Business Law PDF

ACCOUNTING TECHNICIANS
SCHEME
WEST AFRICA
(ATSWA)
BUSINESS LAW
BUSINESS LAW i
ASSOCIATION OF ACCOUNTANCY BODIES IN WEST AFRICA (ABWA)
ACCOUNTING TECHNICIANS SCHEME

WEST AFRICA (ATSWA)
STUDY PACK FOR
BUSINESS LAW
SECONDEDITION
Copy (c) 2009 by Association of Accountancy bodies in West Africa (ABWA). No rights
reserved. No part of this publication may be reproduced or distributed in any form or by
any means, or stored in a database or retrieval system, without the prior written consent of
the copyright owner, including, but not limited to any network or other electronic storage
or transaction or broadcast for distance learning.
Published by
ABWA PUBLISHERS
DISCLAIMER
The book is published by ABWA, however, the views are entirely that of the writers.
BUSINESS LAW ii
PREFACE
INTRODUCTION
The Council of the Association of Accountancy Bodies in West Africa (ABWA)

recognized the difficulty of students when preparing for the Accounting Technicians
Scheme West Africa examinations. One of the major difficulties has been the non-
availability of study materials purposely written for the Scheme. Consequently, students
relied on text books written in economic and socio-cultural environments quite different
from the West African environment.
AIM OF THE STUDY PACK

In view of the above, the quest for good study materials for the subjects of the
examinations, the committee of the ABWA Council decided to bridge the gap in technical
accounting training in West Africa which led to the production of this Study Pack.
The Study Pack assumes a minimum prior knowledge and every chapter reappraises basic
methods and ideas in line with the syllabus.
READERSHIP
The Study Pack is primarily intended to provide comprehensive study materials for
students preparing to write the ATSWA examination.
Other beneficiaries of the Study Pack include candidates of other Professional Institutes,
students of Universities and Polytechnics pursuing first degree and post graduate studies in
Accounting, advanced degrees in Accounting as well as Professional Accountants who
may use the Study Pack as reference material.
APPROACH
The Study Pack has been designed for independent study by students and the concepts
have been developed methodically or as a text to be used in schools and colleges. The
Study Pack can effectively be used as course text and for revision. It is recommended that
readers have their own copies.
BUSINESS LAW iii

FOREWORD
The ABWA Council, in order to actualise its desire and ensure the success of students at
the examinations of the Accounting Technicians Scheme West Africa (ATSWA), put in
place a Harmonisation Committee, to among other things, facilitate the production of
Study Packs for student. Hitherto, the major obstacle faced by students was the dearth of
study text which they needed to prepare for the examinations.
The Committee took up the challenge and commenced the task in earnest. To start off the
process, the existing syllabus in use by some member Institutes were harmonised and
reviewed. Renowned professionals in private and public sectors, the academia, as well as
eminent scholars who had previously written books on the relevant subjects and
distinguished themselves in the profession, were commissioned to produce Study packs
for the twelve subjects of the examination.
A minimum of two Writers and a Reviewer were tasked with the preparation of a Study
Pack for each subject. Their output was subjected to a comprehensive review by
experienced imprimaturs. The Study Packs cover the following subjects:
PART I
1. Basic Accounting Processes and Systems
2. Economics
3. Business Law
4. Communication Skills
PART II
1. Principles and Practice of Financial Accounting
2. Public Sector Accounting
3. Quantitative Analysis
4. Information Technology
PART III
1. Principles of Audit
2. Cost Accounting
3. Preparing Tax Computation and Returns
4. Management
Although, these Study Packs have been specially designed to assist candidates preparing
for the technicians examinations of ABWA, they should be used in conjunction with other
materials listed in the bibliography and recommended text.
PRESIDENT, ABWA
BUSINESS LAW iv
ACKNOWLEDGMENTS
The ATSWA Harmonisation Committee, on the occasion of the publication of the Second
Edition of the ATSWA Study Packs acknowledges the contributions of the following
groups of people. The ABWA Council, for their inspiration which gave birth to the whole
idea of having a West African Technicians programme. Their support and encouragement
as well as financial contribution cannot be overemphasized. We are eternally grateful.
To the Councils of Institute of Chartered Accountants of Nigeria (ICAN) and Institute of

the Chartered Accountants of Ghana (ICAG), for their financial commitment and the
release of staff at various times to work on the programme and for hosting the several
meetings of the Committee, we say kudos.
We are grateful to the following copyright holders for permission to use their intellectual
properties:
The Institute of Chartered Accountants of Nigeria (ICAN) for the use of the Institutes
examination materials;
International Federation of Accountants (IFAC) for the use of her various publications;
International Accounting Standards Board (IASB) for the use of Statements of Accounting
Standards (SASs) and
Owners of Trademarks and Trade names referred to or stated in these Study Packs.
We have made every effort to obtain permission for use of intellectual materials
Lastly, but not the least, to the members of the Committee, we say well done.
Chairperson
ATSWA Harmonisation Committee
BUSINESS LAW v
STRUCTURE OF THE STUDY PACK
The layout of the chapters has been standardised so as to present information in a simple
form that is easy to assimilate.
The Study Pack is organised into chapters. Each chapter deals with a particular area of the
subject starting with learning objective and a summary of sections contained therein.
The introduction also gives specific guidance to the reader based on the contents of the
current syllabus and the current trends in examinations. The main body of the chapter is
subdivided into sections to make for easy and coherent reading. However, in some
chapters, the emphasis is on the principles or applications while others emphasise methods
and procedures.
At the end of each chapter is found the following

Summary
Points to note (these are used for purpose of emphasis or clarification)
Examination type questions and
Suggested answers
HOW TO USE THE STUDY PACK

Students are advised to read the Study Pack and attempt the questions before checking the
suggested answers.
BUSINESS LAW vi
TABLE OF CONTENTS
TITLE PAGE......................................................................................................................................i
COPYRIGHTAND DISCLAIMERS................................................................................................ii
PREFACE.........................................................................................................................................iii
FORWARD......................................................................................................................................iv
ACKNOWLEDGEMENT................................................................................................................v
STRUCTURE OF THE STUDY PACK.........................................................................................vi
TABLE OF CONTENTS...............................................................................................................vii
SYLLABUS AND EXAMINATION QUESTIONS OUTLINE......................................xiv
CHAPTER 1
SOURCES OF LAW
1.0 - Learning Objectives ...................................1

1.1 - Introduction.........................................1
1.2 - Law and its Sources.....................................1
1.2.1 - Meaning of Law...................................1
1.2.2 - Sources of Laws...................................2
1.3 - The Common Law ...................................2
1.3.1 - Meaning Of Common Law..................................2
1.3.2 - Nature and Development of The Common Law .................................2
1.3.3 - Meaning, Nature and Development of Equity.....................................3
1.4 - Customary Law............................................3
1.4.1 - The Meaning and Development of Customary Law....................................3
1.4.2 - Examples of Customary Law.......................................4
1.5 - Legislation........................................5
5.1 - Sources of Legislation......................................5
1.5.2 - Interpretation of Statutes......................................7
1.6 - Case Law, Precedent and Law Reporting............................................9
1.6.1 - Case law and Precedent .......................................................................................9
1.6.2 - Law Reporting................................................ 9
1.7 - Summary and Conclusion..........................................10
1.8 - Revision Questions.....................................10
CHAPTER 2
THE COURTS SYSTEM
2.0 - Learning Objectives...........................................13

2.1 - Introduction.......................................13
2.2 - The Courts- Hierarchy and Structure.....................................13
2.3 - The Superior Courts.......................................14
2.3.1 - The Supreme Court........................................14
2.3.2 - The Court Of Appeal..........................................15
2.3.3 - The High Court and others of coordinate jurisdiction....................................16
2.3.4 - Federal High Court ...........................................................................................16
2.3.5 - Regional Tribunal .............................................................................................17
2.4 - The Inferior Courts.........................................17
2.4.1 - The Circuit Court...........................................17
2.4.2 - The District Court..........................................18
BUSINESS LAW vii

2.4.3 - Other Lower Courts.......................................18
2.5 - Important Judicial Processes..........................................19
2.5.1 - Writ of Summons.......................................19
2.5.2 - Writ of Execution.......................................19
2.5.3 - Garnishee Orders ...............................................................................................19
2.5.4 - Others ................................................................................................................20
2.6 - Criminal and Civil Liability...........................................20
2.6.1 - Criminal Liability...........................................20
2.6.2 - Civil Liability.........................................20
2.7 - Basic Tortious Liability..........................................20
2.7.1 - Defamation.........................................20
2.7.2 - Negligent Misstatements........................................21
2.7.3 - Passing Off.........................................22
2.8 - Summary and Conclusion......................................22
2.9 - Revision Questions.........................................23
CHAPTER 3
LAW OF CONTRACT 1
3.0 - Learning Objectives.......................................26

3.1 - Introduction....................................26
3.2 - Definition and Elements of Contract......................................27
3.2.1 - Definition of Contract............................................27
3.2.2 - The Elements of Contract...................................27
3.3 - Offer and Acceptance.................................27
3.3.1 - Offer...............................27
3.3.2 - Invitation to Treat...................................28
3.3.3 - Acceptance.....................................29
3.4 - Consideration.................................30
3.4.1 - Definition...............................30
3.4.2 - Types..............................30
3.4.3 - General Rules.............................31
3.4.4 - Modifications.................................32
3.5 - Intention to Create Legal Relations...................................33
3.5.1 - Domestic and Social Agreements..............................34
3.5.2 - Commercial Agreements................................35
3.6 - Capacity..................................36
3.7 - Summary and Conclusion..................................38
3.8 - Revision Questions.................................38
CHAPTER 4
LAW OF CONTRACT II
4.0 - Learning Objectives........................................41

4.1 - Form and Contents of a Contract............................................41
4.1.1 - Form of a Contract......................................41
4.1.2 - Contents (or terms) of a Contract....................................42
4.2 - Vitiating Elements of Contract............................................47
BUSINESS LAW viii

4.2.1 - Mistake....................................48
4.2.2 - Misrepresentation....................................51
4.2.3 - Duress..................................53
4.2.4 - Undue Influence..................................53
4.2.5 - Illegality..............................53
4.2.6 - Termination or discharge of Contract.................................59
4.3 - Summary and Conclusions .....................................65
4.4 - Revision Questions .................................65
CHAPTER 5
AGENCY
5.0 - Learning Objectives...............................................68

5.1 - Introduction.......................................68
5.2 - Definition and Types..........................................68
5.2.1 - Definition of Agency.....................................68
5.2.2 - Types of Agency....................................69
5.3 - Creation of Agency 1- Consent......................................70
5.3.1 - Express Agency......................................70
5.3.2 - Implied Agency......................................71
5.4 - Creation of Agency 11- Operation of Law.....................................72
5.4.1 - Agency of Necessity......................................73
5.4.2 - Agency of Cohabitation.....................................73
5.5 - Creation of Agency 111- Ratification............................................74
5.6 - Obligations of Agency.......................................74
5.6.1 - The Duties of the Agent.....................................74
5.6.2 - The Duties of the principal and the rights of the principal and the agent......... 75
5.7 - The Effects of Agency.....................................76
5.7.1 - Where the agent contracts as an agent for a named principal.............................76
5.7.2 - Where the agent contracts for an unnamed principal..............................76
5.7.3 - Where the agent contracts for an undisclosed principal.............................76
5.8 - Termination of Agency..............................77
5.8.1 - Act of the Parties................................77
5.8.2 - Operation of Law...................................77
5.9 - Summary and Conclusions................................78
5.10 - Revision Questions................................78
CHAPTER 6
SALES OF GOODS
6.0 - Introduction............................81
6.1 - Classification of Goods..............................83
6.2 - Form of the Contract...............................85
6.3 - The terms of the contract of sale of goods..............................85
6.3.1 - Title.............................87
6.3.2 - Description..............................88
6.3.3 - Merchantable Quality..................................89
BUSINESS LAW ix
6.3.4 - Sales by sample...................................91
6.4 - Other Terms................................92
6.4.1 - Implied terms as to time..................................92
6.4.2 - Implied terms as to price.................................93
6.4.3 - Transfer of property between seller and buyer...............................93
6.4.4 - Passing of Risk................................96
6.5 - Transfer of a title by a Non-owner..................................99
6.5.1 - The
exceptions....................................100
6.6 - Breach of Sale of Goods Contract and the Remedies of the
Parties..................103
6.6.1 - Buyers'
Rights....................................104
6.6.2 - Sellers'
Rights.....................................104
6.7 - Summary and Conclusions................................106
6.8 - Revision Questions................................106
CHAPTER 7
HIRE PURCHASE
7.0 - Introduction...........................................109
7.1 - Definition of Hire Purchase................... ...................109
7.1.1 - A Credit Sale Agreement......................................110
7.1.2 - A Conditional Sale Agreement.............................111
7.2 - Obligations of the Parties to a Hire Purchase...............................111
7.2.1 - Reasons for the adoption of the Hire Purchase System............................111
7.3 - Obligations and Rights of the Parties...........................112
7.3.1 - Obligations of the Parties at Common Law.............................113
7.3.2 - Rights of the Parties at Common Law.........................115
7.4 - The Hire-Purchase Act 1965............................115
7.4.1 - The Purpose of the Act................................ 115
7.4.2 - The Contents of the Act................................116
7.4.3 - Effect of Non-compliance.................................................117
7.4.4 - Void Provisions.............................118
7.5 - Obligations and Rights of the Parties under the Hire Purchase Act.................118
7.5.1 - Implied Terms Under the Hire Purchase Act................................119
7.5.2 - Exclusion of the Terms Implied by the Act..............................120
7.5.3 - Hirer's right to terminate agreement..................................120
7.5.4 - Recovery of Goods.... ...........................................120
7.6 - Summary and Conclusions .......................................... 121
7.7 - Revision Questions............................................122
CHAPTER 8
CONTRACT OF EMPLOYMENT
BUSINESS LAW x
8.0 - Learning Objectives.................................123
8.1 - Introduction..................................123
8.2 - The Nature and formation of the Contract of Employment.............................124
8.2.1 - Formation of the Contract of Employment..................................124
8.2.2 - Approaches to determining the nature of the Contract of Employment..........124
8.2.3 - Incidents of the Contract of Service and Contract for Service.........................125
8.3 - The Rights of the Employer and the Worker...........................126
8.3.1 - The Rights of the Employer.........................126
8.3.2 - The Rights of the Worker.........................126
8.4 - The Duties of the Employer and the Worker...........................127
8.4.1 - Duties of the Employer............................127
8.4.2 - Duties of the Worker................................129
8.5 - Contracts in Restraint of trade.................................130
8.6 - Termination of Employment...........................130
8.6.1 - General grounds for termination.........................130
8.6.2 - Fair termination...........................131
8.6.3 - Unfair termination...........................131
8.7 - Redundancy ........................................132
8.8 - Remedies .................................132
8.9 - Summary and Conclusions...................................................134
8.10 - Revision Questions .................................134
CHAPTER 9
LAW OF INSURANCE
9.0 - Learning Objectives .................................135

9.1 - Introduction...............................135
9.2 - Formation of Contract of Insurance..............................137
9.2.1 - Temporary Cover..............................140
9.2.2 - Insurable Interest..........................140
9.3 - Types of Policy.............................141
9.3.1 - Life Insurance...........................141
9.3.2 - Personal Accident Insurance............................142
9.3.3 - Fire Insurance...........................142
9.3.4 - Liability Insurance............................143
9.3.5 - Motor Vehicle Insurance..........................143
9.3.6 - Marine Insurance..........................143
9.3.7 - Burglary Insurance.......................143
9.3.8 - All Risks Insurance..............................144
9.4 - The Concepts of Indemnity and Subrogation...............................144
9.4.1 - Indemnity.............................144
9.4.2 - Subrogation..........................145
9.4.3 - Contribution.........................145
9.5 - Re-insurance.........................146
9.6 - Summary and Conclusions ..............................146
9.7 - Revision Questions ..............................147
BUSINESS LAW xi
CHAPTER 10
LAW OF BUSINESS ASSOCIATIONS 1- COMPANIES
10.0 - Learning Objectives................................148

10.1 - Introduction................................148
10.2 - Definition and Types of Companies...............................149
10.2.1 - Definition...........................149
10.2.2 - Types of Companies...........................149
10.3 - Incorporation and Effects...............................150
10.3.1 - Promoters........................150
10.3.2 - Pre- Incorporation Contracts..........................150
10.3.3 - Registration.........................151
10.3.4 - Effects of Incorporation..........................151
10.4 - General Principles...........................152
10.4.1 - Regulation of the Company........................152
10.4.2 - The Ultra vires principle.........................153
10.4.3 - Lifting the Corporate veil.......................155
10.5 - Company Securities.............................157
10.5.1 - Shares.................................157
10.5.2 - Debentures..............................158
10.6 - The Securities and Exchange Commission.............................159
10.7 - Notices, Meetings and Resolutions.............................160
10.7.1 - Notices.........................160
10.7.2 - Meetings..............................160
10.7.3 - Resolutions..................................161
10.8 - Directors..............................162
10.8.1 - Definition......... ...............................162
10.8.2 - Official liquidation..............................162
10.8.3 - Directors Qualification..................................................................................162
10.8.4 - Appointment of Directors...............................................................................163
10.8.5 - Age Limit........................................................................................................163
10.8.6 - Removal..........................................................................................................163
10.8.7 - Powers of
Directors...........................................................................................163
10.8.8 - Managing Director...........................................................................................164
10.8.9 - Retirement/Rotation of Directors.....................................................................164
10.9 - Liquidation.......................................................................................................164
10.9.1 - Private Liquidation...........................................................................................164
10.9.2 - Official Liquidation..........................................................................................165
10.10 - Summary and Conclusion...............................167
10.11 - Revision Questions..................................167
CHAPTER 11
PARTNERSHIPS
11.0 - Introduction Learning Objectives.................................................169

11.1 - Types of Partnership............................................170
11.1.1 - General/Limited Partnership........................................170
BUSINESS LAW xii

11.1.2 - Features of Limited Partnership...............................................170
11.1.3 - Dormant or Sleeping Partner..................................170
11.1.4 - Partner by Estoppel..............................................171
11.2 - Formation of Partnership..............................................171
11.3 - Determining the Existence of Partnership........................................................172
11.3.1 - Joint Tenancy and Tenancy in Common..........................................172
11.3.2 - The Sharing of Gross Returns......................................173
11.3.3 - Receipt of a Share of the Profits......................................173
11.4 - Examples of Relationships where Persons carry on Business
but Are not Partners ........................................................................................174
11.4.1 - Legality of Partnerships...................................175
11.4.2 - Relationship between Partners.....................................176
11.4.3 - Remedy for Breach of Partnership Agreement....................................177
11.5 - Relations of Partners and Third Parties................................177
11.5.1 - Partners' Powers.......................................177
11.5.2 - Extent of Power................................178
11.5.3 - Partner's Liabilities...................................179
11.6 - Dissolution of Partnership............................181
11.6.1 - On Application by Partner the Court may decree Dissolution.........................181
11.6.2 - The Effect of a Dissolution..........................................182
11.6.3 - Application of Partnership Property on Dissolution................................182
11.7 - Summary and Conclusions ..................................183
11.8 - Revision Questions ..................................184
CHAPTER 12
NEGOTIABLE INSTRUMENTS AND BANKING

12.1 - Introduction.........................................185
12.2 - Meaning, Types and Characteristics of Negotiable Instruments.....................185
12.2.1 - Negotiable Instruments.......................................185
12.2.2 - Promissory Notes................................................................186
12.2.3 - Certificates of Deposit.........................................186
12.2.4 - Bill of Exchange..........................................186
12.2.5 - Cheques.......................................187
12.2.6 - Negotiability........................................187
12.2.7 - Order Paper and Bearer Paper.........................................187
12.2.8 - Endorsement........................................188
12.3 - Rights and Duties of Parties to a Bill of Exchange.........................................188
12.3.1 - Holders....................................188
12.3.2 - Dishonour........................................189
12.3.3 - Discharge.....................................189
12.4 - Rights and Duties Bankers and Customers.....................................190
12.4.1 - Banking.......................................190
12.4.2 - Relationship of Banker and Customer.....................................190
12.4.3 - Termination of Duty to pay..................................191
12.5 - Unit Trusts........................................192
BUSINESS LAW xiii

12.6 - Summary and Conclusion........................................193
12.7 - Revision Questions..193
CHAPTER 13
THE ALTERNATIVE DISPUTE RESOLUTION (ADR)

13.1 - Introduction.....................................................................................................194
13.2 - Definition of Terms Arbitration....................................................................194
13.3 - Arbitration Agreement.....................................................................................194
13.4 - Bindingness of Arbitration Agreement............................................................195
13.5 - Enforcement of Award....................................................................................196
13.6 - Conduct of Arbitral Proceedings.....................................................................197
13.7 - Place of Arbitration..........................................................................................197
13.8 - Language of the Proceedings..........................................................................197
13.9 - Composition Number of Arbitrators............................................................197
13.10 - Termination of Mandate of an Arbitrator........................................................197
13.11 - Legal Representation.......................................................................................198
13.12 - Method of Commencement of the Arbitral Proceedings...............................198
13.13 - Making an Award..........................................................................................198
13.14 - Advantages of Arbitration............................................................................198
13.15 - Disadvantages of Arbitration.........................................................................199
13.16 - Meditation......................................................................................................200
13.17 - Counciliation..................................................................................................201
APPENDIX I ...202
APPENDIX II ...223
SAMPLE QUESTION 2 ..224
BIBLIOGRAPHY.....................................237
SYLLABUS AND EXAMINATION QUESTIONS OUTLINE
PAPER 3: BUSINESS LAW

AIMS:
To examine candidates knowledge and understanding of:
the legal environment in which organisations in general and the accountancy
profession in particular operate; and
the legal implications of business relationships and the relevance of legal rules to
business sector, commerce and industry.
BUSINESS LAW xiv

OBJECTIVES:
On completion of this paper, candidates should:
a. know the structure, jurisdiction and functions of the legal systems and the rules
applicable to them;
b. have a working knowledge of the general principles of contract to aid their daily
accounting activities;
c. be familiar with the legal rules governing specific contracts;
d. be able to distinguish between the various forms of business associations and be
conversant with the main rules governing their operations;
e. be able to identify and appreciate the respective duties of bankers and customers and
recognize the nature of negotiable instruments as may be suitable for use as
appropriate in their daily activities as Accounting Technicians; and
f. be able to apply the principles of law to simple case studies.
STRUCTURE OF THE PAPER

The paper will be a three-hour paper divided into two sections:
Section A (50 Marks): This shall consist of 50 compulsory questions made
up of 30 multiple-choice questions and 20 short
answer questions covering the entire syllabus.
Section B (50 Marks): Six questions, out of which, candidates are expected
to answer any four, at 12 marks each.
1. The Legal System 15%
(a) Sources of Law: Common law, equity and statutes of general application; Judicial
Precedent, Legislation, Customary Law and International treaties.
(b) The Court System: An outline of the structure and hierarchy of courts;
Qualification of judges; composition and jurisdiction of the various courts. Special
courts.
(c) Forms of Legal Liability: Distinction between criminal and civil liability
(d) Professional Ethics: Negligent misstatements
2. Law of Contract 20%
BUSINESS LAW xv
Nature and essential elements of a valid contract: offer, acceptance, consideration,
intention to create legal relations, capacity and consent.
Conditions, warranties and exemption clauses.
Illegal contracts and contracts in restraint of trade, vitiating factors.
Discharge of contracts and remedies for breach of contract.
3. Special Contracts 30%
(a) Agency:
Creation and types; authority of agents; rights and duties of principals and
agents and termination of agency
(b) Sales of Goods

Meaning and Types of goods. Implied terms. The Caveat Emptor Doctrine.
Transfer of title, passing of risk and the Nemo Dat Quod Non Habet rule.
Breach of contract for sale of goods and remedies of the parties.
(c) Hire Purchase and Equipment Leasing

Meaning Formalities under the Common Law and the Hire Purchase Act.
Implied and Void terms. Rights and Obligations of the parties. Termination.
Operating and Finance Leasing.
(d) Contract of Employment

Nature and formation. Rights and Duties of the parties. Termination and
Dismissal. Remedies for breach of contract. Redundancy.
(e) Insurance:
Meaning and Classification. Share capital. Meaning and features of the
following concepts and principles insurable interest, premium, indemnity,
utmost good faith, conditions and warranties, subrogation and contribution.
BUSINESS LAW xvi

4. Law of Business Associations 20%
(a) Partnership
Types and determination of existence. Authority of partners. Rights and duties of
partners inter se. Partners and third parties. Dissolution of partnership.
(a) Companies:
Nature and functions of the Corporate Affairs Commission. Types of
companies. Process of incorporation. Company securities (shares and
debentures), directors, company meetings. Majority Rule and Minority
protection. Winding-up or liquidation.
(a) Others:
Business Names, Incorporated Trustees and Unit trusts.
5. Banking and Negotiable Instruments 15%
(a) The legal relationship between banker and customer and their respective duties.
(b) Meaning and characteristics of Negotiable Instruments. Bills of exchange,

Cheques and Promissory notes. Crossing of cheques.
(c) Holder, Holder for value and holder-in- due-course.
(d) Rights and Duties of the parties.
RECOMMENDED TEXTS
1. ATSWA Study Pack on Business Law
2. Obilade, A.O. - The Nigerian Legal System, Spectrum Books.
3. Bondzi-Simpson, P.E. - Company Law in Ghana, Methodist Book Depot,
Accra
OTHER REFERENCE BOOK

Atiyah, P. S. - Sales of Goods, Pitman, London
BUSINESS LAW xvii

TABLE OF CASES
A
Angu v Atta (1916) PC '24-28
Ashbury Railway Carriage Co v Riche (1875) L R 7 H L 653
B
Buama v Oppong, [1992] 2 GLR 213
C
Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256
Curie v Misa (1875) LR 10 Ex 153
D
De Francesco v Barnum [1890] 45 Ch.D. 430, Ch.D
Diab v Quansah [1974] 1GLR 101
Doyle v White City Stadium Ltd [1935] 1 KB 110 CA
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] A C 847, H L
E
Edwards v Skyways Ltd [1964]1 WLR 349
G
Gordon v Essien, [1992] 1 GLR 232
H
Hughes v Metropolitan Railway Co. (1877) 2 App Cas 439 H.L
Hyde v Wrench (1840) 3 Beav 334
I
In Cohen (WA) Ltd v Comet Construction Co Ltd; Ghana Commercial Bank (Claimants)
[1966] GLR 777
In Re McArdle [1951] Ch 669
In Republic v James Town Circuit Judge Ex parte Annor [1978] GLR 453
J
Jones v Padavatton [1969] 1WLR 328
K
Kessie v Charmant [1973] 2 GLR 194
M
Merritt v Merritt [1970] 1 WLR 1121, CA
N
Nash v Inman [1908] 2 K B 1
BUSINESS LAW xviii

O
Orthodox School of Peki v Tawlma Abels [1974] GLR 421
P
Partridge v Crittenden [1968] WLR 204
Payne v Cave (1789) 3 Term Rep. 148
Pharmaceutical Society v Boots Cash Chemists Ltd [1953] QB 40
Pinnel's case (1602) 5 Co Rep 117
Pioneer Construction Products Ltd v Faddool [1974] 1 GLR 76
R
Rose and Frank Co. v Crompton Brothers [1925] AC 445 HL
S
Salomon v Salomon [1897] AC 22
Spencer v Harding (1870) L.R.5.C.P. 561
BUSINESS LAW xix

CHAPTER 1
SOURCES OF LAW
1.0 LEARNING OBJECTIVES
Upon completion of this chapter, readers should be able to:

define law.
explain the purpose of law.
identify the laws of Ghana as Ghanaian candidates and the laws of Nigeria as
Nigerian candidates
discuss the scope of each of the laws of Ghana and Nigeria
mention and explain the forms of legislation in Ghana and Nigeria
differentiate the approaches to legal interpretation
1.1 INTRODUCTION
Legal issues confront us all the time. Some legal knowledge is therefore important
for everybody. Laws ensure orderliness in society and every human activity is
regulated by law. To be very functional persons, we need to appreciate the laws
that regulate the various activities we are engaged in. The purpose of this chapter
is to explain what the law is and its role in society. The chapter is also to identify
all the laws of Ghana and Nigeria and where they are derived from. To avoid
chaos and ensure orderliness every human grouping must have rules and
regulations that guide behaviour. The development of the law and how the laws
are applied are also discussed. Finally, the chapter examines the various ways by
which the laws are interpreted to give meaning to them.
1.2 LAW AND ITS SOURCES

1.2.1 Meaning of Law
The primary area of interest is the law and where it is derived from. It is important
to know that the law basically is the rules and regulations by which a society is
governed. All human behaviour is shaped in one way or the other by various laws.
People may not voluntarily want to meet the expectations of the law. However
BUSINESS LAW 1
they may conform because of the realisation that failure to do so will attract
sanctions.
1.2.2 Sources of Laws

These laws may originate from several sources. Article 11 of the Constitution of
the Republic of Ghana, 1992 enumerates the laws of Ghana. Article 11 (1) States:
The laws of Ghana shall comprise - (a) this Constitution; (b) enactments made by
or under the authority of the Parliament established by this Constitution; (c) any
Orders, Rules and Regulations made by any person or authority under a power
conferred by this Constitution; (d) the existing law; and (e) the common law.'
1.3 THE COMMON LAW

1.3.1 Meaning of Common Law
Article 11(2) of the 1992 Constitution defines the common law of Ghana as the
rules of law generally referred to as the common law, the rules generally known as
the doctrines of equity and the rules of customary law. The general concept of
common law therefore has three components namely the rules of common law, the
principles of equity and customary law. Sometimes common law refers to both the
rules of common law and the principles of equity which were received from
England and other times only to the rules of common law developed in England.
1.3.2 Nature and development of the common law

The rules of common law are the body of laws which were developed in England
in the 12th Century. They emerged out of the mass of customary law of the
English. After the Norman Conquest, a body of important and powerful men
known as the Curia Regis (Kings Council) assisted the Norman Kings to rule.
They performed many functions. It eventually led to the development of courts to
hear cases of a particular kind. By the 13th Century these courts became known as
the Courts of Common Law and they sat at Westminster. As they went to all parts
of the country they were confronted with different local customs. Through sifting,
certain customs were ultimately selected and applied in all similar future cases. It
BUSINESS LAW 2
is out of this that the common law of England emerged. The common law later
developed a rigid system which made it difficult to obtain justice from the courts.
1.3.3 Meaning, nature and development of Equity.

Equity means fairness. It is based on impartiality. Equity was developed by the
Court of Chancery by the 15th Century to mitigate the harshness and rigours of the
common law. This was because the common law was seen as having failed to
keep pace with the needs of the society then. The common law remedy of damages
was also found to be inadequate in certain cases.
Aggrieved persons then petitioned the King for assistance and the Chancellor
presided over such hearings. Subsequently, by the 15th Century, the petitions were
made directly to the Chancellor. The body of rules applied by the Chancellor's
court became known as equity. Equity was thus developed to remedy some of the
defects of the common law. It has been said that equity does not destroy the law,
nor creates it but assists it. Equity operates on some fundamental principles known
as the maxims of equity. Examples are: equity follows the law; equity aids the
vigilant; equity looks to the intent rather than the form; he who comes to equity
must come with clean hands etc. Generally equitable remedies are not available as
of right but are discretionary. Equitable remedies include specific performance,
rescission and injunctions.
1.4 CUSTOMARY LAW

1.4.1 The Meaning and development of customary law
Customary law means the rules of law which by custom are applicable to particular
communities in Ghana and Nigeria. They are therefore the customs accepted by
members of a particular community as binding upon them. The Constitution,
however, prohibits all customary practices which dehumanize or are injurious to
the physical and mental well-being of a person.
Under the Supreme Court Ordinance of 1876, customary laws were applied and
enforced if they were not repugnant to natural justice, equity and good conscience.
BUSINESS LAW 3
Under the High Court (Civil Procedure) Rules, 1954, the content and existence of
customary law was regarded by the court as question of fact in much the same way
as English courts treat foreign laws as facts. A further indication of the direction of
development of customary law is stated in Angu v Atta (1916) PC '24-28, 43 thus:
As is the case of all customary law, it has to be proved in the first instance by
calling witnesses acquainted with the native customs until the particular customs
have, by frequent proof in the Courts, become so notorious that the Courts take
judicial notice of them.
The situation in Ghana is almost the same in Nigeria. Customary Law is one of the
sources of Nigerian Law. Under the received clause, Customary laws and practices
that are repugnant to natural justice and good conscience are not recognised as part
of the Nigerian legal system.
1.4.2 Examples of customary law

Customary law continues to be the major law that regulates matters relating to
chieftaincy, family relationships and property rights. Customary rules and
practices regulate the institution of chieftaincy in terms of enstoolment or
enskinment, operation and removal. Acquisition of rights in land, especially
family or stool ones, is also based on customary practices. The whole spectrum of
family relationships covering marriage, birth, adultery, divorce, death, succession
and inheritance among others are mainly on customary law. Generally, there is
patrilineal and matrilineal inheritance and succession and different communities
are regulated by one or the other. There are also a variety of customary practices
that regulate various economic activities in different communities. There is,
therefore, a multiplicity of customary laws. Due to the impact of political and
socio-economic changes in society, existing customary laws are increasingly
ceasing to be applied in their traditional forms.
In Nigeria, the 1999 Constitution recognises the supremacy of the constitution, and
also the principle of federalism which devolves power between the Federal
Government and the federating 36 States and the Federal Capital Territory, Abuja.
BUSINESS LAW 4
1.5 LEGISLATION
1.5.1 Sources of legislation
Legislation is law passed by Parliament in the form of Acts of Parliament or
Statutes. Legislation may also be exemplified by the Constitution, Acts, Decrees,
Edicts and Subsidiary legislation.
A body usually set up to draft a constitution for a country is known as a
Constituent Assembly. The body that was formed to draw up the 1992 Constitution
was called the Consultative Assembly. The Constitution is the highest and
fundamental law of any country. The 1992 Constitution is therefore the supreme
law of Ghana and as indicated in Article 1(2) of the Constitution, any law that is
inconsistent with any provision of the Constitution is to the extent of the
inconsistency void. This is also applicable in Nigeria. Section of 1999
Constitution makes the constitution as the grundnorm. The Constitution
determines the kind of government suitable for the country and in the preamble
identifies it, as, that ensuring liberty, equality of opportunity and prosperity. Other
principles are universal adult suffrage, the rule of law and the protection and
preservation of fundamental human rights and freedoms. Article 4(1) of the 1992
Constitution shows Ghana as a sovereign state which is a unitary republic. Under
Article 3(1) of the Constitution, Parliament has no power to pass a law to make
Ghana a one-party state. The Constitution regulates many aspects of the country. It
creates and defines the scope and powers of the three organs of state namely the
Executive, the Legislature and the Judiciary. It also touches on citizenship,
fundamental human rights, chieftaincy and the code of conduct for Public Officers
among others. This provision is also applicable to Nigeria.
Statutes cover a very broad scope. They may be received English Statutes,
colonial ordinances, Acts of Parliament and Decrees made under military regimes.
It is important to note that some statutes of England apply in Ghana as statutes of
general application by virtue of S 119 of the Courts Act, 1993 (Act 459). They are
however subject to the statutes of Ghana and so where there is a conflict the laws
of Ghana will prevail. Laws passed by military governments are known as
BUSINESS LAW 5
Decrees. They constitute an important part of the existing written laws. The
National Liberation Council Decrees, (NLCDs) National Redemption Council
Decrees, (NRCDs) the Supreme Military Council Decrees (SMCDs), The Armed
Forces Revolutionary Council Decrees (AFRCDs) and the Provisional National
Defence Council Laws (PNDCLs) are still part of our statutes. In Nigeria, the 1st
day of January 1900 is the bench mark. Any law that was in force as at 1st January
1900 is a statute of General Application.
Since the coming into force of the Constitution, 1992 many Acts of Parliament
have been passed. These are the enactments made by or under the authority of the
Parliament established by the Constitution. Their numbers are growing by the day
and it is expected that the dire need for law reforms in many areas will continue to
increase their scope.
Finally there are the body of laws referred to as delegated or subsidiary legislation.
These are Orders, Rules and Regulations made by any person or authority under a
power conferred by the Constitution or any other law. Parliament confers this
power by an Act of Parliament. They may come by way of constitutional
instruments, executive instruments or legislative instruments. They are subsidiary
laws because they are subject to being published in the Gazette and also being laid
before Parliament before they come into effect.
Legislation constitutes today the most widespread of the laws and will continue to
be so because the law has to respond to changes taking place in society and
therefore the necessary laws will have to be passed to meet that need. In addition
the need to keep the law effective and up to date will call for reforms and new
legislations.
Edicts are proclamations of laws made. Historically, they could be royal

pronouncements from the King or the Queen or commands from the Chiefs and
their council of elders.
BUSINESS LAW 6
The situation in Ghana is almost the same with that of Nigeria, except for the
federal constitution operating in Nigeria while Ghana has a unitary constitution. In
Nigeria, the military Decrees are now part of the Laws of the federation, with each
codified as an Act of the Parliament; while military Edicts at the State level are
being referred to as the Laws of the various component States.
1.5.2 Interpretation of statutes

The courts are responsible for analysing, interpreting and construing the language
of Acts of Parliament in order to determine the intention of the Legislature. To
enable judges interpret statutes properly, they are guided by statutory rules or
common law rules. Among the statutory rules are reference to the interpretation
section of any Statute, the Interpretation Act, 1960 (CA 4) and the common law
rules on statutory interpretation. Among the common law rules are the literal rule,
the Golden rule, the Mischief rule, the Ejusdem generis rule, the Expressio unius
est exclusio alterius rule, the Noscitor a sociis rule and the various presumptions.
Acts usually have an interpretation section which contains definitions of certain

key words used in that Act. These are of immense help to not only judges but all
who require the understanding of such Acts. In Ghana, the Interpretation Act,
1960(CA 4) is the major guide to statutory interpretation. Also in Nigeria there is
Interpretation Act which forms the bed rock of any legislative enactment. It lays
down certain basic rules of interpretation for all Acts. The internal aids include the
long title of the Act and its preamble. Headings, side notes and punctuation may
also be looked at to bring out the meaning of ambiguous words. There is also the
use of extrinsic material. These are the sources of information about legislation
apart from the Act itself. There was a severe restriction on their use but this is now
relaxed. Reference may be made to international conventions and treaties which
form the basis of the legislation, reports to the Law Reform Commission and the
Hansard.
BUSINESS LAW 7
The Literal rule is for giving words their ordinary and plain meaning if they are
clear and unambiguous. Under this rule it is argued that even if the interpretation
produces an absurd or perverse decision it was up to Parliament to put matters right
and not judges.
Under the Golden rule the judge adopts the interpretation which produces the least
absurd result. This is adopted especially where the words of a statute are capable of
two or more meanings. It is even argued that it can be resorted to where the words
have only one meaning but a literal interpretation would lead to an absurdity.
The Mischief rule is based on looking at what mischief or defect in the common
law the Act was passed to remedy and do the interpretation on that basis. It is
associated with the modern purposive approach to interpretation on that basis. It is
associated with the modern purposive approach to interpretation where the
construction which will promote the aims and purposes underlying the provision is
what is adopted by the judge. Under the Ejusdem generis rule where general words
follow particular words the general words should be construed as meaning persons
or things of the same class or genus. For example if the Act referred to 'lions,
tigers and other animals', the general words 'other animals', should be interpreted in
terms of the particular words, lions, tigers to mean other kinds of wild animals and
not domesticated animals.
The expressio unius est exclusio alterius rule means that the express mention of
one or more things implies the exclusion of others. For example if the Act simply
mentioned 'lions and tigers' other kinds of wild animals are excluded.
The Noscitur a sociis rule is where the meaning of a word is derived from the
context in which it is found.
All these collectively facilitate statutory interpretation and thereby make for the
understanding of the Acts.
BUSINESS LAW 8
1.6 CASE LAW, PRECEDENT AND LAW REPORTING
1.6.1 Case law and Precedent
Decisions of judges constitute a large part of the laws. The existing unwritten law
is the decisions of the Superior Courts of Ghana. The doctrine of stare decisis et
non quieta movere is followed both in Ghana and Nigeria. It simply means stand
by past decisions and do not disturb things at rest. This is also known as the
doctrine of binding judicial precedent. The principle is that a courts decision,
based on a particular set of circumstances, is binding on other courts in later cases
and situations, where the relevant facts are the same or similar. In simple terms it
means judges make use of previously decided cases. This is however within
certain limits, since it is linked with the succession of Courts. Courts are bound by
the decisions of courts superior in the judicial hierarchy. This, however, is not
applicable to inferior courts since higher inferior courts do not bind lower inferior
courts. The High Courts and Regional Tribunals are not bound by their own
decisions but their decisions bind all lower courts. The Court of Appeal is bound
by its own previous decisions which also bind all Courts lower than it. The
decisions of the Supreme Court bind all other courts. All those constitute
authoritative precedent which is generally binding and must be followed. The
Courts of Ghana also respect the decisions of the Superior Courts of other common
law jurisdictions. They may be referred to and relied upon but only of persuasive
authority. Judicial precedent brings out rules of law which help to ensure
uniformity, consistency and certainty. This is also applicable in the Nigerian
judicial system
1.6.2 Law Reporting

The most meaningful way of showing the application of the doctrine of judicial
precedent is the reporting of such cases. The reporting of a series of cases on a
matter or issue will help to illustrate the relevant rule of law running through it.
Precedents have to be reported and made available. Law Reports are the repository
of the precedents. In Ghana the Council for Law Reporting has the responsibility
for the preparation and publication of the Ghana Law Reports which contain the
BUSINESS LAW 9
judgments, rulings and opinions of the Superior Courts of the country. The
Council for Law Reporting also publishes the Review of Ghana Law which is
made up of legal articles, opinions, critiques and general expositions on various
aspects of the Law.
In Nigeria, there are different Law Reports, which also contain judgements of the
superior courts. These include the Supreme Court Law Report, Nigerian weekly
Law Report, Nigerian Monthly Law Report etc.
1.7 SUMMARY AND CONCLUSIONS

The chapter surveyed the concept of law and its role in society. Then followed an
identification of the various sources of law. It also delved into the scope of each of
the sources. There was also a look at the law in practice by the use of case law and
judicial precedent and the keeping of records by way of law reporting.
1.8 REVISION QUESTIONS

1. Explain what you understand by law.
2. What purpose do laws serve?
3. Make a list of the laws of Ghana / Nigeria.
4. Discuss the scope of the common law.
5. Explain what you understand by equity.
6. What is customary law and what is its scope today?
7. Make a list of the various sources of legislation.
8. Describe three common approaches to the interpretation of statutes.
9. What do you understand by judicial precedent?
10. Describe the scope and purpose of law reporting.
MULTIPLE CHOICE QUESTIONS
1. Which of these statements is true on the meaning of Customary Law?

A. Customary Law is used as an instrument by the rulers to fix the
power sector.
BUSINESS LAW 10
B. The Customary Law is not required to pass validity test because it is
derived from the culture and customs of the people.
C. Customary Law deals with customs accepted by members of a

particular community as binding upon them
D. Customary Law is a written law.
E. Customary law is rigid and not flexible.
2. Which of these statements is true?
A. The rules of English Common Law are the body of laws which were
developed in England in the 12th century.
B. The rules of English Common Law and the doctrine of Equity have
their origin in African Customary Law.
C. The English Common Law is not rigid but finds its adaptation in our
legal system very cumbersome.
D. The Statute of General Application is a law only applicable to

England.
E. The English Common Law is a written Law.
3. Which of these statements is true concerning the literal rule?
A. It is very absurd.
B. It is a rule manufactured by the judges for the courts convenience.
C. It is for giving words their ordinary meaning.
D. It is a rule that developed from long usage of cannon of
interpretation by the lawyers.
E. It is a rule developed from the Customary Law usage and practice.
4. The doctrine of stare decisions is basically on
A. Decision of customary court.

