Commercial Contracts

COUNCIL FOR LEGAL EDUCATION
EXAMINATION PAST PAPER QUESTIONS 2008-2017
ATP-108 COMMERCIAL TRANSACTIONS
THESE QUESTIONS HAVE BEEN ARRANGED BY THE TOPIC TO ASSIST THE STUDENT GET A FEEL OF THE
TYPE OF QUESTIONS THAT CAN BE ASKED AFTER EVERY TOPIC
© Joseph McDonald Gambino -2016 Page 1

COMMERCIAL TRANSACTION QUESTIONS BY SECTIONS 2008-2017
1. FORMS OF BUSINESS ASSOCIATIONS
Explain the distinction between societies, partnerships, companies registered under the
Companies (Act Cap 486) and statutory corporations. What are unincorporated associations
and why are they so called?
The Governor of Moto County has recently reshuffled his County Executive Committee
(Cashnet) after realizing that his County is not making good progress in attracting new
investments. This follows the receipt of a report whose finding, among others, concluded that
the people of Moto desire to take greater control of the market opportunities rather than
have their Country Government try its hands in business.
The report also identified the need for a better policy and regulatory environment for
business and commercial transactions. In response, the Governor and his cabinet have
decided to establish a business registration centre.
As the one LLM holder from the County in matters of finance law and tende of Commercial
Law in Hong Kong University, you have been approached to offer your advice.Proceed to
advise the Governor on at least five forms of business organization that can be registered to
undertake business to the County.For each of those you mention give their advantages and
disadvantages and the kind of documents they would use to seek registration.
Nanok, Lokorito and Nanjala are successful business persons in their own right having started
off as traders in shoes, agricultural products and supplies of stationery respectively. They all
live in Lodwar and have learnt of the great opportunities arising from the new county
government and the exploration for oil in Turkana area. Given the size of their separate
capital base and the growing business opportunities, they come to you for advice as to how
they can optimize their capital base to maximize on profits given the demands from the
county government and the oil company which is leading on oil exploration in the region.
Proceed to advise on at least three types of business organizations they may opt to form,
giving the advantages and disadvantages of each type.

2. COMPANY
PROMOTERS
X and Y are the promoters of Kazi Mingi Ltd, Prior to incorporation of the company, X and Y
enter into a contract "for and on behalf" of Kazi Mingi Ltd to supply some goods to Kenya
Mpya Ltd. Some goods were supplied before incorporation while others were delivered after
incorporation. A dispute has now arisen between the suppliers and Kenya Mpya Ltd over
quality issues and non-payment for past deliveries. Advise all the parties involved in this
matter on their respective rights and duties and the proper parties to any legal proceedings
that may be commenced.
REGISTRATION OF COMPANY (CR1)
Briefly describe the process of registration of a private Limited Liability Company in Kenya
citing relevant statutory provisions.
Your clients, Amy and Ben, have instructed you to register a company on their behalf. The
more specific instructions are as follows:
i. The company's name will be Ambe Traders Ltd.

ii. Since they are recent college graduates, they are keen to use the form of company
which guarantees them the highest level of protection against potential liability.
iii. They would not want to incur unnecessary legal costs and for this reason, they would
rather adopt the model Articles of Association appropriate for their company.
iv. The company's main "line of business" will be importation of apparel from China for
sale in Kenya. They however would also want to "branch" into other lines of business
after the company is well established.
v. They will each contribute Kshs.500, 000 to finance the company's business. In this
regard, each one of them will subscribe to 500 shares of the company. Each will pay,
upfront, 50% of the Nominal Value of each share subscribed to.

a) With reference to the company registration Form CR1 in the Companies Act,
2015,complete the following parts on behalf of your clients:
i. Part 2: Kind/type of company.
ii. Part 7: Objects
iii. Part 8: Liability of members
iv. Part 9: Share capital
v. Part 10: Paid up capital:
b)
i. The legal rules regarding the wording and legal implications of the "Objects Clause"
have changed significantly under the new Companies Act, 2015. Noting to compare
and contrast these rules with the rules pertaining under the old Companies Act, Cap
486, Laws of Kenya, briefly state the rationale of the specific wording you have used in
Part 7, or your decision to leave it blank.
ii. If Amy has duly paid 50% of the Nominal Value of the shares that she has subscribed
to, in the event that the company is wound-up soon after registration, what would be
the extent (state the amount) of Amy's liability vis-a-vis the company debts? Show
your workings and also provide the legal explanation for your answer.
"My name is Tom Ondek. My friend named Dickson Okend and myself have been running a
business of offering cleaning services, named Cleanico Enterprises. Even though the business
is not registered, over time it has grown in leaps and bounds.
Just the other day, we came across an advert inviting for bids to tender for cleaning services
to one of the big companies around. We have realized that the company has numerous offices
in Nairobi and its environs and we may require extra financing to hire more staff and purchase
other facilities to be able to meet such a client's needs.
On approaching our regular bank for financing we were informed that, although the bank had
a lot of confidence in our business acumen and our ability to repay any loan advanced to our
business, it was critical that the business first be transformed into a company. The legal officer
indicated to me that this would wield a lot of advantages to our business."

This statement was made to you by a client who visited you in your Chambers, in the firm
where you have been newly hired as an associate. The client requires that for his benefit you
address a number of legal issues (substantive and procedural) regarding the following:
a) The advantages of transforming the business into a company (beginning by identifying

the nature of the business arrangement they are into currently).
b) The process of transforming the business into a company and noting to address inter
alia the following matters:
i. The critical information that you would require from the client to be able to
incorporate the company.
ii. The documents that would have to be prepared and the import of the said
documents.
iii. The actual procedure of incorporating the company.
INCORPORATION & CERTIFICATE OF INCORPORATION
Your client, Vuka, wishes to trade in the sale of motor vehicles and related spares which he
imports from Dubai. He wants to legalize the business in which he and his wife are already
engaged in a small scale business along commercial Street Nairobi by incorporating a limited
liability company.
Your client seeks to know the process and legal requirements for the registration of such a
company whose current stock would be about Shs.2,500,000/=.
a) Advise him on the requirements of incorporation pointing out to him the suitable type
and size of the company in view of the circumstances.
b) Highlight the main contents of a Memorandum of Association of a private company
limited by shares.
c) In what circumstances can a company have power to have an official seal?

In the Matter of Ng'enda Location Ranching Company Ltd, [2005] eKLR, John Ndungu Gitaka
and Samuel Kibebe Waitindi filed a petition under Section 211 of the Companies Act seeking
to have Ng'enda Location Ranching Company Ltd (hereinafter referred to as the Company)
wound up on the ground, inter alia, that the directors of the said company had failed to
manage the company in accordance with the Memorandum and Articles of Association of the
Company.
The petitioners sought a declaration that the affairs of the company were being run in a
manner detrimental to the shareholders. They further averred that the assets of the company
were being wasted or alternatively being disposed off without the consent of the
shareholders. As minority shareholders, they were aggrieved that the company's directors had
not performed their duties as required by the law. The petitioners therefore sought the
intervention of the court to have the said company run and managed in accordance with the
law and especially to the satisfaction of its shareholders. Discuss the legal issues raised in the
following scenarios:
i. Ng'enda Location Ranching Company is a Public Limited Liability Company. Five of the
seven signatures to the Memorandum of Association were forged. The Memorandum
was presented and a Certificate of Incorporation was issued. The Petitioners claim that
the registration was void.
ii. Ng'enda Location Ranching Company Limited is a Public Limited Liability Company. The
Memorandum of Association was signed by 2 adult members and a guardian signed
separately for five minor members, and the company is registered and issued with a
Certificate of Incorporation.
iii. The Memorandum of Association of Ng'enda Location Ranching Company was
presented to the Registrar of Companies for registration and the Registrar issued a
Certificate of Incorporation. The company after complying with all the prescribed legal
formalities started carrying on business. The company contends that the nature of
business cannot be questioned as the Certificate of Incorporation is conclusive.

MOA/AOA /AGM & ULTRA VIRES
Sitopamba Limited, a cotton textile company, entered into a contract with Nanasi Limited, an
adjacent pineapple juice producer recently established, to supply to the latter electricity from
their power generation plant. After supplies had been made for three months it is discovered
that this activity is beyond the scope of the objects clause of the memorandum of association
of Sitopamba Limited. Nevertheless, shareholders of Sitopamba Limited, during an extra
ordinary general meeting, and by a majority, subsequently ratified the contract. Nanasi
Limited has since learned of the events and now refuses to make payment on the ground that
the contract is wholly null and void. Advise, giving reasons, whether or not it (Nanasi Limited)
can be legally compelled to make payment.
CONTRACTS
Set out the forms of contracts as enumerated in Section 34 of the Companies Act (Chaptr 486,
Laws of Kenya), noting to pay attention to the details as to who may enter into contracts on
behalf of a company and the reasons for their validity.
RAISING CAPITAL
Several options are available to a public company which intends to raise capital from
members of the public. Discuss any FOUR such options indicating the legal procedures
involved in each case.
Finance is the lifeblood that keeps corporations going. Mwananchi Industries is a large
indigenous manufacturer of alcoholic beverages and spirits. In 2011 the company unveiled its
Strategic Plan under which the company intends to have at least 40% market share in Kenya.
This will require that the company invests at least Kshs.5 billion over the next five years in its
manufacturing plants, bottling plants and distribution facilities. The company has over 200
acres in Naivasha and an operational manufacturing plant. Discuss the various options that
Mwananchi Industries may pursue as it seeks to expand its operations.

Masumbuko Company Limited has recently been offered an exciting opportunity to buy over
the custodial services of Wananchi Bank in Nairobi. At a meeting of the board of directors of
Masumbuko, a decision was made to take the offer subject to the company being able to
syndicate a long term borrowing arrangement. As a renowned expert in Company Law, the
directors approach you for advice as to how the company can meet its capital needs.
a) Advise the Board of Directors of Masumbuko Company Limited on their options in

raising capital through:
i. Shares
ii. Debentures (Give advantages and disadvantages of each approach.)
b) According to the Companies Act (Cap 486), what document would Masumbuko be
required to prepare for the benefit of potential investors? State at least five matters
that should form the contents of this document and indicate the procedure of
ensuring legal validity of the document.
SHARES (Prospectus, Issuance, Reduction, Discount etc)
Expedited Services Limited (ESL) was incorporated in Kenya in 2013 with the sole objective of
"providing delivery services". In this regard, ESL's business activities include, among others:
delivery of mail, packages, and other merchandize purchased on-line and food from fast-food
eateries offering food delivery options. Jack and Jill are the sole shareholders and directors of
ESL. Jack holds 60 of the company's shares, while Jill holds the remaining 40%.Business has
been good, especially since on-line business and fast food outlets have increased
exponentially :in the last three years. ESL has also noted with immense interest the-
exponential growth of the Kenyan real estate sector and the lucrative business opportunities
in that sector. The Company now desires to get into real estate development. Whereas it has
some surplus capital to invest in the proposed new line of business, the amount of capital
required is so large that ESL will have to seek external financing either by way of debt or
equity finance. After considering various options the company is leaning towards equity
finance. ESL is proposing to increase its share capital by issuing additional shares to
prospective investors. ESL proposes to structure the proposed share issue as follows:

a) Shares worth Kshs.100,000,000/- (100 million) will be offered to a few select
institutional investors and high net-worth individual investors; and
b) Shares worth. Kshs.300, 000,000/- (300 million) will be offered to a "select section of
the public preferably to Kenyan Investors of Indian descent." To facilitate this, the offer
will be advertised-on Sound Asia FM using the Punjabi and Gujarati languages -only.
This way, ESL hopes to "avoid availing the shares to the public in general."
ESL has sought your advice on the proposed transaction. Identify and analyse the legal issues
in the above facts pattern
DIRECTORS
Citing relevant cases, explain the common law duties of directors of a company in Kenya.
Total Technics Ltd is a company formed in 2007 by John Doe to provide Home Security
Solutions. The issued shares of the company are owned 60% by John, 39% by his first born son
Peter and 1% by the Managing Director Albert.
John celebrated his 70th birthday with a lavish ceremony at his residence in March 2011 and
announced to all that he had retired from the Company. Recently John visited Israel on a
pilgrimage and met an Israeli farmer who convinced him of the benefit of new farming
method for grapes. Right there and then in Tel Aviv, John signed an agreement with the Israeli
giving him 30% shareholding in Total Technics and committing the company to start a large
scale grapes plantation in Naivasha. On hearing of the developments, Albert has stated that
he will not implement any of those agreements. John has now sent a sms to Albert telling him
that he has been sacked from the company. Advise on the situation.
Chester Transporters Limited (CTL) has been your client since you assisted its four members
incorporates it in 2011. Charles the Managing Director, has approached you with the following
information:
CTL has been going through a rough patch over the last one year and is unable to raise
funds from its usual financiers. Charles and some of the other directors believe that

CTL can trade its way out of the quagmire if funds were sourced by means other than
credit.
Charles believes that he may have found the solution in Nobert, an old friend who runs
a business similar to CTL's and who has shown an interest in equity. Nobert has made a
few demands in relation to his investment in CTL, the key one being appointment to
the Board.
Ellen, one of the directors is not keen on the proposal to bring Nobert on board and
insists that CTL should explore all other possible options. She and Nobert have had a
long running feud over property in their rural area and do not see eye to eye. The
other directors feel that she is being unreasonable.
Charles seeks your advice on the following matters:
a) How can Ellen be removed from her position as director and what steps might she take
to resist the removal or to assert her rights? (14 marks)
b) Ellen and one other director have travelled abroad on a two week business trip leaving
Charles and Timothy as the only two directors in town. Charles is considering the
option of him and Timothy calling a general meeting immediately to pass an ordinary
resolution appointing Nobert. Advise on the validity of that meeting.
A, B, C and D are all equal shareholders and directors of African Technologies Ltd, a private
limited liability company incorporated in Kenya and whose articles are in the form of Table A.
All the four work for the company although no formal employment contracts have been
drawn up. A dispute has arisen among the members, with A and B threatening to "kick out" C
and D from the company, ostensibly for being lazy and not bringing any business to the
company. C and D have approached you for legal advice on the following issues:
a) legal distinction between shareholder, director and employee of a company; rights and
duties of shareholders and directors;
b) rights and duties of shareholders and directors;
c) possible remedies available to C and D in their various capacities and the proper
parties to any proceedings you may commence;
CORPORATE GOVERNANCE
In the light of the changing global and regional business environment, corporate governance is
increasingly becoming visible and notable contributor to "the bottom line."Discuss at least
four (4) principles of corporate governance stating why these principles are advocated for.
Directors of Amuka Twende, a publicly listed company have approached you on concerns they
have on statutory requirements of the Capital Markets Authority and Company Law in Kenya.
Their concerns are informed by the recent court ruling in the matter of CMC Motors (Kenya)
Ltd where some long serving and well known directors were barred from holding board
positions in any publicly listed company in Kenya.
Advise the directors on at least five principles of corporate governance in Kenya as established
in accordance with the guidelines of Centre for Corporate Governance or OECD principles of
governance.
FILLING /RETURNS AND CONVERSIONS
Otonglo & Co. Ltd, a private company limited by shares has been in business for the last five
years having been incorporated in December 2006. You have recently been approached to
take up the role of Company Secretary for Otonglo & Co. Ltd. Upon assumption of your
responsibilities, you discover a number of legal requirements that, in your view, the company
needs to comply with. You have also been asked to advise on the possibility of converting the
company into a Public Company. Explain the practical steps and legal requirements for:
a) Holding an Annual General Meeting;

b) Completing and filing annual returns;
c) Converting a Private Company into a Public Company.

