BBA 302

BUSINESS LAW II

LECTURE NOTES BY:

ELIUD OBERE
 GENERAL OBJECTIVES

This module is a continuation of Business Law 1 module. It is mainly based on the

principle of contract. By the time you finish reading this module, you will be able to
understand how the principle of contract, and agreement, legality is applied to business
transactions and organisations like partnerships, sales of goods, Agency and hire
purchase.

The module covers four lectures. The first lecture introduces you to the concept of
partnership form of organizations by defining partnership, partner and firm. It also
discusses its formation, relationship between partners, partnership and third party. Lastly
it discusses how partnership and firm are dissolved. Lecture two discusses sales of
goods, throwing light to various sections of sales of goods Act. Lecture three discusses
the Agency by explaining agency relationship i.e the relationship between an agent and
principal, their rights and liabilities to the third party. Lecture four discusses hire-
purchase relationships. At the end of the module you will find Illustrations mentioned in
the module. You are encouraged to look at other relevant Illustrations as those included
in the module are not the only ones. Also consult any book on Business Law to further
your reading on the subject.

LECTURE ONE: PARTNERSHIP

PARTNERSHIPS
In this lecture we are going to discuss nature of partnership, relations of partners inter se,
relations of partners to third parties, types and partners, reconstitution of a firm and
dissolution of a firm.

Objectives

By the end of this lecture, the learner should be able to:-

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 • Understand the nature, characteristics and scope of partnership.
• Understand the relationship of partners to partners, partners to partnership and
partners to third parties.
• Know the types of partners and how they relate to the firm, other partners and third
parties.
• Understand how partnership firm and partnership is dissolved.

REFERENCES
- Partnership Act Cap 29 of 1962: Government Printer.

- Charlesworth’s Mercantile Law by Cluise M. Schmitthott and David A.G. Sarre

- Mercantile Law – By V.K. Bafra & N.K. Kalva
- Any book in Business Law

LESSON 1
PARTNERSHIP

Definition:
According to Kent
Partnership is a contract of two or more competent persons to place their money, labour
and skill to divide the profits and bear the loss in certain proportions.

According to Sir Fredrick Pollock

Partnership is the relation which subsist between persons who have agreed to share the
profits or liabilities of a business carried on by all or any of them on behalf of all.

Sec.3 Partnership Act

Partnership is “the relation which subsits between persons carrying on a business in
common with a view to profit”.

To prove existence of partnership the following three factors must be established:

(i) A business existence

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 (ii) Carrying on business in common with a view of making and slowing profit.
Thus, corporations of whatever kind are excluded. It means any company or
association registered under companies Act Cap 486 or any other Act of
Parliament are not considered as partnership ( Sec. 3(2)).
(iii) Intention of partners

Sec. 2 of the Act defines business as “every trade, occupation or profession”

- Business- there must be a commercial or professional enterprise where goods are sold
or services rendered. Mere joint ownership of goods or property is not enough to
constitute the owners into partners- its immaterial whether or not they share profits.
- carrying on business in common means that it must be carried on by or on behalf of
all those involved in the undertaking.
Profit motive:- Sharing of profits is prime facie evidence of partnership, something more
than this must be proved in order to establish the existence of a partnership. I.e a person
receiving payment out of profits of a business, whether as a gift or legacy, or in return for
services rendered e.g. interest on a loan, debt repayment etc cannot be said to be a
partner. (Section 4)

Essential Features of Partnership

(i) It comes into existence as a result of agreement
(ii) It is entered into between persons
(iii) It is a business, the profits of which are shared
(iv) It is entered into to share profits
(v) It is carried on by all or any of them action for all

Agreements:- these must be a voluntary contractual nature of partnership. The

relationship arises from the contract and not from status. The agreement may not be
formal or written. It may be even oral or even implied.But essentially agreements should
be in writing.

Between Persons
The agreement must be between persons. Persons are of two types i.e. natural and
artificial. Only the persons recognized by law can become partners into partnership.
Only those persons may be partners who have capacity to enter into a contract.

Existence of a Business
Partnership can exist in business and business only. To regard an activity as business,
there must be a trade, profession or occupation, course of dealings, either actually
continued or contemplated to be continued with profit motive and not for sport or for
pleasure. An agreement to carry on business at a future time doesn’t render the parties as
partners before they actually start a business.

Relationship between partners:

Partners are agents to one another in common by all the partners or by one of them acting
for all i.e all the partners are agents as well as principals. Each partner is the agent for
other partners for the purpose of conducting the partnership ordinary business. If any

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 partner fails to take part in managing the affairs of the business, it will not mean that
he is not carrying on business as a partner. Each partner whether active or sleeping is
liable for the acts of other, done in the course of business. Section 6 of the Partnership
Act Cap 29 owns more that this one.

Maximum and minimum limits:

Partnership is the agreement between persons. The minimum number
being two while the maximum is twenty or ten in banking.

Sharing of profits:
The sharing of profit is an essential element in partnership. However
if is not a true test for existence of partnership. Everyone who takes a share in the profit
of partnership is not liable as a partner to outside creditors unless the business is being
carried on by him or by another on his account, and also there is mutual agency.

TEST OF PARTNERSHIP EXISTENCE

In determining whether a group of persons are partners of a firm the relationship between
the parties will be taken for consideration. Hence it will be taken for consideration. Hence
it will be considered whether: -

1. There is an agreement between the parties.

2. They share profits of a business.
3. There is a mutual relation that creates an agency.

Section 4 of the Act enumerates persons who share the profit of a business but who are
not regarded as partners. These people are referred to as persons having non-partnership
interest. They are: -
a. Joint Owners sharing gross receipts of profits – owners of property who jointly share
profits or gross return arising out of the property don’t become partners.
b. Money Lenders: - If a person has advanced money to another person or a firm on
interest on an agreement that in addition to a specific rate of interest, he will get the
same percentage of profit earned by the firm, he cannot be regarded as a partner in
such business.
c. Servant or agent receiving some profit. Where it is agreed that a servant or agent
receives some profit of a business in addition to his/her commission or in place of his
regular salary, he does not become a partner in such business.
d. Share to widow or child of a deceased partner: - where there is an arrangement in
which the window or son of a deceased partner share profit of the business or firm.
Such a widow or child does not become a partner in the firm or business.
e. Seller of goodwill: - Where a person who sells his business with goodwill is given
some share of the profits of the business sold, such a person cannot be a partner in the
business.
f. Share of profits given to workers as Remuneration: - Where workers get a share of
profit of the business in addition to his her salary, he does not become a partner.

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 NB/ In all the above cases, the element of mutual agency is absent, hence sharing of
profit of a business or the contribution of capital or holding a particular property jointly
does not constitute one to be a partner. The true test is whether all or any of them carries
on the business acting for all i.e. whether there is mutual agency between them.

PARTNER, FIRM AND FIRM NAME

Sec. 6
Persons who have entered into partnership with one another are called individually
“partners” and collectively “firm”, and the name under which their business is carried out
is called the “firm name”. A firm is not a legal entity having any independent or distinct
existence. When a partner dies, the firm is dissolved.
- The relationship the partners are entering into is called “Partnership”.

Formation of Partnership
Partnership may be formed by oral or by written agreement or it can be inferred from the
conduct of parties. Like other contracts it is based on agreement. Hence all the essential
elements of valid contract must be present in it i.e free and genuine consent of the parties,
parties should be competent to enter into contract, object should be lawful, and other
legal formalities should be complied with.
- The law of partnership is nothing but an extension of the law of agency and thus no
consideration is required to create a partnership.
Although, it is not necessary to have a partnership agreement in writing, but where the
partnership agreement is in writing, it is incorporated in a document known as “Articles
of Partnership” or “Partnership Deed” which is like a constitution of an organisation.