B. The decision of superior court as binding on the lower courts.
C. Decision of the Chancery court.
D. Decisions only emanating from tribunal.
E. Decision of a Chief Judge of a State.
BUSINESS LAW 11
5. The Supreme Court of Nigeria is composed of how many justices?
A. 22
B. 21
C. 23
D. 26
E. 19
SHORT ANSWER QUESTIONS
1. Common Law has its origin in.
2. The Doctrine of Equity emanated from
3. The bench mark for the statute of General application as one of the sources
of Nigerian Law is .
4. The concept of stare decisis in the Nigerian Legal system

means
5. The appointment of a justice to the Supreme Court in Nigeria

requires
BUSINESS LAW 12
CHAPTER TWO
THE COURTS SYSTEM

explain the role of courts in the administration of justice
identify the two broad groups of Courts and list the courts under them
explain the composition of each of the courts
discuss the scope of the jurisdiction of each of the courts
explain the process of initiating and enforcing an action
distinguish between criminal and civil liabilities
explain defamation, misstatement and passing off
2.1 INTRODUCTION
The courts are the major places for conflict resolution and the interpretation of
laws. Courts are institutions designed for settling disputes. They are concerned
with the administration of justice. The processes within these courts and the ease
or difficulty with which justice may be obtained have a strong impact on business.
2.2 THE COURTS HIERARCHY AND STRUCTURE

The Courts for a long time have been divided into two main groups namely the
Superior Courts of Judicature and the inferior or lower courts. The Superior Courts
of Judicature consist of the Supreme Court, the Court of Appeal and the High
Court or Regional Tribunal. The inferior courts are made up of the Magistrate
Courts (Nigeria), Circuit Court, the District Court, the Juvenile Court, the National
House of Chiefs, the Regional House of Chiefs and every Traditional Council in
respect of the jurisdiction of any such House or Council to adjudicate over any
cause or matter affecting chieftaincy (all in Ghana); Customary/Area Courts
(Nigeria); and such other lower courts as Parliament may by law establish.
BUSINESS LAW 13
2.3 THE SUPERIOR COURTS
2.3.1 The Supreme Court
The Supreme Court is the highest court of the land. It consists of the Chief Justice
as the head, and not less than nine (not more than 21 in Nigeria) other Justices of
the Supreme Court. In both Ghana and Nigeria, the Supreme Court is duly
constituted(quorum) for its work by not less than five Justices of the Supreme
Court and for the purpose of reviewing its own decision by not less than seven
Justices of the Court. The qualification for appointment as a Justice of the Supreme
Court is high moral character, proven integrity and not less than fifteen years
standing as a qualified legal practitioner.
The Supreme Court in Nigeria has the same status with the Supreme Court of
Ghana in terms of composition, powers and requirement for appointment. The
Supreme Court in Nigeria is created under S. 230 of the 1999 Constitution of the
Federal Republic, as amended. S.232 gives original jurisdiction to the Supreme
Court in any matter between the Federal Government and the States, or between
any two or more States, or the National Assembly and the Federation, or State
Houses of Assembly and the Federation.
The Supreme Court has original, appellate, supervisory, review and special
jurisdiction. The Supreme Court has exclusive original jurisdiction in all matters
relating to the enforcement or interpretation of the Constitution and all matters
arising as to whether an enactment was made in excess of the powers conferred on
Parliament or any other authority or person by l aw or under the Constitution.
However, by S.233 of the Constitution, the Supreme Court shall not have original
jurisdiction in respect of criminal matters.
The Supreme Court is the final appellate court. In Ghana, the Supreme Court shall
have appellate jurisdiction to the exclusion of the Court of Appeal to determine
matters relating to the conviction or otherwise of a person for high treason or
treason by the High Court. An appeal from a decision of the Judicial Committee of
the National House of Chiefs shall lie to the Supreme Court with the leave of that
Judicial Committee or the Supreme Court.
BUSINESS LAW 14
The Supreme Court has supervisory jurisdiction over all courts and over any
adjudicating authority and may in the exercise of that supervisory jurisdiction,
issue orders and directions including orders in the nature of habeas corpus,
certiorari, mandamus, prohibition and quo warranto for the purpose of enforcing or
securing the enforcement of its supervisory power. The Supreme Court may also
review any decision made or given by it.
The Supreme Court has special jurisdiction which it exercises in three ways. It has
the exclusive jurisdiction to determine whether an official document should not be
produced in Court because its contents will be prejudicial to the security of the
state or will be injurious to the public interest. In Ghana, the Supreme Court has
the jurisdiction to entertain a petition challenging the validity of the election of a
person as President of Ghana. It also has the jurisdiction for the removal of the
President on stated grounds. In both countries, only the Supreme Court can
entertain appeals from the Court of Appeal.
2.3.2 The Court of Appeal

The Court of Appeal is the next most senior court to the Supreme Court. In Ghana,
it has only appellate jurisdiction and no original jurisdiction; and consists of the
Chief Justice and not less than ten Justices of the Court of Appeal. The Chief
Justice is however empowered to request other Judges of the Superior Courts of
Judicature to sit in the Court of Appeal to hear and determine a particular cause or
matter. The Court of Appeal is duly constituted by any three of its Judges and
when so constituted the most senior of the Judges presides.
In Nigeria however, the Court of Appeal is presided over by the President of the
Court of Appeal; and in addition to being an appellate court, by virtue of S, 239 of
the 1999 Constitution, has original jurisdiction to hear and determine any question
as to whether any person has been validly elected into the office of the President or
Vice President; or whether their terms of office have ceased, or their offices have
become vacant.
BUSINESS LAW 15
The qualification for appointment to the Court of Appeal is high moral character,
proven integrity and not less than twelve years standing as a lawyer. A single
Judge of the Court of Appeal is empowered to sit alone to deal with applications to
the Court which do not involve the decision of a cause or matter before the Court
of Appeal.
2.3.3 The High Court and others of Co-ordinate jurisdiction

In Ghana, the High Court is made up of the Chief Justice and not less than twenty
Justices of the High Court and such other Justices of the Superior Court of
Judicature as the Chief Justice may by writing signed by him request to sit as High
Court Justices.
In Nigeria, the High Court is known as the State High Court, created under S.270
of the 1999 Constitution, headed by a Chief Judge, consisting of as many Judges as
there are Courts. The State High Courts have unlimited jurisdiction in both civil
and criminal matters.
The High Court has jurisdiction in all matters and in particular in civil and criminal
matters and such original, appellate and other jurisdiction conferred on it by the
Constitution or any other law. In addition the High Court has jurisdiction to
enforce the fundamental human rights and freedoms guaranteed by the
Constitution. The High Court has appellate jurisdiction in the judgment of the
Circuit Court in the trial of a criminal case. It also has appellate jurisdiction in any
judgment of a District Court or Juvenile Court. The High Court has supervisory
jurisdiction over all lower courts and any lower adjudicating body and may issue
orders and directions including orders in the nature of habeas corpus, certiorari,
mandamus, prohibition and quo warranto for the purpose of enforcing or securing
the enforcement of its supervisory powers.
2.3.4 Federal High Court

S.251 of the Constitution provides for the creation of the Federal High Court with
jurisdiction to entertain matters relating to the revenue of Government, taxation,
customs and excise, banking, banks and other financial institutions, companies and
BUSINESS LAW 16
allied matters, aviation, arms, drugs and poison, explosives, diplomatic and
consular matters etc. The Federal High Court has both civil and criminal
jurisdictions.
2.3.5 Regional Tribunal

This is applicable only in Ghana. Each region in Ghana is expected to have a
Regional Tribunal established in it. A Regional Tribunal consists of the Chief
Justice, one Chairman and such members who may not be lawyers as shall be
designated by the Chief Justice to sit as panel members. A Regional Tribunal shall
have concurrent original jurisdiction with the High Court in all criminal matters
and shall in particular try the special offences of causing loss, damage or injury to
public property; import of explosives and using public office for profit.
In addition, it tries offences arising under Customs, Excise and Preventive Services
Management Law, Income Tax Decree, Narcotic Drugs (Control, Enforcement and
Sanctions) Law and any other offence involving serious economic fraud and loss
of state funds or property. A Regional Tribunal shall have appellate jurisdiction to
hear and determine appeals from the judgment or order of a Circuit Court or
District Court in any criminal trial.
2.4 THE INFERIOR COURTS

2.4.1 The Circuit Court
In Ghana, the civil jurisdiction of a Circuit Court consists of original jurisdiction in
civil matters in personal actions arising under contract or tort where the amount
involved is not more than100 million cedis. It includes cases or matters involving
the ownership, possession and occupation or title to land. The Circuit Court may
grant injunctions or orders in any action to stay waste or alienation or for the
detention or preservation of any property which is the subject matter of that action
or restrain breaches of contract or the commission of any tort. There is jurisdiction
for the Circuit Court in claims for relief by way of inter pleader for land or
property attached by order of a Circuit Court.
There is no equivalent of Circuit Court in Nigeria.
BUSINESS LAW 17
2.4.2 The District / Magistrate Courts
In Ghana, the District Court has jurisdiction in virtually all the areas identified for
the Circuit Courts with the exception that the value must not exceed 50 million
cedis.
In Nigeria, the Magistrate Courts are the equivalent of the District Court in Ghana;
they are not stated in the Constitution, but are the creation of various states and
governed by the various States Magistrate Courts Laws. Magistrate Courts, like
the High Courts, have jurisdiction in civil and criminal matters in most southern
states. They also administer both common law and equity, with powers to grant
virtually all legal and equitable remedies, up to certain prescribed limits specified
by the law setting them up in each instance.
In addition, both the Magistrate and District Courts act as Juvenile Court by
hearing and determining matters affecting juveniles and also function as family
tribunal.
2.4.3 Other lower Courts

In Ghana, these include the National House of Chiefs, the Regional Houses of
Chiefs and every Traditional Council in respect of the jurisdiction of any such
House or Council to adjudicate over any cause or matter affecting chieftaincy and
such other lower courts as Parliament may by law establish. In Nigeria, the lower
courts include Customary Courts, Sharia Court, Area Courts in the Northern States.
The Customary Court is presided over by a President, while the Alkali presides
over Area Court.
In Nigeria, Tribunals (especially under the military), are inferior courts exercising
judicial or quasi-judicial functions, complimentary to the regular courts in the
judicial system. Tribunals, in most cases, handle specialised matters or cases which
require specialised experience and expertise.
BUSINESS LAW 18
2.5 IMPORTANT JUDICIAL PROCESSES
2.5.1 Writ Of Summons
Civil proceedings are generally commenced by the filing of a writ of summons.
The writ is prepared by the plaintiff or claimant, his solicitor, the Registrar of the
court or a letter writer. Every writ shall be endorsed with a statement of the nature
of the claim, relief or remedy sought in the action.
2.5.2 Writ of Execution
There are various modes of execution of a judgment based on the relief claimed
and granted. A judgment for the payment of money can be enforced through a writ
of fiera facias (fi fa ), garnishee order and summons to show cause among others.
Judgement for the delivery of property other than land may be enforced by a writ
of sequestration, writ of attachment and writ of delivery. If the judgment is for the
recovery of possession of land then the mode of execution is by a writ of
possession. The writ of (fi fa) and the garnishee order will receive attention by way
of example in this text.
Writ of Fieri Facias

A writ of fi fa commands the sheriff to cause to be made out, a writ of attachment
on the property of the judgment debtor and by it, the property is sold in satisfaction
of the judgment debt and costs and immediately after such sale, the sheriff should
bring the money realised into court to be paid to the judgment creditor. The
principle is that if the judgement debtor has sufficient immovable property which
when sold will satisfy the judgement debt and cost then his movable property must
not be attached.
2.5.3. Garnishee Orders
When the judgement creditor knows that a third party has money due to the
judgement debtor, he can apply for a garnishee order by which the court may order
the third party called the garnishee to appear before the court to show cause why he
should not pay to the judgment creditor, the debt due him to the judgment debtor in
satisfaction of the judgment debts and costs.
BUSINESS LAW 19
2.5.4. Others
In Nigeria, there are other means of civil proceedings e.g. originating summons
which is used for declarative reliefs; and undefended list procedure which is for
action in recovery of money owed under liquidated sum.
2.6 CRIMINAL AND CIVIL LIABILITY

2.6.1 Criminal liability
A crime is an unlawful act or default which is an offence against the public and
renders the person who is guilty of the act or default liable to legal punishment. It
is an offence against the state. The sanctions are so severe that the criminal law
requires an element of moral fault on the part of the offender. The prosecution
must establish two essential requirements; actus reus (prohibited act) and mens rea
(guilty mind). For most criminal offences both elements must be present to create
criminal liability. There are however the crimes of strict liability where no proof
of mens rea is required. The standard of proof in a criminal matter is beyond
reasonable doubt.
2.6.2 Civil liability

The civil law deals with the private rights and obligations which arise between
individuals. The purpose of the action is to remedy the wrong that has been
suffered. Two great areas of civil liability are in contract and tort. The plaintiff
sues the defendant and will be successful if he can prove his case on a balance of
probabilities. The distinction between the criminal and civil law is not based on
the nature of the wrongful act because the same act may give rise to both civil and
criminal proceedings.
2.7 BASIC TORTIOUS LIABILITY

2.7.1 Defamation
Every man is entitled to his good name and to the esteem in which he is held by
others and has a right to claim that his reputation will not be disparaged by
defamatory statements made about him to a third person without lawful
BUSINESS LAW 20
justification or excuse. Defamation in an oral or some other transient form
constitutes the tort of slander. Defamatory statements made in writing or some
other permanent form constitutes libel for which the law presumes damage.
In order to establish a prima facie case in an action for libel or slander, it is

necessary for the plaintiff to prove that the words complained of were published
against him, that the words were defamatory to him and they were published by the
defendant in circumstances in which the defendant is responsible for the
publication. The main defences to an action for libel or slander are justification,
that is, the words are true; fair comment on a matter of public interest; absolute
privilege; qualified privilege; apology and payment into court.
The Freedom of Information Act has created a paradigm shift in our jurisprudence,
in that the Act makes it possible as of right for the ordinary citizen to obtain
information from and in respect of government functionaries.
2.7.2 Negligent misstatements

Tort of negligent misstatement arises where there is a false statement of fact made,
knowing it to be false, or be offering it to be false, or recklessly not caring whether
it is true or false. It is made with the intention that it should be acted upon by
another, and if so acted upon, it can then constitute a ground for an action against
the maker. The principle is that, if someone possessed of a special skill
undertakes, quite irrespective of contract to apply that skill for the assistance of
another person who relies upon such skills, a duty of care will arise. The duty of
care with regard to negligent misstatement was limited to cases where a special
relationship existed. Four requirements for the existence of a special relationship
have been laid down by the judicial authorities.
They are:
i) there must be an inquirer who consults another with special knowledge,
ii) reliance by the inquirer,
iii) Such reliance is reasonable and the person of whom the inquiry was made
knows reliance is likely and
BUSINESS LAW 21
Iv) the person relying on the representation suffers loss.
Thus, a duty of care exists where one party seeking information and advice was
trusting the other to exercise such a degree of care as the circumstances required
where it was reasonable for him to do that and where the other party gave the
information or advice when he knew or ought to have known the enquirer was
relying on him.
2.7.3 Passing off

The tort of passing off occurs/arises whenever a person, company or other business
organisation carries on or proposes to carry on business under a name, trademark
or appearance calculated to deceive the public or where a person in a manner
calculated to deceive in the course of trade, passes off his goods or business as
those of another. It may be done by imitating their appearance or selling them
under a similar name or trademark. Its essence is deceit practiced on the public.
The purpose of an action for passing off is to prevent one trade from damaging or
exploiting the goodwill and reputation built up by another. The principle is that no
man is entitled to represent that his goods or his business are that of another.
A valid course of action for passing off may be granted on a misrepresentation,
made by a trader in the course of a trade to prospective customers of his or ultimate
consumers of goods and services he supplies, calculated to injure the business or
goodness of another trader and which causes actual damage to the business or
goodwill of the trader who brought the action.

Courts are important institutions within the legal environment. A general study of
the courts, in terms of the hierarchy and their general jurisdictions, is required for a
proper appreciation of their role. The introduction to the basic judicial processes
by which an action may be initiated and the various forms of enforcement will
further expose the candidate to other aspects of the legal system. Attention was
also placed on the critical distinction between criminal and civil liability. The
BUSINESS LAW 22
chapter also introduced candidates to tort which in no small measure will
contribute to their understanding of the law.

1. Identify the two main groups of Courts in Ghana or Nigeria and list the
Courts under them.
2. What is the jurisdiction of the Supreme Court of Ghana or Nigeria?
3. Explain the qualifications for appointment as a judge to the courts of Ghana

or Nigeria.
4. Describe the jurisdiction of the Court of Appeal.
5. Identify and describe the jurisdiction of the High Court.
6. What is the jurisdiction of the Regional Tribunal?
7. Compare the jurisdictions of the Circuit and District Courts.
8. Write brief notes on each of the following:

a) Writ of Summons
b) Writ of Fifa
c) Garnishee order
9. Distinguish between criminal and civil liability.
10. Define defamation and describe the main types.
1. The highest court in Nigeria or Ghana is
A. Court of Appeal.
B. Federal High Court.
C. National Industrial Court.
D. The Supreme Court.
E. Customary Court of Appeal.
2. The Supreme Court in Nigeria or Ghana is headed by
A. The Deputy Chairman National Judicial Council.

B. The Chief Justice of Nigeria.
C. The President Court of Appeal (PCA)
BUSINESS LAW 23
D. The Minister of Justice and Attorney General of the Federation.
E. The President of the Nigerian Bar Association.
3. The fastest means of resolving dispute in Nigeria or Ghana is
A. Litigation.
B. Arbitration.
C. Adjudication.
D. Self help.
E. Petition to the National Judicial Council (NJC).
4. The major disadvantage of Arbitration is
A. Privacy
B. Confidentiality
C. High cost
D. Publication in the Newspaper
E. Swearing of oath in the Court.
5. Civil Law is associated with one of the following
A. Punishment to the litigants.

B. Award of damages to the claimants.
C. Imprisonment.
D. Death sentence,
E. Arraignment.
6. The Customary Court of Appeal has appellate and Supervisory Jurisdiction

over proceedings coming on appeal from..
A. Magistrate Court
B. Customary Court
C. Industrial Court
D. National Judicial Council (NJC)
E. Rent Tribunal
7. Civil Law is associated with one of the following
A. Punishment to the litigants

B. Award of damages to the claimants
C. Imprisonment
D. Death sentence
E. Arraignment
BUSINESS LAW 24
1. The Justices of the Supreme Court of Nigeria or Ghana including the Chief
Justice are to be appointed by the President on the recommendation
of
2. The Supreme Court of Nigeria or Ghana when it is exercising its original

jurisdiction or when matter before it involves questions as to the
interpretation of the Constitution would sit as a panel of
.justices.
3. A person is not qualified for appointment as a Justice of the Court of

Appeal except he has been qualified to practice as a legal practitioner in
Nigeria or Ghana for at least years.
BUSINESS LAW 25
CHAPTER THREE
LAW OF CONTRACT 1

explain what amounts to a contract.
identify the elements of contract
explain offer and distinguish it from invitation to treat.
explain acceptance
discuss the scope of consideration.
demonstrate an understanding of the intention to create legal relations.
explain the concept of capacity
discuss the scope of the forms and contents of a contract
3.1 INTRODUCTION
The law of contract is at the centre of most human activities. All of us within a day
make several contracts without sometimes even realizing that. When you engage
somebody to weed around your house for pay, you have established a contractual
relationship. When you enter a bus going to a particular place along a particular
route and you pay the fare, you have made a contract with the party running the
service. When you put an item on sale at a particular price and another person
agrees to buy it at that rate you have both entered into a contract. Since contracts
regulate a lot of our activities it is necessary to have an appreciation of it. This
will make it easy for parties to know the obligations they have imposed on
themselves. Parties will then be in no doubt about what their liabilities are on
failure to fulfil their part of the contract and what will be their remedies if the other
party is in breach.
BUSINESS LAW 26
3.2 DEFINITION AND ELEMENTS OF CONTRACT
3.2.1 Definition of contract
Whenever two or more people undertake to engage in an activity for which either
of them may resort to the law for it to be enforced if a party fails to perform, a
contract is said to have been formed. A contract has therefore been simply referred
to as a promise or set of promises which the law will enforce.
3.2.2 The elements of contract
For a valid contract to be in place there must be some essential elements. These
are agreement, consideration, intention to create legal relations, form, capacity and
legality. There is the requirement that there must be two or more parties to the
contract who have agreed to it. Such agreement must have been entered into freely.
The parties must also give promises which are supported by consideration. It
means each party must give or do something for the other. The intention to create
legal relations means that each party is ready to have his or her promise enforced
by the law. Some contracts must also meet a certain form; they will only be valid
when they are in writing. Again only persons who are legally competent or have
capacity can enter into a contract. Finally the agreement must not be for an illegal
purpose and also not contrary to public policy.
3.3 OFFER AND ACCEPTANCE

3.3.1 Offer
Whenever a person proposes terms to another person and shows willingness that if
that person accepts those terms he is ready to contract with him, then those terms
constitute an offer. For example if Kofi tells Adenuga that he will sell his house to
him at a certain price, that constitutes an offer which will bind him should
Adenuga agree to buy the house on the same terms. An offer is thus a definite
promise made by one party with the intention that it shall be binding on him
once it is accepted by the party to whom it is addressed. Generally an offer may be
made expressly by words, but may also be implied from the conduct of the person
making the offer (the offeror). An offer may be directed to an individual, a group
of persons or the world at large. It means an offer has to be communicated to the
BUSINESS LAW 27
person it is intended for (the offeree). It is said that if one is ignorant of an offer he
cannot accept it. There are a number of ways by which an offer may be
terminated. These include non-acceptance of the offer or withdrawing the offer
before it is accepted which amounts to a revocation and the offeree not accepting
the terms of the offer which is a rejection. Where an offer is made and it is to be
accepted at a particular time, failure to do so terminate the offer by lapse of times.
The death of the offeror or offeree before acceptance terminates the offer. Even
death after acceptance, where personal service is involved terminates the contract.
3.3.2 Invitation to treat

This precedes an offer. It is thus a preliminary communication which indicates a
willingness to enter into negotiations. It is an invitation to the person to whom it is
directed (the recipient) to make an offer. It is therefore described as an offer to
negotiate or an offer to receive an offer. An invitation to treat cannot be accepted
to bring a contract into being. Circumstances which amount to invitation to treat
include advertisements, display of goods for sale, auctions and tenders. When there
is an advertisement it is only intended to be an invitation to treat i.e. to negotiate.
In Partridge v Crittenden [1968] (WLR) 204 where an advertisement was put in
the periodical 'Case and Aviary Birds' which stated 'Bramble finch cocks, bramble
finch hens, 25 shillings each, a reader wrote in for a hen which Partridge sent to
him. The appellant was charged with unlawfully offering for sale a wild live bird
contrary to the Protection of Birds Act. His conviction was quashed by the
Divisional Court on the ground that he had made no offer for sale, merely an
invitation to treat.
Goods on display with price tickets attached in a self service store exemplify an
invitation to treat. Any potential customer who enters the shop is invited to make
an offer. The picking of the goods by the customer and the presentation to the
cashier constitute the offer. The cashier then has an option to either accept the
offer or reject it. If he accepts the offer a contract comes into being but if he rejects
it no contractual obligation would be imposed. In Pharmaceutical Society v Boots
Cash Chemists Ltd [1953] (QB 40), the defendants, Boots, operated a self-
BUSINESS LAW 28
service supermarket with a Pharmacist on hand, to supervise the sale of specified
drugs which could only be lawfully sold under him. Two customers selected such
drugs from the shelves and put them in a wire basket provided by the defendants.
The Pharmaceutical Society brought an action alleging an infringement of the Act.
The Court of Appeal held that the display was merely an invitation to treat. The
customer, by presenting the goods at the cash desk, made an offer to buy, which
the cashier, under the pharmacists supervision could accept or reject.
When an auctioneer makes a request for bids it amounts to an invitation to treat.
The bids that are made in response to the request constitute offers. It is when a bid
is accepted that a contract is made. In Payne v Cave (1789) 3 Term Rep. 148,
KB, Cave withdrew his bid at an auction before the fall of the auctioneer's
hammer. It was held that the bid was the offer, the auctioneer only made an
invitation to bid. As Cave's offer had been withdrawn before the auctioneer had
accepted it, there was no contract.
Invitations for tender are also invitations to treat. The tender is the offer and it may
be accepted or rejected. In Spencer v Harding (1870) L.R.5.C.P. 561, the
defendants sent out a circular inviting tenders for the purchase of certain stock-in-
trade. The plaintiff's tender proved to be the highest submitted, but the defendants
refused to sell to them. Judgment was given to the defendants because a tender
itself is an offer, which the party who invited it, may or may not accept. The
defendants could only have been bound if they had promised to sell to the highest
bidder.
3.3.3 Acceptance
It is the expression of assent to the terms of the offer made by the person to whom
the offer was made (the offeree). In the example where John offered his house to
Adenuga at a certain price, the agreement by Adenuga to buy the house on those
terms constituted acceptance. An offer is not accepted by mere silence on the part
of the offeree. Acceptance has to be communicated to the offeror. It is not
deemed to be communicated until it is actually brought to the notice of the offeror.
When acceptance is by a return promise its performance leads to a unilateral
contract. In instances where the offeror authorizes acceptance by post, postage of a
BUSINESS LAW 29
properly addressed letter of acceptance indicates proper communication of
acceptance. The offeree may revoke his acceptance at any time before it is
communicated to the offeror. Since an acceptance cannot be made in ignorance
of an offer, where two parties each simultaneously make identical offers to each
other they amount to cross offer which do not conclude a contract.
It is important at this stage to make a distinction between acceptance and a counter
offer. As indicated earlier, on acceptance connotes assent to the terms of the offer.
In a counter offer, the offeree's reply indicates a willingness to be bound on terms
different from those contained in the offer. In Hyde v Wrench (1840) 3 Beav 334,
Wrench offered to sell his farm to Hyde for 1000. Hyde offered to buy it for
950. Wrench wrote to reject the counter-offer. Hyde then purported to accept
Wrench's original offer of 1000 and sued the farm. The Court held that the
counter offer of 950 destroyed the original offer which could not then be revived
by Hyde. A counter-offer thus puts an end to the previous offer and is in fact a
new offer which the original offeror (now the offerce) may accept to bring a
contract into being or reject and terminate the negotiations.
3.4 CONSIDERATION
3.4.1 Definition
Consideration is something of value in the eye of the law. It is also seen as the
price which need not be monetary, paid by each party for the promise of the other.
In Curie v Misa (1875) LR 10 Ex 153, consideration was described as 'A valuable
consideration in the sense of the law, may consist either in some right, interest,
profit or some forbearance, detriment, loss or responsibility given, suffered or
undertaken by the other'.
3.4.2 Types
Consideration may be executory or executed. Under executory consideration,
valuable consideration may be provided by mutual promises which will give rise
to a bilateral contract. It is a promise to do or forbear from doing some act in the
future. The whole transaction remains to be performed in the future.
BUSINESS LAW 30
Executed consideration is an act by one party in exchange for a promise made or
an act done by the other. A promise for an act gives rise to a unilateral contract as
in Carlill vs. Carbolic Smoke Ball Company [1893] 1 QB 256. An
advertisement by the company promised to pay one hundred pounds to anyone
who caught influenza after using the carbolic smoke ball as directed. Mrs Carlill
purchased the ball and used it as directed but contracted influenza. She therefore
sued for the one hundred pounds. The Court of Appeal decided that the Company
had made an offer to the whole world which would ripen into a contract with
anybody who bought and used the ball in the specified way.
3.4.3 General rules

Past consideration is no consideration. It is a promise which follows a completed
act. Such a promise is independent of the act or service performed. It is therefore
not enforceable. In Re McArdle [1951] Ch 669, on the death of McArdle his
widow under his will obtained a bungalow for her lifetime and their children were
to become owners after that. Monty McArdle and his wife, Majorie who lived
there, made extensive repairs to the bungalow after which all the children wrote to
Majorie promising to pay her 'in consideration of your carrying out certain
alterations and improvements'. The money was not paid and the widow died. The
Court of Appeal held that, as all the work had been finished before the promise
was made, the work was past consideration and so there was no obligation to pay.
A promise to perform an existing obligation is not good consideration but a
promise to do something different is good consideration. Thus if a creditor agrees
to take a smaller sum of money in full satisfaction, its payment is not a satisfaction
of an agreement to pay a larger sum. In Pinnel's case (1602) 5 Co Rep 117 it was
stated that 'payment of a lesser sum on the day it is due in satisfaction of a greater
cannot be any satisfaction for the whole. The payment and acceptance before the
day in satisfaction of the whole would be good satisfaction'.
The doctrine of promissory estoppel adds a new dimension to consideration. It

applies only to a promise made between parties who are already in a contractual
BUSINESS LAW 31
relationship. Where one of the parties makes a promise which is intended to be
binding and is relied on and acted upon, the promissor would be prevented from
enforcing his original rights since it will amount to his going back on his promise.
In Hughes v Metropolitan Railway Co. (1877) 2 AppCas 439 H.L., the appellant
landlord gave the respondents six months in which to repair some houses as they
were expected to do under their lease. They later started negotiations to purchase
the freehold and based on that did nothing about the repairs. The negotiations
however failed two months after commencement and the appellant when the
original six months were up brought an action to eject the respondents for their
failure to repair. The House of Lords held that the appellant must fail since the
respondents had relied on the negotiations as being in effect, a promise that the
appellant landlord would not enforce his demands while the negotiations
continued. The six months notice must run from the failure of the negotiations.
Consideration must move from the promisee. Its import is that the promisee must
provide the consideration. It is based on the principle that a stranger to a contract
cannot sue on it. This is the doctrine of privity of contract. In Dunlop Pneumatic
Tyre Co Ltd v Selfridge & Co Ltd [1915] A C 847, H L, the appellants sold
some of their tyres to Dew & Co. under a contract whereby they undertook not to
sell the tyres below Dunlop's hit prices and agreed, as Dunlop's agent to obtain a
similar undertaking from other traders. Dew & Co sold some of the tyres to the
respondents who agreed not to sell below Dunlop's list prices. They broke this
contract and Dunlop sued for its breach. They failed. Dunlop could not enforce the
contract because no consideration moved from them. The appellants were not a
party to the contract between Dew & Co and the respondents and only a person
who is a party to a contract can sue on it.
3.4.4 Modifications
This rule is however subject to several exceptions. Under the common law,
exceptions cover the trust device, land, agency, assignment and insurance matters.
Many statutory provisions have reinforced these exceptions. The Contracts Act,
1960 (Act 25) has provisions that modify the scope of consideration in contract.
BUSINESS LAW 32
The Contracts Act, 1960 (Act 25) S 5 shows that a provision can be made in a
contract for the benefit of a third party. In Kessie v Charmant [1973] 2 GLR 194
it was argued that the law of Ghana no longer requires proof of consideration in
any contract. The judge however ruled that the Contracts Act has not changed the
common law position but that cases for the absence of consideration must be
brought within any one of sections 8, 9 and 10 of the Contracts Act, 1960 (Act 25).
Section 8(1) indicates that a promise to keep an offer open for acceptance for a
specified time is not invalid as a contract due to the absence of consideration.
Under section 8(2) absence of consideration shall not render a promise to waive the
payment of a debt or part of it or the performance of some legal obligation invalid
as a contract. As indicated in section 9, the performance of an act or the promise to
perform an act may be consideration for another promise notwithstanding that the
performance of that act may be enjoined by some legal duty. The Act shows in
section 10 that consideration need not move from the promisee which is a
counter to the general premise of privity. Thus no promise shall be invalid as a
contract by reason only that consideration was supplied by someone other than the
promisee.
3.5 INTENTION TO CREATE LEGAL RELATIONS

Parties intend to create legal rights and duties out of their agreement and thus to
invoke the assistance of the ordinary courts on breach of the contract. The law
determines whether or not there is an intention to create legal relations through the
aid of presumptions. In a given set of circumstances, the law presumes a certain
intent. In a domestic or social setting or act of friendship there is a rebuttable
presumption that the parties do not intend to create legal relations. In a commercial
setting there is a rebuttable presumption that the parties intend to create legal
relations. Both presumptions are rebuttable, that is the assumption stands until the
contrary can be proved.
BUSINESS LAW 33
3.5.1 Domestic and Social Agreements
Domestic arrangements are made between husband and wife, parent and child and
among relatives. Within this class the rule is that there is a rebuttable presumption
that the parties do not intend to create legal relations. Those arrangements or many
of them do not result in contracts at all because the parties did not intend that they
should be attended by legal consequences. In Jones v Padavatton [1969] 1WLR
328, Mrs Padavatton was working as a secretary in the United States. Her mother,
Mrs Jones, offered to provide her daughter's up keep if she would return to
England and read for the Bar. Her, daughter accepted. A little later, Mrs. Jones
offered in addition to provide a house for her daughter, some of the rooms to be
left to tenants. Mrs Padavatton accepted this, too, but later she became so unco-
operative that two years later, Mrs Jones claimed possession of the house. Her
daughter resisted this on the ground that her mother was contractually bound to this
arrangement. It was held that Mrs Jones was entitled to possession. The original
agreement was motivated by the mother's desire for her daughter to succeed at the
Bar. They were originally on good terms and they had no intention to enter a stiff
contractual operation.
The presumption that domestic arrangements are not intended to be legally binding
is displaced where the spouses are not living together in amity at the time of the
agreement. It does not apply where the spouses are about to separate or are
separated or are contemplating a divorce or are divorced. Whether there is
contractual intention or not may be ascertained from the words used in the
agreement or the surrounding circumstances of the case. In Merritt v Merritt
[1970] 1 WLR 1121, CA the defendant left his wife to live with another woman.
The matrimonial home which was in their joint names was subject to an
outstanding mortgage. Mr Merritt, at his wife's insistence, signed a document
which stated : 'In consideration of the fact that you (the wife) will pay all charges
in connection with the house until such time as the mortgage repayment has
been completed ... I will agree to transfer the property into your sole ownership.'
Mrs Merritt paid off the mortgage, but her husband refused to transfer the house to
her. The Court of Appeal held that the usual presumption as to agreements
BUSINESS LAW 34
between spouses living happily together did not apply when they were unhappy
and separated, or about to separate, and the written document was therefore a
binding contract which Mr, Merritt must comply with.
Social agreements are those between parties who are not relatives. They are
largely acts of friendship. Many social arrangements do not amount to contracts
because they are not intended to be legally binding.
3.5.2 Commercial Agreements

In commercial transactions, there is a strong presumption that the parties intend to
create legal relations. The parties intend legal consequences to follow. In
Edwards v Skyways Ltd [1964]1 WLR 349 the defendants declared the plaintiff,
one of their pilots, to be redundant, and ultimately agreed to pay all pilots who
were made redundant an ex gratia sum. The defendants then refused to make any
such payments (mainly because of the large number of redundancies). The
plaintiff brought an action for breach of contract. The Court held that in business
relations, the presumption is that the parties intend to create legal relations by their
agreements.
The strong presumption may be displaced either expressly or impliedly. To oust
expressly the presumption, clear words must be used. The burden of rebutting
contractual intention in commercial transactions is an extremely difficult one and is
not lightly taken. In Rose and Frank Co. v Crompton Brothers [1925] AC 445
HL, the appellants, dealers in carbon paper and the respondents signed a document
by which the appellants, were appointed sole agents of the respondents to sell their
products in the United States. The document concluded 'This arrangement is not
entered into, nor is this memorandum written, as a formal or legal agreement
but is only a definite expression and record of the purpose and intention of the
parties concerned, to which they each honourably pledge themselves ' The
respondents later ended the agreement, and the appellants sued for its enforcement.
It was held that the usual presumption that commercial agreements constitute
enforceable contracts was rebutted by the clear words used, although individuals
orders given and accepted were enforceable contracts.
BUSINESS LAW 35
3.6 CAPACITY
Capacity is the ability to incur legal rights and obligations. The law presumes that
everyone is competent to bind himself to any contract he chooses to make provided
that it is not illegal or void on public policy grounds. A few classes of people are
under a disability. These are infants or minors, mentally disordered persons or
lunatics, drunken persons and corporations or companies.
As a general rule contracts made by a minor with an adult are binding on the adult
and not the minor. There is a protective principle in a minor's contractual capacity.
Valid contracts for minors are divisible into contracts for necessaries and beneficial
contracts of service or contracts for employment.
Necessaries are articles which are reasonably necessary to the minor in terms of his
status in life. A minor is only liable when the goods are suitable to his condition in
life, necessary to his requirements at the time of delivery. Goods will not be
necessaries if the minor was already well supplied with such goods. A minor
must pay a reasonable price for necessities supplied to him. In Nash v Inman
[1908] 2 K B 1, the defendant, an undergraduate at Cambridge, bought eleven
fancy waistcoats from the plaintiff tailor. At the time he was adequately provided
with clothes. It was held that the waistcoats were not necessaries and the defendant
was not liable to pay for any of them.
Not every contract for the benefit of a minor is binding on him. However contracts
for his education, service or apprenticeship or for enabling him to earn his living
are binding unless they are detrimental to the interests of the minor. In Doyle v
White City Stadium Ltd [1935] 1 KB 110 CA, the plaintiff was an infant
professional boxer. He entered into a contract with the defendants to box at the
White City. The contract was made subject to the Rules of the British Boxing
Board of Control, one of which provided that if a boxer were disqualified he would
lose his purse. Doyle was disqualified for hitting below the belt, and the purse was
withheld. The plaintiff sued for it. The Court of Appeal held that, taken as a
whole, his contract was advantageous to him, as it allowed him to get a licence to
BUSINESS LAW 36
box which allowed him to become proficient in his chosen career. The contract
was therefore binding and his action failed.
In De Francesco v Barnum [1890] 45 Ch.D. 430, Ch.D, an infant and her mother
executed a deed by which the infant was to be apprenticed to the plaintiff for seven
years in order to learn stage dancing. They further agreed that the infant would not
marry; would not accept any professional engagements during the apprenticeship
without the plaintiff's consent, and would get no pay unless the plaintiff actually
employed her (which he was not bound to do). After a fair trial, the plaintiff could
end the contract if the infant was unsuitable. The infant broke the agreement by
accepting a contract to dance for the defendant. The plaintiff sued. He failed. The
deed was unreasonably harsh and could not be enforced against the infant or her
mother.
Certain contracts are voidable in that they are binding on a minor unless he
repudiates them during his minority or within a reasonable time after he comes of
age. They cannot be enforced against him during his minority but after he attains
full age, he will be bound, unless he repudiates them within reasonable time. Such
contracts include leases, partnerships and shareholding in a company.
Companies or corporations which act beyond their powers are said to have acted
'ultra vires'. Ultra vires contracts are void with the result that no legal action would
be permitted on them. Ratification may sometimes give relief. In Ashbury
Railway Carriage Co v Riche (1875) L R 7 H L 653 the objects of the appellant
company, which had been established by statute, were to make and sell, or lend,
or hire, railway carriages and wagons, and all kinds of railway plant, fittings,
machinery and rolling stock; to carry on the business of mechanical engineers and
general contractors; to purchase, lease and sell mines, minerals, land and buildings;
to purchase and sell as merchants, timber, coal, metals and other materials; and to
buy and sell any such materials on commission, or as agents. The company
purchased a concession for building a railway in Belgium and contracted the
respondent, Riche, that he should construct the railway track. The appellants
subsequently repudiated the contract on the ground that it was ultra vires. The
BUSINESS LAW 37
respondent sued. The House of Lords held, that the contract for the construction of
a railway was indeed ultra vires and void as it was not a type envisaged in the
objects of the company. In Ghana however an ultra vires act, conveyance or
transfer is not necessarily invalid simply because it is ultra vires. The Code shows
that no act of a company and no conveyance or transfer of property to or by a
company shall be invalid by reason of the fact that such act, conveyance or transfer
was done ultra vires. This modification reduces the harsh effects of the doctrine on
third parties. This means that a third party is not without a remedy. However, if the
third party had knowledge of the absence of power or the irregularity of it then the
company shall not incur any liability.
3.7 SUMMARY AND CONCLUSION

Since contracts constitute an integral part of human existence, it is worthwhile to
have a fair understanding of them. It was therefore necessary to introduce
candidates to the elements of contract and to let them have a full appreciation of
them. The issues of enforceability of contracts and the obligations imposed on
parties have to be well appreciated to avoid liabilities. Matters relating to intentions
of parties in agreements and the competence of parties were also focused on.

1. State the elements of contract
3. Distinguish between invitation to treat and an offer
3. Write on each of the following:

a) Cross offers
b) Counter offers
c) Acceptance
4. How may an offer be terminated?
5. Explain the term consideration.
6. What is meant by the following:

a) Executory consideration
b) Executed consideration
BUSINESS LAW 38
c) Past consideration
6. Explain promissory estoppel.
7. Explain and describe the scope of the intention to create legal relations.
8. Identify individuals and bodies which do not have capacity to contract.
10. Describe the exceptions to the rule that a minor is not bound by any
contract made during his minority.
1. An offer can be discharged by the following, EXCEPT
A. Death of the offeror

B. Capacity of the offeror
C. Acceptance
D. Revocation
E. Rejection
2. Which of these is NOT among the rules of consideration?
A. Consideration must move from the promisee

B. Consideration must not be past.
C. Consideration can move from the promisor.
D. Consideration may be executed or executory
E. Consideration must be of value but may not be adequate.
3. Which of these is not among the essential elements of a valid contract?
A. Offer
B. Acceptance
C. Intention to create legal relations
D. Capacity
E. Authority
4. Circumstances which amount to invitation to treat include the following

EXCEPT ONE.
A. Display of goods for sale

B. Auctions
C. Tenders
D. Advertisement
E. Negotiation
BUSINESS LAW 39
5. Which of these statements is not true?
A. As a general rule contracts made by a minor with an adult are

binding on the adult and not the minor.
B. There is no protective principle in a minors contractual capacity.
C. Necessaries are articles which are reasonably necessary to the minor

in terms of his standing in life
D. Good will not be necessaries if the minor was already well supplied
with such goods.
E. A minor must pay a reasonable price for necessities supplied to him.
1. What remedy requires a party to a contract to carry out specifically his

contractual obligations?
2. A contract is defined as a promise or set of promises which the Law

will..
3. Goods on display with price tickets attached in a self service store

exemplify
4. What is a counter offer?
5. The doctrine of promissory estoppel applies only to.
BUSINESS LAW 40
CHAPTER FOUR
LAW OF CONTRACT II
On completion of this chapter, readers should be able to:
understand the form and contents of a contract
identify the vitiating elements of a contract
state and explain the remedies for breach of a contract
understand the consequences of illegality in contracts
explain the various methods by which a contract may be discharged
4.1 INTRODUCTION
Form and Contents of a Contract.
4.1.1 Form of a Contract
There is no particular form in which a contract may be made since contracts are
enforceable whether they are made in writing or orally. There are however some
that must be made in a particular way for them to be enforceable. These are the
exceptions but they need to be stated.
Contracts Under Seal:

A contract under seal exists where a person signs, seals and delivers a document.
Such documents are known as deeds, specialty contracts or covenants. The law
takes these kinds of contracts very seriously. In the olden days, red wax and signets
were used to seal documents but nowadays little round red stick or seals are used.
It is also important to know that a contract is generally not binding unless
consideration is given but a contract under seal binds the parties without the
requirement of consideration. The contracts required by law to be under seal are
conveyances or grants of property, leases for more than three years and transfer of
Nigerian ships or shares in them.
BUSINESS LAW 41
Contracts which must be in writing:
Any contract which is not under seal is said to be a simple or parol contract and for
such a contract to be enforceable there must be consideration. A simple contract
may be oral or written. For such a contract to be enforceable there must be
consideration. However, Nigerian Law requires that, for certain contracts to be
enforceable, they must be in writing and these include Bills of Exchange,
Promissory Notes, Hire Purchase Agreements, Contracts for the transfer of shares
in a public company, Marine Insurance Contracts, Bills of Sale, Acknowledgments
of debts which have been barred by the Limitation Laws.
Contracts which must be evidenced in writing:

There are other types of contracts, which though not required by law to be in
writing must be evidenced in writing. Such contracts are not enforceable unless
there is written evidence of their terms. These include contracts for the sale or
other disposition of land or of interests in land and contracts of guarantee. The
provision in respect of these contracts particularly for guarantees are found in the
Statute of Fraud 1677 (a Statute of General Application still applicable in certain
parts of Nigeria) and by S.4 of the Law Reform (Contracts) Law applicable in
other parts of Nigeria particularly those comprising the old Western Region of
Nigeria. The applicable statute for contracts about land in the States comprising the
old Western Region is the Property and Conveyancing Law. Such written evidence
must acknowledge the existence of the contract, it must contain all the material
terms, and it must have been signed by at least the person to be held liable on it.
4.1.2 Contents (or Terms) of a Contract

In law, parties are to make their contracts. The Courts will not make the contracts
but will only interpret them as discernible from what the parties have put in their
contracts i.e. what are the terms of the contract. The terms of a contract may be
express or implied. They are express when the parties state clearly what they want
in their contract, and are otherwise implied when, though not expressly stated, but
are read into the contract to give business efficacy to it.
BUSINESS LAW 42
Terms of a contract may be implied in the following instances:
(1) Where a contract relates to a particular trade, the Courts may imply the trade
custom or usage in the agreement unless it is repugnant or inconsistent with
the express terms of the agreement.
(2) Sometimes, terms are also implied into contracts by statute. Under the Sale of
Goods Act 1893, a number of terms are implied in contracts of sale of goods
with regard to title, description and quality of the goods.
(3) Also the Courts, at times, imply some terms into contract to give business
efficacy to the contract.
It is still, however, pertinent to distinguish between those statements which are
terms of the contract and those which are not. A seller, hoping to sell goods may
make some statements during negotiations and the courts are to determine the
precise nature and legal effects of such statements, if they are untrue. The test of
deciding the nature of the statement is the intention of the parties which can be
gathered from the conduct of the parties, their words and behaviour and the totality
of the circumstances.
All these help in determining whether a statement is:

(1) a mere puff:- The praising of goods by traders in glowing terms is a
universal fact of commercial life and the lifeblood of the advertising
industry. Phrases like, Super Value for money the most popular car in
Nigeria are commonplace. This is typical sales pattern or pitch; such
praise in general, is not intended to give rise to legal liability and it does not
do so - simplex commendatio non obligatio (i.e. simple commendations
create no legal obligation - because the prospective seller is not regarded in
law as making a positive representation as to the existence of a fact.
(2) (mis) representations: It is not everything which is said when a contract is

being agreed upon which goes into the contract. There are some statements
which induce the contract and yet are not part of it. These are
representations. Everything that goes into the contract is a term of the
BUSINESS LAW 43
contract. A representation is accordingly a statement made before the
making of the contract. It is essentially half way between a mere puff and a
contractual term. This distinction between representations and terms is
important because if a party fails to do something he said he would, or if
the goods involved are not what he said they are, can the other party sue for
breach of contract? It is useless to do so if the statement complained of is
not part of the contract but only a representation, and the appropriate action
would then be to sue for misrepresentation where the only remedy available
for misrepresentation was the equitable remedy of rescission with no right
to damages unless there is fraud. And in some cases, the injured party may
find himself with no remedy at all, where the injured party has affirmed the
contract or where third parties have acquired rights over the subject matter
of the contract. It will also not avail the injured party where he is guilty of
unreasonable delay. Thus, it was so often vital for the injured party to prove
that the statement was much more than a misrepresentation, i.e. it was
necessary to show that it was a term of the contract. How does one
distinguish between a term and a presentation? It is not easy to answer such
question without difficulty. It is however important to note that, if anything
reduces the importance of a statement made, such statement may end up as
a representation, whereas if it was and still remained of importance then it
will be a term.
It is also important to remember in distinguishing between a term and a

representation that:-
(a) The conclusion of a written contract containing no reference to the
statement is some evidence that it is only a representation and not a
contractual term.
(b) A person with no direct personal knowledge, who merely passes on a
statement, will not normally be taken to warrant its accuracy -
(c) If the parties are on equal bargaining footing, the courts may again be
reluctant to find a contractual term.
BUSINESS LAW 44
(3) Contractual Terms: - As stated earlier, everything that goes into a contract
is a contractual term. The terms, however, are not all of equal importance.
A very important term in a contract is called a condition. A term of lesser
importance is called a warranty. For a breach of condition, the buyer can
cancel the contract. For a breach of warranty, he cannot. He does not have
to put up with it. He can have damages. For any breach, he is entitled to
damages, but he cannot cancel the contract for just a minor breach.
The reason for distinguishing terms from one another is mainly connected with the
right of cancellation for breach of condition. The courts are often concerned about
whether the right to cancel exists. A particular term in a contract may be a
condition because it is said to be so by a statute or by the common law.
Thus the actual terms of the contract may be condition or warranties.