WINDING UP
Laleni Kenya Company Limited was founded in 1909. It has been "THE" in manufacturing
business and also engages in wholesale business of clothing products.
As a result of poor management and reduced tax incentives for the clothing industry, coupled
with the recent decision by the Minister for Finance to reduce tax on second hand clothing,
Laleni Company Limited directors have decided to wind up their company. The Laleni Kenya
Ltd Managing Director now seeks your advice on the provisions of the Companies Act
(Chapter 486, Laws of Kenya) relating to winding up.
a) Explain at least FIVE circumstances in which a company may be wound up by the court.
b) Set out at least THREE provisions and circumstances under Section 221 of the
Companies Act on the prerequisites of a petition for winding up and the effects
thereof.
c) Discuss the role of the official receiver in winding up of companies and make
comparisons with the official receiver in a bankruptcy process.
The remedy of winding up companies is considered a drastic measure for which courts are
sometimes reluctant to order. Discuss with reference to the Companies Act (Cap.486, Laws of
Kenya) and case law in Kenya. Give at least five reasons why a court may refuse to order the
winding up of a company.
3. SALE OF GOODS
Commercial law is the branch of law that is concerned with rights and duties arising from,
amongst others, the supply of goods and services. Discuss the significance of the following as
sources of law on sale of goods and transactions:
i. Contract
ii. Uncodified custom and usage
iii. Codified custom and usage
iv. Domestic and international legislation

Discuss the circumstances in which a purchaser of goods may acquire a good title to them
where the seller is neither the owner of the goods nor a person having authority of the owner
to sell them.
Mutiso had sold his car to Karanja for Kshs. 1,400,000 and the car was to be delivered within
four days. After two days Smith offers Mutiso Shs. 1,600,000 for the car, as Smith was not
aware of the previous sale to Karanja. Advise Karanja of his legal rights against (i) Mutiso and
(ii) Smith.
With reference to a contract for the sale of goods, and in the absence of any special
agreement, when does the property in the goods pass to the buyer?
Answer the following in regards to the Sale of Goods Act Cap 31
a) Discuss and explain the place of implied and fundamental terms under Sections 12-17
of the Sale of Goods Act, Cap.31 of the Laws of Kenya.
b) Under Section 10 of the Sale of Goods Act, Supra, the price may, among others, be
"left to be fixed in a manner thereby agreed." Madame Midosi, a prominent
businesswoman engaged in sale of goods, has noted the problem with this provision
and seeks your advice as to the meaning and potential challenge with the provision.
Advise her and make proposals on how she may avoid possible pitfalls that may arise
from this ambiguous provision in practice.
Mr. Kenya approached Mr. Patel on 20th June 2008 and informed him about his job, and he
wanted to buy a new car that is fast, safe, durable, modern and of low fuel consumption. The
cost is irrelevant to Mr. Kenya but he wanted assurance from Mr. Patel that the car will meet
his requirements and expectations. Mr. Kenya also wanted the car to be delivered by 30th
June, 2008 at his medical practice without fail. Mr, Patel assured Mr. Kenya that the 2007
model of vehicle V was the best suited to meet his needs, and was valued at Kshs.15 million,
Mr. Kenya paid Kshs.15 million by banker's cheque and it was agreed that Mr. Patel would
deliver the car, which was currently at the Mombasa branch on 30lh June, 2008.

a) Mr. Kenya has approached you to prepare a document to reflect the oral agreement
between himself and Mr. Patel as a matter of urgency. He is particularly concerned
that the document should reflect all his expectations and protect all his interests and
rights.
b) In relation to (a) above, the following has occurred:
i. Unfortunately, Mr. Patel did not deliver the car on the agreed date.
ii. He delivered the car two weeks after the agreed date and insisted that Mr.
Kenya take possession.
iii. Mr. Kenya took possession under protest.
iv. Mr. Kenya went to work one morning driving the new' vehicle but was
disappointed that it was not fast, had high fuel consumption rate, was not
stable on the road and in fact stalled on the way to work.
v. When approached by Mr. Kenya, Mr., Patel said that "goods once sold cannot
be returned" and that Mr. Kenya got value for money, and he was not liable for
any defect at all, if any.
You are Mr. Kenya's advocate and he wants you to draft a legal opinion responding to each
point raised above, preparing the course of action he should take, and suggesting the chances
of success should he decide to take the matter to court.
Section 55 of the Sale of Goods Act (Cap 31, Laws of Kenya) states that: "Where any right,
duty or liability would arise under a contract of sale by implication of law, it may be negatived
or varied by express agreement or by the course of dealing between the parties, or by usage,
if the usage be such as to bind both parties to the contract."
Read the facts provided hereunder, and answer the question that follows:
The plaintiff and defendant entered into a contract in January 2011 for sale of 15,000
litres of diesel C.I.F Mombasa. There was a clause in the contract which provided that
the contract "contains the entire agreement of the parties,.... and there is no other
promise, representation, warranty, usage or course of dealing affecting it." A dispute
arose and the defendant wanted to rely on a custom or usage for the retention of
samples of oil being tested. The plaintiff contends that the contract does not admit
such terms.
In view of the law and the facts provided, prepare a considered judgment on that particular
aspect of the case.
In need of a new fleet of trucks to replace his aging one, Sam went to Newstar Motors who
have been his truck suppliers for the last 15 years. He was shown an Atros Truck by Benjamin
who explained to him the new superior features in the Truck for which Sam was very
impressed. He ordered eight new trucks telling Benjamin 'I want eight of these'. Four weeks
later, eight trucks were delivered to Sam's place. Although they were all Atros Trucks, three
were of the older model. Sam has rejected the trucks. Advise the parties on their rights and
obligations.
Wamaitha is a vegetable and fruits merchant carrying on business on Ngong Road, Nairobi.
For years she has been getting her supplies from Maina who is based in Kinangop. In
December 2014, Maina purchased for her four bales of cabbage, six sacks of tomatoes and
one sack of Avocado fruit to be dispatched to Nairobi. Due to heavy rains and fog in the
Limuru Area, the vehicle could not make it to Nairobi and had to sleep-over at Uplands.
Furthermore, as Maina had lost his phone and did not have Wamaitha's number, he could not
communicate with her. The following morning afraid that any further delay will lead to the
entire batch being lost, he sold the entire batch at a profit of Kshs.21, 000.00. Wamaitha now
claims refund of her money and the profits. Advise the parties.
Nairobi Airlines Limited (NAL) ordered six Dreamliner aeroplanes in 2010 from Bolche Inc.,
with delivery to be at the Rabunche International Airport in Brazil.Early last year NAL informed
Bolche Inc. that due to worsening financial situation and reduction in business it no longer
wished to take delivery of the aeroplanes. However it would wish to acquire only two much
smaller aircrafts. Bolche Inc. did not reply to the communication from NAL.
Last week NAL received a notice from Bolche Inc. advising the former to take delivery of two
of the dreamliners ordered at the agreed place of delivery, namely Rabunche International

Airport. They have advised, indeed warned, that continued and extended storage/parking of
the two aeroplanes will attract charges.NAL has asked you to prepare an urgent response to
Bolche Inc. and wish you to highlight reasons for resistance to the notice of delivery of the
aircraft and possible remedies against the aircraft manufacturer.
Meshack Omboyi of P O Box 12345, NAIROBI has seen an advertisement in a daily newspaper
as follows:
"Toyota RAV
4 Year 2001
Automatic; fully loaded
Asking price: KShs.800,000
Call Owner: Donald Kamau."
Omboyi comes to your law firm in the company of Kamau and they inform you that after
negotiations they have agreed on a new price for the vehicle of KShs.780,000. They ask you to
act for them in the transaction.
a) What documents do you require to obtain from Kamau for purposes of completing the
transaction?
b) Draw the necessary agreement for the parties.
c) What terms would the law imply into such an agreement even if not expressly stated
by the parties.
Zachariah hired Nelson to transport her goods from Mombasa to Nairobi under the contract
of hire signed by both Zachariah and Nelson. Nelson attested in his hand-writing a clause that
read: "goods carried at owners." Because Nelson did not have a lorry big enough to transport
the goods, he outsourced Isaac to transport the goods using Isaac's lorry. In the course of
transit, the lorry overturned causing damage and loss to the goods. Zachariah has brought an
action against Isaac claiming damages and the value of goods. In his defense Isaac argues that

he was covered by the clause reading: "the goods carried at owner's risk". Advise Zachariah
and Isaac as to their legal rights in the dispute.
Techno Gas Limited (TGL) ordered for Liquefied Petroleum Gas (LPG) regulators from Lombar
Enterprises. TGL, through an email expressly stated in their order that the regulators should
be compatible with gas cylinders using Modified Valve Release System. Lombar supplied
regulators compatible with an earlier version of the modified valve release system. As a result,
there was a massive gas teak at TGL's premises which led to a shut down at the Techno
premises for a week to deal with the leakage. Assess the legal basis for any claim that TGL
could make against Lombar.
Mr. James Muganda is a sole trader, trading as a wholesaler/supplier of assorted cereals,

grains and other food products. He has been in business in Nakuru for the past 20 years and is
capable of supplying large or bulk quantities of the food products, upon request, and with at
least one week's notice.
Mr. Peter Mwanafunzi has recently opened up a retail outlet for cereals, grains and related
food products in Nairobi. He has been in business by himself for two years. Mr. Mwanafunzi is
very excited because he has recently (in August 2010) been awarded a tender to supply River
Hill Secondary School in Nairobi with all their grain and cereal requirements for the next five
years commencing 1st September 2010, up to 1st September, 2015 as and when required,
upon request by way of written order and notice of 2 weeks. The required quantities are to
vary but are stated to be between 50kgs-200kgs per request for each of the cereals and
grains. The products are:
i. Grade 1 long grain Pishori Rice

ii. Nyayo Beans Type 2
iii. Soya beans type 1
iv. Maize sifted Grade 2
v. Green Grams polished Grade 1

Mr. Mwanafunzi has discussed the above, including price list, with Mr. Muganda, who has
assured Mr. Mwanafunzi that he has the capacity to supply the products as and when
required, provided notice is given, and one day allowed for transportation from Nakuru to
Nairobi. It has been agreed that transportation costs will be borne by the supplier but
factored into the price. Mr. Mwanafunzi is to make orders using Mr. Muganda's standard
order form and price list which will be provided from time to time, and which is subject to
change. The arrangement will be for a period of 5 years commencing 2nd September 2010 to
2nd September 2015, and each order is to constitute a separate contract. Mr. Mwanafunzi is
anxious that everything goes on schedule as he hopes to get further business from the School,
even new customers, provided that he is able to supply the school efficiently. The buyer is
therefore adamant that as part of the agreement, it is crucial that the products be of the right
quality, quantity and supplied in time, and comply with all relevant laws relating to such food
products. The seller on this part is concerned that upon request for supply or order, the buyer
should pay the full amount by way of banker's cheque within one week of supply.
Task
a) Propose the type of agreement that would best suit the above scenario giving reasons
for such proposals.
b) Draft a contract for approval and execution by the parties, taking into account all the
concerns of the parties and the relevant principles of law.
Part 1 of the Sale of Goods Act (Cap 21 Laws of Kenya) at Section 2(4) states:
"Goods are in a deliverable state within the meaning of this Act when they are in such a state
that the buyer would under the contract be bound to take delivery of them"
Part III deals with the transfer of property as between seller and buyer and provides in part:
Sec. 18 "property in unascertained goods - where there is a contract for the sale of
unascertained goods, no property in the goods is transferred to the buyer unless and until the
goods are ascertained"

Sec. 19 "property in specific or ascertained goods passes when intended to pass
1. Where there is a contract for sale of specific or ascertained goods, the property in
them is transferred to the buyer at such time as the parties to the contract intend to
be transferred.
2. For the purpose of ascertaining the intention of the parties, regard shall be had to the
terms of the contract, the conduct of the parties and the circumstances of the case.
With the aid of the above, and any other relevant sections of the Sale of Goods Act, and other
principles of law, present a legal opinion on the following cases:
i. Case A
The plaintiff, Mr. Peter Brown (seller) sold to the defendant Mr. Atul Shah (buyer) all the trees
in a named forest in 2010. According to the contract, all the trees which conformed to a
certain stated minimum specification would be sold over a 15 year period. The defendant paid
a first installment of the agreed price, but before he could cut down much timber, the forest
was nationalized. The seller (plaintiff) now claims that he is entitled to the balance of the
agreed price whereas the buyer (defendant) claims that he is entitled to a refund of the first
instilment besides damages for breach of contract. Advise the parties.
ii. Case B
A company (Gold Corp) invited the public in 2010 to invest in gold coins and bullions (gold
bars) at a stated price per unit. According to the terms of the agreement, the company would
store the gold in a non-allocated basis (that is, in mass and not separated out into portions for
each customer). The company gave a certificate of ownership to the investors, and
represented that they owned the gold. Unfortunately, the company did not in reality have
sufficient stock to meet its commitments. In 2011 a floating charge crystallized upon
insolvency before investors could rescind contracts for misrepresentation. The investors have
come to you for advice as they want to lay a claim in the context of insolvency and need to
establish that they hold proprietary rights/claims. Advise the investors.