Partnership Deed
- Is based on agreement. It’s a document containing the agreement of partnership. The
deed contains provisions relating to:
• The nature and principal place of business
• The name of the firm
• The name and addresses of the partners
• The date commencement and the duration of the firm
• Profit-sharing ratio
• Interest on capital and drawings (not always)
• Valuation of goodwill on death or retirement of a partner
• Whether the business continue upon death or retirement.
• How to audit the books of account.
• The amount of capital to be contributed by each partner and methods of raising
finance in future if so required
• Salaries, commission etc payable to partners (if provided).
• Duties powers and obligations of all partners
• Settlement of disputes.

Duration of Partnership
There is no fixed duration of partnership. It depends upon the nature of the agreement.

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 Fixed Term Partnership
- Are partnerships for a fixed period. As soon as the period is over, the partnership
ends. But if the partners intend to continue they can do so with the same right and
liabilities, however now the partnership will become partnership at will. There are
also partnerships for a fixed project. These are called temporary partnerships.

Partnership at Will
-When at the creation of partnership, the partners don’t decide about the duration, the
partnership is known as partnership at will. When the partnership is at will, it can be
dissolved at any time, by any partner just by giving unambigous written intimation to
dissolve the partnership to all other partners. Notice once given cannot be withdrawn.
The firm shall be deemed to have been dissolved from the date mentioned in the notice, if
no date is mentioned, then from the date of communication of the notice.

Particular Partnership
A person may become a partner with another person in a particular adventure or
undertaking. This kind of partnership ends with the ending of the specified adventure or
undertaking.

Number of Partners
A partnership cannot consist of more than twenty persons. In case of banking business,
the number of partners is limited to ten (10). If the number of partners exceeds these
limits then partnership becomes an illegal association.

Registration of Firms
The Partnership Act does not make registration of firms compulsory nor does it impose
penalties such as are imposed under the English Act, yet the effect of the rules relating to
the consequences of non-registration practically necessitate the registration of the firms at
one time or another. Non-registration does not make the partnership agreement, or any
transaction between the partners and third parties, void.

Procedure of Registration
The application for registration should be on the prescribed form and accompanied by the
prescribed fee. The applicant has to state the following particulars:
(a) Name of the Firm
The partners of a firm may carry on business under any name and style they are pleased
to adopt. The Registration of Business Names Act ( Cap. 499) states that when the name
of the partnership does not consist of the true surnames of all partners then there is for the
registration of the firm name under this Act. For the registration of the firm name, the
following particulars must be submitted to the Registrar.
(i) The business name
(ii) The general nature of the business
(iii) The principal place of the business
(iv) The present Christian names and surnames of each partner
(v) The nationality and residential address of each partner

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 (vi) Any other business or occupation of each partner
The Registrar of Business Names issues a certificate indicating the firm name has
been registered. This certificate must be displayed at the firms principal place of
business.
- The firm name should not contain any words such as Crown, Emperor, Empire or
word implying the saction, approval or patronage of Government, unless the state
allows it to use such name in writing.
- The firm name should not be of a style already in existence especially when fradulent
intentions are there.
(b) The principal place of business and the date when each partner joined the firm.

Effect of Non-Registration
Suits between Partners and Firm
A person cannot bring a suit to enforce a right arising from the contract of Partnership or
conferred by the Partnership Act against the firm or his co-partners.

Suits between Firm and Third Parties

An un-registered firm cannot institute a suit against any third party to enforce a right
arising from a contract made with the firm.

Ban to Claim of Set-off

An unregistered firm cannot sue a third person to realise any amount due under some
contract. But the third person can sue the unregistered firm. If the third party file a suit
against an unregistered firm for the recovery of debt, the firm cannot claim a set-off, if
any.

Rights not Affected by Non-Registration

The following rights are not affected by non-registration.

(i) The right of the third party to sue an unregistered firm or a partner of such firm.
(ii) The right of partner to sue:-
(a) -for the dissolution of the firm, or
(b)-for the accounts of the dissolved firm
(c) -for his share of the property of the dissolved firm

Talk about illegal partnerships:

1. No activities.
2. No assignments (questions)
3. No defination of key words.

Illegal Partnerships:
The partnership may be declared illegal in the following circumstances:-
(i) When the number of members are more than 20 for any business or 10 for
banking business.

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 (ii) When its objectives is illegal or against the public law.
(iii) When the members are residence of an enemy country.
(iv) When it is formed to defraud the revenue.

N/B (i) The members of an illegal partnership cannot call upon each
other for contribution or appointment with regards to losses
paid by one or more of them on account of the partnership.

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 LESSON 2

RELATIONS OF PARTNERS
There are two important principles governing the relationships between partners. These
are:-
(i) Relation by contract
(ii) Relation by good faith

Relation by Contract
The relations between the partners are governed by the terms of a contract. The contract
need neither be in writing nor express, it may be oral or implied from the course of
dealings between the partners. Such contract may be varied by consent of all the partners,
which again may be expressed or implied by a course of dealings.

Relation by Good Faith

- The relation between the partners to one another are based upon the principle of
absolute good faith. The mutual trust and confidence among the partners, therefore is
a necessary condition of their relationship. The statutory recognition to this relations
– has been given by the Partnership Act which provides that the partners are bound to
carry on the business of the firm to the greatest common advantage to be just and
faithful to each other, and to render the accounts and full information of all the things
affecting the firm to any partner or his legal representative.
- Refer to chapter IV of the partnerships Act. It lays down the relationship of partners.

Duties of Partners

Partners are bound by utmost faith. Each partner is required to make full disclosure of all
activities undertaken within the partnership agreement. Every partner must use skill and
knowledge of whatever march for the benefit of firm. (section 32 , 33 and 34 of the Act).

The principal duties of the partners are:

(i) To act to the Greatest Common Advantage.

Each partner must carry on the business of the firm to the greatest common advantage. It
is the primary duty to every partner to produce to the firm the maximum benefit which he
can. This means that he should not derive any secret gain or profit to himself.

(ii)To be just and Faithful

The basis of every partnership is trust and mutual confidence, without which no
partnership can conclusively be carried on. It is not only sufficient that a partner should
himself be just and faithful but he must also think that other partners are also just and
faithful and honest. The duty of good faith also pertains to persons negotiating for the
partnership between whom no partnership as yet exists. Illustration 2

(iii) To render full and true accounts and information (Section 32)

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 There is a statutory obligation not only to keep accurate accounts of partnership but
also for rendering true accounts and giving full information of all things affecting the
firm. The legal heirs of a deceased partner are entitled to an account from the servicing
partners.
Illustration 3

(iv) To indemnify the loss caused by fraud.

The Partnership Act states that
“Every partner shall indemnify the firm for any loss caused to it by his fraud in the
conduct of the business of the firm”. This liability is absolute and cannot be avoided
even by a contract to the contrary. But where the loss to the firm is not caused by fraud
but occassioned by any of his acts within the course of the business of the firm, he is not
bound to idemnify the loss.

(v) Not to make personal profits out of the Business of the Firm:-
A partner must not make personal profits out of the business of the firm. The Act states:

“ Subject to contract between the partners, if a partner deliver any profit for himself
from any transaction of the firm, or from the use of the property or business connection
of the firm or firm name, he shall account for that profit and pay it to the firm”.
Illustration 5

(vi) To indemnify the firm for Willful Neglection

Every partner is subject to contract between the partners, bound to indemnify the firm for
any loss caused to it by his willful neglect in the conduct of the business of the firm. The
term neglect means the omission to perform a duty and implies:
- That a partner does something which he ought not to do at all or
- That a partner omits to do something which he ought to have done.
- And “wilful” means that he did it freely.