A Condition: is thus, an undertaking that a certain state of affairs exists or will
exist or a promise that a certain thing shall or shall not be done, the fulfilment of
which undertaking is very fundamental to the contract. A condition is an essential
term which goes to the root of the contract, the breach of which entitles the party to
revoke the contract.
A Warranty: on the other hand, is an agreement with reference to the goods,
which are the subject of a contract but is not the main purpose of the contract. Its
breach, gives rise to a claim for damages only but not a right to reject the goods or
treat the contract as repudiated.
(a) Exclusion and Limiting Terms: are terms used by parties in limiting or
excluding their obligations otherwise attached to such undertakings. They
are mostly found in the so called standard form contracts i.e. contracts
where terms are contained in printed form and are used for all contracts of
the same kind and are basically found in contracts for laundry, dry cleaning
services, hotel accommodation, journeys by land, rail, air or sea. They
exempt the supplier from his contractual liability; their purpose is to
BUSINESS LAW 45
deprive the consumer of compensation due to him for loss or injury arising
from the contract. The courts do not like exemption clauses because they
go against the spirit and intent of a contract. They enforce them but only if
the party for whose benefit it was made can satisfy them about the
following.
(1) That it was a term of the Contract: There are two ways by which an
exclusion clause can enter a contract and become a term of the
contract and these are:
(a) By Signature: The law takes a serious view of signatures on
document. The general rule is that a man is bound by what he
signs whether or not he has read it, and if he has read it whether
or not he understands it. Lestrange Vs. Graucob1 (1934)
(b) By Notice: The need here arises, where the clause is not on a
document to be signed but in some other form such as a poster or
sign on a wall or a ticket. Such notice given must be effective
notice e.g. as in the ticket case, was the ticket a contractual
document or just a ticket? Was it folded? Also, it must be given
pre-contractually i.e. before the contract is formed. The crucial
issue always is that whatever the circumstances, the other party
must have an opportunity to see it so that he knows it is a term
of the contract. See Chapelton Vs. Barry U.D.C.2 (1940) Olley
Vs. Marlborough Court3 (1949). Thornton Vs. Shoe Lane
Parking4 (1971).
It is also important to note that a notice of a clause is effectively given if
both parties are in the same trade and such clauses are widely known and in
common use in that trade.
(2) That it covered the damage complained of by the plaintiff. Baldry Vs.
Marshall (1925)5. It does not suffice for the party who is relying on the
exclusion clause to prove that it was part of the contract to have it upheld
BUSINESS LAW 46
by the Courts, he must go further to establish that the exclusion clause
covers the damage complained of by the Plaintiff, otherwise it will be
unavailable to him as a defence.
4.2 VITIATING ELEMENTS OF CONTRACT

The parties to a contract must have agreed to the terms of their contract. It must
indeed be very clear that they have agreed freely, without some form of
compulsion or some other defect which may make the apparently valid contract
defective. Where there is such an element which may spoil or make such contract
defective, such an element is known as a vitiating element. The vitiating elements
we shall consider are mistake, misrepresentation, duress, undue influence and
illegality. The nature of the vitiating element determines the kind of defect the
contract may have, the contract may not be enforceable at all, it may be
enforceable in certain ways or manners, or there may be no contract at all. It is thus
apposite to explain the nature of the defects first to better appreciate the effect of
the vitiating elements before considering the elements themselves.
Unenforceable Contracts: These are contracts where the contract truly exists but
neither party can sue the other. Examples abound from our earlier consideration
of types of contracts which must be in writing or be evidenced in writing. Such
contracts, if entered into contrary to the requirements of the law are binding
between the parties, but neither party can sue for a breach in the absence of written
evidence. Goods or money which are passed under such a contract are validly
transferred and cannot be reclaimed, but the Courts will not give effect to the
contract if one of the parties fail to abide with the terms.
Voidable Contracts:
These types of contracts are generally recognisable in law and even given effect
which is however subject to certain conditions. The law allows one of the parties to
such contracts to withdraw from them if he wants to. These contracts include
contracts entered into by minors, or other contractual persons affected by lack
BUSINESS LAW 47
of capacity such as illiterates, drunks or insane persons. Contracts vitiated by
misrepresentation, undue influence and duress also come under these kind of
contracts.
Void Contracts:
These are contracts which have no legal effect. The parties have only attempted to
contract as the Courts will not give effect to their agreements at all. The effect of
mistake as a vitiating element is to make a contract void, i.e. destitute of all legal
rights. The distinction between void and voidable contracts is better appreciated
when third party rights are considered. Where a contract of a sale of goods is void,
the buyer does not become owner of the goods, so he cannot sell them to anyone
else, the original owner can recover them from whoever he sells them to. Whereas
if it was voidable, for example as one affected by duress, it is still a valid contract
until the aggrieved party decides to cancel it, thus if the buyer resells it before the
aggrieved party takes steps to cancel the contract, the third party who buys from
him will have a good title where he is not aware of his seller's (i.e. the original
buyer) defective title.
4.2.1 Mistake: The general rule is that mistake does not affect a contract. If a man
makes a mistake as to the value or the type of things he buys, it is his ill luck, as
there is no remedy for him unless the other party has given him a wrong
impression. Likewise, mistake of law never affects the validity of a contract since
ignorance of the law never avails a party, otherwise every party will plead that he
was mistaken as to the law. However, in some circumstances, mistake of fact may
affect a contract, and if sufficiently serious may spoil the contact, render it void.
Let us now examine such instances where a mistake of fact may vitiate a contract.
Mistake could also be common mistake i.e. when the mistake is made by both
parties. Here the parties are labouring under the same mistake. They are simply
both wrong. An example of this arises when both of them make a mistake as to the
BUSINESS LAW 48
existence of the subject matter, which is considered hereunder. The subject matter
has been destroyed last night in a distant warehouse unknown to both parties.
A mutual mistake could also arise as when the parties misunderstand each other
and thus work at cross purposes. Ben may have three BMW cars of the same
model, Danie may want to buy the blue model while Ben intends to sell the white
one, this is an example of a mutual mistake and it is also further explained in
relation to the subject matter later on.
A unilateral mistake occurs where only one party is mistaken, for example as to the
identity of the other party he is contracting with or as to the nature of documents he
is signing.
(a) Mistake as to the nature of the instrument i.e. as to signed documents.
This mistake rarely avails a party, for any party to successfully raise it,
however he must show that:
(i) the document signed was radically different from the one he thought
he signed.
(ii) the signing had not been done negligently (carelessly)
(iii) had the true contents of the documents been made known to him he
would not have signed.
See Foster Vs. McKinnon (1869)6 Here the Defendant, an old man with failing
eyesight was induced to sign a document which he thought was a guarantee,
whereas he was indorsing a bill of exchange for 3000 pounds for which he would
be personally liable. He was able to succeed because he satisfied the Court as to
the three elements above particularly that he was not negligent.
This plea is also known as Non est factum (i.e. It is not my deed.)
(b) Mistake by one party as to the identity of the other party. It is a vitiating
factor if identity is a material factor. In case of ordinary shopping, it is not a
vitiating factor, as you intend to contract with the person in front of you.
The test is, did the mistaken party intend to contract with one person and
with him only? It makes no difference that the contracting parties met face
BUSINESS LAW 49
to face. The pertinent question is did the mistaken party intend to
contract with the person in front of him irrespective of his identity? If this
is so, he cannot successfully plead mistake. However if he wants to contract
with A, and he believes that B who he is contracting with is A, he may be
able to successfully plead mistake. See LewisVs. Averay (1972) 7. Herein
the Plaintiff sold and parted with his car to a person (C) who pretended to
be Richard Greene, the actor. C paid by a cheque which was not honoured,
and then sold the car to Averay. The Court held that the contract between
Lewis and C was not vitiated by mistake as Lewis could not prove that he
wanted only to sell to Richard Greene and to nobody else. See CundyVs.
Lindsay (1878)8 Phillips Vs .Brooks (1919)9.
(c) Mistake as to Subject Matter.

(i) i.e. mistake as to identity. Raffless Vs. Wichelhaus (1864)10 A
cargo of cotton was described as being on a ship, the SS Peerless
from Bombay. Another ship also sailing from Bombay had the
same name with 3 months interval between them. The buyer
assumed the seller would put the cargo on the first ship, whereas the
seller intended to put it on the second. The Court held that the
contract was vitiated by the mutual mistake of the parties.; or
(ii) as to existence Corturier Vs Hastie(1856)11 This contract
concerned a cargo of wheat which unknown to seller and buyer
had been sold by the captain of the ship even before they contracted.
The Court held that the contract was vitiated by the common
mistake of both parties.
Equity's attitude to mistake:

Where a mistake is operative at common law, the contract is void,
otherwise it binds both parties and this can be punitive on the parties.
Equity, however, assists where common law is unjust. It could admit that
the contract is not void but valid (because the mistake is inoperative) but
BUSINESS LAW 50
take it apart, in order to be fair to both parties and this is called Rescission
on Terms.
Also, equity could alter a written contract made pursuant to an oral one
where it does not represent the intention of the parties and it is a mistake of
expression only since at common law parties were bound by what they had
written. Equity allows the document to be altered to represent what was
agreed. i.e. Rectification.
4.2.2 Misrepresentation: This is a false statement of fact (not law) made by one party
which induces the other (innocent) party into making a contract. The Statement
must have been intended to be acted upon and must have actually induced the other
party to make the contract. For it to avail a party he must show that:
(a) the statement is a statement of fact as opposed to an expression of an

opinion e.g. doctors have recommended that this product is good as
opposed to this is the best caviar in the World. The first is a statement of
fact which may induce a party to buy a particular drug which if it turns out
was not what it is stated to do may amount to a misrepresentation. The
second statement is only an expression of opinion by the Seller as to his
wares and does not amount to a representation where it turns out to be false.
It is important to note that there are instances where even silence could
amount to a misrepresentation as where a party has a positive duty to speak
and nothing is said as may arise in the following instances:
(i) Contracts uberrimae fidei (or of the utmost good faith i.e. contracts
where one party alone has full knowledge of the material facts and
the law imposes on him a duty to disclose)
(ii) Fiduciary Relationships e.g. Solicitor and Client, Doctor and Patient etc.
(iii) Changed circumstances etc.
(iv) Where a past truth amounts to a falsehood.
BUSINESS LAW 51
(b) The statement must also induce the contract i.e. one party must have been
taken seriously by the other party so that he relied on it and not upon his
own judgment. It is immaterial whether the means of verifying a statement
was made available to him. Redgrave Vs. Hurd (1881)12.
Remedies available to an innocent party: This depends on the type of
misrepresentation which could be either innocent or fraudulent. Fraudulent
Misrepresentation: arises where any statement is made fraudulently i.e.
deliberately or without belief in its truth or being careless whether it is true,
or false.
Remedies
(i) The innocent party can sue for damages in tort for deceit.
(ii) He can affirm the contract and go on with it.
(iii) He can disaffirm the contract and refuse further performance and
under here he may either:
(a) take no legal action and plead fraud as a defence and sue for
damages.
(b) bring an action for rescission of the contract.
Innocent Misrepresentation: any statement made with an honest belief in its truth is
innocent.
Remedies:
(i) He may affirm the contract and treat it as binding.
(ii) He may claim for rescission in the Courts.
It is important to note however that there is no general right to damages. It should

also be noted that rescission means taking the contract apart and it is usually
accompanied by an order for restitution i.e. each party will have his property
returned but since it is an equitable right it may be lost as where an innocent third
party has acquired title to goods under the contracts, as the effect of
misrepresentation is that the contract is only voidable. Also where restitution is
impossible the right to sue for rescission is lost.
BUSINESS LAW 52
4.2.3 Duress: is pressure brought to bear upon one of the contracting parties to induce
him to enter into the contract. It consists in the actual or threatened personal
violence, imprisonment or restraint of personal liberty either to him, wife, child
or parent. It has been held in decided cases that threat to goods are not enough
See Cummings Vs. Ince (1887).13 It should also be noted that the effect of
misrepresentation is to render the contract voidable and not void.
4.2.4 Undue Influence: Undue Influence is the use of any influence by which the
exercise of free will and deliberate judgment is excluded i.e. it relies upon the
wrongful use of influence that one party may have over the other although
influence by itself is not unlawful. It may arise anyhow but the substance is that the
parties to a contract are not on equal footing. It is for the party benefiting from the
contract to show that the other party contracted freely using his own free will or
had other independent advice. The actual relations may show that one has exerted
overbearing influence on the other e.g. Parent & Child, Lawyer & Client, Doctor &
Patient, Spiritual Advisor & Devotee, Accountant & Client, Trustee & Beneficiary
and other fiduciary relationships. The effect is to allow the weaker party rescind
the contract promptly after the withdrawal of the overbearing influence; otherwise
it will be termed as consent. It also renders a contract voidable and not void. See
Williams Vs. Bayley (1866)14 A father gave security for his son's debts because
of the lender's threat to prosecute his son. The Courts held this contract to be
vitiated by undue influence.
4.2.5 Illegality: A contract which is illegal is absolutely void. It may be illegal because
it is forbidden by law, or because the Courts will not enforce it because of the
overriding consideration of public policy. Thus, some contracts are prohibited by
statute, some are prohibited at common law. These are properly called illegal
contracts. Some contracts are not completely prohibited, but they are denied full
validity, either by statute or at common law. These, we call Void Contracts.
BUSINESS LAW 53
(1) Illegal Contracts: There are two kinds of these contracts.
(a) Contracts prohibited by statute: By the old Exchange Control Act of
1962 the buying and selling of gold by unauthorised persons was
prohibited.
(b) Contracts prohibited at common law: These set of contracts are
basically prohibited under the concept called Public policy.
Although no new categories are created there are however seven
settled categories:
(i) Contracts to commit a crime, tort or fraud e.g. Beresford

Vs. Royal Insurance Co. Ltd.15 R shot himself a few
minutes before his life insurance policy expired. The court
held that it is against public policy to allow a man benefit his
estate by committing a crime; hence, the sum assured was
not recoverable. Likewise in Allen Vs Rescous (1676) the
Plaintiff paid the Defendant 20 shillings to assault and evict
another person, which the defendant failed to do. The Court
held that the Plaintiff could not recover his money.
Contracts involving maintenance or champerty fall into this
class i.e. contracts whereby a person promises to support
another improperly in bringing an action at law.
(ii) Contracts prejudicial to the safety of the country (e.g.
trading with the enemy in wartime).
(iii) Contracts prejudicial to the Country's foreign relations e.g.
to trade with South Africa during the apartheid regime
would be contrary to Nigeria's foreign policy.
(iv) Contracts prejudicial to the administration of justice. A
Contract not to prosecute, or to compromise criminal
proceedings is illegal unless the proceedings could have
been initiated in civil law for torts. In addition, a contract
where an accused person indemnifies a person who has got
bail for him is illegal.
BUSINESS LAW 54
(v) Contracts prejudicial to honesty in public life (e.g. trying to
buy or bribe merit awards). Parkinson Vs. College of
Ambulance (1925)17. Parkinson gave the Secretary of a
charitable organization $3000 on the understanding that
he would secure a knighthood for him. The title was not
forth coming and he sought to recover his money. It was
held that the agreement was illegal, and Parkinson could not
recover.
(vi) Contracts designed to defraud the revenue. In Miller Vs
Karlinski, (1945)18 an agreement between employer and
employees to hide part of their salary as expenses in order to
avoid paying tax was held illegal, thus the employee could
not reclaim salary arrears from the employer.
(vii) Contracts to promote sexual immorality. Alake Vs.
Oderinlo (1975)19. The Defendant, a woman who was
married under customary law, promised to marry the
Plaintiff and received N100 from him to enable her divorce
her husband. It was held that since the agreement tended to
break up the existing marriage and encourage immorality it
was void. Likewise in Pearce Vs. Brooks (1866)20. A
prostitute made a form of hire purchase contract for a
carriage to assist her in her trade. The seller knew what she
wanted it for. Held: He could not enforce the contract
against her.
Consequences of illegality: The general rule is that no action can be

brought by a party to an illegal contract, i.e. ex turpi causa non oritur actio.
Thus:
(i) No action will lie, for the recovery of the money paid or property
transferred under an illegal contract as in Parkinson's case above.
BUSINESS LAW 55
(ii) No action will lie for a breach of an illegal contract. Pearce Vs.
Brooks 21, Beresford Vs. Royal Insurance Co. Ltd22, Allen Vs
Rescous 23.
(iii) Where part of an illegal contract would have been lawful by itself,
the court will not sever the good from the bad.
(iv) Any contract which is collateral to the illegal contract is also tainted
with illegality and is treated as being illegal even though it would
have been lawful by itself.
There are, however, exceptions to this general rule of non recovery: A

party to an illegal contract may sue to recover money paid or property
transferred as follows:-
(a) Where the parties are not in pari delicto i.e. are equally at fault.
Where a party is innocent of the illegality as may be where he does
not know the purpose for which the other party is entering the
contract, as where the owner of the coach in the Pearce Vs Brooks
24 case could have recovered where he did not know the purpose
for which he was hired by the defendant.
(b) Where a substantial part of the illegal act has not been performed, a
truly repentant party may recover.
(c) Where it is possible to sue without relying on the contract itself. i.e.
suing in tort for conversion.
(2) Void Contracts: A contract, which is void, does not give rise to rights and
obligations, but the full consequences of illegality are not present.
(a) Contracts declared void by statute: A good example is wagering
contracts. The attitude of the legislature to these contracts can be
seen in the Gaming Act 1845 Section 18 All contracts or
agreements, whether by parol or in writing, by way of gaming or
wagering shall be null and void; and no suit shall be brought or
maintained in any court of law and equity for recovering any sum of
BUSINESS LAW 56
money or valuable thing alleged to be won upon any wager or
which shall have been deposited in the hands of any person to bid
the event to which any wager shall have been made. i.e. that the
loser cannot be made to pay and a stakeholder cannot be forced to
handover money left with him. The Act also prevents agents
recovering money or commission paid out or earned by them on
behalf of a principal.
(b) Contracts void at common law:

(i) Contracts to oust the jurisdiction of the courts. If an
agreement seeks to prevent access to court, the agreement is
void to that extent. If however, access is not prevented but
only made subject to an arbitration procedure first, this will
usually be permitted, but the courts will not allow
themselves to be excluded altogether.
(i) Contracts prejudicial to the sanctity of marriage: Which
includes agreements restraining the liberty to marry or to
procure a marriage for a fee, encouraging immorality or
infidelity in an existing marriage and promising marriage
after a future separation. They are all against public policy
and therefore void.
(iii) Contracts impeding parental duties: A contract by which a
party deprives himself of the custody of his child is void.
However a court order to the same effect is binding.
(iv) Contracts in restraint of trade: The common law by tradition
declares all contracts in restraint of trade as being contrary
to public policy. This tradition protects the right to trade
freely with goods, money and labour. Any restriction or
limitation is prima facie void. It is a contract in restraint
of trade. However, if the restrictions are regarded as being
reasonable then it may be upheld inspite of being void.
BUSINESS LAW 57
Thus, obviously, if the restraint is unreasonable, the contract
or at least the offending part of it remains void. In assessing
reasonableness there, the courts study the equality of the
bargaining power between the parties, the extent of the
interest being restricted and the extent of possible injury to
the public interest.
These restraint clauses appear in 3 main kinds of contract:

(a) Contract between the seller of a business and the buyer where the buyer
will seek to prevent the seller from setting up a business again, nearby, that
will compete with the business he bought from him (or else he might be
able to woo back all his old customers). Nordenfelt Vs. Maxim
Nordenfelt 25
(b) Contracts between employers and their employees in order to prevent their
servants working for competitors and taking trade secrets to them, or
setting up business to compete with his employer and otherwise acting to
the employer's disadvantage generally. The issues of the duration of the
restraint and the area to be affected in terms of distance are relevant and
material, but more important is the nature of work the employee concerned
was doing. For example if he was a chemist who knows the secret formula
responsible for the large sales of the company's beverage, the court may
uphold a restraint which prevents him from taking such to a rival company,
however if he was an accounting technician the courts may be unwilling to
uphold such restraint except where it would be prejudicial to the financial
well being of the company as during the times of mergers, amalgamations
e.t.c. See Pearce Vs. Cullen (1912)26 where the Courts held a covenant
restraining a grocery store counter-hand from working for competing firms
within a radius of 2 miles of any of the employer's shops for a year as an
unreasonable restraint.
(c) Solus ties - A garage, a public house, or a food canteen will agree that, in
return for financial advantages of one kind or another, it will sell only the
BUSINESS LAW 58
product of one Petrol Company or brewery, or soft drinks or beverage
company tied to it.
These agreements are in restraint of trade and thus, prima facie void.
However, the Courts are generally not willing to allow them, provided they
are reasonable. Esso Petroleum Vs. Harper's Garage (1968)27 The
Defendant owned 2 garages. In return for lower prices for petroleum
supplied and also for mortgage facilities, they were both tied to the
company. One tie was for 4 years 5 months, the other was for 21 years. The
former was held to be reasonable and the latter unreasonable.
Consequences of void contract: Generally, only the part that offends
against the various rules is affected. This is severed from the rest of the
contract. What remains is then enforced.
4.2.6 TERMINATION OR DISCHARGE OF CONTRACT

A contract is discharged when the obligation created by it ceases to be binding on
the promisor who is no longer under a duty to perform his side of it. The
implication of discharge is that the parties are released and freed from their mutual
obligations. This may arise in the following ways:-
Express agreement
Performance
Breach
Frustration, or
Death
(1) Agreement: Since contracts come into being by agreements, they can also
come to an end where the parties bound by it, agree to end the contract. For the
discharge to be operative, this agreement to terminate must be supported by
consideration. Where neither party has performed there is a full release
as consideration is easily furnished by their agreement to be released from their
obligations under the contract. This is known as waiver. But where a party has
already performed his obligation under the contract, the other party has to
provide some fresh consideration. This kind of discharge is known as accord
BUSINESS LAW 59
and satisfaction, i.e. apart from the agreement of the parties (accord), the party
to be released from his original obligation is providing some consideration for
the other party (satisfaction). An agreement to terminate a contract may also
take the form of replacing the old contract with a new one and which may be
made between the same parties with fresh terms or made by one of the old
parties with a third party, and this is known as novation.
On the other hand, the parties, by the contract itself, may have provided for the
circumstances under which the contract will be discharged (i.e. come to an
end). This could be on the occurrence of a certain event, or on the expiration of
a specified period of time mutually agreed, or at the option of one or other of
the parties, or on the fulfilment of a condition precedent.
(2) Performance: Where the parties have done that which they contracted to do
the contract becomes discharged by performance. However, if performance is
to be an absolute discharge of a contract nothing must remain to be done there
under by either party i.e. they must have fulfilled both their promises. Cutter
v. Powell (1795)
(3) Breach: A breach occurs where one party fails to do that which he has
promised under the contract, either wholly or partly. Such failure destroys the
contract. Truly speaking, a breach does not discharge a contract but the injured
party may rescind the contract and sue for damages. It also relieves him from
further obligations under the contract. Every breach of a contract entitles the
injured party to claim damages. It is not every breach however, that entitles the
injured party to rescind the contract and say he is no longer going on with it.
He can only treat the contract as discharged where the breach is total as
where it affects a vital part of the contract that makes the contract incapable
of performance. It is also total where it is discernible that the party guilty of the
breach has no intention to go on with the contract. It is important to also note
that where the party guilty of the breach has informed the injured party before
he is to perform his own part of the contract that he does not so intend, such
BUSINESS LAW 60
will be known as anticipatory breach. Here the injured party can either sue
on the breach immediately or wait until the due date, but if he must wait he
must continue to perform his own side of the contract.
Generally, a party to a contract may commit a breach of contract in the
following ways:
(a) by repudiating his liability under the contract before the time for
performance is due (i.e. anticipatory breach)
(b) by failing to fulfil his obligations when purporting to perform the
contract.
(c) by his self incapacitating act of performance of the contract
Remedies for Breach of Contract

(a) A right of action for damages in respect of the breach of the contract or
some term of it. An innocent party has the right to get damages for the
losses occasioned him from the breach.
(b) A right of action on quantum meruit i.e. a right to sue in respect of what he
had already done before the breach occurred. This remedy avails a party
when one party abandons or refuses to perform the contract, when work has
been done and accepted under a void contract and when there is no
provision for remuneration. Thus in the event of a breach of contract, the
injured party may not claim damages, but claim payment for that he has
done under the contract. His right to payment is not based on the original
contract, but on an implied promise by the other party arising from the
acceptance of an executed consideration.
(c) A decree of specific performance compelling the other party to carry out
his obligations. This is an equity based remedy. Thus, it is based on the
discretion of the Court and cannot be insisted upon by the party. A party
is not entitled to specific performance
where damages would be adequate;
in contracts for personal services;
where it cannot be awarded to the other party (e.g. a minor)
BUSINESS LAW 61
where the court cannot supervise the execution of the contract, e.g.
a building contract ;or
in contracts to lend money.
(d) An injunction restraining him from violating them. An injunction like
specific performance is also a discretionary remedy and is not available to
a party where damages would be adequate compensation. It is generally
given to prevent a party from acting in breach of a contract.
(e) Rescission. The effect of this remedy is to put the parties where they were
before they entered the contract.
(f) Rectification. This equitable remedy allows the parties to rectify their
documents in order to give effect to the true intent of their contract. To
obtain rectification it must however be proved that:
there was complete agreement between the parties on all important
terms;
the agreement continued unchanged until it was reduced into writing;
and
the writing did not express what the parties had already agreed.
(g) Action to account for profits from breach. In exceptional circumstances, the
court may allow an injured party to get an account of the profits which may
have accrued from that breach to the party in breach. A-G v. Blake (2001).
The equitable remedy is available and allowed only where remedies of
damages, specific performance and injunction would be inadequate remedy.
(h) Action for price or some other sum. This is appropriate where property has
passed, and the breach consists of a party`s failure to pay the agreed price,
remuneration or debt due under the contract.
(4) Death: Ordinarily, the death of a party to a contract will not operate to
vitiate the contract. However, a contract may be discharged upon the death
of one of the parties where the contract is for personal service, and he dies
before the personal service could be performed.
(5) Frustration: Occurs when a contract has become incapable of performance.
It generally, does not discharge a contract and the defaulting party is liable
BUSINESS LAW 62
in damages inspite of the fact that his inability to perform is due to
circumstances beyond his control.
However it will discharge a contract:-
(a) Where the impossibility is caused by a change in the law or
supervening circumstance. For example, where A agrees to import
an item for sale to B and Government bans the importation of such
an item, such contract of sale becomes discharged by frustration.
(b) Where the accidental destruction of a specific thing upon which the
contract depends renders performance impossible Taylor Vs.
Caldwell (1863)28. A, hired a music hall from B, and an accidental
fire destroyed the hall. It was held that the contract was discharged.
(c) Where the contract depends upon the happening of a specific event
which does not occur. Krell Vs. Henry (1903)29 The Defendant
hired a room to view a coronation procession that will pass along
there, but the procession was however cancelled. It was decided by
the Court that the contract had become discharged upon the
procession being called off.
(d) Where, through vital change of circumstances, the contract as a
commercial venture is frustrated-war. For example a carrier who
has agreed to haul goods through a shorter route may be availed by
frustration where such route is destroyed and he has to go through a
longer and costlier route such that the contract is no longer
commercially viable.
(e) The death of either party to a personal contract terminates it
generally. Likewise bankruptcy or illness which goes to the root of
the contract will also terminate the contract.
The effect of frustration on a contract is to automatically bring the contract to an

end and render it void, thus all sums paid before the discharge by frustration in
respect of the contract could be recovered while those sums not yet paid need not
be paid. In the old Western Region of Nigeria, this general rule was rested in its
BUSINESS LAW 63
Contracts Law, but with two exceptions, which now forms part of the laws of the
States who are heirs to the laws made by the Region in 1958/59 (i.e. the states of
Ogun, Oyo, Osun, Ekiti, Ondo, Edo and Delta) An example of such applicable
provisions are found in the Contracts Law of Ogun State, Cap. 25, Vol I, Laws of
Ogun State 1978. The whole of Part 3 containing Sections 6 - 12 deal with
frustrated contracts.
The relevant Sections show the following:
1. All sums paid to any party in pursuance of the contract before it is
discharged are in principle, recoverable. Sums payable but yet to be paid,
cease to be payable.
2. Where one party has, by reason of anything done by the other party to the
contract, obtained a valuable benefit (other than the payment of money)
that other party may recover from him such sum as the Court considers
just.
Payments under contracts of insurance are to be discountenanced when
considering sums due for retention or recovery in the instances mentioned
above.
The Law also allows severance of a wholly performed contract from

frustrated contracts if severance is possible and the law shall only apply to
the part affected by frustration.
It should be noted however that the Law does not apply to the following:
a. Contracts containing a provision to meet the case of frustration.
b. Contracts for the sale of specific goods, which have perished before
the risk has passed to the buyer, and any contract of sale where the
contract is frustrated because of the fact that the goods have
perished.
3. Where the frustrating event was brought about by his own fault or
deliberate conduct, that party cannot rely on the doctrine of frustration.
Maritime National Fish Ltd v. Ocean Trawlers Ltd.(1935)
BUSINESS LAW 64
4.3 SUMMARY & CONCLUSIONS
This chapter dealt extensively with the law of contract, highlighting the different
forms of contract, terms of a contract, differentiating between a mere puff,
misrepresentations and contractual terms. Furthermore, it discusses the vitiating
elements of contract, pointing out the effects of mistake, misrepresentation, duress,
and undue influence on a contract and then distinguishes between void and
voidable contracts.
Further study of the chapter would reveal the different types of illegal contracts,
and the consequences of illegality in a contract, as well as different types of void
contracts and the consequences of void contracts. Lastly, there is a detailed
explanation of termination or discharge of contract, showing the different means of
discharging a contract, the remedies for the breach of contract and frustration of
contract.
Remember that a contract is basically on agreement between the parties, which is
binding on them and would be enforced by the Courts, as long as it is not illegal or
void, or contain any vitiating elements.

1. State four instances when a contract may be discharged by frustration.
2. List four relationships under Contract where undue influence is presumed.
3. Dinah left her travelling bag at the baggage room of a cinema, since people
were not allowed to carry luggage into the cinema. When she paid the fee
she was handed a ticket which she did not read. She pushed it into her
pocket. After the show she went to collect her bag. It could not be found.
She threatened to sue the proprietors, but then the manager referred her to a
notice on the shelf where luggage is kept in the baggage room and on the
ticket which claimed that the proprietors were excluded from liability.
Dinah now asks for your advice. She says she did not see either notice.
4. State, the instances (if any), when a party to an illegal contract may sue to
recover money paid or property transferred under such contract.
5. State three ways by which a contract may be terminated or discharged.
6. In June Denise gave an oral promise to XYZ Bank Plc that she would
guarantee Frank's overdraft. In August, Frank defaulted and the bank asked
Denise to discharge her liability as she had promised. Denise replied in
BUSINESS LAW 65
writing, admitting that she had given the guarantee but claimed that the
guarantee was defective and is not binding on her. Is her claim correct?
7. State three instances when terms will be implied into a contract in addition
to those expressly stated by the parties.
1. Contract under seal must contain the following EXCEPT ONE
A. Deeds
B. Specialty
C. Contract
D. Covenant
E. Execution
2. For a simple contract to be enforceable there must be.
A. Promisor
B. Promisee
C. Consideration
D. Offeree
E. Seal
3. The only remedy available for misrepresentation in contract is.
A. Equitable remedy of rescission

B. Derivative action
C. Representative action
D. Action for breach of warranty
E. Action for breach of condition
4. Vitiating elements of contract include the following EXCEPT ONE
A. Mistake
B. Misrepresentation
C. Duress
D. Solicited influence from friends
E. Illegality
5. Remedies available to an innocent party in fraudulent misrepresentation
include the following EXCEPT ONE.
A. The innocent party can sue for damages in tort for deceit.
B. He can affirm the contract and go on with it.
C. He can disclaim the contract and refuse further performance
D. Bring an action for rescission of the contract.
BUSINESS LAW 66
E. He can invite the other party to his office for a chart.
1. The contracts required by Law to be under seal are

2. Explain briefly the term Bill of Exchange.
3. The Latin word commendatio non obligio means.
4. What is a puff?
5. Explain the term warranty.
BUSINESS LAW 67
CHAPTER FIVE
AGENCY

At the end of this chapter, readers should be able to:
explain what is meant by agency
identify types of agency
explain consent as basis of agency and distinguish between express and
implied consent.
explain generally what is meant by agency due to operation of law
discuss agency of necessity and agency of cohabitation
describe ratification
describe the rights of the principal and that of the agent
distinguish between the obligations on the principal and the agent
discuss the modes of termination of agency
5.1 INTRODUCTION
It is not always that we can do by ourselves all the things we want to do. In many
instances, we may ask other people to do them on our behalf. Anytime we ask
somebody to do something for us which will create a legal relationship between us
and third parties, we create an agency relationship. We are the principals and the
persons we ask to act on our behalf are the agents. As already indicated the agents
are able to create a contractual relationship between the principal and third parties..
The ways of creating agency are varied and will be looked at. The rights and
obligations of agency and the ways of terminating agency are also of great
importance.
5.2 DEFINITION AND TYPES

5.2.1 Definition of Agency
Agency is a relationship arising out of the use of one person by another for
the performance of certain tasks on his behalf. It is a situation where one
BUSINESS LAW 68
person called the agent has an authority or capacity to create legal relations
between a person called the principal and third parties. The relationship
exists between the two persons because one of them has expressly or
impliedly consented that the other should represent him or act on his behalf,
and the other has similarly consented to represent the former as directed.
Agency has been described as a triangular relationship. These are
Principal/Agent relationship, Agent/Third Party relationship and
Principal/Third Party relationship. The three features of agency are service,
representation and power to affect the legal position of the principal. An
agent can acquire rights for his principal and subject his principal to
liabilities.
5.2.2 Types of Agency

There are many ways of classifying agents. It may be based on the authority
granted the agent giving rise to general and special agents or agents specialised in
particular business, trade or profession giving rise to professional agents. There are
also commission agents who contract with third parties as principals in their own
right and del credere agents who for additional commission will guarantee payment
to the principal.
A general agent has the authority to do some acts in the ordinary course of his
business, trade or profession on behalf of his principal. Such an agent may act on
behalf of his principal in all matters. A special agent on the other hand has
authority to act for a particular occasion or purpose or a series of such occasions or
purposes.
Examples of professional agents are mercantile agents and solicitors. Mercantile

agents are agents who, in the customary course of business, have authority to sell
goods or to consign goods for the purpose of sale or to buy goods or to raise money
on the security of goods. The term covers factors, brokers, auctioneers and del
credere agents.
BUSINESS LAW 69
A factor is an agent entrusted with possession of goods or of the documents of title.
He normally sells in his own name without disclosing that of his principal. A
broker is a go between, a negotiator. He makes contracts for the purchase or sale
of property or goods of which he is not entrusted with the possession or documents
of title. An auctioneer is an agent who is employed to sell at a public auction. He
is an agent for both the seller and the buyer. He may not be entrusted with the
possession of the goods to be sold or the documents thereon.
As already indicated a del credere agent is an agent who usually for extra
remuneration undertakes to indemnify his employer against loss arising from the
failure of persons with whom he contracts to carry out their contracts. He is an
agent charging additional commission for risk. Other agents include Insurance
Agents or Brokers who negotiate and effect policies of insurance and Estate
Agents who arrange for the sale, acquisition or leasing of real estate.
5.3 CREATION OF AGENCY - CONSENT

Consent, operation of law or ratification are the ways by which agency may be
created. Consensual authority can be granted expressly by contract or may be
implied from a contractual relationship.
5.3.1 Express Agency

Under this agency, the principal expressly appoints the agent. Such an appointment
may be done orally, by writing under hand or by deed. The expectation is that both
the principal and the agent must be competent to act. Generally if the principal is
not competent he cannot cure it by acting through an agent who is competent. The
principle is that whatever a person has power to do himself he may do by means of
an agent, but what a person cannot do himself, he cannot do by means of an agent.
The requirement is that the purpose of the contract must be lawful and possible.
Agency may be created through a power of attorney. The power of attorney then is
BUSINESS LAW 70
the instrument which confers the agency and the production of a copy of it would
be conclusive evidence of the existence of such agency.
5.3.2 Implied Agency

This is agency that arises by implication. Parties are taken as having agreed or
consented to an agency relationship due to the way they have conducted
themselves towards each other. Implied agency may arise through usual,
customary and apparent or ostensible authority. Usual authority relates to the kind
of authority that an agent in a trade, business and profession or at his place of
employment is vested with to enable him discharge his commission. In terms of
customary authority, the agent must act impliedly according to the customs and
usages of the place, market or business. Such customary authority must either be
known to the principal or must be so notorious that the principal cannot deny
knowledge of it.
With apparent or ostensible authority, a person is allowed to appear as if he is the

principal's agent when in fact he is not. The principal has led other parties to
believe that a person has the authority to represent him. It may also be a situation
where the principal permits his agent to give the impression that he has more
authority than he actually possesses or where the principal allows his agent to
appear as an agent where actually the relationship has been a termination of that
relationship.
Apparent authority has been described as a form of estoppel. Even though no

principal-agent relationship actually exists in fact, the principal is prevented from
denying the existence of the agency relationship and is therefore bound by it. The
principal is said to hold out as his agent the person represented as having authority
to act on his behalf. Estoppel means that a person who has allowed another to
believe that a certain state of affairs exists, with the result that there is reliance
upon such belief cannot afterwards be heard to say that the true state was far
different, if to do so would involve the other person in suffering some kind of
BUSINESS LAW 71
detriment. To establish estoppel there must be a representation by words or
conduct that the agent has authority, the representation must be made by the
principal to the third party and the third party must have relied on the
misrepresentation thus entering into the contract.
In Buama v Oppong, [1992] 2 GLR 213 the defendant was the owner /driver of a
commercial vehicle. The plaintiff who paid a fare to travel on the vehicle could not
find his bag on reaching his destination. He had paid freight for the bag to a
bookman who took the bag from him and kept it in the boot of the vehicle. The
plaintiff sued for the value of the bag and the items in it, consequential loss and
damages. In his defence the defendant contended inter alia that the bookman was
not his agent. It was found that the bookman gave the money he had received as
freight from the plaintiff to the defendant and that even though the bookmen were
employees of the Ghana Private Road Transport Union they were the ones who
dealt with the passengers by collecting the fares and freight from them. The
defendant was vicariously liable for the loss of the plaintiff's bag by the bookman
because if a person is represented or permitted himself to be represented, that
representative had authority to act on his behalf, and he would be bound in the
same way as he would be if that other had in fact authority to act. Since the
defendant was present when the fee was charged and also clear that the defendant
had given authority to him, it was an apparent authority to the bookman to act on
his behalf. Accordingly, there was an agent and principal relationship between the
bookman and the driver. Again, in law, the usage of the trade or business in which
an agent was employed would in the absence of express direction frequently
determine the liability of the principal.
5.4 CREATION OF AGENCY 1I- OPERATION OF LAW

There is no prior agreement between the parties to create an agency relationship
and there is no representation to each other or others that one of them was acting as
an agent of the other. The law imposes the consequences of agency on their
actions. They may arise as agency of necessity or agency of co-habitation
BUSINESS LAW 72
5.4.1 Agency of Necessity
Under agency of necessity it becomes necessary for a person entrusted with
another's property to do something to preserve that property. In essence the need to
act on behalf of another is unforeseen but arises out of sudden danger to property
or some interest of the person on whose behalf the intervention is made. Although
the person who is entrusted with the property has no express authority to do the act
necessary to preserve it the authority is presumed because of the necessity. A
master of a ship's exercise of authority to safeguard a vessel or cargo in danger of
perishing is an example. There is the shipmaster's presumed authority to do what
is reasonably necessary taking into account the danger, distance, accommodation,
expense and such like factors. It is especially so, when it is impossible to
communicate with the owners to take instructions. He is expected to act in good
faith. Agency of necessity can arise as long as there exists a real emergency. The
three conditions which must be satisfied before an agency can be created by
necessity are: the impossibility of getting the principal's instructions, an actual and
definite commercial necessity for the creation of the agency and the agent of
necessity acting bona fide in the interest of the principal.
5.4.2 Agency of Cohabitation

At common law as long as a married couple lives together, it is presumed that the
wife has the husband's authority to pledge his credit for necessaries. The
requirements for such agency are cohabitation and domestic establishment. The
goods or services ordered must be necessaries suitable to the style in which the
couple customarily lives, otherwise the husband will not be liable to pay. The
presumption can be rebutted by the husband proving that he expressly forbade his
wife to pledge his credit or warned the supplier not to supply his wife with goods
on credit or the wife was sufficiently supplied with the same kind of goods, or
sufficient allowance or sufficient means for buying the goods was supplied to the
wife or that even though the order was for necessaries it was excessive and
extravagant in respect of the husband's income. This principle is of doubtful
application today in the light of the equality of the sexes.
BUSINESS LAW 73
5.5 CREATION OF AGENCY BY RATIFICATION
A person acts without authorisation but the person on whose behalf the act was
purported to have been carried out subsequently adopts the act. It is a retrospective
constitution of agency. What it means is that the agent in fact, has no authority to
do what he does at the time he does it and the principal on whose behalf and
without whose authority the agent has acted, subsequently accepts the agent's act
and adopts it just as if there had been a prior authorisation by the principal to do
exactly what the agent has done. It may be a situation where the agent has no
authority to contract on behalf of the principal or exceeds the authority he has. The
contract is not binding on the principal until ratification. A contract can be ratified
only under certain circumstances. These include the fact that the agent must
expressly have been contracted as an agent. The contract can only be ratified by the
principal who was named or can be ascertained when the contract was made. An
undisclosed principal cannot ratify a contract. The principal must have been in
existence at the time the agent entered into the contract. The principal must have
had legal capacity to enter into the contract at the time when it was made and at
the date of ratification. The principal must at the time of ratification have full
knowledge of all the material facts. The principal must adopt the whole contract.
The principal must ratify within the time set or within a reasonable time.
5.6 OBLIGATIONS OF AGENCY

Agency imposes rights and duties on both the agent and the Principal.
5.6.1 The duties of the agent
Among the many duties of the agent is the duty to obey all lawful instructions. An
agent must comply with his obligations under the contract or perform the
undertaking according to instructions. The agent is to exercise due diligence in the
performance of his duties. An agent is expected to exercise due or reasonable care
and skill in the course of any business on behalf of the principal. An agent in
addition has a duty to render account when required. The standard is that the agent
must keep his own money and property different from that of his principal. Acting
BUSINESS LAW 74
in good faith and not letting his interest conflict with his duty is another obligation
on the agent.
The agent has a duty not to make secret profit. He is not to make any profit beyond
the commission or other remuneration paid by his principal. The agent is therefore
accountable to his principal for any profit which he makes without the principal's
consent. The agent is not to delegate his authority. He is to carry out instructions
personally. The relationship between the principal and his agent is a personal and
confidential one. There are however exceptions to this principle. These may
include circumstances where the principal expressly consents or unforeseen
circumstances make it necessary to delegate or for purely administrative tasks. The
agent must not disclose confidential information or documents entrusted to him by
his principal. The agent as one of his duties of good faith must not act against the
principal's interest. Others are respect for the principal's title and the duty not to
take bribe.
5.6.2 The duties of the principal and the rights of both the agent and the principal.
The Principal has the duty to pay the agent for his service in terms of the
commission or other remuneration agreed. The principal is to indemnify the agent
for all acts lawfully done and liabilities legitimately incurred in the performance of
his service.
Generally the rights of the agent can be inferred from the duties of the principal
and vice versa. In that respect the rights of the agent include the claim for
remuneration for services provided, the claim for reimbursement for all expenses
and the claim for indemnity against all liabilities incurred in the performance of his
services. He can also exercise a lien over property owned by the principal in
respect of claims against the principal.
The remedies available to the Principal for the default of the agent are action for
damages, action for account and payment of interest.
BUSINESS LAW 75
5.7 THE EFFECTS OF AGENCY
The agent is able to affect the legal relationship of his principal in the making of
contracts and in the disposition of authority. The relationship is of a fiduciary
nature. The specific rights and liabilities depend on contract.
5.7.1 Where the agent contracts as agent for a named principal

An agent acting within the scope of his authority who contracts with a third party
by disclosing his agency establishes a direct contractual tie between the principal
and the third party. Where the agent indicates that he is acting as an agent, the
general rule is that only the principal and the third party exert any authority over
the legal relations of the principal and the third party. The agent in this situation
incurs neither rights nor liabilities under the contract. The principal and the third
party can sue and be sued by each other. Exceptions can occur where the agent
may also sue on behalf of his principal. An agent is entitled to maintain an action
for money had and received. An agent may sue or be sued when he endorses a bill
of lading, the third party still insists on dealing with him after disclosing the fact of
his agency, in relation to deeds, where he does not operate within the scope of his
authority and by implication.
5.7.2 Where the agent contracts for an unnamed principal

The agent discloses the existence but not the name of the principal. Since the agent
expressly contracts as agent, he cannot be personally liable on the contract. Where
the agent does not on the face of the contract show that he is merely an agent he
will be personally liable and the third party may exercise his option of suing either
him or the principal.
5.7.3 Where the agent contracts for an undisclosed principal

The agent sometimes discloses neither the existence nor the identity of the
principal and in that wise, contract with the third party as if he were the principal.
Where the agent acts within his authority the undisclosed principal has the right to
intervene and sue the third party directly and therefore render himself personally
BUSINESS LAW 76
liable to the third party. Once the Principal remains undisclosed the agent may sue
and be sued on the contract. The agent can enforce the contract against the third
party. The Principal can enforce the contract against the third party. The agent's
right of action is lost when the principal decides to intervene.
When the third party becomes aware that there is a principal he may act in a
manner as to indicate that he has elected to deal with the principal. On discovery of
the principal by the third party, the third party can exercise his option and elect to
enforce the contract against the agent or the principal. Where the third party has
settled with the agent in a situation of undisclosed principal, such settlement may
be a complete defence to the principal's action to recover payments due from the
third party. Where the third party had a special reason to contract with the agent
the principal may be excluded from the contract. An undisclosed principal cannot
ratify any contract made outside of the agent's actual authority.
5.8 TERMINATION OF AGENCY

An agency may be terminated by the act of the parties or by operation of law.
5.8.1 Act of the Parties

The parties can bring the contract of agency to an end by mutual agreement
between them. This is when the termination is from both of them. In other
instances the termination comes from only one of the parties. It may either
originate from the principal or from the agent. The termination may be through
revocation by the principal by notice or summarily. It may also be through
renunciation of the agency by the agent.
5.8.2 Operation of Law

An agency becomes terminated at the expiration of the time agreed upon for the
duration of the agency, or on the complete performance of the undertaking. It may
also be due to the frustration of the contract or the happening of an event rendering
the continuance of the agency unlawful. The agency may also come to an end
where either party becomes incapable of continuing the contract by reason of
BUSINESS LAW 77
death, insanity or bankruptcy. In Gordon v Essien, [1992] 1 GLR 232 where the
principal had died and the daughter of the agent she had earlier appointed
continued to collect rents on her behalf it was stated that It was trite law that
death was one of the events which automatically determined an agency; the
conception of authority demanded a continuing consent of the principal to the
agent's act on his behalf and with the death of the principal the consent would not
continue because the mind from which it issued had ceased to exist.