Aminata agreed to sell to Baraba, at a price, a supply of mangoes, product of neighbouring
country. Delivery was agreed to be weekly over two months effective from two weeks after
the date of execution of the contract. On five occasions, Baraba took the consignments: but
later, when Aminata sought to deliver the subsequent consignments as contracted, Baraba
declined to accept the mangoes saying that since the market prices of mangoes had fallen
drastically he could not, indeed it would unfair to expect him to, accept the mangoes at the
contract price. He sought to renegotiate the price, a proposal Aminata flatly refused to
consider. Advise both parties as to their rights and remedies, if any.
Timbe entered into a sale of goods agreement with Wendo for the purchase of four (4)
Alsatian dogs that the latter promised to import from Denmark. Timbe paid fifty per cent
(50%) of the cost being Kshs. 100,000.00 exclusive of freight costs agreed at Kshs.80,000/=.
When the dogs arrived at the JKIA, Wendo notified Timbe that as the price of each dog was in
fact Kshs.75, 000 and freight costs were Kshs.100, 000 more than anticipated, he would only
release the dogs if Timbe paid him Kshs.300, 000. Timbe flatly refused upon which Wendo
sold the dogs to Ali and informed him to collect his refund at his convenience. Advise Timbe
on his rights and what remedies he may seek against Wendo.
SALE OF GOODS BY AUCTION
What are the statutory rules as to sale of goods by auction?
Ndekle requested Kinanda, an auctioneer, to sell a tractor on his (Ndekle's) behalf. They
agreed to a reserve price of Kshs.720,000/-. On the day of the sale Kinanda, having forgotten
the figure agreed, inadvertently knocked the sewing machine down to Baboyi for
Kshs.705,000/-. Ndekle seeks to retrieve the tractor. Discuss briefly the rights of each of the
three parties.
Dablo Dhidho Auctioneers knocked down a used Lexus Saloon car to Yanya for the latter's bid
of Kshs.1 million. It later emerged that the owner and seller of the car, Ms. Maga, had advised
the auctioneers, in writing, of a minimum price of Kshs.1.5 million on the item. The Manager
of the auctioneers firm, Mr. Dhidho acknowledges this, but he counters that, two earlier

attempts to sell the same car, did not attract any offers close to Kshs. 1 million. Maga seeks to
retrieve the car from Yanya. Discuss briefly the legal rights of the three parties.
The following advertisement appeared in yesterday's Daily News, a newspaper with

countrywide circulation.
Quick Sure Traders
P.O. Box 197 - 00032, Nairobi
Tel: 020-00030010
Public Auction
Duly instructed by Bima Insurance Company Ltd, we shall sell by Public Auction the under
mentioned vehicles on Sunday 26th November 2017:
No. Vehicle Make

1. KBTU 031C Nissan Navara
2. KQBA 321D Mazda Premacy
3. KPPU 297D Toyota Fielder
Conditions of Sale
1) A refundable Banker's cheque of Kshs.100,000 deposit needed to obtain a bidding

number. Cheques to be drawn in favour of Bima Insurance Company.
2) The declared purchaser must deposit 25% of the sale price at the fall of the hammer
and the balance paid within fourteen (14) days.
3) Sale is subject to reserve price.
4) Vehicles are offered for sale 'as is where is' basis.

a) Identify two missing items of detail that are required by law and draft suitable
additions to remedy the advertisement.
b) The advertised sale is subject to 'reserve price'. Distinguish between sales 'with
reserve' and those 'without reserve' and the legal implications of reserve prices on the
advertised auction.
An auctioneer was instructed by Jeweli Limited to sell certain jewellery at a price of not less
than Kshs.250, 000/=. On the day of the auction no one seemed to be interested in the
jewellery. At about closing time, he received the highest bona fide bid of Kshs.190, 000/=, an
amount which Jeweli has refused to accept. Advise on
i. The validity of the auction; and

ii. Whether the auctioneer is liable to Jeweli Limited.
SALE OF GOODS AND THE 0NLINE TRANSACTIONS CHALLENGE
Your cousin Rachael has heard that there are good deals on the OLX Website. She wants to
upgrade her phone to a sleeker smartphone model. She has visited the site constantly in the
past week and has identified three potential phones posted on the site. She has contacted
their owners over the phone. She now seeks your advice before she concludes the deal.
a) Advise on at least four legal issues that arise out of the transactions concluded from
the OLX site. Attend to legal liabilities and rights of the parties.
b) Racheal bought an LG smartphone from a man who described himself as Martin. They
met at Galleria Mall to conclude the deal. Racheal inspected the phone, tested it with
her SIM Card and was satisfied. She paid through her MPESA account Kshs. Kshs.
15,000 to a number that Martin had given her. Four hours later, the phones died and
when she tried to charge it, it could not charge or be revived. She tried to reach Martin
but his phone was switched off. Advise her on any cause of action and remedies
available to her.

Chichi is a recent college graduate who has heeded the call made by the Government to
young people urging them to pursue entrepreneurship instead of seeking formal employment.
Chichi studied Business and Information Technology (BBIT) in college. She has decided to use
internet to "source" for suitable merchandize from China for re-sale in Kenya. While searching
the net, she came across Ming Ltd (Ming), a company based in China which supplies cosmetic
products to buyers all over the world. Ming had in stock some lipstick which was described on
its website as being "Free of peanuts, good for African skin, warranted only equal to sample."
Since she could not afford to travel to China to inspect the lipstick, Chichi requested for a
sample which was duly sent to her and received. She gave the samples to some of her friends
who gave the lipstick excellent reviews. Upon receiving this positive feedback Chichi placed an
order for seven thousand (7,000) tubes of the lipstick which were duly delivered and paid for.
Chichi has been selling this lipstick to her friends, professional beauticians and cosmetic shops
in Nairobi for the last two weeks. Recently, based on the feedback received from her
customers, the following facts have come to light:
a) That the lipstick does in fact contain peanuts and is therefore unsuitable for persons
with peanut allergy.
b) The lipstick contains a chemical ingredient which bleaches African skin but is otherwise
harmful to other skin types.
You and two other candidates are undertaking pupilage at a law firm which has been retained
by Chichi. Your supervisor has assigned specific aspects of this matter to each of you. Your
specific task is to identify, state and analyze legal grounds the basis of which Chichi could seek
redress from Ming. These will be incorporated in a demand letter to be sent to Ming.
3. INTERNATIONAL SALES OF GOODS
Discuss the nature of an ex-ship contract. (4 marks)
Torus sold to Kenuru a consignment of maize and Torus sent to the latter a bill of lading.
Kenuru delivered the bill of lading to Bakili, who took it in good faith, in exchange for a trailer.
Shortly thereafter Kenuru became insolvent and Torus attempted to stop the carrier from

delivering the maize before payment. In the meantime, Bakili also became aware of the
Kenuru's insolvency and claimed the maize. Advise on who may lawfully obtain the maize.
4. AGENCY
Briefly discuss five (5) ways in which the relationship of agency may arise.
Discuss the following statement: "The principal has a right to unilaterally revoke the agency at
any time before the agency has been completely performed by giving due notice." Are there
any exceptions to this assertion?
Under what circumstances and to what extent may a wife pledge her husband's credit?
Brian is in the business of buying and selling second hand motor vehicles. The vehicles are
usually displayed at a large yard located along Langata Road in Nairobi. Brian also receives and
sells cars on behalf of individual owners at a commission. Such cars are also usually displayed
at the same yard. At around 9.00 a.m. on 1st May 2015, Alice went to Brian's yard and saw a
car which she wanted to buy. The owner of the car, Oscar had left it with Brian with
instructions that Brian was to obtain "good offers" but that he (Brian) was not to accept any
offers without first consulting with Oscar. Unfortunately, Oscar had, inadvertently left the
car's logbook in the car's glove compartment. Using this document, and holding himself out to
be Oscar, Brian sold Oscar's car to Alice. Alice paid the full purchase price in cash. She also
obtained from Brian (who was pretending to be Oscar) the car's log book together with a duly
executed transfer form. Alice did not, however, drive away the car on the day as she was
travelling out of town. On the same day in the afternoon, Oscar came and took away his car,
telling Brian that he had changed his mind and was no longer interested in selling it. Upon her
return, Alice made several unsuccessful attempts to collect the car from Brian. She has now
"unearthed the truth" but is not sure what to do. Identify and discuss the legal issues raised by
the above fact pattern.
Wambui appoints Wepukhulu as her agent to buy furniture and to sell it to her trade
customers. She informs her suppliers and customers of Wepukhulu's appointment. Wambui
instructs Wepukhulu not to buy any red sofa sets in the belief that they would not sell.

Unknown to Wambui, Wepukhulu recently served a term of imprisonment for dishonesty.
Wepukhulu visits Gikomba Sofas Ltd, one of the suppliers and agrees to purchase 20 (20) red
sofa sets for kshs.1, 400,000. The following day Wepukhulu enters into an agreement to sell
the sofa sets to Chepchieng for Kshs.2, 000,000 without telling Chepchieng that he is
Wambui's agent. Shortly afterwards, Gikoma Sofa Set Ltd find out what Wepukhulu was upto
and tells Wambui that they will not honour the agreement to sell the red sofas. Fearing a loss
of business, Wambui purports to ratify the purchase with Gikomba Sofas Ltd as well as the
sale to Chepchieng. Advise the parties.
Ramji is a former manager of Next Communications Shop dealing in electronics owned by Mr.
Benji. He left employment two months ago under unclear circumstances and has since been
trying to establish his own shop. Recently, he approached Mr. Kato a wholesale dealer in
Security Scanners with an order to deliver to his new shop 20,000 security scanners. He
informed Mr. Kato that the order was from his former employer who was opening a new
outlet. The scanners were delivered. On presenting an invoice to Mr. Benji the latter refused
to pay stating that Mr. Benji, though previously had his authority, was sacked two (2) months
ago and no longer acts for him. Advice Mr. Kato in his remedies.
Danu an employee driver of Vida Ltd was driving in the company of his visiting friend Bena
when a policeman flagged them down. The policeman arrested Danu for being drunk but,
without establishing whether Bena was a competent driver, allowed him to drive the car back
to the office. On the way, Bena knocked down a pedestrian Kalu, who has since sued Vida Ltd,
the owner of the car. Advise Vida Ltd.
While helping out at Manu's car shop during vacation, Pela sold a car to Tunui, the mother of
his standard seven classmate, for Kenya shillings 300,000/- less than the correct price. Tunui
has refused to return the car to Manu's car shop. Manu seeks your advice to force Tunui and
Pela to pay the difference or return the car. Advise.

Nyapuoda hired O. Binju Transporters to deliver four lorries of bananas from RianaTown to
Mariakani, some 850 kilometres away. One of the lorries broke down at Emali. Three days
later the driver decided to sell the consignment which was now fully ripened and
deteriorating, to the local residents. He received KShs. 18,000/= for the sale. Much of the
bananas had, in fact, been damaged and he received less than a quarter of the original value.
The driver wrote a report to his employer regarding what had happened and the action he
had taken. When the transporters informed Nyapuoda of what they were compelled to do,
the latter disagreed with them and filed suit for damages in court.O. Binju Transporters have
sought your advice. Do a brief written opinion, pointing out the rights, if any, of Nyapuoda as
well.
Citing relevant statutory and judicial authorities/ discuss the following legal problems:
a) A power of Attorney was given by Anyango to Bono/ his agent, to present a document
for registration. Anyango died before the document was presented for registration.
The Registrar was aware of the death of Anyango and registered the document.
Examine the position and advise the estate of Anyango.
b) Pangani, a Solicitor, entrusted all his work to his clerk and rarely attended to it himself.
The clerk induced a client to sign a conveyance for her property under the impression
that it was merely a Power of Attorney. Later, the clerk sold the property and
absconded with the money. The client sued Pangani. Is Pangani liable? Why?
c) Z, a wholesale clothes dealer appointed Y as his agent for the sale of clothes on the
basis of 5% commission on the sales made by Y. Y had an agreement with his principal
Z that he (Y) could retain part of the sale proceeds to adjust the commission due to
him. Z terminates the agency of Y. Y refuses to hand over the clothes in his possession
claiming that he is vested with authority coupled with interest and that agency cannot
be terminated. How would you decide the dispute? Give reasons.
d) Z instructs his lawyer to engage an estate agent to sell his house. The lawyer selects B,
the leading estate agent in the town for the purpose. B is able to sell the house for a

good price but he delays in remitting the sale proceeds to Z. Meanwhile Z becomes
insolvent and holds his lawyer responsible for the loss. Advise the lawyer.
POWER OF ATTONNEY
Mr. Odebayo is a Kenyan businessman of Nigeria origin. He has to leave Kenya urgently to be
away for 2 years. He wants to leave his children who are of school going age in Kenya and also
wants his businesses to remain operational. He wants to leave his 40 year old nephew in
charge of his affairs and also pay school fees for his children while he is away. He is not very
conversant with the law and has approached an eminent commercial lawyer to:
a) Explain to him the relevant instrumentality through which he can achieve his intention
and also the information you will require for that purpose.
b) Prepare such draft instrument for his perusal and approval.
5. PARTNERSHIPS/LLP
What are the essential rights and duties of a partner in a partnership established under the
Partnership Act (Cap.29 Laws of Kenya). (5 marks)
Bernice wants to set up a bridal shop with Aileen and has a number of questions about how
they should start trading. At 23, Aileen is much younger than Bernice but has previous
experience of running a bridal shop and is a good saleswoman. The plan is to have her work
full time in the shop while Bernice will be the owner and manager and will deal with matters
of premises, taxes, payroll and all other administrative issues. Bernice has put aside Kshs.300,
000 as capital to start off the business. Aileen cannot afford to put up any money into the
business and in fact, Bernice has learnt that Aileen is not prudent in financial management
and may be deep in debt.
Bernice's key objectives in relation to the business are that she:
• Is keen to start trading as soon as possible.