Thus wilful neglect means that a partner knew that he should do a particular act but he
deliberately abstrained from doing it. Illustration 4.

(vii)Not to carry on Business Competing with the firm:-

A partner can not carry lawfully cerry on for his own benefit any business which will
complete with the firm to which he belongs. The partnership Act provides that subject to
the contract between the business of the same and competing with that of the firm, he
shall account for and pay to the firm all profits made by him in that business. The above
however will hold only:-

(i) If the business is of the same nature.

(ii) If the business is competing with that of the firm.
(iii) If there is no agreement to the contrary.

(vii) Not to claim Remuneration:-

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 A partner is not entitled to claim remuneration in any form for conducting the
partnership business. However, where undue labour and extra trouble is imposed on
one or more of the partners by another partner’s wilful, neglect of the business, the
partner or partners so burdened are entitled to compensation.

(viii) To share losses:- It is the duty of the partner to contribute to losses of the firm. In
the absence of any agreement to the contrary, the partners are liable to contribute equally
to the losses sustained by the firm.

(ix) To act within the Authority:

Every partner is bound to act within the scope of his actual or implied authority. Where
he exceeds the authority conferred on him and the firm suffers a loss, he shall have to
compensate the firm for any such loss.

(x) Not to Assign his Rights:

A partner cannot assign his rights and interest in the firm to an outsider so as to make him
the partner of the firm. If He however can assign.
- Not to carry on Business competing with the firm.

(xi) To be liable jointly and severally:- Every partner is liable jointly will all the other
partners and also severally , for all the acts of the firm done while he is a partner.

Rights of the Partners

Rights of the partners are subject to agreement between the partners. Partnership
however concerned confers the following rights on partners:

(i) To take part in the conduct of Business/ participate in the management of business
“ Every partner has a right to take part in the conduct of the business of the firm”. This
right however may be excluded in the following circumstances:-
(a) Where a partner transfers his interest in the firm, either absolutely or by
mortgage.

(b) Majority rule:- Any difference arising as to ordinary matters connected with
the business may be decided by a majority of the partners, and every partner
shall have the right to express his opinion before the matter is decided, but no
change may be made in the nature of the business without the consent of all
the partners.

(c) Ordinary matters:- are matters which arise in connection with the execution of the
agreed business of the firm.

(d) Fundamental matters:- these are, the question of any alteration of, or addition to the
business of the firm and the admission of a new partner or expulsion of some one.
There matters can be decided only unanimously.

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 (ii) Access to Books of the Firm:- Every partner has a right to have access to and
inspect and copy any of the books of the firm. The right to accessibility may
be exercised by an agent appointed by him for that purpose. But none of the
partners is entitled to use any information so obtained for an improper use.
(iii) To share in the profits
(iv) To get interest at a rate of 5% p.a
(v) be indemnified by the firm
To
- The firm shall indemnify a partner in respect of payments made and liabilities
incurred by him.

(a) In the ordinary and proper conduct of the business and

(b) In doing such act, in an emergency for the purpose of protecting the firm from loss, as
would be done by a person of ordinary prudence, in his own case, under similar
circumstances.
-Right to object to any person being introduced as partner without the consent of the
other partner(s).
-No majority of the partner can expel any partner unless a power to do so has been
conferred by express agreement between the partners (sec.2a)

(vi) To carry on competing business- this right is specifically given to the retiring
partner. Such partner may start any business competing with that of the firm, but
subject to the contrary, he may not:-
(a) Use the firm’s name
(b) Represent himself as carrying on the business of the firm
(c) Solicit previous customers of the firm
-Any partner may by notice to the other partner(s), dissolve the partnership.
Reconstitution:- (Rights and duties to remain the same)
In the absence of contract to the contrary, the mutual rights and duties of partners will
continue to remain the same as they were originally in the following case:-

(a) When a change occurs in the constitution of the firm .

(b) Where a firm originally constituted for a fixed duration continues to carry on
business after the expiry of that duration.

Some Distinctions
(i) Partnership and co-ownership

Co-Ownership
1. Creation Agreement is not essential
ingredient of co-ownership
2. Business The existence of business
Partnership
Agreement is necessary in partner-
ship, there cannot be partnership
without agreement.
The existence of business in partner-

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 is not necessary in case
business
of co-ownership.
3. Mutual Agency One co-owner is not the
agent of other co-owner
4. Sharing of profits Co-owners share gross
returns or receipts
5. Transfer of Share A co-owner can transfer
his share to an outsider
without the consent of
other co-owners
6. Partition A co-owner can sue for A partner can sue for dissolution
partition of the joint
estate property, i.e he can
ask for partition in specie
7. Lien on property One co-owner has no lieu
On the property owned in
common for any expense
nor for what may be due
from others as their share
of a common debt.
8. Indemnity of Loss: One co-owner cannot be
compelled to indemnify
the others for any loss
caused by his fraud in the
conduct of the business
9. Remedies The obligation to render
true accounts and full
information in case of
co-owner is less extensive
than those which one partner
has against his co-partner
(ii) Partnership and company
------------------------------------------------------------------------------------------------------------
Company
1. Creation A company is formed and
created by registration under agreement which may be written,
the Companies Act
ship is necessary, without
there cannot be partnership.
There is mutual agency between
partners, each partner is agent for
other partners
Sharing of profits is necessary in
case of partnership
In the case of partnership, a partner
cannot transfer his share without
the consent of other partners
of the firm and accounts, but cannot
ask for the partition of the property
in specie.
A partner being an agent has a lieu.
A partner is bound to idemnify the
firm in case of any loss caused to it
by his fraud in the conduct of the
partnership business
A partner has more extensive
remedies against his co-partners
Partnership
A partnership is formed just by an
oral, express or implied. Moreover,
registration is not compulsory.
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 2. Status A company, when registered,
is regarded as a person-
a separate legal entity.
3. Status of members Being a juristic person, a
company is separate from
the members composing it.
In case of a company, the
property does not belong
to members.
4. Minimum and There is no maximum
Maximum number of membership
In case of a public
Company. The minimum
is two in case of a private
company and 7 in case of
a public company.
5. Liability The liability of a company
member is limited to the
extent of nominal value of
the share capital. It means
if there is no unpaid money
on the shares, the liability
of members is nil. Creditors
have no right against the
Personal property of
Members. Again in case the
Company is a guarantee
Company, liability of the
Members is upto the amount
Guaranteed by them.
6. Transfer of interest The shares of the company
are freely transferable, i.e
the shareholders need not
ask anybody before
transferring their shares to
a third man.
7. Objects and Powers A company’s powers are
limited by the objects clause
of the memorandum of
association of the company.
A partnership even if registered is
not a separate legal entity or a person
A partnership firm is a collective
name of all partners. It is not separa-
te from persons composing it. In case
of a partnership, the property belongs
to all persons in common.
In case of partnership the maximum
number of members is 10 in case of
banking business and 20 in case of
other business. The minimum
number of persons for creation of
partnership is only two.
In case of a partnership, the liability
of partners is unlimited. They are
liable jointly and severally to the
creditors of the firm. The creditors
are allowed to recover their debts
even from the personal property, to
the extent the firm’s property is
insufficient to meet their dues.
In case of a partnership, the share in
partnership cannot be transferred to
an outsider without the consent of
the other partners.
The partners can do any business
(except illegal) to which they agree
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 Any act beyond this is ultra
Vires.
8. Authority of The company is managed by
Members a few directors elected from
amongst the shareholders.
The other shareholders are
merely the dividend
receivers.
9. Dissolution A company is a person
which never dies, i.e it has
a perpetual succession.
Being a legal person it can
be wound up either by the
order of a court or by its
name being struck off by the
Registrar of Companies.
10.Legal FormalitiesThere are a number of legal
formalities for creation of a
company- with a loss of
privacy and a lot of expense
not only for formation but
even for dissolution.
11. Contract A shareholder can have
contract with the company cannot contract with his own firm.
in which he is holding shares.
12. Varying of the A company neither can alter
terms its share capital nor buy its
shares, except under special
circumstances and subject
to the Companies Act.
13. Audit of Accounts A company has to maintain In case of partnership, the main-
a particular set of accounts, tenance and audit of accounts is left
hold meetings and file
certain documents with the
Registrar. Moreover its
accounts have got to be
certified and audited by a
recognised chartered
In case of partnership, the manage-
ment is in the hands of all partners.
Every partner is a principal and agent
both. Even if the deed limits the
powers of some partner, for an
outsider it does not make any
difference until and unless he
(outsider) has got a proper notice to
this effect.
A partnership can be dissolved at any
time if all the partners agree.
Moreover, the death or insolvency of
a partner automatically dissolves the
partnership.
A partnership can be formed
an agreement which may be
oral- the affairs being quite secret
and the expense of formation and
dissolution are also less.
In case of partnership a partner
The partners on the other hand can
make changes in their share capital
if they agree among themselves. A
partner may buy another partner’s
share too.
to the discretion of the partners.
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 Accountant