Agency is one kind of relationship that runs through several human endeavours. In
almost every activity we sometimes find ourselves acting on behalf of other people
or asking other people to act on our behalf. The proper understanding of agency is
therefore essential for a true appreciation of its practical significance. The whole
realm of what constitutes agency in terms of what agency is, the types, its creation,
operation, effects and termination were highlighted to ensure a good grasp of the
area of study.

1. Define agency
2. List the types of agents and describe each of them.
3. Explain agency by consent and distinguish between express and implied

consent.
4. What is meant by agency by operation of law?
5. Distinguish between agency of necessity and agency by cohabitation
6. Explain agency by ratification.
7. Compare the rights of the principal to that of the agent.
8. List the duties of
a) the principal and
b) the agent
BUSINESS LAW 78
9. Discuss the effects of agency among the principal, agent and third parties
10. Explain how an agency may be terminated.
1. A person appointed by another person to act on his behalf generally is

known as
A. Envoy
B. Representative
C. Agent
D. Proxy
E. Delegate
2. An agent is entitled to claim from his principal..
A. Remuneration
B. Commission
C. Reimbursement
D. Interest
E. Set off
3. Agency can be created by the following ways EXCEPT
A. Agency by conduct/estoppel
B. Agency by ratification
C. Agency by auction
D. Agency by cohabitation
E. Agency by necessity
4. Duties of an agent include the following EXCEPT.
A. Duty of loyalty
B. Duty to exercise skill
C. Duty to assist the wife of the principal to recruit driver whenever the
principal travels
D. Duty not to make undisclosed profit/commission
E. None of the above
5. Agency relationship may be terminated by the following EXCEPT ONE of

the following:
BUSINESS LAW 79
A. Death of either party
B. Bankruptcy of either party
C. Effluxion of time
D. Advice of the principals banker
E. Insanity of either party.
1. What is the meaning of the maxim Delegatus non Potest delegare as it

relates to a contract of Agency?
2. Explain the term implied agency.
3. Explain the term express agency.
4. A del cedere agent is
5. Explain the duties of an Insurance Agent or broker.
BUSINESS LAW 80
CHAPTER SIX
SALES OF GOODS
LEARNING OBJECTIVES
define contract for sales of goods
understand the general principles of a contract for sales of goods
describe a contract for sales of goods
state and explain the terms of a contract for sales of goods
differentiate between a contract for sales of goods and other transactions.
6.0 INTRODUCTION
In the previous chapter, the law of contract was considered and discussed in detail.
In this chapter, the focus will be on the contract of sales of goods, which is a kind
of contract. So, the readers would do well to recall all that was discussed about
contracts, as that would provide a basis for their understanding of this chapter. The
same basic rules which apply to a contract also apply to a contract for sales of
goods, but a contract for sales of goods has further detailed and extensive rules
which would be considered.
The Contract of Sales of Goods is perhaps the most common of all commercial
contracts. It is the best known specialised contract. Several hundreds of them are
entered into and concluded each day. The basic principles which govern this
specialized contract are still found within the general principles of law of Contract.
Thus to appreciate the contract of Sales of Goods, a grasp of the fundamental
principles of the general Contract law is essential. A contract for our purposes is
accordingly defined as an Agreement which is binding on the parties thereto and
which may be enforced by the Courts against the defaulting party. Under the
general principles of Contract, certain elements are essential for the validity of
contracts and for emphasis these are reiterated as follows:
BUSINESS LAW 81
i. Agreement which consists of the Offer and Acceptance
ii. Consideration
iii. Intention to Create Legal Relations
iv. Capacity
v. Genuine Consent / Vitiating factors. Some knowledge of the above
mentioned essentials of a valid contract is thus necessary for an appreciation of this
specialized Contract of Sales of Goods. The contract of Sales of Goods is basically
governed by common law, the Sales of Goods Act of 1893 (by virtue of the fact
that it is a Statute of General Application which applies to most parts of Nigeria
other than the states which make up the Old Western Region of Nigeria who have
their own Sales of Goods Law ) still retained as the Sales of Goods Act in the Laws
of the Federation of Nigeria 1990 and the 2004 Laws of the Federation of Nigeria,
and the Sales of Goods Law 1978 in Ogun State.
Thus, what is a Contract of Sales of Goods? By Section1 (1) of the Sale of Goods
Act 1893, it is a contract whereby the seller transfers, or agrees to transfer, the
property in goods to the buyer for a money consideration called the price. The
essence of a Sale of Goods Contract is that the parties intend to transfer ownership
of property in the goods from the seller to the buyer. Where the property in the
goods is transferred from the seller to the buyer, the contract is called a sale, but
where the transfer of the property is to take place at a future time subject to some
condition thereafter to be fulfilled, it is called an agreement.
Certain important issues are raised by these definitions. First, there must be a
contract before the Sale of Goods Act applies and this stresses the point made
earlier that the Act builds upon the common law of Contract.. Secondly, the
property may be transferred under the contract immediately, or it may be agreed to
be transferred later. This is known as an agreement to sell. This Contract is still
binding and the Act still applies to it. Thirdly, the subject matter of the contract is
not the physical possession of the goods at all but the ownership of them, thus the
property in goods means the ownership of them. It can and it does often move to
the buyer before the physical possession of the goods. Fourthly, the Goods, the
BUSINESS LAW 82
subject matter of the transfer of the property is defined by Section 61 to include all
personal chattels other than things in action and money....... and, in particular
goods includes emblements; industrial growing crops, and things attached to or
forming part of the land which are agreed to be severed before sale or under the
contract of sale. Emblements comprises crops and vegetable (e.g. corn and
potatoes) produced by the labour of man and ordinarily yielding a present annual
profit.
6.1 CLASSIFICATION OF GOODS

Many of the rules of the applicable Statute depend largely upon the type of goods
which are the subject matter of the contract which we have seen, basically, is the
transfer of ownership.
(i) Specific Goods: By Section 62 of the Act these are goods which are
identified and agreed on at the time a contract of sale is made. It must thus
be perfectly clear which goods are being sold, e.g. that blue car there in
the car sales room or those baking items there on the shelf in the
Supermarket. See Underwood V. Burgh Castle1, Brick & Cement
Syndicate (1922)2
(ii) Unascertained goods: The Act does not define this. However, goods are
either specific or they are not. The time the distinction is made is when the
contract of sale is made. At that time, if the goods are identified and
agreed on they are specific goods; if they are not identified and agreed
on they are unascertained goods e.g. where the contract relates to part of a
larger quantity of goods as in 500 bags of rice out of the bags kept in my
warehouse. It is important to remember that unascertained goods can
become ascertained goods but they can never be specific goods again
because goods are only specific when they are identified and agreed upon
at the time the contract is made.
BUSINESS LAW 83
(ii) Existing goods: By Section 5(1), these are goods which the seller owns or
possesses at the time of the contract and they may be either specific or
unascertained.
(iv) Future goods: Also by Section 5(1), they are goods which the seller is to
manufacture or acquire after the contract of sale is made, and they are
generally unascertained goods.
Finally, what moves in exchange is money, a money consideration called the price. The
point being made is to distinguish a contract of sale from a contract of exchange where the
principal object of the contract is the exchange of goods. It should be noted however that
the price need not however be wholly in money. See Aldridge V. Johnson 3 where a
contract for the sale of 52 bullocks valued at $6 each against 100 quarters of barley valued
at $3 per quarter, the difference to be paid in cash was treated as a sale of goods contract.
A consideration of other variety of transactions that are not sales of goods within the Act
is also necessary here.
(a) Hire Purchase Agreements: - Here, the hirer is only given possession of the goods,
(thus making him a bailee) together with an option to purchase them. Since he is
not bound to exercise the option (i.e. the payment of a small final payment which
transfers ownership to him), he has not agreed to buy them and is therefore not a
buyer within the Act.
(b) Work and Materials:- If the main purpose of the contract is not for the sale of
goods, i.e. for the transfer of ownership in goods, the Act does not apply as in a
contract for the supply or provision of labour where the substance of the contract is
an undertaking to use skill in producing a particular article. See Robinson V.
Graves (1935)4 G. commissioned R, an artist to paint a portrait of X for 250
guineas. R supplied the canvas and other materials. The Courts decided that it was
a contract for work and materials and not for sale of goods. Lee V. Griffin (1861)5
A Dental mechanics was employed to make to measure set of false teeth. The
BUSINESS LAW 84
Courts decided that this was a contract of sale. If Alex goes to the carpenter's and
buys a table out of ten tables he sees at his workplace what they entered into is a
simple sale of goods contract. But while at his workplace he sees an exquisitely
carved table made for a third party and he requests the carpenter to make another
similar to that for him with extra trimmings, this would most likely be a contract
for work and materials because he relies on his skill in producing this specially
designed table.
(c) Sale and Bailment:- Bailment arises where the ownership and the possession of
goods become vested in different persons, e.g. where a car is given to the mechanic
for repairs, the car owner still remains the owner of it and the mechanic acquires
the possession of it in the interim for the purposes of repair thus becoming its
bailee. A bailment is thus a delivery of goods on a condition, expressed or implied
that they shall be restored by the bailee to the bailor or delivered according to his
direction as soon as the purpose for which they are bailed is fulfilled. It shows that
this transaction will not be governed by the Sale of Goods Act since the parties do
not intend that property (ownership) of the goods should pass.
6.2 FORM OF THE CONTRACT

A Contract of Sale of goods may be in writing (with or without seal) or by word of
mouth or partly in writing and partly by word of mouth or may be implied by the
conduct of the parties. It is worthy of note that there are no special rules about the
contractual capacity of the parties, thus the basic law of contract applies.
6.3 THE TERMS OF THE CONTRACT OF SALE OF GOODS

As in all contracts the agreement between the parties will show the obligations
which the parties owe each other. These obligations known as terms of the contract
may be expressly spelt out by the parties as that which will bind them. However
apart from these express terms, certain other terms are also implied into their
contract by the Sale of Goods Act. The major terms are those contained in
Sections 12-15 of the Act and consists of the seller's main obligations in a sale of
BUSINESS LAW 85
goods contract. These terms as we have learnt, under the general principles of
contract is not all of equal importance. A very important terms in a contract of sale
of goods is called a condition. A term of lesser importance is called warranty.
For a breach of condition the buyer can cancel the contract. For a breach of
warranty, he cannot. He does not have to put up with it. He can have damages. For
any breach, he is entitled to damages, but he cannot cancel the contract for just a
minor breach. Section 62 of the Act further emphasises this point by defining a
warranty as follows: An agreement with reference to goods which are the subject
of contract of sales, but collateral to the main purpose of the contract the breach
which gives rise to a claim for damages, but not to a right to reject the goods and
treat the contract as repudiated.
The reason for distinguishing terms is mainly connected with the right of
cancellation for breach of condition. The courts are often concerned whether the
right to cancel exists. A particular term in a contract may be a condition because it
is said to be so by a statute or by the common law. The Sale of Goods Act also
states that whether a term is a condition or warranty depends on the construction of
the particular contract of sale. The Act set out to preserve the freedom of the
parties to make their own bargain so they may put any terms which they like in
their contracts and these are called express terms. However, the Act also implies
various terms into the contract which the parties in the exercise of their freedom to
bargain and contract may exclude from their contract. A consideration of these
implied terms which we are about to undertake shows that these terms are implied
by statute to mitigate the harshness of the common law principles of caveat emptor
(Let the buyer beware). Under this principle, it was for the parties to make their
own bargain i.e. it was up to the buyer to decide whether the goods were
merchantable and fit, before he agreed to buy them. If he finds they were not after
the sale, there was nothing he could do, thus he becomes saddled with useless
goods, hence the intervention by statute to avoid the supply of useless goods by the
seller to the buyer. This caveat emptor principle has been severely eroded by the
under mentioned terms implied in a sale of goods contract but they are however
BUSINESS LAW 86
not extinct. The principal obligation of the parties is as contained in Section 27 of
the Sale of Goods Act and it is as follows - It is the duty of the seller to deliver the
goods, and of the buyer to accept and pay for them in accordance with the contract
of sale. Thus what the parties must do must be in accordance with the express and
implied terms of their contract of sale.
The terms implied in a contract of sale of goods are as follows
6.3.1 TITLE
(a) Section 12(1) provides as follows: An implied condition on the part of the
seller is that in the case of a sale he has a right to sell the goods, and that in
the case of an agreement to sell, he will have a right to sell the goods when
the property is to pass.
There is thus an implied condition on the part of the seller that he shall have
a right to sell the goods. If therefore the seller has no title, as where the
goods are stolen for example, he is liable to the buyer, See Rowland V.
Divall (1923)6. The buyer of a car used it for three months, but then found
that it was stolen and had to return it to the true owner. The Court held that
the buyer was entitled to recover the full purchase price even though he had
used it for some time.
Akoshile V Ogidan (1950).7 The plaintiff bought a car from the defendant
which turned out to be a stolen car, which was later taken away by the
police. He recovered his full purchase price from the Defendant.
The decisions in these cases shows that the purchaser in both cases bought
to become owners, but did not become owners because the sellers breached
this implied condition of title; hence they were entitled to their full
purchase price. These cases also help to bring out the distinction between
conditions and warranties. They show that right to sell a good or title is a
condition that goes to the root of the contract and the innocent party can
BUSINESS LAW 87
truly cancel the contract and get his full money back as well as ask for
damages.
Section 12 also implies certain warranties into a sale of goods contract. For
the breach of a warranty we should remember that the injured party can
only ask for damages and cannot cancel the contract but go on with it.
(b) Section 12(2):- An implied warranty that the buyer shall have and enjoy
quiet possession of the goods i.e. the seller will be liable in damages if the
buyer is disturbed in the enjoyment of the goods in consequence of the
seller's defective title
(c) Section 12(3):- An implied warranty that the goods shall be free from any
charge or encumbrance in favour of a third party, not declared or known to
the buyer before or at the time when the contract is made. A failure to
disclose that a repairman's fees (which entitle him to a lien to retain the car)
are still outstanding in respect of a sale concerning a second hand car
amounts to a charge or an encumbrance which entitles the buyer to seek
damage for this breach of warranty.
6.3.2 DESCRIPTION
Section 13 provides as follows: Where there is a contract for the sale of goods by
description, there is an implied condition that the goods shall correspond with the
description, and if the sale be by sample, as well as by description it is not
sufficient that the bulk of the goods corresponds with the sample if the goods do
not also correspond with the description.
Goods are sold by description when they are described in the contract and the
buyer enters into the contract in reliance on that description.
See Re-Moore & Co. Vs. Landauer & Co. (1921)8. The buyer described in the
contract of sale how he wanted his consignment of goods, i.e. canned fruit, to be
BUSINESS LAW 88
packed. The seller packed them differently, however, the Courts held that he was
entitled to reject.
Arcos V. Ronaasen (1933)9. This contract was for the supply of 1/2 inch wooden
staves. The seller supplied some staves as thick as 9/16 of an inch thick. The Court
held that the buyer could reject the goods as they did not correspond with the
description.
It is important to note that if the buyer does not see the goods, he must be buying
by description. Even where he sees them he may still be buying by description as
long as they are sold not as specific goods but as goods answering to a description.
For example, a mother may send her young child to the fish monger's to buy
sardine fish, the daughter may see the fish among other types being sold by the fish
monger but may not know it and still request for sardine, she is still buying by
description even though she can see them as long as she does not point to any.
The courts have given a very wide meaning to the term description. It has been
held to include not only the class of type to which the goods belong but also to
such matters as ingredients, thickness, packaging, quantity and date of shipment.
6.3.3 Merchantable Quality:

There are two conditions provided for under Section 14 and they relate to quality
and fitness for purpose. These two conditions unlike the other terms implied by the
Act only apply where the seller sells in the course of a business, whereas the other
terms apply to all contracts of sales. Generally, Section 14 provides that a seller
owes no obligation as regards the quality or suitability of the goods except as
regards those contracted under the provisions of Section 14(1) and Section 14(2).
We shall consider the one that deals with merchantable quality first under Section
14(2) before considering the exception relating to fitness of purpose under
Section14 (1).
BUSINESS LAW 89
Section 14(2) Where goods are bought by description from a seller who deals in
goods of that description (whether he be the manufacturer or not) there is an
implied condition that the goods shall be of merchantable quality; provided that if
the buyer has examined the goods, there shall be no implied condition as regards
defects which such examination ought to have revealed.
The phrase Merchantable Quality means fit for its normal purpose. So a
badminton racquet must be reasonably good for playing badminton. The quality
which the buyer is entitled to expect however depends on many factors. If he buys
cheap goods, it is expected that the quality would not be as that of more expensive
goods. Likewise, second hand goods would be merchantable as such
although they may not be satisfactory if the contract concerns new goods. In
Bartlett Vs Sidney Marcus Ltd. (1965)10 where a second hand car was sold with
a defective clutch was held to be of merchantable quality by the court, because the
buyer was already aware of this defect and the relatively low price paid for it took
account of this defect. Although it has been stated that this condition applies only
where a seller sells in the course of a business, the mere fact that the seller is
handling a particular product for the first time is immaterial.
The condition of merchantable quality can apply not only to the contents of a bottle
but also to the bottle itself even if it is to be returned after use. So if the goods
actually bought, contain a foreign body (e.g. worms, glass cork) the totality of the
goods supplied are unmerchantable.
Also, where the buyer has examined the goods no condition is implied as regards
defects which the examination would have revealed as contained in the proviso to
Section 14(2). See Heil V. Hedges (1951).11 the buyer of pork chops failed to cook
them properly and became ill as the result of the chops becoming infected by
worms. Had she cooked them properly, the infection would not have occurred. Her
claim for damages failed.
BUSINESS LAW 90
(a) For how long must Goods be Merchantable? Cases involving the sale of
perishable goods such as eggs, rabbits and potatoes show that if defects
appear soon after purchase, this may show that the goods were
unmerchantable at the time of the contract, thus goods must be of
merchantable quality both at the time of the contract and remain so for a
reasonable time for perishable goods. See Beer V. Walker (1877).12
Sellers of rabbits sent them by train from London where they were still
merchantable, but on arriving at Brighton they were putrid and useless
inspite of the fact that the journey was a perfectly normal one: The sellers
were held liable for selling unmerchantable goods.
(b) Fitness for Purpose

Section 14(1): Where the buyer expressly or by implication, makes known
to the seller the particular purpose for which the goods are required, so as to
show that he relies on the seller's skill and judgment and the goods are
of a description, which it is in the course of the seller's business to supply
(whether he be the manufacturer or not), there is an implied condition that
the goods must be reasonably fit for such purpose,... Hence, if the buyer
points out what he wants the goods for, then the goods must be fit for that
purpose. This applies whether or not the purpose is the normal one. See
Frost V. Aylesbury Diary Co. Ltd. (1905)13. Seller supplied milk to
Buyer, it contained some germs and Buyer's wife contracted typhoid and
died. Buyer sued Seller in contract and Seller argued that no amount of care
on his part could have discovered the germ. It was held that the seller was
therefore liable.
6.3.4 Sale by Sample:

Section 15(2) In the case of a contract for sale by sample there is an implied
condition-
a. That the bulk must correspond with the sample in quality.
BUSINESS LAW 91
b. That the buyer must have a reasonable opportunity of comparing the bulk
with the sample.
c. That the goods will be free from any defect, rendering them unmerchatable,
which would not be apparent on reasonable examination of the sample.
In Godley Vs Perry (1960)14 a boy bought a plastic catapult from a
retailer, it broke and injured the boy in an eye. The retailer had bought
from a wholesaler and had tested a sample with no defect showing at the
time. The Court held that the retailer was liable to the boy for a breach of
Section 14 i.e. that of merchantable quality and fitness for purpose. The
Court held as well that the retailer could recover damages from the
wholesaler for breach of Section 15.
As stated earlier these conditions and warranties implied by the Sale of

Goods Act can however be expressly excluded or modified by the parties to
the contract as stated under Section 55.
6.4 OTHER TERMS:

It is important to consider such other terms which binds the parties which are also
of equal significance as those considered under Sections 12-15.
6.4.1 Implied terms as to time:

The Act allows the parties the freedom to contract concerning the duties to
deliver and to pay, but if they make no such terms the provisions of Section 28 of
the Act applies. It provides thus-
Unless otherwise agreed, delivery of the goods and payment of the price are
concurrent conditions, that is to say, the seller must be ready and willing to give
possession of the goods to the buyer in exchange for the price and the buyer must
be ready and willing to pay the price in exchange for the possession of the goods.
Notwithstanding the above stipulations as to time of payment or delivery, being

either conditions or warranties are however to be found in sections 8 and 9.
BUSINESS LAW 92
(a) As to payment:- The Act provides that unless a different intention appears from
the contract, stipulations as to the time of payment are not deemed to be the
essence of a contract of sale. Whether any other stipulation as to time is of the
essence depends upon the terms of the contract. Section 91). The effect of this
seems to be that failure to pay on time is treated as each of warranty than as that of
a condition.
(b) As to delivery:- The Act lays down no rules here but the decided cases show that
where the time of delivery is fixed by the contract, failure to deliver or allow
collection on time is a breach of contract entitling the buyer to rescind the contract.
6.4.2 Implied term as to price

This may be fixed by the contract or may be determined by the course of dealing
between the parties. In the absence of either of these, the buyer must pay a
reasonable price, the amount of which is determined by the circumstances of each
particular case. Section (8).
6.4.3. Transfer of property between seller and buyer

The object of a Sale of Goods contract is to transfer property in goods from the
Seller to the Buyer. It is thus important to know the precise moment of time at
which the property in the goods passes from the seller to the buyer because in case
of the destruction of the goods by fire or other accidental cause, it is necessary to
know which party has to bear the loss since risk is an incidence of where property
lies (See Section 20). It is however important to appreciate the difference which we
had drawn earlier between specific goods and unascertained goods and to properly
understands when property (i.e. ownership in the goods) passes to the buyer from
the seller.
(a) Specific Goods

In a sale of specific or ascertained goods, the property passes to the buyer at the
time when the parties intend it to pass. Thus intention can be gathered from the
BUSINESS LAW 93
terms of the contract, the conduct of the parties and the circumstances of the case
(Section 17). Unless a contrary intention appears, however the following rules are
applicable for ascertaining the parties' intention (Section18).
Rule 1: Where there is an unconditional contract for the sale of specific goods in
a deliverable state, the property passes to the buyer when the contract is
made and it is immaterial whether the time of payment or the time of
delivery, or both be postponed.
The Rule provided above is self explanatory, howbeit it is to the effect that
unless the contract states otherwise, the buyer becomes the owner of the
goods of a sale of goods contract when the contract is made as long as the
goods are ready for delivery even where the seller agrees to deliver the
goods later and the buyer agrees to pay later. Thus if anything happens to
such goods, generally it is the buyer that will bear the risk.
Rule 2: Where there is a contract for the sale of specific goods not in a deliverable
state, i.e. the seller has to do something to the goods to put them in a
deliverable state, the property does not pass until that thing is done and the
buyer has notice of it.
The only difference between this Rule and Rule 1 above lies in the fact that
the goods in Rule 1 are ready for delivery while those under this Rule are
not yet ready for delivery. Once they become ready for delivery however
the seller must inform the buyer, it is upon such notice that ownership in the
goods passes to the buyer.
Rule 3: Where there is a contract for the sale of specific goods in a deliverable
state but the seller is bound to weigh, measure, test or do something with
reference to the goods for the purpose of ascertaining the price, the property
does not pass until that thing is done and the buyer has notice of it. See
Turley V. Bates (1863)15. S sold B a heap of clay at a price of $x per ton
BUSINESS LAW 94
and it was agreed that the buyer would load the clay and weigh it to
ascertain the price. The Court held that property passed to the buyer when
the contract was made.
Rule 4: When goods are delivered to the buyer on approval or on sale or

return basis the property therein passes to the buyer:-
(a) When he signifies his approval or acceptance to the seller or does
any other act adopting the transaction.
Kirkham V. Attenborough (1897)16, K delivered jewellery to W
on sale or return. W pledged it with A. It was held that the pledge
was an act by W adopting the transaction, and therefore, the
property in the jewellery passed to him so that K could not recover
from A.
Another example is where someone delivers a pair of shoes to you,

and you are undecided whether to buy them but promise to return
them within two weeks. If you put them on and wear them on the
third day, this rule comes into play to show that you become the
owner of them when you wear them.
(b) If he retains the goods without giving notice of rejection, beyond the
time fixed for the return of goods, or if no time is fixed beyond
a reasonable time.
This is self explanatory as what this subsection simply says that

when you hold onto goods for an agreed period or for a long time
you become the owner of it.
Unascertained Goods
Section 16 - Where there is a contract for the sale of unascertained
goods, no property in the goods is transferred to the buyer unless
BUSINESS LAW 95
and until the goods are ascertained. This section states the obvious
as I cannot become the owner of 50 bags of rice in a warehouse
containing 1000 bags without my 50 bags being ascertained. By the
provisions of Rule 5, ascertainment does not make them mine until
certain acts listed under the Rule are carried out.
Rule 5: Where there is a contract for the sale of unascertained or future

goods by description, and goods of that description and in a
deliverable state are unconditionally appropriated to the
contract, either by the seller with the assent of the buyer or by the
buyer with the assent of the seller, the property in the goods then
passes to the buyer; and the assent may be express or implied and
may be given either before or after the appropriation is made.
The under stated are some of the ways in which unascertained goods
may become ascertained
(a) if the seller separates the sold goods from the consignment and
informs the buyer.
(b) by measuring the sold portion from the whole and informing the
buyer.
(c) by a process of exhaustion. An example is where Linda wants to
buy 5 bowls (bongos) of gari from a seller who has about 30 bowls
in her basin. The process of continual and continuous selling of
relatively small bowls of gari until 5 bowls is left is an illustration
of exhaustion.
6.4.4 Passing of Risk.

Risk covers a wide range of misfortunes that may befall goods from slight damage
through theft to loss or total destruction. Who bears such loss is thus the basic
question that arises for consideration herein. The applicable Section 20 which
helps in determining this issue provides thus:
BUSINESS LAW 96
Unless otherwise agreed, the goods remain at the seller's risk until the property in
them is transferred to the buyer, but when the property in them is transferred to the
buyer, the goods are at the buyer's risk whether delivery has been made or not:
Provided that where delivery has been delayed through the fault of either buyer or
seller the goods are at the risk of the party in fault as regards any loss which might
not have occurred but for such fault: Provided also that nothing in this section shall
affect the duties or liabilities of either seller or buyer as bailee of the goods of the
other party.
Loss may arise in these possible ways

(a) Loss occurring before the Contract is made:
A reading of the applicable Section 20 shows that the seller bears this loss.
He is however protected from liability to the buyer by Section 6 of the Act
where the contract concerns specific goods. Section 6 provides as follows:
Where there is a contract for the sale of specific goods, and the goods
without the knowledge of the seller have perished at the time when the
contract is made, the contract is void. The seller of course still bears the
loss but it should be noted that he has no liability to the buyer as the
contract is void. See Barrow, Lane & Ballard Ltd. Vs Phillips & Co.
Ltd. (1929)17 109 bags of 700 bags of specific goods which formed the
subject matter of the contract of a sale of goods had been stolen before the
contract was made, and this was unknown to the sellers. The Courts held
that the specific 700 bags had perished thus rendering the contract void.
(b) Loss occurring between the Contract and the Passing of property:
This will also be borne by the seller since property has not passed by the
provisions of section 20. The buyer may also recover damages for non
delivery where the seller fails to find other supplies. Section 7 however
BUSINESS LAW 97
protects the seller from liability to the buyer although he still bears the loss.
It provides thus:
Where there is an agreement to sell specific goods and subsequently the
goods, without any fault on the part of the seller or buyer, perish before the
risk passes to the buyer, the agreement is avoided.
(c) Loss occurring after the Passing of property:

By the provisions of Section 20 this is borne by the buyer even where the
goods are still in the custody of the seller. Tarling V. Baxter (1827)18, S
sold to B a haystack which was to remain on the seller's premises until the
following May. Before May arrived, the haystack was destroyed in an
accidental fire. It was held that property and risk had passed to the buyer
who remained liable to pay the price. It is important to note here that if the
fire that destroyed haystack had not been caused by accident but by the
negligence of the seller he could well have been liable for the loss, although
not as seller but as bailee of the good having regard to the second proviso
of Section 20 relating to duties and liabilities of either of the parties as
such.
Where a party also delays delivery as provided under the first proviso to
Section 20 he bears the risk. See Demby Hamilton & Co Ltd. Vs Barden
(1949)19. The contract concerned the supply of 30 tons of apple juice by
weekly consignments to the buyer. The buyer delayed in taking delivery of
some of the juice which went bad. The Court held him responsible to pay
for the loss occasioned by his delay.
The provisions of the Act can however be varied by agreement or by trade

custom. In some cases the parties may agree that the risk passes before
property. See Sterns Ltd. Vs. Vickers Ltd (1923)20 - Sale of 120,000
gallons of white spirit out of 200,000 gallons in a tank on wharf. No
appropriation to the contract is made, but a delivery warrant is issued to the
BUSINESS LAW 98
buyer. The warrant is not acted on for some time and the spirit deteriorates.
The loss falls on the buyer.
At other times the property may pass before the risk as where the seller
agrees to send specific goods to the buyer at the seller's risk. If the seller
does agree to deliver goods at his risk, his liability is governed by Section
33 which provides as follows:
Where the seller of goods agrees to deliver them at his own risk at a place
other than that, where they are when sold, the buyer must nevertheless,
unless otherwise agreed, take any risk, of deterioration in the goods
necessarily incidental to the course of transit.
The seller must, however, take the risk of extraordinary or unusual

deterioration of loss.
6.5 TRANSFER OF TITLE BY A NON-OWNER

Generally, only the owner of goods can validly transfer property or ownership in
them to a third party. The law however allows his agent to do so too. But there are
other instances where property in goods is transferred to a third party by a person
who is not the owner or his agent. It is this troublesome area that we will consider
now, for a buyer may not be getting what he bargained for or indeed anything at
all. In this area of the law there is a simple basic rule which, however, has so many
exceptions. The basic rule favours the original owner while the exceptions favour
the innocent purchaser from a seller who had no right to sell or title to transfer to
him.
This basic rule is expressed in the Latin phrase nemo dat quod non habet and it
literally means nobody can give what he has not got. The courts have tried to
explain why this basic rule must have so many legally recognised exceptions. The
best and finest expression of this rationale is found in the under mentioned dictum
BUSINESS LAW 99
of Denning L.J (as he then was) in Bishopsgate Motor Finance Corporation Vs
Transport Brakes Ltd. (1949)21. It goes thus In the development of our law,
two principles have striven for mastery. The first is for the protection of property:
no one can give a better title than he himself possesses. The second is for the
protection of commercial transactions: The person who takes in good faith and for
value without notice should get a better title. The first principle has held sway for a
long time, but it has been modified by the common law itself and by statute so as
to meet the needs of our times
The said basic rule is also the basis of Section 21(1) of the Sale of Goods Act
which reads thus:
....where goods are sold by a person who is not the owner thereof and who does
not sell them under the authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had unless the owner of the
goods is by his conduct precluded from denying the seller's authority to sell:
6.5.1 The Exceptions are as follows:

a) Estoppel:
If the true owner stands by and allows an innocent buyer to pay over money
to a third party, who professes to have the right to sell an article in the belief
that he is becoming the owner of it, the true owner will be stopped from
denying the third party's right to sell. This exception is provided by the
underlined part of Section 21 quoted above (b) Sales by Mercantile Agent or
(Factor):
A mercantile agent is a person who sells or otherwise deals with goods as
business and on behalf of other people. He deals in his own name,
dependently of his employer (his Principal). Anyone dealing with a
mercantile agent obtains good title even if the agent was not authorized to
sell. A mercantile agent is also known as a factor.
BUSINESS LAW 100

(b) Sale in Market Overt.
This is provided for under Section 22 which provides as follows: Where
goods are sold in market overt, according to the usage of the market, the
buyer acquires a good title to the goods provided he buys them in good
faith and without notice of any defect or want of title on the part of the
seller.
This is the most ancient of the exceptions and was incorporated in the Act
upon its enactment. If a person's property was stolen, and such person was
reasonably diligent, such property could be found if it went on display at
the local market. The concept is one of an open public market selling
openly to customers who buy in good faith. The doctrine covers any open,
public, legally constituted market. The sale must take place on the
customary market day, during the usual hours of business. The goods must
ways be on open, public display. In Bishopsgate Motor Finance
corporation Vs transport Brakes Ltd. (1949)22. A car was sold in
Maidstone Market, the seller was not the owner, and the car was the subject
of a Hire-Purchase agreement. Nevertheless, Maidstone was held to be a
legally constituted market for the purpose of the market overt rules. Cars
were commonly sold there and the buyer took in good faith and obtained a
good title.
It is important to however note that if the goods are stolen goods and the
thief is afterwards convicted, property in the goods reverts to the true owner
of them notwithstanding any intermediate dealing with them either by sale
in market overt or otherwise (See Section 24 of the Act), this means that if
A steals B's watch and sells it in market overt to C, C acquires
a good title to it. But if A is thereafter convicted of theft C's title ceases
and B's title revives.
BUSINESS LAW 101

(c) Sale under Voidable Title:
If the seller has a voidable title to goods and his title has not been voided at
the time of the sale, the buyer acquires a good title to the goods, provided
that he did not know of the seller's defect of title and bought in good faith.
This exception is provided by Section 23. e.g. If A by duress obtains goods
from B, A has only a voidable title to the goods, and B can rescind the
contract. If A, before B rescinds the contract sells to C, who buys in good
faith and in ignorance of the vitiating element of duress, C will get a good
title.
(d) Sale by Seller in Possession:

Section 25(1) of the Act provides this exception. It states: Where a person
having sold goods continues or is in possession of the goods or of the
documents of title to the goods, the delivery or transfer by that person, or
by a mercantile agent acting for him, of the goods or documents of title
under any sale, pledge or disposition thereof, to any person receiving the
same in good faith and without notice of the previous sale, has the same
effect as if the person taking the delivery or transfer were expressly
authorised by the owner of the goods to make the same.
If Alex sells to Bob but retains physical possession of the goods or

documents of the title, then Alex can sell them again to Chris as long as
Chris does not know of the previous transaction, Bob will however be able
to recover his money back from Alex.
(e) Sale by Buyer in Possession:

This exception is provided by Section 25(2) Where a person having
bought or agreed to buy goods obtains with the consent of the seller
possession of the goods or of the documents of title to the goods, the
delivery or transfer by that person, or by a mercantile agent acting for him,
of the goods or documents of title under any sale, pledge or disposition
BUSINESS LAW 102

thereof, or under any agreement for sale pledge or disposition thereof ,to
any person receiving the same in good faith and without notice of any lien
or other right of the original seller in respect of the goods shall have the
same effect as if the person making the delivery or transfer were mercantile
agent in possession of the goods or documents of title with the consent of
the owner. This is the converse position of Section 25(1) and it generally
arises where the buyer has possession but does not have title in the goods
.e.g. where Bob agrees to buy goods from a seller who gives possession of
the goods to him, where he sells to an innocent third party of his defective
title such third party acquires title.
(g) Disposition of goods under common law and statutory powers:

Examples are:-
i. The right of a pawnbroker to sell unredeemed goods pledged with him.
ii. The right of a hotel to sell the property of guests to satisfy debts.
iii. The right of landlords in certain circumstances to sell tenant's goods
for arrears of rent
iv. The rights of repairers such as watch repairers, cobblers, or those of
electronic items to sell uncollected goods.
The exercises of the power of sale by these categories of non owners are subject to
restrictions such as the need to give notice and time. The Courts also of course can
exercise the rights to dispose perishable goods or in execution of a judgment debt.
6.6 BREACH OF A SALE OF GOODS CONTRACT AND THE

REMEDIES OF THE PARTIES
Where either of the parties to the contract of a Sale of Goods contract breach its
terms, the following are the remedies which the law provides.
BUSINESS LAW 103

6.6.1 Buyer's Rights.
(a) The right to reject the goods-
The buyer can reject the goods if the seller is in breach of condition, e.g.
one of the implied conditions noted above. If he does so, he needs not pay
the price and if he has paid it, he can recover it. The right to reject is lost, if
the goods have been accepted.
(b) Action for damages-
He can sue for damages for non-delivery of the goods.
(c) Action for specific performance.
The buyer can only exercise this right compelling the seller to deliver the
goods when the goods are specific or ascertained. This remedy is only also
exercisable where damages will not be an adequate remedy.
(d) Recovery of purchase price.
Where seller fails to deliver the goods, the subject matter of the contract.
6.6.2 Seller's Rights.

They are of two kinds. He has right over the goods which are called real rights as
against his rights against the buyer himself which are regarded as personal rights.
Real Rights: An unpaid seller of goods, even though the property in the goods has
passed to the buyer has the following rights.
(a) A Lien: A lien is the right to retain possession of the goods, until payment
of the price. It arises by the provision of Section 41 of the Act as follows:
i. when the goods have been sold without any stipulation as to credit;
ii. when the goods have been sold on credit but the term of credit has
expired
iii. when the buyer becomes insolvent.
By the provisions of Section 43 this right is lost:
a. when the goods are delivered to a carrier for the purpose of
transmission to the buyer, without reserving the right of disposal;
BUSINESS LAW 104

b. when the buyer or his agent lawfully obtains his possession of the
goods;
c. by waiver.
(b) Right of stoppage in transit, i.e. the right of stopping the goods while
they are in transit and resuming possession of them until payment of the
price. This is provided by Section 44 of the Act. It is available when:-
i. the buyer becomes insolvent; and
ii. the goods are in transit.
(c) Right of Resale. There is no general right to resell. The right of a lien or
that of stoppage in return does not also entitle the seller to resell. The
seller, even though unpaid, who resells is generally in breach. He must
deliver the goods in return. However, in the following instances he has
a right to resell.
i. where the goods are of a perishable nature.
ii. where he gives notice to the buyer of his intention to resell, and the
buyer does not within a reasonable time pay or tender the price.
iii. where the seller expressly reserves a right of resale in case the
buyer should default.
If the seller however suffers loss from the resale he can claim such from the
buyer as damages.
(d) Right of withholding delivery: This right arises where property in the goods
has not passed to the buyer and possession is also with the seller.
Personal Rights: A seller is also entitled to these personal rights against the
buyer where the buyer breaches the contract.
BUSINESS LAW 105

(a) To sue for the Price by Section 49 of the Act, this right avails the
seller, when the property in the goods have passed to the buyer and
the buyer wrongfully neglects or refuses to pay for the goods.
(b) To sue for Non-Acceptance. This action for damages lies when the
buyer refuses or neglects to accept the goods.

This chapter has explained what a contract for sale of goods means and the laws
that govern such contract. Also, it shows the classifications of goods,
differentiating between specific goods and unascertained goods and the difference
between a contract for sale of goods and other transactions that seem similar to it.
Further, it shows the form and terms of the contract, differentiating between a
condition and a warranty; and explains the implied terms in a contract such as title,
description, merchantable quality etc.
It discusses and explains other terms like time and price. It further explains transfer
of title by non-owner, passing of risks, and breach of the contract and remedies
available to the parties.
Please, remember that a contract for sale of goods is in its basic form, a contract,
which is an agreement between the two parties, which is binding on them, and
enforceable by the Courts.

1. Define a contract for sale of goods.
2. How does a contract for sale of goods differ from
a. hire purchase agreements
b. work and materials
c. sale and bailment
3. State and explain three implied terms in a contract for sale of goods.
BUSINESS LAW 106

4. Explain the difference between a condition and a warranty
5. In what instances is a transfer of title by a non owner valid?
6. State the remedies available to a seller in the case of a breach of the

contract for the sale of goods.
7. State the classes of goods that we have.
8. What is a
(i) warranty?
(ii) condition?
9. When is the seller's duty regarding merchantable quality inapplicable in a

sale of goods contract?
10. List 3 ways in which unascertained goods may become ascertainable.
11. State 4 exceptions to the nemo dat guod non habet rule.
12. When is the seller's right to resell exercisable upon a breach of a contract of
sale of goods?
13. When may a seller exercise his right to stop goods in transit in a sale of
goods contract.
14. State the rights of a buyer for a breach of a Sale of goods contract.
15. State the personal rights of a seller where a sale of goods contract has been
breached.
1. The following essential elements are required for the contract of sale of
good EXCEPT ONE
A. Offer and acceptance.

B. Consideration
C. Intention to create legal relationship
D. Capacity
E. Insurance policy
2. The contract of sale of good is basically governed by.
BUSINESS LAW 107

A. The sales of goods Act 1893
B. The 1999 Constitution of the Federal Republic of Nigeria as
amended.
C. The Company and Allied Matters Act CAMA LFN 2004.
D. The Banks and other Financial Institution Act (BOFIA) LFN 2004.
E. The Land use Act of 1978 now codified in LFN 2004.
3. The following are the exceptions to the Nemo dat guod non habet rule
EXCEPT ONE
A. Estoppel.
B. Sales by Mercantile Agent or factor.
C. Sale in market overt.
D. Sale by seller in possession.
E. Sale by owner of the supermarket on behalf of any licensed agent.
4. Buyers right in sale of goods contract include the following EXCEPT

ONE.
A. The right to reject the goods.

B. Action for damages.
C. Pre action notice.
D. Recovery of purchase price.
E. Recovery of damages
5. Sellers rights in the sale of goods contract include the following EXCEPT
ONE.
A. Right of lien.
B. Right of stoppage in transit.
C. Right of resale.
D. Right of withholding delivery.
E. Right of preliminary objection.