• Does not desire to engage Aileen as an employee.
• Does not desire to take responsibility for any of Aileen's debts.

a) Explain why if Bernice and Aileen started trading together in the Bridal shop, the
business would be deemed a partnership.
b) Advise Bernice (if she and Aileen trade together in partnership) whether the
partnership would be liable if Aileen ordered wedding dresses from a supplier.
c) Bernice is contemplating picking a private limited liability company over the proposed
partnership.
i. Identify two advantages of trading as a limited company and explain why these
are directly relevant to Bernice's situation. (2 marks)
ii. Draft a letter to Bernice setting out her obligations to keep up-to-date records
of the company and the filings that must be made annually.
Magunga and Ronda are partners in Roma Tailors, a tailoring business based at Kandito. A
year ago Magunga approached Chiel Wiyoke, a wealthy businessman in the county, and
borrowed Kshs.50,000/- as a short-term loan, payable within two months. He claimed that the
money was needed to purchase bulk clothing material for making school uniforms for
students of a local and well-known secondary school.
Magunga misappropriated money for use on his own affairs, without the knowledge of Ronda,
only pleading "overwhelming obligations" when confronted by the latter. Chiel Wiyoke has
sued Roma Tailors, prompting Ronda to come to you for legal advice. He lets you know that
Magunga has been a lifelong friend and a brother-in-law to him, and also seeks to know if
there are any circumstances under which a person in his position may ratify a contract he
knew nothing about. Advise Ronda. (15 marks)
Mzee Benson entered into business with his son Brian and Brian's college friend, Freda.
Nothing much was agreed except for the fact that Mzee Benson would contribute Kshs.500,
000/-, Brian Kshs.250, 000/- and Freda Kshs.250, 000/-. Since Mzee Benson is not very
conversant with Information Technology matters he generally stayed away from the
management of the business. Four months into the business the three agreed to release Mzee

Benson from daily management of the business. Brian and Freda have managed the business
exclusively since then.
In the Last two years however the relationship between Brian and Freda has degenerated and
they no longer see eye to eye. Mzee Benson and Brian wish to leave and venture out on their
own in the same format though Mzee Benson privately feels that Brian was not quite pulling
his weight and-Freda was doing all the work.
The father and son duo consider that a partnership would be the best vehicle for their
venture. Mzee Benson’s other worry in addition to Brian's Lethargy is that his son may once
the business picks up set out on his own and compete against his father who does not know
his way around IT matters. Advise Mzee Benson on:
a) What provisions he should include in a Partnership Agreement to ensure that his

interests are protected. (6 marks)
b) Any two provisions that could be included into the agreement to minimize his liability
for the partnership debts. (4 marks
Raki, the Manager of Sombro Millers, a firm of three brothers, ordered for the supply of 1000
bags of maize from Ndiche Farmers Limited at a cost of KShs.2,500/= per bag. It was also
agreed that they would deliver this order in consignments of 100 bags to Sombro's milling
factory every Monday for the following 10 weeks. For down payment the suppliers received a
cheque of KShs.500, 000/= signed by Raki "for and on behalf of Sombro Millers."
In the meantime, in the neighbouring country, a bumper maize harvest has occurred, with the
result that the Kenyan market is now flooded with maize at prices of no more than KShs.
1,200/= per bag. Sombro Millers have decided not to take further maize deliveries from
Ndiche Fanners Limited, preferring to purchase whatever maize it needs from the open
market. The millers argue that, in the first place, Raki made the orders for the maize without
full consultations with or authority of the partners. Secondly, they disclose, the firm cannot
afford to pay for the whole order following a bankruptcy order against one of the partners
three weeks ago. In fact, a second cheque issued to the suppliers for KShs.500,000/= has just

been returned dishonored on presentation for payment, and Sombro millers insist that the
Manager did not have the authority of the partners to issue the cheque. Advise Ndiche
Farmers Limited, outlining the principles of law applicable,
In January 2011, Lucy opened a bar business in the name and style of "Havena Club". She
immediately hired James as a bartender. Business picked up very well as the bar was located
near a major highway. Four (4) years later, Lucy was diagnosed with a terminal illness and was
consequently not available to manage the business on a day-to-day basis. In February
2016,Lucy and James orally agreed that James would have the authority and responsibility to
actively manage the bar business.
In addition each one of them (James and Lucy) would receive a payment of 10,000/ per
month.The monthly net profit would also be shared equally. The business continued to
operate under the “new management” until January 2017,when the building housing the bar
was compulsorily acquired by the National Government so as to facilitate road-expansion.
The Government has paid Kshs.3 million to Lucy as compensation for her compulsorily
acquired property and bar-business. The business, however collapsed after Lucy and James
failed to locate a suitable new location.
James is now demanding half of the amount paid to Lucy as compensation on the ground that
he was Lucy's partner. Lucy, on her part, has declined arguing that she was the sole owner of
the business and that James was merely her employee. Analyze the respective legal positions
of the parties involved.
James and Lucy have recently been admitted to the Roll of Advocates (in Kenya). They now
wish to -open a law firm together. James has about Kshs.100, 000/- to invest in the business
by way of start-up capital. He however does not have any other significant personal assets.
Lucy, on the other hand, has no personal finances to invest in the business. Both were best
friends in law school. They are confident in each other's ability to practice law since they
participated very successfully in several moot court competitions together. They are however
not sure of the most appropriate form of business association to use for their business. They
have sought your advice. What form would you recommend and why?
While answering this question, note to identify and discuss the four (4) most important
factors which have informed your choice of a business form for them.
Tom and Mary have for the last five years carried on business in the name of Style of Town
Enterprises. Their business form of choice has been the General Partnership. So far, both of
them have been actively engaged in the running of the business. Mary has, however, recently
had a baby. She would want to dedicate more time to raising the baby. As such, she will not
be able to dedicate as much time to the running of the business as she previously had. She
however desires to remain an investor in the business and further to be available for
consultation regarding broad and long-term strategic type decisions or matters affecting the
business.
Tom and Mary have therefore decided to convert their business form to a Limited
Partnership. To facilitate this, the existing Partnership Agreement will have to be amended so
as to make the requisite provision(s) for a Limited Partnership.
Required:
The following are excerpted clauses of the existing (general) Partnership Agreement. You are
required to amend the following clauses with a view to making suitable provision for a Limited
Partnership form of business association. After amending each clause, you should further, in
parenthesis (brackets) appearing at the end of each amended clause, cite the relevant legal
rule (including the applicable section of relevant statute) which has informed the amendment.
PARTNERSHIP AGREEMENT
THIS PARTNERSHIP AGREEMENT (the "Agreement") is made and entered into this (insert the
"Execution Date")
BY AND BETWEEN
TOM TIM of Post Office Box Number 111 Nairobi and MARY MARIA of Post Office Box Number
222 Nairobi (hereafter individually referred to as the "Partner" and collectively as the
"Partners").

BACKGROUND
A. The Partners wish to associate themselves as partners in business.
B. This Agreement sets out the terms and conditions of the partnership.
IN CONSIDERATION of and as a Condition of the Partners entering into this Agreement and
other valuable consideration the receipt and sufficiency of which consideration is hereby
acknowledged the parties to this Agreement agree as follows:
1. Formation
By this Agreement, the Partners enter into a General Partnership (the "Partnership") in
accordance with the laws of Kenya. The rights and obligations of the Partners will be as stated
in the applicable laws of Kenya, specifically, the Partnerships Act (No.16 of 2012), except as
otherwise provided hereunder.
2. Name
The firm name of the partnership will be TOMA Enterprises.
3. Purpose: ...
4. Term: ...
5. Place of business: ...
6. Capital contribution: ...
7. Withdrawal of Capital:
A Partner may withdraw all or any portion of their capital contribution at any time subject to
giving seven (7) days prior Notice to the other partner.
8. Management
All actions and decisions respecting the management, operation and control of the
partnership and its business will be decided by a unanimous vote of the partners. Each partner
will have authority to bind the partnership in contract.

9. Liability of Partners
Except as otherwise provided in this Agreement, the liability of the Partners from the conduct
of the business affairs on operations of the partnership or from the debts of the partnership is
unlimited.
10. Admission of New Partners
A new partner may only be admitted to the partnership with unanimous vote of all partners.
11. …
Specifically, you are required to amend the following:
a) Parties clause (note to explain how/why you have designated the status of each
partner. (3 marks)
b) Withdrawal of Capital Clause. (3 marks)
c) Liability of Partners Clause. (3 marks)
d) Admission of New Partners Clause.
Andrew was always a dedicated hardworking fellow. He took his work and responsibilities
seriously. Among his responsibilities was looking after his 10 years younger brother Nick,
especially after t he death of their parents.
Andrew and Nick inherited their parents' travel agency business: Domestic Travel, where
Andrew was already a general manager. After Nick completed School, Andrew started to give
Nick tasks, assignments and other jobs to help him learn the business. Soon enough, Nick
joined Andrew in the business. Andrew told Nick that they were now partners and should
register the business as such. They did.
As the business grew and based on the advice from their accountant the two brothers decided
to convert their partnership into a Limited Liability Partnership (LLP) - Domestic Travel LLP and
admitted a company, OT Ltd as the third partner to manage the business. Although Andrew
and Nick submitted all appropriate and required documents to the Registrar, the application

was initially rejected. The brothers were informed that OT Ltd could not join them as a partner
then. However, they managed to rectify t he problem. Both Andrew and Nick became limited
liability partners with 45% share of business each. The company OT Ltd, a third partner with
2% ownership share, was owned 51% by Andrew and 49% by Nick so that he could maintain
management control. Andrew became a director in the new LLP, Andrew's wife Sandra, the
Treasurer and a director and Nick a director.
The business continued to grow and eventually purchased a huge 5-star hotel, North of
Mombasa. They named the hotel Five Star. On the advice of their lawyer, the brothers placed
the ownership of the hotel into the company they called 55 Holdings Ltd (55HFS) in which
each of the brothers held a 50% interest. At the same time 55 Holdings Ltd entered into a
contract with Domestic Travel LLP to manage the Five Star Hotel for three years with an
option of renewal upon expiry. Five Star appointed Nick to manage the contract at Kshs.50,
000/- monthly. The hotel, with its luxurious accommodation became a big hit at the Coast.
As Andrew grew older, he wished to cut back on the business because it was draining him. He
considered selling the hotel. He thought he could make Kshs. 95-100 million. He discussed it
with his wife Sandra and they agreed that it would be a good idea but the sale could not be
rushed if they intended to realize maximum value. To ease the burden on Andrew the family
eventually agreed on the following:
i. Andrew would transfer the ownership of 55 HFS to Nick so that Nick would own 60%
and Andrew would also cancel the management contract with Domestic Travel LLP.
ii. Nick would transfer 9% of his shares in Domestic Travel LLP to Andrew (reducing Nick's
share of that business to 40%).
Since taking over the hotel, and with the help of his wife Hellen, Nick managed to live much
more comfortably though bookings for accommodation have declined and the value of Five
Star has gone down too.
Without Andrew's and Sandra's knowledge, Nick and Hellen established Melhel Travel Ltd
(MHL),a travel agency, with a subsidiary MH Efficient Management Ltd. The subsidiary secured

a contract to manage Five Star. The hotel has been paying MH Efficient Management Ltd
Kshs.80,000/- per month and every three months Nick has been receiving another
Kshs.120,000 consultation fee for his managerial expertise.
On her part, Hellen has been working tirelessly to expand Melhel Travel Ltd's business, using
the contacts, networks and information acquired from Domestic Travel LLP. Melhel Travel Ltd
is now one of Domestic Travel LLP's major competitors. She competed fiercely to sign and
close deals and dropped the ones that in hindsight did not look profitable keeping only those
that promised superior returns. She underbid Domestic Travel for a contract with City
Polytechnic College (CPC) for a 30-day holiday package to accommodate 100 students and
earned Kshs.10 million in profit.
Nick and Hellen intended to sell Five Star and negotiated a deal for Kshs.80 million with
Mombasa Holidays Corporation. When they went to discuss the deal with Andrew, he had
already learnt about the existence of Melhel Travel Ltd (MHL), its subsidiary MH Efficient
Management Ltd and other business deals. The family meeting did not take place. Andrew is
at a loss and unsure of how to proceed.
a) Advise Andrew on how to proceed.

b) Explain why Domestic Travel's application for conversion of partnership into a limited
liability partnership was initially rejected by the Registrar.
c) What benefits did Andrew and Nick obtain by converting their business into a limited
liability partnership?
After working diligently as an associate at a leading law firm in Nairobi for three years, you
now feel that you are up to the task of running your own private practice. You have
approached one of your former classmates at the Kenya School of Law who has also been
working as an associate in a leading firm and who has been pondering over a similar move.
After holding several meetings you have finally agreed that you can start a joint legal practice.
a) Explain the practical steps that you will take to establish your envisaged business outfit
and the information required in the various steps.

b) In the minds of the two of you, you are clear that a firm need not have a formal
agreement, but as learned friends you are aware of and appreciate the significance of
having a formal agreement. Discuss TEN critical provisions that ought to be
incorporated while drafting the articles of partnership to effectively regulate your
relationship/engagement.
c) After five years of successfully running the law firm, your partner has been appointed
to work at the COMESA court, which he considers as a life-time opportunity. He has
indicated his intention to resign from the partnership. In the meantime an experienced
advocate has approached you and would like to join you as a partner. You have agreed
that the name will not change. Explain the steps and details you will require to effect
the changes.
Nyakora Enterprises is a thriving general retail business formed by three close friends and
former school mates some eight years ago. The three, Nyamele, Kola and Rarinde have seen
the business grow into a muti-million shilling organization in a short period. Nyambele and
Kola reckon that they can now undertake, in addition to the current business, hardware and
electronics business. Rarinde does not agree with them and is ready to withdraw from the
business and leave his friends to continue.
All three partners have approached you to advise them on the best way forward legally.
Advise on:
a) The effect of Rarinde's departure from Nyakora Enterprises.

b) The most suitable business vehicle that the two remaining friends may form, having
indicated that they no longer wish to use the partnership. Spell out the steps involved
in forming the new association.
6. HIRE-PURCHASE & CREDIT SALES
Briefly outline the nature of the Hire Purchase contract and distinguish it from a contract for
Sale of Goods.

