundred thousand shillings,
for value received.
To.
Steward Andrew Box 6094-00300, Nairobi.

In case of need with Accepted

Equity Bank of Kenya, Steward Andrew Sign…………. Stamp
Market Branch, Nairobi.
Jillian

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 Essentials or Characteristics of a bill of exchange

A bill of exchange must follow these rules:

1. In Writing: It has to be written down and signed by the person who's creating it.
2. Order to Pay: It should be an order to pay, not just a polite request.
3. Unconditional: The order to pay must be clear and not have any conditions.
4. Three Parties: It involves three people: the one creating it (drawer), the one who should
pay (drawee), and the one who gets paid (payee).
5. Certain Parties: The people involved should be clear and definite.
6. Money Only: It's for ordering payment of money, nothing else.
7. Specific Amount: The amount of money must be clear.
8. Formalities: It usually includes details like the number, date, place, and reason, but these
aren't always required by law. However, it does need the right stamp.

Advantages or Importance of a bill of exchange

1. Double Security: A bill of exchange provides extra security. If the person who should pay
doesn't, the one who created the bill can be held responsible for payment.
2. Quick Cash: If someone needs money right away, they can take the bill to a bank and get
it exchanged for cash.
3. Settling Debts: A bill of exchange can be used to settle two different debts in a trade
transaction.

PRESENTMENT OF A NEGOTIABLE INSTRUMENT

"Presentment of a negotiable instrument" means showing the document to the person

who needs to accept it, pay it, or acknowledge it. There are three types of presentment:

1. Presentment of Bills of Exchange for Acceptance: Showing a bill to someone so they

agree to pay it later.
2. Presentment of Promissory Note for Sight: Showing a promissory note to someone to
confirm its terms.
3. Presentment of a negotiable instrument for Payment: Showing a document to
someone so they can make the payment it represents.

PRESENTMENT FOR ACCEPTANCE

 What is meant by “presentment for acceptance”?

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  What are the rules regulating presentment for acceptance?
 When is presentment for acceptance excused/dispensed with?
Presentment of a Bill for Acceptance

"Presentment" means showing a document to the person who needs to accept it. In some
cases, like bills of exchange, showing the document for acceptance is not required by law,
but it's a good idea to do so. When the person agrees to pay the bill, they sign it, and this
is called "acceptance." They become the "acceptor," and their liability to pay begins at
that point.

Rules for presenting a bill for acceptance include:

1. The holder or their representative must show the bill to the person who needs to accept
it.
2. Presentment should happen within the time specified in the bill or within a reasonable
time if no time is mentioned.
3. It should be done on a business day during business hours at the place mentioned in the
bill or at the person's business or home if no location is specified.
4. If there are multiple people who need to accept the bill and they are business partners,
you can present it to any of them with authority to accept.
5. If there are multiple drawees who are not partners, you need to present it to all of them,
unless one has authority to accept for all.
6. If the drawee has passed away, you present it to their legal representatives.
7. If the drawee is bankrupt, present it to the assignee, official receiver, or trustee in
bankruptcy.
When presentment for acceptance is excused or dispensed with.

It's important to know that sometimes you don't have to show a bill for acceptance in
these situations:

1. When you can't find the person who needs to accept it after looking for them reasonably.
2. When the person who needs to accept it has passed away or is bankrupt, but you can
show it to their legal representatives or trustee in bankruptcy.
3. If the person who needs to accept it is not a real person or doesn't have the legal capacity
to make contracts.
4. When, despite trying your best, you can't manage to show the bill for acceptance.
5. If, even though the presentation was done in an irregular way, the person refuses to
accept it for some other valid reason.

PRESENTMENT FOR SIGHT

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 When it comes to promissory notes, there's no need for acceptance because the person
who promises to pay (the maker) is the one responsible for it. However, if the note says it
should be paid a certain time after it's seen by the maker, then someone has to show it to
the maker to set the due date. If the maker can't be found after a reasonable search, you
don't have to show it, and you can consider it as not being honored.

This showing should happen during business hours on a regular workday. If someone
doesn't show it in time, they can't hold anyone responsible for the note.

PRESENTMENT FOR PAYMENT

What do you is meant by presentment for payment?

When is presentment for payment not necessary?
What are the rules regulating presentment for payment?
Presentment for payment
Promissory notes, bills of exchange, and cheques have to be shown to the person who's
supposed to pay (like the maker, acceptor, or drawee), either by the holder or someone
on behalf of the holder. If they don't do this on time, the other people involved in the
note (those who aren't primarily responsible for paying) can't be held responsible by the
holder.

But if there's an agreement or it's a common practice, you can send it by registered mail
through the post office, and that counts as showing it.

If a promissory note says it has to be paid whenever the holder asks, and there's no
specific due date, then you don't have to show it to charge the maker. This is because, in
the common law, it's the debtor's job to find their creditor and pay them.

When presentment for payment is not necessary.

Presentment for payment is not necessary in the following circumstances:-
1. When the person who should pay the money deliberately avoids being shown the
instrument.
2. When the instrument says it should be paid at a certain place, but that place is closed
during normal business hours.
3. When it's supposed to be paid at a certain place, but nobody authorized to pay it is there
during regular business hours.
4. When there's no specific place for payment, and the person who should get the money
can't be found after looking for them.
5. When there's a promise to pay even without showing the instrument.

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6. When the need to show the instrument for payment is either explicitly or implicitly
canceled by the person who has the right to show it, before or after it's due.
7. When the drawer (the person who made the instrument) wouldn't suffer any harm from
not having it shown.
8. When the bill (the instrument) is already marked as not accepted.
9. When the drawer is a made-up person, not a real one.
10. When the drawer and the person who should pay are the same.

Rules regarding presentment for payment

1. You must show the instrument for payment during regular working hours or, for cheques,
during banking hours.
2. If a promissory note or bill of exchange is due after a specific date or sight, it must be
shown for payment when it's due. Any delay after that lets off everyone who isn't mainly
responsible for the payment.
3. If a promissory note has installment payments, you should show it for payment on the
third day after each installment due date.
4. If a negotiable instrument can be paid on demand, you need to show it for payment
within a reasonable time after you receive it.
5. You should show the instrument for payment at the place specified in it. If it doesn't say
where, then it should be shown at the person's place of business or residence or where
they can be found.
6. For cheques, present them at the bank before your relationship with the bank and the
drawer changes to the drawer's disadvantage.
7. You can show the instrument to the authorized agent of the person who should pay. If
the person has passed away or is declared bankrupt, show it to their legal representatives
or the bankruptcy trustee.
8. If circumstances beyond your control cause a delay in showing the instrument, that delay
is forgiven. But once those circumstances are gone, you should show it for payment in a
reasonable time.

ENDORSEMENTS ON A BILL OF EXCHANGE

 Explain the kinds of endorsements that can be made on a bill of exchange.

When you have a bill of exchange that's supposed to be paid to a specific person or
whoever they choose, you can only pass it to someone else by signing the back of it and
giving it to them. This signature on the back is called an endorsement. There are different
types of endorsements:

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 i. Blank Endorsement: This happens when the endorser (the person signing)
just puts their signature on the back of the bill. Once it's blank-endorsed,
anyone who holds it can get paid, even if it was originally meant for a specific
person.
ii. Special Endorsement: In a special endorsement, the endorser not only
signs but also writes the name of the person they want the bill to be paid to.
This makes it clear who should get the money.
iii.Conditional Endorsement: This type of endorsement adds conditions or
limits to the endorser's responsibility. For example, if someone writes "sans
recours" (without recourse), it means they're not taking any responsibility for
the bill. There's also "sans frais" (without expenses), which means they're okay
with paying the bill amount but not any extra costs.
iv. Restrictive Endorsement: This kind of endorsement puts restrictions on
further transfers of the bill. For instance, if the bill is endorsed with "Pay X
only," it means only the person named as X can receive the payment. Others
can't pass it on to someone else.

HOLDER AND HOLDER-IN-DUE-COURSE

 Who is a holder?
 Who is a holder-in-due-course?
 What are the rights and duties of a holder-in-due-course?
Meaning of holder

A "holder" of a promissory note, bill of exchange, or cheque is someone who has the right
to have it and collect the money that's supposed to be paid on it. If the note, bill, or
cheque gets lost or destroyed, the holder is the person who had the right to it when it
went missing.

To be the holder in your own name, you must either be the person the instrument is
made out to (the payee) or someone it's endorsed to (if it's payable to order). If it's a
"bearer" instrument, then you simply need to physically have it in your possession. So,
being a holder means you're the person who can rightfully have the document and get
the money from the people who owe it according to that document.
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 Meaning of holder-in-due-course

A "holder in due course" is someone who owns a promissory note, bill of exchange, or
cheque and met certain conditions when they got it. These conditions are:

1. They got it in exchange for something valuable (like money).

2. They got it before the date when it's supposed to be paid.
3. They got it in an honest and fair way, without knowing about any problems with its
ownership.
4. They got it without knowing that it was previously rejected or dishonored.
5. They got it in exchange for something valuable.

So, to be a holder in due course, you need to follow these rules when you get one of
these financial documents, like a promissory note or cheque.
Rights of holder-in-due-course

1. If you're a holder in due course, you can take legal action using the bill in your own name.
2. You have a clean and problem-free ownership of the bill, without any issues from
previous owners.
3. Even if you had a problem with ownership and you pass the bill to someone else, they
won't inherit your ownership issues. They get a clear title.
4. If you had ownership problems but still managed to receive payment on the bill, the
person who pays you won't have to pay again. They're considered clear of any bill-related
obligations.
Duties of holder-in-due-course

1. Show the bill to the person who needs to agree to pay if it's a "pay later" kind of bill.
2. Show the bill and get paid, or else the people who signed it before you won't be
responsible anymore.
3. Tell everyone if the bill can't be paid, so they know it's not working out.
4. Make a written record or formal announcement when the bill can't be paid, as proof that
it didn't work out.
DISCHARGE OF A BILL OF EXCHANGE
 Explain ways by which a bill of exchange may be discharged?
Ways of discharging a bill of exchange

1. Payment in Due Course: The most common way to clear an instrument is by the person
who should pay it doing so. This person is usually the maker or acceptor.
2. Primary Payer Becomes Holder: If the person who's supposed to pay the bill ends up
owning it after it's due, and they fully own it (not as an agent or with any conditions), the
bill is cleared.

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3. Express Waiver: If the bill holder gives up their right to collect payment from everyone
involved, in writing, the bill is cleared.
4. Cancellation: If the bill is intentionally marked or destroyed in a way that's obvious, it's
cleared. You can cross out signatures or physically ruin the bill.
5. Alteration: Changing important details on the bill, like the amount or due date, without
everyone's agreement, clears the bill.
6. Discharge as a Simple Contract: The bill can also be cleared like any other money
agreement, by doing things like replacing it with a new deal or when it's too old to be
enforced.

CHEQUES
 Define a Cheque
 Distinguish between a Cheque and a Bill of Exchange

Definition of Cheque

A cheque is like a special type of money note. It's a bit like a regular bill of exchange, but
there are two main things that make it different:

1. Specific Bank: A cheque is always meant to be used with a particular bank, so you can't
use it with just any bank.
2. Immediate Payment: A cheque is designed for instant payment, so you don't need to
wait for someone to agree to pay you later.

So, all cheques are a type of bill of exchange, but not all bills of exchange are cheques.
For a cheque to work, it must follow all the basic rules of a bill of exchange. That means
the person who writes it (the drawer) needs to sign it, and it must have a clear and direct
order to the bank, telling them to pay a specific amount of money to someone named on
the cheque or just anyone holding it. Unlike regular bills of exchange, cheques don't need
to be accepted; they're made for getting your money right away.
Specimen of a Cheque

No……. Date……Month…….20…….
NATIONAL BANK OF KENYA
Harambee Avenue, Nairobi

Pay………………………………………………………………………..………….or bearer
the sum of Kshs……………………………………………………………………………….

Kshs………… Sign……………..
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 Distinctions between a Cheque and a Bill

Let's break down the main differences between a bill of exchange and a cheque:

1. Who It's Drawn On:

 A bill of exchange can be drawn on anyone, including a banker.
 A cheque is always drawn on a banker, a specific bank. So, not all bills are cheques,
but all cheques are bills.
2. Acceptance:
 A bill needs to be accepted by the person it's drawn upon before payment.
 A cheque doesn't require acceptance; it's meant for immediate payment.
3. When It's Payable:
 A bill can be payable on demand or after a certain period.
 A cheque is always payable on demand, meaning you get your money right away.
4. Presenting for Payment:
 For a bill, you have to present it for payment to the person who needs to pay you.
If you delay, the person who wrote the bill might not be responsible anymore.
 With a cheque, if you don't present it right away, the person who wrote it may only
be off the hook for any damage you caused by waiting.
5. Grace Period:
 Bills not payable on demand usually get three days of grace.
 Cheques don't get any grace period.
6. Stopping Payment:
 The person who writes a cheque can stop its payment if needed.
 You can't stop payment on a bill.
7. Noting or Protesting:
 Cheques don't need to be noted or protested for dishonor.
 Bills may need to be noted or protested in some cases.
8. Stamp Requirement:
 Cheques don't require stamps.
 Bills often need to be stamped, except in certain cases.
9. Crossing:
 Cheques can be crossed to make sure they're paid into a bank account.
 Bills can't be crossed like this.
LIABILITY OF A BANKER AND DRAWER ON A CHEQUE
 Explain the liability of a Banker and a Drawer in relation to a Cheque.

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 The relationship between a banker and a customer is like a contract. The banker owes the
customer money, and the customer trusts the banker with their money. It's a bit like the
relationship between a helper and the person they're helping.

Here's what the banker must do:

 Honor Cheques: If the customer has enough money in their account, the banker must
give it to them when they write a cheque. If not, the banker can get into trouble.
 Keep Good Records: The banker needs to keep accurate records of all the things they do
with the customer's money.
 Follow Instructions: If the customer tells the banker to do something related to their
money, the banker must do it.
 Keep Secrets: The banker can't tell anyone else about the customer's account. Sharing
this info could hurt the customer's reputation or business.

Here's what the banker can't do:

 Tell About the Account: The banker can't talk about the customer's account to others, as
that could harm the customer.

To become a customer, all you need is to open an account with the bank. It doesn't
matter how long the relationship lasts. This special relationship comes with certain rules
and responsibilities for both the banker and the customer.

1. Right to Keep Stuff/lien: Unless there's an agreement saying otherwise, the banker can
hold onto things or valuable items that the customer gives them as a sort of guarantee
until everything is settled.
2. Right to Charges and Interest: The banker can ask the customer to pay for certain
things and interest on borrowed money. But, these charges and interest should follow the
rules and terms that the bank explained when the customer opened the account.
3. Right to Combine Debts/Set off: If a customer has two accounts with the bank, one has
money, and the other is in debt, the bank can use the money in one account to pay off
what's owed in the other account.
4. Right to Decide Where Payments Go/Appropriation: If a customer owes money for
different things and they don't pay enough to cover all of it, the banker can choose which
debt gets paid first, unless the customer says otherwise.
Liability/obligations of a Drawer (customer)
Here are the things a customer should do in simple terms when dealing with their bank
and cheques:

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1. Tell If Cheque Bounces: If a cheque you received can't be cashed, inform your bank.
2. Sign Cheques Properly: Sign your cheques the way you showed your bank in the
signature example.
3. Report Lost Cheques Fast: If you lose your cheque, let your bank know as soon as
possible.
4. Pay Fees and Interest: Make sure to pay any fees and interest that you agreed to in your
banking agreement.