1. Explain existing goods.
2. What are future goods?
3. Bailment of goods is ..
4. The phrase merchantable quality means..
5. The phrase NEMO DAT QUOD NON HABET.
BUSINESS LAW 108

CHAPTER SEVEN
HIRE PURCHASE
LEARNING OBJECTIVES
At the end of this chapter, readers should be able to:
define a hire purchase contract.
differentiate a hire purchase agreement from other secured credit transactions.
know the reasons for the adoption of the hire purchase system.
understand the obligations and rights of the parties at common law and under the
Hire Purchase Act.
have an understanding of the purpose and contents of the Hire Purchase Act.
7.0 INTRODUCTION
In the preceding chapters, we have considered a contract in its basic form, i.e. an
agreement between two parties which is binding on them and which is enforceable
by the courts.
We have also discussed a contract for the sale of goods which simply, is an
agreement where the seller transfers or agrees to transfer the property in goods to
the buyer for a monetary consideration called price.
In this chapter, we shall be discussing a different kind of contract, i.e. Hire
Purchase. Simply put, it is an agreement whereby the possession of goods is
delivered to a person, who agrees to make payments periodically, and with an
option of buying the goods after the agreed instalments have all been paid. This
contract or agreement differs from the others that have been discussed so far, and
the distinction would be revealed upon a careful study of the chapter.
7.1 DEFINITION OF HIRE PURCHASE

A hire-purchase agreement is an agreement under which the owner of goods hires
them to another person called the hirer, the agreement also providing that the hirer
shall have the option to buy the goods if and when the number of instalments
specified in the agreement had been paid.
BUSINESS LAW 109

The above definition clearly shows:
a. There is no obligation on the hirer to pay all the instalments.
b. Until the option is exercised there is no agreement to buy the goods. We can
then safely say that a hire purchase contract consists of 3 parts:
i. a contract of bailment under which the hirer obtains possession of
the goods while ownership remains in the owner and so uses them
before they are fully paid up.
ii. an option in favour of the hirer entitling him after payment of the
periodical instalments and usually for a nominal consideration to
purchase the goods; and, if the hirer exercises the option.
iii. a contract of sale making him the owner of the goods already in his
possession.
We are thus very clear as to the nature of a hire purchase agreement as that which
is a contract of hire and not sale, although there is a general misconception that
since the hirer has possession of the goods he has ownership in them. It can be seen
clearly that a hire purchase contract does not come within the purview of the Sale
of Goods Act since property (or ownership) which is the essence of a sale of goods
contract may not pass to the hirer if he fails to pay all the stipulated instalments.
Let us also distinguish a hire purchase agreement from other secured credit
transactions.
7.1.1 A credit sale agreement:-

Is an agreement by which the seller sells and transfers ownership in goods (i.e.
property) to the buyer and agrees to accept payment by instalments. The buyer is
the owner of the goods and not merely a hirer of them. If he defaults in paying the
instalments, the seller's remedy is an action for the accrued instalments but not
for recovery of possession of the goods.
BUSINESS LAW 110

7.1.2 A conditional sale agreement: -
Is an agreement for the sale of goods under which the purchase price is payable
by instalments, until the last instalment is paid and the property in the goods is to
remain in the seller (notwithstanding that the buyer is to be in possession of the
goods) until such conditions as to the payment of instalments or otherwise as may
be specified in the agreement are fulfilled.
The difference between hire purchase and this is that there is an obligation, not
merely an option to purchase the goods.
7.2 OBLIGATIONS OF THE PARTIES TO A HIRE-PURCHASE.

The obligations of the parties to a Hire purchase agreement may be express or
implied. They are express if they are set out in the agreement. Both under the
common law and the Hire Purchase Act, obligations are implied in Hire-Purchase
agreements. These may be either conditions or warranties and we are aware of the
consequences of breach of either a condition or a warranty.
Before talking about the obligations, it is important to state the parties to a hire
purchase agreement. There are usually two parties to a hire purchase agreement
(i.e. The Owner- who undertakes to let out the goods on hire with an option to
purchase when all payments have been made and the Hirer- who undertakes to pay
the hire purchase charges that are involved. In certain instances however there are
three parties to the transaction, the owner, the hirer and a finance company. Here
the goods to be hired are selected by the hirer and the owner then sell the goods to
a finance company which hires the goods to the hirer under Hire Purchase
agreement, and this has been touted as one of the reasons for the adoption of the
hire purchase system. It is perhaps better to also consider the reasons for the
adoption of this system before considering the obligations of the parties.
7.2.1 Reasons for the adoption of the Hire Purchase System

1. It allows credit to someone who is unable to pay cash for the goods he has
to have. He can thus pay a deposit and make instalmental payments of the
BUSINESS LAW 111

balance at an agreed rate of interest. He can then become the owner of the
goods, if and when, he finishes payment of the instalments and he exercises
the option to purchase.
2. It affords a manufacturer or dealer in certain goods who cannot afford to

extend credit facilities to prospective consumers the services of third parties
such as finance houses to provide such credit. A finance house buys the
goods from the dealer and hires them to interested parties thus enabling the
manufacturer have sufficient finances to stay in business instead of dealing
straight with interested hirers who cannot provide all the cash at once.
3. It also allows for the evasion of the Moneylenders Act. Where a finance
company lends money to the hirer to initiate a transaction with the dealer or
manufacturer of goods, such an agreement should come ordinarily within
the purview of the Moneylenders Act. Such finance company must thus
obtain a licence under the Moneylenders Act. However with the decision in
Old Discounts Ltd Vs Playfair Ltd (1938)1 stating that such a transaction
involving these three parties is not a money lending contract, the finance
company need not obtain a license.
7.3 OBLIGATIONS AND RIGHTS OF THE PARTIES

The obligations which the parties owe themselves are governed both by common
law and statute. The decisions of the courts laying down principles of law dealing
with hire purchase transactions make up the applicable principles of the common
law as regards hire purchase transactions. The applicable statute as regards hire
purchase transactions in Nigeria is the Hire Purchase Act 1965. A consideration
of this law shows a radical alteration of the common law principles. To appreciate
the major ways in which this statute altered the common law position, it is apposite
to first consider the obligations and the rights of the parties under the common law
before looking at the position under the statute.
BUSINESS LAW 112

7.3.1 Obligations of the Parties at common law
(a) Obligations of the owner
1. Delivery of the goods:- The owner must deliver the goods to the
hirer and can be sued for non-delivery if he fails to do so. The
breach of this duty allows the hirer to repudiate the contract of hire
purchase.
2. Good title to the goods: The common law implies into every hire
purchase contract a condition that the owner has title to the goods
at the time when the hiring commences. If the owner has no title
the hirer may repudiate the contract and recover any deposits or
instalments that he has paid, on the ground of a total failure of
consideration.
3. Fitness for purpose: A condition that the goods are reasonably fit for
the purpose for which they are hired is implied into every contract
of hire purchase. Held in Anoka Vs. S.C.O.A. (1956)2 that this
implied condition does not extend to a hidden defect. Here a lorry
was let on hire purchase, the engine had a hidden defect and it
ceased to function. The owner was held not liable for breach of this
implied condition because the defect could not have been
discovered by due care and skill on his part.
4. Warranty of quiet possession:- There is an implied warranty that the

hirer shall also have and enjoy quiet possession of the goods The
owner was allowed to exclude any or all of these terms at common
law as the courts did not interfere with the contract made by the
parties. This was however subject to the rules of construction of
exclusion clauses and the doctrine of fundamental breach. See
Ogwu Vs. Leventis Motors Ltd. (1963)3.
BUSINESS LAW 113

(b) Obligations of Hirer at common law:
1. To take delivery of the goods: The place of delivery, unless
otherwise agreed, is the owner's place of business. If the hirer
neglects to take delivery the owner may sue him for damages for
non-acceptance.
2. To take care of the goods: He has a duty to take reasonable care of

the goods. If the contract is determined and he returns damaged
goods to the owner, he will be liable in damages unless he proves
that he has taken reasonable care of them. He is not liable for loss or
damage occurring accidentally or without default on his part.
3. To pay instalments: The hirer must pay the agreed instalments as

they fall due. If he defaults, the owner has a right to terminate the
agreement and repossess the goods. In that event the hirer is liable
to pay all arrears of instalments due, compensation for any damage
to the goods arising from his default and any reasonable costs
incurred by the owner in repossessing the goods. The owner's right
to repossess the goods is not affected by the fact that only a very
small sum is left unpaid by the hirer. This is one instance of the
harshness of the common law faced by the hirer and equity does not
intervene to grant any relief to him. See Atere Vs. Amao (1957)4.
A motor lorry was taken on hire purchase. The total price payable
was 1000 pounds. The hirer had paid 995pounds and defaulted in
the final payment of 5 pounds. The repossession of the lorry by the
owner was held lawful by the Courts.
4. To redeliver the goods: The hirer is bound to redeliver the goods to

the owner at the termination of the hire. If he fails to do so he is
strictly liable for any subsequent damage to the goods. Also the
owner may repossess the goods or maintain an action against the
BUSINESS LAW 114

hirer where the hirer does anything with the goods which is
inconsistent with the owner's title e.g. selling the goods. The hirer
will be liable in conversion to the owner.
7.3.2 Rights of the Parties at Common Law

(a) Rights of the Hirer: The Hirer being in possession of the goods has the
right to sue anybody who interferes with such right in trespass, conversion
or detinue. If he obtains damages he must account to the owner.
(b) Rights of the Owner: An owner of goods has no possession in the goods,
he cannot accordingly sue unless the contract has ended or the goods comes
into his possession however he can sue in conversion if the goods are
permanently destroyed as this affects his reversionary interest (i.e. his right
to have the goods back at the end of the day where the contract of hire does
not mature into purchase)
7.4 THE HIRE-PURCHASE ACT 1965

This Act is the first statute made in Nigeria to regulate Hire-Purchase transactions
in Nigeria. It used to apply only to Lagos, before it was extended to the whole of
Nigeria by the Hire Purchase (Application) Act 1966 and it came into force on 1st
October 1968 and it was amended slightly in 1970. It is now known as the Hire
Purchase Act Cap H4 Laws of the Federal Republic of Nigeria 2004.
7.4.1 The Purpose of the Act

The Act was passed to check various injustices and malpractices in Hire-
Purchase transactions which were perpetrated by owners under the common law
of hire purchase. Some of them may be highlighted as follows:-
1. Hirers were usually lured by owners into entering hire purchase without a
grasp of the financial obligation involved.
BUSINESS LAW 115

2. Hirers obtained goods under agreements of which copies were not given to
them and such agreements usually excluded all conditions and warranties
thereby passing off useless goods to the hapless hirer.
3. Owner reserved the right to recover the goods on the slightest breach or
entering the hirer's premises, although only a small fraction of the Hire
Purchase remains to be paid as in Atere Vs. Amao3.
4. Where an owner sells goods after seizure, he was not accountable to the
Hirer for any excess he might realize over the amount outstanding. But
where he sells at a loss he could claim for the balance from the hirer.
5. The lack of regulations governing Hire purchase transactions occasioned
high levels of prices and rates of interest.
The Hire-Purchase Act therefore attempted to reduce the exploitation of the hirer
in many ways, some of which are:-
i. It ensures adequate information to the hirer to enable him evaluate the
transaction.
ii. The owner can no longer easily escape liability for supplying useless goods
iii. The owner's right to repossess the goods is severely restricted.
7.4.2 The Contents of the Act

The Act provides for hire purchase, credit sale transactions and advertisements
relating to them.
The general requirements of the Act are as follows:-

1. Notification of cash price: By Section 2(1) of the Act, before any Hire-
Purchase agreement is entered into, the owner shall state in writing to the
prospective hirer, otherwise than in the agreement, the cash price of the goods.
The Act however allows this provision to be dispensed with where:
(a) the hirer has inspected the goods which contain labels indicating the cash
price
BUSINESS LAW 116

(b) the hirer selected the goods using a catalogue, a price list or an
advertisement showing the cash price.
2. Written Agreement: By Section 2(2) there must be a note or memorandum
of the agreement which must be made and signed by the hirer and or on
behalf of the other parties to the agreement and the note or memorandum
must contain the following:
(i) a statement of the Hire-Purchase price and the cash price, the amount of
each instalment, the date and method of determining the date on which each
instalment is payable.
(ii) a statement of the deposit paid.
(iii) a statement of the true rate of interest.
(iv) a list of the goods to which the agreement relates.
(v) a notice as prominent as the contents of the agreement setting out:
(a) the hirer's statutory right to terminate the agreement and
(b) the statutory restrictions on the owner's right to recover the goods.
A copy of the agreement must be sent to the hirer or delivered to him within 14
days of the making of the agreement.
7.4.3 Effect of non-compliance:

Where there is non-compliance with the above provisions of the Act relating to
the general requirements the owner is disallowed from enforcing any of the
following:
(i) the hire purchase agreement itself ; or
(ii) any contract of guarantee relating to it; or
(iii) any right to recover the goods from the hirer; or
(iv) any security given by the hirer or a guarantor.
However, as long as there is an agreement signed by the hirer, if the court is
satisfied that the failure to comply with any of the other requirements has not
prejudiced the hirer, the court may exercise its discretion where it is equitable to do
so and dispense with such requirement for the purpose of the action.
BUSINESS LAW 117

7.4.4 Void Provisions.
Section 3 of the Act renders void any provision in a hire purchase agreement:-
a. Whereby an owner or his agent is authorised to enter any premises to
recover goods let on hire purchase or is relieved from liability for any such
entry; or
b. Whereby the hirer's right under the Act to terminate the agreement is
excluded or restricted or any additional liability (other than those imposed
by the Act) is imposed on the hirer for terminating the agreement or
c. Whereby after termination of the agreement the hirer is subjected to any
liability in excess of the liability which he would have incurred if the
agreement was terminated by him under the Act; or
d. Whereby anyone acting on behalf of the owner or seller in connection with
the formation or conclusion of the agreement is deemed to be hirer's agent;
or
e. Whereby an owner or seller is relieved from liability for the acts or default
of any person acting on his behalf in connection with the formation or
conclusion of the agreement; or
f. Whereby the services of a person as insurer, repairer, or in other capacity
whatsoever, are imposed on the hirer.
7.5 OBLIGATIONS AND RIGHTS OF THE PARTIES UNDER THE HIRE

PURCHASE ACT
As under a sale of goods contract, the parties are free to make their contracts and
impose obligations on themselves, and where they fail to, the Sale of Goods Act
implies certain terms into their contract. Likewise in a hire purchase transaction,
Section 4 of the Hire-Purchase Act implies certain terms into every contract of hire
purchase. These are however implied in addition to, not in exclusion of, any other
terms the parties may make or may be implied by any other statute. They are
substantially the same as the terms implied by the Sale of Goods Act into contracts
of sale of goods. The following are the terms implied by the Act:
BUSINESS LAW 118

7.5.1 Implied Terms Under The Hire-Purchase Act.
1. Quiet Possession: By Section 4(1) (a) of the Act there is an implied
warranty that the hirer shall have and enjoy quiet possession of the goods.
This is similar to the one under the common law.
2. Right to Sell the Goods: By Section 4(1) (b) there is also an implied
condition on the owner's part that he has a right to sell the goods when
property will pass. The time when the property is to pass is when the option
to purchase is exercised.
3. Freedom from Encumbrance: An implied warranty that the goods shall be
free from any charge or encumbrance in favour of any third party at the
time when the property is to pass e.g. a lien. See Section 4(1)(c)
4. Merchantable Quality: There is also an implied condition that the goods
shall be merchantable under Section 4(1)(c) of the Act although the section
also provides three exceptions which are as follows:-
(a) Where the goods are second hand goods and this is stated in the
agreement.
(b) If the defects are such that the owner could not reasonably have
been aware of them.
(c) If the hirer has examined the goods or a sample of them and the
examination ought to have revealed the defects.
5. Fitness for Purpose: Where the hirer expressly or by implication makes
known the particular purpose for which the goods are required there shall
be an implied condition that the goods shall be reasonably fit for that
purpose.
Under the common law breaches of similar conditions are not strict as can be seen
in Anoka Vs. S.C.O.A (1956)4, that the owner is not liable for defects which
cannot be discovered by the exercise of due care and skill. Under the Act however
liability is strict just as in a sale of goods contract if we remind ourselves of the
facts of Frost Vs Aylesbury Diary Co. under a consideration of the same term
under Sale of Goods.
BUSINESS LAW 119

7.5.2 Exclusion of Terms Implied by the Act.
Under the Hire-Purchase Act (Section 4) there 3 conditions and 2 warranties
implied in the Hire Purchase contract. The implied conditions as to right to sell
and merchantable quality and the implied warranties as to quiet possession and
freedom from encumbrance cannot be excluded notwithstanding any contrary
agreement made by the parties, unlike under the Sale of Goods Act where such
terms could be excluded under Section 55 of that Act. However the condition of
fitness for purpose may be excluded where such exclusion clause is brought to the
notice of the hirer and its effect made clear to him.
7.5.3 Hirer's right to terminate agreement

At any time before the final payment under a hire purchase agreement falls due, the
hirer may terminate the agreement by giving notice in writing to any person
entitled or authorized to receive any sums payable under the agreement.
Thus the hirer must, where appropriate, pay such sum as would make the total
amount paid under the contract equal to 1/2 of the total Hire-Purchase price. See
Section 8(1). However by the provisions of Section 8(2) if he fails to take
reasonable care of the goods, he is liable to pay damages for such failure. Upon the
termination of the agreement the hirer must return the goods to the owner and
settle all outstanding liabilities.
If however he wrongfully retains the goods, the Court may order the goods to be
delivered to the owner without allowing the hirer exercise his option to purchase
the goods, in an action brought by the owner. The Court may however still allow
the hirer exercise his option to purchase where it would be just and equitable to do
so having regards to the circumstances of the case. See Section 8(3)
7.5.4. Recovery of Goods

If under a Hire Purchase agreement the hirer has paid the relevant proportion
which is in the case of motor vehicle 3/5 and other goods 1/2 of the Hire Purchase
price, the owner cannot recover possession of the goods otherwise than by action
in court.
BUSINESS LAW 120

For motor vehicles if 3 or more instalments of the Hire Purchase price are due and
unpaid the owner may remove the motor vehicles to premises under his control to
protect it from damage or depreciation until such action is determined by the
Court.
The owner is liable for any loss or damage caused by the removal. If the owner
contravenes these provisions, by the provisions of Section 9 of the hire purchase
agreement comes to an end and the hirer and guarantor can recover from the owner
all sums paid under the agreement.
Some regulations were also made pursuant to this Act by the relevant Minister.
These regulations contain provisions regulating the terms of Hire Purchase
transactions including the payment of a mandatory minimum as deposit by the
hirer. There are also regulations fixing a maximum period for repayment of the
balance in respect of various types of goods set out in the schedule. 7.6

This chapter has given a detailed explanation of the hire purchase agreement,
showing the difference between the hire purchase agreement and other secured
credit transaction. It further shows the obligations of the parties under the hire
purchase agreement; stating the obligations and rights of the parties at common
law, as well as the rights and obligations of the parties under the Hire Purchase
Act. A further study would reveal the rationale behind the adoption of the hire
purchase agreement. The Hire Purchase Act, its contents and purposes have all
been discussed. The general requirements of the Act such as notification of cash
price, written agreement and so on, provisions and implied terms under the Hire
Purchase Act e.g. quiet possession, right to sell the goods and so on, including
exclusion of terms implied by the Act, the hirer's right to terminate the agreement
and recovery of goods have been extensively discussed.
The Hire Purchase Act has radically altered the common law principles, as it has
been discussed in this chapter. The hire purchase agreement is distinctive in its
BUSINESS LAW 121

nature, as it is a contract of hire, and not of sale, thereby making it different from a
contract for sales of goods.

1. The Hire Purchase Act has radically altered the common law principles of
hire purchase. How true is this assertion?
2. What are the reasons for the adoption of the hire purchase system?
3. A hire purchase agreement consists of three parts. Name them.
4. Distinguish between a hire purchase contract and a conditional sale

agreement.
5. State the duties of an owner in hire purchase agreement at common law.
6. State the duties of the hirer at common law.
7. State three injustices or malpractices that the Hire Purchase Act was
enacted to check.
8. State four terms that must be contained in a Hire Purchase agreement as

stipulated by statute.
9. What is the effect of non compliance with the general requirements of the
Hire Purchase Act?
10. When may a Hire Purchase agreement which does not conform with the
general requirements of the Hire Purchase Act be enforceable?
11. State three provisions, which if, contained in a Hire purchase agreement are
void.
12. When may a hirer exercise his right to terminate a hire purchase agreement
under the relevant statute?
13. State four terms which are implied in a Hire Purchase agreement.
14. Is it in all instances that the terms implied in a HP agreement by statute

may not be excluded?
15. Explain the term relevant proportion in a HP agreement and explain its
relevance.
16. What is the effect of the exclusion of the terms implied by the Hire
Purchase Act by a party to the HP contract?
BUSINESS LAW 122

CHAPTER EIGHT
CONTRACT OF EMPLOYMENT

define employment
distinguish between contract of service and contract for services.
compare the rights of the employer with that of the worker.
discuss the duties of employers
describe the duties of the worker
discuss contracts in restraint of trade
explain the concept of termination and discuss its scope
discuss redundancy
explain the remedies available.
8.1 INTRODUCTION
The right to work is one of the fundamental human rights. It is the main means of
sustenance for man. This is especially so in economies like ours where
unemployment benefits are non-existent. Whatever form the employment takes, it
is important to have an understanding of how it is contracted. Another critical area
of interest is the contract of service and the contract for services. This is the
distinction between those who are their own masters and those who are employees
and the features associated with them. The legal basis of employment remains the
contract of employment between the employer and the employee. In most
employment situations both the employer and the employee (worker) have rights
and also obligations imposed on them and it is essential to know them. Under
certain circumstances, former employees and other parties are restricted in the
engagement of their trade, business or profession. This is restraint of trade and it is
necessary that the principles involved are well understood. The various ways by
which a contract of employment is brought to an end also have to be looked at.
BUSINESS LAW 123

Forms of termination, redundancy and dismissal must necessarily receive attention.
Finally the remedies available in the event of a breach of a contract of employment
are explained to ensure a proper appreciation of them.
8.2 THE NATURE AND FORMATION OF THE CONTRACT OF

EMPLOYMENT
8.2.1 Formation of the contract of employment

Traditionally, the law has not regulated the process of the selection of employees
by an employer. Such selection remains largely an area of managerial discretion. It
must however be exercised subject to the statutory provisions relating to non-
discrimination among others. In general, a contract of employment need not be in
any particular form. A contract of employment may thus be inferred from conduct,
which shows that such a contract was intended although never expressed. To be
legally binding a contract must generally be sufficiently clear and certain. An
employer now has a statutory obligation to give an employee a written statement of
the major terms and conditions of employment. A contract of employment will not
be enforced if it is based on a consideration which is wholly illegal. A contract
may generally be illegal because it is contrary to a statute or is an immoral
contract. Express terms are agreed between the employer and the employee.
Implied terms must be read, subject to any express terms in the contract. Implied
terms arise out of custom and practice or through the courts which will determine
whether an implied term is part of the contract.
8.2.2 Approaches to determining the nature of the contract of employment.

There is no single test for determining whether a person is an employee or not.
The test that used to be considered the control test can no longer be considered
sufficient. The control test extends to not just what the employee does but how it is
done. The question whether the person was integrated into the enterprise or
remained apart from and independent of it has been suggested as an appropriate
test. The integration test considers how far or to what extent the employee is
integrated into the employer's business. Like the control test, it is only one of the
BUSINESS LAW 124

relevant factors. The modern approach is to balance all of those factors in deciding
on the overall classification of the individual. This is the multiple test. Thus there
may be an employment relationship even if there is no actual control. Conversely a
person can be under a high degree of control but still be an independent contractor
because of other factors.
The factors relevant in a particular case may include in addition to control and
integration; the method of payment, any obligation to work only for that employer,
stipulations as to hours, overtime, holidays and so on and arrangements for
payment of income tax and national insurance contributions, the nature of the work
(in some cases), whether the individual may delegate work, who provides tools and
equipment, who ultimately bears the risk of loss and the chance of profit and how
the contract may be terminated. Particular problems in determining who the
employer is have arisen where employees are loaned out to another employer. The
key to who has responsibility for the employee depends on who retains the ultimate
right of control and significantly, the right to hire and fire, even though day to day
control may have passed to the other employer. A servant has been given different
definitions. In one respect a servant is defined as one who for a consideration,
agrees to work, subject to the orders of another. The relationship of master and
servant is also said to exist between persons of whom the one has the order and
control of the work done by the other. It is again stated that the servant is an agent
who works under the supervision and direction of his employer and an independent
contractor is one who is his own master.
8.2.3 Incidents of the Contract of Service and Contract for Service

A contract of employment is a contract of service or apprenticeship whether
express or implied and if it is express, whether it is oral or in writing. An employee
is an individual who has entered into or works under, or where the employment has
ceased, worked under a contract of employment. An employee is employed under a
contract of employment or contract of service whereas an independent contractor is
employed under a contract for services. The distinction is important because many
BUSINESS LAW 125

employment rights only accrue in an employer/employee relationship. Those
employed to perform services in connection with the affairs of the employer, and
over whom the employer has control in the performance of those services have
been styled servants in law. In modern times they are called employees since the
term servants has come to be identified with domestic helps. Independent
contractors are those who do work for another, but are not controlled by that other
in their conduct in the performance of that work. Such work is carried out in
pursuance of a contract and the persons doing it are therefore called independent
contractors. If an employee commits a tort in the course of his employment, then
the employer is vicariously liable. An employee is not liable for the torts of an
independent contractor. Again the rights and remedies provided by employment
legislation like social security contributions are available to the employee but not
the independent contractor.
8.3 THE RIGHTS OF THE EMPLOYER AND THE WORKER

8.3.1 Rights of the Employer
The rights of an employer include the right to employ a worker, discipline,
transfer, promote and terminate the employment of the worker. What it means is
that there is discretion in recruitment even though there must be the avoidance of
discrimination as a set target takes decision to modify, extend or cease operations.
Determine the type of products to make or sell and the prices of its goods and
services.
8.3.2 Rights of the Worker

The rights of the worker include the right to work under satisfactory, safe and
healthy conditions. Receive equal pay for equal work without distinction of any
kind. Have rest, leisure and reasonable limitation of working hours and period of
holidays. Form or join a trade union. Be trained and retrained for the development
of his or her skills. Receive information relevant to his or her work.
BUSINESS LAW 126

8.4 THE DUTIES OF THE EMPLOYER AND THE WORKER
There are duties imposed on the employer and the employee (worker) by virtue of
their contractual relationship.
8.4.1 Duties of the Employer
An employer's basic obligation under a contract of employment is normally the
payment of remuneration. The rate of remuneration depends on the terms of
employment and the minimum wage rate in the country. Remuneration is payable
in legal tender. Payment in the form of promissory notes, vouchers or coupons or
any other form is prohibited. In addition to remuneration, a contract can provide
the worker with housing, food and other allowances or privileges. An employer
does not have the right to make any deductions from the workers remuneration
except deductions in relation to a worker's contribution to a provident fund,
pension or other fund or scheme agreed to by the worker and approved in writing
by the Chief Labour Officer. The employer must pay the agreed remuneration at
the time and place, agreed on, in the contract of employment or collective
agreement or by custom without any deduction except deduction permitted by law
or agreed between the employer and the worker. The development of the human
resources by way of training and retraining of the workers is another obligation of
the employer. He is also to provide and ensure the operation of an adequate
procedure for the discipline of the workers. Every worker is entitled to being
furnished with a copy of his contract of employment.
Keeping open the channels of communication with the workers is also an

important requirement. The employer is to protect the interests of the workers and
treat them equally with respect. The employer has a duty to indemnify the
employee in respect of all losses, liability and expenses incurred by the latter in
carrying out his or her lawful orders unless the employee knew that the act was
unlawful. A contract of employment contains an implied term that the employer
will take reasonable care for the employee's safety, health and welfare at work.
This consists of provisions of safe premises and equipment and a reasonably safe
BUSINESS LAW 127

system of work. The provision and maintenance of plant and systems of work that
are as far as is reasonably practicable, safe and without risks to health are
important obligations. There should be care in the choice of safe competent
workmen. The provision of such information, instruction, training and supervision
as necessary to ensure so far as is reasonably practicable, the health and safety at
work of employees is an obligation of the employer. He is also to ensure as far is
reasonably practicable safety and absence of risks to health in connection with the
use, handling, storage and transportation of articles and substances. In sum the
employer has a duty to provide and maintain a working environment for his
employees that is safe, without risks to health and adequate as regards facilities and
managements for their welfare at work.
The traditional view is that the normal obligation of an employer under a contract
of employment is to provide the employee with the agreed remuneration, not
necessarily to provide him with work to do. The exceptions to this are where the
attendant publicity in such work is as important to the employee as the
remuneration as in the case of the actor or singer, where it is important for the
employee to be provided with work to do in order to earn the remuneration as in
the case of employees remunerated by commission or on a piece of work basis or
where the employee is engaged to fill a particular office notably of a professional
nature. The duties of an employer include the duty to provide work and appropriate
raw materials, machinery, equipment and tools.
The employer owes the duty to treat employees with respect. In a contract of
employment there is an implied term that the employer will not, without reasonable
and proper cause conduct himself in a manner calculated as likely to destroy or
seriously damage the relationship of confidence and trust between employer and
employee. The kinds of behaviour which may breach the term of trust and respect
are varied. They may include abuses and false accusation, intolerable behaviour
and bad language and unmerited reprimanding in humiliating circumstances.
Others may be persistent attempts to vary conditions of employment, failure to
BUSINESS LAW 128

follow established procedures and failure to take seriously a complaint of sexual
harassment.
8.4.2 Duties of the Worker

Under a contract of employment an employee has several duties towards the
employer. The very essence of a master-servant relationship is the duty of personal
service. The duties of a worker in any contract of employment or collective
agreement include the duty to work conscientiously in the lawfully chosen
occupation. This entails reporting for work regularly and punctually. The worker
has a duty to enhance productivity. The worker must exercise due care and skill in
the execution of assigned work otherwise he could be sued by the master for
negligence caused to his master's property. The employee has a duty to obey lawful
and reasonable orders of his employer regarding the organisation and execution of
his or her work. Take all reasonable care for the safety and health of fellow
workers. Protect the interests of the employer. An employee must show loyalty and
good faith to the employer. He must render faithful and honest service. He must
not take bribes or do anything against the master's interest. He is therefore
expected to take proper care of the property of the employer entrusted to the
worker or under the immediate control of the worker. The employee has a duty of
disclosure. He has to disclose all facts which affect the master's interests. This calls
for the revelation of frauds or malpractices to the master where there is a public
duty to disclose. Generally there should not be a disclosure of confidential
information obtained by him in the course of and as a result of his employment.
The employee has an obligation to indemnify the employer. A servant must
indemnify the master against wrongful acts for which the master has been held
liable.. An employee is liable to account for all property and sums received by him
from third parties in the way of business payments. An employee must not also
misconduct himself. This includes insolence, dishonesty, laziness and
insubordination among others.
BUSINESS LAW 129

8.5 CONTRACTS IN RESTRAINT OF TRADE
A contract in restraint of trade restricts a person wholly or partially in the carrying
on of his trade or business. All such contracts are prima facie void, but may be
valid if the person imposing it has a legitimate interest to protect and the restriction
is reasonable as between the parties and is not contrary to public interest.
Employers cannot protect themselves against competition from an ex-employee

except where they have a legitimate interest to protect. The purchaser of the
goodwill of a business has a legitimate interest in protecting that goodwill by
getting the seller to agree not to set up the same line of business immediately
against him. An employer in addition has a legitimate interest to prevent an
employee from revealing trade secrets or siphoning off customers to the competitor
of the employer.
A provision which is wider than is necessary to protect a legitimate interest is

unenforceable. The longer the period of time covered by the restraint the more
likely it is to be set aside. A solus agreement where a trader agrees to restrict his
business or some aspect of it to a sole supplier would only be enforceable if the
courts find the restraint reasonable.
The doctrine of restraint of trade is of a broad scope and the categories are said not
to be closed. It is not limited to contracts between employer and employee, vendor
and purchaser and solus agreements. It is also applicable to restrictions intended to
promote trade.
8.6 TERMINATION OF EMPLOYMENT

Termination may be fair or unfair.
8.6.1 General grounds for termination.

The grounds for the termination of employment are by mutual agreement between
the employer and the worker; by the worker on grounds of ill-treatment or sexual
BUSINESS LAW 130

harassment; by the employer if the worker is found on medical examination to be
unfit for employment; by the employer because of the inability of the worker to
carry out his or her work due to sickness or accident, or the incompetence of the
worker or proven misconduct of the worker
8.6.2 Fair Termination

Termination is fair on any of the following grounds:
That the worker is incompetent or lacks the qualification in relation to the work for
which the worker is employed; The proven misconduct of the worker;
Redundancy; Due to legal restriction imposed on the worker prohibiting the worker
from performing the work for which he or she is employed.
An employer has a common law right to summarily dismiss a worker without

notice on the grounds of the employee's gross misconduct. It has to be noted that a
member of the public services shall not be victimised or discriminated against for
discharging his duties faithfully or dismissed or removed from office or reduced in
rank or otherwise punished without just cause.
8.6.3 Unfair Termination

A worker's employment shall not be unfairly terminated by his employer. A
worker's employment is terminated unfairly if the termination is due to his joining
or intention to join or ceasing to join or taking part in the activities of a trade
union. That the worker seeks office as or is acting or has acted as a workers'
representative. That the worker has filed a complaint or participated in proceedings
against the employer for alleged violations. On grounds of the worker's gender,
race, colour, ethnicity, origin, religion, creed, social, political or economic status.
In the case of a woman worker, due to the pregnancy of the worker or the absence
of the worker from work during maternity leave. In the case of a worker with a
disability, due to the worker's disability. Where the worker is temporarily ill or
injured and has been certified by a recognised medical practitioner. That the
BUSINESS LAW 131

worker does not have the level of qualification now required for his work which is
different from the one required at the commencement of his employment. Refusal
or intention to refuse to work because the worker was taking part in a lawful strike
unless the work was necessary to prevent actual danger to life, personal safety or
health or the maintenance of plant and equipment.
8.7 REDUNDANCY
When an employer contemplates that the introduction of major changes in
production programme, organisation, structure or technology of an undertaking
are likely to entail terminations of employment of workers in the under taking, the
employer will be expected to provide in writing to the Chief Labour Officer and
the trade union concerned, not later than three months before the contemplated
changes all relevant information including the reasons for the termination, the
number and categories of workers likely to be affected and the period within which
any termination is to be carried out. He is also to consult the trade union concerned
on measures to be taken to avert or minimize the termination as well as measures
to mitigate the adverse effects of any termination on the workers concerned such as
finding alternative employment. Redundancy implies the severance of the legal
relationship of worker and employer due to the close down, arrangement or
amalgamation and the worker becoming unemployed or suffering a diminution in
the terms and conditions of employment. This situation called for the payment of
redundancy pay. Payment to the worker by the undertaking at which he was
immediately employed before the close down, arrangement or amalgamation as a
form of compensation is what is known as redundancy pay. The amount of
redundancy pay and the terms and conditions of payment are subject to
negotiations between the employer and the worker or their representatives.
8.8 REMEDIES
Damages are the normal remedy available for a breach of a contract of
employment. This is usually monetary compensation to the injured party.
Reinstatement may be another option. It means appointing the employee back to
BUSINESS LAW 132

the position he occupied before and therefore the enjoyment of all the benefits that
go with the position. Reinstatement is often impracticable and the courts are
reluctant to make such orders since positions may have been filled already and may
also create a hostile working environment. However in situations where a public
officer may have been removed without just cause then the remedy of
reinstatement may be granted. Re-employment of the worker either in the work for
which he was employed before the termination or in other reasonably suitable
work on the same terms and conditions enjoyed by the worker before the
termination is the other alternative.

Employment plays a critical role in human survival. It is the main source of
sustenance. People may be their own masters or work for others under a contract
for service or a contract of service respectively. The very essence of the contract of
employment relates to the rights and duties of the employer and the employee. The
attempts at protecting one's business through restraint of trade and the restrictions
in the principle were worthy of note. There are mechanisms for the resolution of
labour disputes. Contracts of employment may come to an end one way or the
other. It may be through termination without loss of benefits or through
redundancy. Termination with loss of benefits (dismissal) may be the other way.
Any termination that is wrongful will amount to a breach of the contract of
employment for which there are remedies.
1. Distinguish between a contract of service and a contract for services.
2. Briefly describe the various tests for determining whether a person is an

employee or not.
3. Compare the rights of the employer to that of the employee.
4. Make a list of the duties of employers.
5. What are the duties of employees?
BUSINESS LAW 133

6. What is meant by termination?
7. Explain what fair termination is.
8. Discuss unfair termination.
9. Explain redundancy.
10. Discuss the remedies for unfair termination.
BUSINESS LAW 134

CHAPTER NINE
LAW OF INSURANCE

At the end of this chapter, readers should be able to know:
the differences between insurance and assurance
the different types of insurance contracts
the formation of an insurance contract
the different types of insurance policies
the concepts of indemnity, subrogation and contribution.
the concept of reinsurance
9.1 INTRODUCTION
The owner of a property such as a car or a house is never certain that his property
is free from loss or damage; he thus enters into a contract for a sum of money to be
paid to him when either such loss or damage occurs to his car or house. This is the
nature of a contract of insurance and it is fairly known today and it shows the
importance of Insurance both in the commercial and personal spheres.
Thus a contract of Insurance is one whereby a person or company (the insurer)

agrees in consideration of a single or periodical payment (called the premium) to
pay a sum of money to another person or company (the insured) on the happening
of a certain event or to indemnify against loss caused by the risk insured against.
It is important to note that the benefits accruing to the insured must be of a

monetary nature.
It is also pertinent at this point to distinguish between 'insurance' and 'assurance'

since there is a practical difference between the terms, although there is an
increasing tendency to treat them as synonymous. Insurance implies that the
BUSINESS LAW 135

contract is designed to indemnify the insured against unforeseeable loss or damage
which may or may not occur e.g. damage to property by fire. A contract of
assurance is one in which the assured or his representatives are to receive a sum of
money on the occurrence of an event which is bound to happen at some time,
although the time of happening is uncertain e.g. the death of the assured.
Examples:
Insurance is a very broad field and policies can be taken out against a great variety
of risks, ranging from raining on one's holidays to a lot of other things. Although
by the Insurance Act of 2003 contained in the Laws of Nigeria 2004, the insurance
business can be divided into 2 main types - Life Insurance and General Insurance.
Life Insurance business is further divisible into individual life insurance
business and group life insurance business and they include:
(i) Life And Endowment Assurance:

Often, a lump sum or annuity (i.e. money paid yearly or at some other
regular intervals) is payable on attaining a specified age or on death.
(ii) Personal Accident Insurance: A football club may insure the limbs of their
star players, as where Arsenal football team insures their star striker
Thierry Henry or Chelsea insures their Michael Essien or John Obi Mikel.
Whereas General Insurance business is divisible into many including:
(iii) Liability Insurance: People also insure against legal liability, examples
include negligence policies as where third parties or employees are injured
in motor accidents. This kind of insurance is outside the mandatory Third
Party Insurance required by the Road Traffic Law as well as other Policies
which may cover both the employer's vicarious liability to third parties and
also his personal liability to his employees.
(iv) Property Insurance: Mr. Mann may insure his house and the property
therein against fire and theft and his car against damage.
BUSINESS LAW 136

9.2 FORMATION OF CONTRACT OF INSURANCE.
A contract of insurance as with other contracts may be in any form but in practice
it is usually embodied in a written document called a policy.
A contract of insurance comes into being when one party makes an offer and the
other party makes a valid acceptance. Sometimes when luggage is insured, it is the
insurer who makes the offer and the insured by signing a standardised form or even
by merely paying a premium, acquires the right of insurance set out in the form. In
most cases, however, the insured fills in a proposal form inviting the insurer, who
if he accepts this proposal a contract of insurance comes into being. Although
acceptance may have taken place earlier, it is normally conclusive once a policy
has been issued in accordance with the proposal. Writing is only essential in
marine insurance. There is no legal necessity in other cases and if the insurer
accepts the proposal and a premium without qualification, he would probably be
held bound after a reasonable time has elapsed. However in view of the practical
difficulties which would arise in ascertaining the precise terms of the contract if it
was wholly oral most insurance contracts are evidenced in writing.
The Proposal: A standard form called a proposal form is usually handed by the
insurer to the proposed insured and contains details of the risk the insured wishes
to be covered. It asks a number of questions on the basis of which the insurer will
decide whether to accept the risk and complete the contract.
When an insurer issues a blank proposal form he is not making an offer of

insurance even if premium rates are quoted in the form. The blank proposal form is
an invitation to treat. Accordingly, the usual procedure is for the person seeking the
insurance to complete the proposal form and submit it to the insurance company. If
the company rejects the proposal there is no contract. If it does accept it, there is a
contract although the precise time at which a contract is formed depends on the
interpretation of the germane documents. Hence, if the acceptance requires that
BUSINESS LAW 137

there is no insurance until the first premium is received, it is crystal clear that there
is no protection until such premium is paid.
The party to be insured also has a duty to make full disclosure of all material facts
so he must scrutinize the proposal form with great care. Where the specific
questions to be answered appear to be exhaustive the matter is comparatively
simple but in other cases, the proposed insured may be in doubt as to what
additional information he ought to supply and the line between what is material
and what is immaterial is not always easy to draw. He should therefore, in his own
interests, amplify the information specifically requested if he feels that there are
other material facts he ought to disclose.
Neglect to do this, may mean that, if the insurer accepts the proposal and the loss
actually occurs, the insured may find that the insurer can avoid the contract and
have no liability beyond the return of the premium paid.
This duty of disclosure is based on the idea that when a person applies for
insurance he is in the possession of all the information whereas the prospective
insurer knows nothing at all. This is why the contract of insurance is a contract of
the utmost good faith or a contract of uberrimae fidei.
Examples of Material Facts.

A fact is material if it would affect the decision of the insurer in his consideration
of the acceptance of the risk and the terms for so doing. The under stated contain
what the Courts have decided are material facts to be disclosed by the proposed
insured, in filling a policy form.
(1) Life Policy: The fact that the insured is suffering from a serious or terminal
illness such as HIV AIDS.
(2) Motor Policy: Prior accidents, and convictions for dangerous driving.
(3) Fire Policy: Previous fires on the premises or contiguous or neighbouring
premises.
BUSINESS LAW 138

(4) Theft Policy: Employees' previous convictions for stealing, smuggling or
shop breaking.
(5) Accident Policy: The Insured's recent acquisition of eyeglasses.
However, where there are no such questions, the insured may not disclose any
circumstances
(a) which diminishes the risk e.g. the existence of fire fighting equipment on
premises proposed for fire insurance or a burglar alarm on premises insured
against theft.
(b) which are known or presumed to be known to the insurer such as matters of
common knowledge e.g. the existence of a state of war.
(c) regarding matters of law.
(d) which are superfluous to disclose because it is already covered by an
express or implied warranty.
(e) which the insurer's representative fails to notice.
This duty of disclosure continues throughout the negotiations and where

circumstances are altered, previous statements should be corrected. It is also
important to note that most proposals require the proposer to sign a declaration
wherein he warrants that the statements he has made are true and agrees that they
be incorporated into the contract. So the proposal and the policy of insurance
issued by the insurer must be read together.
It is also common for the insurance to be effected by an employee of the insurer

who often fills in or assists in filling in the proposal form. In doing so, such an
agent is not regarded as the agent of the insurer but of the insured, so when the
insured signs the form he should read carefully, since he is bound by the answers
as if he had filled them by himself.
BUSINESS LAW 139

9.2.1 Temporary Cover:
Where a person wants immediate insurance while his proposal is being considered
temporary cover can be given by way of a cover note. This is a separate contract
distinct from the policy itself although most of the policy's terms which are
appropriate are read into the cover note. The note is usually expressed to provide
cover until a certain date unless in the meantime the insurers decline the proposal.
If the insured subsequently decides not to proceed with the policy this will not rob
him of the protection of the cover note.
9.2.2 Insurable Interest:

It is a requirement in a contract of insurance that the insured has insurable interest
i.e. that the happening against which he insures must be one adverse to him and
likely to cause him loss or saddle him with a liability or when he stands to gain
profit in its preservation and to suffer loss or damage in its destruction. By the Life
Assurance Act 1774, Section 1; any insurance made by one person on the life of
another is null and void unless the person making the insurance has an insurable
interest in the life insured.
Thus, an insurable interest means, that the person effecting the insurance will
sustain some pecuniary loss on the death of the person whose life is insured.
Examples:
1. A creditor has an insurable interest in the life of his debtor to the extent of the
debt and the policy money is recovered even though the debt is paid before
the maturity of the policy. However, he generally, has no insurable interest in
the property of his debtor.
2. A surety has an insurable interest in the principal debtor's life.
3. An employee engaged for a term of years has an insurable interest in his
employer's life.
4. The legal owner of a property also has insurable interest in his property,
likewise the vendor and purchaser as well as a mortgagee, mortgagor, a
trustee and a bailee.
BUSINESS LAW 140

5. A person always has an insurable interest in his own life and one's spouse has
an insurable interest in the life of the other spouse without special proof of
pecuniary interest. In Griffiths Vs. Fleming1, it was held that the husband
who had been involved in a mutual insurance policy with his deceased wife
was entitled to the benefits of the policy. It is also to be noted that a parent
generally has no insurable interest in a child's life; the child also does not
generally have an insurable interest in the life of the parent unless the parent
is supported by the child. The fact of dependency and support are therefore
not enough, there must be a legally enforceable right to support or
reimbursement. Thus to amount to insurable interest there must be some
legally recognised right so a mere expectation of benefit in the future is not
enough.
For a party to an insurance contract to recover even when he has insurable interest
in the life or property insured, it is important to determine the time when such
party had insurable interest in the life or property insured.
In life insurance cases the material time for insurable interest is at the time of the
contract, otherwise such party will not be able to recover. For example if Victor
insures the life of his neighbour, Benjamin before he loaned him money, he had no
insurable interest in his life at that time and so he cannot recover any sum if
anything happens to Benjamin thereafter.
Indemnity, insurable interest is required both at the time of the contract and at the
time of loss.
9.3 TYPES OF POLICY.