Partnership and Clubs

Clubs are associations of a special nature; they are not partnerships. They are not created
for profit-earning. Moreover, their members as such are not liable for each other’s acts.
The club members are not liable to creditors, except, so far as they have assented to the
contract in respect of which such liability has arisen. The club members are not liable
beyond their subscription required under the rules. The club members have no
transmissible interest. The member just has a right of admission and enjoyment and
nothing more. The club, unlike a partnership firm is an association of persons formed for
social purposes.

LESSON 3
LIABILITY OF PARTNERS

Sec 11 of partnership act states that “every partner in a firm is liable jointly with the other
partners for all debts and obligations of the firm incurred while he is a partner, and upon
his death his estates is also severally liable for us have as the desk remain unsatisfied, but
a person who admitted as a partner into an existing firm does not thereby become liable
to the creditors of the firm for anything done before he became a partner, and after his
death his estate is also severally liable in the due course of administration for those debts
and obligations, so far as they remain unsatisfied, but subject to the prior payment of his
separate debts’

Misapplication of Money Received

Under Sec 15, a firm is liable for the misapplication of money received in the following
cases: -
i. Where the partner, acting within the scope of his apparent authority, receives the
money or property of a third person, and misapplies it and
ii. Where a firm in the course of its business receives money or property of a third
person, and the money or property so received is misapplied by one or more of the
partners while it is in the custody of the firm. The firm is liable to repay this
money to a third person (payer).

Property of the Firm

In deciding which property belongs to the firm, the following should be considered.

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 i. Property originally brought into the common stock at the commencement of
business belongs to the firm.
ii. The property acquired by the purchase or otherwise, by or for the firm, or for the
purposes and in the course of the business of the firm, belongs to the firm.
iii. Where a property is purchased with the money of the firm, but in the name of a
partner, it will be considered to be the property of the firm.
iv. The personal property of parties in the firm’s use does not become the property of
the firm, unless there is an express or implied agreement by the partners.

Partnership Property: is defined by Section 24 (1) as “All property and rights and
interests in property originally brought into the partnership stock or acquired, whether by
purchase or otherwise, on account of the firm, or for the purposes and in the course of the
partnership business”. Partnership property must be held and applied by the partners
exclusively for the purposes of the partnership and in accordance with the agreement.

- Sec. 25 further provides that “unless the contrary intention appears, property bought
with money belonging to the firm is deemed to have been bought using the firm’s
money, is presumed to be partnership property.
- The property of the firm must be distinguished from the personal property of the
partners. This becomes necessary for several reasons:-

(i) On the dissolution of a firm, the firm debts are first paid out of joint asset.
(ii) Partnership property can be used for the purposes of the business of the firm only.
(iii) During the subsistence of the partnership no partner can deal with any portion of
the property as his own.
(iv) The partners cannot assign his interest in a specific item of the partnership
property to any one.

Power to bind the firm.

Every partner is an agent of the firm and his other partners for the purpose of the business
of the partnership, and the acts of every partner who does any act for carrying on in the
usual way business of the kind carried on by the firm of which he is a member bind the
firm and his partners, unless the partner so acting has infact no, authority to act for the
firm in the particular matter, and the person with whom he is dealing either knows that he
has no authority or does not know or believe him to be a partner”. (Section 7).

Agency is an essential ingredient of a partnership relation.

NB/
(i) A firm is not an Agent of the partnership:- Though a partner is an agent of the
firm yet the firm is not an agent of the partners. So a payment of a private debt of
a partner to the firm is not a payment to the partnership.
(ii) A Partner is an agent for the purposes of business of the firm.

18
 Illustration 5
- A third party wishing to make the firm and other partners liable for the acts of one of
the partners must prove three things:-

(i) That the act was done in relation to the partnership business.
(ii) That the act was an act for carrying on business in the usual way.
(iii) That the act was done by the partner in his capacity as a partner, not as an
individual.
- A person dealing with a partner is not affected by any secret restriction on his power,
unless he is aware of such restrictions. Sec. 10

Implied Authority of A Partner

The authority of a partner to bind the firm is called the implied ordinary, apparent, and
ostensible authority.
- The term implied authority has been in partnership law in a specific sense. It means
authority of the partnership to bind the firm. Such authority need not be expressed in
writing.

Cockburn CJ observed,
In order that one member of a partnership may bind another by drawing of accepting a
bill, he must have authority either express or implied by law to do so. In ordinary cases of
commercial partnerships, there is no need to express authority of the law implying an
authority from the drawing and accepting the bills is part of the ordinary course of such a
partnership.
A partner has implied authority to:
1. Buy and sell goods
2. Engage employees for the firm
3. Borrow money, contract debts and repay such debts on behalf of the firm.
4. Negotiate instruments of credit debt.
5. Employ an advocate in an action against the firm.
N\B
1. A firm is not liable for debts created by a partner for the purposes not connected
with the firm’s ordinary course of business.
2. The sleeping partners and the partners of non-trading partnership have no implied
authority.
Illustration page 375( Saleemi)
Mercantile credit co.ltd V Garrod (1962)

A partner can bind the firm if the following conditions are fulfilled:-
(i) The acts in firm’s name
(ii) The acts is to carry on the business of the kind run by the firm
(iii) The act is done in a usual way of carrying on the business of the firm

Partner’s Authority in Emergency

19
 The authority of a partner is extended in case of emergency threatening the property
of the firm. This authority is extended provided only when:-
(i) There is emergency
(ii) The emergency is such as would result in loss to the firm, if some act is not done
to protect the firm.
(iii) The act done must be such as would be done by a person of ordinary prudence, in
his own case, acting under similar circumstances.

- This authority does not extend to the act of acquisition of gain to the firm. It requires
that while handling emergency situation, a partner should exhibit only the care, skill
and nerve of a person of ordinary prudence.
- It does not expect the ideal presence of mind, accurate judgement but only that which
a person of ordinary prudence might in those circumstances have probably done.