TERMINATION OF BANKER’S AUTHORITY

Ways a Banker's Authority to Pay on a Cheque Can Stop:

1. Customer Says Stop/Countermand: If a customer tells the bank not to cash a cheque,
the bank can't cash it. The customer must give this notice in time.
2. Customer's Death: If the customer dies and the bank knows, they can't cash their
cheques anymore. But if the bank cashes a cheque before knowing about the death, it's
okay.
3. Bankruptcy Notice: If the customer is in financial trouble and there's a notice of
bankruptcy against them, the bank can't cash their cheques.
4. Insanity Notice: If the customer is declared insane, the bank can't cash their cheques
until they're better or a court says it's okay.
5. Garnishee Order: If the bank gets a legal order about the customer's money, they can't
cash their cheques.
6. Not Enough Money: If the customer doesn't have enough money in their account, the
bank can't cash their cheque.
7. Notice of Account Assignment: If the customer tells the bank they've given their
account money to someone else, the bank can't cash their cheques.
8. Holder Has No Right: If the bank finds out the person trying to cash the cheque doesn't
have the right to it, they can't cash it. This might happen if the cheque was stolen.
9. Account Closed: Once the customer closes their account, the bank can't cash their
cheques, even if the cheque was written before the account was closed.
CROSSED CHEQUES
 Explain the effect of crossing a Cheque
 Discuss the kinds of Crossing that can be made on a Cheque
 Explain the protection given to a Paying a Banker in respect of a Cheque
 Explain the protection given to a Collecting Banker in respect of a Cheque

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 Effect of crossing a Cheque

Types of Cheques: Open vs. Crossed

1. Open Cheque: This is like cash. You can take it to a bank and get the money across the
counter. But if you lose it, someone else can find it and cash it. So, it's risky.
2. Crossed Cheque: To prevent open cheques from falling into the wrong hands, we use
crossed cheques. These have two parallel lines on them (sometimes with " & Co." written).
A crossed cheque can only be cashed through a bank, not over the counter. It's a way to
make sure the money goes to the right person and can be traced.

So, when you see those lines on a cheque, it means the money will be paid through a
bank, making it safer and more secure.
Kinds of Crossing on a Cheque

Types of Cheque Crossings: What They Mean

1. General Crossing: When a cheque has two parallel lines on it (with or without "and
company"), it's generally crossed. This means the bank won't give you the money over the
counter. You have to go to a bank to cash it.
2. Special Crossing: If a cheque has the name of a specific bank on it (with or without "not
negotiable"), it's specially crossed. You can only get the money through that particular
bank mentioned on the cheque. This adds extra security.
3. Not Negotiable Crossing: When a cheque says "not negotiable," it's still transferable, but
it's not as easy to transfer. This is done to protect the person who wrote the cheque from
it being mishandled in transit.
4. Account Payee/Restrictive Crossing: In addition to the above types, there's one more
called "A/c payee." This means the money must be credited to the payee's account. If the
bank credits it to a different account, they can be held responsible for the cheque's
amount. These cheques are still transferable, but they're safer for the payee.
Protection to a Paying Banker

How Cheque Payments Work: The Roles of Banks

When you deposit or cash a cheque, there are typically two banks involved: one that
collects the cheque and another that pays the money.

1. Collecting Bank: This bank is responsible for taking the cheque from the person who has
it and making sure it gets to the right place for payment.

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2. Paying Banker: This is the bank on which the cheque is drawn. It's the one that must give
you the money when the cheque is presented for payment.

Banks have certain protections to make this process smooth. These protections help them
do their job without too much interference. These protections come into play when the
paying banker has to pay the cheque, and they include specific circumstances.

Forged endorsement: - When a bank pays out money for a cheque in good faith and as part of its
normal operations, it can charge the account of the person who wrote the cheque (the drawer) for that
amount. This rule applies even if it later turns out that the endorsement (signature) of the person to
whom the cheque was written (the payee) was forged.

For example, let's say Person C wrote a cheque to Person D or "order." Then, Person E stole the cheque
and forged Person D's signature. Person C's bank paid out the money in good faith. In such a case, the
bank is not held responsible, and they can take the money from Person C's account.

This rule is also valid for crossed cheques, but the bank must have acted without negligence. It's all
about the bank acting honestly and responsibly in their usual banking procedures.

Exceptions to Banker's Protection from Liability on Cheques

There are situations where a bank is not protected from liability when dealing with
cheques:

1. Forged Signature: If the bank pays out money on a cheque with a forged signature of its
customer, it cannot escape liability. Banks are expected to know their customer's
signature, and they have to reimburse the customer for any money paid out on a forged
cheque, even if the forgery looked convincing.
2. Assisting Forgery or Delays: Banks are not protected if they actively help or intentionally
delay reporting a forgery after discovering it. If they hinder the process of catching the
forger, they are held responsible.
3. Fraudulent Increase: When the amount on a cheque is fraudulently increased, the bank
must repay the customer the extra amount added to the original. However, the bank may
not be liable if it can prove that the customer was partly at fault by leaving space for
fraudulent changes.
4. Non-Endorsement or Irregular Endorsement: If a cheque is not endorsed (signed on
the back) or is irregularly endorsed, a bank can still pay it out in good faith and without
liability. This means the bank won't be held responsible for missing or incorrect
endorsements.
•

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 Protection to a Collecting Banker

Section 3(2) of the Kenya Cheque Act provides safeguards for bankers who collect
payments from customers in the following situations:

1. No Title or Defective Title: If a banker, in good faith and without negligence, receives
payment for a customer for a certain type of document (like a cheque) and the customer
doesn't have proper ownership or has a flawed ownership claim, the banker won't be
liable to the true owner of the document just for accepting payment.
2. Crediting the Customer's Account: Similarly, if the banker credits the customer's
account with the amount from this type of document and the customer's ownership is in
question, the banker won't face liability to the actual owner of the document.

In these cases, the banker isn't considered negligent just because they didn't pay close
attention to the endorsements (signatures on the back) on the document, as long as they
acted in good faith.

A "prescribed instrument" in this context can be:

 A cheque.
 A document issued by a customer to a banker, not being a bill of exchange but meant to
help someone receive a specified sum of money.
 A draft drawn by a banker on themselves and payable immediately at one of their bank
branches.
PROMISSORY NOTES
 What is a Promissory Note?
 Outline the characteristics/essentials of a Promissory note 
Distinguish between Bill and a Note

Meaning of Promissory Note

A promissory note is a written promise to pay a specific amount of money. It's like a
formal IOU. Here's what you need to know:

 It has to be written down; just saying it isn't enough.

 It must clearly promise to pay, not just acknowledge a debt.
 This promise to pay has to be definite and not subject to any conditions.
 The person making this promise is called the maker, and the person receiving the money
is the payee.
 The maker has to sign the promissory note.

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 Specimen of a Promissory Note
Kshs. 20,000 Nairobi,
May, 2015

Three months after date I promise to pay Gilbeys Gilberta, or order the payment of twenty
thousand Kenya shillings for value receives.
To.
Gilbeys Gilberta,
P.O. Box 33566-00100,
NAIROBI Stamp

Sign: Tony

Characteristics/Essentials of Promissory note

1. In Writing: It must be written down, not just spoken.
2. Clear Promise to Pay: It should clearly state the promise to pay, not just admit a debt.
3. Definite and Unconditional: The promise to pay must be clear and without conditions. If
it's uncertain or conditional, it's not valid.
4. Signed by the Maker: The person making the promise must sign it.
5. Identifiable Parties: The note must specify who the maker and the payee are. If this isn't
clear, it's not a promissory note.
6. Certain Amount: The amount to be paid must be specific and cannot change based on
future events. It's okay if it includes interest or is paid in installments.
7. Payment in Money: The payment should be in legal currency, not something else.
8. Formalities Like Number, Date, Place, Consideration, etc.: These are often included
but not legally required. If they're missing, it doesn't invalidate the note.
Distinction between Bill and Promissory Note

The big difference between a bill and a promissory note is that a bill is like an order to
pay, while a note is a promise to pay. Here are the key differences:

1. Parties Involved:
 In a note, there are two parties: the maker and the payer.
 In a bill, there are three parties: the drawer, the drawee, and the payee.
2. Nature of Payment:
 A note contains an unconditional promise to pay.
 A bill contains an unconditional order to pay.
3. Debtor and Creditor:
 The maker of a note is the debtor who promises to pay.
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  The drawer of a bill is the creditor who orders the drawee (who owes money) to
pay.
4. Acceptance:
 The maker of a note promises to pay, so no acceptance is needed.
 A bill, especially if payable after a certain period, must be accepted by the drawee
before payment.
5. Liability:
 The maker of a note has primary and absolute liability.
 The drawer of a bill has secondary and conditional liability.
6. Payee and Maker:
 A note can't be made payable to the maker, but a bill can be payable to the
drawer.
7. Acceptance Requirement:
 A note doesn't require acceptance; it's signed by the person who owes the money.
 A bill, especially if payable after sight or a certain period, must be accepted by the
drawee.
8. Bearer Payment:
 A note can't be made payable to the bearer, but a bill can.
9. Relation with Parties:
 In a note, the maker deals directly with the payee.
 In a bill, the drawer deals directly with the acceptor, not the payee.
10. Notice of Dishonor:
 When a bill is dishonored (not accepted or not paid), notice must be given to all
liable parties, including the drawer and prior endorsers.
 For a dishonored note, no notice is required to be given to the maker.

CHAPTER 6: INSURANCE LAW

INTRODUCTION

In everyday life, we all face different kinds of risks and uncertainties, like getting sick or
having accidents. Our stuff, like our homes, can also be at risk, such as from fires or theft.
Insurance is a way to help with these situations.

Insurance doesn't make the risks go away, but it helps by spreading the cost of losses
over many people who also have insurance. It's like everyone putting money into a pot,
and when something bad happens to one person, they can use some of that money to
help cover their loss.

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 When you get insurance, you make a deal with an insurance company. They promise to
help you if something uncertain and bad happens to you, like getting sick or your house
catching on fire. In return, you pay them some money, called a premium, either all at once
or regularly.

To get insurance, you fill out a form with questions from the insurance company. Your
answers to these questions are like an offer to buy insurance. If the insurance company
agrees, they give you a document called a policy. This policy is proof that you have a deal
with them to get help if something bad happens.

The thing you're insuring, like your car or house, is called the "subject matter." The bad
thing you're protecting against, like an accident or theft, is called the "risk." And the
reason you want insurance, like your house is valuable to you, is called "insurable
interest."
PURPOSE AND IMPORTANCE OF INSURANCE

1. Insurance helps protect you in case something bad happens in the future. This bad thing
must be uncertain, like an accident or illness.
2. Insurance is like a group savings plan. People facing the same risk put money together in
a pot. If one of them faces the risk, they can use the money to help cover their loss.
3. Insurance also sets a price based on how risky something is. Risky things cost more to
insure. So, it divides people into groups based on how risky their situation is.
4. Insurance is like a safety net. It's the best way to avoid bad things from hurting you
financially.
5. Insurance collects money and invests it wisely to help society grow.
6. Insurance reduces worries about losing things or getting hurt. This way, people can focus
on their goals.
7. Banks won't lend money unless you protect what you're borrowing against. Insurance
helps with this, and lenders also accept insurance as security.
INSURANCE AND WAGERING

A wagering agreement is when someone promises to give money or property to another

person based on something uncertain happening or not happening. Insurance might
seem similar because it also depends on uncertain events. However, they are not the
same. Here's why:

1. Indemnity Principle: Insurance, except for life and personal accident insurance, is about
replacing actual losses. Wagering agreements don't care about replacing losses because
they're not meant to cover any risk.

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2. Purpose/Objective: Insurance is meant to protect you from losses due to uncertain
events. Wagering agreements aim to make speculative gains or benefits.
3. Insurance Interest: In insurance, you must have a good reason to insure something
(insurable interest). In a wagering agreement, this interest is often created just for the
agreement.
4. Utmost Good Faith: Insurance needs honesty and good faith from both parties. If not,
the contract is void. Wagering agreements don't require this level of honesty.
5. Legality: Wagering agreements are often illegal and against public interest, so they're not
enforceable. Insurance, on the other hand, is encouraged by the law because it benefits
society.
6. Calculation of Risk: Insurance calculates risk scientifically. The premium you pay is based
on careful analysis of all factors. Wagering agreements are more like gambling with no
scientific basis.
7. Degree of Loss: In insurance, losses can vary (e.g., 10%, 30%, 50%). In wagering, it's all or
nothing - you either win or lose completely.
PREMIUM

Premium is the money you pay to the insurance company for them to take on the risk of
something bad happening to you or your stuff. You can think of it like a payment for
protection.

The insurance company decides how much premium you should pay by looking at how
often bad things usually happen and how many people are getting insured. They also add
some extra money for their own costs and profit.

For example, with fire insurance, they look at how often fires happen in your area and
how many things need to be insured. For life insurance, they consider how likely it is that
you might pass away.

You have to pay this premium to keep your insurance going, and the insurance company
has to give you a policy in return. It's like a two-way agreement.

You can pay the premium all at once, or you can spread it out over time, like monthly,
quarterly, or yearly. If you don't pay the premium when you should, or within a short
grace period, your insurance can be canceled.

However, there are situations where you can get your premium money back:

a) If the thing you're insuring doesn't exist anymore, or if your insured item has already
arrived safely when you bought the insurance.

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 b) If your policy says you get your premium back when a certain event happens, and that
event occurs.

c) If there was never really a valid insurance contract from the start, like if there was fraud
involved or if the insurance company didn't have the authority to offer that type of
insurance.

d) If you don't have a good reason to insure something while the insurance is in effect.
Having a valid reason (insurable interest) is crucial for all insurance contracts.

e) If you accidentally pay too much for your insurance, they'll give you back the extra
money.

f) If you accidentally buy two insurance policies for the same thing, and you didn't mean
to, they'll give back the extra premium.

COVER NOTE

A cover note is like a temporary document you get from an insurance company when you
ask for insurance. It's like a placeholder until you get the actual insurance policy.

Legally, this cover note isn't the official insurance policy, and it's not a promise to give you
insurance. But if it follows all the legal rules (like having the right stamps), it can be used
to make sure the insurance company follows through with the actual insurance policy.

Just remember, if the insurance company says "no" to your request for insurance, their
responsibility under the cover note stops.
INSURANCE AND ASSURANCE

Historical Use of Words: In the past, "assurance" was used for life insurance, while
"insurance" was used for things like fire or theft insurance. But nowadays, we often use
"insurance" for both types.

Differences Between Insurance and Assurance:

1. Certainty of Events:
 Insurance deals with uncertain events that might or might not happen, like theft or
fire.
 Assurance deals with events that are certain to happen, like death or reaching old
age.

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2. Indemnity:
 Insurance follows the principle of indemnity, which means it aims to replace the
actual loss you face.
 Assurance doesn't follow this principle because you can't replace a person's life.
3. Valuation of Insurable Interest:
 In insurance, the value of what you're insuring (your interest) can be calculated in
money terms.
 In life assurance, you can't put a price on a person's life because it's priceless.
4. Time of Insurable Interest:
 For fire insurance, you need to have an interest in what you're insuring both when
you make the contract and when the loss happens.
 In marine insurance, you need an interest at the time of the loss.
 With life assurance, you only need an interest when you make the contract, not
necessarily when the loss (like death) occurs.
5. Duration of Contract:
 Insurance contracts can be made for different time periods, like monthly, half-
yearly, or yearly, based on the agreement between you and the insurance
company.
 Life assurance is usually a one-time deal that lasts for a specified number of years
or until the person covered by the policy passes away, whichever comes first.
RE-INSURANCE

Re-insurance is like insurance for insurance companies. Sometimes, an insurance

company may want to take on a big risk, but it's too much for them to handle on their
own. So, they share that risk with other, usually bigger, insurance companies.