"A Hire Purchase agreement is described as a hybrid form of contract that is neither a simple
bailment nor a Contract of Sale but combines both." Discuss this statement outlining the
essential elements of each category of contract.
Briefly explain the nature of the relationship between and among the various parties in a hire-
purchase agreement.
State the essential features of a valid statutory hire-purchase agreement,
What distinguishes Hire Purchase contracts from simple hire contracts and contracts for the
sale of goods?
Briefly explain the nature of the relationship of the parties to a hire purchase agreement, with
emphasis on the role of the dealer once said to be "in many respects and for many purposes
the agent of the finance company," per Lord Denning in Financing Ltd v. Stimson (1962) 3 All
E.R 386, at p.388
The Hire Purchase Act, 2010, is categorical regarding:
i. The consequences of non-registration of hire purchase agreements;

ii. Provisions or requirements that must be in an agreement; and
iii. Provisions deemed void at law or excluded if contained in an agreement.
Draft a hire purchase agreement reflecting the above provisions. Remember to highlight each
of the above provisions as appropriate.
Brian a car dealer has been in business for the past five years. John is desirous of purchasing a
car from Brian. The purchase price for the car is Kshs. 3 million. However, John wishes to pay
Kshs. 1,000,000 cash and the rest in four equal instalments. Both parties are in agreement
subject to signing a binding document. Both parties have approached you to reduce their
intentions in writing. What draft would you prepare? Proceed to prepare it.
Gabriel Ntagabo approached Nakasero Motors, reputable car dealers of the popular
motograry model. He needs the car immediately for his work as a journalist but can only

afford a payment arrangement that will allow him to complete payment of it after twelve
months. Ms. Salema, the Sales Manager, readily agrees but explains that, in that case, the
price will be marked up by 13 per cent and that their trade partners Messrs. Senti Advances
Limited, for whom you act, will complete the rest of the transaction for him. As expected Senti
Advances Limited has passed the matter to you. Draw and attach a draft of the essential legal
instrument, remembering to highlight the main clauses thereof.
Hosea is persuaded to take a pick-up on hire purchase by Daki of Wakky Motors Limited, who
told him that the motor vehicle was "as tough as they come." Consequently Daki, with Hosea's
knowledge, facilitated the transfer of ownership of the motor vehicle to Mikopo Gari Finance
Limited, which then let the pick-up to Hoses allowing him to pay by monthly equal
installments.
Hosea discovered shortly thereafter that the pick-up engine rattled uncontrollably, it lacked
power and could not carry the weight indicated. He seeks to sue Daki and Wakky Motors
Limited. Advise Hosea.
A hirer who obtains possession of a refrigerator from its owner under a hire purchase
agreement sells the refrigerator to a buyer who buys in good faith without notice of the right
of the owner. Will this buyer get a good title to the refrigerator? State reasons for your
answer and cite relevant statutory provisions and case law.
Dinah is in the business of selling cars both cash and hire purchase. She sold a car to Karina for
1,200,000.Supposing the motor vehicle in question had been sold under hire purchase
agreement and Karina only paid 3 out of the 10 agreed monthly installments of Kshs.120,000,
what remedies, if any would be available to your client?
Martin Odhiambo is a teacher at Kamboni High School in Thika. He wishes to buy a motor
vehicle from Magari Traders Ltd. Magari Traders Ltd sells motor vehicles to its customers on
both cash terms and on hire purchase. Mr. Odhiambo has come to you as his Advocate and
tells you that he went to the showroom of Magari Traders Ltd and identified a motor vehicle
which is going for Kshs.840, 000 in cash terms and Kshs. 1,380,000 on hire purchase. In the

circumstances, your client seeks your advice on what it would entail if he were to buy the
motor vehicle on hire purchase. He needs to understand the difference between hire
purchase and other commercial transactions such as contract of sale, credit sale and simple
contract of hiring. He would also like to know the formalities involved in this kind of hire
purchase agreement under Kenyan law. Proceed to advise him.
Malipo Polepole Motors gave out a car to Oge on receipt of a cash deposit of Kshs 200,000/-,
the balance of Kshs.550,000- to be paid in eleven (11) equal monthly instalments. The
former's Sales Manager informed Oge that he would not regret buying the car as it was sound
mechanically and issued to Oge a form to be delivered to Mikopo Finance Limited for the
requisite funding of the balance on the car.
While arrangements were underway for the necessary signatures, the car broke down within
a week. Oge returned it to Malipo Polepole Motors, and sought a refund of his deposit from
Malipo Polepole Motors.
In the meantime Mikopo Finance Limited duly processed the form and signed the same
unaware of the events of the intervening period. They seek to sue Oge for installments on the
agreement.
Give a legal opinion on the position of:
i. Malipo Polepole Motors.

ii. Oge.
iii. Mikopo Finance Limited.
Boro wished to buy a particular car from Mburko Motors and the latter’s Sales Manager gave
him a hire-purchase form to complete and deliver to Pesa Advances Limited. A clause in the
form stipulated that no contract would be valid unless duly executed by Pesa Advances
Limited.
While arrangements were underway for the necessary signatures, Boro rejected the car and
returned it to Mburko Motors. There the car was vandalized and badly damaged, In the

meantime, Pesa Advances Limited duly processed the form and signed the same unaware of
the events of the intervening period. They have consulted you and seek to sue Boro for
installments on the agreements. Advise.
Fast Bikes Limited (FBL) deals in the importation and selling of motor bikes for use by motor
cycle taxi (boda boda) riders in Kenya. Due to the fact that most boda riders are not able to
pay the full purchase price (cash price) upfront, FBL usually allows the riders to pay 10% of the
cash price by way of deposit, and the balance is payable by way of equal monthly instalments
until payment in full. Further, the total amount payable by instalments usually attracts
interest at the rate of 10%.
On 2nd January 2016, Jack bought a motor cycle from FBL. The cash price was Kshs.100, 000/-.
He paid the required 10% deposit and the balance of the cash price, together with the
applicable 10% interest thereon was to be paid by way of ten (10) equal monthly instalments.
a) FBL has instructed you to prepare the appropriate agreement to "paper" this
transaction. Specifically, FBL has asked you to furnish the appropriate wording for the
following three (3) clauses:
i. Transfer of the Title Clause-(3 marks)
ii. The Hire Purchase Price Clause-(3 marks)
iii. Earlier Completion Clause-(3, marks).
b) What is the name given to this type of Agreement? (1 mark)
Bill walk into a bazaar on a Sunday and sees a lawnmower that he thinks will be most suitable
for his purposes. The seller who is standing by assures him that he could have the item the
same day, if he is in a position to give a down payment of 10% off the sale price of Kshs.180,
000 with the balance payable the next morning. Bill does not have the 15% and the seller
gives him the option of putting down 10% on the spot and the balance being payable in
twelve equal instalments over a twelve month period. The price under this arrangement will
be marked up by 20% of the display price. Bill is agreeable to this arrangement and hands over
the 10% agreed to the seller who issues him with a receipt and a typed document to sign at
the bottom. Bill carries the lawnmower home and for the next eight months pays the agreed
instalments without default. Thereafter, he is unable to pay up as agreed and at the tenth
month the seller visits Bill's house and carries the lawnmower away. Until that point Bill is
unaware of the contents and the nature of the document he signed since he did not take a
copy from the seller. Bill approaches you in the hope that he can recover the lawnmower.
Identify the nature of the transaction entered into between the parties and assess the
chances of success of any claim that Brian may bring against the seller.
Your uncle is a newly-employed teacher and does not have enough funds to furnish his house.
He has been advised by his colleagues that he can obtain goods from certain shops and pay
for them later. He comes to your law offices and tells you that according to his information, a
credit sale and a hire-purchase arrangement are one and the same and it is only lawyers who
like complicating things.
a) Explain to him concisely the legal and conceptual distinction between the two, noting
to indicate the formalities necessary for a valid hire-purchase agreement.
b) Michael obtains a refrigerator from Tender Traders Ltd under a hire purchase
agreement. Requiring some money urgently, he sells the same to his housemate John
who takes it in good faith. Michael defaults in his obligations to Tender Traders Ltd
who have now come to collect the refrigerator. Advise John and Tender Traders Ltd on
their respective rights.
CREDIT-SALES
Joyce recently supplied Maria of Dimples Beauty Parlous with assorted beauty products worth
Kshs.500, 000.00. She was paid Kshs.280,000.00 with a promise that she will be paid the
balance within ten days. After thirteen days Maria called her and requested for additional
products worth Kshs.300,000.00, which she agreed to supply. Maria sent her Kshs.150,000 by
MPESA with an sms stating for the supplies ano (on the other one). Balance will come within
the week.Joyce has heard that Maria is in financial difficulties and does not wish to supply the
second batch.Advise her.

Mr. Bahati Mbaya has been in the business of supplying wholesale goods to retailers all over
Kenya for over ten years since 2000. He supplies assorted goods, but mostly specializes in
aluminium foil, wiring, metals and related products, used in industrial processes. At first,
business was really good and he was able to make good profits. However, since 2006, the
Kenyan economy has seen hard times, and he is just grateful that his business has not gone
under. The biggest problem he is facing is that most of his clients depend on a system of credit
which allows them to take the goods on the understanding that they are to pay within a
certain period, usually within 30 days of delivery of the goods. Without allowing his clients to
take on credit, the volume of business will be greatly reduced and he just cannot afford to
have lower returns anymore. At the same time the credit arrangement carries with it the risk
of non¬payment and other risks associated with difficult market conditions, such as
bankruptcy of his customers. He is sure that the only way he can stay in business is to
continue allowing his customers to take goods on credit for re-sale. He does not have money
to insure goods already sold to retailers. He understands that there may be ways to still try to
protect his interest in goods in possession of the retail customers.
Mr. Bahati Mbaya has come to your office aware of your reputation as a good commercial
lawyer. He wants you to advise him on how to retain some form of ownership over his goods,
without impeding his or his customers business. He is very skeptical that it is possible to do
anything legally. You, Mr. Wakili Akili, are quite confident that this is possible.
a) Identify the applicable legal framework and specific sections of the law that would
enable him protect his investment, including the content and effect of the relevant
sections.
b) With the aid of at least two decided cases, illustrate to him how courts have dealt with
such matters, including the principles that have been developed from such case law.
c) Suggest the type of clause(s) you would recommend he inserts into the existing
contracts with the retail customers to further the protection of his interest in his
goods.

7. NEGOTIABLE INSTRUMENTS
Explain the meaning of the terms "negotiable instrument"
Give an account of the essential characteristics of negotiable instruments and examine the
rights of a holder in due course.
State the essential characteristics of a negotiable instrument and explain whether and in what
ways, if any, the electronic digital variants thereof satisfy the requirements of the existing
relevant law.
Critically discuss five (5) of the presumptions of law as to every negotiable instrument.
"The law of negotiable instruments is concerned with the content of the instrument itself
rather than the knowledge, intention or state of mind of the parties thereto." Anonymous
Discuss this statement citing any specific statutory authority or case law to support your
position.
In relation to a bill of exchange, explain what is meant by "presentation" and outline at least
five (5) rules which must be complied with in order to constitute a valid presentation.
“An order bill is transferable by delivery plus endorsement" Discuss this statement in relation
to negotiable instruments.
Likus drew a bill and Karim accepted it for the accommodation of the former. However, on the
due date Karim dishonored the bill. Nyambura, the holder of the bill at the time (due time),
nevertheless proceeded to collect the amount from Likus. Likus has approached you and seeks
to sue for the recovery of the amount. Advise Likus.
Kalamindi issued the following cheques to Asenath:
i. An uncrossed cheque payable to Nikano whose endorsement had been forged by

Kalamindi;
ii. A "not negotiable" cheque payable to Kalamindi and endorsed by him but which he
(Kalamindi) had received through fraud; and

iii. An "account payee" cheque payable to Kalamindi duly endorsed by him.
Advise Asenath, who had no history of the cheques and gave value for them, as to whether
she has a good title to any of them.
Mamico Company received from Koko a cheque for Kshs.8, 000 in respect of services
rendered to the latter. George Mamico, the proprietor of the firm endorsed the cheque in
favour of Tapeli, a clerk in the farm in payment of Tapeli's overtime allowances accumulated
over several weeks.Tapeli cleverly altered the amount in both words and figures and obtained
payment of Kshs.80, 000 from the bank. Koko has found his account debited by Kshs.72, 000
in excess of the cheque he draw and demands refund from Mamico Co. What options does
Koko have in this matter?
Mrs. Bimkora Mbune handed a cheque for Kshs.650,000/- drawn on Guda Bank with a request
to open an account in her name, claiming that the drawer therein, Messrs Kamaloka &
Company Advocates, had acted for her in a sale and transfer of a boutique kiosk she used to
run. The bank obliged and went ahead to collect the proceeds which it placed in her new
account. Three days later, Mrs. Mbune withdrew the whole amount and cannot be traced
now. It has turned out that her husband, Mr. Tapell Mbune, who worked as a cashier at
Messrs Kamaloka & Company Advocates received the cheque drawn by the law firm's sole
proprietor and signatory and proceeded to open and endorse the same cheque in favour of
his wife. The Advocates now demand that Guda Bank pays them the amount of the cheque
among other demands. Advise the bank.
Zen World Ltd is a high end spa based in Nairobi's Westlands area. Zui is its Manager and has
been appointed an agent by the owners to make payments and cash cheques drawn by the
director at its NIC Accounts in Westlands Branch. His Mandate is only up to Kshs.50, 000.
In July 2015 Zui presented four forged cheques each of Kshs.48, 000 to the bank and was paid
over the counter. On realizing the fraud, he was immediately sacked. The directors though did
not immediately inform the bank. The following day, Zui presented another three forged
cheques one of which he altered the figure to Kshs.480, 000 while the remaining two

remained at Kshs.48, 000. All the cheques were paid. On realizing further forgery, the
Directors have sought compensation from the bank and a reversal of all transactions done by
Zui. They have instructed you to pursue legal redress. Advise them on their options.
Mato drew a cheque of Kshs.50, 000/= in favour of Jivinjari on the latter's seventeenth
birthday to buy "anything you fancy with this little token of my friendship." Jivinjari who had
been yearning for a hi-fi three-in-one player costing Kshs.45, 000/= immediately endorsed the
cheque to Marengo Sounds Limited owned by his father's friend down town. Out of the
cheque, Kshs.5, 000/= in cash was given back to him. The company used the cheque to order
for supplies of other electronic items from Bambam Limited. On presentation to the bank, the
cheque was dishonoured. Bambam Limited has consulted you with instructions to sue. Advise.
Three weeks ago the Customer Services Manager of Minodugu bank Limited approved the
opening of a personal current bank account for Mr. Nit Ndekle, who he had met for the first
time. Mr. Ndekle then deposited a cheque for Kshs. 350,000 into the new account. After the
cheque was cleared, he withdrew an amount of Kshs. 348,500 out of the account.
Subsequently, one Mr. Nick Ndeko, the true owner of the cheque has come to claim its value
from the bank. Mr. Nit Ndekle cannot be traced.
The Manager explains that he met the customer in the company of another person who
introduced himself as, and very much looked like, Hon. Chepit, the local Member of
Parliament. He had not personally met the local MP before but he accepted the favourable
reference his look-alike gave in respect of Mr. Ndekel.
As one of the advocates on the panel of Minodugu Bank Ltd, your firm has been instructed to
provide a legal opinion. Proceed to give your opinion highlighting legal protections if any, that
the bank may rely on.
Mr. Majani and his wife Maria opened a joint trust bank account for their minor son,
Mututho. Both of them are mandatory signatories. While her husband was away overseas,
she decided to pay off her sister's hospitalization bill following a domestic fight between the
sister and her "come-we-stay" boyfriend. She persuaded Mututho to sign, "on behalf and as