Restrictions on Implied Authority of A Partner

Implied authority of a partner may be restricted by statute, and by contract between
partners.
Restrictions Imposed by statute:
In the absence of any usage or custom of trade, to the contrary, the implied authority of a
partner does not empower him to:-
(a) Submit a dispute relating to the business of the firm to arbitration
(b) Compromise or relinguish any claim or portion of claim by the firm
(c)Open a banking account on behalf of the firm in his own name
(d)Withdraw a suit, or proceedings filed on behalf of the firm
(e)Admit any liability in a suit or proceeding against the firm
(f) Acquire immovable property on behalf of the firm
(g)Transfer immovable property belonging to the firm
(h) Enter into partnership on behalf of the firm

Restrictions by contract between partners

The implied authority of a partner can by contract between the partners, be extended or
restricted. However inspite of restrictions imposed by contract, the firm will be liable to
third person, provided the act done by the partner on behalf of the firm falls within his
implied authority unless it is proved that the third party actually knew of the restrictions
or did not know or believe the partner who did the act to be a partner.

Liability of Firm for Torts

Whereby the wrongful act or omission of a partner acting in the ordinary course of the
business of a firm or with the authority of his partner, loss or injury is caused to any third
party, or any penalty is incurred, the firm is liable therefore to the same extent as the
partner i.e a firm shall be liable to compensate a third person for any loss caused by the
tortions act of a partner, provided:-

(i) The tort was committed in the ordinary course of business of the firm.

20
 (ii) Within the scope of the apparent or implied authority of the partner.

Liability of Misappropriation
Where a partner acting within his apparent authority received money or property from a
third party and misapplies it, or a firm in the cause of its business receives money or
property from a third party and the money or property is misapplied by any of the
partners while it is in the custody of the firm, the firm is liable to make good the loss.

Liability of the firm for breach of contract

In the event of a breach of contract the firm together with the partners will be joint and
severally liable. This is because the firm is not an independent legal person in the eye of
law. Its activities binds the partners and the firm, to property are the property of both
partners as the firm.

RECONSTITUTION
- Reconstitution means a change in the relation of the partners. Upon reconstitution,
the rights and liabilities of the incoming and outgoing partners are to be determined.

Introduction of New Partner

When in an existing firm a new partner joins, the new partner is named as an incoming
partner. Since the contract of partnership is based on personal confidence, and personal
consideration, no new partner can be introduced without the consent of all the existing
partners and in accordance with a contract already entered into between the partners for
the admission of a new partner.

Liability of an Incoming Partner

- An incoming partner is not liable for the debts incurred before he joined the firm as a
partner. He however may assume liability for past debts by novation i.e. by a
triplicate agreement between
(a) The creditors of the firm
(b) The partners existing at the time the debt was incurred
(c) The incoming partners
N\B
1. “ A person who is admitted as a partner into an existing firm does not thereby
become liable to the creditors of the firm for anything done before he became a
partner. Sec 21(1)
2. An incoming partner can only be made liable where he is proved to have assumed
the liabilities of the existing firm through the process of novation (i.e. an
agreement between him , existing partner and creditors concerned)

21
 Outgoing Partner
- A person who leaves a firm in which the remaining partners continue to carry on
business is called an outgoing partner or retiring partner. A person leaves the firm:-
(i) By retirement
(ii) By expulsion
(iii) By insolvency
(iv) By death

By retirement
The word retirement refers to cases where a partner withdraws from a firm while
remaining partners continue to carry on the business of the firm without dissolution.

Liability of Retiring Partner

Liability of Past Acts
The general rule is that a retiring partner remains liable for all the acts of the firm done
before the retires. However he may be discharged from any liability to the third party
provided he entered into an agreement with creditors, partners of reconstituted firm and
himself.

- The retiring partner however_

(a) Do shall be liable for the partnership debts and other obligations which were incurred
by the firm before his retirement.
(b) Shall be liable to third parties for all such transactions of the firm which had started
but were unfinished at the time of his retirement.

Liability of Future Acts

-The rights of the third parties against a retiring partner are unaffected unless public
notice is given of the retirement. The consequences of giving no public notice are:-
(i)That the retiring partner shall continue to remain liable for all the acts of the firm done
after his retirement until the date of public notice.
(ii)The firm shall continue to be liable for the acts of the partner done by him within the
scope of his implied authority.

Rights of Outgoing Partner

(i) Right to carry on competing business
(ii) Right to share subsequent profits in certain cases

NB (page 377 Saleemi)

A partner who retires from the firm does not cease to be liable for partnership debts or
obligation incurred before his retirement.

22
LESSON 4

INTRODUCTION/OBJECTIVES
TYPES OF PARTNERS
(i) Actual or ostensible partner
(ii) Sleeping or Dormant Partner
(iii) Nominal partner
(iv) Partner in profit only
(v) Sub-partner
(vi) Working partner
(vii) Partner by holding out or by estoppel

Actual or Ostensible Partner

A person who becomes a partner by an agreement and is actively engaged in the conduct
of the business of the partnership is known as an actual or ostensible partner. Thus:-
(i) He is an agent for other partners in the ordinary course of business of the firm.
(ii) He binds himself and other partners, as far as third parties are concerned for all
the acts which are done in the ordinary course of business and in the name of the
firm.

Sleeping or Dormant Partner

A dormant or sleeping partner is one who does not take an active part in the conduct of
the business of the firm:-
(i) He invests capital and is in a position to claim a share in the profits of the firm.
(ii) His liability is similar to other partners.
(iii) He is not required to give public notice of his retirement from the firm inorder to
absolve himself from liability for acts of other partners after he ceases to be a
partner.
(iv) His liability ceases immediately on retirement from the firm.
(v) He is not liable for any act of the firm done after his retirement.

Nominal Partner
- Is simply a partner in name only. He has no real interest in the firm, he does not
share profit of the firm, does not contribute any capital. However along with other
partners he is liable to the third party (outsider) for all the debts of the firm.

23
- Distinguish between Nominal Partner and Dormant Partner
(i) A dormant partner is one whom the public does not know to be a partner, he
contributes capital and shares profits and losses of the firm.
(ii) A nominal partner is one whom the public knows as a partner in the firm, though
does not share in profit of the firm. Both partners are liable for all acts of the
firm.

NB/ Where a person’s name is used as if he were a partner of the firm, though actually he
is not, he will be called a nominal partner.

Partner in Profits only

This partner is one who has abundance of capital and who is not ready to take risk of
losses. He gets share in profits only. However he is liable to outsiders for all the acts of
the firm. If the firm incurs a large amount of loss, which the other partners are not able to
make good, he ( partner for profit only, will have to bear the brunt of losses on the basis
of the principle that the liability of partners is joint and several.

Sub-Partner
When one of partners agree to share his share of profit of the firm with some stranger,
such stranger is termed as a sub-partner. A sub-partner is not a partner in the eyes of law
and, therefore , has no right against the firm. He is not also liable for the debts of the
firm.

Working Partner
A partner may have some special qualifications, experience or knowledge due to which
he may be assigned the management and control of the business. Such a partner is
commonly known as a working partner.

(i) He receives not only his share in the profit of the firm but also some additional
remuneration.
(ii) Other partners remain liable to third parties for all acts.

Partner by Holding out or by estoppel

Partnership Act provides anyone who by words spoken or written or by conduct
represents himself, or knowingly permits himself to be represented , to a partner in the
firm is liable as a partner in that firm if anyone who has on the faith of any such
representation given credit to the firm, whether the person representing himself or
represented to be a partner does or does not know the representation has reached the
person so giving credit will be liable.

- To establish liability for holiding out, the following conditions must be satisfied:-
(i) The person, either by words or by conduct must have represented himself to be a
partner.

24
 (ii) He must have allowed others to represent him as a partner.

Representation may either be direct or indirect

- The representation is direct if a person by his words or conduct leads a third party to
believe that he is a partner.
- It is indirect if he knowingly permits himself to be represented to be a partner.

(iii) Must have given credit on the faith of representation to the firm.

The person must have the knowledge of the representation and should have given credit
to the firm on the faith of it.

If the person without the knowledge of representation gives credit to the firm, or does not
believe the representation as true and gives credit to the firm, he cannot make the person
liable under the doctrine of holding not.