Here's how it works:

 The original insurance company insures someone or something.

 Then, they turn around and insure part or all of that same risk with other insurance
companies. This is called re-insurance.

The catch is, the re-insurer only pays out if the original insurer has already paid out for a
loss. They don't have a direct contract with the person who's insured (the insured), so
they're not responsible to them.

Re-insurance follows all the rules and conditions of the original insurance policy. So, if the
original policy ends for any reason, the re-insurance policy ends too. It's like a backup
plan for insurance companies to handle really big risks.

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 DOUBLE AND OVER INSURANCE

Double Insurance vs. Over Insurance:

 Double insurance is when you insure the same thing and the same risk with more than
one insurance company.
 Over insurance is when you insure something for more money than it's actually worth.

Why Double and Over Insurance Aren't Good in Some Cases:

 In fire and marine insurance, where the goal is to replace actual losses, double and over
insurance don't help much. They don't make you extra money; they just complicate
things.
 The only advantage of double insurance is that if one insurance company goes broke, you
can still get your claim paid by the other insurers.

Double and Over Insurance in Life Insurance:

 In life insurance, it's different because life is priceless. You can take out as many life
insurance policies as you want, for any amount, without worrying about double or over
insurance.
 Life insurance isn't about replacing something; it's about taking care of your loved ones
when you're gone.

Rules for Double Insurance:

1. You can insure the same thing with as many insurers as you want, up to its full value.
2. But if there's a loss, you can't get more money than what your thing was actually worth
because insurance is meant to cover your losses, not make you rich.
3. If you do get more money than the actual value, you have to hold onto the extra amount
for the insurers, like a trust.
4. The insurers who covered the same thing will share the loss based on how much they
insured. If one insurer pays more than their share, they can ask the others to pay them
back.

Remember, in life insurance, you can have as many policies as you want because it's not
about replacing something; it's about taking care of your family and loved ones.
TYPES OF INSURANCE

1. Life Insurance:

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  This is a contract where an insurer promises to pay a certain amount of money
when the insured person dies or after a specific period (whichever comes first).
 It's not about replacing something but about providing financial support to the
family or beneficiaries.
2. Fire Insurance:
 This type of insurance covers losses or damage caused by fires during a set time.
 The contract specifies the maximum amount the insured can claim, but this
amount isn't necessarily the same as the actual loss.
3. Marine Insurance:
 Marine insurance covers losses related to marine adventures, like fires, wars,
pirates, and other risks at sea.
 It can also cover inland navigation, but the person insured must have a stake in the
vessel, like being a lender, cargo owner, or mortgagee.
4. Motor Insurance:
 This insurance covers damage to vehicles from accidents.
 In many places, it's legally required to have insurance when driving a motor vehicle
on the road to cover injuries to other people.
5. Theft or Burglary Insurance:
 This type of insurance protects against losses caused by theft or burglary.
6. Fidelity Insurance:
 It safeguards employers from financial losses caused by trusted employees, like
cashiers, mishandling money.
7. Bad Debts Insurance:
 This insurance helps businesses when customers don't pay their debts, preventing
financial losses.
8. Employers Accident Liability:
 This insurance protects employers from damage claims if their workers are hurt
due to the employer's negligence or mistakes.

These types of insurance offer different kinds of protection depending on the specific
risks involved.
FUNDAMENTAL PRINCIPLES OF GENERAL INSURANCE

For an insurance contract to be valid, it must meet the standard rules for contracts,
like any legal agreement. But, there are also some special rules just for insurance
contracts. Here's a summary:

1. Insurable Interest:
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  It means having a financial stake in the thing you're insuring.
 In life insurance, you must have it when you sign up.
 In fire insurance, you need it when you sign up and when the loss happens.
 For example, creditors have an interest in debtors, partners in each other,
employers in employees, and spouses in each other.
2. Uberrimae Fidei (Utmost Good Faith):
 Both the insured person and the insurer must be completely honest with each
other.
 Failure to share important facts can void the entire insurance contract.
 You must disclose anything that might affect the insurer's decision to insure you
and how much to charge you.
3. Doctrine of Indemnity:
 Insurance is about replacing actual losses, not making a profit.
 You get paid the actual amount of loss, not more.
4. Doctrine of Subrogation:
 After the insurer pays for a loss, they can step into your shoes and go after anyone
who might be responsible.
 This prevents you from getting paid twice for the same loss.
5. Doctrine of Contribution:
 This applies when there's double insurance (insuring the same thing with different
companies).
 One insurer can pay the whole loss and then ask the others to chip in based on
their share of the coverage.
6. Causa Proxima (Proximate Cause):
 The insured can only get paid if the proximate cause of the loss is what they're
insured against.
 It's the most important, direct, and efficient cause of the event.
7. Mitigation of Loss:
 If you have insurance and a loss happens, you need to do your best to reduce the
damage. If you don't, the insurer might not pay for the extra loss caused by your
negligence.
8. Abandonment:
 It's giving up the damaged property to the insurer in return for payment.
 It's usually used when it's too expensive to recover the property, and the insurer
must agree to it.
9. Attachment of Risk:
 Insurance only works if the risk (like a fire or accident) hasn't happened yet when
you sign up. If it has, the insurance might not cover it.
10. Average Clause:
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 This applies when your property is underinsured and you have a partial loss.
 The insurer only pays a fraction of the loss based on how much you've insured
compared to the property's actual value.
 This encourages people to fully insure their property.
RIGHTS OF THE INSURER

1. i Cancel the Contract for Hiding Facts:

 If the insured person doesn't tell the truth or hides important information, the
insurer can cancel the insurance contract.
2. Take Control of Damaged Property:
 If the insured property gets damaged or destroyed, the insurer can take control to
protect their interests.
3. Enter the Property in Case of Fire:
 If there's a fire and the insured person tells the insurer, they can go into the insured
property to check things out.
4. Subrogation (Stepping into Shoes):
 If the insurer pays for a loss, they can take legal action on behalf of the insured
against anyone responsible for the loss.
5. Salvage Damaged Items:
 If the insured stuff is completely ruined, the insurer can keep whatever is left to
recover some value.
6. Replace Instead of Cash:
 Instead of giving the insured money for their loss, the insurer might replace or fix
what was lost.
7. Contribution for Double Insurance:
 If the same thing is insured with multiple insurers and there's a loss, each insurer
can share the cost based on how much they insured.
DUTIES OF THE INSURED
1. Tell the Truth and Be Honest:
 You must share all the important information honestly and openly about what
you're insuring.
2. Don't Over-Insure:
 Don't get insurance from multiple companies if one insurer says not to do it.
3. Pay Your Premiums on Time:
 Make sure you pay the insurance fees when they are due, as stated in your
contract.
4. Reduce the Damage:
 If something bad happens, try to limit the damage as much as you can, just like
you would if you didn't have insurance.
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5. Report Problems Quickly:
 If a risk you're insured against occurs, tell the insurance company as soon as
possible.
6. Take Care of What's Insured:
 Keep the stuff you're insuring safe and in good condition before, during, and after
any risks.
7. Tell the Insurer if It's Beyond Saving:
 If the insured thing is so damaged that it can't be saved, let the insurer know you
want to give it up.

CHAPTER 7:LAW OF TORTS

INTRODUCTION

The word "tort" means doing something wrong. It's like when you twist or break the rules.
Tort is when someone does something that harms another person, either on purpose or
by accident, and it's not related to a personal relationship or a contract. It's a type of civil
wrongdoing that violates people's individual and group rights.

A person who does a tort is called a "tortfeasor," and if there's more than one, they're
"joint tortfeasors." They can be sued together or separately.

The main goals of tort law are:

 To settle disputes between people by getting a court to decide who's right.

 To protect certain rights that the law recognizes, like a person's reputation.
 To stop harm from happening again, like telling someone to stop trespassing.
 To give back property to its rightful owner if it was taken wrongly.

LIABILITY IN/ELEMENTS OF TORTS.

Tort liability happens when someone breaks a legal duty set by the law towards everyone.
If this duty is broken and causes harm, the person who broke it must pay for the harm
they caused. This payment is usually decided by a court, and it's not a fixed amount but
depends on the situation.

To make someone responsible for a tort, we need to prove three things:

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1. The person did something wrong or didn't do something they should have done.
2. The person's actions caused harm or violated the legal rights of someone else.
3. The type of wrong they did can be fixed by giving money as compensation.

It's worth mentioning that in some cases, you can take legal action even if no harm is
done, like in trespassing. However, there are specific rules to decide if the person who
took legal action has a case against the person they're complaining about.
However the following principles or factors will determine whether the plaintiff has any
remedy against the defendant:-

1. Damnum Sine Injuria

This phrase, "damage without injury," means that sometimes you can suffer a real loss or
harm, but it doesn't mean someone broke the law or violated your rights. When this
happens, there's no legal solution, and you have to bear the loss yourself.

For example, let's say some companies decided to lower their prices to compete with
another business, and that competition caused the other business to lose money. In this
case, even though the business suffered a loss, the law doesn't consider it a violation of
rights because it's just normal competition.

In another case, someone had been using water from the ground for their business for a
long time, but their neighbor dug a well on their own land, which affected the business. In
this situation, the neighbor didn't do anything wrong because they used their land legally,
so the person who suffered the loss couldn't win their lawsuit.
2. Injuria Sine Damnum

This means "harm without actual loss." It's when someone's rights are violated, but they
don't actually lose anything tangible. In such cases, the person who suffered the violation
can still receive compensation without having to prove they suffered real harm.

Imagine a situation where someone had the legal right to vote, but a Returning Officer
wrongly denied them that right. Even if the vote wouldn't have changed the election
outcome, the court can still make the person who denied the vote pay because they
violated the person's legal right to vote. This rule is based on the idea that if you have a
right, there should be a way to enforce it.
3. The Fault Principle
This principle is about showing that the person who did something wrong (the defendant)
acted in a way that goes against what the law expects. To prove this, you need to
establish three things:

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1. Intention: If the person did something wrong on purpose, knowing what would happen,
they are at fault.
2. Recklessness: If they did something without caring about the consequences, it's also their
fault.
3. Negligence: If they did something wrong because they weren't careful or didn't think
about what could go wrong when they should have, that's another way to show fault

4. Motive and Malice

Motive is the reason why someone does something, and it can be either good or bad. Bad
motive, which is legally called "malice," means having ill-will or wanting to harm someone.
It's doing something wrong on purpose without a good reason. For example, if someone
deliberately pollutes drinking water or throws garbage in their neighbor's path, that's
malice.

In most cases of wrongdoing, like in tort law (which deals with civil wrongs), the motive
doesn't really matter. Whether someone had good or bad intentions doesn't excuse their
actions. However, in some specific torts, especially those involving minors or people with
mental health issues, like defamation (harming someone's reputation), trespass, nuisance,
malicious prosecution, or conspiracy, the motive or malice can be important in proving
the case.

To simplify, most of the time, why someone did something wrong doesn't change
whether they're responsible for it or not. But in certain situations, like when people
intentionally harm others or conspire against them, their motives can be considered in the
legal judgment
TORT AND CRIME DISTINGUISHED

1. Who is Affected:
 A tort harms an individual, and that person can seek compensation from the
wrongdoer.
 A crime harms society as a whole, and the person responsible can be punished.
2. Nature:
 Torts are civil wrongs, dealt with in civil courts.
 Crimes are criminal wrongs, handled in criminal courts.
3. Purpose:
 In torts, payment (damages) is meant to compensate the victim for their loss.
 In crimes, the goal is to punish and reform the offender.
4. Party Involved:
 In torts, the harmed individual (plaintiff) brings the claim.

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 In crimes, the state prosecutes the case on behalf of society.
5. Burden of Proof:
 In torts, the evidence must show the harm is more likely than not to have occurred
(balance of probabilities).
 In crimes, the evidence must prove guilt beyond a reasonable doubt.
6. Punishment:
 Tort punishment typically involves financial compensation (damages) or other civil
remedies.
 Crime punishment can be severe, including imprisonment or capital punishment.

In simple terms, torts deal with harm to individuals and aim to compensate them, while
crimes involve harm to society and aim to punish wrongdoers.
.

TORT AND CONTRACT

A tort differs from a contract in the following respects:-

1. Nature:
 A tort is a civil wrongdoing by itself, unrelated to any contract. It leads to a legal
action for uncalculated damages.
 A contract is a formal agreement between people, defining their rights and
responsibilities, and can be legally enforced.
2. Duties:
 In tort, duties are set by the law, like not being careless.
 In contracts, duties are decided by the parties involved.
3. Who's Affected:
 In tort, the duty is owed to everyone (the world).
 In a contract, the duty is owed to specific people.
4. Damages:
 Tort damages are always uncertain because they can't be precisely measured.
 Contract damages can be certain (specified) or uncertain (unspecified).
5. Time Limit:
 In tort, the time limit starts when harm happens (3 years).
 In a contract, it starts when the breach of contract happens (6 years).
6. Consent:
 Tort doesn't focus on consent; even if there's consent, the wrong can't be excused.
 Contracts are built on consent; both parties must agree.
7. Privity:
 In tort, privity (the direct connection between parties) isn't a big deal for
determining liability.
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 In contracts, privity is significant and must be assumed to exist.
CAPACITY OF PARTIES IN TORTS

"Capacity in torts" refers to whether someone is allowed to sue (file a case) or be sued (be
taken to court) in a tort (a civil wrong). Normally, anyone can sue or be sued for a civil
wrong because everyone follows the same laws. But in some situations, there are specific
rules that limit or even prevent someone from taking legal action or being taken to court.
This means that certain people may not be able to file a lawsuit, while others might have
special conditions for being sued.The capacity of various persons to sue or be sued may
be summarized as follows:-

Minors or Infants

The usual rule is that being young (a minor) doesn't protect you in cases of civil wrongs
(torts). So, kids can sue or be sued in the same way as adults. However, age can matter in
some specific situations. For example, if a young person doesn't fully understand their
actions and does something wrong by accident, they might not be held responsible for
their mistake.

In a case from the past, a young person rented a horse for riding and accidentally hurt the
animal. They got sued for the damage, but the court decided they weren't at fault
because it was more like a contract issue than a tort.

Usually, parents or guardians aren't responsible for their children's wrongdoings, unless
they somehow give permission for it. But if they're careless and let their child do
something harmful, they might be held responsible. For instance, if a parent lets their
teenager have a dangerous weapon like a shotgun and the teenager hurts someone with
it, the parent could be held accountable for the injury.
Husband and Wife
In simple terms, when a woman gets married, she is legally treated as if she were still
single when it comes to certain lawsuits (torts). This means she can sue or be sued just
like any unmarried person.

A wife has the right to sue her husband in tort if she needs to protect her property or seek
justice for something wrong he did. In Kenya, a husband can also be held responsible for
any wrongs his wife commits. So, both the husband and wife can be involved in lawsuits
related to torts.

However, in the past, according to common law (traditional legal rules), a husband
couldn't sue his wife in tort, and a wife couldn't sue her husband in tort, except if she
needed to protect her own property.
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 The Government

The Government Proceedings Act [Cap 40] is a law that treats the government like a
regular person when it comes to lawsuits for wrongful actions (torts). In other words, it
holds the government accountable in the same way it would hold an individual
accountable in certain situations.

Here are the things for which the government can be held responsible under this law:

1. When its employees or representatives (servants or agents) do something wrong (commit

a tort).
2. When it fails to meet its responsibilities as an employer to these employees.
3. When it doesn't fulfill its duties related to owning, using, or controlling property.
4. When it breaks laws that impose certain duties on it (statutory torts), which are legal
obligations set by statutes or regulations.