9.3.1 Life Insurance:
This can be defined as any insurance in which the insurer's liability is dependent
upon human life. The characteristics of life insurance are that the person insured
pays specified premiums at regular intervals and the amount for which he is
covered is payable on his death. In the case of endowment insurance which is also
BUSINESS LAW 141

regarded as life insurance the insured pays regular premiums for a specified term
of years and an agreed sum is payable either at the end of the period to the insured
himself or on his earlier death to his personal representatives.
As stated earlier, a policy of insurance is designed to guard against the

consequences of accidental events so that it will not cover a loss caused by the
wilful act of the insured, such as murder, suicide or manslaughter. Likewise a
person entitled to a policy (i.e. the beneficiary), cannot recover for loss due to his
intentional criminal act.
See Amicable Society Vs. Bolland 2- Here the life insured committed forgery and
was executed. The Court held that those entitled to his estate could not recover
under the policy. In Cleaver Vs. Mutual Reserve Fund Life Association3 a man
took out a policy on his life for the benefit of his wife who eventually poisoned
him. The Court held that where the beneficiary murdered the insured, the policy
moneys were payable but the murderer and/or his estate could not benefit.
9.3.2 Personal Accident Insurance:

An insured sometimes insures himself against the possibility of accidental injury
which may result in disablement or death, and the loss of income occasioned
thereby. Such insurance may be a continuing contract like life assurance or may be
for a year or a shorter period and it is not a contract of indemnity, thus it is
regarded as a life policy.
9.3.3 Fire Insurance:

This is a common form of insurance and is intended to indemnify the insured
against loss of property by fire, including lightning and explosion. Ordinarily, it
does not matter what caused the fire, but an insured cannot recover if he
intentionally sets fire to his property. In order to constitute a loss by fire there must
be actual ignition. Loss by heating or fermentation is not enough. Most fire policies
BUSINESS LAW 142

contain exempted perils which include fires caused by riot, civil commotion and
war.
9.3.4 Liability Insurance:

Every man runs the risk of becoming liable to damages to some other person as a
result of committing a tort or in some other way. Cover for such liability is
frequently part of other types of insurance e.g. the insurance of houses or of motor
vehicles, but the scope of third party liability is very wide and can be separately
insured against, like employer's liability insurance. The object of such an interest is
to be indemnified against legal liabilities, but such legal liability must come within
the categories of the policy. Thus a policy covering liability for negligence is valid
although, an insured person cannot recover for an intentional tort committed like
defamation.
9.3.5 Motor Vehicle Insurance:

Although a motorist will often take out a comprehensive policy covering a variety
of risks, there is however, a statutory duty on the motorist to insure in respect of
injury to third parties. Failure to take out this compulsory insurance is a criminal
offence and both owner and driver where they are different persons are liable to
prosecution.
9.3.6 Marine Insurance:

A contract of marine insurance is one whereby the insurer undertakes to indemnify
the insured, in the manner and to the extent agreed against marine losses i.e.
losses incidental to a marine adventure.
9.3.7 Burglary Insurance:

This provides cover against loss or damages to the insured's property by
burglary or housebreaking.
BUSINESS LAW 143

9.3.8 All Risks Insurance:
The all risk insurance is a popular form of insurance cover available for valuables
such as jewellery, watches and cameras. The cover is very wide hence the term all
risks. It virtually covers accidental loss or damage due to fire, theft or even if the
article is simply lost or damaged. Each item insured is specified and the value
stated.
9.4 THE CONCEPTS OF INDEMNITY AND SUBROGATION.

9.4.1 Indemnity:
Apart from contracts of life insurance and personal accident insurance other
contracts of insurance are contracts of indemnity. Under an indemnity contract the
fundamental principle is that the insured cannot recover or retain for his benefit
more than his actual loss.
In Darrell Vs. Tibbitts4. A landlord of property received 750 pounds under a fire
insurance policy when his property was damaged by fire. Thereafter the tenant who
had agreed under their lease to repair did so. The Court decided that the landlord
had to return the insurance money back to the company since the contract of
insurance was one of personal indemnity and he had not suffered any loss as the
tenant had repaired.
Accordingly, in the event of loss, the insured shall be placed in the same position
he occupied immediately before the happening of the event insured against.
In practice an insured may recover less than a complete indemnity where he under-
insures, but it is illegal and against public policy for the insured to recover more
than his loss. It is in the overall interest of the public that an insured should not
profit from what essentially is a misfortune. If an insured is allowed to profit from
the loss or destruction of his property he would be tempted to destroy it, hence this
principle of indemnity. There are three basic rules and these are as follows:-
BUSINESS LAW 144

(a) In the event of a total loss the insurers under an unvalued policy are liable
to pay the market value of the property at the time and place of the loss or
the sum insured whichever is less. So where a car is insured for
N1,250,000.00 the insured only receives N800,000, where the market value
of the car is such, irrespective of the fact that N1250,000.00 was the agreed
sum on which premium was based. Also, where the car increases in value
to N1,500,000 he can only take N1,250,000, which is the sum insured.
(b) Where the property has no market value (e.g. a valuable but unsalable
machine) the insurers are liable to pay the cost of reinstatement or the sum
insured whichever is less.
(c) In case of a partial loss (e.g. where a car is merely damaged) the insurer's
liability is essentially based on the cost of the repairs or the sum insured
whichever is less.
9.4.2 Subrogation:
This is a corollary of the principle of indemnity and its purpose is to protect the
fundamental principle of indemnity by making it impossible for an insured to profit
from his loss. Subrogation is the right of one person to stand in the place of another
in order to enjoy that other person's rights or remedies.
In insurance, it is the right of the insurer who has granted an indemnity by paying
the insured's claim to receive the advantage of every right of the insured against
third parties which may reduce or extinguish the insurer's loss. Thus if a house
insured against fire is damaged by a fire caused by K, the insurers having paid on
the policy can sue K to recoup for themselves.
9.4.3 Contribution:
This is the right of the insurer who has paid under a policy to call upon other
insurers equally or otherwise liable for the same loss to contribute to the payment.
It occurs where there has been a double insurance and in addition, the following
conditions must be satisfied.
BUSINESS LAW 145

1. The risk which occurred must be common to both policies.
2. The insurances must have a common subject matter.
3. The policies must cover the same interest.
4. Each policy must be enforceable at the date of loss.
9.5 RE-INSURANCE
An insurer who has undertaken a risk on a policy of insurance may wish to be
relieved of his commitment and the law gives him an insurable interest in his risk
and the right to reinsure. The re-insurance is the transfer of insurance business
from one insurance company to another insurance company. The original insurer is
called a direct insurer or ceding company and the other the re-insurer.
Reasons for re-insurance include;

(a) The unwillingness to run a large risk on single hazard.
(b) The wish to be rid of certain elements of a comprehensive risk.
Here the re-insurer takes over all or part of the liability contracted for by the ceding
company for a consideration of a part or the whole premium as the case may be.
There is no contractual relationship between the re-insurer and the insured unless
the policy otherwise states, hence in the event of a loss, the insured cannot bring an
action against the re-insurers to enforce a reinsurance contract.

This chapter has given a comprehensive study of the law of insurance. It contains a
detailed explanation of the contract of insurance, showing the distinction between
insurance and assurance as well as providing different examples of insurance.
The chapter further explains the formation of the insurance contract, the
importance of the proposal form and the duty of disclosure of material facts, as
well as definition of terms such as temporary cover and insurable interest.
BUSINESS LAW 146

The chapter states different types of policy such as life insurance, personal accident
insurance, fire insurance, marine insurance etc. It ends by explaining the concepts
of indemnity, subrogation and contribution.
It is pertinent to emphasise to candidates that a person cannot recover under an

insurance contract if he has no insurable interest and also that time is also
important in determining the presence of insurable interest.

1. What is insurable interest? Give two examples.
2. State four instances when an insured need not disclose any circumstances
contrary to his duty under a contract of insurance.
3. What is uberrimae fidei in contracts of insurance?
4. List five kinds of insurance policies that may be taken.
5. What is indemnity?
6. When may subrogation arise?
7. State the conditions that must be satisfied for contribution to arise.
8. What is reinsurance? State the reasons for reinsurance.
BUSINESS LAW 147

CHAPTER TEN
LAW OF BUSINESS ASSOCIATIONS -1 COMPANIES

define company
classify companies
describe the process of incorporation.
discuss the effects of incorporation
explain what company securities are
examine the role of the Securities and Exchange Commission
distinguish between types of resolutions at companies meetings
discuss liquidation
10.1 INTRODUCTION
Companies today constitute one of the major forms of business associations. There
are companies involved in every aspect of human endeavour. Every person's life is
touched in one way or the other by companies. A study of companies is therefore a
prerequisite to understanding business associations. First of all, there is the need to
know what a company is and the various types. The process of incorporation and
the effects of it cannot be overemphasized. Company securities relate to their
sustenance and operation and so understanding them is a requirement. In Ghana
and Nigeria the role of the Securities and Exchange Commission is of great
significance and it is in that respect that it has to be highlighted. The way meetings
are organized and the role of notices and resolutions in respect of them have to be
well understood. Finally the way a company is liquidated is also discussed to
ensure proper understanding.
BUSINESS LAW 148

10.2 DEFINITION AND TYPES OF COMPANIES
10.2.1 Definition
The word company implies an association of a number of individuals for a
common purpose. Any individual may form a company. The purpose may be to
undertake business with a view to make profits or to undertake other activities of a
social, educational, religious, sporting or charitable nature and not with a view of
profit making.
In Ghana, companies are regulated by the Companies Code 1963, (Act 179),
whereas in Nigeria, they are regulated by the Companies and Allied Matters
Act,(CAMA) Cap 20, LFN 2004; while companies in Liberia are regulated by
Associations Laws, 1976 Liberia Codes of Laws Revised .
10.2.2 Types of Companies

An incorporated company may be either a company limited by shares where the
liability of its members is limited to the amount, if any, unpaid on the shares
respectively held by them; or a company limited by guarantee where the liability of
its members is limited to the amount the members may respectively undertake to
contribute to the assets of the company in the event of it being wound up; or an
unlimited company where there is no limit on the liability of its members. Any of
the three types of Companies may either be a private company or a public
company.
A private company restricts the right to transfer its share, limits the total number of
its members and debenture holders to fifty, prohibits the company from making an
invitation to the public to acquire any shares or debentures of the company and
prohibits the company from making any invitation to the public to deposit money
for fixed periods or payable at call. Any other company shall be a public company.
BUSINESS LAW 149

10.3 INCORPORATION AND EFFECTS
10.3.1 Promoters
Any person who concerns himself with the bringing about of the company and its
registration is a promoter. Any person deemed to be a promoter of a company is
one who is or has been engaged or interested in the formation of a company. The
term, however, excludes those acting in a professional capacity for the persons
engaged in procuring the formation of the company. Examples of such people are
lawyers, accountants and chartered secretaries. Until registration, the promoter has
certain duties under the Companies Code. The promoter has a fiduciary
relationship with the company. He has to place the interest of the company above
his personal interest. He is also to observe utmost good faith toward the company.
The promoter has to compensate the organisation for any loss suffered by the
company by reason of the promoter's failure. He is also to account for profits.
10.3.2 Pre-Incorporation Contracts

Pre-incorporation contracts are contracts that the organisation enters into before
incorporation is effected. The basis is that even though the company is not a legal
person yet, the law permits it to enter into transactions in anticipation of
incorporation. A company has to consider the propriety of contracts entered into
before its incorporation and has the option to rescind or ratify the pre-incorporation
contracts.
Until and unless there is ratification the risks associated with pre-incorporation
contracts are borne by the parties themselves. Where there is full disclosure by the
promoter of all material facts known to him, or where the contract is entered into
or ratified by the Board of Directors if all the company's directors are independent
of the promoter, or is entered into or ratified by all members of the company there
will be non-rescission. Upon ratification the company becomes bound and entitled
to the benefits and liabilities of the contract. Before ratification is effected, the
person who entered into the transactions shall be personally liable on it.
BUSINESS LAW 150

10.3.3 Registration
It is a legal requirement that all business organisations be registered with the
Registrar General's office of the Corporate Affairs Commission. For a company to
be incorporated there shall be delivered to the Registrar for registration, a copy of
its proposed Regulations. When the Registrar is satisfied that the Regulations
comply with the Code he shall register the Regulations. Upon registration of the
Regulations, the Registrar shall certify under his seal that the company is
incorporated. From the date of registration mentioned in the certificate of
incorporation, the company shall be a body corporate by the name contained in the
Regulations and shall be capable of exercising all the functions of an incorporated
company. The Registrar shall insert a notice in the Gazette stating the issue of the
certificate and on what terms. Conclusive evidence that the company has been duly
registered shall be provided by the certificate of incorporation or a copy of it
certified by the Registrar General or the Gazette containing the notice.
In Liberia, registration of companies is handled by the Minister of Foreign Affairs.

Copies of the proposed regulations will be delivered to the Minister of Foreign
Affairs, who is regarded as the Registrar.
10.3.4 Effects of Incorporation

A company formally comes into existence upon the issuance of a certificate of
incorporation to it by the Registrar. Incorporation confers certain attributes on the
company namely a corporate entity and being vested with power. It also has its
own rights and liabilities, may own property, can sue and be sued, has a common
seal and perpetual succession.
The company as a corporate entity becomes an artificial legal person with a

separate and distinct identity from its members, directors and promoters. It has its
own name and identity. A company is also vested with power and can do anything
authorised in its Regulations. It has all the powers of a natural Person with full
capacity. In Salomon v Salomon [1897] AC 22, Mr Salomon carried on business
BUSINESS LAW 151

as a leather merchant and boot manufacturer and later formed a limited company to
take over the business. Mr Salomon was the major shareholder with his wife,
daughter and four sons owning a share each. Twenty thousand shares were issued
to Mr Salomon and were paid for out of the purchase money. In part payment of
the purchase money, debentures, forming a floating security, were issued to the
vendor. The company went into liquidation later and Mr Salomon as a secured
creditor had priority over the unsecured creditors .The unsecured creditors claimed
all the remaining assets on the grounds that Mr Salomon and the company were
one. The House of Lords held that the company was a separate and distinct person.
The company has its own rights, liabilities and responsibilities which belong to it
alone and as a general rule cannot be enforced by or against its directors, agents or
members personally. The company may own property and any property of the
company, and is not the property of members. The company can sue and be sued.
It also has a common seal. The company also has perpetual succession. Members
will come and go by way of death, resignation, bankruptcy or becoming of
unsound mind but the company will continue to exist unless there is a formal
procedure to dissolve it.
10.4 GENERAL PRINCIPLES

10.4.1 Regulations of the company
The Regulations constitute the most important document of the company. It is the
Constitution or Charter of the company. It sets out the authorised business and
powers of the company. The Regulations may contain any lawful provision
relating to the Constitution and administration of the company. It defines and
regulates how a company's affairs are managed. The Regulations of every
company must state the name of the company, with the word limited if it is
limited by shares. The nature of the business the company is authorised to carry on,
or if the company is not formed for the purpose of carrying on a business, the
nature of the object or objects for which it is established. It must also contain the
fact that the company has all the powers of a natural person of full capacity.
BUSINESS LAW 152

Included are the names of the first directors of the company. These must be two
since the Code prescribes the minimum of two. There must be a statement that the
powers of the directors are limited in accordance with section 202 of the Code.
Treatment of property after winding up, Membership, subscriptions, accounts,
Auditing, meetings and resolutions and the role of the governing council are
among other areas covered
From time to time, it may become necessary for companies to alter their Memo or
Articles. There is however the need to avoid easy and frequent alteration and
equally the need to make change possible. Both objectives are met by the
requirement that a special resolution be passed in order to be able to alter the
Regulations or adopt new Regulations. A special Resolution of the company is
always required as a minimum and necessary condition for the alteration of the
company's Regulations. It is however not necessarily a sufficient condition for the
alteration of company's Regulations or Memo and Articles.
There are several instances when other requirements such as the approval of the
Registrar or the court, have to be met to validly alter a company's Regulations.
This may include changing the company's name and changing the company's
business or objects. There are also instances where there are limitations on the
power of alteration. No alteration shall have effects of converting an unlimited
company to a limited company or a company limited by guarantee to a company
limited by shares. The court can restrain or cancel an alteration in the event of
illegal or irregular activity. The court can again restrain or cancel an alteration to
provide a remedy against oppression.
The Regulations when registered shall have the effect of a contract under seal
between the company and its members and officers and between the members and
the officers themselves. They are bound by it and so agree to observe and to
perform their duties according to the provisions of the Regulations. The
Regulations vest power in any person stated by it whether or not the person is a
BUSINESS LAW 153

member or an officer, to appoint or remove any director or officer of the company.
Finally any suit by a member or an officer for breach of the Regulations shall be
brought in a representative capacity on behalf of oneself and the members or
officers who may be affected.
10.4.2 The Ultra Vires Doctrine

A company's Regulations sets out its authorised business and powers. A company
is therefore limited to the conduct of the business authorised by the Regulations
and to exercise the powers conferred by the Regulations and nothing more. Any
purported conduct of unauthorised business and exercise of excess power is
considered ultra vires. The Code specifies that: A company shall not carry on any
business not authorised by its Regulations and shall not exceed the powers
conferred upon it by its Regulations or this Code. The company therefore has no
capacity to act outside its Regulations except for implied acts. This is the
traditional common law position and any contract entered into by a company
which is not within its objects was said to be ultra vires and therefore void ab
initio. It created neither rights nor liabilities for the parties involved. Thus, any
such contract could not be ratified or made effective even by the unanimous
agreement of the members of the company.
The doctrine prevents a company from doing what is not in its Regulations and
also Directors from doing what they do not have powers to do. If a Director does
what is not within his powers (i.e. ultra vires the Director) but within the powers of
the company then the company may ratify it. If however the Director acts beyond
the powers of the company then the company cannot ratify it. The doctrine in its
unadulterated form may have very harsh effects on third parties.
In Ghana however an ultra vires act, conveyance or transfer is not necessarily

invalid simply because it is ultra vires. The Code shows that no act of a company
and no conveyance or transfer of property to or by a company shall be invalid by
reason of the fact that such act, conveyance or transfer was done ultra vires. This
BUSINESS LAW 154

modification reduces the harsh effects of the doctrine on third parties. This means
that a third party is not without a remedy. However if the third party had
knowledge of the absence of power or the irregularity of it, then the company shall
not incur any liability.
Any member of the company or a debenture holder can apply to the court for an
order of injunction to prohibit the performance of an ultra vires act being done or
about to be done. The court may also set aside the performance of a contract and
pay compensation for the loss or damage from it but not for anticipated profits. An
action can also be brought for breach of duty. Also the fact that the company had
been engaged in an ultra vires act may be relied upon by a member of the company
to call for the winding up of the company. There are thus elaborate mechanisms to
check ultra vires acts in order to protect the company, its members and the public
at large.
10.4.3 Lifting the Corporate Veil

On incorporation, a company becomes an artificial legal person separate and
distinct from the persons who may be behind it or who may control it. It becomes
clothed with a corporate veil. The idea of corporate personality can lead to abuse
and where it has been used to avoid legal obligations the courts have been prepared
to ignore the separate legal personality of the company. Whenever the separate
legal status of a company is ignored and liability is ascribed to various individuals
and corporations in it, the corporate veil is said to have been lifted or pierced.
The corporate veil may be lifted by the Companies Code, 1963 (Act 179), by other
legislations like the Bodies Corporate (Official Liquidation) Act, 1963 (Act 180)
and by the courts when it is just and in the public interest to do so. Whenever the
corporate veil is lifted the consequences attendant may include civil liability of
individuals, penal liability of individuals usually by way of fines or / and the
ascription of tax liability on others. There may also be disregard of transactions
apparently entered into by the company. There are many circumstances under
BUSINESS LAW 155

which the veil may be lifted under the Code. If a company ceases to have members
or carries on business for more than six months without at least one member every
person who is a director during that time that it so carries on business after those
six months shall be jointly and severally liable for the full payment of all the debts
and liabilities of the company incurred during that period. Where a company
carries on business for more than four weeks after the number of its directors falls
below two, there shall be penal liability of the company and every director in
default and every member in default who shall all be liable to a fine. In addition
every director and member of the company who is cognisant of the fact shall be
jointly and severally liable for all the debts and liabilities of the company incurred
during the time.
If a company limited by guarantee carries on business for the purpose of making

profits, all officers and members aware that it is so carrying on business shall be
jointly and severally liable for the payment and discharge of all the debts and
liabilities of the company incurred in carrying on such business. Failure to identify
the company outside its registered office, or to have name engraved in legible
characters on its seal or have name accurately mentioned in legible characters at
the head of all business letters, invoices, receipts and other publications of the
company may make the company and its officers liable. Failure to file annual
returns places liability on the company and its officers and so does the protection
of creditors. The corporate veil may also be lifted pursuant to other legislation.
Under the Bodies Corporate Act any fraudulent trading with the intention to
defraud creditors in the course of winding up may call for personal liability on all
persons involved or in the know.
Where a wholly owned subsidiary company is being used by its holding company
to avoid taxes under the Income Tax Decree SMCD 5, liability may be placed on
the holding company. Finally the courts may lift the veil to avoid trading with the
enemy in times of war, to avoid fraud and to avoid a scheme to evade contractual
obligations.
BUSINESS LAW 156

10.5 COMPANY SECURITIES
After a company has been incorporated it must raise capital to enable it operate.
Funding is required to carry on business or purchase an existing business and pay
employees. Private business companies cannot raise funds from the public at all
and must raise funds from their promoters, members and by borrowing if
authorised. Shares and debentures are instruments by which business companies
raise funds. They are securities.
10.5.1 Shares
Shares mean the interests of members of a body corporate who are entitled to share
in the capital or income of such body corporate. The shares of any member in a
company shall be personal estate and shall not be in the nature of real estate or
immovable property.101 Shares are purchased to attain membership or shareholder
status. A share is the interest of the member in the company measured by a sum of
money for the purposes of liability in the first place and of interest in the second
place and may include other mutual covenants.
There are two main types of shares, namely, preference shares and equity shares.
Preference shares do not entitle the holder to any right to participate beyond a
certain amount in any distribution by way of dividend, or redemption or winding
up. Another share is equity share. Preference shares have a right to a fixed
dividend before any dividend is paid on the other shares. Preference shares may be
cumulative or non-cumulative. Preferential shareholders do not have the right to
speak and vote in a general meeting on every item on the agenda except resolutions
that affect them or resolutions to remove the Auditor or wind up the company.
Equity shares rank for dividend after the preference shares. Nothing may be left for
them after Preference shareholders have taken their share of the profits. They
receive fluctuating dividend and therefore carry most risk.
However they have most of the voting rights in general meetings and therefore
control the company. Issued shares require corresponding valuable consideration
BUSINESS LAW 157

which has to be paid or be payable to the company. The payment invariably has to
be in cash. Shareholders have to be issued with share certificates.
10.5.2 Debentures
It is a written acknowledgement of the indebtedness of a company setting out the
terms and conditions of the loan. A single debenture evidences a loan from a
person where the lender is in privity of contract with the company and is a creditor
of it. Debenture stock may be created for which debenture stock certificates may
be issued to separate holders. A debenture holder is not a member of the company.
Debentures may either be unsecured by any charge or may be secured by a charge
over the company's property. Debentures without security are simple or naked.
Holders of such debentures are always at a disadvantage for in the event of
winding up they rank with unsecured creditors. They cannot have any redress in
court since a receiver or manager shall not be appointed as a means of enforcing
debentures not secured by any charge. Debentures may be secured by a fixed
charge on certain property of the company or a floating charge over the whole or a
specified part of the company's undertaking and assets or by both a fixed charge on
certain property and a floating charge.
A fixed charge is created on one or more specific assets of the company. The assets
must be clearly identifiable. The company cannot freely deal with the property so
charged. A fixed charge on any property has priority over a floating charge
affecting that property unless the earlier floating charge prohibited a further charge
and the person granted the latter charge had actual knowledge of such prohibition.
A floating charge is an equitable charge over the whole or a specified part of the
company's undertaking and assets both present and future. The charge shall not
preclude a company from dealing with such assets. The charge is deemed to
crystallize on the appointment of a receiver or manager or when the company goes
into liquidation. All charges both fixed and floating have to be registered with the
Registrar General. In Cohen (WA) Ltd v Comet Construction Co Ltd; Ghana
Commercial Bank (Claimants) [1966] GLR 777 it was held that if the charge
BUSINESS LAW 158

was valid, it prevailed over the claim of an execution creditor. In that case Cohen
obtained judgment against Comet Construction for a certain sum of money. A writ
of fi fa was subsequently issued against two vehicles of the judgment debtors.
Before the sale of the vehicles Ghana Commercial Bank interpleaded on the
grounds of a debenture with a floating charge issued earlier for which a receiver
and manager had been appointed. The charge was registered well after the statutory
time. The court's decision on the registration and its linkage with section 6 of Act
179 has come under much criticism. The court also held that the issue of a
debenture securing certain properties of the judgment debtors to the claimants
created a floating charge on the business assets of the judgment debtors and on the
appointment of a receiver and manager by the claimants the judgment debtors
could no longer deal with the secured properties without the consent of the
debenture holder. In Republic v James Town Circuit Judge Ex parte Annor
[1978] GLR 453, the importance of the registration of a charge was further
emphasised by showing that every charge that was not registered was void. In that
case Ghana Commercial Bank held a debenture covering the stock in trade and
factory equipment of I.C.E. Ltd. I.C.E. Ltd was sued successfully by the landlord
of the business premises for arrears of rent. It was held that the landlord distraining
for rent was title paramount and that a debenture holder only took over the
company's property subject to the rights of any one claiming by title paramount.
10.6 THE SECURITIES AND EXCHANGE COMMISSION

This is a body corporate set up to advise the Minister of Finance on all matters that
relate to the securities industry. It also has the responsibility of formulating policies
for the guidance of the industry. The Commission also maintains surveillance in
securities to ensure orderly, fair and equitable dealings in securities. Its specific
activities include the registering, licensing, authorizing or regulating stock
exchanges, investment advisers, unit trust schemes, mutual funds, securities dealers
and their agents. It is also concerned with the control and supervision of their
BUSINESS LAW 159

activities with a view to maintaining proper standards of conduct and acceptable
practices in the securities business.
The Commission also monitors the solvency of the licence holders and take
measures to protect the interest of customers where the solvency of any such
licence holder is in doubt. It also protects the integrity of the securities market
against any abuses arising from the practice of insider trading. The adoption of
measures to minimise and supervise any conflict of interests that may arise from
dealers is also its concern. The review, approval and regulation of takeovers,
mergers, acquisitions and all forms of business combinations in accordance with
any law or code of practice requiring it to do so is also the responsibility of the
Commission. The Commission has the crucial responsibility of creating the
necessary atmosphere for the orderly growth and development of the capital
market. The Commission therefore has the power to undertake all other activities
necessary and expedient to give full effect to the provisions of the law on
securities.
10.7 NOTICES, MEETINGS AND RESOLUTIONS

10.7.1 Notices
Meetings shall be convened by written notices. Notice shall be given generally for
not less than twenty one days except a special resolution for voluntary liquidation
which requires seven day's notice in writing. The notice of a meeting shall specify
the place, date and hour of the meeting. The general nature of the business to be
transacted must be provided in sufficient detail to enable those to whom it is given
to decide whether to attend or not. The people entitled to attend a general meeting
are every member, every director, the secretary and every auditor of the company.
10.7.2 Meetings
The highest organ of the company is members at a general meeting. General
meetings are of two kinds namely annual general meetings and extraordinary
general meetings. Every company shall hold an annual general meeting in each
BUSINESS LAW 160

year and not later than fifteen months after the last annual general meeting. Other
meetings may be held in the year, for example an extraordinary general meeting
may be convened by the Directors whenever they think fit. The directors of a
private company shall proceed to duly convene an extraordinary general meeting
on the requisition of any two or more members of the company or a single member
holding not less than one tenth of the shares of the company. In the case of a public
company it shall be convened on the requisition of members of the company
holding not less than one-twentieth of the shares of the company.
A company meeting shall not proceed unless there is a quorum. Proxy is allowed at
company meetings so any member of a company entitled to attend and vote at the
company's meeting shall be entitled to appoint a proxy. Proxy refers to the agent of
the member duly appointed by that member to attend, speak and vote on his behalf
at company meetings or the document or instrument by which a proxy is
appointed. Voting by members or their proxies could be done by show of hands at
meetings, by polling at meetings and by postal ballot in lieu of meeting. This
method is applicable in all the jurisdictions of Nigeria, Ghana and Liberia.
10.7.3 Resolutions
The decisions of a company taken at general meetings are described as resolutions.
There are two types of resolutions namely ordinary and special. An ordinary
resolution is one passed by simple majority of votes of members present in person
or by proxy at a general meeting. A special resolution is passed by not less than
three fourths of votes cast by the members of the company in person or by proxy at
a general meeting of which notice specifying the intention to propose the special
resolution has been given. Resolutions have the effect of binding decisions on the
company and its members.
BUSINESS LAW 161

10.8 DIRECTORS
10.8.1 Definition
A company is an artificial person which must, of necessity act through human
agents who manage the affairs of the company. Thus, a director is an officer of a
company who is responsible for its management. By S. 244 (1) of CAMA, a
director of a company so registered under the Act, is defined as anybody who has
been duly appointed by the company to direct and manage the business of the
company. It does not matter by whatever name he is called. Anyone who holds
himself out as a director, not being one, is guilty of an offence and is liable to pay a
penalty of N100 per each day of default.
10.8.2 Minimum Number

Every registered company must have at least two directors (for a private company),
and a minimum of seven directors in case of a public company.
10.8.3 Directors qualification

Under the Nigerian law, directors are not required to have special qualifications,
except where such is specially stated in the articles of association; and this must be
fulfilled within 2 months, otherwise the appointment ceases.
However, the following persons are disqualified from being directors:

An infant (a person under 18 years of age).
A lunatic or person of unsound mind.
A person convicted for fraud in connection with promotion, formation and
management of a company (limited up to ten years).
An undischarged bankrupt.
A corporation other than its representative.
A person who is unable to obtain his share qualification.
BUSINESS LAW 162

10.8.4 Appointment of Directors
S. 247 provides that the first directors are determined in writing by the subscribers
to the memorandum or a majority of them or the directors may be named in the
articles.
Subsequent appointment of directors is made by members at Annual General
Meetings. However, in the event that all shareholders and all directors die, their
personal representatives are entitled to apply to the court to convene a meeting of
all the proxies to appoint new directors.
The Board of Directors has power to fill casual vacancies, subject to approval at
the next Annual General Meeting.
10.8.5 Age limit

There is no age limit to the appointment of directors. However, for public
company, a person of 70 years old and above must disclose the fact of his age to
the members at the general meeting. Also, for him to be appointed as a director, a
special notice and special resolution is required.
10.8.6 Removal
All that is required to remove a director, including a permanent director or director
for life is an ordinary resolution at a general meeting of the company.
10.8.7 Powers of Directors

A director is a trustee for the company but not for individual members.
The board of directors is appointed under the articles of the company, and thus has
power to bind the company. The board`s power to bind the company is also
deemed free of any restriction in the company`s memorandum and articles, in
favour of a person who deals with the company in good faith.
BUSINESS LAW 163

10.8.8 Managing Director
S.263(5) provides that he must be a director appointed by the Board of Directors;
and his appointment may be terminated by the Board or by ordinary resolution
passed by members in a general meeting.
10.8. 9 Retirement/ Rotation of Directors

Unless there is a contrary provision in the Articles, all directors must retire at the
first Annual General Meeting (AGM), and one third of them at subsequent AGMs,
based on their length of service. However, retiring directors are allowed to offer
themselves for re-appointment; otherwise new directors will be appointed to
replace them.
10.9 LIQUIDATION
The process by which a company is dissolved or liquidated is called winding up.
The Liquidator is the person who carries out the winding up process. The
Liquidator has the obligation to administer the assets of the company being wound
up for the benefit of creditors and members. There are two ways of winding up of a
company. These are private liquidation under the Companies Code and official
liquidation under the Bodies Corporate Official Liquidation Act.
10.9.1 Private Liquidation

Private liquidation commences with the company resolving by a special resolution
for a private winding up. The liquidation starts from the date of resolution. Within
fourteen days, a copy of the resolution has to be sent to the Registrar for
registration and publication in the Gazette. Five weeks prior to the passing of the
resolution an affidavit must have been made or sworn by the directors or the
majority of them that upon full enquiry into the affairs of the company they have
formed the opinion that the company will be able to pay its debts in full within
twelve months from the start of the winding up. The affidavit has to be delivered to
the Registrar for registration. The affidavit shall embody the assets and liabilities
of the company at the latest day before making the application.
BUSINESS LAW 164

A resolution for a private winding up shall include the appointment of a liquidator.
The liquidator who is appointed shall indicate his consent in writing. An infant,
person of unsound mind adjudged so by a court of competent jurisdiction and a
corporate body shall not be competent to be appointed as liquidators. In addition,
any person convicted of an offence involving fraud or dishonesty within Ghana
and Nigeria or elsewhere, any offence in connection with the promotion, formation
or management of a corporate body; an undischarged bankrupt; a director or
auditor of the company are also not competent to be appointed as liquidators.
A liquidator stands in a fiduciary relationship to the company in the same way as if

he were a director. All rights due to and responsibilities of a director are applicable
to him. This is because all the powers of directors cease on winding up and become
vested in the liquidator. The liquidator, is thus, an agent and trustee of the
company. He has to exercise his powers for the smooth running of the winding up
of the company. His powers among others include the bringing or defending of any
legal action in the name of or on behalf of the company. He invites creditors to
prove their debts and to pay any class of creditors in full. He invites debtors to pay
their debts. He can sell the real and personal assets of the company by public
auction or by private contract. He can apply to the courts for assistance. He has to
open a liquidation account with regards to receipts and payments and keep proper
accounts of them and render it. He pays off creditors when he finishes with his
work. He prepares a final account which is audited and then put before the
members. When these have been done he informs the Registrar, who when
satisfied that the winding up is complete strikes off the name of the company from
the register. The company is then deemed to be dissolved but at the date of
publication of the Gazette.
10.9.2 Official Liquidation

Official liquidation is carried out by the Official liquidator under the Bodies
Corporate (Official Liquidation Act). An official liquidation may be commenced
BUSINESS LAW 165

by a special resolution of the company, a petition addressed to the Registrar, a
petition addressed to the court or by a conversion of a private liquidation. If within
twelve months of private liquidation the company is found to be unable to pay its
debts then it will be converted to public liquidation on informing the Registrar.
When a special resolution is passed by the company for winding up and if it is
official liquidation the resolution shall state that it is for official winding up. The
Registrar shall publish a copy in the Gazette. Any creditor or member of the
company may present a petition to the Registrar for official winding up of the
company. The Registrar may order official winding up if he is satisfied that the
company is unable to pay its debts.
A petition to the court for the official winding up of a company may be brought by
a creditor of the company, a member or contributory of the company or the
Attorney General on specified grounds. The court may order an official winding up
of a company on a petition if the company does not within a year from its
incorporation commence to carry on all the businesses which it is authorised by its
Regulations to carry on or suspends any of such businesses for a whole year. It
may also be that the company has no members or that the business or objects of the
company are unlawful or the business that the company is carrying out are not
authorised by its regulations. Other grounds may be where the company is unable
to pay its debts or the court is of the opinion that it is just and equitable that the
company be wound up.
On the commencement of official liquidation the powers of directors cease and

they are vested in the liquidator. The company shall not carry on any business
except those relating to the beneficial winding up of the company. The corporate
status of the company remains until the company is dissolved so the property of the
company remains vested in the company. The liquidator has to continue any on-
going business to its completion but shall not start any new business. No action or
civil proceeding shall be started against the company except with the leave of court
and subject to such terms as the court may impose.
BUSINESS LAW 166

In Pioneer Construction Products Ltd v Faddool [1974] 1 GLR 76, the plaintiff,
a creditor of the defendant company took out summons against the company at the
High Court. Before the summons was heard the company passed a special
resolution for winding up. Notice of the liquidation was given in a Gazette by the
Registrar. Notwithstanding the liquidation, the proceedings continued in the court
and judgment was given for the plaintiff. A director of the company brought an
application moving the court for an order to set aside the judgment. It was held that
under s 17 of Act 180, no action or civil proceedings except an action by a secured
creditor should have been proceeded with or commenced since the directors had
passed the special resolution winding up the company.

The company is a very important business organisation which has to be properly
understood in order to really appreciate its numerous activities. The processes
entailed in its formation and the legal consequences of its incorporation are of
much relevance. The doctrine of separate personality by which a company exists in
its own rights as a legal person distinct from its members is especially noteworthy
for such understanding. Apart from how a company is generally run the way of
raising capital is also of much importance. Useful insights were given in respect of
the types of Shares and of debentures. The role of the Securities and Exchange
Commission was also drawn attention to. Another way of understanding the
workings of a company is to know about notices, meetings and resolutions. Finally
the procedures for the winding up of the activities of a company were also looked
at.

1. List and describe briefly the types of companies.
2. Who is a promoter and what are his duties?
3. Explain pre-incorporation contracts and their effects.
4. What is meant by incorporation and what are the procedures for attaining it?
BUSINESS LAW 167

5. Discuss the effects of incorporation.
6. Define shares and distinguish between the two main types.
7. Describe the functions of the Security and Exchange Commission.
8. Write briefly on meetings and notices.
9. Describe resolutions and distinguish between the two types.
10. Explain liquidation and contrast the two types.
BUSINESS LAW 168

CHAPTER ELEVEN
PARTNERSHIPS

After studying this chapter, readers should be able to know and understand the
following:
what a partnership is
types of Partnership
the applicable laws
the essential elements of Partnership
relationship amongst partners and between third parties
how a partnership may come to an end
The Partnership Act 1890 which is also retained in the Laws of the Federation of
Nigeria 1990 (now 2004) by its Section 1(1) defines a partnership as the
relationship which subsists between persons carrying on business in common with
a view to profit. A partnership is usually referred to as a firm and it gives two or
more people the means of joining together in business. It is a kind of
unincorporated association with no identity apart from its members.
The precise nature of the firm and the rights and duties of the partners are always a
matter for agreement between them which they can vary as much as they like as
long as they all agree. The Partnership Act sets out a model version of rights,
duties, division of profits and contribution of initial capital, right to participate in
management etc. although if the firm agreed differently then their agreement apply
to them. The firm is very popular amongst small businessmen and is most common
where incorporation is not allowed or is disapproved and it is also used by
professionals like Lawyers, Accountants and Surveyors etc.
BUSINESS LAW 169

11.1 TYPES OF PARTNERSHIP
11.1.1 General / Limited Partnerships:
In the States (of Oyo Ogun, Ondo, Ekiti, Delta) and Lagos, it is possible to set up a
firm where one or more partners can enjoy limited liability. These states have
Limited Partnership Laws similar to the Limited Partnership Act of 1907 of
England. It is to be noted that the Partnership Act of 1890 which is applicable to
the other parts of Nigeria makes no such distinction.(It is to be remembered that
Western Region enacted its own laws in 1958/59 and included the features of the
Limited Partnership Law of England while in the other States it is only statutes
made in England before 1st January 1900 that were applicable there) A Limited
Partnership has no separate legal identity. It must also have at least one general
partner in the firm whose liability will always remain unlimited. Limited
Partnerships must also be registered with a statement signed by all the members
sent to the Registrar.
11.1.2 Features of Limited Partnerships

o A limited partner is liable only to the extent of his contribution.
o He cannot bind the firm.
o He cannot contribute to its management although he can advise and inspect
the books.
o His death, bankruptcy or insanity will not dissolve the firm as that of a
general partner.
o He can assign his share with the other partners' consent.
o He cannot dissolve the firm by notice.
o A general partner however is an active member of the firm with the right to
participate in the management of the firm.
11.1.3 Dormant or Sleeping Partner:

There is a distinction between active and dormant partners. A dormant partner
takes no part in management although his name must be included in the firm's
name and be registered under the Registration of Business Names Act. He is at
BUSINESS LAW 170

most times often concealed. If he is not concealed and enters into a contract
with a third party who knows him to be a partner in the firm, the firm will be
bound.
11.1.4 Partner by Estoppel:
Where someone holds himself out as partner in a firm and thereby induces another
person to act upon that representation, he is not a partner hence he will be liable
to a 3rd party as if he really were a partner.
11.2 FORMATION OF PARTNERSHIP

Partnership Agreements may be made with or without formality. They may be oral
or written and may or may not be under seal. The ordinary rules of contract are
applied to test whether an agreement has been reached. Where a partnership
agreement is in writing the document is called the articles of partnership and this
may be varied by subsequent agreements, express or implied between the parties.
Two other formalities which follow the commencement of partnership operations
are as follows:-
(i) Registration of the partnership name under part B of the Companies and
Allied Matters Act Cap C20 Laws of the Federation 2004. Every firm
having a place of business in Nigeria is required to register with the State
office of the Registry of Business Names of the Corporate Affairs
Commission not later than 28 days after it begins operations if the name of
the partnership is different from the real surnames of the partners (without
any additions). It is an offence if this is not done and each partner shall be
liable on conviction to a fine of N50 for everyday that the default continues.
(ii) Each partnership is required to register upon request a copy of their Articles
of Partnership (if any) or a written summary of their agreement to be
supplied with the local tax laws in accordance with the Income Tax Laws.
Capacity to enter into a partnership is governed by the ordinary law of
contract. Thus a minor can enter into a partnership and the contract is
binding on him unless he repudiates it before or within a reasonable time of
BUSINESS LAW 171

his attaining full age. If he repudiates it, he is not liable for partnership
debts contracted while he was a minor.
11.3 DETERMINING THE EXISTENCE OF PARTNERSHIP

Where there is a dispute as to whether a partnership exists, this point must be
decided in order to ascertain whether the Partnership Act applies. Firstly the
definition in Section1 (1) must be used as a test. Where it is still not clear whether
a person is a partner from the definition, various rules for determining the existence
of a partnership which are set out in the Partnership Act, have to be regarded.
These rules relate to :
11.3.1 Joint Tenancy and Tenancy in common

(i). Co-ownership of property does not of itself create a partnership whether
or not the co-owners share any profits made by the use of the property.
(ii) Partnership is necessarily the result of an agreement between the parties
thereto, Co-ownership is not, e.g. X may by will leave his house to A and
B jointly. A and B are co-owners of the house but not partners, although
the rent will be shared equally between them.
(iii) Partnership necessarily involves the working for profit, co-ownership does
not.
(iv) A partner cannot transfer his share of the partnership to a 3rd party without
the consent of his partners. A co-owner's consent is not needed to transfer
his right to a third party.
(v) A partner is the agent of the partnership to bind the firm. A co-owner has
no implied authority to bind the other co-owners.
An illustration of the above is found in the case of Davis Vs Davis (1894)1 where
a father left his two sons his business and three houses in equal shares as tenants in
common. They let one of the houses and employed the rent in enlarging the
workshops attached to the two houses. They continued to carry on the business.
They each drew out from it a weekly sum, but no accounts were kept, the rent of
BUSINESS LAW 172

the third house was divided between them. The Court Held, that there was a
partnership as to the business, but not as to the houses.
11.3.2 The Sharing of Gross Returns.