Minor as a partner in benefits of partnership.

Sec 12 of the Act provides that a person who is under the age of 18yrs may be admitted
to the benefits of partnership, but he cannot be made personaliy liable for any obligation
of the firm. However the share of the minor in the property of the firm is liable for the
obligations of the firm.
Sec. 13 of the Act provides that a minor becomes liable for all obligations
incurred by the partnership or attaining the age of majority unless he gives public notice
within a reasonable time of his repudiation of the partnership.
N/B Liability extents from the date he was admitted into partnership.

A minor may be admitted to the benefits of the partnership only with the consent of all
existing partners. Thus consent may be express or implied i.e. these must be either: -

i. An express agreement between the partners.

ii. Some positive conduct implying the agreement such as the allotment of a share, or
distribution of a part of profits.

i. Before Majority

Rights.
Has a right to share property and profits. However, he is not allowed to sue the firm to
recover his shares, profit or property until and unless he has severed his connection with
the firm.

Has a right to access books of accounts of the firm and to inspect and copy them.
However he cannot have access to secret books of the firm, since he is not a real partner.

25
 Has a right to sue for accounts on severing his connection with the firm.

Liabilities
A minor is not personally liable for the debts and obligations of the firm beyond his share
in the profits and in the property of the firm.

A minor is not personally liable for any act of the firm during his minority, he cannot be
declared insolvent if the debts of the firm cannot be satisfied with the property of the
firm. If the firm is however declared insolvent, his share in the firm shall rest in the
official receiver or official assignee.

After attaining Majority

i. A minor may be at any time within six months after attaining majority or in his
knowledge that he has been admitted to the benefits of partnership, give a public
notice to the effect that he has chosen to become a partner or not to become a
partner in the firm. If a minor fails to give such public notice, he shall be deemed
to have become a partner in the firm in the expiry of the said period.

Minor’s position when he decides to become a partner.

- His rights and liabilities shall continue to be those of a minor upto the date of public
notice.
- His share shall not be liable for any of the acts of the firm done to third party after
since he was admitted to the benefits of the firm.
- Shall be entitled to sue the partners for his share of the property and profits.
NB: After attaining majority and before giving a public notice, a minor may be held to be
liable for holding himself not as a partner.

LESSON 5

ASSIGNMENT OF SHARES IN PARTNERSHIP.

Sec 35 provides that a partner can assign his shares in partnership to any other person
(assignee) by way of will, gift, sale or mortgage.

The assignee however is not entitled to: -

- Interfere in the management or administration of the partnership.
- Require any accounts of the partnership transactions.

He however is entitled to: -

- Receive the share of profits in respect of assigned shares.
- Accept the account of profits agreed to by the partner.

NOTE:

26
 i. The assignor will still remain liable to the creditors of the firm as long as the
partnership continues. He however can be indemnified by the assignee in
respect of the losses.
ii. In the vent of dissolution of the partnership, the assignee is entitled to receive the
share of the assignor.

Dissolution of Partnership.

Partnership can be dissolved in accordance with the provisions of Sec 36, 37, 38 and 39
of the Act.

a. By expiration of Notice.

Where partnership was entered into for a fixed term, it dissolves by the expiration of that
term, it also dissolves by any partner giving notice to the other partners of his intention to
dissolve partnership (where entered for unspecified time)
Sec 36 (c) states that the partnership is dissolved as from the date mentioned in the notice
as the date of dissolution; or if no date is mentioned, as from the date of communication
of the notice.

b. By bankruptcy, Death or Change.

The death of a partner dissolves the partnership unless there is an agreement to the
contrary. Where under an agreement between the partners the firm is not dissolved by the
death of a partner, the estate of the deceased partner shall not be liable for any act of the
firm done after his death.

Sec 37(1) “Subject to any agreement between the partners, every partnership is dissolved
as regards all partners by the death or bankruptcy of any partner.”

-Where one partner sends notice of dissolution to the other partner, and dies before the
other partner receives the notice, the partnership is dissolved by the death and not by
notice.

Sec 37(2) “A partnership may, at the option of the partners, be dissolved if any partner
suffers his share of the partnership property to be charged for his separate debt.”

By Insolvency

The insolvency of partner dissolves the firm, however where there is an agreement that
the firm shall continue, the insolvent drops not and the remaining partners continue as
such without a dissolution of their partnership.

Effect of Insolvency

27
 - The partner declared insolvent ceases to be a partner on the date on which the
order of adjudication.
- In the absence of an agreement to the contrary, the firm stands dissolved on the date
of the order of adjudication.
- The estate of the insolvent is not liable for any act of the firm subsequent to the date
of the order of adjudication.
- The firm cannot be held liable for any action of the insolvent subsequent to the date
of the order of adjudication.

By illegality

Sec 38 – “ A partnership is in every case dissolved by the happening of any event which
makes it unlawful for the business of the firm to be carried on or for the members of the
firm to carry it on in partnership.”

By An Order of Court (Sec 39)

The court may order for the dissolution of partnership when: -

- A partner is adjusted a lunatic or is permanently of unsound mind.
- A partner other than the suing becomes permanently incapable of performing his part
of the partnership contract or guilty of conduct calculated prejudicial to affect the
carrying on of the business or willfully, or persistently commits a breach of the
partnership agreement or where it is not reasonably practicable for the other partners
to carry on the business in partnership with him.
- When the business of the partnership can only be carried on at a loss.
- Where in the opinion of the court it’s just and equitable that the partnership be
dissolved.

By Rescission:
Sec 45

Where one of the parties is guilty of fraud or misrepresentation as regards the partnership
contract, the partnership contract may be rescinded on this ground, hence partnership
dissolves.

Application of Property on Dissolution on dissolution of partnership: -

- Its property must be applied in payment of the firm’s debts and liabilities.
- The surplus if any must be applied in payment of what may be due to the partners
respectively after deducting what may be due from them as partners to the firm.
- Sec 43 – Any partner or his representative may on the termination of the partnership
apply to the court to wind up the business and affairs of the firm.
- Where the partnership property is not sufficient to meet the firm’s debts and
liabilities, the deficiency will come from partners in the proportion to share profit.

28
 - Sec 48 (b) – Losses, including losses and deficiencies of capital, are payable first
out of profits, and lastly, if necessary, by the partners individually in the
proportion, which they were entitled to share, profit.

DISSOLUTION OF A FIRM.

A firm may terminate its operations automatically, and act of its parties or by law.

i. By Agreement

A firm may be dissolved with the consent of all the partners or partners or in accordance
with a contract between the partners. A partner may retire from partnership on giving
agreed notice to the others.

ii. Compulsory Dissolution (By count)

A firm may be compulsorily dissolved: -

- When all partners of the firm except one are insolvent.
- By the happening of an event which makes the existing business of the firm unlawful.

iii. Dissolution on the happening of certain conditions (By Law)

When the firm is constituted for a fixed term, it dissolves at the expiry of that period.
However where the firm continues in business after the expiry of the fixed term, it will be
partnership at will, which may be dissolved by one partner giving notice of dissolution.

When the firm constituted for carrying for carrying out one or more adventures or
undertaking, then it stands dissolved at the completion of the adventure.

Death of a partner will make the firm to dissolve unless otherwise i.e. subjects to a
contract on the contrary.

Insolvency of a partner will have the effect of dissolving the partnership.

Dissolution by Notice (By Agreement).