Persons of Unsound Mind

People who are mentally unwell are usually responsible for their actions in a legal sense.
However, if a specific wrongful action requires intent, and it's proven that they couldn't
have had that intent due to their mental condition, then they may not be held
responsible.

In an example case, someone who was mentally ill attacked the hotel manager. It was
found that this person had a mental illness but still understood what they were doing.
However, they didn't realize that their actions were wrong. In this case, the court decided
that the person was still responsible for the attack because they knew what they were
doing, even if they didn't know it was wrong.
Judicial Officers

Judges and court officials are safe from being sued for civil wrongdoing when they are
carrying out their duties related to the legal system. This means that if they make
decisions or take actions as part of their job in the court, they cannot be taken to court
themselves for those actions.

Similarly, people who work in the legal system, like court brokers, are also protected from
being sued for their actions as long as they are following the orders of the court. So, if a
court tells a broker to take someone's property, the broker can't be sued for doing so as
long as they are following the court's instructions properly.
The President

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Article 143 of the constitution protects the President of Kenya. It says that while the
President is in office, they can't be taken to court for civil or criminal matters related to
their actions as President. This means they can't be sued for civil wrongs like torts while
they are President.

However, if there's a crime that the President can be prosecuted for under an
international treaty that Kenya is a part of, this immunity doesn't apply. So, for crimes, the
President can still be prosecuted, but for civil matters like torts, they are protected while
in office.
Heads of Foreign States and Diplomats

Heads of foreign countries, diplomats from foreign missions, and some others who are
linked to them are protected from being prosecuted or sued in local courts. But this rule
doesn't apply to Kenyan people working for foreign embassies.

It's essential to know that even though diplomats and their staff can't be sued for civil
wrongs like torts, the Ministry of Foreign Affairs can declare a diplomat as "persona non
grata," meaning an unwelcome person, and ask them to leave Kenya.
Trade Unions

A registered trade union is seen as a legal entity with ongoing existence, having the ability
to take legal actions and be taken to court. Trade unions can file lawsuits for civil wrongs
(torts), but there are limitations on suing them.

According to the Labor Relations Act, 2007, you cannot take legal action against a trade
union for civil wrongs (torts) committed by its members or officials during a labor dispute.
However, you can sue a trade union if it breaches a contract. Also, the individual members
and officials of a trade union can be sued for personal actions that result in civil wrongs
(torts).
Corporations

Corporations are like legal entities created by the law. They can take legal action and can
also be taken to court. So, when the employees or agents of a corporation do something
wrong (a tort), the corporation can be held responsible for it.

However, if an employee of a corporation does something wrong that goes beyond their
job duties, the corporation might not be held responsible. Also, there are some types of
wrongs, like personal insults or physical attacks, where corporations are not held
responsible.
GENERAL DEFENCES IN TORTS

 Volenti Non Fit Injuria(Consent)

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The general rule is that if someone willingly agrees to take a risk, they can't later complain
about any harm that comes from it. For example, if a person chooses to play a sport like
boxing, football, or rugby, they can't seek compensation if they get hurt during the game
because they knew the risks and agreed to them.

To use this defense, the person who caused the harm (the defendant) must show that the
injured person knew about the danger, understood it completely, and decided to take the
risk voluntarily.

An example of this defense in action is a case where a passenger insisted on continuing a

bus journey despite knowing that the road was flooded and risky to cross. When the bus
eventually got stuck and the passenger died, the court ruled that the passenger's family
couldn't sue the bus company because the passenger had willingly taken the risk.

In simpler terms, if you know the risks and agree to them, you can't later complain if
something goes wrong.
 Inevitable Accident.

Inevitable accident means an unexpected and unforeseeable injury that couldn't have
been prevented, even if the person responsible tried their best to be careful. It's like when
something goes wrong, but nobody was negligent or careless.

To use this defense, the person being sued (the defendant) must show that they couldn't
have done anything more to prevent the accident. In tort law, where the focus is on fault,
an injury resulting from an inevitable accident isn't something you can sue for.

For example, in a case where a person was carrying ammunition for a shooting party, and
a bullet accidentally hit someone due to an unexpected bounce after hitting a tree, the
court ruled it was an inevitable accident, and the shooter wasn't liable because they
couldn't have foreseen or prevented it.
 Vis Major (Act of God).

An act of God is something that happens due to natural forces like storms, earthquakes,
or floods, without any human involvement. It's like when nature does something
extraordinary, and it's beyond anyone's control. When this happens and someone gets
hurt or property is damaged, it's not anyone's fault, so you can't sue for it in tort law.

For example, in a case where heavy rain caused a person's man-made lakes to overflow
and destroy some bridges, the court said it was an act of God because nobody could
have predicted or prevented such an unusual and powerful natural event. Therefore, the
person who owned the lakes wasn't held responsible for the damage.
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  Necessity.

Necessity happens when someone has to interfere with another person's rights to avoid
harm to themselves or their property. When an action causing harm is taken out of
necessity to prevent a bigger problem, the defense of necessity can be used. For instance,
if you have to tear down a burning house to stop the fire from spreading, throw goods
overboard to prevent a ship from sinking, use someone as a shield to protect yourself
from a gunman, or even steal food to survive, these actions can be considered necessary
and justified.

Normally, you shouldn't mess with someone else's stuff or person, but in urgent
situations where there's a real and immediate danger, the defense of necessity might
apply. It's based on the idea that the well-being of the public is more important. For
example, in a case where someone trespassed on another person's land to prevent a fire
from spreading, even though the fire didn't actually damage anything, the court ruled
that it was okay because the danger of the fire spreading was real and immediate, and a
reasonable person would have done the same thing.

 Self (Private) Defense.

Every person has the right to protect themselves, their family, and their stuff if someone
tries to harm them unlawfully. If someone attacks you, you don't have to run away – you
can defend yourself. But when you defend yourself, you should use a reasonable amount
of force, not more than what the attacker is using.

For example, in a case where a dog was attacking a person's sheep, and the person shot
the dog to stop the attack, the court said it was okay. That's because it was the most
practical and reasonable way to stop the dog from hurting the sheep.
 Statutory Authority.

When you do something because a law (like an Act of Parliament) allows you to do it,
that's a good defense. It means the person who got hurt can't sue you. But you have to
do it in a fair and honest way, and you can't go beyond what the law allows.

For example, in a case where a railway company was allowed by a law to run trains
through someone's land, and a fire accidentally started from the train's sparks, the railway
company wasn't held responsible because they followed the law and took precautions.
The law allowed them to run the trains, so they weren't liable.
 Mistake.
In most cases, if you make a mistake – whether it's about the law or the facts – it's not a
valid excuse in a tort case. Mistakes about the law won't help you at all. However,
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 sometimes, if you make a mistake about the facts and it's a really special situation like
malicious prosecution, false imprisonment, or deceit, it might be considered as a defense.

For example, if a police officer arrests someone they genuinely believe is about to commit
a crime, but it turns out that the person is innocent, the officer wouldn't be held
responsible because they made an honest mistake about the situation.
VICARIOUS LIABILITY.

Vicarious liability is when one person is held responsible for the wrongs or harm caused
by someone else. Normally, each person is responsible for their own actions and isn't held
accountable for what others do. But in some situations, a person can be held responsible
for the wrongful actions of someone else.

For this to happen, there needs to be a specific kind of relationship between these two
people. Some examples of these relationships are:

 Master and Servant: like an employer and employee.

 Principal and Agent: where one person acts on behalf of another.
 Government and its Servant: when government employees are involved.
 Firm and its Partners: in business partnerships.
 Company and its Directors: when company leaders are concerned.
 Guardian and Ward: in cases involving legal guardianship.
Master and Servant Relationship.

A "servant" is a person who works for someone else under an employment contract and
follows the orders of their employer, known as the "master." The master has control over
how the work is done. This legal concept is based on the idea that if the master benefits
from the work of the servant, they should also take responsibility for any harm caused by
the servant's actions. It's a fair way to ensure that injured parties can seek compensation
from the employer, who typically has more financial resources.

To establish liability in a master-servant relationship, it must be shown that the servant

was acting within the scope of their employment. The master can be held responsible for
the servant's actions, whether or not those actions were approved by the master or done
for the master's benefit. However, the master is not liable for actions that go beyond the
scope of the employment.

Even if a servant goes against their employer's explicit instructions and doesn't act in the
master's interest, the master can still be held liable. An example of this is the case of
Limpus-vs-London General Omnibus Co. (1862), where a bus driver caused an accident by

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disobeying instructions and obstructing a rival bus company. In this case, the employer
was held liable, regardless of the driver's wrongful actions being against company rules.
Independent Contractor.

An "independent contractor" is someone hired to achieve a specific result, but they have
the freedom to decide how to accomplish that result without direct control or supervision
from the person who hired them. The reason why a master can be held responsible for
the actions of a servant is because the master typically directs and oversees how the work
is done. However, when it comes to independent contractors, because the employer
doesn't have direct control over them, the employer is usually not held responsible for
any wrongful acts committed by the independent contractor.

There are exceptions to this rule where the employer may still be held liable for the
independent contractor's actions:

a) When the employer retains control over the contractor and actively participates in the
act that causes harm.

b) When the contracted work itself is inherently a wrongful act, like in a case where a
contractor creates a hazardous situation.

c) When the contracted work is likely, in the normal course of events, to cause damage to
others or create a nuisance.

d) When the independent contractor performs a legal duty but does it poorly. In this case,
the employer has a responsibility to ensure the work is done properly, and if they fail to
inspect the work and it causes harm to someone else, the employer can be held
personally liable.

e) When there's strict liability, meaning liability without having to prove negligence, as
seen in the case of Rylands-vs-Fletcher (1866).
STRICT LIABILITY.

Strict liability means that someone can be held responsible for their actions without
needing to prove they were at fault or negligent. If it's shown that the defendant's actions
caused harm to the plaintiff, the defendant can be held liable, even if they didn't do
anything wrong intentionally or negligently.

Strict liability is not the same as absolute liability. With absolute liability, you can bring a
legal action without having to prove any fault on the part of the wrongdoer, and there are

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 no defenses available to the wrongdoer. In cases of strict liability, you don't need to prove
fault, but there may still be some defenses that the wrongdoer can use.

Strict liability can apply in various situations, including:

1. The Rule in Rylands-vs-Fletcher (1866): This legal principle holds someone strictly liable if
their activities result in damage to another person, even if they took reasonable
precautions.
2. Liability for Fire: In certain situations, individuals or entities may be held strictly liable for
fires they cause, regardless of whether they were negligent.
3. Liability for Animals: In cases involving harm caused by animals, strict liability may apply,
meaning the owner or keeper of the animal can be held responsible for any harm it
causes, regardless of their fault.

The Rule in Rylands-vs-Fletcher (1866).

The Rule in Rylands-vs-Fletcher is a legal principle that says if someone brings and keeps
something on their property that could cause harm if it escapes, they are responsible for
any damage it causes if it does escape. This rule comes from a famous case called
Rylands-vs-Fletcher in 1866.

In that case, Rylands had hired a contractor to build a reservoir on his land next to
Fletcher's land. Due to the contractor's mistake, some old mine shafts connecting Rylands'
land to Fletcher's were not properly blocked. When the reservoir was filled with water, it
escaped through these shafts and flooded Fletcher's mine, causing significant damage.

The court decided that Rylands and Fletcher were responsible for the damage, even
though they hadn't done anything wrong themselves. They had brought the water onto
their land for their own purposes, and it was something that could cause harm if it got
out. So, when it did escape and cause damage, they were held responsible for it because
it was a natural result of the water escaping.

In simple terms, if you bring something onto your property that could be dangerous if it
gets loose, you have to make sure it doesn't escape, or you could be held liable for any
harm it causes.

Limitations to the Rule:

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1. Non-Natural Use: The rule applies when someone uses their land in an unusual or non-
natural way. This means they have accumulated something on their land that doesn't
naturally belong there.
2. Need for Escape: For the rule to be relevant, the thing that might cause harm must
actually escape from the defendant's land and go outside of it. If it stays within the
defendant's land and causes harm there, the rule doesn't apply.
3. Dangerous Objects: The rule only applies to things that are likely to cause harm, like acid,
fire, or something that can shake or vibrate the ground. The thing itself might be harmful
by nature, or it could become harmful in specific situations.
4. Natural Use of Land: If the land is used in a way that's considered normal and natural,
the rule doesn't come into play. It's designed for situations where the use of the land
poses an increased danger to others.
5. No Escape: If the thing brought onto the defendant's land doesn't escape from there, the
rule doesn't apply. In other words, if it stays put and doesn't cause harm by getting out,
it's not covered by this rule.

In simple terms, the Rule in Rylands-vs-Fletcher is about holding someone responsible

when they use their land in an unusual way, and something potentially harmful escapes
from their land, causing harm to others. If the land use is normal, or if nothing escapes,
this rule doesn't apply.
Defenses to Rule in Rylands-vs-Fletcher:

1. Act of God: This means that if the escape of the harmful substance or thing was caused
by an unpreventable natural disaster (like a massive flood, earthquake, or storm), it's
considered an "Act of God." In such cases, the defendant isn't held responsible because
it's beyond human control.
2. Things Naturally on Land: The rule applies to dangerous things that were intentionally
brought onto the land by the owner or occupier. It doesn't apply to things that naturally
grow on the land without human intervention.
3. Act of a Stranger: If the escape is caused by someone who isn't authorized by the
defendant (a stranger), the defendant isn't liable. This includes unknown persons who
weren't supposed to be there.
4. Plaintiff's Fault: If the escape happened because of something the plaintiff did wrong
(like trespassing or behaving recklessly), the defendant isn't liable. In this case, the plaintiff
essentially caused their own harm.
5. Consent and Benefit: If the plaintiff agreed to and benefited from the dangerous thing
that caused them harm when it escaped, the rule doesn't apply. In other words, if the
plaintiff willingly accepted the risk, they can't hold the defendant responsible.
6. Statutory Authority: If the defendant was allowed by law to keep, collect, or store the
dangerous things that escaped and caused harm to the plaintiff, the rule doesn't apply.
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 This means the defendant was following the law, so they can't be held liable under this
rule.

 Liability for Fire.

1. Liability for Fire: This rule applies to situations where fires or flammable substances
escape and cause harm. If someone intentionally sets fire to another person's property or
starts a fire on someone else's land, it's considered trespass, and they're responsible for
the damage.
2. Starting a Dangerous Fire: If someone starts a big or dangerous fire, they might be
liable under this rule because they're creating a nuisance. When starting any fire, they
must be careful to control it. If they're negligent (careless) and the fire spreads, they're
responsible for the harm it causes.
3. Liability for Negligence: If a fire starts without negligence (meaning it wasn't due to
carelessness), but then someone is careless and lets it spread, they can still be held liable
for the damage caused by the spreading fire. So, even if they didn't start the fire, if they
make it worse through negligence, they're responsible for the harm it causes.
 Liability for Animals.
1. Animals and Liability: When it comes to harm caused by or to animals, there are two
categories: dangerous animals (like lions or leopards) and non-dangerous animals (like
common pets).
2. Dangerous Animals: If you own or keep a dangerous animal and it causes harm or
damage, you are automatically responsible, regardless of whether you were careful or not.
For example, if someone is scared by your normally calm tiger and suffers a heart attack,
you're liable for their injury because it's reasonable to be afraid of such an animal.
3. Non-Dangerous Animals: Even with animals that aren't naturally dangerous, you can still
be held responsible in certain situations. If your cattle wander onto your neighbor's land
and cause damage, you're liable. Similarly, if your dog is known to rush out aggressively
from your property and causes harm because of your negligence (like not controlling it),
you can be held responsible for its behavior.
SPECIFIC TORTS

There are four specific torts to be considered here. They are:-

1) Trespass.
2) Nuisance.
3) Negligence.
4) Defamation.