agent of your father" a cheque for Kshs.450, 000/- drawn on the trust account, explaining
that, after all, the money was his (Mututho's). In any case Kshs.50, 000/- of this cheque, she
said, was to go towards his college-related expenses, too.
Three months after his return to the country, Mr. Majani noticed on bank statement posted to
him, that there was a withdrawal of Kshs.450,000/- from the trust bank account, which he was
not aware of. He immediately raised this with the bank. The bank explained that they paid the
cheque to his wife because it had what looked like his signature. Mr. Majani insists that the
bank must refund the amount into the trust account. The bank contests this, saying that the
proceeds were, in any case, used by his family when in need. He seeks your advice, adding
that he completely repudiates the "unjustified and fraudulent" action and trickery of his wife.
Dianah delivered the motor vehicle on the 7/6/2013. In return, Karina handed to your client
her personal cheque for the agreed price drawn in favour of your client. On 8/6/2013 Karina
effected transfer of the motor vehicle to herself at the registrar of motor vehicles. On
receiving the cheque Dianah wrote on the back of the cheque the words "Pay Nduku" and
signed. Nduku banked the cheque on 7/6/2013. On 16/6/2013, Dianah was informed by
Nduku that the cheque had been dishonoured on account of lack of funds. Advise your client
on the remedies available to her and the extent of her liability, if any, to Nduku in the
circumstances of the case.
On 31st October, 2011, a farewell party was hosted at the prestigious Mbata International
Hotel for the well-known business magnate, Gandala Lungu, who was due to return to her
home country after twenty-two years of sojourn in this "home away from home" country.
Various gifts were exchanged between Madame Lungu's family and former business
colleagues. Envelopes, whose contents were not revealed at the time, also formed part of the
gifts exchanged. Two of such envelopes went to a dear family friend and another to a "soon-
to-be County Governor." These two envelopes, it turns out, contained two bills which,
respectively, ordered payments to "Fadha Atoti, the sum of Kenya Shillings Two Hundred
Thousand on the day of the planned wedding of his daughter to Kijana Pambe," and to "Laro

Lach, the sum of Kenya Shillings Five Hundred Thousand seven days after Kenya's next General
Elections."
Messrs Fadha Atoti and Laro Lach who, as well as Madame Lungu, have been your long-time
clients, approached you to advice on the validity of the two bills. Before she left, Madame
Lungu had also retained your services to ensure that her business transactions are wound up
in an orderly manner promising to make rapid transfers of funds to cover the bills should this
be necessary. Advise all three.
Muidekle Bank Limited, as a holder in due course, sued Makery in respect of a promissory
note make by the latter. The note was duly endorsed to the bank but was dishonored when
presented for payment. Makery contested liability on the ground that the note had been
materially altered, in that the place of payment, which had been left blank had been filled
without his consent at the time of endorsement, a fact which the bank admitted. Advise
Makery.
Ohiga received a bill of exchange duly endorsed from and by Sinawa. He noticed that the bill,
originally drawn by Apoyo had been endorsed in favour of Sinawa by Lodoking'. Examining the
bill more closely, he noticed that the signature of Lodoking', with which he is quite familiar,
had been forged. Discuss Ohiga's rights if:-
a) Lodoking' had taken the bill in good faith without notice and
b) Apoyo's signature had been forged as well.
Ali, a businessman based in Kenya, owes Juma a supplier based in Dubai, Kshs.100, 000/- for
goods supplied on credit terms.
Rashid a coffee dealer based in Dubai owes All Kshs.100, 000/- for coffee beans supplied by Ali
to Rashid on credit. Instead of Ali wiring Kshs.100, 000/- to Juma and Rashid wiring a similar
amount to Ali, Ali would like to instruct Rashid to pay Juma the amount of Kshs.100, 000/- due
and owed to Juma by Ali

a) Advice Ali on the most appropriate instruments which he could use to implement the
proposed payment transaction.
b) Draft the negotiable instrument.
A bill drawn "Pay Machinga or Order" is lost but found by Nena. Nena forges Machinga's
signature and endorses it to Ndile who, in good faith, sells building materials and equipment
to Nena. The forgery is discovered shortly thereafter. Advise Ndile.
Paul Molo is a former football player also famously known in his town by the nickname "Molo
Pele." He runs a sportswear shop in Sokonyodhi town. Ravinde, a regular customer who has in
the past paid for his orders in cash recently issued to Molo a cheque for Kenya shillings
60,000/= erroneously, in his nickname. Find left the cheque with Molo s shop assistant,
Kimeo.
Kimeo had other ideas. He skillfully changed the name Molo Pele to read "Omolo Peter"; and
using a space left between the printed words "Kenya shillings" and the handwritten words
"Sixty Thousand", he added the word "One" He also squeezed the figure "1" before the figures
60,000" in the space for the amount in figures.Kimeo persuaded his friend known as Peter
Omolo to collect the payment on the cheque as altered, and promptly disappeared. Advise
both Molo and Ravinde.
Mrs Ligano, a housewife was desperately in need of cash to pay for shoes purchased from her
friend on credit. Her husband had declined a request to give her a loan of Kshs.10, 000/-. Mrs.
Ligano decided to withdraw the money from her husband's bank account. She famed his
signature on his cheque, drew it in her name and deposited it in her account. Once the cheque
was geared she withdrew the cash and paid her friend for the shoes.
When Mr. Ligano discovered the forgery, he informed his bank about it and instructed them
to credit the sum of Kshs.10, 000 back to his account. The bank refused on the ground that the
signature on the cheque appeared genuine and could not be easily distinguished from Mr.
Ligano's'. Advise Mr. Ligano.

Algon Nyandiga writes out a cheque drawn on Pesolith (Kenya) Bank Limited for Kshs.750,
000/- in favour of 'Malaki Mbunesa . Mbunesa loses it. Atila/ a rogue/ finds it and forges
Mbunesa's endorsement and passes it on to Lungu Motors/ motor car dealers, in exchange for
a seven-year old 'Gandala', a new model of a car. Lungu Motors, in turn, endorse the cheque
to Lolodi Limited, their landlords, in part payment of rent due to the latter. In the meantime,
Mbunesa has discovered the loss of the cheque and traced it to Lungu Motors landlords. He
now claims the return of the cheque or the proceeds.
a) Briefly discuss the rights of and remedies, if any, available to Lolodi Limited.
b) Assuming that Lolodi Limited have cashed the cheque, would Mbunesa successfully
claim compensation from the drawee?
Mr. Onyango gave a crossed cheque to his secretary Kwamboka and told her that the cheque
is crossed and endorsed "not negotiable". He further asked her to telephone his cement
suppliers and ask for the balance of his debt owed to them for the supplies, after which
Kwamboka was to fill the cheque and write the supplier's name on the cheque.
Kwamboka filled a larger amount than what she had been told by Mr. Onyango's suppliers and
addressed the cheque to be payable to the Nairobi Waterfront Apartments and took it to her
landlord to settle the rent for the apartment for the month. The Nairobi Waterfront
apartments cashed the cheque. Mr. Onyango discovered the problem and wants to know his
rights. Advise Mr. Onyango.
On March 1st 2016, Customa entered into a written agreement with a supplier under which
the supplier would sell and install a new Solar Water Heating System (the "Heating System").
The Agreement further provided that the purchase price would be Kshs.500, 000/- and that
the completion date for the project would be June 15, 2016. The installation was to be done
"free of charge". Customa persuaded supplier to accept two promissory notes for the
payment. Customa properly executed and delivered to supplier two notes, both payable to
supplier. One note was for Kshs.300, 000/= and it was to mature on June 1, 2016. The second
note was for Kshs.200, 000 and it was to mature on June 15, 2016.

On March 15, 2016, Customa learnt that supplier could not timely install the Heating System.
As allowed under the contract, Customa cancelled the order and instructed the supplier to
immediately return the two promissory notes instead. On March 16, 2016, supplier endorsed
the Kshs.300, 000 note and delivered it to David & Shirt Company Ltd ("D&S") in satisfaction of
a debt owed to D&S by supplier. The supplier also endorsed the Kshs.200,000 note and gave it
to his girlfriend, Jane, as a birthday present. Neither D&S nor Jane knew that Customa had
cancelled the contract "for good cause" and that supplier had failed to return the notes to
Customa as instructed.
On the respective maturing dates, D&S and Jane presented the notes to Customa and
demanded payment but Customa refused to pay them.
a) What liability, if any, does Customa have to D&S for the Kshs.300, 000/=
Promissory Note? Analyze and explain your answer fully. (8 marks)
b) What liability, if any, does Customa have to Jane for the Kshs.200, 000/=
Promissory Note? Explain your answer fully. (2 marks)
You have been appointed by the Hon. Attorney-General of the Republic of Kenya as one man
(woman) draftsman to re-draft the Bills of Exchange Act (Cap 27 of the Laws of Kenya). The
Hon. Attorney-General has given you a blanket mandate to review international
developments and best practices in the law of negotiable instruments and make proposals for
amending the current law. Write a detailed memorandum of intent to the Hon. Attorney-
General suggesting the amendments you propose to introduce and why.
8. PAYMENT SYSTEMS
State and describe briefly the common modes of payment in Kenya today.
The Ministry of Finance has set up a National Task Force to advise on the national Payment
Systems and how best to reform the law to address emerging challenges. You have been
appointed as an advisor to the task force and have been tasked to prepare an opinion on:
a) The legal and regulatory framework for the national payment system.;

b) The forms of money transfer services in Kenya; and
c) At least two legal challenges arising from mobile and electronic payments.
Write the opinion. The Task Force appreciates brevity and conciseness.
The Cabinet Secretary responsible for matters of finance recently established a Commission to
review and consider a report on legislation concerning Commercial Papers in Kenya, and you
have been appointed a member representing the Law Society of Kenya. The commission
Chairman has seen your curriculum vitae which shows, in part, that you are well grounded in
Commercial Law; and he has asked you to prepare a sub-chapter on "A Fresh Look at
Negotiable Instruments in Kenya Today." Specifically, you have been requested to give a
background that included the form or elements of such instruments prescribed by statute and
those, if any, evolved from trade and usage.
a) Name and discuss five (5) commonly used payment instruments in Kenya.
b) In respect of the payment instruments in (a) above, suggest reforms that would make
them more applicable to Kenya's modern commercial transactions.
Helatele Commercial Bank Limited has given to your client, Sheikh Pandu, a card with which to
operate a new account he has opened with them. Pandu, a World War II veteran is
uncomfortable with this new arrangement with which he is unfamiliar. He seeks to know from
you, among other things, if his funds will be safe and whether he can obtain any remedies
from Helatele in case he loses money to fraudsters. Advise Sheik Pandu, explaining to him, in
particular, the uses to which he may put his card and the legal issues he may have to deal with
in case his fears come to pass.
Oluma a holder Lithion Bank Card attempted to withdraw from the bank's automatic teller
machine at Umoja Branch. When he inserted the card and requested for Kshs.l5,000/=, the
machine notified "sorry, this machine is out of order." He left for another cash point but upon
requesting for 15,000/=, the transaction was rejected "Sorry No. Cash." He saw the next
customer obtain money from the same machine and when he tried on the next machine, a

similar notice came up.He decided to see the Branch Supervisor who informed him that he
(Oluma) had just withdrawn 15,000/= and his previous balance was 18,000/=.
a) Can Oluma recover the money from the bank?

b) Prepare a concise brief highlighting the state of the law, the position of the bank,
rights of Oluma and safeguards that ought to be in place to avoid liability.
9. BAILMENT
Thomas, a well-known businessman lent out a motor car to his lady friend, Ms Clara, a student
mother of their kindergarten going son to facilitate her transportation. On the sides, however,
Clara is in a secret supplies business partnership with a college- mate, Mr. Fulani. She
routinely drives the car, with their business name "Besto & Co." pasted on the side of the car,
whenever she goes to supply goods to various customers in the city. Mr. Thomas has since
learnt the truth about the use of his car following a court order vesting the business name's
property in one Mr. Pole, and that his car has been impounded by the said Pole.Advise Mr.
Thomas, stating the legal principles involved.
10. CHATTELS
Discuss the use in Kenya of chattels as security for loans and explain the essential components
of a chattels transfer instrument.
Your client, a finance corporation, seeks to advance a loan to a farmer on the security of farm
goods which the farmer owns and has instructed you draw security document that fully
protects the corporation.Advise the corporation highlighting the key provisions that must be
included in the document and further on the measures you will take to ensure to protect your
client.
The Government of Kenya in 2013 launched the Uwezo Fund to support youth and women
enterprises through concessionary loans and grants. The CEO of Uwezo fund had requested
your legal advice on the range of securities the fund can take from its target groups as most of
them have no fixed assets.

a) Provide a brief opinion to the CEO on what constitutes a valid security under the
Chattels Transfer Act.
b) The fund has decided to lend Tegemeo Youth Group based in Karatina Kshs. 2 Million
to expand their boda boda business by buying new motorcycles, opening and fitting an
operations office and training of its members. The group being made up of youthful
members below 25 years have no land. I low can the fund secure this lending to the
youth group?
Bitok is a farmer in Narok with a large farm which is currently lying idle due to lack of financial
resources. He witnessed a farmer friend of his loose his entire farmland to auctioneers on
account of a loan taken from the bank and is therefore afraid of approaching any financial
institution for a loan secured by his land, on which he and his whole family reside.
He owns 69 relatively new tractors, wheat on % of his 4000-acre land which is almost ready
for harvesting, a few trucks, several barns and Merino sheep. He has 300 sahiwal cows.
He reckons that his farm is worth 0.9billion. He needs a loan of Kshs.500 million repayable for
10 years for structural improvement of the farm including upgrading the roads and the
harvesting machines as well as construction of cereal barns. You the Manager-Legal at
Kulima Credit Corporation where you lend loans to such a farmer and Bitok has come to you
for advice.
a) Advise him on the opportunities available and the practical steps to take in order to
secure a loan.
b) Draft an outline of loan document which he will execute with the credit manager.
Oyie Yanya, your client and friend, wishes to expand his wholesale business at Olare Trading
Centre where he has rented several shops and a warehouse. He owns many properties in and
around the County. For example, he has shares in at least five blue chip companies in the
County and debentures in several other corporations, all with a market value of not less that
Kenya Shillings Fifteen Million (Kshs.l5m.) between Ngegu and Kajimo ports. Oyie Yanya also
doubles in cotton farming and keeps over ten tractors, three trucks and barns.