The sharing of gross returns does not of itself create a partnership, whether or not
the persons sharing in the returns have a common interest in the property from
which the returns are derived. It is not even evidence of partnership.
So where a publisher agrees to pay to an author a royalty on the value of the
number of copies of his book sold by the publisher, this does not create a
partnership between them.
Likewise an agreement whereby the owner of a theatre lends his theatre to the
producer of a play in consideration of the theatre owner receiving part of the sums
paid for seats does not make the owner and the producer partners, as in Cox Vs
Coulson(1916)2. Therein the defendant was the manager of a theatre and agreed
with Mr. Mill to provide the theatre, and pay for the lighting and for the playbills.
He was to receive 60 per cent of the gross takings, whilst Mr. Mill was to provide
and pay for the theatrical company and provide the scenery and receive the
remaining 40 per cent. The plaintiff was injured by a shot fired by an actor during
the performance of a play at the theatre. She sought inter alia to make the
defendant liable on the ground that he was a partner of Mr. Mill. Held, by the
Court of Appeal, that the defendant could not be made liable on this ground
because he was not a partner, for by s. 2 (2) of the Partnership Act the sharing of
gross returns did not of itself create a partnership.
11.3.3 Receipt of a Share of the Profits

The receipt by a person of a share of the profits of a business is prima facie
evidence that he is a partner in the business. But this evidence may be rebutted
where it can be shown that the purpose of the share of the profits was for any of the
following:
(i) The payment of a debt by fixed instalments.
BUSINESS LAW 173

Thus if Anthony lends a partnership N50,000 and receives payment of the
debt by instalments of N10,000 for each of 5years out of the profits of the
business does not make him a partner.
(ii) Where a servant or agent is engaged in a business and is remunerated by a
share in the profits.
The fact that a marketing officer is employed by a partnership on a salary
plus a share of the profits does not make the employee a partner in the firm.
(iii) Where a widow or child of a deceased partner receives a portion of the
profits by way of annuity.
(iv) Where a person has lent money to a person engaged or about to engage in
business and receives a rate of interest varying with the profits or a share of
the profits, such person is not regarded as a partner as long as the contract
is in writing and signed by or on behalf of the parties thereto.
(v) Where a person has sold the goodwill of a business and in consideration of
the sale receives a portion of the profits.
By Section 3 of the Act, where the person carrying on business in (iv) and (v)
above becomes bankrupt, the lender of the money and the vendor of the business
are postponed until all the other creditors are paid in full.
If losses as well as profits are shared the evidence of partnership is stronger, but it
is not conclusive and in every case the question of partnership depends on the
intention of the partners.
11.4 EXAMPLES OF RELATIONSHIPS WHERE PERSONS CARRY ON

BUSINESS BUT ARE NOT PARTNERS
(i) Promoters concerned with the incorporation of a company although they
are working together with a view to profit in establishing a company but
they are not partners
(ii) Executors or Administrators carrying on business together in the
administration of a deceased person's estate are also not regarded as
partners even though they may carry on business with a view to profit.
BUSINESS LAW 174

It is also pertinent herein to consider whether a salaried partner is a partner as
there are firms who have such persons. Such term is generally used to describe a
person who the firm holds out to the world at large as being a partner. For
example, by including his name on the firm's letterhead paper, but he receives a
salary rather than a share of the profits, although he may also receive a bonus or
some other sum dependent upon the profits. The firm is of course liable to third
parties for holding him out as being a partner but as regards the relations of
partners inter se (amongst themselves) this does not make him a partner but just an
employee. To determine this, the substance of the relationship must be looked at
and not merely the form.
11.4.1 Legality of Partnerships

(i) Number of partners: The Companies and Allied Matters Act by Section 19
makes it an offence to operate a partnership of more than 20 partners.
However where they are lawyers or accountants carrying on business as
lawyers or accountants, they can be more than 20. Where the number
exceeds twenty (20), the firm must stop operating within 14 days or every
partner thereby becomes liable to a fine of N25 for each day they continue
to operate. This statutory requirement was also the subject matter of
Akinlose V. A.I.T. Co. Ltd3. where a partnership of about 100 persons
formed for the exploitation of timber in Ondo, Nigeria was held illegal.
(ii) Illegal purpose: A partnership is illegal when it is formed for an illegal

purpose. For example, where 5 persons come together to form a partnership
of smugglers, hired assassins or armed robbers. Herein no action can be
brought for a breach of it, no account of profits will be ordered and no
proceedings can be brought in respect of it.
BUSINESS LAW 175

11.4.2 Relationship between Partners
Partners' Rights and Duties: The mutual rights and duties between partners are
ascertained by:
(i) the express and implied terms of the Partnership agreement and
(ii) the provisions of the Partnership Act.
In either case the rights and duties may be varied by the consent of all the
partners of a firm and such consent could be implied from the course of
dealing. To ascertain the terms of the partnership agreement, ordinary rules
of contract apply, although the Articles of Partnership usually contain
detailed terms of the partnership to help in determining the mutual rights
and obligations of the partners.
The Partnership Act provides set rules which apply subject to any agreement
expressed or implied between the partners (Section 24). It provides for the
following unless a contrary agreement is reached:
(a) Equal Share:- All partners are entitled to share equally in the capital and
profits of the business and must contribute equally towards the losses
whether of capital or otherwise sustained by the firm.
(b) Management:- Every partner may take part in the management of the
partnership business.
(c) Remuneration:- No partner shall be entitled to remuneration for acting in
the partnership business.
(d) Introduction of Partners:- No person shall be introduced as a partner
without the consent of all existing partners.
(e) Internal disputes:- Any difference arising out of the ordinary matters
connected with the partnership business may be decided by a majority of
the partners but no change may be made in the nature of the partnership
business without the consent of all existing partners.
(f) Indemnity:- The firm must indemnify every partner in respect of payments
made and personal liabilities incurred by him in the ordinary and proper
conduct of the business of the firm.
BUSINESS LAW 176

(g) Interest on Capital:- A partner is not entitled, before the ascertainment of
profit, to interest on capital subscribed by him.
(h) Books:- The Partnership books are to be kept at the place of business of the
partnership and every partner may when he thinks fit, have access to and
inspect any copy of them.
(i) Assignment of a Share in a Partnership: An assignment by any partner of
his share in the partnership either absolutely or by way of mortgage or
redeemable charge does not entitle the assignee to interfere in the
management, require accounts or inspect the partnership books. He is only
entitled to receive a share of the profits which the assigning partner would
otherwise be entitled to.
(j) Transmission of Shares in the Partnership:- When a partner dies or becomes
bankrupt, his property vests by operation of law in his Personal
representatives or trustee in bankruptcy as the case may be. They do not
become partners in the firm, indeed the firm will have been dissolved by
the death or bankruptcy unless the partnership agreement otherwise
provides.
11.4.3 Remedies for Breach of Partnership Agreement

The usual remedies for breach of contract are available and one partner may bring
an action for damages against another partner who is in breach of the partnership
agreement or may ask for an injunction to enforce a negative stipulation on it.
Specific performance is rarely available to enforce a partnership agreement since a

partnership is a contract for personal services and such contracts are rarely
enforceable by specific performance.
11.5 RELATIONS OF PARTNERS AND THIRD PARTIES

11.5.1 Partner's Powers:
Every partner is an agent of the firm and his other partners for the purpose of the
business of the partnership and every partner's act done for carrying on the
BUSINESS LAW 177

business in the usual way will bind the firm and his partners. However the firm and
the co-partners will not be bound;
(i) Where the partner who acts has no authority to bind the firm in the
particular matter, and;
(ii) Where the person who deals with him knows that he has no authority or
does not believe him to be partner (Section 5).
11.5.2 Extent of Power:

Decided cases indicate that the implied authority of a partner envisaged above is as
follows:
(i) All Partnerships: Partners have implied authority to:
(a) Buy, pledge and sell goods of the type in which the firm deals
(b) Give valid receipts
(c) Sign Cheques
(d) Engage and dismiss employees
(e) Sue on behalf of firm or defend an action against it.
(ii) Trading Partnerships i.e. partnerships where business consists in the buying
and selling of goods. The partners have these additional powers.
(a) To borrow money and give security over the firm's land or chattels. (b)
To draw, accept or indorse bills of exchange and promissory notes.
(iii) Non Trading Partnerships such as Firms of Solicitors, quarry workers,
auctioneers, Accountants, Cinema proprietors. For such partnerships
(a) A partner cannot accept, make or issue negotiable instruments other than
ordinary cheques
(b) A partner cannot borrow or pledge the partnership property
There are however certain acts that are not within the usual authority of a partner
whether it is a trading partnership or a non trading partnership, thus a partner does
not have the usual authority to:
(a) execute a deed , unless his authority is expressly conferred by deed
BUSINESS LAW 178

(b) give a guarantee in the firm's name unless a trade custom in that regard is
proved;
(c) submit a dispute to arbitration
(d) accept property in lieu of money to satisfy a debt owed to the firm
(e) make his partners into partners with other persons in another firm
(f) authorise a third person to make use of the firm's name in legal proceedings
11.5.3 Partner's Liabilities

(1) Liability for Debts and Contract: Every partner in a firm is liable jointly
with the other Partners for all debts and obligations of the firm incurred
while he is a partner and after his death his estate is also severally (i.e.
separately or individually) liable for such debts and obligations so far as
they remain unsatisfied subject to the prior payment of his separate debts.
The term joint here means, the Plaintiff can only bring one action and not
several separate actions against the members of the firm since there is only
one contract. He is not bound to join all members of the firm in the action
but if he does not do so, he loses his rights against those whom he has
omitted. So a firm's creditor may sue any or all the partners in the event of
judgment being unsatisfied. It is advisable however to bring an action
against the firm in the firm's name since this has the same effect as if the
action were brought against each and every partner.
(2) Liability of the Firm for Torts: Where a partner commits a tort while acting
in the ordinary course of the partnership business, the firm is vicariously
liable. The firm is similarly liable where a partner commits a tort with the
authority of his co- partners. The firm's liability is joint and several. This
means that an unsatisfied judgment against one or some of the partners is
not a bar to a further action against the remaining partners.
(3) Liability of New Partners: The general rule is that an incoming partner is
not liable for the firm's debts incurred before he became a partner although
BUSINESS LAW 179

he could become liable for debts from a continuing contract made before he
become a partner. The new partner can however assume liability by
novation. Novation here must be a tripartite agreement between (i) creditors
of the firm (ii) the partners existing at the time debt was incurred and (iii)
the incoming partner.
(4) Liability of Retiring Partner: This depends primarily on whether the debt
was incurred before or after retirement.
(a) Before Retirement: Obviously, a partner who retires from a firm
would still be liable for debts or obligations incurred before his
retirement though he could be discharged by novation as explained
above. The parties here however are:
(i) the retiring partner
(ii) the firm as newly constituted after the retirement and
(iii) the creditor.
(b) After Retirement: For the debts of the firm incurred after his
retirement he is liable to persons who:
(i) dealt with the firm before his retirement unless he has given
them notice that he is no longer a partner.
(ii) had no previous dealings with the firm, unless he has either
given notice of his retirement or had advertised it.
He is not liable, however to persons who had no previous dealings with the
firm and did not know him to be a partner. The estate of a partner who dies
or who becomes bankrupt or is not liable for partnership debts contracted
after the date of death or bankruptcy.
(5) Liability of Person by Holding Out: A person may be liable like a partner
for the debts of the firm although he is not in fact a partner, if by the words
spoken or written or by conduct represent himself or allows himself to be
represented as a partner in the firm. His liability in such a case is only to
BUSINESS LAW 180

those persons who have on the faith of such representation given credit to
the firm. He is not however liable for the torts or wrongs of the
partnership firm.
11.6. DISSOLUTION OF PARTNERSHIP

A partnership may be dissolved by order of the court but there are many cases
when dissolution occurs without any court order. Dissolution occurs without any
order of the court by:
(1) Expiration or Notice: Subject to any agreement between the partners, a
partnership is dissolved.
(a) If entered into for a fixed term, by the expiration of that term.
(b) If entered into for a simple adventure or undertaking by the
termination of that adventure or undertaking.
(c) If entered into for an undefined term, by any partner giving notice
of dissolution to the others.
(2) Bankruptcy or Death: Subject to any agreement between the partners, a
partnership is dissolved by the death or bankruptcy of any partner.
(3) Charge: If one partner suffers his share to be charged for his separate debt,
the others have the option of dissolving the partnership.
(4) Illegality: If an event which makes it unlawful for the business of the firm
to be carried on by the members occurs the partnership is dissolved.
11.6.1 On application by partner the court may decree dissolution:

1. When a partner becomes a lunatic by inquisition.
2. When a partner other than the partner suing become in any other way
permanently incapable of performing his duties under the contract of
partnership.
3. When a partner other than the partner suing has been guilty of conduct
calculated to prejudicially affect the carrying on of business.
4. When a partner, other than the partner suing, wilfully or persistently
commits a breach of the partnership agreement or otherwise so conducts
BUSINESS LAW 181

himself that it is not reasonably practicable for the other partners to carry
on the business in partnership with him.
5. When the partnership business can only be carried on at a loss.
6. Whenever the court thinks it just and equitable to dissolve the partnership.
11.6.2 The Effect of Dissolution: is basically to revoke the power of each partner to bind
the firm, except to complete transactions began, but not finished at the time of
dissolution and to do what may be necessary to wind up the partnership affairs.
11.6.3 Application of Partnership Property on Dissolution

On dissolution each partner is entitled to have the partnership property including
the goodwill, sold and the proceeds applied in payment of the debts and liabilities
of the firm. The Act provides that in settling accounts and the partnership assets are
insufficient to discharge the debts and liabilities of the firm, subject to agreement,
the partners must bear the deficiency in the proportion in which they were entitled
to share profits in this order:
(i) Out of profit
(ii) Out of capital
(iii) By the partner individually in the proportion in which they were entitled to
share profits.
Aside from this, the assets, including any sums contributed by the partners to make
up the losses or deficiencies of capital are applied in the following manner:-
(i) In paying the debts and liabilities of the firms to persons who are not
partners.
(ii) In paying the debts and liabilities of the firm to persons who are partners.
(iii) In paying each partner rateably what is due to him in respect of capital.
(iv) The ultimate residue if any is to be divided among the partners in the
proportion in which profits are divisible.
BUSINESS LAW 182

Partners as agents: Every partner is an agent of the firm and his other partners for
the purpose of the business of the partnership. Thus a partner like an agent also has
the following duties which are however incorporated into the Partnership Act under
Sections 28 -30 unlike Agency where such duties arise at common law.
(i) To render true accounts and full information in all things affecting the
partnership to any partner.
(ii) Not to make secret profits which he must account for to the firm or any other
benefit derived by him from his use of the partnership property.
(iii) Not to compete with the firm.

This chapter has given an in depth study of the nature of a partnership, what
constitutes a partnership and the various laws applicable. It explains the types of
partnership, the formation of partnership and the formalities involved. It has
clearly stated the rules for determining the existence of a partnership showing how
a partnership differs from a joint tenancy and a tenancy in common, sharing of
gross returns or receipt of a share of the profits. The chapter further shows
relationships where persons are not partners although they carry on business in
similar circumstances such as promoters or executors.
It further explains the legality of partnerships, the relationship between the

partners, their rights and duties, and the rules that apply to partners such as
remuneration, indemnity, management etc.
It discusses the relationship between partners and third parties, explaining the
partners' powers, its extent and their liabilities.
It further explains the various ways by which a partnership can be dissolved; viz
by operation of law or by the Courts, the effect of dissolution and the application
of partnership property upon dissolution.
BUSINESS LAW 183

(a) In which order must partnership debts be paid on dissolution?
(b) Ebere and Williams have for several years carried on business in
partnership. It has now been agreed that Ebere shall retire and receive
N100,000.00 in satisfaction of her share while Williams shall take over the
all the assets and liabilities and carry on the business in the old firms
name. Advise Ebere as to the steps which should be taken in order that she
may be adequately protected, giving your reasons.
(c) State the order in which partners must bear losses on the dissolution of a
partnership.
(d) State the order in which partnership debts are paid on a dissolution.
(e) List three differences between general partnerships and limited
partnerships.
(f) What is a partnership?
(g) List four disabilities of a limited partner.
(h) How may we distinguish co-ownership from partnerships.
(i) State three instances where a person who receives a share of the profits may
not be regarded as a partner.
(J) List four ways by which a partnership may be dissolved without a Court
order.
(k) List four ways by which a partnership may be dissolved by the Court.
(L) When may a partnership name be registered and state the effect of the non
registration of a registrable partnership name.
BUSINESS LAW 184

CHAPTER TWELVE
BANKING AND NEGOTIABLE INSTRUMENTS

define negotiable instruments
identify the types of negotiable instruments
distinguish among bills of exchange, cheques and promissory notes.
explain what order and bearer papers are
discuss the rights and duties of the holder
describe the mode and scope of dishonour and discharge.
explain the basis for banking and the relationship between the banker and
the customer discuss unit trusts:
12.1 INTRODUCTION
Negotiable instruments have become the most acceptable way of monetary
transactions today. The meaning, types and characteristics of negotiable
instruments are therefore necessary to look at to ensure a proper understanding of
them. It is equally important to be able to make a distinction among bills of
exchange, cheques and promissory notes. Again the rights and duties of bankers
and customers are also relevant and receive attention. The chapter is concluded
with a discussion of unit trusts.
12 .2 MEANING, TYPES AND CHARACTERISTICS OF NEGOTIABLE

INSTRUMENTS
12.2.1 Negotiable Instruments
Negotiable Instruments are contracts in writing. They are transferable by
endorsement or by delivery. The holder takes title free from any defences or
objections to their validity that might have been good against the transferors.
They are substitutes for money.
BUSINESS LAW 185

There are two types namely Promises to pay money and Orders to pay money.
Promises to pay money include Promissory notes and certificates of deposit.
Examples of Orders to pay money are Bills of exchange like Cheques and other
drafts.
12.2.2 Promissory Notes

A promissory note is a written instrument containing an unconditional promise by
a party, called the maker, who signs the instrument, to pay to another, called the
payee, a definite sum of money either on demand or at a specified or ascertainable
future date. The note may be made payable to the bearer, to a party named in the
note, or to the order of the party named in the note. A promissory note differs from
an IOU in that the former is a promise to pay and the latter is a mere
acknowledgment of a debt. A promissory note is negotiable by endorsement if it is
specifically made payable to the order of a person. A promissory note must contain
an undertaking to pay. In Orthodox School of Peki v Tawlma Abels [1974]
GLR 421, it was shown that Exhibit A was not a promissory note within the
meaning of the Bills of Exchange Act, 1961(Act 55) because neither the
commencement date for the monthly instalments nor the quantum of the monthly
instalments payable had been fixed.
12.2.3 Certificates of Deposit

By a certificate of deposit (Treasury bill), a banker acknowledges the receipt of a
deposit from the depositor and promises to repay the deposited sum to the
depositor upon demand. Processing in electronic form has affected the traditional
outlook.
12.2.4 Bill of Exchange

A bill of exchange is an unconditional order in writing, signed and addressed by
one person (the drawer) to another (the drawee), requiring the drawee to pay on
demand, or at a determinable or fixed future date, a specified sum of money to a
third person (the payee). The payee is frequently the same person as the drawer of
BUSINESS LAW 186

the bill. The term bill of exchange usually refers to foreign exchange transactions,
rather than domestic transactions. On accepting a bill of exchange, the drawee
becomes the party primarily responsible for paying it. Bills of exchange are
negotiable and constitute one of the principal forms of commercial documents in
most countries. The most common bill of exchange is the cheque.
12.2.5 Cheques
A Cheque is a draft payable upon demand and drawn on a bank. The issuer of the
cheque is the drawer who orders the bank at which he has an account referred to as
the drawee to pay a named individual or entity or the bearer of the cheque, the
payee a specified sum of money upon presentation of the cheque. A cheque
includes a money order. Draft is a written order for the payment of money drawn
by one person, directing a second person or financial institution to pay a third
person. Whereas bills of exchange are always negotiable, drafts may be non-
negotiable. A draft is payable on sight or on demand; however, in some
transactions drafts are often payable at a stated date in the future.
12.2.6 Negotiability
In order to be negotiable, (capable of being transferred or transferability) an
instrument must meet several qualifications: It must be in writing; It must contain
an unconditional promise to pay a certain sum in money, on demand or at a fixed
and determinable future time; It must be made payable to bearer or order; It must
be signed by the maker of a promissory note or the drawer of a bill of exchange.
12.2.7 Order Paper and Bearer Paper

An order paper is made payable to a specified individual or entity. A bearer paper
is payable to bearer or cash. The difference between the two is important for
purposes of negotiability. An order paper is negotiated by endorsing it to another
person. This entails signing the back of the instrument and transferring it to
another. An order paper, to order of John is negotiated by John first signing the
back of the instrument and then transferring it to another. John in addition to his
BUSINESS LAW 187

signature may write Pay to the order of Jeff. To effect negotiation and therefore
transferability of a bearer paper all that is required is delivery of possession of the
instrument to the one to whom it is being transferred.
12.2.8 Endorsement
A valid endorsement must be written on the bill itself and signed by the endorser, it
must be an endorsement of the entire bill and where it is payable to the order of
two or more payees or endorsees who are not partners all must endorse. An
endorsement may be special, blank or restrictive. A special endorsement specifies
the person to whom or to whose order the bill is to be payable. An endorsement in
blank specifies no endorsee and a bill so endorsed becomes payable to the bearer.
When a bill has been indorsed in blank, any holder may convert the blank
endorsement into a special endorsement by writing above the endorser's signature a
direction to pay the bill to, or to the order of, himself or some other person. A
restrictive endorsement prohibits the further negotiation of the bill or expresses that
it is a mere authority to deal with the bill as directed and not a transfer of property.
The endorsement maybe for deposit only, pay to Charles, in trust for Linda,
for deposit to my account with Standard Chartered Bank.
12.3 RIGHTS AND DUTIES OF PARTIES TO A BILL OF EXCHANGE

12.3.1 Holders
A person is a holder if he is either a payee in possession, or an endorsee in
possession or a person in possession of a bearer bill. A holder for value is a person
in possession of a bill for which at any time value has been given. He is a holder
for value as regards all parties prior to himself. A holder in due course is a holder
who is in possession of the instrument complete and regular on the face of it before
it was overdue for value and in good faith without notice of any defect in the title
of the transferor and if it has been dishonoured then without notice of dishonour.
The rights and powers of the holder of a bill include suing on the bill in his own
name. The holder in due course as a transferee generally takes free of claims and
BUSINESS LAW 188

defences between the original parties to the instrument and may enforce payment
against all parties liable on the bill. Claims relating to ownership, lien on the
instrument or right of rescission of endorsement can be sustained against the holder
in due course if they arise subsequent to taking but not claims arising before
taking. In Diab v Quansah [1974] 1GLR 101, it was shown that by the effect of S
28 (2) of Act 55 every holder of a bill was to be deemed to be a holder in due
course, if however evidence was given to show that there was fraud, illegality or
duress in the negotiation of the bill, the onus of proof lies on the person who
assists.
12.3.2 Dishonour
A bill may be dishonoured by non-acceptance or by non- payment and the holder
can sue prior parties on their implied promises. A bill is dishonoured by non-
acceptance when it is duly presented for acceptance and such acceptance is refused
or cannot be obtained or when presentment for acceptance is excused and the bill is
not accepted. A bill is dishonoured by non-payment when it is duly presented for
payment and payment is refused or cannot be obtained and when presentment is
excused and the bill is overdue and unpaid. When a bill has been dishonoured by
non-acceptance or by non-payment, notice of dishonour must be given to the
drawer and each endorser, and any drawer or endorser to whom such notice is not
given is discharged.
12.3.3 Discharge
A negotiable instrument may be discharged in the following ways:
Payment of the instrument in full, discharges liability on it. After all, the essence is
to effect payment and therefore once the payment is effected, the obligation is fully
fulfilled. By express waiver, where the holder absolutely and unconditionally
renounces his rights against the acceptor. The waiver must be in writing unless the
bill is delivered up to the acceptor. Any material alteration discharges any party
whose obligation is affected by the alteration. By intentional and apparent
BUSINESS LAW 189

cancellation by the holder or his agent. By negotiation back to the acceptor
sometimes called a merger. By the bill becoming statute barred.
12. 4 RIGHTS AND DUTIES OF BANKERS AND CUSTOMERS

12.4.1 Banking
Banking entails providing financial services to consumers and businesses. Any
financial institution that receives, collects, transfers, pays, exchanges, lends,
invests or safeguards money for its customers may be referred to as a bank.
Banking services supply customers with the basic mediums-of-exchange (cash,
cheque accounts, and credit cards). In that sense banks assist very much in the
purchasing of goods and services. Banks also encourage the flow of money to
productive use and investments through accepting deposits from savers and
lending them to borrowers. This is how the economy grows since savings do not sit
idle but money is made available for borrowing and thereby ensures the purchasing
of a wide variety of goods and services. It also facilitates the setting up of many
businesses essential for production and further expansion. Although deposits and
loans are the basic banking services provided by banks, these institutions provide a
wide variety of other services to customers. For consumers, these include cheque
cashing, foreign currency exchange, safety deposit boxes in which consumers can
store valuables, electronic wire transfer through which consumers can transfer
money and securities from one financial institution to another among others.
Electronic banking through the use of computers has become a fast and convenient
way of money transfer. Automated teller machines (ATMs) enable bank customers
to withdraw money from their current or savings accounts by inserting an ATM
card and a private electronic code into an ATM. This gives all time access.
12.4.2 Relationship of Banker and Customer.

A banker is defined as a body of persons who carry on the business of banking. A
person becomes a customer either when the banker opens an account in his name
or when the banker accepts his instruction to open an account and receives a
BUSINESS LAW 190

deposit to be credited to it. Relationship between banker and customer vary from
transaction to transaction. When the banker accepts the custody of documents or
goods he acts a bailee. When he agrees to hold moneys on trust he becomes a
trustee.
When a banker opens an account for the customer the relationship established is
that of debtor and creditor. When the account is in credit the customer is the
creditor and the banker the debtor. The position is reversed when the account is
overdrawn. Customer's deposit of money in a bank under the banker's control but
not held in the form of a trust although he has obligations in connection with it.
The banker has an obligation to repay.
A Banker can invest the money as he pleases but is under an obligation to pay it on
demand or to pay it to third parties on the order of the customer. The bank must
honour a customer's deposit or alternatively up to the amount of an agreed
overdraft but not without enquiry in unusual cases.
The banker has an obligation not to disclose. The bank has an obligation not to
disclose information concerning the customer's affairs. The obligation extends to
all facts discovered by the banker while acting in that capacity and is not confined
merely to the state of the account. On principle disclosure is excusable under
compulsion of law, where there is a duty to the public to disclose, where the
interests of the bank require disclosure or where the disclosure is made with the
express or implied consent of the customer.
12.4.3 Termination of Duty to Pay

The banker should not honour a cheque if the customer has countermanded or
stopped it. An oral countermand may be alright initially but has to be followed up
with a written one. Notice of the customer's death, notice of the customer's mental
disorder and notice of bankruptcy or receiving order are all circumstances under
which the banker should not honour a cheque. Service of a garnishee order stops
BUSINESS LAW 191

the banker from making payments to the customer and to show cause why payment
should not rather be made to the judgment creditor. Forged and altered cheques are
obviously not genuine and cannot be honoured. The bank has an obligation to act
with reasonable care and skill to ensure that there is no improper withdrawal of
money from the customer's account. Bankers give advice on investment to
customers and potential customers and will be liable in damages if the advice is
negligent.
12.5 UNIT TRUSTS

Under the Companies Code of Ghana, a unit trust means any arrangement
whereby securities or any other property other than a charge to secure debentures
are vested in trustees. The beneficial interests in them are then divided into units
or sub-units or other interests with a view that they would be acquired through
invitations to the public.
The Registrar in his absolute discretion and subject to such conditions and
restrictions that he shall think fit may declare any unit established in Ghana or
elsewhere to be an authorized unit trust by a legislative instrument. The
instrument shall be made only when the manager and the trustees deliver to the
Registrar particulars of an address in Ghana for service of notices and
documents.
Any revocation of the instrument or a variation of its terms by the Registrar will
have to be served on the manager and the trustees of the unit trust by a written
notice. Any representations in respect of them will have to be made within one
month from the date of service of the notice. The Registrar may proceed after the
period having taken into consideration the representations. Invitations to the
public to acquire any units can lawfully be made in respect of authorized unit
trusts and under the restrictions and conditions imposed on them. Any invitations
to the public made in breach of these conditions attract a fine in respect of a
body corporate and imprisonment in all other cases.
BUSINESS LAW 192

Even though the use of physical cash is still with us, increasingly there is more
resort to negotiable instruments in various transactions. Promissory notes, cheques
and drafts are in constant use today. The ease of handling them and their
adaptability make them the preferred option. The obligations imposed on parties
involved in these transactions were highlighted. Attention was also paid to the
issues of dishonour and discharge. The role of banking today and the effect of
electronic banking were also looked at. Another area of study was the relationship
between the banker and the customer. Finally unit trusts were discussed to draw
the curtain on the chapter.

1. Explain negotiable instruments
2. List the qualifications for negotiability.
3. Describe a bill of exchange.
4. Write briefly on cheques and promissory notes.
5. Explain endorsement.
6. Discuss the rights and duties of holders.
7. What amounts to discharge of a negotiable instrument?
8. Explain the duties of the banker to the customer.
9. Which circumstances terminate the banker's duty to pay?
10. Write briefly on Unit Trusts.
BUSINESS LAW 193

CHAPTER THIRTEEN
THE ALTERNATIVE DISPUTE RESOLUTION (ADR)

13.1 INTRODUCTION
Litigation should always be a last resort for a business.1This view was expressed
by Ewan Macintyre in his book Business Law. In every legal instrument prepared
for execution of contract or agreement between two or more parties, Arbitration
clause is usually inserted.
The Alternative Dispute Resolution consists of Arbitration, Mediation and
conciliation.
13.2 DEFINITION OF TERMS ARBITRATION

Arbitration has been defined as the reference of a dispute or difference between not
less than two parties for determination after hearing both sides in a judicial manner
by persons or persons other than a court of competent jurisdiction.2 A person to
whom a reference to arbitration is made is called an Arbitrator.3
The Law regulating Arbitration in Nigeria is the Arbitration and Conciliation Act.
The Act lays down both the Law and procedure for Arbitration proceedings.
13.3 ARBITRATION AGREEMENT

Arbitration proceedings will only arise where there is an agreement providing for
such proceedings - that is, the dispute should go for arbitration. The legal basis for
arbitration is voluntary agreement. The voluntary submission of both parties of
their cases or points, of difference between them to arbitration is basic to a binding
arbitration.4
For arbitration to arise, there must have been a dispute. There would be no dispute
where there is no controversy in existence.
BUSINESS LAW 194

According to Section 1 of the Arbitration Act, every arbitration agreement shall be
in writing and may be contained in a document signed by the parties or in an
exchange of letters, telex, telegrams etc. which provide a record of the arbitration
agreement or in exchange of points of claim or defence in which the existence of
an arbitration agreement is alleged by one party and not denied by another.5
Usually, an agreement to go for arbitration may either be made by the parties as an
integral part of their initial contract (that is where the contract would contain an
arbitration clause) or the parties may agree to go for arbitration after the dispute
has arisen.
Not all disputes can be referred to arbitration for settlement as was held in the case
of KSUB v Fanz Construction Limited.
The following matters cannot be referred to arbitration:

(a) An indictment for an offence
(b) Disputes arising from agreement which are void abinitio e.g. gambling or
disputes arising from illegal contract and disputes arising from divorce
petition.6
13.4 BINDINGNESS OF ARBITRATION AGREEMENT

Except where a contrary intention is expressed in the agreement, an arbitration
agreement is irrevocable except by agreement of the parties or by leave of the
court. It was held in the case of Commerce Assurance Ltd. v Alli that a person
who has submitted to an arbitration cannot turn to the court to ask it to review the
award. The court has no power to alter an award.
Justice Nnaemeka Agu in this case stated that the general rule is that parties took
the arbitrators for better or worse.7
BUSINESS LAW 195

13.5 ENFORCEMENT OF AWARD
This is the final decision of the Arbitrator. It is usually based on sound premises
and well adduced reasons like the judgement of the court. Both the claimant and
the defendant shall have copies of the award which is expected to be final and
binding on the parties.
A party that is not satisfied with the award may go to the court for redress. The
court may order the award to be remitted back to the Arbitrator or may decide to
set it aside. This was the situation in Governor of Niger State v Albishir, Baker
Marine (Nig) Ltd. v Chevron (Nig) Ltd. and Aaka v Ejeagwu.8
Usually, it is the losing party that goes to court to ask for a setting aside order. The
court does not have power to alter an award. The winning party may also approach
the court for an order to enforce the award as was decided in Commerce
Assurance Ltd. v Alli .
Once an order is made for the enforcement, the successful party may levy
execution under the Sheriff and Civil Process Act. Where the award is made in a
foreign country against any organization or company in Nigeria, it must first be
registered under the Reciprocal Enforcement of judgement Act 1960, Application
shall be made to the court for enforcement by way of originating summons.9
However, by virtue of the New York Convention of 1958, which is an International

Treaty to which Nigeria is a subscriber, it could be inferred that judgements of
other countries apart from the United Kingdom can also be registered and enforced
reciprocally between Nigeria and the other countries.
Enforcement of Foreign Awards has become easier than executing court

judgements because of the existence of number of rules and international
conventions like the 1958 United Nations Convention on the Recognition and
Enforcement of Arbitral Awards (New York Convention). This convention
BUSINESS LAW 196

supercedes the 1923 General Protocol on Arbitration clauses and the 1927 General
Convention on execution of Foreign Arbitration awards.
13.6 CONDUCT OF ARBITRAL PROCEEDINGS

Section 14 of the Arbitration Act provides that in any arbitral proceedings, the
arbitral tribunal shall ensure that the parties are accorded equal treatment and that
each party is given full opportunity of presenting his case.10
13.7 PLACE OF ARBITRATION

This is usually determined by the arbitral tribunal having regard to the
circumstance of the case including the convenience of the parties.
13.8 LANGUAGE OF THE PROCEEDINGS

The language is usually determined by the parties.
13.9 COMPOSITION - NUMBER OF ARBITRATORS

The parties are free to determine the number of arbitrators to be appointed. The
number may be based on the original arbitration agreement or after the dispute had
arisen. In the absence of any prior agreement, the number of arbitrators shall be
deemed to be three. (3)
13.10 TERMINATION OF MANDATE OF AN ARBITRATOR

The mandate of an arbitrator terminates:
(a) If he withdraws from office
(b) If the parties agree to terminate his appointment by reason of his inability to
perform his function
(c) If for any other reason he fails to act without delay.11
BUSINESS LAW 197

13.11 LEGAL REPRESENTATION
Parties to an arbitral award may appear for themselves or may be represented or
assisted by a legal practitioner of their choice. The name and address of such legal
practitioner must be communicated in writing to the other party.
13.12 METHOD OF COMMENCEMENT OF THE ARBITRAL PROCEEDINGS

Two parties to an arbitral proceeding are referred to as the claimant and
Respondent. The claimant is the party that initiates recourse to arbitrator while the
other party is the Respondent.
Note that proceedings are commenced by the claimant giving the Respondent
notice of intention to go for arbitration. Arbitral proceedings commences on the
date notice is received by the respondent.
13.13 MAKING AN AWARD

The decision of the arbitral tribunal is called an award.12
Where the tribunal consists of more than one arbitrator, any decision of the tribunal
is made by a majority of all its members.
13.14 ADVANTAGES OF ARBITRATION

When the parties to a dispute agree to refer the dispute to arbitration they agree that
their dispute should be resolved by an arbitrator rather than by a court. Arbitration
as an alternative dispute resolution method has been credited with the following
advantages.13
1. FASTER Arbitration provides a faster method of dispute resolution. This is
because the arbitrators would dedicate their time to resolving the dispute, unlike a
normal litigation where parties would have to queue up behind other litigants to be
allocated part of the courts time allocated in resolving their dispute.
2. CONFIDENTIALITY/PRIVACY Arbitration guarantees privacy and

confidentiality of the parties, the proceedings and the evidence given at the
proceedings. This is because, unless agreed to by the parties to the Arbitration,
BUSINESS LAW 198

members of the public do not have access to the proceedings or evidence given at
such proceedings. A disputant who wants confidentiality would be better off with
arbitration.
This situation contrasts sharply with the position with the regular court system
where the courts are generally speaking, open to the general public and
evidence/documents in court sessions are considered as public document and
within the domain of the members of the public.
3. FAIRER AND MORE ACCEPTABLE SETTLEMENTS

Arbitration is considered to lead to a more informed and more acceptable
settlements of disputes.
The reason for this is that the parties have a say in the appointment of arbitrators,
they are more likely to accept and be satisfied which the decision of an arbitrator
appointed by them.
This position contrasts with the normal litigation where the dispute resolution
organ is dictated by the state without a reference to or impute from the disputants.
13.15 DISADVANTAGES OF ARBITRATION

1. More expensive The greatest drawback of arbitration as an alternative dispute
resolution is that it is more expensive to the disputants, than the normal court
litigation. All the cost of the process, like payment of the arbitrators and other
associated cost like accommodation, transport etc. are borne entirely by the parties.
2. ENFORCEMENT
Enforcement is another drawback of arbitration because it does not have direct
enforcement machinery. Where an award is made and is not satisfactory
enforcement may be difficult. At times the aggrieved disputant would have to
apply to normal court to enforce the award. In doing so, some of the advantages of
the arbitration process especially confidentiality and speed would be compromised.
BUSINESS LAW 199

This contrasts with the situation in regular court litigation where the machinery of
enforcement are automatically available to enforce any court judgement.
13.16 MEDIATION
As regards litigation and arbitration the dispute is resolved for the parties by an
independent body.14 In mediation, the parties themselves agree to the resolution of
the dispute. The mediators try to facilitate an agreement between the two parties.
There is no fixed rule in mediation. The parties would first present an outline of
their case to each other, in the presence of the mediator and reply to the other
partys case.
The role of mediator is to set out the rules, trying to keep matters simple and also
striving to identify the key issues in dispute.
In mediation, the two parties will retire to different rooms and the mediator will
spend time with one group, before passing on the position of that party to the other
party. At times a large number of such visits might be needed and ideally the
parties would move closer to agreement until they finally agree to settle. It should
be noted that it is not always the case that those taking part in mediation are
generally attempting to settle the case. At times they might merely be trying to
find out the strengths and weakness of the other partys case.
Mediation is a voluntary process, which offers disputants meaningful and creative

solution at a fraction of the cost of the litigation system.
In mediation, the neutral third party has no authority to make any decisions, which
are binding on the two parties, but uses proceedings, techniques and, perhaps, his
influence and relationship with the parties to negotiate a resolution of their dispute
by agreement without adjudication.
BUSINESS LAW 200

Mediation is different from arbitration. The role of the neutral third party in
Arbitration is to consider the issues and make a decision, which at times is binding
on the parties, the neutral third party in mediation does not have any authority to
make any decision or award for the parties. Where the mediator expresses a view
about the merits of the disputes, that opinion is not binding on the disputants, and
in no circumstances would a mediator have the power to impose his views on the
disputants, Exercise of such power would be contrary to the spirit of mediation,
which is inherently consensual. Where mediation fails, the two parties retire to
court room. Decision of mediation cannot be enforced in the court.
13.17 CONCILIATION
Conciliation is similar to mediation except that the conciliation actually suggests a
basis for settlement to the parties. Mediation and conciliation suffer from the
problem that they may well prove futile in that no settlement will be reached or
become any closer. In the final analysis, the two parties usually go to court for
litigation.
BUSINESS LAW 201

APPENDIX 1
SUGGESTED SOLUTIONS TO REVISION
QUESTIONS1.8
1. Law is the rules and regulations which govern the society. Every society has
acceptable behaviour patterns. Deviations from them are usually proscribed and
attract sanctions. Law in essence determines what is acceptable and what is not.
Since there are many different classifications of society there are also many types
of laws to meet them. A social club has its laws, so does an ethnic group and the
country as a whole. There are also laws that relate to specific activities of
humanity. Thus there are laws that relate to contract generally and to specific ones
like employment, sale of goods and insurance among others.
2. Laws shape human behaviour in one way or the other. There are those who may
voluntarily meet the expectations of the law. There are however others who may
conform for fear of the sanctions the law imposes. The law therefore ensures
conformance. It also sets the standard as to what is acceptable and what is not.
3. The laws of Ghana and Nigeria are the Constitution,1992 and 1999 respectively;
enactments made by or under the authority of the Parliament established by the
Constitution,1992 and 1999; any Orders, Rules and Regulations made by any
person or authority under a power conferred by the Constitution 1992 and 1999
respectively. It also includes the existing law and the common law.
4. The Common law of Ghana and Nigeria is made up of the rules of law referred to
as the common law, the doctrines of equity and the rules of customary law. It
sometimes, in a narrow sense, refers only to the rules of common law developed in
England or that, with the principle of equity. Generally however the common law
has three components namely the common law developed in England, the doctrines
of equity which developed to mitigate the harshness of the common law and the
customary laws of the various ethnic groups of the country.
BUSINESS LAW 202

5. Equity means fairness. It is based on impartiality. On the failure of the English
Common law to keep pace with the needs of the society then, it became expedient
to mitigate its harshness and rigours. Its processes were slow and the remedy
inadequate. Equity developed to address these shortcomings. Aggrieved persons
petitioned the King for assistance with the Chancellor presiding over such
hearings. By the 15th Century the petitions were made directly to the Chancellor.
The body of rules applied by the Chancellor's court became known as equity.
Equity developed to remedy the defects of the common law and has many
fundamental principles known as the maxims of equity upon which it operates.
Some of them are equity follows the law, equity aids the vigilant not the indolent
and equity looks at the substance rather than the form. Equitable remedies are
discretionary and include specific performance and injunctions.
6. Customary law is the rules of law which by custom are applicable to particular
communities in Ghana and Nigeria. They are customs accepted by members of a
particular community as binding upon them. It used to be applied and enforced
only when they were not repugnant to natural justice, equity and good conscience.
Customary law in Ghana and Nigeria regulates matters relating to chieftaincy,
family relationships and property rights. Its role cannot be overemphasised
considering the fact that it regulates the basic human grouping- the family.
Marriage, birth, divorce, death, succession and inheritance are commonly regulated
by customary law. Patrilineal and matrilineal inheritance and succession regulate
offices and even property rights and economic activities. Indeed there are
multiplicities of customary laws affecting different commodities. Many customary
laws have seen transformation due to the impact of patrilineal and socio-economic
changes in society.
7. Legislation is law passed by Parliament in the form of Acts of Parliament or

Statutes. They may be in the form of Constitution, Acts, Decrees or Edicts: The
other is subsidiary or delegated legislation which is made up of orders, rules and
BUSINESS LAW 203

regulations made by any person or authority under a power conferred by the
Constitution or any other law.
8. There are several approaches to the interpretation of statutes. The common rules
include the literal rule, the golden rule, the mischief rule, the ejusdem generis
rule, the expression unius est exclusion alterius rule and the noscitur a sociis rule.
The three common approaches described here are the literal, golden and mischief
rules. The literal rule is for giving words their ordinary and plain meaning if they
are clear and unambiguous. Under the golden rule the judge adopts the
interpretation which produces the least absurd result. This is adopted especially
where the words of a statute are capable of two or more meanings. The mischief
rule is based on looking at what mischief or defect in the common law the Act was
passed to remedy.
9. The doctrine of judicial precedent simply means stand by past decisions and do not
disturb things at rest. It means that a court's decision based on a particular set of
circumstances is binding on other courts in later cases in situations where the
relevant facts are the same or similar. Judges make use of previously decided
cases. Courts are bound by the decisions of courts superior in the judicial
hierarchy. The High Courts and Regional Tribunals are not bound by their own
decisions but their decisions bind all lower courts. The Court of Appeal is bound
by its own previous decisions which also bind all courts lower than it. The
decisions of the Supreme Court bind all other courts. This is authoritative
precedent which is binding and must be followed. Decisions of Superior Courts of
other common law jurisdictions are of persuasive effect and need not be followed.
Judicial precedent brings out rules of law which help to ensure uniformity,
consistency and certainty.
10. Law reporting is the most meaningful way of showing the application of the
doctrine of judicial precedent. Law reporting helps to illustrate the relevant rule
running through a series of cases. Law reports therefore are the repository of
BUSINESS LAW 204

precedents. Law reporting provides a record for the procedures and substance of
the law for the benefit of the profession and society as a whole.
QUESTION 2.9
1. The two main courts of Ghana are the Superior Courts of Judicature and the lower
courts The Superior Courts are made up of the Supreme Court, the Court of
Appeal, the High Court or the Regional Tribunal. This is also applicable in
Nigeria save for Regional Tribunal which is peculiar to Ghana
The Lower Courts are made up of the Circuit Court, the District Court, the Juvenile
Court, the National House of Chiefs and every Traditional Council in respect of
matters affecting chieftaincy and other lower courts as established by law but the
Supreme Court has original, appellate, supervisory, review and special jurisdiction.
Its original jurisdiction is in respect of the enforcement or interpretation of the
Constitution and matters as to whether an enactment was made in excess of the
powers conferred on Parliament or any other authority. The Supreme Court is the
final appellate court. It has jurisdiction in all matters. The Supreme Court has
supervisory jurisdiction over all courts and over any adjudicating authority. It may
issue orders and directions in the form of certiorari, mandamus, prohibition etc to
enforce or secure the enforcement of its powers. The Supreme Court may also
review any decision made or given by it. Finally the Supreme Court has special
jurisdiction in terms of whether a document should be produced in public or not
due to security reasons, entertain a petition challenging the validity of the election
of the President of Ghana and Nigeria and the removal of the President on stated
grounds.
3. The qualification for appointment as a judge to the courts of Ghana is high moral
character, proven integrity and a number of years standing as a lawyer. For the
Supreme Court, the standing as a lawyer is not less than fifteen years. For the
Court of Appeal, not less than twelve years and for the High Court or Regional
BUSINESS LAW 205

Tribunal not less than ten years. For the Circuit Court it is not less than five years
and not less than three years for the District Court.
4. The Court of Appeal has only appellate jurisdiction and no original jurisdiction. No
case therefore starts at the Court of Appeal. Save for Nigeria where it has
jurisdiction on matters connecting with the election of the President and Vice
President.
5. The High Court has jurisdiction in all matters and in particular in civil and criminal
matters. It also has original jurisdiction in almost all civil matters. It can enforce
the fundamental human rights guaranteed by the Constitution. It has appellate
jurisdiction over the District and Circuit Courts. It also issues orders and directions
in its supervisory role under the lower courts. The unlimited jurisdiction of the
High Court in Nigeria has been curtailed by the virtue of Act. 251 of 1999
Constitution as amended.
6. A Regional Tribunal has concurrent original jurisdiction with the High Court in all
criminal matters. It also tries the special offences of causing loss, damage or injury
to public property, import of explosives and using public office for profit. Its
jurisdiction includes offences arising under the Customs, Excise and Preventive
Services Management Law, Internal Revenue Act, Narcotic Drugs (Control,
Enforcement and Sanctions) Law and other offence involving serious economic
fraud and loss of state funds or property. It also has appellate jurisdiction to hear
and determine appeals in criminal trials from the circuit and District Courts.
7. The Circuit Court and District Courts have virtually the same jurisdiction in terms
of the civil and criminal matters handled. However Circuit Courts deal with civil
matters not exceeding 100 million cedis whiles District Courts have a ceiling of 50
million cedis. District Courts also act as Juvenile Courts and family tribunals
BUSINESS LAW 206

8. a) A writ of summons is the means by which a civil proceeding is
commenced. It is prepared by the plaintiff, his solicitor, the registrar of the
court or a letter writer. It usually indicates the nature of the claim and the
relief or remedy sought in the action.
b) A writ of fi fa commands the sheriff to cause to be made a writ of

attachment on the property of the judgment debtor for the property to be
sold in satisfaction of the judgment debt and costs. The sheriff after the sale
is expected to bring the money realized into court to be paid to the
judgment creditor.
c) Garnishee orders cause a third party to appear before the court to show
cause why he should not pay to the judgment creditor the debt due to him to
the judgment debtor in satisfaction of the judgment debt and costs.
9. One is criminally liable for an unlawful act or default which is offence against the
public. It is and offence against the state and the person who is guilty is liable to
punishment. There must be the proof of the mens rea (guilty mind) and the actus
reus (prohibited act). The standard of proof for a crime is beyond reasonable
doubt. Civil liability deals with remedying the wrongs arising between
individuals. Two broad areas of civil liability are in contract and tort. The
plaintiff sues the defendant and will be successful if he can prove his case on a
balance of probabilities.
10. Every man is entitled to his good name and to the esteem in which he is held by
others. Whenever a man's reputation is disparaged by statements made about him
to a third person without lawful justification or excuse he is said to have been
defamed.
BUSINESS LAW 207

Defamatory statements in an oral or some other transient form constitute the tort of
slander. Where the defamatory statements are in writing or some other permanent
form constitute libel. 3.8
1. The elements of contract are agreement, consideration, and intention to
create legal relations, form, capacity and legality.
2. Whenever a person comes out with terms to another person and shows
willingness that if that person accepts those terms he is ready to contract
with him those terms constitute an offer. In the case of an invitation to treat,
it precedes an offer it is rather an offer to make an offer. It is an indication
of willingness to enter into negotiations. It cannot be accepted to bring a
contract into being. It is invitation to make an offer. Circumstances which
amount to invitation to treat include advertisements, display of good with
price tickets, auctions and tenders.
3 a) Where two people simultaneously make identical offers to each other

they amount to cross offers. In such circumstances the other party
make an offer independent of the other. None is a reaction to the other
and thus none can constitute an acceptance. They therefore do not
conclude a contract.
b) In a counter offer, the offeree's reply indicates a willingness to be

bound but on terms different from those contained in the offer. If
Kojo offers his car to Taiwo for one hundred million cedis but
Taiwo agrees to buy it for eighty million cedis, Taiwo's purported
acceptance amounts to a counter offer. It terminates the original
offer and may end the negotiations unless Kojo accepts the new
price which then becomes a new offer which is accepted by him.
c) Acceptance is the expression of assent to the terms of an offer.