1. TRESPASS

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 This means an unlawful interference with a person, his land or goods without any lawful
justification. It is the unlawful interference with the rights of another or an act of
infringement of the rights of another without justification. There are three types of
trespass, namely;

A. Trespass to Land.
B. Trespass to Person.
C. Trespass to Goods.

A. Trespass to Land.

This involves entering someone else's land or interfering with their property without
permission. It can be a civil wrong, but in some cases, it might also lead to criminal
charges. For example, if your animals damage another person's land, it's treated as if you
did it yourself.

Defenses against Trespass to Land:

i. Prescription: Land acquired through long-time possession can be claimed

by the possessor.
ii. Entry by license: If the owner allows you to enter, it's not trespass unless you
abuse that permission.
iii. Act of necessity: Trespass can be justified if it was necessary, like entering
someone's land to put out a fire.
iv. Statutory authority: Certain professionals may have the legal right to enter
property.
v. Involuntary act: If an act occurs without your negligence, like a horse
escaping onto another's land, you might not be liable.
vi.
Remedies for Trespass to Land:

1. Damages: This means getting money from the person who trespassed on your property.
The amount depends on the value of the land that was trespassed upon.
2. Injunction: This is like a special order from a court that tells the trespasser to stop or not
start the trespass. It can be used to prevent ongoing or potential trespassing.
3. Ejection: You have the right to use reasonable force to kick out or remove the trespasser
from your property. You can also ask the court to order their removal.
4. Action for Recovery of Land: If someone has taken your land without your permission,
you can sue them to get your land back.
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5. Distress Damage Feasant: If animals trespass on your property and cause damage, you
can seize and keep those animals until the owner pays for the damage they caused.

These are the different ways you can address trespassing and its consequences.
B. Trespass to Person.
Trespass to a person means messing with someone's body without a good reason. It's not
allowed unless there's a good excuse. There are three kinds: Assault, Battery, and False
Imprisonment.

Assault: This happens when someone makes another person scared of getting hurt right
away. For example, if someone shakes their fist or points a dangerous object at another
person in a threatening way. Assault is both a legal wrong (tort) and a crime.

To prove an assault in court, the person who got hurt (the plaintiff) has to show:

 There was some kind of threatening gesture or action.

 The gesture or action was serious enough to make the person being threatened feel like
they were in immediate danger.
 The person doing the threatening had the means to actually hurt the other person.

In simple terms, assault is when someone makes you really afraid that they're about to
hurt you right away, and they have the ability to do it.
Battery.

Battery is when someone purposefully and actually uses force on another

person's body without a good reason. It doesn't matter if the force is applied
directly, like punching, or indirectly, like throwing something at them. But there
must be real physical contact between the person who did it (the defendant)
and the person who got hurt (the plaintiff).

To prove battery in court, the person who was harmed (the plaintiff) needs to
show two things:

1. The force used affected their body, like a push, a hit, or even throwing
something that hit them.
2. The use of force was on purpose and done willingly. It means the person who
did it intended to harm or make contact with the other person.

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So, battery is when someone intentionally and physically hurts another person
without a good reason, and it's not just any accidental bump or push.

False imprisonment.
False imprisonment happens when someone completely takes away another person's
freedom or liberty without a good reason. It doesn't matter how long it lasts; even a brief
period of restriction can count.

What's interesting is that false imprisonment can occur even if the person being confined
doesn't realize it at the time. For example, if someone locks another person in a room
while they're asleep and then unlocks the door before they wake up, it's still considered
false imprisonment. The person who was locked in can still sue for it, even if they were
unaware of what happened.

In simple terms, false imprisonment is when someone wrongly takes away another
person's freedom or locks them up without a valid reason, and it doesn't matter if the
person realizes it or not.
Defenses against Trespass to Person:

i. Volenti non fit injuria: If you willingly agree to engage in a physical activity or sport
where bodily contact is expected, you can't later complain if someone accidentally
touches or bumps into you during the game. It's like saying "I knew the risks, so I can't
blame others for it."

ii. Private defense: You have the right to protect yourself, your property, and your family.
If you use reasonable force to defend yourself in a situation where you're under threat,
you're not legally responsible for harming the other person. It's like saying "I had to
defend myself or my loved ones, and I did it reasonably."

iii. Statutory authority: Some people, like police officers, have the legal power to do
certain things to maintain public order. If they use reasonable force while exercising their
legal authority, they can't be sued for trespass to a person. It's like saying "They were
doing their job within the limits of the law."

iv. Forceful entry: If someone wrongfully tries to enter your property, you're allowed to
use reasonable force to stop them or regain control of your property or belongings. It's
like saying "I can protect what's mine from trespassers within reason."

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 v. Parental authority: Parents and teachers can discipline children for their benefit, as
long as it's reasonable and not abusive. So, a parent can punish or even temporarily
restrict a child without being accused of assault, battery, or false imprisonment. It's like
saying "Parents can use reasonable punishment to teach their children right from wrong."
C. Trespass to Goods.
Trespass to goods is when someone intentionally messes with or damages things that
belong to someone else, without a good reason. To prove this in a legal case:

 The person must have directly interfered with the stuff, not with the person who owns
them.
 At the time of the trespass, the owner should have had control over the things.
 The person doing the interference must have done it on purpose, not by accident.
 It's divided into two types:
 Conversion: This is when someone treats stuff in a way that goes against the
owner's rights, like selling someone else's things without permission. It's like saying
"I own this now."
 Detenue: This happens when someone wrongfully keeps stuff that they're
supposed to give back to the owner. It's like saying "I won't return this, even
though I should."
.
Defenses to Trespass to Goods:

i. Right of Lien: This is like having a permission slip to hold onto someone else's stuff
until they pay you what they owe. For example, if you sell something to someone, you can
keep that thing until they give you all the money they owe you.

ii. Statutory Authority: Sometimes, the law allows certain people to mess with someone
else's things without getting in trouble for it. It's like having a legal pass to do so.

iii. Judicial Authority: Courts and judges can also say it's okay for someone to touch or
take another person's property in specific situations, like when auctioneers need to take
and sell someone's things as ordered by the court. It's like the court giving them
permission to do it.
Remedies against Trespass Person:

i. Repossession: If someone takes your things without permission, you have the right to
take them back, but you can only use a reasonable amount of force to do so. You can't go
overboard.

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ii. Court Order to Return: Sometimes, you may need to ask a court to order the person
who has your things to give them back to you. This happens when just asking doesn't
work, and simply getting paid for the loss isn't enough.

iii. Compensation: If someone takes your things, you can also ask for compensation,
which means they have to pay you back for the full value of what they took, plus any extra
money to make up for any trouble they caused you while you didn't have your stuff.

iv. Misleading the Public: If someone tries to trick people into thinking their goods are
actually yours, and it harms your business, they can get in trouble for that too. This is
called "passing off."

2. NUISANCE.

The word "nuisance" comes from French and Latin words that mean "to do harm or
annoy." Nuisance is when someone wrongfully disrupts another person's use or
enjoyment of their land or related rights. This disruption can be physical, like a structure
hanging over someone else's land, or allowing unpleasant things like smoke to go onto
their land and bother them.

While everyone has the right not to be bothered by excessive noise, a neighbor can make
necessary noise during reasonable use of their property. However, if someone deliberately
makes noise just to annoy their neighbor, they can be held responsible for causing a
nuisance.

Nuisance typically happens when neighboring landowners don't fulfill their

responsibilities. It's based on the idea that no one should use their property in a way that
might affect or bother their neighbor's use of their land. This interference can involve
discomfort, health problems, safety issues, and more, like noise, vibrations, heat, smoke,
smells, and so on.

Nuisance usually applies when the wrongdoing is ongoing. An isolated incident of

inconvenience is usually not considered a nuisance, except in very rare cases, like the
Rylands-vs-Fletcher case, where water escaped only once and harmed the plaintiff's mine.

The law of nuisance protects regular or normal people. If someone is overly sensitive due
to factors like old age or health issues, they don't get special protection and can't claim
damages for something that wouldn't bother a normal person.

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In a nuisance lawsuit, it's not a defense to say the plaintiff went near the source of the
problem themselves, or that the action causing the nuisance is for the public's benefit, or
that the defendant is using their property reasonably.
Nuisances are of two types, namely, Private Nuisance and Public Nuisance. These are
explained as follows:-

 Private Nuisance.
Private nuisance happens when someone wrongfully interferes with another person's
private rights in their land. It's a wrongful action that affects specific individuals, not the
whole public.

Here are some examples of private nuisance:

a) Blocking someone's right to pass through or use an easement.

b) Letting unstable structures dangle precariously over someone else's land.

c) Allowing things like smoke, gas, noise, and so on to spread onto someone else's land.

 Public Nuisance.
Public nuisance, also called general or common nuisance, is when something interferes
with the rights that everyone in a community is entitled to enjoy. It's an action or a lack of
action that causes harm, danger, or annoyance to the public or a group of people in
general. It affects the comfort or convenience of a group but not necessarily every single
person.

Public nuisance is treated as a criminal offense and is handled by the Director of Public
Prosecution (State). It doesn't automatically lead to a civil lawsuit for an individual unless
that person can prove three things:

a) They've experienced a specific, unusual harm that's beyond what the rest of the public
has suffered.

b) The harm they've suffered is significant, not something minor.

c) The harm is directly caused by the public nuisance, not just an indirect result.
Distinctions between Public and Private Nuisance.

i. Nature of harm: Public nuisance affects many people, while private nuisance harms only
one person or a specific group.
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ii. Who can sue: Anyone with land affected by private nuisance can sue, but public
nuisance usually can't be sued by private individuals, except in special cases.

iii. Legal rights over time: Public nuisance can't become legal over time, but a right to
continue a private nuisance can be acquired through prescription.

iv. Available remedies: You can claim damages for private nuisance, but for public
nuisance, you typically seek a declaration and injunction, unless you've suffered special
harm.

v. Removing the nuisance: You can remove a private nuisance yourself, but you can't do
that for a public nuisance.

vi. Court remedies: For public nuisance, you can seek remedies in both civil and criminal
courts, while for private nuisance, you usually go to civil court for a remedy.
Defenses to Nuisance.

i. Gaining rights over time/prescription: You can get permission to cause a private
nuisance if you've been doing it for more than 20 years. But you can't claim the
same for public nuisances.

ii. Legal permission/statutory right: If the law allows what the defendant is doing,
they won't be responsible for any disturbance it causes. For example, people near
an airport can't sue because the law permits noisy aircraft.

iii. Giving permission/consent: If you let someone unreasonably use your property
and then change your mind, you can't complain unless you tell them you've
changed your mind.

iv. Significant damage needed/triviality: Nuisance matters only if the harm is

substantial. If it's tiny and insignificant, it might not be a problem.

v. Reasonable use: The defendant can argue that what they're doing is lawful and
reasonable on their property.

vi. Permission through grant: It's usually a valid defense if the defendant can show
they were allowed to cause the alleged nuisance through a grant or license.

Remedies against Nuisance.

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 i.Compensation/Damages:The plaintiff can get money to make up for the damage
caused by nuisance

ii. Self-Help/Abatement: You can fix the problem yourself without a court order,
like cutting overhanging tree branches on your side, but you have to give notice
first.

iii. Court Order to Stop/Injunction: If the nuisance is still happening or going to

happen, the court can order the defendant to stop it. This happens when money
alone won't fix the issue.

iv. Criminal Charges/Conviction: If the nuisance is also a crime, the person

responsible can be charged and sentenced.

3. NEGLIGENCE.
According to Judge Alderson, negligence means not doing what a reasonable person
would do or doing something a reasonable person wouldn't do, which leads to harm. It's
when the defendant doesn't take proper care or skill when they owe the plaintiff a duty to
do so, and this carelessness causes harm to the plaintiff's person or property.

To sue for negligence, the plaintiff needs to prove these key things:

1. The defendant had a legal duty to be careful.

2. This duty was owed to the plaintiff.
3. The defendant didn't meet this duty, meaning they were careless.
4. The plaintiff suffered harm because of this carelessness.
Legal Duty of Care.

The defendant must have had a legal duty to be careful because negligence only happens
when someone breaks a legal duty. This duty can come from common law (basic legal
principles), laws, or private agreements. It means not doing something that you're legally
obligated to do to protect someone else.

Everyone should avoid doing things that could reasonably hurt others. We judge this
based on what a reasonable person would do in that situation. The level of care needed
can change depending on the specific circumstances. For instance, professionals need to
be more careful than regular people.

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In a famous case, Donoghue-vs-Stevenson (1932), a man bought a bottle of ginger beer
for his girlfriend. The drink was in an opaque bottle, so its contents couldn't be seen.
When she poured it, she found a decomposed snail inside and got sick. She sued the
manufacturer for harm. The court said the manufacturer was responsible because they
had a duty to make sure the bottle didn't have anything gross like a snail inside it.
Duty towards the Plaintiff.

The duty of care must be directed towards the person who is bringing the lawsuit (the
plaintiff). If the defendant didn't have a legal obligation to be careful towards that specific
person, they can't be held responsible.

For example, in Bourhill-vs-Young (1943), a pregnant woman heard a road accident from
a distance, went to the scene, saw blood, got really upset, and later had a miscarriage. The
court said she couldn't sue for negligence because the harm she suffered and how it
happened couldn't have been predicted. In this case, the defendant didn't owe her any
duty of care, so they weren't responsible.

But in Dulieu-vs-White&Sons (1901), a pregnant woman was sitting in her husband's bar
when suddenly a horse crashed in. She got scared, suffered nervous shock, and had a
premature baby. The court ruled the defendant was responsible in this case.
Breach of Duty of Care.

Once it's clear that the defendant had a legal duty of care towards the plaintiff, the
plaintiff needs to prove that this duty was not met – in other words, it was breached.
Breach of duty means the defendant didn't meet the expected standard of care. This
standard is like a measuring stick for the defendant's actions. It helps determine if the
defendant did what a reasonable person should have done.

To figure out if there was a breach of duty, we use a guideline described by Judge
Alderson B in Blyth-vs-Birmingham Water Works Co. He said negligence is when someone
doesn't do what a reasonable person, acting with ordinary common sense, would do in
the same situation.

So, a reasonable person is like an average person on the street, someone with everyday
judgment. But it can change depending on the specifics of each case.
Injury or Damage to the Plaintiff.

To win a negligence case, the plaintiff must show that they were harmed because the
defendant didn't meet their duty of care. In other words, the plaintiff has to prove that the
defendant's actions or omissions directly caused their injuries.

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 If negligence is proven, the plaintiff can only get compensation for the injuries they
suffered. The defendant is responsible if a reasonable person in their shoes should have
known that their actions could harm the plaintiff. So, if the injury wasn't something a
reasonable person could have seen coming, it's considered too distant or remote, and the
plaintiff can't claim damages for it.
Burden of Proof in Negligence (Res Ipsa Loquitur).

In most cases, it's the plaintiff's job to prove that the defendant was negligent – that they
had a duty to be careful, they didn't meet that duty, and the plaintiff got hurt because of
it. But sometimes, this can be tough for the plaintiff, especially when the real cause of the
accident is known only to the defendant.

In such situations, there's a handy legal concept called "Res Ipsa Loquitur," which means
"the thing speaks for itself." It kicks in when an accident shouldn't have happened unless
someone was negligent. It's like when something falls from a warehouse for no apparent
reason. In cases like this, the plaintiff doesn't need to prove negligence because the
circumstances clearly point to it.