He tells you that he has approached an agricultural finance corporation which insists on
adequate collateral for a loan of Kenya Shillings Thirty Five Million (Kshs.35m). Advise Oyie
Yanya on at least four types of documents he may use to borrow the loan and, by way of
explanation, outline to him which of his properties, if any, he may use as collateral.
Alfred Njoroge owns a motor omnibus and borrows from Wananchi Bank Ltd a sum of
Kshs.300, 000/- on the security of the vehicle. On 12th October 2008, he gave the bank a
chattels mortgage, which was duly registered in accordance with the provisions of the
Chattels Transfer Act (Cap. 28, Laws of Kenya). A creditor of Njoroge obtained judgment
against him and execution followed with attachment and sale by public auction of the vehicle
by the court broker on 3rd February, 2009. The vehicle was purchased at that sale by Otieno
for shs.200, 000/-. Thereafter Otieno spent about shs.70, 000/- on the vehicle and obtained a
PSV licence and operated the vehicle between Nairobi and Limuru, on the 29th April 2010, the
bank seized the vehicle while it was in the possession of Otieno.
i. What are the essential statutory requirements of a valid Chattel Transfer?

ii. What are the consequences of non-compliance with any of those statutory
requirements?
iii. Is the action by the Wananchi Bank Limited valid? Give reasons.
Mr. Fanya Kazi, a large-scale farmer, wishes to secure a big loan from a finance corporation for
further development of his business. He informs you that although he owns the current land
on which he carries on farming and animal husbandry, it is charged to a bank, which has kept
his title deed as security for another loan he had taken earlier.
He has several barns in the farm in which he keeps thousands of tons and bags of various
crops as well as hundreds of ruminants. He owns ten tractors and three combine harvesters.
He confides in you, too, that he has some cash in the bank to finance part of the development
plan.
a) Advise Mr. Fanya Kazi how else, if at all, he may use his possessions as collateral to
obtain a loan in the absence of land.

b) Explain to him by way of a brief draft the requirements and essential contents of any
document he may have to execute in favour of the finance corporation.
Your client Musa Juma of P O Box 32345, Nairobi wishes to obtain credit facilities of
KShs.400,000/= from a moneylender with his motor vehicle Reg. No. KBF 000Z as the security.
Explain to him the legal process required to perfect such a transaction and draw the necessary
document.
Sandra has received admission to an Ivy League University for post-graduate studies and must
register by September 2016 in order to secure her position. Unfortunately, her application for
scholarship was unsuccessful. Sandra is keen on securing a loan from a financial institution but
all have asked for some form of security. The only item that Sandra owns that may be of
worth is a small wooden shed in her parent's backyard. Advise Sandra on whether she may
present the shed to a financial institution as security.
Mr. Mwangalifu borrowed a substantial sum of money from your client, Mashama Finance
Corporation in December 2010 on the security of his farm equipment and produce. This was
to help him undertake major upgrading and expansion of his farming business. Mr. Lifu had
executed some standard documents in favour of your client which, to his knowledge were
delivered to Sheria House for registration. Unfortunately, he lost his copies of these in a
recent flood that affected his residence.
Upon visiting the relevant registry in Sheria House, Mr. Lifu is shocked to learn that virtually all
such documents delivered from the Corporation and other financiers have not yet been
endorsed by the relevant officer for over seven years and are simply stacked in some part of
the office.
The Managing Director of your client has been informed of this and has invited you to provide
a written legal brief and in particular, seeks to know if the corporation should be in any way
worried about this discovery. Write a legal brief on the basis on the facts above.

9. INTELLECTUAL PROPERTIES
Vipaji is the soloist at Maarafu band. On 1st January 2017 the group released online their first
music album “Kirubunga”. Their biggest hit was a song titled “Na Risha Shujaa Huja Moja”.The
song was a musical improvision of Mariah Carey’s lyrics song “Flero” mixed with Swahili.
Maarafu had planned not to have their new albums recorded on compact disks (CDs) and
digital versatile discs (DVDs) until sometime in mid-July 2017 when they would have done
sufficient marketing of the album and held a couple of live performances. However, on 10th
January 2017; when the band travelled from Mombasa to Nairobi, for routine recording
session, they heard their popular song: “Na Risha, Shujaa Huja Moja” booming in matatus,
retail outlets and mall dukas.
Upon inquiring from matatu operators about the source of supply of the record, they were
informed that the major music supplier in Nairobi was Marataa Ltd, whose largest store is
located along Harambee Avenue.
On 12th January 2017, the group decided to visit Marataa Ltd to check whether their albums
were sale there. They found two large displays in the shop with ten (10) CDs of both their
albums being offered for sale. Distraught, the group decided to report the matter to the
police. The following day, the group received communication that during that day's inspection
and search of Marataa's premises, ten (10) copies of the group's album "Kirubunga" and sixty
(60) copies of their last year's album "Na Risha Shujaa Huja Pamoja" were found and seized by
the police inspectors.
Disappointed by the developments, Vipaji first decided to "burn" her own CDs of the album
downloaded from online records and sell them to her friends and neighbours without the
knowledge of the other members of Maarufu Band. Then, when she realized that she was not
making much profits from individual sales, she decided to dispose of her existing and future
copyrights to Lucky Records Ltd."

Members of Maarafu Band approach you seeking your professional opinion regarding their
current situation and remedies available to them. Advise the Maarafu Band on their legal
rights.
Mr. Bond is a stunt-man who earns a living from hanging onto moving helicopters. He has now
ventured into gaming and has developed a mobile phone game called 'catch my ugali'. Players
earn points by 'catching' ugali dropping from helicopters before it reaches the ground. He is
considering approaching a mobile phone service provider to seek a partnership in running this
game on a mobile platform. He however does not understand the intellectual property issues
that arise and approaches you for advice on the following.
a) The main intellectual property aspects that arise from the mobile application.
b) The process of seeking protection of these intellectual property types.
10. INSOLVENCY
What categories of property are legally unavailable to a trustee in bankruptcy?
Briefly discuss the meaning and effect of an adjudication order in bankruptcy proceedings and
evaluate when it may issue in bankruptcy proceedings. State the circumstances, if any, when
such an order may be annulled.
Briefly outline the steps involved in bankruptcy proceedings in which the debtor has failed to
satisfy a court decree issued against him.
Dokita, trading as Kandito Hardware within Asego town lost most of his stock through a fire on
3rd January, 2009. The insurance company refused to pay compensation claiming that the fire
appeared deliberate. Dokita appears to have relocated to an unknown town since that fire,
and following a petition filed against him by a creditor on 18th January, 2009 was adjudged
bankrupt on 10th July, 2009.

Dokita's only daughter, Giyoth, runs a restaurant in a prestigious building within the town,
which building was given to her by Dokita on her wedding day on 20th December, 2008. The
restaurant is registered in the name of Dokigiyo Limited, a company in which she and her
father and mother are the only directors.
Dokita's trustee-in-bankruptcy has sought your advice on the creditors' unsettled debts
against Dokita and the position of the family properties. Advise the trustee on the steps, if any
which he may take to secure the creditors' interest.
Having been adjudicated bankrupt a year ago, Mawaya has lately secured employment with a
charitable organization which pays him Kshs.120, 000/- per month. His creditors in his
bankruptcy have applied to have his salary channeled to pay his debts. Mawaya has consulted
you. He is married and has three children attending various colleges in the country. Advise
him.
You act for Kenya Business Concerns Ltd. Your client advanced to Mdeni K5hs.50, 000/= which
he failed to repay. Your client sued Mdeni and obtained a decree for K5hs.64, 000/= which
includes the decretal sum together with interest and assessed costs. All efforts to execute the
decree have borne no fruit and Mdeni appears to be hiding to avoid any form of execution
being levied against him. Your client has instructed you to pursue bankruptcy proceedings
against Mdeni.
a) Explain the steps you will take and the documents you will prepare for filling in court in
order to commence the bankruptcy proceedings and to enable the court make a
Receiving Order.
b) Assuming Mdeni wishes to oppose your client's case, outline the process that will take
place until final orders of the court
On 2nd June last year, Mawaya deposited into his bank account a sum of KShs.430, 000/=. He
had earlier obtained an overdraft with the bank amounting to Kshs.200, 000/=. Six (6) days
later the bank received the proceeds of the cheque and proceeded to offset these against the
overdraft.

On the day that the bank collected the proceeds of the cheque deposited, a receiving order
was made against Mawaya regarding an act of bankruptcy reportedly committed thirty (30)
days earlier.
Dayo Gowi was appointed Mawaya's trustee in bankruptcy ten (10) weeks later and seeks to
recover the whole amount of the cheque which he had deposited on 2nd June last year into
his bank account. The bank has resisted this attempt. Advise the trustee, pointing out the
rights, if any, of Mawaya's bank to the cheque proceeds or part of it.
William and James own Yummy East Fast Food Limited, a private company limited by shares.
The company recently lost a contract to supply meals to a nearby business park. The contract
was equivalent to 80% of the company's business. The company is now struggling to stay
afloat and some creditors have threatened to file claims in court. William and James believe
that the company has a viable future and if afforded 'breathing space' can restructure and
seek new sales avenues.
William and James have heard that under a relatively new law, it now possible to have the
company put under administration rather than liquidated in the hope of a better outcome for
all stakeholders.
Advise William and James on:
a) The nature of administration of an insolvent company and the objectives thereof.
b) Whether they can appoint an administrator and any restrictions if such a power exists.
Mtamba Company Limited, which is engaged in the Manufacturing of animal feeds in Nyeri
town, has recently acquired and installed new machinery on credit from Jamii Bora Bank.
After six months of operating, it turns out that they are unable to maintain the loan
repayments and are in six months arrears.
Jamii Bora Bank approaches you for legal advice on how to close down the business
operations of Mtamba Company Ltd. Kindly adivise on how they may proceed to achieve their
wish.

Alice Teja is a depositor in Malinjozi Bank and has just learned that the bank has been placed
under statutory management by the Central Bank of Kenya. The bank is said to be insolvent. A
while back it was reported in the press that the bank's directors, members of one family, had
bought Malinjozi Plaza which also housed the bank's headquarters. Ms Teja did not think
much of these developments, simply consoling herself that her deposit, like thousands of such
deposits by very important persons she knew could not really be in danger. With reality
dawning on her she has rushed to your office for help to recover her savings. Advise Ms Teja.
11. DRAFTING COMMERCIAL CONTRACTS
You are a new Associate at a Nairobi law firm working in the Commercial Department. You
have received the following e-mail from your boss.
To: New Associate
From: Partner
Dated: 20 November 2014 6.55 AM
Subject: Sale of Business Assets (Topline Ltd and Goodreeds Co. Ltd)
As Discussed, urgently prepare a draft Agreement for my review by C.O.B today. The
particulars are as per the forwarded message.
Partner
Forwarded message
To: Partner Law Firm
From: MD Topline Ltd
Date: 19 November 2014 11.05 PM
Subject: Sale of Business assets (Topline Ltd and Goodreeds Co. Ltd)
Chris,

It was a pleasure catching up at the club yesterday afternoon. As discussed, my Board has now
given the go ahead to sell the Publishing Assets of our business as we now want to focus
exclusively on digital publishing. We would therefore be selling all printing presses, copiers,
computers, furniture and fittings at our Enterprise road factory together with the Lease for
the building to Goodreeds Co, Ltd. We have agreed on a Purchase price based on current
market valuation subject to a minimum of KES 280 million. Ascent Business Valuers will carry
out the valuation. We hope to conclude this transaction within thirty (30) days of today. As my
Board is meeting in 3 days time, please let me have a draft Agreement for review and tabling
by C.O.B tomorrow.
K.R. Manesh
a) Advise on at least four (4) key issues that should be considered before commencing
the drafting of the Agreement.
b) Prepare a skeleton draft of not more than four (4) pages of the Agreement highlighting
key issues.
Mr. Nyangau, a dealer in specialized hospital and allied equipment for the past ten years, and
Dr. Kamau, a hospital owner, wish to enter into an agreement for the sale of 2 units of
assorted and highly specialized hospital equipment that are being sold at Kshs.2 million per
unit, all costs inclusive. The equipment has been identified and described fully by way of
supplier catalogue, available at the dealer's showroom, and the list is to be annexed to the
contract.
Mr. Nyangau has assured Dr. Kamau that the equipment, which is to be imported from
Canada, will be available in Kenya within 3 months, i.e. by 30th October 2010. He has further
assured Dr. Kamau that she can take delivery on 15th November 2010. Dr. Kamau has
emphasized that she intends to hold an important training session for her laboratory staff on
the 16th November 2010, and therefore time is of the essence. She is also concerned that
since the equipment is highly specialized, there must be a testing, inspection and trial period
in relation to the equipment at the hospital by the seller's experts, and at his costs, to ensure
that it is the right equipment as per the specification and is in good working order and
complies with all applicable standards before taking delivery. The buyer shall have a right to
reject in total if they fail the test. The consideration is to be paid in two installments by way of
banker's cheque, i.e. Kshs.2 million to be paid upon the signing of the agreement on 30th July
2010, and the other half within 15 days of successful trial, i.e. by 30th November, The parties
have agreed that in case of any dispute, they shall refer the matter to an arbitrator at the first
instance, otherwise each party is entitled to sue for breach of contract.
Draft an Agreement that fully reflects the intention of the parties, and protects the rights and
obligations of the parties under the law.
Dianah is a businesswoman carrying on the business of selling motor vehicles both in cash and
in hire purchase. She is your long time client. On 6/6/2013 she came to you and told you that
a customer by the name of Karina wanted to buy a motor vehicle from her. The details of the
motor vehicle she wanted to buy are as follows:
i. Registration number: KBVA 652G

ii. Make: Kescolla, Mark X
iii. Colour: Blue
iv. Engine number: EA297DX
v. Chassis number: PXD 24559
Your client tells you that the agreed price is Kshs.1,200,000/=
a) The client has instructed you to prepare the requisite commercial instrument to
capture the arrangement between her and her customer. The instrument is to be
drawn and executed by the parties on the day of instructions. Proceed to do so.
You have recently passed the Bar examinations, been duly admitted as an Advocate of the
High Court of Kenya and secured your first job as an Associate at a busy corporate law firm in
Nairobi. Your first assignment is to review a number of draft commercial contracts. In the
course of reviewing these drafts, you come across the following clauses which have all been
marked: "problematic to re-draft."

