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Business Law PDF
SCHEME
WEST AFRICA
(ATSWA)
BUSINESS LAW
BUSINESS LAW i
ASSOCIATION OF ACCOUNTANCY BODIES IN WEST AFRICA (ABWA)
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
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.
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.
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 Institute‟s
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 (SAS‟s) 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.
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
CHAPTER 2
THE COURTS SYSTEM
CHAPTER 3
LAW OF CONTRACT 1
CHAPTER 4
LAW OF CONTRACT II
CHAPTER 5
AGENCY
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
BUSINESS LAW xi
CHAPTER 10
LAW OF BUSINESS ASSOCIATIONS 1- COMPANIES
CHAPTER 11
PARTNERSHIPS
CHAPTER 12
NEGOTIABLE INSTRUMENTS AND BANKING
CHAPTER 13
THE ALTERNATIVE DISPUTE RESOLUTION (ADR)
APPENDIX I …………………………………………………………………………...202
APPENDIX II …………………………………………………………………………...223
BIBLIOGRAPHY……………………………………………….....................................237
(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
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.
(a) Agency:
Creation and types; authority of agents; rights and duties of principals and
agents and termination of agency
(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.
(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.
(a) The legal relationship between banker and customer and their respective duties.
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
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
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
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.
BUSINESS LAW 1
they may conform because of the realisation that failure to do so will attract
sanctions.
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.
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.
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.
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.
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 court‟s 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
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.
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.
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.
A. It is very absurd.
B. It is a rule manufactured by the judges for the court‟s 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.
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
3. The bench mark for the statute of General application as one of the sources
of Nigerian Law is …………….
BUSINESS LAW 12
CHAPTER TWO
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.
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.
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.
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.
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.
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.
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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.
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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.
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.
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chapter also introduced candidates to tort which in no small measure will
contribute to their understanding of the law.
A. Court of Appeal.
B. Federal High Court.
C. National Industrial Court.
D. The Supreme Court.
E. Customary Court of Appeal.
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D. The Minister of Justice and Attorney General of the Federation.
E. The President of the Nigerian Bar Association.
A. Litigation.
B. Arbitration.
C. Adjudication.
D. Self help.
E. Petition to the National Judicial Council (NJC).
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. Magistrate Court
B. Customary Court
C. Industrial Court
D. National Judicial Council (NJC)
E. Rent Tribunal
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SHORT ANSWER QUESTIONS
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………………
BUSINESS LAW 25
CHAPTER THREE
LAW OF CONTRACT 1
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.
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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.
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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.
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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.
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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.
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.
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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.
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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.
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c) Past consideration
7. Explain and describe the scope of the intention to create legal relations.
10. Describe the exceptions to the rule that a minor is not bound by any
contract made during his minority.
A. Offer
B. Acceptance
C. Intention to create legal relations
D. Capacity
E. Authority
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5. Which of these statements is not true?
D. Good will not be necessaries if the minor was already well supplied
with such goods.
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CHAPTER FOUR
LAW OF CONTRACT II
4.0 LEARNING OBJECTIVES
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.
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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.
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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.
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.
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(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.
(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.
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
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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.
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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:
(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.
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(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.
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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”.
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(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:
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(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.
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(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.
(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
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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.
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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.
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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.
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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
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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
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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
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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.
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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.
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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.
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
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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.
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. 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.
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E. He can invite the other party to his office for a chart.
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CHAPTER FIVE
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.
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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.
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.
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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.
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the instrument which confers the agency and the production of a copy of it would
be conclusive evidence of the existence of such agency.
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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.
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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.
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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.
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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.
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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.
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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.
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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.‟
b) the agent
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9. Discuss the effects of agency among the principal, agent and third parties
A. Envoy
B. Representative
C. Agent
D. Proxy
E. Delegate
A. Remuneration
B. Commission
C. Reimbursement
D. Interest
E. Set off
A. Agency by conduct/estoppel
B. Agency by ratification
C. Agency by auction
D. Agency by cohabitation
E. Agency by necessity
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
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A. Death of either party
B. Bankruptcy of either party
C. Effluxion of time
D. Advice of the principal‟s banker
E. Insanity of either party.
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CHAPTER SIX
SALES OF GOODS
LEARNING OBJECTIVES
Upon completion of this chapter, readers should be able to:
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:
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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
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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.
(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”.
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(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
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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.
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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
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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.
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
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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
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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.
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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.
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(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.
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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.
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.
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(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.
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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
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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.
(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.
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
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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.
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.
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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.
(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
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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.
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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”.
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
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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:”
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.
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.
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;
(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.
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.
3. State and explain three implied terms in a contract for sale of goods.
8. What is a
(i) warranty?
(ii) condition?
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
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.
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.
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.
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.
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.
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.
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.
(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)
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.
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.
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)
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
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
2. What are the reasons for the adoption of the hire purchase system?
7. State three injustices or malpractices that the Hire Purchase Act was
enacted to check.
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.
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?
CONTRACT OF EMPLOYMENT
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.
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.
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
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.
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
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
9. Explain redundancy.
LAW OF INSURANCE
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.
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:
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.
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.
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.
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.
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.
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.
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:-
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.
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.
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.
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.
2. State four instances when an insured need not disclose any circumstances
contrary to his duty under a contract of insurance.
5. What is indemnity?
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.
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.
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.
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
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.
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.
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
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
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
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.
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.
10.7.2 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
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.
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.
10.9 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.
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.
PARTNERSHIPS
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.
(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
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
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.
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.
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.
(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
(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
(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
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.
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.
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.
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.
12.2.5 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.
12.2.8 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”.
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
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
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.
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.
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.
For arbitration to arise, there must have been a dispute. There would be no dispute
where there is no controversy in existence.
Not all disputes can be referred to arbitration for settlement as was held in the case
of KSUB v Fanz Construction Limited.
Justice Nnaemeka Agu in this case stated that the general rule is that parties took
the arbitrators for better or worse.7
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
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.
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.
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.
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
party‟s 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 party‟s case.
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.
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.
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.
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.
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
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
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
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.
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.
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.
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
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
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.
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.
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
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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?
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
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?
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.
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.
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.
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.
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.
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
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
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.
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.
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