Res Ipsa Loquitur is like a tool that helps the plaintiff in proving negligence. But for it to
work, three conditions must be met:

1. The thing causing the injury must have been under the control of the defendant or
someone the defendant was responsible for.
2. The event should be one that wouldn't happen if the defendant had been careful.
3. There should be no evidence or explanation of why or how the event occurred.

For example, in the case of Bryne-vs-Broadle (1863), a barrel of flour fell from a
warehouse and injured a passerby. The court decided that the injured person didn't have
to show exactly how the accident happened because, based on the facts, it was
reasonable to assume negligence, and Res Ipsa Loquitur applied.
Defenses to Negligence.

i. Contributory Negligence: This happens when the injured person's own

actions or behavior played a part in causing their injuries. It means they didn't take
reasonable care for their own safety. In such cases, the court might decide to
reduce the damages they can receive or share the responsibility between the
injured person and the defendant in a fair way.
ii. Vis Major (Act of God): When something unexpected and uncontrollable
occurs, like natural disasters or other events beyond human control, and it leads to
the incident the plaintiff is complaining about, the defendant isn't considered
negligent. They can't be held responsible for such situations.
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 iii. Inevitable Accident: This is an accident that couldn't have been avoided,
even if someone acted carefully, had all the knowledge, skills, and was diligent. If
the incident happened because of an inevitable accident, the defendant isn't held
liable for negligence.
.
Remedies against Negligence.

1. Damages: This is money that is given to the person who was harmed because someone
else was negligent. It's like a payment to make up for the harm or loss they suffered.
2. Injunction: This is a formal order from a court that tells someone to stop doing
something wrong. In cases of negligence, it could be a court order that prevents the
person from continuing to be negligent. It's like a legal "stop doing that" command.

4. DEFAMATION.
Defamation is when someone says false and harmful things about another person,
without a good reason. These false statements can damage the person's reputation,
making others think less of them or avoiding them. It's like spreading rumors or lies that
hurt someone's image.

A person's reputation is really important and valuable, even more than their possessions.
Everyone has the right to protect their reputation, and they can take legal action against
anyone who harms it. Whether a statement is defamatory or not depends on how a
reasonable and fair-minded person in society would see it. So, it's all about whether the
statement could make people think less of the person it's about.
Essentials of Defamation.

To prove defamation, you need to show four important things:

1. The statement made by the person accused of defamation is not true; it's false.
2. The statement is harmful and can damage someone's reputation; it's defamatory.
3. The statement is about the person who's complaining (the plaintiff).
4. The statement was shared or made public in some way.

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False Statement.

Defamation involves saying something false about someone that can harm their
reputation. When someone makes a defamatory statement, it's assumed to be false
unless proven otherwise. The person making the statement (the defendant) must prove
that it's true. If it turns out to be true, it won't be considered defamation, no matter how
damaging it may seem.
Defamatory Statement.

A statement is considered defamatory when the words used have the potential to harm
the reputation of the person it's about. This can happen if the statement:

a.Makes other people think poorly of the person.

b. Makes the person a target of hatred, ridicule, or contempt from the public.

c. Harms the person's professional or business reputation.

d. Causes others to fear, avoid, or dislike the person.

e. Lowers the person's standing or respect in the eyes of the public.

.
Statement referring to Plaintiff.

For a defamation claim to be valid, the statement must be connected to the plaintiff in
some way. This means the plaintiff has to prove that the defamatory statement is about
them, either directly or indirectly. It doesn't matter if the defendant meant to single out
the plaintiff; if it's reasonable to think the statement refers to them, that's enough.

If a defamatory statement is made about a large group of people, like lawyers or doctors,
it's not automatically a defamation case. Only if a specific individual within that group can
prove the statement applies to them can they bring a defamation suit. You can't defame a
whole category of people; it has to be specific individuals. However, if a statement
defames a Board of Directors, it's considered defamation for each member, even if they're
not individually named, so any one of them can sue.

Publication of Statement.

Defamation only becomes a legal issue when it's shared with someone other than the
person it's about. This sharing or spreading of the defamatory statement is called
"publication." So, if someone sends a defamatory message in a sealed envelope directly

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 to the person it's about, it doesn't count as defamation because it hasn't been published
to a wider audience.

It's important to note that each time a defamatory statement is repeated or shared, it's
considered a new act of publication. This means that not only the person who originally
made the defamatory statement but also anyone involved in sharing it, like an editor,
printer, or publisher, can be held legally responsible. They can be sued together or
separately for defamation.
Types of Defamation.
 Slander:-
Slander refers to spoken or non-permanent defamatory statements, like when someone
says harmful things about another person. In most cases of slander, you can only take
legal action if you can prove that the slander caused you some harm or damage.
However, there are some special situations where you can sue for slander even without
proving harm. These include when the slanderous statement:

a) Accuses you of a crime punishable by imprisonment.

b) Claims you have a contagious disease. c)

Accuses a woman or girl of being unchaste (improper behavior).

d) Accuses you of being incompetent in your job, trade, or office.

 Libel:-
Libel refers to defamatory statements made in a permanent form, like in writing, printing,
or broadcasting on radio or television. When something defamatory is said and then
written down or recorded, the spoken part is considered slander, while the written or
recorded part becomes libel. For example, if someone says something harmful about
another person, and then a secretary writes it down, the spoken words are slander, but
the written version is libel.

Distinctions between Slander and Libel.

1. Slander vs. Libel:

 Slander is a civil wrong, while libel is both a civil and criminal wrong.
 Slander is temporary and usually involves spoken words or gestures, while libel is
permanent and typically involves written or visual forms, like writing or images.
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2. Proof of Damage:
 In slander, the plaintiff must prove actual damage because the harm is not long-
lasting.
 In libel, no actual damage needs to be proven because it is seen as more serious
and long-lasting.
3. Intent and Malice:
 Slander may occur spontaneously or unintentionally, often in the heat of the
moment or due to sudden provocation.
 Libel usually involves greater deliberation and can imply the presence of malice
or ill intent.
4. Responsibility for Publication:
 Every time slander is spoken, it suggests that the person saying it acted personally
and voluntarily, making them potentially liable.
 In libel cases, the actual publisher may be an innocent party like a news reporter,
so they may not necessarily be held liable.

Defenses to Defamation.

1. Truth/Justification:
 Claiming that the statement is true is a strong defense against defamation.
 If the statement is mostly true but has minor inaccuracies, it can still be defended
as long as the main part is true.
 The defendant should be confident in proving the truth to avoid facing more
severe damages.
2. Fair Comment:
 Making honest, relevant, and non-malicious comments on matters of public
interest is a defense against defamation.
 Fair comments are opinions on facts, not false statements.
 This defense can apply to discussions about government affairs, public figures, art,
entertainment, and more.
3. Absolute Privilege:
 On certain occasions, individuals are legally protected from defamation claims, no
matter how damaging the statement.
 These occasions include statements made during parliamentary or court
proceedings, confidential communications like between spouses or attorney-client,
etc.
4. Qualified/Conditional Privilege:
 This defense applies when someone makes a defamatory statement in the
discharge of a social or moral duty, without malice.
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  The statement must be made to someone with a corresponding interest or duty to
receive it.
 An example is providing a reference for a former employee to a potential
employer.
5. Apology/Offer of Amends:
 A defendant can offer to correct a defamatory statement and apologize.
 If the plaintiff accepts this offer, the defendant may be released from liability.
 To use this defense, the defendant must show that the statement was made
without malice and that they didn't know it was defamatory at the time.
6. Consent/Assumption of Risk:
 Consent from the person affected or their implied agreement to the publication
can serve as a complete defense.
 For instance, if someone willingly provides false information about themselves,
they can't sue for defamation when that information is published.

These defenses help protect individuals and organizations from defamation claims when
specific criteria are met.
Remedies against Defamation:

1. Damages:
 The plaintiff can receive monetary compensation for harm to their reputation and
feelings caused by defamation.
 The amount of damages depends on how serious the defamation is, how widely it
spread, and the plaintiff's status.
 Deliberate and severe defamation often results in larger damage awards.
2. Injunction:
 An injunction is a court order that stops or prevents the publication or continued
publication of a libel.
 To obtain an injunction, the plaintiff must first prove that the defamatory
statement is false and that its publication would cause irreparable harm.
 The court will only issue an injunction if it's convinced that the statement is false
and that its publication would harm the plaintiff.
3. Apology:
 Apologizing is another way to remedy defamation.
 An apology helps correct the negative impression created by the defamatory
statement.
 The apology should be made through the same medium used for the original
statement or any other medium chosen by the plaintiff.

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 These remedies aim to repair the damage caused by defamation, whether through
compensation, stopping further harm, or correcting the record.

CHAPTER 8: COMMERCIAL ARBITRATION

INTRODUCTION

Arbitration is an old way to resolve disputes outside of court. Instead of going to court,
people agree to let a neutral third person decide the matter. This method avoids complex
legal procedures and ensures fairness within the boundaries of the law. The rules for
arbitration are in the Arbitration Act (Cap 49).

 Arbitration Agreement: This is a written agreement to use arbitration to settle current or

future disputes, even if it doesn't specify the arbitrator.
 Arbitrator: The person chosen to settle the disputes is called an arbitrator or arbiter.
 Arbitration: The process of resolving the issues with the arbitrator's help is called
arbitration.
 Award: The decision made by the arbitrator is known as an award. It's the outcome of the
arbitration.
ESSENTIALS OF ARBITRATION AGREEMENT

In Writing: The agreement to use arbitration must be in writing. Even though signatures
aren't always necessary, it should be clear that both parties agreed to settle their dispute
through arbitration.
Essential Contract Elements: The arbitration agreement must contain all the important
parts of a valid contract. Both parties must understand and agree to the terms. If it's
unclear or uncertain, it won't be legally valid.
Related to a Dispute: The arbitration agreement should involve a current or future
disagreement between the parties.
Continues Even if Contract Ends: If a contract with an arbitration clause becomes void
for some reason (like frustration or fraud), the arbitration clause itself can still be binding
and enforceable.


EFFECTS OF ARBITRATION AGREEMENT (CLAUSE)

When two parties agree to resolve their dispute through arbitration, the court must
respect this agreement. If one party starts a legal process related to the dispute, the other
party can ask the court to halt those proceedings. The court will grant this request if it
finds that there's a good reason to refer the matter to arbitration instead.

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 For the court to stop the legal proceedings and allow arbitration, several conditions must
be met:

1. There must be a valid, written arbitration agreement in place before the legal proceedings
started.
2. The subject of the dispute in the legal proceedings should match what's covered by the
arbitration agreement. In other words, they should be about the same issue.
3. The request to stop the proceedings should come from a party involved in the arbitration
agreement or someone connected to them, like heirs or legal representatives.
4. The applicant shouldn't have taken any significant steps in the legal proceedings. They
need to make this request at the very beginning, before filing any official documents or
progressing too far.
5. The request should be made to the same court where the legal proceedings are
happening.
6. The applicant must show that they were willing and prepared to fully participate in the
arbitration process from the start of the legal proceedings.
7. Finally, the court must not find any other compelling reason why arbitration shouldn't be
used.

It's important to note that even if all these conditions are met, the court can still choose
whether or not to stop the legal proceedings and allow arbitration.
MATTERS WHICH CAN OR CANNOT BE REFERRED TO ARBITRATION

Arbitration is a way to resolve disputes between parties when it comes to private rights or
obligations that civil courts can typically handle. However, there are certain conditions
that need to be met. Here's what you should know:

What can be taken to arbitration:

1. Determination of Damages: When there's a dispute about the amount of compensation

due in case of a contract breach, this can be resolved through arbitration.
2. Personal Rights: Matters concerning personal rights, like who should hold a religious
office in a church, can also be subject to arbitration.
3. Complement and Dignity: Disputes related to respect and honor can be settled through
arbitration.
4. Time-Barred Claims: Even claims that might be considered too old to be pursued in
regular courts can be taken to arbitration.

What cannot be taken to arbitration:

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1. Matrimonial Matters: This includes issues related to divorce or the right to conjugal life.
2. Testamentary Matters: Matters regarding the validity of a will cannot be decided
through arbitration.
3. Insolvency: Cases involving bankruptcy or insolvency are not suitable for arbitration.
4. Public Charities: Matters related to public charities and charitable trusts should not be
arbitrated.
5. Guardianship of Minors: Disputes about who should have guardianship over a minor
child are typically handled by courts.
6. Lunacy Proceedings: Legal proceedings related to mental health or insanity are not
appropriate for arbitration.
7. Criminal or Illegal Matters: Any issues related to criminal activities or illegal transactions
are not suitable for arbitration.
8. Execution Proceedings: Matters regarding the enforcement of legal judgments are
usually handled by the regular courts.

Keep in mind that these are general guidelines, and there may be specific laws and
regulations that apply in your jurisdiction. Arbitration is a flexible and efficient way to
resolve disputes, but it's important to understand its limitations and consult legal experts
when needed.
WHO CAN REFERR DISPUTES TO ARBITRATION

The arbitration agreement is essentially a contract, so the parties involved must have the
legal capacity to enter into contracts. Here's a breakdown of who can and cannot
participate in arbitration:

1. Minors and Lunatics: Minors (people under the legal age of adulthood) and individuals
declared legally insane cannot engage in arbitration themselves. However, a natural
guardian (like a parent) can enter into an arbitration agreement on behalf of a minor, but
only if it benefits the minor.
2. Attorneys and Counsels: Lawyers have the authority to handle legal matters, including
deciding whether to use arbitration on behalf of their clients. They can do this as long as
it is in the best interest of their clients.
3. Partners: A partner in a business can agree to arbitration only if they have explicit
authority from the partnership agreement or if it's a customary practice in their trade.
They cannot do this without proper authorization.
4. Representing Others: If a person tries to submit a dispute to arbitration on behalf of
themselves and others who have a shared interest in the matter but without their explicit
authorization, only the person making the submission will be bound by it. However, with
the express consent and authority of the others involved, that person can represent them
in arbitration.
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5. Authorized Agents: An authorized agent, someone with the legal power to act on behalf
of another, can refer a dispute to arbitration. This includes agents with proper
authorization from the principal.
6. Trustees: Trustees, individuals entrusted with managing assets for the benefit of others,
can also initiate arbitration.
7. Insolvent Individuals: Individuals facing insolvency (financial inability to meet debts)
cannot personally engage in arbitration. However, if there's an official receiver or assignee
appointed by the court, they may engage in arbitration but only with the court's
permission.

It's important to note that these rules can vary depending on the legal jurisdiction and
specific circumstances. In all cases, proper legal advice and guidance are essential to
ensure that arbitration agreements are made correctly and within the bounds of the law.
IMPLIED PROVISIONS IN AN ARBITRATION AGREEMENT

Every arbitration agreement is assumed to include certain standard provisions, unless the
agreement specifically states otherwise. Here are these assumed provisions made easy to
understand:

1. Single Arbitrator: By default, unless the agreement says otherwise, the dispute will be
handled by a single arbitrator.
2. Even Number of Arbitrators: If the agreement specifies an even number of arbitrators,
they must choose an "umpire" within one month from the latest date of their
appointment. The umpire serves as a neutral decision-maker in case the arbitrators
cannot agree.
3. Time Limit: The arbitrators are expected to reach a decision within four months from the
start of the arbitration process.
4. Umpire's Deadline: If the arbitrators fail to make a decision, the umpire must issue their
award within two months of being appointed.
5. Oath and Examination: The parties involved in the arbitration agree to be examined by
the arbitrators or the umpire under oath. This allows them to provide evidence and
answer questions during the arbitration process.
6. Final and Binding Decision: The award made by the arbitrators or umpire is considered
final and legally binding on all parties involved. This means they must abide by the
decision.
7. Cost Determination: The arbitrators or umpire have the authority to decide how the
costs associated with the arbitration, including their fees, will be allocated among the
parties. They use their discretion to determine these costs.