Where the partnership is at will, one partner giving notice of his intention to dissolve the
firm may dissolve the firm. A notice of dissolution once given cannot be withdrawn

N/B. Dissolution by court

Where there is a difference of opinion among the partners regarding dissolution of the
firm owes some pointly the court intervenes. The following may cause dissolution by
court: -

29
 i. When one of the partners becomes insane.
ii. When a partner has become permanently incapable of performing his duties.
iii. When some partner(s) is responsible for conduct injurious to the business.
iv. When a partner willfully and persistently commits breach of an agreement.
v. When a partner transfers his interest in the firm to an outsider without the consent
of the other partners.

CONSEQUENCES OF DISSOLUTION

- Liabilities of partners continue even after dissolution, if no public notice regarding

dissolution is given.
- The firm has to pay off liabilities, sell the assets and distribute surplus, if any, among
partners or their representatives.
- The authority of the partners for purposes of winding up continues as before
dissolution.
- A partner is liable to share any profit drawn from the partnership with other partners.

Where a partner enters into a firm by paying some premium, if the firm is dissolved at an
earlier date than expected, then –

i. If he was induced to join the firm by fraud, the whole premium will be paid.
ii. In case of partnership at will, no premium will be paid.
iii. In case of a partnership for a fixed term and has to be dissolved due to the death
of a partner, no premium is refundable.
iv. Where there is an agreement not to refund the premium, it will not be refunded
v. Where partnership contract is rescinded for fraud, or misrepresentation, the
aggrieved partner has the following rights of:
- A lien on the surplus assets of the firm.
- Being counted as creditor of the firm.
- Has the right of indemnification.

1. Activities.
2. Questions
3. Key words.
4. Exercises.
5. Condition.

30
LECTURE TWO: SALES OF GOODS

INTRODUCTION
In this lecture we will discuss sales of goods by explaining its definition, characteristics,
formation, conditions and warranties, transfer of property and title, performance of the
contract of sale and unpaid seller, his rights and obligations.

Objectives

By the end of this lecture the learner should be able to:-

• Understand and define sales of goods.
• Understand the characteristics and formation of contract of sale and its performance.
• Understand conditions and warranties as used in the contract of sale.
• Understand how property and title are transferred in a contract of sale.
• Understand the rights, liabilities of unpaid seller and the buyer.

REF:

(i) Sales of Goods Act Cap 31 of 1962

(ii)Charlesworth’s Mercontile Law by Schmitthott and David A.G. Sarre
(iii)Business Law Simplified – Saleemi

LESSON 1

SALES OF GOODS
Definition:
Section 3 (I) of Sale of Goods Act (Cap. 31) of 1962

31
 "A contract whereby the seller transfers or agrees to transfer the property in goods to
the buyer for a money consideration called the price".
An analysis of the definition reveals the following Essential characteristics of a
contract of sale.
The first essential element of a contract of sale is that there must be two parties – a seller
and a buyer. The seller and the buyer must be two different persons.
Money here refers to the recognized currency in circulation. The good may either be
existing or future goods.
Actionable means claims which can be enforced by a legal action.
1. There must be two parties
This is based upon the principle that a person cannot buy his own goods. There are
however, certain exceptions to this rule i.e. a person may buy his own goods in cases
specified below: -
(a) Auction sale:-
In case there is a sale by auction, the seller may reserve the right of making a bid of the
auction and may thus purchase his own goods.
(b) Execution of a decree:-
When the goods of a person are being sold in execution of a degree, he is allowed to buy
his own goods.
(c) Between part-owners:-
There may be a contract of sale between one part owner and another also between one
partner and another and between a partnership firm and a partner.
2. There must be a transfer of property. Property here means "ownership's" i.e these
must be actual transfer of ownership of the property, transfer of possession does not
amount to sale.
3. The subject - matter of the contract of sale must be goods.
Goods means and includes all chattels other than things in action and money, and all
embezzlements, industrial, growing crops and things attached to or farming part of the
land which are agreed to be severed before sale of under the contract of sale. It means
every kind of movable property other than actionable claims and money"actionable
claims means claims which can be enforced by a legal action or suit.

4. The consideration for a contract of sale must be money consideration called the price.
If goods are sold or exchanged for other goods the transaction is barter and not sale of
goods. But where goods are exchanged partly for goods and partly for money, it will be a
contract of sale.
5. The term contract of sale includes both a sale and "agreement to sell".
6. Essential elements of a valid contract: -
A contract of sale of goods must satisfy all the essential elements necessary for the
formation of a contract.

Some distinctions

32
 Following are the other main points of distinction between the two:

Sale Agreement to Sell

_____________________________________________________________________
Sale agreement to sale

33
1. Nature of Contract A sale is an executed An agreement to self in an
contract executory contract.
2. Transfer of In the sale of In an ‘agreement to sell’
ownership property in goods there is no transfer of
posses to the buyer property at the time of
immediately at the contract. The conveyance
time of the contract. takes place later.
Thus the sale is a
contract plus
conveyance.
3. Nature of Property In a sale, the seller In an agreement to sell, he
Transferred may sue for price or can sue only for damages
specific performance for the breach of contract.
of the contract, if the It creates jus-in-personam
buyer commits i.e. it gives a right to either
default. It creates a party (seller or buyer)
jus-in-rem, i.e. gives against the other for any
right to the buyer to default in fulfilling his part
enjoy goods against of the agreement.
the whole world.
4. Risk of Loss In case of sale, the In an agreement to sell, the
buyer immediately seller remains the owner
becomes the owner; and, therefore, is
he, therefore, responsible for all the risks
becomes responsible to the goods.
for any loss to the
goods because the
general rule is that
otherwise agreed,
the risk prima facie
passes with property.
5. Seller’s rights of In a sale, if the buyer In an agreement to sell, the
resale and as such the property in the goods
seller ( in possession remain with the seller and
of goods after sale) as such he can sell the
cannot resell the goods to anyone he likes
goods, otherwise the and the original buyer can
second buyer will sue him for damages only.
not get a good title The subsequent buyer gets
to the goods( if he is a good title even though he
aware of the knew about the previous
previous sale) agreement to sell.
6. Seller’s Insolvency In a sale, if the buyer In case of an agreement to
pays the price sell, the buyer (having paid
(without taking some money) cannot claim
delivery of goods) the goods but a ratable
and the seller dividend for the money
thereafter becomes paid.
insolvent, the buyer
can claim the goods
from the official
receiver or assignee.
Buyer’s Insolvency In a sale, if the buyer In an agreement to sell, the
an insolvent without seller can refuse to deliver
paying the price, the the goods to the official
property in goods assignee or receiver. 34
having passed to the
Sale Distinguished form Hire-Purchase Agreement. A hire-purchase agreement is a
contract whereby the seller of the goods agrees to transfer the property in the goods to the
hire-purchaser after a certain fixed number of installments of price are paid by the buyer.
But if the heir fails to pay any particular installment, the owner can terminate the contract
and take away the goods (because the ownership continues to remain with the seller). The
installments paid so far are assumed to be the hire for use of the goods.

It should be noted that mere payment of price by installments under an agreement does
not necessarily make it a hire-purchase but it may be a sale; for example, in the case of
the installment purchase method’ there is a sale because no option to return and the
property in goods passes to the buyer at the time of contract and not after all the
installments have been paid.