I. A "non-compete" clause in a draft Agreement to be executed by your client
who is retiring as a partner in an accounting firm which reads:
"for good and valuable consideration the receipt of which is hereby
acknowledged, PPP retired partner) hereby agrees not to directly or
indirectly compete with the business of ABC Enterprises (the
Partnership) and/or its successors, PPP shall not, anywhere in Kenya,
own, manage, operate, consult or be employed in a business
substantially similar to or competitive with the present business of the
partnership."
II. An "Indemnity" clause in a building contract to be executed by your client who
is the contractor, which reads as follows:
The contractor shall indemnify and hold harmless the owner... from and
against ALL claims, damages, losses and expenses... arising out of or
resulting from the performance of the contract
III. A sale Agreement to be executed by your client from the "Diaspora" who has
indicated that he will be "visiting home" sometime in the summer" whose
opening line reads as follows:
"This sale Agreement is made on the 1" day of July 2017 and is made
between..."
Given your broad knowledge of the applicable doctrinal rules and "best practices" in
commercial contractual agreements, negotiation and drafting, you are required to:
a) Briefly but adequately state and give legal support for the "problematic" aspect
of each of the flagged clauses.
b) Re-draft each clause so as to address and adequately provide for the legal
"problems" identified. (Marks Distribution is Non-Compete Clause 9 Marks,
Indemnity Clause 7 Marks and Sale Agreement .
Mrs. Fridah Oliech is a supplier and manufacturer of unique custom made assorted goods in
Nairobi, and Miss Joy Ndunda is a hotelier and ranch owner who specializes in unique

wedding and special occasions services and products in Kenya. Miss Ndunda has advertised
that as part of her special services and products she will offer horse driven carriages to bridal
parties. The carriages are to be made of unique and rare make and from materials that can
take up to 2 years to source, but Mrs. Oliech has assured Miss Ndunda that she will be able to
get the materials needed to make the carriages. Miss Ndunda will pay Kshs.5 million for each
of the carriages. Mrs. Oliech has promised to manufacture the two carriages ready for use in
four months from 1st June, 2011, (the date of the agreement). Miss Ndunda has relied upon
that representation and has already advertised the special offer in the daily newspapers. In
fact she has already received ten bookings for December 2011 based on that offer, and she
anticipates making Kshs.5 million from the use of the carriages in December only.
Task: Draft a comprehensive agreement that captures and protects Miss Ndunda's interests
and covers all contingencies.
12. JV/MERGERS,ACQUISITIONS,TAKE OVERS AND RE-ORGANIZATION
JOINT VENTURES
"The Government of Kenya has finally approved the construction of an ultra-modern techno-
city, christened the Konza Technology City - where Africa's Silicon Savanna begins. The city is
to be located in the Machakos County. The project will entail the construction of a high-tech
science and Technology Park, a residential estate, hotels for accommodation, universities and
schools. This phenomenal project, set to be one of the most successful cities in Africa,
competing economically and culturally with the best cities in the world is estimated to cost
shillings in trillions with funding coming from the International Finance Corporation.
As a company we intend to participate in the tenders for the construction of the Techno-City.
However, as you may well be aware as at now, this project requires real financial muscle on
our part and as a company we may not single-handedly be up to it.
I have identified a Swiss Company and I have been in communication with the CEO and they
are willing to partner with us in order to be able to participate in the tendering process and

the construction of the techno-city in the event we are awarded the tender which I very much
believe we will."
You are the Corporate Secretary of the Kenyan company that hopes to tender in the
construction of the techno-city. The foregoing is an extract of a briefing from the MD/CEO of
the company in the company's board meeting.
As the legal professional at the helm of the legal affairs of the company the MD/CEO wishes
that you address a number of issues regarding the envisaged business which inter alia include
the following:
a) Discuss the road map for entering into the joint venture between the Kenyan Company
(your company) and the Swiss Company.
b) Discuss the critical matters that would have to be thoroughly negotiated and agreed
upon between the two companies and the form of arrangement you will enter into, for
the business venture to effectively be realized.
Borabora Road Construction Company Limited is a Kenyan Company which recently won a
World Bank tender to construct a road linking Kenya and South Sudan from Kitale to Juba. The
total contract price for the job is USD 248 million. The Managing Director of that company has
come to you for legal advice and explained to you that his company would like to join hands
with Massroads Inc., a US Company so as to be able to deliver on the World Bank tender.
According to his narration, the proposal made between the Kenyan and the US companies is
that the Kenyan company will transfer the road construction job to a new company to be
formed to undertake the job (with the approval of the World Bank - which approval is
guaranteed) while the US company would infuse equity into the new company. The Managing
Director of Borabora Road Construction Co. Ltd would like to understand the nature of the
proposed arrangement and the steps to be followed in negotiating and concluding the
arrangement and some of the key provisions that would be featured in such an arrangement.
Prepare a detailed legal opinion of your client.

MERGERS TAKE OVERS AND RE-ORGANIZATION
The Government of Kenya has recently appointed a Taskforce to advice on how to create an
enabling environment for businesses in Kenya. You have been appointed as one of the joint
secretaries for the Taskforce because of your long experience at the Kenya School of Law as a
Corporate law expert.
The Chairman of the Taskforce has requested you to prepare a background paper on
corporate re-organization and how Kenya can learn from other jurisdictions on this subject.
Prepare an opinion with a focus on the following issues.
i. Types of mergers, acquisitions and takeovers.

ii. Reconstruction and forms of recapitalization and their legal implications.
iii. The governing legal framework for corporate reorganization.
Madhubuti Bank Limited is a multinational bank which has operated in Kenya for a long time.
Recently the bank instructed you to act for it in the proposed acquisition of Suta Bank Limited,
a smaller bank struggling to stay afloat in the face of stiff competition in the banking industry.
Both banks have insurance and investments subsidiaries. The bank wishes you to prepare a
detailed legal opinion to be used as a Board paper, with focus on the following areas:
a) The governing legal framework and key legal issues.

b) The chief issues to be covered in carrying out legal due diligence.
13. SPECIAL CONTRACTS
FRANCHISING AND DISTRIBUTORSHIP
Distinguish between Franchising and Distributorship and discuss four ways in which
Franchising can be used.
Mr. Jasper Drake is a well-known American millionaire who made his wealth in the fast food
business by selling tasty crunchy chicken through his outlets all over USA known as "Crunchy
Chicken". He inherited the business from his father, and the reason for the success of his

business has been the secret recipe for the crunchy chicken. This recipe is a well-guarded
family secret, and over the years the family has ensured that only members of the immediate
family have access to the recipe. In fact all the branches in America are headed by family
members who are the only ones who have access to the recipe. Unfortunately Mr. Drake and
his immediate relatives are all well over 70 years old and are considering retiring from the
business soon, at least in the active sense. He has many grandchildren who may eventually
take over but for the time being they are all still quite young.
Mr. Drake visited Kenya in June 2012 and was very impressed by Nairobi and Mombasa, and
the level of business growth and population. He is of the opinion that Kenya may present a
good market opportunity to expand his business for the sake of building income for his
grandchildren. He has decided to visit your law firm, which specializes in commercial law, with
a view to exploring business format options available to him. If you are able to convince him
that his legal and commercial interests will be fully protected, you will be able to make a
substantial income from the business he provides to you.
He has provided you with the following information:
1. He is not interested in engaging directly in the expanded business but wants to retain a
great measure of control over how the business is to be conducted.
2. He will play a role in determining who will be the manager of the business outlets.
3. He does not want to invest any money in the business but is looking for someone who
can invest assets and resources into the business in both Nairobi and Mombasa.
4. He will be able to share in the profits by way of an agreed sum.
5. He will allow the use of his business format, brand name and image, and these should
be retained exactly as they are.
6. He will reveal and allow the business to use his recipe and other business information
and knowledge but these secrets should be strictly protected.
Advise Mr. Drake on the most appropriate business format, explaining clearly what such a
commercial concept would entail, its suitability and the entire scope of legal and other
considerations that would have to be reflected in such an arrangement.
LONG TERM SUPPLY CONTRACTS
Modern Designs and Equipment Limited manufactures industrial filtration systems uses at a
Ruiru plant. It uses a semi-refined material (which we will call "stuff") in its manufacturing
process. Stuff contributes about 20% of the manufacturing costs of Modern Designs products.
The company requires about 30, 000 Kgs of stuff each month. It has been paying Kshs.200 per
Kg of stuff. In 2003 Modern Designs negotiated with Supplier Ltd to supply stuff on a reliable
basis. Supplier Ltd proposed to build a small refinery unit right on Modern Designs property at
a cost of Kshs.50 million, which would permit it to profitably supply all of Modern Designs
stuff needs at a reduced cost of Kshs.150 per Kg of stuff. Supplier Ltd has calculated that the
plant would have at least an 8 year lifespan. A contract is signed on 2nd January, 2003 which
provides that Supplier Ltd will be the exclusive supplier of stuff for Modern Designs for a
period of not less than eight years on terms consistent with its proposal, with a provision for
price adjustment and a guaranteed price of at least Kshs.150 per Kg and no more than
Kshs.250 per Kg over the period of the contract.
Supplier Ltd constructed the unit and deliveries began. In May 2005 Neon, a competitor of
Suppliers Ltd, introduced a new advanced technology for refining stuff, which reduced
production time and cost. Neon sells its stuff at Kshs.50 per Kg. Modern Designs asks Supplier
Ltd to reduce unit price to Kshs.60 per Kg. Supplier Ltd recognized that it could not afford to
do so and refused. Modern Designs is frustrated and knows that given the recent market
changes it cannot continue making profits if it has to continue buying stuff at Kshs.150 per Kg.
Modern Designs decides to close down its Ruiru operation, relocate to industrial area, Nairobi
and refits its Nairobi plant with Neon technology. Supplier Ltd is enraged by this decision. Its
investment will have a value of Kshs. 1 million as scrap if not used for its intended purpose at
Modern Designs.
Supplier Ltd has instituted legal action for breach of contract. You are the judge with the task
of determining this dispute. To decide on the matter you have to:
i. Construe the contract;

ii. Determine the relevant canons of interpretation of contracts and their application to
the dispute.
Prepare a considered determination of the dispute between Supplier Ltd and Modern Design
and Equipment Ltd.
14. RANDOM SHORT QUESTIONS
Write notes on the following:
COMPANY
Distinguish the Objects of a company from its Articles of Association.
INSOLVENCY
a) Commencement of bankruptcy proceedings
b) The doctrine of relation back in bankruptcy;
c) Duties of a trustee in bankruptcy.
AGENCY
a) The right of the principal to revoke the agent's authority.
b) Briefly outline the ways in which agency may be terminated.
c) What is a power of attorney?
d) Outline in detail the factors which you must take into account when preparing a power
of attorney for an individual.
SALE OF GOODS
a) The right of stoppage in transitu;

b) In a contract of sale of goods, explain when:-
i. the property; and

ii. the risk in goods sold pass from the seller to the buyer.
c)
INTERNATIONAL SALES OF GOODS
The obligations of the seller and the buyer respectively in:-
i. CIF and
ii. FOB Contracts of sale
CHATTELS
a) The need for registration of a chattels transfer instrument.

b) Effect of non-registration of an instrument of transfer under the Chattels Transfer Act
(Chapter 28, Laws of Kenya).
c) The essentials of a valid chattels transfer instrument
NEGOTIABLE INSTRUMENTS
a) Acceptance of a bill of exchange;

b) Transfer of a bill of exchange
c) Distinguish between a promissory note and a bill of exchange.
d) Explain what is meant by accommodation bill.
e) State and discuss four conditions which must be met for the negotiable instrument to
be valid.
PAYMENT SYSTEMS
a) Cheque truncation system

b) EFT; and
c) National payment system
d) The principal types of money transfer systems or methods in Kenya besides cash or
cheque transfers.

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COUNCIL FOR LEGAL EDUCATION

EXAMINATION PAST PAPER QUESTIONS 2008-2017

ATP-108 COMMERCIAL TRANSACTIONS

© Joseph McDonald Gambino -2016 Page 1

1. FORMS OF BUSINESS ASSOCIATIONS

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REGISTRATION OF COMPANY (CR1)

i. The company's name will be Ambe Traders Ltd.

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a) The advantages of transforming the business into a company (beginning by identifying

INCORPORATION & CERTIFICATE OF INCORPORATION

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a) Advise the Board of Directors of Masumbuko Company Limited on their options in

SHARES (Prospectus, Issuance, Reduction, Discount etc)

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Charles seeks your advice on the following matters:

FILLING /RETURNS AND CONVERSIONS

a) Holding an Annual General Meeting;

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Answer the following in regards to the Sale of Goods Act Cap 31

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Automatic; fully loaded

Asking price: KShs.800,000

Call Owner: Donald Kamau."

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Mr. James Muganda is a sole trader, trading as a wholesaler/supplier of assorted cereals,

i. Grade 1 long grain Pishori Rice

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SALE OF GOODS BY AUCTION

What are the statutory rules as to sale of goods by auction?

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The following advertisement appeared in yesterday's Daily News, a newspaper with

Quick Sure Traders

P.O. Box 197 - 00032, Nairobi

No. Vehicle Make

2. KQBA 321D Mazda Premacy

3. KPPU 297D Toyota Fielder

1) A refundable Banker's cheque of Kshs.100,000 deposit needed to obtain a bidding

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i. The validity of the auction; and

SALE OF GOODS AND THE 0NLINE TRANSACTIONS CHALLENGE

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3. INTERNATIONAL SALES OF GOODS

Discuss the nature of an ex-ship contract. (4 marks)

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Bernice's key objectives in relation to the business are that she:

• Is keen to start trading as soon as possible.

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a) What provisions he should include in a Partnership Agreement to ensure that his

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A. The Partners wish to associate themselves as partners in business.