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 These provisions serve as a standard framework for arbitration agreements, providing
clarity and fairness in the arbitration process unless the parties explicitly state otherwise in
their agreement.
APPOINTMENT AND REMOVAL OF ARBITRATORS AND UMPIRE

An arbitrator is a person chosen to settle disputes between two or more parties outside of
a regular court. This choice can be made by mutual agreement among the parties.
However, the arbitrator's appointment isn't final until they agree to and accept the
responsibility. If the parties can't agree on an arbitrator or if the chosen arbitrator can't or
won't fulfill their duties, the court has the authority to step in and appoint one.

In cases where the arbitration agreement states that each party should choose an
arbitrator, and those two arbitrators should then select a third one, this is essentially the
same as appointing an umpire. This third person helps resolve disputes if the initial two
arbitrators can't reach an agreement.

Once an arbitrator or umpire is chosen and accepts the role, their authority can't be
revoked unless the arbitration agreement specifically allows for it. However, if an
arbitrator or umpire fails to make a decision or behaves improperly during the process,
any party involved can ask the court to remove them from their position. This ensures that
the arbitration process remains fair and effective.
Powers of Arbitrators and Umpires

1. Administering Oaths: This means making people promise to tell the truth when they
come to court.
2. Asking for Court's Opinion: This is like asking the judge for help or advice on a specific
situation or decision.
3. Conditional or Alternative Awards: It's like saying, "If this doesn't work, try this instead"
in a legal decision.
4. Fixing Mistakes: Correcting any small errors or typos in a legal decision.
5. Questioning Parties: Asking the people involved in a legal case some questions to get
more information.
Duties of Arbitrators and Umpires

1. Checking Appointments: Make sure the people chosen for specific roles in a case are
the right ones.
2. Confirming Jurisdiction: Ensure that the disputes being addressed are within the scope
of the agreement so that the decision won't be invalidated due to lack of authority.
3. Making an Award: Issue a final decision on the matter being discussed.
4. Being Fair and Impartial: Act like a judge, treating all sides equally and fairly.

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5. Avoiding Personal Interest: Don't have any personal or financial stake in the outcome of
the case.
6. Conducting Properly: Behave appropriately and professionally throughout the process.
7. Staying within Authority: Don't make decisions that go beyond the powers granted in
the arbitration agreement.
8. Final Decision: Provide a final decision on all issues unless you have permission to make
multiple decisions.
AWARD

What is an Award? An award is like the final decision made by an arbitrator or umpire
(like a judge) on all the issues they were asked to settle. It's the result of the parties
choosing their own decision-maker. This decision is just as binding as a court's ruling.

What Makes a Valid Award? For an award to be valid, it must:

1. Be written down.
2. Stick to what the parties agreed upon; it can't decide things outside of that agreement.
3. Be the final say on all the matters brought up.
4. Be clear, reasonable, and doable.
5. Have a date and be signed by all the arbitrators at the same time and in front of each
other.
6. Follow the law and the powers given in the reference.

How an Award Works: An award is like a weapon (sword) because the winning party can
use it to get a court judgment in their favor. Once there's a judgment, it leads to a decree,
and there's usually no way to appeal the decree unless it's considered too excessive based
on the award.

An award also acts like a shield because it can be used as a defense in a lawsuit that goes
against it. It's the final word on the issues it covers unless it's set aside or sent back for
reconsideration.
MODIFICATION, RECONSIDERATION AND SETTING ASIDE OF AN AWARD.

After an Award is Made: Once a decision (award) is made in a case, it's final and binding
on the parties involved. Normally, it can't be changed or canceled. However, there are
some situations where it can be corrected, adjusted, or canceled.

Who Can Make Changes to an Award: Changes to an award can be made by the
arbitrators (decision-makers) or the court, depending on the situation.

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 Arbitrators Can Make Changes When:

1. There's a simple mistake in the award, like a typing error.

2. The award is sent back to them for a second look (reconsideration).

The Court Can Make Changes When:

1. Part of the award is about something that wasn't part of the original dispute.
2. The award has clear mistakes that can be fixed.
3. There are clerical mistakes or errors in the award due to accidents or omissions.

The Court Can Send the Award Back for Review When:

1. The award doesn't decide some of the issues it was supposed to.
2. The award decides issues that weren't part of the dispute.
3. The award is so unclear that it can't be carried out.
4. There's something obviously wrong with the award, even just by looking at it.

The Court Can Cancel an Award When:

1. The arbitrator or decision-maker acted badly during the process.

2. The award was made after a court order to stop the arbitration.
3. The award was obtained improperly or is not valid.
ADVANTAGES OF ARBITRATION

1. Privacy: The process is private, so it's not in the public eye (no publicity).
2. Simplicity: The way things are done is simple and informal.
3. No Appeals: There are no long and uncertain appeals because the decision is final.
4. Lower Costs: It's usually cheaper.
5. Faster: It's quicker than a regular court trial.
6. Expert Arbitrator: If it's a technical issue, an expert in that field is chosen as the decision-
maker.
7. Consent-Based: The decision is often based on what both parties agree on (consent).
8. Confidentiality: People feel comfortable sharing information because their business
competitors aren't present to learn their secrets.
DISADVANTAGES OF ARBITRATION

1. Incompetent Arbitrator: The person making the decisions might not know enough
about the industry or the law related to the dispute.
2. Biased Arbitrator: The decision-maker could be influenced or unfair in their duties.
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3. Lack of Public Hearing: Because the process is private, it might not follow the fairness
rules of a public hearing (natural justice).
4. Limited Appeals: Since arbitrator decisions are final, it limits people's ability to appeal.
5. No Criminal Cases: Arbitration only deals with civil cases, not criminal ones.
6. Informal Process: The less formal way things are done in arbitration can sometimes lead
to unfairness or injustices
POWERS OF COURTS IN RELATION TO ARBITRATION PROCEEDINGS

1. Revoking Authority: Allowing a party to take back their choice of arbitrator.

2. Appointing Arbitrators: Choosing an arbitrator or umpire in specific cases.
3. Cancelling Sole Arbitrator: Removing a single arbitrator chosen by one party.
4. Replacing Arbitrators: Changing the arbitrators or umpire and putting new people in
their roles.
5. Giving Opinion: Providing an opinion when a unique situation is presented by an
arbitrator.
6. Fixing the Award: Changing or correcting the decision made.
7. Filing the Award: Officially recording the decision.
8. Sending Back for Review: Returning the decision to the arbitrators or umpire for
reconsideration.
9. Issuing Judgment: Making a legal decision based on the award and then creating an
enforceable order.
10. Temporary Orders: Making temporary decisions to counter actions meant to delay or
block the execution of a decree based on the award.
11. Canceling Arbitration: Stopping the arbitration process when the award becomes void
or is set aside.
12. Extending Time: Giving more time for the award to be made.
13. Halting Legal Proceedings: Pausing any lawsuits or legal actions related to the matter
covered by a valid arbitration.
14. Deciding Costs: Resolving disputes about how much arbitrators should be paid and who
covers the expenses.
15. Summoning Witnesses: Ordering witnesses to appear before the arbitrators.
16. Punishing Non-Cooperation: Taking action against parties or witnesses who don't
cooperate or show disrespect during the investigation.

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 CHAPTER 9: INTELLECTUAL PROPERTY LAW
INTRODUCTION

What is Intellectual Property?

Intellectual property means legal rights you can claim for things that come from
human thinking and work, like mental skills and effort. These rights protect things
created by a person's skills, hard work, and time. Examples of intellectual property
include books, art, inventions, copyrights, trademarks, and more. So, it's all about
safeguarding the things we create using our minds and efforts.

IMPORTANCE OF PROTECTING INTELLECTUAL PROPERTY

1. Encourage Investment: It encourages people to share their creations with the public
without worrying about exploitation, so they're more likely to invest their time and
money.
2. Ensure Fairness: It ensures fairness by protecting the products of a person's hard work
and skills.
3. Provide Proof of Ownership: It serves as proof that something belongs to a specific
person or company and keeps away people who might try to copy it without permission.
4. Brand Recognition: It helps distinguish one person's or company's products from others,
building trust and loyalty.
5. Build Strong Brands: It helps in creating and maintaining strong brand identities and
quality.
6. Market Diversity: It allows businesses to cater to different groups in society with various
market strategies.
7. Prevent Profits from Theft: It prevents people from making money from the work of
others.
8. Consumer Convenience: It makes it easier for consumers to choose products by
providing recognizable brands, simplifying their decision-making.

TYPES OF INTELLECTUAL PROPERTY

1. COPYRIGHT

What is Copyright? Copyright is like a protective shield for someone's creative work,
such as writing, art, music, or broadcasts, to prevent others from copying it for business or

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 personal gain. It's a legal right automatically given to the creator, and you don't need to
register it.

Types of Works Protected by Copyright: Copyright protects various types of creations,

including:

1. Literary Works: Like novels, books, stories, poems, plays, biographies, and dictionaries.
2. Broadcasts: This includes things like sounds, images, signs, or signals that are
transmitted.
3. Musical Works: This covers compositions with music, lyrics, or actions meant to be sung,
spoken, or performed with music.
4. Artistic Works: This category includes paintings, drawings, sculptures, architectural
designs, and more.

So, copyright is like a legal shield that guards creative works from being copied and used
without permission, and it applies to different forms of artistic expression.
Infringement of Copyright

What is Copyright Infringement? Copyright infringement means breaking the rules of

copyright by doing something with a creative work without getting permission from the
owner. This can happen if someone:

1. Copies the work in any way.

2. Shares or publishes the work if it was not published before.
3. Performs the work in public.
4. Broadcasts the work.

In simple terms, it's like using someone else's creative stuff without their permission, and
that's not allowed under copyright law.
Remedies for infringement of copyright

Here are the actions the owner can take if someone violates their copyright:

1. Damages: This means the owner can ask for money as compensation for the violation.
2. Interdict: The owner can get the infringing copies taken away or confiscated.
3. Delivery Up: The owner can demand that the violator hands over the infringing copies
either to them or to someone they authorize.
4. Injunction: The owner can ask the court to order the violator to stop further copyright
violations.

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5. Criminal Prosecution: In some cases, the violator might face criminal charges and
punishment in court.

2. TRADE MARKS

What is a Trademark? A trademark is like a special symbol, word, design, or a

combination of these things that a person or a company uses to make their products or
services stand out from everyone else's. It's how they tell consumers, "This is our stuff!"

Why Trademarks Are Important: Trademarks help regular folks (consumers) recognize
and tell apart products or services from one person or company compared to others in
the market.

To Protect a Trademark: To make sure a trademark is legally recognized and protected,

it must be officially registered with the Kenya Industrial Property Office, as required by the
law.
Infringement of a Trade Mark

What is Trademark Infringement? Trademark infringement means breaking the rules of

trademark rights for goods or services. Goods or services are considered to be infringing
a trademark if:

a) The packaging looks exactly the same or very similar to a registered trademark. b) The
labels or advertisements would break the rules of a registered trademark. c) The way they
are meant to be used would violate a registered trademark.

In simpler terms, it's like using a logo or name that's very similar to a registered trademark
without permission, which is not allowed.
Remedies against Infringement of Trade Mark
Here are the actions the owner can take if someone violates their trademark:

1. Criminal Prosecution: The owner can involve the public authorities to take the infringer
to court, where the court can give a suitable punishment.
2. Statutory Damages: The court can order the infringer to pay a certain amount of money
as compensation to the owner, even if the owner can't prove exactly how much they lost.
3. Account for Profits: In addition to damages, the court can tell the infringer to give back
the money they made from the infringement.

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4. Injunction: The court can issue a temporary or permanent order that stops the infringer
from using the trademark in question.
5. Removing the Offending Mark: If someone is found guilty of trademark infringement,
the court can order them to erase or get rid of the trademark that they used wrongly.
6. Returning Infringing Goods: The trademark owner can ask the court to make the
infringer hand over any goods, materials, or items that break the trademark rules to either
the owner or someone they authorize.
3. PATENTS

What is a Patent? A patent is like a special permission given to an inventor. It allows the
inventor to be the only person who can make, use, and sell their invention for a certain
period, usually a limited time. This means no one else can do these things without the
inventor's permission.

Why is it Exclusive? During that time, it's like having a legal monopoly. The government
gives this monopoly to the inventor to stop others from using or selling the invention
without the inventor's say-so. However, the inventor can choose to sell or share this
monopoly with others.

Requirements for Getting a Patent: For something to be registered as a patent, it must

meet these criteria (patentability):

a) Novelty (Newness): The invention must be something brand new, not known to
anyone before the inventor created it. It must be original and not something that already
exists in the community or society.

b) Inventive Step: The invention must be a bit of a creative leap, not something obvious
to someone skilled in that field. It can't just be a small, logical progression from
something that's already known.

c) Industrial Application: The invention should be something useful in industry, like

farming, medicine, or fishing. It should benefit society in some practical way.

d) Patentable Subject-Matter: To qualify for patent protection, the invention must not
be something that the law says can't be patented. This includes things like natural
discoveries, scientific theories, certain types of plants, surgical methods, mathematical
processes, and more.

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 Infringements and remedies for Patents

What is Patent Infringement? Patent infringement happens when someone uses, makes,
sells, gets rid of, or brings into a country an invention without the inventor's permission.

What Can the Inventor Do? If someone violates a patent, the inventor can take one or
more of these actions:

1. Damages: They can ask for money as compensation for the violation.
2. Interdict: They can get the infringing products taken away or confiscated.
3. Injunction: They can ask the court to order the violator to stop doing more patent
violations.
4. Accounting for Profits: The inventor can request the violator to give back the money
they made from the violation, which wasn't considered while calculating damages.
5. Returning Infringing Products: The inventor can apply for a court order that makes the
violator hand over the infringing products or items to either the inventor or someone
authorized by them.
PASSING OFF

What is Passing Off? Passing off is a legal way to protect unregistered trademark rights.
It happens when one person misrepresents or copies the reputation of another person's
goods or services. It's used to prevent confusion about where a product or service comes
from.

Purpose of Passing Off: Passing off helps businesses protect the positive reputation
associated with their brand. It's not about protecting the logo or name itself (like
trademarks do), but rather the good reputation connected to it. Its aim is to stop
someone from fooling the public by pretending their goods or services are from another
person.

Difference Between Trademark and Passing Off:

1. Trademark Registration: Trademarks must be registered to take legal action for

infringement. Passing off is used when the trademark isn't registered.
2. Proof Required: In a trademark infringement case, showing the trademark is registered is
usually enough. In passing off, you need to prove that you have a good reputation and
goodwill associated with your goods or services.

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3. Basis of Law: Trademark infringement is governed by statutory law (laws made by the
government), while passing off is based on common law (legal principles developed
through court decisions).
4. Scope: Trademark infringement deals only with the specific goods or services covered by
the registration. Passing off is concerned with the general reputation of the plaintiff's
goods or services.

Remember, passing off is a remedy when trademark registration isn't possible, and it's
used to protect a brand's good reputation.

CHAPTER 10:BANKRUPTCY LAW

INTRODUCTION

What is Bankruptcy Law? Bankruptcy law comes into play in a market economy when
people face financial problems and can't pay their debts. It's there to balance the interests
of creditors (those they owe money to) and debtors (those who owe money).

Why Bankruptcy Law Exists:

1. Protect Debtors: It safeguards innocent debtors from being harassed by creditors.

2. Help Embarrassed Debtors: It provides relief to debtors who can't pay their debts.
3. Fair Treatment: It stops creditors from taking a debtor's assets unfairly.
4. Protect Everyone's Interests: It looks out for both creditors and debtors.
5. Prevent Fraud: It investigates if there's any cheating or bad behavior by the debtor and
punishes them if needed.
6. Fairly Share Assets: It ensures that a debtor's assets are divided fairly among creditors.
7. Fresh Start: It helps debtors start fresh without the burden of their debts.