Acceptance therefore means that the offeree adopts all the terms in
BUSINESS LAW 208

the offer without any variation. Thus Kojo's offer to sell his car to
Taiwo for one hundred million cedis is agreed to by Taiwo. With
such acceptance a contract is concluded.
4. There are several ways by which an offer may be terminated. These include
withdrawal of the offer by the offeror before its acceptance. This is
revocation by the offeror. The offeror may also reject the terms of the offer
by not accepting them. Failure to accept an offer within a given time also
terminates it through lapse of time. Death of either the offeror or the offeree
may also terminate an offer.
5. Consideration has been described as something of value in the eyes of the

law. At any time a party consideration is necessary in all contracts other
than speciality contacts. It is the price which need not be monetary paid for
the promise of the other. In a bilateral contract it may be an act or a promise
in a unilateral contract. It has been described as a benefit/detriment
situation.
6. a) Where consideration is provided by mutual promises it gives rise to

a bilateral contract. It is a promise to do or forbear from doing some
act in the future. The transaction remains to be performed in the
future. This is executory consideration.
b) Executed consideration is an act done by one party in exchange for a

promise made or an act done by the other. A promise for an act
gives rise to a unilateral contract.
c) Past consideration is something done before the promise was made.

It may constitute a motive but is not valuable consideration. The
promise is independent of the act or service performed and is
therefore not enforceable.
BUSINESS LAW 209

7. When parties are already in a contractual relationship and one of the parties
makes a promise which is intended to be binding and is relied on and acted
upon, the promissory would be prevented from enforcing his original rights
since it will amount to going back on his promise.
8. The law presumes an intention to create legal relations or not depending on

the situation. In a domestic or social setting there is a presumption that the
parties do not intend to create legal relations. The arrangements do not
result in contracts at all because the parties do not intend that they should
be attended by legal consequences. The presumption may however be
rebutted to show that even though the relationship is a domestic or social
one, legal consequences are intended or the circumstances call for them.
On the other hand there is a strong presumption that the parties in a

commercial transaction intend to create legal relations. In business relations
the parties are presumed to intend to create legal relations by their
agreements. The presumption may however be displaced either expressly or
impliedly. Clear words have to be used to expressly oust the presumption.
9. Infants or minors
Mentally disordered persons or lunatics
Drunken persons
Corporations
Companies have limited or no capacity
10. Valid contracts for minors are contracts for necessaries and beneficial
contracts of service or contracts for employment.
Necessaries are articles which are reasonably necessary to the minor having
regard to his status in life. Thus the goods must be suitable to his condition
BUSINESS LAW 210

of life and necessary to his requirements at the time of delivery. Where the
minor is already well supplied with such goods they would not be
considered necessaries. A minor is required to pay a reasonable price for
necessaries supplied to him.
Contracts for the education, service or apprenticeship of the minor to

enable him earn a living are binding on him unless they are detrimental to
the interests of the minor.
QUESTION 5.10
1. Agency arises out of one person acting on behalf of another. It is a situation where
one person called the principal authorises another called the agent to act on his
behalf. The agent by his acts creates a legal relationship between the principal and
the third party. He therefore acquires rights for his principal and subjects him to
liabilities.
2. Agents may be general or special. A general agent may act on behalf of the
principal in all matters. He has the authority to do some acts in the ordinary course
of his business, trade or profession on behalf of the principal.
A special agent has the authority to act for a particular occasion or purpose. He
may be a mercantile agent like a factor, broker, auctioneer or del credere agent. A
factor is entrusted with the possession of goods or the documents of Title. A broker
is a go-between who contracts for the purchase of goods whose possession or
documents are not entrusted to him. An auctioneer is employed to sell at a public
auction. A del credere agent for extra remuneration undertakes to indemnify his
employer against any loss.
3. Agency by consent arises from agreement between the principal and the agent to
an agency relationship. In express agency the principal expressly appoints the
agent either orally, by writing under hand or by deed. In Implied agency the
principal and the agent are taken as having agreed or consented to an agency
BUSINESS LAW 211

relationship due to the way they have conducted themselves towards each other.
Implied agency may arise through usual, customary and apparent or ostensible
authority.
4. In agency by operation of law there is no prior agreement between the parties to

create an agency relationship and there is no representation to each other or others
that one of them was acting as the agent of the other. The law imposes the
consequences of agency on their actions. They may arise as agency of necessity or
agency of co-habitation.
5. Agency of necessity arises when a person entrusted with another's property has to
do something to preserve it. The need to act on behalf of another is unforeseen but
arises not of sudden danger to the property of the person on whose behalf the
intervention is made. The person entrusted with the property has no express
authority to act, the authority is presumed because of the necessity. The three
conditions for it are the impossibility of getting the principal's instructions, a
definite commercial necessity for the agency and the agent acting in the interest of
the principal.
Agency of co-habitation on the other hand arises out of co-habitation and domestic
establishment of a married couple. At common law, as long as a married couple
lives together, it is presumed that the wife has the husband's authority to pledge his
credit for necessaries. The goods or services ordered must be necessaries suitable
to the style of the couple. The presumption can be rebutted by the husband proving
that he expressly forbade his wife to pledge his credit or named the supplier not to
supply his wife with goods on credit or the wife was sufficiently provided with the
goods or allowance for them, or they are excessive and extravagant in respect of
the husband's income.
6. In agency by ratification, a person acts without authorization but the person on

whose behalf he purported to have acted subsequently adopts the act. It means that
BUSINESS LAW 212

at the time of the act there was no authority to so act, but the person on whose
behalf he acted, accepts the agent's act and adopts it as if there had been prior
authorization by the principal to do what was done.
7. The rights of the principal are action for damages, action for account and payment
of interest in the event of default of the agent.
On the other hand the rights of the agent include the claim for remuneration for
services provided, the claim for reimbursement for all expenses and the claim for
indemnity against all liabilities incurred in the performance of his services. The
agent in addition can exercise a lien over property owned by the principal in
respect of claims against the principal.
8. a) The duties of the principal are

Pay the agent for his service
Indemnify the agent for all acts lawfully done and liabilities
legitimately incurred in the performance of his service.
b) The duties of the agent include
Obeying all lawful instructions
Exercising due diligence in the performance of his duties
Exercising due care and skill in the course of any business
Rendering account when required
Acting in good faith and not allowing conflict of interest
Not to make secret profit
Not to delegate authority
Not to disclose confidential information
9. Legal consequences arise due to the creation of an agency which may vary due to
the contract. Where the agent contracts as an agent for a named principal, it
establishes a direct contractual relationship between the principal and the third
party. The principal and the third party can sue and be sued by each other with the
BUSINESS LAW 213

agent incurring neither rights nor liabilities under the contract. However the agent
may be able to sue on behalf of the principal and maintain an action for money had
and received. An agent may also sue or be sued when he encloses a bill of lading,
the third party insists on dealing with him even after the disclosure of the agency,
in relation to deeds and when he does not operate within the scope of his authority.
Where the agent discloses his agency but does not name the principal, he cannot be
personally liable on the contract. Where the contract does not show that he is
merely an agent he will be personally liable. The third party in that ease may
exercise the option of suing him or the principal
Where the agent contracts for an undisclosed principal and therefore does not
indicate the existence or the identity of the principal, he may sue or be sued on the
contract. The agent can enforce the contract against the third party. However where
the agent acts within his authority the undisclosed principal has the right to
intervene and sue the third party. The Principal himself then becomes personally
liable to the third party.
10. Agency may be terminated by the act of the parties or by operation of law.
Agency can be ended by a mutual agreement between the parties. It may also be
the act of one of the parties either through revocation by the principal or
renunciation by the agent.
By operation of law agency becomes terminated at the expiration of the time

agreed for the duration of the agency or the completion of the performance of the
undertaking. It may also be due to the frustration of the contract or the rendering
of the continuance of the agency unlawful.
Another way is when either party becomes incapable of continuing the contract
because of death, insanity or bankruptcy.
BUSINESS LAW 214

QUESTION 8.10
1. An employee works under a contract of service while an independent contractor
works under a contract for services. Employment rights accrue only in an
employer-employee relationship with social security and other remedies available.
The independent contractor is not entitled to such rights. The employer is
vicariously liable for the torts of the employee but this is not so in the case of an
independent contract. Thus, generally, the employee works for somebody but the
independent contractor i.e. his own master.
2. The approaches for determining whether a person is an employee or not are the
control test, the integration test and the multiple test. The control test does not only
look at what the employee does but how he does it. It is no longer considered as a
sufficient test. The integration test considers how fat or to what extent the
employee is integrated into the employer's business. The multiple test which is the
modern approach, is to look at all those factors relevant in deciding the overall
classification of the individual
3. The rights of the employer include that of employing worker, disciplining,

transferring, promoting and terminating his employment. He has the right to
formulate policies and execute plans and programmes to set targets. He also has
the right to modify, extend or cease operations and to determine the type of
products to make or sell and the prices of its goods and services.
The employee on the other hand has the right to work under satisfactory, safe and
healthy conditions. He has a right to receive equal pay for equal work without
obstruction of any kind. He also has a right to rest, leisure, reasonable limitation of
working hours and period of holidays. He can also form or join a trade union and
be trained and retrained for the development of his or her skills. The employee is
entitled to receiving information relevant to his or her work.
BUSINESS LAW 215

4. The duties of the employer are
- payment of remuneration
- development of the human resources by training and retraining
- Provide and ensure the operation of an adequate procedure for the
discipline of workers.
- Open channels of communication with workers.
- Protect interests of workers and treat them with respect
- Take reasonable care for the workers' safety, health and welfare.
- Indemnify the worker in respect of lawful losses and expenses.
5. The duties of employees are

- personal service
- work conscientiously in lawfully chosen occupation.
- Exercise due care and skill
- Obey lawful and reasonable orders of employer
- Reasonable care for the safety and health of fellow workers
- Protect interests of the employer
- Show loyalty and good faith to the employer
- Take proper care of the employer's property
- Indemnify the employer
- Not disclose confidential information.
6. Termination is the means of bringing the employment relation to an end. It may be
effected through dismissal or without dismissal. Termination without dismissal
may be through expiry, dissolution, insolvency, frustration, mutual consent or
death of a party. Termination may be considered to be fair on any of the following
grounds:
- That the worker is incompetent or lacks the qualification requisite for his
work.
- Proven misconduct of the worker.
- Redundancy
- Prohibition of the worker from that work prior to being employed.
BUSINESS LAW 216

7. An employer's termination is unfair when it arises out of the following:
- due to his joining or taking part in trade union activities.
- Due to seeking office as worker's representative or acting as such.
- Due to a complaint filed against the employer for alleged invitations.
- On grounds of gender, race, colour, ethnicity, religion etc
- On grounds of a woman's pregnancy or maternity leave
- On grounds of the disability of a worker
- On grounds of a worker's temporary illness or sickness.
8. Whenever employment has to be terminated because of major changes in the

production programme, organization, structure or technology of an organization
the workers affected become redundant. Redundancy therefore implies the
severance of the legal relationship of worker and employer due to the close down,
arrangement or amalgamation rendering the worker unemployed.
9. Damages are the normal remedy available for a breach of contract of employment.
This is monetary compensation to the affected worker.
Another remedy is reinstatement which the appointment of the worker to the
position he occupied before the unfair termination.
The other remedy is the re-employment of the worker either in the work for which
he was employed before the termination or in other reasonably suitable work.
QUESTION 10.10
1. The types of companies are:
- a company limited by shares
- a company limited by guarantee
- an unlimited company. A company limited by shares has the liability of its
members limited by the amount that remains unpaid on the shares held by
him.
BUSINESS LAW 217

A company limited by guarantee has the liability of its members limited by the
amount undertaken to contribute to the assets of the company in the event of being
used up.
An unlimited company is where there is no limit on the liability of its members.

Each of the companies may be a public or a private one. A private company differs
from a public one in the following terms- It restricts the right to transfer its shares,
it limits the total number of members to fifty, it prohibits the making of public
invitations to acquire shares and also invitations to deposit money.
2. A promoter is any person who concerns himself with the bringing about of a
company and sees to its registration. A promoter has a fiduciary relationship with
the company. He is therefore to place the interest of the company above his
personal interest. He has a duty to exercise utmost good faith towards the
company. He has to compensate the company for any loss due his failure. He also
has a duty to account.
3. Contracts entered into before incorporation is effected are known as pre-

incorporation contracts. Even though the company is not yet in existence or a legal
person it is allowed to enter into transactions in expectation of the incorporation.
Pre-incorporation contracts are subject to ratification or rescission. Until
ratification the risks associated with such contracts are borne by the parties
themselves. Thus there will be personal liability. On ratification, however, the
company becomes bound and entitled to the benefits and liabilities of the contract.
4. A company is incorporated, when upon registration, it is certified by the Registrar

under his seal as such. For a company to be incorporated, a copy of its proposed
Regulations, has to be delivered to the Registrar for registration. When the
Registrar is satisfied that the Regulations comply with the Code, he shall register
the Regulations and then certify under his seal that the company is incorporated.
The Registrar shall insert a notice in the Gazette stating the issue of the certificate.
BUSINESS LAW 218

5. Incorporation vests the company with a corporate entity which implies a distinct
and separate identity from its members. It also gives the company certain powers.
A company has its own rights and liabilities. It has its own property distinct from
that of its members. A company can sue and be sued. It has its own common seal
which is a further mark of its identity. Finally it has a perpetual succession.
6. Shares refer to the interests of members in a body corporate which entitle them to
the share in the capital or income of such body corporate. They are purchased to
obtain membership or shareholding status. It is used to determine liability and
interest.
The two main types of shares are preference and equity shares. Preference shares
do not entitle the holder to a right to participate beyond a certain amount in terms
of dividend distribution. They have a first claim to dividends. Equity shares rank
after preference shares in terms of dividends. Equity shares have most of the voting
rights in a general meeting.
7. The Securities and Exchange Commission is a body set up to advise the Minister
of Finance on all matters that relate to the Securities industry. It is charged with
policy formulation for the industry. It also administers the industry and sees to the
registration, licensing, authorization and regulation of stock-exchanges, mutual
funds, securities dealers etc. Prosecution of the integrity of the securities market
and generally creating the necessary atmosphere for the orderly growth and
development of the capital market.
8. The highest organ of the company is members at a general meeting. A company is

expected to have an annual general meeting in each year and not later than fifteen
months after the last one. It may also have extraordinary general meetings
convened by Directors whenever necessary. Meetings are critical since they
constitute the pint for all important decisions.
BUSINESS LAW 219

Meetings are convened by written notices. Notice shall be given generally for not
less than twenty one days except a special resolution for voluntary liquidation
which requires seven days notice. The notice of a meeting shall specify the place,
date, time and general matters of the business to be transacted.
9. Resolutions are the decisions taken at meetings. The two main types of resolutions
are ordinary and special resolutions. Where a decision by virtue of a simple
majority is made it is referred to as an ordinary resolution. In a special resolution
the decision is taken by seventy five per cent (3/4) of the members. It is usually for
very critical changes.
10. A company's life is brought to an end through liquidation or winding up. The two
ways of liquidation are private liquidation and official liquidation.
Private liquidation starts with a special resolution for a private winding up. It is
preceded by an affidavit by the directors that the company is able to pay its debts,
within twelve months. The affidavit is registered. A liquidator is appointed who
oversees the liquidation. On completion of his work and informing the Registrar
the Registrar will strike off the name if he is satisfied.
Official liquidation is carried out by an Official liquidator under the Bodies

Corporate (Official Liquidation) Act. It may be brought by a creditor, a member or
contributory or the Attorney General. The grounds may because it is unable to pay
its debts or has breached aspects of the Code.
QUESTION 12.7
1. Negotiable instruments are contracts in writing. They are transferable by
endorsement or by delivery. The holder takes title free from any defences or
objections to their validity. They are substitutes for money and may be promises to
pay money and orders to pay money.
2. The qualifications for negotiability or transferability include the following:

- It must be in writing
BUSINESS LAW 220

- It must contain an unconditional promise to pay a certain sum of money on
demand or at a fixed and determinable future time.
- It must be made payable to bearer or order
- It must be signed by the maker of a promissory note or the drawer of a bill
of exchange.
3. A bill of exchange is an unconditional order in writing, signed and addressed by

one person (the drawer) to another (the drawee) requiring the drawee to pay on
demand, or at a determinable or fixed future date, a specified sum of money to a
third person (the payee). The payee is frequently the same person as the drawer of
the bill. On accepting a bill of exchange, the drawee becomes the party primarily
responsible for paying it.
4. A cheque is a draft payable upon demand and drawn on a bank. The issuer of the
cheque is the drawer who orders the bank at which he has an account referred to as
the drawee to pay a named individual or entity or the bearer of the cheque (the
payee) a specified sum of money upon presentation of the cheque.
A promissory note is a written instrument containing an unconditional promise by
a party called the maker who signs the instrument to pay another called the payee,
a definite sum of money either on demand or at a specified or ascertainable future
date.
5. A valid endorsement is written on the bill itself and signed by the endorser. The
whole bill has to be endorsed and where it is payable to two or more payees or
endorsees who are not partners all must endorse. An endorsement may be special,
blank or restrictive. A special endorsement specifies the person to whom or to
whose order the bill is payable. An endorsement in blank specifies no endorsee and
a bill so endorsed becomes payable to bearer. A restrictive endorsement prohibits
the further negotiation of the bill or expresses that it is, a mere authority to deal
with the bill as directed and not a transfer of property.
6. A person is a holder if he is either a payee in possession, or an endorsee in

possession or a person in possession of a bearer bill.
BUSINESS LAW 221

The holder has the rights and powers to sue on the bill in his own name. The holder
in due course as a transferee takes free of claims and defences between original
parties to the instrument. He may enforce payment against all parties liable on the
bill. Claims relating to ownership, lien on the instrument or right of rescission of
endorsement can be sustained against the holder in due course if they arise
subsequent to taking but not claims arising before taking.
7. A negotiable instrument may be discharged in the following ways:

Payment of the instrument in full, discharges liability on it.
Express waiver by the holder where he renounces absolutely and unconditionally
his rights against the acceptor. It may also be by intentional and apparent
cancellation by the holder or his agent. Discharge may also be by a merger where
there is negotiation back to the acceptor. The bill is also discharged when it
becomes statute barred.
8. The banker has the duty of a bailee when he accepts the custody of documents and
goods. He becomes a trustee when he agrees to hold money on trust.
The banker has an obligation to repay money deposited, on demand or a third party
on the orders of the customer. The banker has a duty to honour the customer's
orders but has the power of enquiry in unusual cases. The banker has a duty not to
disclose information concerning the customer unless under the compulsion of law.
9. The circumstances that terminate the banker's duty to pay include a countermand
by the customer. Notice of the customer's death, notice of the customer's mental
disorder and notice of bankruptcy or receiving order are other circumstances.
Service of a garnishee order stops the banker from making payments. Forged and
altered cheques cannot also be honoured since they are not genuine.
10. A unit trust is any arrangement whereby securities or any other property other than
a change to become debentures are vested in trustees. They are divisible into units
or sub-units or other interests and could be acquired through invitations to the
public.
BUSINESS LAW 222

APPENDIX II
SAMPLE QUESTIONS 1
1. Identify the laws of Ghana and briefly describe each of them.
2.a) John Adebayo picked a jacket on display at the Distinction Shop and presented it
to the salesgirl with the money payment. The salesgirl refused to accept the
payment with Adebayo insisting on paying and taking the jacket. This created a
scene and Adebayo was escorted out. Adebayo is dissatisfied and has sought legal
advice. Discuss the legal issues involved and if there are any remedies available to
him.
b) Johnson Badu a sixteen year old apprentice with 'Excellent Plumbers' was supplied
with four sets of suits by 'Fine Cutouts' who deals in clothing. All efforts to get
Badu to pay have failed. 'Fine Cutouts' has consulted you, what advice will you
give?
c) 'Splendid Taste' sent out a circular inviting tenders to purchase curtains. Exquisite
Brands Co submitted the highest tender but 'Splendid Taste' refused to sell to them
Exquisite Brands Co has sued. Discuss the issues at stake and the chances of
success.
d) Autoco Ltd offered to sell a car to Joe Mensah for three hundred million cedis
(300,000,000) and gave one month notice within which to respond. Within a week
Mensah accepted the offer and asked if payment could be effected in three
instalments. After waiting for two weeks without any response, Mensah tendered
the payment and was told that the car was sold out. Discuss the legal issues and
any remedies.
3. a) Discuss the creation and scope of agency by operation of law
BUSINESS LAW 223

b) What are the ways by which an agency relationship could be brought to
an end?
4. a) Describe the incidents of a contract of service.

b) Discuss the remedies available to an employee whose employment is
unfairly terminated.
5. Discuss the remedies available to the unpaid Seller under the Sale of Goods
Act, 1902 ( Act 137)
6. The partners in a firm are Kofi, John and Mary. The firm deals in
stationery. In January 2006, John met an old friend Steven who introduced
him to Barbara. Barbara made an offer to purchase fifty million cedis
(50,000,000) worth of stationery from the firm. Kofi duly informed his
partners. On second thought however Kofi decided to have it all to himself
and informed his partners that Barbara has withdrawn the offer. Kofi
subsequently supplied the stationery through a firm he had established in
the name of the wife. The partners have discovered Kofi's act and other
previous ones. What general legal issues are involved and what remedial
steps are available to the partners?
7. In dealing with a company, one can make several assumptions. This is

referred to as the presumption of regularity. Discuss its scope and
significance.
SAMPLE QUESTION 2
1. Identify the Courts of your country and discuss the jurisdiction of the highest
Court.
2. In November 2005, House Designs Ltd offered to sell a house to Mr John Benson
for three hundred million cedis. Mr John Benson offered to buy the house for two
hundred and fifty million cedis. House Designs Ltd agreed to this offer and
BUSINESS LAW 224

thereupon Mr Benson made a down payment of one hundred and fifty million cedis
with the remainder to be paid upon completion. House Designs Ltd in June 2006,
informed Mr Benson that the house will be ready by August 2006 and made a
further request for the payment of fifty million cedis. Mr Benson agreed and
effected payment. At the end of August 2006 no house was allocated to Mr
Benson. In December 2006, House Designs Ltd informed Mr Benson that the
house now cost four hundred million cedis. Mr Benson dissatisfied with the turn of
events has sued House Designs Ltd. What legal issues are involved and what
remedies are available to Mr Benson?
3. Write brief notes on each of the following:

a) insurable interest
b) premium
c) utmost good care
d) subrogation
4. a) Describe the requirements of a hire purchase agreement.

b) Explain protected goods under the Hire Purchase Decree.
5. Discuss the grounds for the removal of a partner on the application by a partner to
the court.
6. Eclipse Ltd is a company that deals in Solar Panels. The main shareholder was
David Stevens with 60%. Other shareholders are Mrs Grace Welbeck with 30%
and Mr Gregory Opoku with 10%. David Stevens has died recently and his
personal representatives have demanded that the assets of the company be split
proportionately. You have been consulted to advise the personal representatives.
What appropriate advice will you offer?
7. a) What is a negotiable instrument?
BUSINESS LAW 225

b) Describe any five circumstances under which the banker's duty to pay is
terminated.
SUGGESTED SOLUTIONS TO SAMPLE QUESTIONS

SAMPLE 1
1. The laws of Ghana are the Constitution, 1992; Enactments made by or under the
authority of Parliament established by the Constitution; Any orders, Rules and
Regulations made by any person or authority under a power conferred by the
Constitution; the Existing law and the Common law.
The Constitution is the supreme law of the land. It creates and defines the scope
and powers of the organs of government. Other principles are universal adult
suffrage, the rule of law and the protection and preservation of fundamental human
rights and freedoms. The Constitution proscribes Parliament from passing a law to
make Ghana a one-party state.
Since the coming into being of the Constitution, 1992 many Acts of Parliament
have been passed. These are the enactments made by or under the authority of the
Parliament established by the Constitution. Their numbers are growing by the
day.
There are received English Statutes and Acts and Decrees made earlier on before
the Constitution, 1992 which constitute the existing written law. These laws include
the Laws and Ordinances of the Gold Coast, Acts of the various Republics and the
various Decrees of the numerous military dictatorships. They constitute an
important part of the existing written laws.
The National Liberation Council Decrees, (NLCDs) National Redemption Council

Decrees, (NRCDs) the Supreme Military Council Decrees (SMCDs), The Armed
Forces Revolutionary Council Decrees (AFRCDs) and the Provisional National
Defence Council Laws (PNDCLs) continue to regulate many areas in Ghana.
BUSINESS LAW 226

Finally there are those body of laws referred to as delegated or subsidiary
legislation. These are Orders, Rules and Regulations made by any person or
authority under a power conferred by the Constitution or any other law. Parliament
confers this power by an Act of Parliament. They may come by way of
constitutional instruments, executive instruments or legislative instruments. They
are subsidiary laws because they are subject to being published in the Gazette and
also being laid before Parliament before they come into effect. The general concept
of common law therefore has three components namely: the rules of
common law, the principles of equity and customary law. Sometimes common law
refers to both the rules of common law and the principles of equity which were
received from England and other times only to the rules of common-law
developed in England. The rules of common law are the body of laws which were
developed in England in the 12th Century.
They emerged out of the mass of customary law of the English. Equity means
fairness. It is based on impartiality. Equity was developed by the Court of
Chancery by the 15th Century to mitigate the harshness and rigours of the common
law. This was because the common law was seen as having failed to keep pace
with the needs of the society then. Customary law means the rules of law which by
custom are applicable to particular communities in Ghana. They are therefore the
customs accepted by members of a particular community as binding upon them.
2. a) The display of the jacket in the shop amounted to an invitation to treat.

Distinction Shop asked John Adebayo to make an offer which he did. The
shop was not bound to accept Adebayo's offer. The salesgirl's refusal
amounted to a rejection of the offer which she was entitled to. No contract
came into being. Mr Adebayo has no legal remedy.
b) This is about capacity to contract. It is a contract with a minor. The

question that arises is whether the four suits were necessaries considering
BUSINESS LAW 227

Johnson Badu's status in life. Excellent Plumbers may not be able to
retrieve the money for as long as they are not necessaries.
c) Invitation for tender's amount to an invitation to treat. The circular was an

Invitation to treat and the tender was the offer which was not bound to be
accepted, in spite of its being the highest. Since Splendid Taste did not
Promise to sell to the highest bidder; Exquisite Brands Co has no remedy
Since the offer was not accepted.
d) Request for information on acceptance of the offer. A contract came into

Being on Mr Mensah's acceptance of the offer. The request for payment in
instalments did not amount to a counter offer. It only called for a positive or
negative response from Auto-co Ltd. The sale of the car by Auto-co Ltd
amounted to a breach of contract. Mr Mensah was entitled to damages or
specific performance.
3 a) In an agency by operation of law, there is no prior agreement between the
parties to create an agency relationship and there is no representation to
each other or others that one of them was acting as an agent of the other.
The law imposes the consequences of agency on their actions. They arise in
two ways, namely as agency of necessity or agency of co-habitation.
Under agency of necessity it becomes necessary for a person entrusted with
another's property to do something to preserve that property. Although the
person who is entrusted with the property has no express authority to do the
act necessary to preserve it, the authority is presumed because of the
necessity. A master of a ship's exercise of authority to safeguard a vessel or
cargo in danger of perishing is an example. It is especially so when it is
impossible to communicate with the owners to take instructions. Agency
of necessity can arise as long as there exists a real emergency. The three
conditions which must be satisfied before an agency can be created by
necessity are: the impossibility of getting the principal's instructions, an
BUSINESS LAW 228

actual and definite commercial necessity for the creation of the agency and
the agent of necessity acting bonafide in the interest of the principal.
At common law as long as a married couple lives together, it is presumed

that the wife has the husband's authority to pledge his credit for necessaries.
The requirements for such agency are co-habitation and domestic
establishment. The goods or services ordered must be necessaries suitable
to the style in which the couple customarily lives, otherwise the husband
will not be liable to pay. The presumption can be rebutted by the husband
proving that he expressly forbade his wife to pledge his credit or warned
the supplier not to supply his wife with goods on credit or the wife was
sufficiently supplied with the same kind of goods, or sufficient allowance
or sufficient means for buying the goods was supplied to the wife or that
even though the order was for necessaries it was excessive and extravagant
in respect of the husband's income. This principle is of doubtful application
today in the light of the equality of the sexes.
b) An agency may be terminated by the act of the parties or by operation of

law. The parties can bring the contract of agency to an end by mutual
agreement between them. This is when the termination is from both of
them. In other instances the termination comes from only one of the parties.
It may either originate from the principal or from the agent. The termination
may be through revocation by the principal by notice or summarily. It may
also be through renunciation of the agency by the agent.
An agency becomes terminated at the expiration of the time agreed upon for
the duration of the agency, or on the complete performance of the
undertaking. It may also be due to the frustration of the contract or the
happening of an event rendering the continuance of the agency unlawful.
The agency may also come to an end where either party becomes incapable
of continuing the contract by reason of death, insanity or bankruptcy.
BUSINESS LAW 229

4a). A contract of employment is a contract of service or apprenticeship. An
employee is an individual who has entered into or works under a contract of
employment. An employee is employed under a contract of employment or
contract of service whereas an independent contractor is employed under a
contract for services. The distinction is important because many
employment rights only accrue in an employer / employee relationship.
Those employed to perform services in connection with the affairs of the
employer, and over whom the employer has control in the performance of
those services have been in law styled servants. In modern times they are
called employees since the term servants has come to be identified with
domestic helps. If an employee commits a tort in the course of his
employment, then the employer is vicariously liable. An employee is not
liable for the torts of an independent contractor. Again the rights and
remedies provided by employment legislation like social security
contributions are available to the employee but not the independent
contractor.
b) Damages are the normal remedy available. Reinstatement may be another

option but is often impracticable. Re-employment of the worker either in
the work for which he was employed before the termination or in other
reasonably suitable work on the same terms and conditions enjoyed by the
worker before the termination.
5. The remedies available to the unpaid seller are action for price, damages for non
acceptance and lien. The others are stoppage in transit and resale.
The unpaid seller is entitled to sue the buyer for the price of the goods as agreed
i.e. the contract price. Where, in spite of the contract of sale, there is refusal by
the buyer to accept the goods, the unpaid seller is entitled to sue the buyer for
damages for such an act.
BUSINESS LAW 230

The unpaid seller can also hold the goods in lien. It means he has the right to
retain possession of the goods but not to resell them until the contract price is
paid. He may exercise his lien when the period of credit has expired or on the
insolvency of the buyer.
The seller can stop, regain possession and retain the goods until the payment is
received. This may be done when the buyer becomes insolvent, the property
has not passed even on delivery or the contract confers the right of recovery on
the seller.
The seller has a right to resale especially where the goods are perishable and
the buyer does not pay or tender the price within a reasonable time. It may also
happen on repudiation by the buyer and its acceptance by the seller.
6. Partners shall stand in a fiduciary relationship towards the firm and their co-
partners. Every partner is bound to make full disclosure to the firm and other
partners.
Partners should not make secret profits.
Partners must account to the firm any benefits gained in any transaction.
Partners should not carry on business which is in competition with the firm
without the consent of the other partners.
Kofi, by refusing to make full disclosure of the business deal, has breached the
fiduciary duty towards the firm and other partners.
Kofi should hand over the profit and account to the firm.
7. Any person dealing with the company is entitled to assume that the company's
Regulations have been duly complied with.
Such a person is also entitled to assume that every officer whose particulars are
filed with the Registrar has been duly appointed and have authority to exercise
the powers customarily exercised by such officers.
BUSINESS LAW 231

A person is equally entitled to assume that officers of the company authorised to
issue documents have authority to warrant the genuineness of the document.
It can also be assumed that any sealed document signed by two persons can be
assumed to be the director and the secretary. The company shall not be entitled to
deny these assumptions except when a person had actual knowledge to the
contrary or if having regard to his position with or relationship to the company he
ought to have known the contrary. In Royal British Bank v Turquand the
directors were expected to exercise the company's borrowing powers only after
obtaining the approval of the members by ordinary resolution in general meeting.
The directors borrowed money for the company but did not get the ordinary
resolution. The question that arose was whether the loan was valid or not. The
court held that the bank could sue the company to recover its loan even though
the directors were not qualified to borrow because the bank was an outsider and
was entitled to assume that an ordinary resolution in general meeting had been
passed.
SAMPLE 1
1. The Courts of Ghana are classified into the Superior Courts of Judicature and the
inferior or lower courts. The Superior Courts of Judicature consist of the
Supreme Court, the Court of Appeal and the High Court or Regional Tribunal.
The inferior courts are made up of the Circuit Court, the District Court, the
Juvenile Court, the National House of Chiefs, the Regional House of Chiefs and
every Traditional Council in respect of the jurisdiction of any such House or
Council to adjudicate over any cause or matter affecting chieftaincy and such other
lower courts as Parliament may by law establish.
The Supreme Court has original, appellate, supervisory, review and special
jurisdiction. The Supreme Court has exclusive original jurisdiction in all matters
relating to the enforcement or interpretation of the Constitution and all matters
BUSINESS LAW 232

arising as to whether an enactment was made in excess of the powers conferred on
Parliament or any other authority or person by law or under the Constitution.
The Supreme Court is the final appellate court. The Supreme Court has exclusive
appellate jurisdiction in matters relating to the conviction or otherwise of a person
for high treason or treason by the High Court and an appeal from a decision of the
Judicial Committee of the National House of Chiefs.
The Supreme Court has supervisory jurisdiction over all courts and over any
adjudicating authority. It may exercise the supervisory jurisdiction by the issue of
orders and directions including orders in the nature of habeas corpus, certiorari,
mandamus, prohibition and quo warranto.
The Supreme Court may also review any decision made or given by it.
The Supreme Court has special jurisdiction which it exercises in three ways. It has
the exclusive jurisdiction to determine whether an official document should be
produced in Court or not because of its security implications or injury to the public
interest. The Supreme Court has the jurisdiction to entertain a petition challenging
the validity of the election of a person as President of Ghana. It also has the
jurisdiction for the removal of the President on stated grounds.
John Benson's response to House Designs Ltd's offer was a counter offer which
terminated House Design's offer.
- It constituted a new offer which was accepted by House Designs Ltd,
leading to a part payment.
- Assurance of completion by August 2006 and further request for payment
which was effected- further partial fulfilment.
- Non completion of the house by August 2006- Breach of contract
- House now to cost four hundred million cedis-price variation after
concluded contract-further breach
BUSINESS LAW 233

- Mr Benson's cause of action- breach of House Designs Ltd in terms of time
and then price variation
- Specific performance and completion of payment in respect of the
concluded contract / Refund and interest and damages as an alternative
3a) Insurable interest gives an insured person a right to enforce a contract of

insurance. It exists if the insured person is liable to sustain some monetary
loss or if he may be claimed against following a loss to another. For example
a creditor has an insurable interest in the life of his debtor to the extent of the
debt.
b) Premium is the periodical payment made for keeping up insurance. Premiums

allow the contract to give the assured a right to receive money or money's worth
upon the happening of some event. The amount, manner and form of payment of
the premium are decided by agreement between the parties.
c) Utmost good faith is a contract in which the promisee must inform the promissor
of all those facts and surrounding circumstances which could influence the
promissor in deciding whether or not to enter into the contract. Full disclosure
must be made voluntarily to the insurer of every material circumstance which is
known to insured which would influence the judgment of a prudent insurer.
d) Subrogation is the insurer's right to enforce a remedy which the assured could have
enforced against a third party. By requiring by means of reducing or extinguishing
a loss to be taken into account it prevents the assured from recovering more than a
full indemnity. If the insured holds money to which the insurer is entitled by way
of Subrogation, the latter has an equitable interest in the fund.
4a) Every hire purchase agreement must contain a statement of the cash price and
the hire purchase price or total purchase price of the goods.
BUSINESS LAW 234

- It should also state the amount of each instalment by which the price is to
be paid and the date or the mode of determining the date upon which each
instalment is to be paid
- There should also be a description or list of the goods to which the
agreement relates sufficient to identify them.
- It must also include a notice relating to the rights of the hirer and the buyer
to terminate the agreement and the restrictions on the owner and the Seller's
rights to recover the goods
b) Protected goods are goods that have been let under a hire purchase agreement
or sold under a conditional sale agreement. One half of the hire-purchase price
or total purchase price of such goods has been paid or tendered by or on behalf
of the hirer or buyer or a guarantor. The hirer or buyer of such goods has not
terminated the hire purchase agreement or the conditional sale agreement.
5. The grounds upon which a partner may apply to the court for the removal of a
partner include the partner being permanently of unsound mind or being incapable
of performing his part of the agreement. It may also be because he is guilty of
conduct that is prejudicial to the carrying on of the business. Another ground may
be due to the fact that the partner has wilfully or persistently committed a breach of
the partnership. It may also be due when it is just and equitable to do so.
6. David Steven's representatives have to be informed that he only had an interest in

the company in the form of shares and that is what they will be entitled to.
Upon incorporation a new entity came into being, separate and distinct from the
shareholders
o It is vested with power and has all the powers of a natural person.
o It has its own rights and liabilities
o The company has its own property. Its assets are not for the shareholders.
o The company can sue and be sued.
o The company has perpetual succession
BUSINESS LAW 235

o Has its own seal
7a) A negotiable instrument is a contract in writing that is transferable by
endorsement or by delivery and to which the holder takes free from any
defences or objection to its validity.
b) The banker's duty to pay is terminated under the following circumstances:
Countermand of the payment. The banker should not honour the cheque when
the customer has stopped it.
Death of the customer: Where the banker has notice of the customer's death the
duty to pay is terminated.
Mental disorder of the Customer: A customer with a mental disorder is not
legally competent so a banker with such knowledge must not honour cheques
from him.
Bankruptcy: When the banker has notice of bankruptcy or receiving
proceedings against a customer then the banker must not honour cheques from
him.
Garnishee orders. Service of a garnishee order on a bank stops the banker from
making payments to the customer. Forged or altered cheques. Since forged and
altered cheques are not genuine, the banker with such knowledge cannot pay.
BUSINESS LAW 236

BIBLIOGRAPHY
1. Furmston, M.P. (1991), Cheshire, Fifoot and Furmston's Law of Contract,

Butterworks & Co Ltd
2. Keenan Denis and Riches Sarah (1998), Business Law, Financial Times Pitman
Publishing
3. Brobbey S.A (2000), Practice and Procedure in the Trial Courts and Tribunals of
Ghana, Black Mask Ltd
4. Ghartey Joe (2004), Doing Business and Investing in Ghana- Legal &
Institutional Framework. Janel Publications Ltd
5. Kom Enoch D (1971), Civil Procedure in the High Court. Ghana Publishing
Corporation.
6. Dobson Paul (1997), Charlesworth's Business Law, London, Sweet & Maxwell
7. Ewan Macintyre, Business Law Essex

(2005) p. 62
8. Bolaji Alabi, Business Law in Nigeria, Lagos (2006) p.277
9. Bolaji Alabi ibid
10. Bolaji Alabi opp.cit p.278
11. Section 1 Arbitration and Conciliation Act cap 19 LFN 2004
12. KSUDB v Franz Construction, (1990) NWLR pt.
13. Commercial Assurance Ltd.v Alli (1986) 3NWLR pt. 29 p.404
14. Govt. of Niger State v Albishir (1985) 3 NWLK 1pt.13) 458
BUSINESS LAW 237

15. T.O. Dada (2010), General Principles of Law p.362
16. Section 10 Arbitration and Conciliation Act Cap 19 LFN 2004
17. Bolaji Alabi, opp.cit p.282
18. Bolaji Alabi opp. cit p.285
19. Bolaji Alabi opp.cit. p.287
20. Ewan Macintyre opp.cit p.64
BUSINESS LAW 238

Business Law PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Business Law PDF

Uploaded by

Copyright:

Available Formats

ACCOUNTING TECHNICIANS

ACCOUNTING TECHNICIANS SCHEME

STUDY PACK FOR

The Council of the Association of Accountancy Bodies in West Africa (ABWA)

AIM OF THE STUDY PACK

BUSINESS LAW iii

To the Councils of Institute of Chartered Accountants of Nigeria (ICAN) and Institute of

At the end of each chapter is found the following

HOW TO USE THE STUDY PACK

1.0 - Learning Objectives ...................................1

2.0 - Learning Objectives...........................................13

BUSINESS LAW vii

3.0 - Learning Objectives.......................................26

4.0 - Learning Objectives........................................41

BUSINESS LAW viii

5.0 - Learning Objectives...............................................68

9.0 - Learning Objectives .................................135

10.0 - Learning Objectives................................148

11.0 - Introduction Learning Objectives.................................................169

BUSINESS LAW xii

12.0 - Learning Objectives........................................185

BUSINESS LAW xiii

13.0 - Learning Objectives........................................194

SAMPLE QUESTION 2 ..224

SYLLABUS AND EXAMINATION QUESTIONS OUTLINE

PAPER 3: BUSINESS LAW

BUSINESS LAW xiv

STRUCTURE OF THE PAPER

1. The Legal System 15%

(d) Professional Ethics: Negligent misstatements

2. Law of Contract 20%

3. Special Contracts 30%

(b) Sales of Goods

(c) Hire Purchase and Equipment Leasing

(d) Contract of Employment

BUSINESS LAW xvi

5. Banking and Negotiable Instruments 15%

(b) Meaning and characteristics of Negotiable Instruments. Bills of exchange,

(c) Holder, Holder for value and holder-in- due-course.

(d) Rights and Duties of the parties.

OTHER REFERENCE BOOK

BUSINESS LAW xvii

BUSINESS LAW xviii

BUSINESS LAW xix

1.0 LEARNING OBJECTIVES

Upon completion of this chapter, readers should be able to:

1.2 LAW AND ITS SOURCES

1.2.2 Sources of Laws

1.3 THE COMMON LAW

1.3.2 Nature and development of the common law

1.3.3 Meaning, nature and development of Equity.

1.4 CUSTOMARY LAW

1.4.2 Examples of customary law

Edicts are proclamations of laws made. Historically, they could be royal

1.5.2 Interpretation of statutes

Acts usually have an interpretation section which contains definitions of certain

1.6.2 Law Reporting

1.7 SUMMARY AND CONCLUSIONS

1.8 REVISION QUESTIONS

MULTIPLE CHOICE QUESTIONS

1. Which of these statements is true on the meaning of Customary Law?

C. Customary Law deals with customs accepted by members of a

2. Which of these statements is true?