Bankruptcy Process: Bankruptcy is a legal procedure where a court takes a debtor's

property, sells it, and uses the money to pay off creditors based on how much they're
owed. In Kenya, bankruptcy matters are governed by the Bankruptcy Act [Cap53].

Who is a Bankrupt? A person is called a "bankrupt" when a court officially declares them
as one. This declaration is also known as an "adjudication order."

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 So, bankruptcy law exists to make sure that when people face financial problems, the
process is fair to both those who owe money and those who are owed money, and it
allows people to make a fresh start.

ACTS OF BANKRUPTCY

What is an Act of Bankruptcy? An "act of bankruptcy" is something a debtor does or

experiences that shows they're in financial trouble and can't pay their debts. It's like a red
flag that allows the court to declare the debtor bankrupt. Bankruptcy proceedings can
only start if it's proven that the debtor committed an act of bankruptcy.

Examples of Acts of Bankruptcy:

1. Transferring Property: If a debtor gives away or transfers a big part of their property to
someone else for the benefit of all their creditors, it's a sign of financial trouble. Any
creditor who isn't part of this transfer can ask for bankruptcy.
2. Fraudulent Transfer: If a debtor moves their property to cheat or delay their creditors,
it's fraudulent. For example, if they give one creditor an advantage over others.
3. Fraudulent Preference: If a debtor gives priority to one or more creditors over others by
transferring property or making payments with the intention to do so, it's a problem.
4. Leaving or Hiding: If a debtor leaves Kenya, their home, or business, or isolates
themselves to avoid their creditors, it's a sign of trouble.
5. Property Sale After Attachment: If a debtor's property is sold or taken away to pay a
court-ordered debt after being attached for 21 days, it's considered an act of bankruptcy.
6. Declaring Inability to Pay: If a debtor files a statement in court saying they can't pay
their debts or starts a bankruptcy petition against themselves, it's an act of bankruptcy.
7. Suspending Debt Payments: If a debtor tells a creditor they're stopping or about to stop
paying their debts, it's another sign.
8. Ignoring Court Order: If a creditor has a court order for the debtor to pay money, and
the debtor doesn't follow it or has a good reason not to, it can be seen as an act of
bankruptcy.

In short, acts of bankruptcy are actions or situations that indicate financial trouble, and
they can lead to bankruptcy proceedings.

SUMMARY BANKRUPTCY PROCEDURE

1. Bankruptcy Petition

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 Starting Bankruptcy Proceedings: When someone wants to begin bankruptcy
proceedings, they do it by filing a petition with the court. This petition can be filed by a
creditor (someone owed money) or the debtor (the person who owes money). The
petition must say that the debtor can't pay their debts and ask the court for a receiving or
adjudication order.

Conditions for Creditor to File a Petition: A creditor can file a petition only if these
conditions are met:

a) Minimum Debt Amount: The debt must be at least Kshs. 1000.

b) Clear Debt Amount: The debt should be a specific amount that is due either right
away or on a specific future date.

c) Act of Bankruptcy: The debtor must have done something (an act of bankruptcy) that
shows they're in financial trouble.

d) Recent Act of Bankruptcy: This act of bankruptcy must have happened in the last
three months before the petition is filed.

e) Connection to Kenya: The debtor must have lived or had a place of business in Kenya
or been a resident in Kenya in the year leading up to the petition being filed.

So, if a creditor wants to start bankruptcy proceedings, they need to make sure these
conditions are met before filing the petition.

2. Hearing of Petition

Creditor's Petition Hearing: When a creditor files a petition, a hearing is scheduled 8

days after it's served to the debtor. During this hearing, the creditor needs to prove three
things:

1. Debt Ownership: The creditor must show that the debtor owes them the money.
2. Petition Service: They have to prove that they properly delivered the petition to the
debtor.
3. Act of Bankruptcy: The creditor has to demonstrate that the debtor did something that
shows they're in financial trouble (the act of bankruptcy).

Court's Decision: After the hearing, the court can do one of three things:
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 a) Dismiss the Petition: If the creditor doesn't provide enough evidence for any of the
three requirements, or if there are no good reasons for the petition, the court can throw it
out.

b) Make a Receiving Order: If the court is convinced that the debtor is indeed in
financial trouble and the creditor proved their case, they can issue a receiving order. This
is a legal step towards bankruptcy.

c) Determine the Debtor Can Pay Debts: If the court believes the debtor can pay their
debts, they can also dismiss the petition.

So, it's all about whether the creditor can prove the debt, proper service of the petition,
and the debtor's act of bankruptcy, and then the court decides what to do based on the
evidence presented.

3. Interim Receiver

Protecting the Debtor's Estate: Before the court officially declares someone bankrupt
(making a receiving order), they can appoint an Interim Receiver if it's needed to
safeguard the debtor's property. This is especially true when the debtor filed the
bankruptcy petition themselves. Usually, the Official Receiver takes on this role.

Stopping Legal Actions: The court can also issue an order to pause or "stay" any actions,
like legal proceedings or efforts to take the debtor's property, until they decide what to
do with the bankruptcy petition. This helps ensure a fair process and protects the debtor's
assets.

4. Receiving Order

Making a Receiving Order: If the court doesn't dismiss or pause the bankruptcy petition,
they will issue a Receiving Order. When this happens, the Official Receiver takes charge of
the debtor's property.

Important Points:

1. Ownership Not Affected: The Receiving Order doesn't take away the debtor's ownership
of their property. They still legally own it.
2. Not Instant Bankruptcy: It doesn't automatically make the debtor bankrupt. It just
means they can't control or use their property for now.
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3. Public Notice: The Receiving Order is published in the Kenya Gazette and a local
newspaper to inform the public about the situation.

So, a Receiving Order puts the debtor's property in the hands of the Official Receiver
temporarily, but it doesn't change who owns the property, and it's not the same as
declaring bankruptcy.
.

5. Statement of Debtor’s Affairs

Debtor's Statement of Affairs: When a Receiving Order is issued, the debtor has to give
the Official Receiver a document called a "statement of affairs." This document has
information about the debtor's financial situation. Here are the key points:

 Timing: The debtor must submit this statement within 3 days if they initiated the
bankruptcy process themselves. If a creditor started it, they have 14 days to submit it.
 Contents: The statement of affairs includes details about what the debtor owns (assets),
what they owe (liabilities), and information about the creditors (the people or entities they
owe money to). It also lists any property used as collateral by those creditors.
 Importance: If the debtor doesn't provide this statement, it could lead to them being
declared bankrupt. So, it's essential to complete and submit it as required by the timing
mentioned above.
.
6. Creditors’ First Meeting

Meeting of Creditors by Official Receiver: After the Receiving Order is issued, the
Official Receiver has to organize the first meeting of creditors within 60 days. This
meeting has two main purposes:

1. Deciding Bankruptcy: Creditors decide whether to officially declare the debtor as

bankrupt.
2. Considering Options: Creditors also discuss and choose between two options:
 Composition: This means the debtor can keep their assets but has to pay a
specific amount to their creditors from those assets.
 Scheme of Arrangement: In this case, the debtor's assets are handed over to a
trustee, who then manages the assets and makes payments to the creditors.
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 So, at this meeting, creditors decide the debtor's fate and which financial arrangement to
follow.

7. Public Examination of Debtor

Public Examination of the Debtor: Once a Receiving Order is issued, the Official
Receiver sets up a public examination for the debtor. Here's what happens:

 Purpose: The examination is to find out more about the debtor's behavior, financial
dealings, and property.
 Under Oath: The debtor has to answer questions while under oath, which means they
have to tell the truth.
 Questioning: The Official Receiver, the Trustee in Bankruptcy, creditors, and even the
court can ask the debtor questions during this examination.

So, it's like an open interview where they ask the debtor about their actions, financial
transactions, and property while making sure they're telling the truth.

8. The Adjudication Order

Adjudication of Bankruptcy: When the Receiving Order is not canceled, and creditors
don't agree on a composition or arrangement, the court declares the debtor bankrupt.
This is a significant step, and it's published in the Gazette Notice (a public record). Here's
when it happens:

 Circumstances for Bankruptcy: The court makes this decision in various situations:
 If creditors, during their first meeting, decide that the debtor should be declared
bankrupt.
 If not enough creditors show up for the first or any subsequent meetings.
 If creditors can't reach any decision.
 If creditors don't meet at all.
 If the agreed-upon composition or arrangement falls through.
 If the court cancels a composition agreement.
 If the debtor asks to be declared bankrupt or agrees to it.
 If the court believes the debtor has disappeared or has no intention of reaching an
agreement with creditors.
 If the public examination of the debtor is indefinitely postponed.
 If the debtor doesn't provide their financial statement without a good reason.
 If the debtor misses payments for an agreed-upon composition or arrangement.

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 So, bankruptcy is declared in these situations if no other solution is found.

EFFECTS OF A RECEIVING/BANKRUPTCY ORDER

What Happens After Bankruptcy:

1. Receiver of Property: When the court declares someone bankrupt, the Official Receiver
takes control of their property. The bankrupt person can't do anything with their property
without the Official Receiver's permission.
2. Reporting Address and Income: The bankrupt person must regularly update the Official
Receiver with their address, job details, and income every three months.
3. Legal Actions Paused: No one can take legal action against the bankrupt person or their
property without the court's permission after the bankruptcy order.
4. Continuing Legal Actions: If there were ongoing legal actions against the bankrupt
person, they might continue with the court's permission and under certain conditions.
5. Special Manager: The court may appoint a Special Manager to assist the Official
Receiver, especially if the bankrupt person had a unique business.
6. Protection Order: The court can issue a "Protection Order" to prevent the bankrupt
person from being arrested or detained by creditors. This protects them from harassment.
7. Disqualifications: After bankruptcy, the person can't:
 Hold public office.
 Become a judge or magistrate.
 Get elected to parliament or local government.
 Hold certain offices in county government.
 Deal with property worth Kshs. 200 or more without considering the creditors.
 Start a business under a different name without disclosing their bankruptcy.
 Act as a company director without the court's permission.

These rules and restrictions are in place to manage the situation and protect both the
creditors and the person who's declared bankrupt.

DISCHARGE OF A BANKRUPT

Getting Discharged from Bankruptcy:

1. Application for Discharge: After being declared bankrupt, you can ask the court to
release you from bankruptcy, but this can only happen after your public examination is
done.
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2. Types of Discharge Orders: The court has a few options:
 Absolute Discharge: You're completely released from most debts, except for a few
special ones.
 Suspended Discharge: You're released, but this release is delayed for a set time.
 Discharge with Conditions: You're released, but you have to meet certain
conditions.

Debts Not Cleared in Absolute Discharge:

After an absolute discharge, you're still responsible for some debts, including:

 Debts to the government.

 Debts due to fraud or breach of trust.
 Certain judgment debts related to seduction and marital matters.

When the Court Might Say "No" to Discharge:

The court might refuse to release you from bankruptcy if:

 Your assets can't pay at least Kshs. 10 for every Kshs. 1 you owe.
 You didn't keep proper business records for the three years before bankruptcy.
 You took on debt without any realistic way to pay it.
 You can't explain where your assets went.
 You caused your own bankruptcy through risky behaviors, overspending, gambling, or
neglecting your business.
 You spent money fighting legal actions against you when you didn't have to.
 You gave special treatment to one creditor within three months of the bankruptcy,
especially if you couldn't pay your debts on time.

These rules help make sure that bankruptcy is fair and that people don't take advantage
of the system.
POWERS AND DUTIES OF OFFICIAL RECEIVER.

Powers of Official Receiver.

These are the actions that the person in charge of handling a bankrupt person's affairs
can take:

1. Sell Property: They can sell any or all of the bankrupt person's belongings.

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2. Divide Money: They can then distribute the money they get from selling things among
the creditors.
3. Manage the Business: If needed, they can run the bankrupt person's business for the
purpose of settling debts.
4. Handle Legal Matters: They can deal with legal cases related to the bankrupt person's
property. They can also hire a lawyer or an agent for legal matters allowed by the court.
5. Accept Payments: They can accept money for the sale of property under terms approved
by the court.
6. Mortgage Property: They can use some of the bankrupt person's property as collateral
to borrow money to pay debts or keep the business going.
7. Use Arbitration: They can resolve disputes arising from the bankruptcy through
arbitration.
8. Negotiate Debts: They can negotiate with creditors to settle debts on agreed terms.
9. Divide Non-Sellable Property: If there are items that can't be sold easily, they can divide
them among the creditors.
Duties of Official Receiver.

Here's a simplified explanation of the responsibilities/duties of the person handling a

bankrupt person's affairs:

1. Take Control: They need to collect and keep safe all the important papers, records, and
belongings of the bankrupt person.
2. Sell Stuff: If there are things that can be sold, they should do it as quickly as possible and
in a way that makes the most money.
3. Be Fair: When they have money from selling things, they have to be honest and treat all
the people owed money (creditors) fairly and without favoritism.
4. Keep Records: They must keep good records of all the money they get and how it's used.
They also need to show these records to the court as instructed.
5. Talk to Creditors: They should arrange meetings with the people owed money and listen
to what they have to say during these meetings.
PRIORITY OF PAYMENT OF DEBTS
When the person in charge of handling the bankrupt's affairs distributes their property,
they must follow a specific order of priority for payments. Here's how it works in simple
terms:

1. Taxes and Rates: First, any taxes owed to the government and local rates need to be
paid.
2. Government Rents: If the bankrupt owes rent to the government, that comes next, but
only if it's not more than 5 years overdue.

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3. Worker Wages: Money owed to employees as wages for the four months before the
bankruptcy order is issued should be paid, but it shouldn't exceed Kshs. 4,000.
4. Work-Injury Benefits: Any amounts due as compensation under the Work-Injury
Benefits Act should be paid.
5. Social Security: Contributions owed under the National Social Security Fund Act also
need to be settled.
6. Secured Creditors: If there are any creditors who have security or collateral for their
loans, they get paid next.
7. Ordinary Creditors: Finally, any remaining creditors without security get paid. These are
often called "ordinary" or "unsecured" creditors.
.
BANKRUPTCY OFFENCES

Bankruptcy offenses are actions that go against the rules and laws related to bankruptcy.
Here are some bankruptcy offenses explained simply:

1. Not Disclosing Property: If a bankrupt person doesn't reveal or hand over all the
property they are supposed to, it's an offense, unless they can prove they didn't mean to
cheat anyone.
2. Withholding Documents: Failing to give the trustee (the person managing the
bankruptcy) all the documents or papers related to their property or financial matters is
another offense, unless there was no intention to defraud.
3. Hiding Valuable Property: If the bankrupt person hides or takes away part of their
property worth at least Kshs. 200 within two years before filing for bankruptcy, it's an
offense, unless they can show they didn't intend to cheat anyone.
4. Continuing to Do Business: If the bankrupt person knows they can't pay their debts but
still runs a business within two years before declaring bankruptcy, it's an offense.
5. Fraudulent Actions: Committing fraud to get credit or transferring property fraudulently
to deceive creditors is a bankruptcy offense.
6. Using a Different Name: If the bankrupt person conducts business under a different
name than the one they used when declared bankrupt without telling the people they do
business with about their bankruptcy, it's an offense.
7. Not Disclosing Bankruptcy: Obtaining credit of Kshs. 100 or more without informing the
creditor that they are an undischarged bankrupt is an offense.
8. Leaving Out Important Information: Leaving out important information in statements
related to their financial situation is an offense, unless they can prove they didn't mean to
deceive anyone.

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