Sale Hire-purchase Agreement

1. Nature of contract A sale is an executed contract In a hire- purchase
agreement, it
in which the ownership is becomes the property of the
buyer only
transferred from the seller to after a certain agreed number
of installments-the buyer as soon as
the is paid. Till then, the hire-purc-
contract is entered into. haser stands in the position of
a bailee
and not the owner of the goods.
2. Termination of the The buyer in this case cannot ter- The hire-purchaser is at
liberty to
contract minate the contract and as such is terminate the contract at any
stage, and
bound to pay the price of the cannot be forced to pay the
remaining
goods. Instalments.
3. Insolvency of the In a sale, the seller takes the risk In a hire-purchase, the owner
is not at
buyer-risk of loss of any loss resulting from the any risk because if the hirer does not
insolvency of the buyer. Pay any instalment, the seller
has the
right to take back the goods.
4. Implied conditions A sale is subject to the implied A hire-purchase agreement is
not
and warranties conditions and warranties subject to such
implied warranties and

35
 conditions. It is however,
subject to the provided in the hire-purchase agreement.
5. Sales tax A sale is subject to levy of sale sales tax is not leviable on a
hire tax at the time of contract of sale.
purchase until it finally converts into
sale.
6.Efect of payments In a sale, even if the payment is made The installments paid by
the hire purchase
by buyer in installments the amount are regarded as payment
towards the
Payable by the buyer to the seller is price of the goods till the
option to
Reduced for the payment made by
the buyer to the purchase the goods is exercised. If
the
seller is towards the price of goods. Hire puchaser terminates the
contract the installments paid by him would
be regarded as hire charges.

Hire purchase and an Agreement to sell. We have already specified that a hire-purchase
agreement is merely an irrevocable offer for sale. Under it the owner of the goods is
bound to transfer the property in goods to the buyer, after all the installments have been
paid to him, i.e. he is bound to sell the gods to the buyer. Of course, on the part of the
hire-purchaser there is an option to buy or to return the goods. The hire cannot be
compelled to buy. An ‘agreement to sell’ on the other hand, imposes a legal obligation to
buy and therefore there is no option with the buyer to buy or to terminate the contract in
this case. Another point of distinction is that in a hire-purchase agreement, delivery of
goods to the hire purchase is necessary while it is not so in an ‘agreement to sell’.

Sales and Barter or Exchange. Where property in goods is transferred from the seller to
the buyer against a price, it is called a sale. Where goods are exchanged for goods; it is a
case of barter and not a sale. But where the consideration for transfer of property is partly
in goods and party in money, it is sale.

Sale and Contract for Work and Material.

The distinction between the two depends upon the nature and substance of the contract. If
the nature of the contract is such that some property in goods is to be transferred, it is a
contract of sale. In case the essence of the contract is rendering of skill and labour, it is a
contract of work and labour.

Thus, it may be said that where the work is the essence of the of the contract and material
is of no importance, the contract is one of work and labour. One the other hand, if the
nature of the contract is such that property is goods is intended to be transferred; the
contract is that of sale even though some labour may have been involved in preparing. In
order to determine this, it is the substance of the contract that is to be gone into.

36
 Sale Distinguished from Gift.
In a contract of sale, the property in goods is transferred from one person to another
without any consideration. In the case of a gift, the property in goods is transferred from
one person to another without any consideration.

Sale and Bailment.

The essence of sale is that the property in goods is transferred from the seller to the
buyer for a price , while a bailment is the delivery of goods by one person to another for
some purpose upon a contract that they shall when the purpose is accomplished, be
returned or otherwise disposed off according to the directions of the person delivering
them. The main points of distinction between sales and bailment are given in this table: -

Sale Bailment

1. Nature of contract In a sale, the property in goods is In bailment,

there is transfer of possession only
transferred from the seller to the buyer. From bailor to bailee
for safe custody, use, carriage from
one place to another, etc.

2. Consideration The consideration for a sale is the price In bailment,

the consideration is an undertaking
in terms of money only. To return the goods after the
accomplishment of
purpose. The consideration here may
be money or in kind.

3. Dealing with the goods The buyer can deal with the goods as he In bailment,
the goods are to be returned (as the
likes as the property in goods has been property in goods
remains with the bailor) after
transferred to him. The purpose is accomplished.

4. Returning of goods Goods once sold normally cannot be Goods in bailment

have to be returned after a
returned unless there is a breach of a specified period and on
accomplishment of the
some condition. Purpose.

SALE AND AN AGREEMENT TO SELL

Section 3 (4) of act provides:-
"where under a contract of sale 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

37
 property in the goods is to take place at a future time or subject to some
conditions thereafter to be fulfilled, the contract is called an agreement to sell".

Like other contracts, offer from one party and the acceptance by the other party is
necessary for the formation of a contract of sale. However the offer and acceptance must
be relating to buying or selling goods for a price. The immediate delivery of the goods or
immediate payment of price or both is not necessary.

Section 5 of the Act states that

A contract of sale may be made in writing (either with or without seal) or by words of
mouth or partly in writing and partly by word of mouth, or may be implied by the
conduct of parties.

The act also provides that a contract for the sale of any goods of the value of 200 shillings
or more shall not be enforceable by action unless the buyer accepts part of the goods so
sold, and actually receives them, or gives something in earnest to bind the contract or in
part payment, or unless some note or memorandum in writing of the contract is made and
signed by the partly to be charged or his agent in that behalf.

In the sale of contract, the Subject matter is,

Goods may be classified as: -
(a) Existing goods.
(b) Future goods.
(c) Contingent goods.
(d) Perishable goods.

(a) Existing goods

These are goods which are physically in existence and which are in the seller's ownership
and possession at the time of entering the contract of sale. Existing goods may be again
classified as
(a) Specific goods: - These are goods identified and agreed upon at the time the contract
of sale is entered into.
(b) Ascertained goods: - Are goods, which have become ascertained subsequently to
the formation of the contract. It means identified in accordance with the agreement
after the time a contract of sale is made.
(c) Generic or unascertained goods: - these are goods not separately identified or
ascertained at the time of the making of a contract. They are simply indicated or
defined by description.

(b)Future goods
Future goods means goods to be manufactured or produced or acquired by the seller after
making the contract of sale. These goods may be either not yet in existence or be in
existence but not yet acquired by the seller.

38
 Note
(a) It may be noted that where by a contract the seller purports to effect the present sale
of future goods, the contract operates as an agreement to sell.

(b) There can be no present sale of future goods, because property cannot pass in what is
not owned by the seller at the time of the contract.

(c)Contingent goods
There may be a contract for the sale of goods the acquisition of which by the seller
depends upon the contingency which may or may not happen. Such goods in sale are
known as contingent goods. A contract for the sale of contingent goods also operates
as an agreement to sell.

(d)Perishable goods
Under section 8, where there is a contract for the sale of specific goods, and the goods
without knowledge of the seller have perished at the time when the contract is made
the contract is void.

Section 9 of the act states 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 thereby avoided.

Conditions and warranties

A contract of sale may consist of a number of terms and stipulations regarding the
quality of the goods, the price and mode of it payment, the delivery of goods and its
time and place. Some of these terms are so vital that their nonperformance may
amount to a breach of the contract as a whole, such terms are called condition. Others
may not be so vital i.e. they are called warranties. Thus a stipulation in a contract of
sale may either be a condition or a warranty

Condition section 13 (2)

A condition is a stipulation essential to the main purpose of the contract the breach of
which gives the aggrieved party a right to repudiate the contract itself. He can also
claim damages for breach of contract.

Warranty section 13(3)

A warranty is a stipulation collateral i.e no so essential to the main purpose of the
contract to the main purpose of the contract, the breach of which gives the aggrieved
party a right to sue for damages only, and not to avoid the contract itself.

Stipulation as to time
Stipulation as to time in a contract of sale fall under the following:-
(a) Stipulation relating to time of delivery of goods.
(b) Stipulation regarding time of payment of price.

39
 As regards to the time fixed for the delivery of goods, time is usually held to be the
essence of the contract. Thus if a time is fixed for the delivery of goods and the
seller makes a delay, the contract is voidable at the option of the buyer. The buyer
therefore may refuse to accept the delivery and may put and end to the contract.

Stipulation relating to time of delivery of goods

If a time is fixed for the delivery of goods and the seller makes a delay, the contract is
avoidable at the option of the buyer.

Note
As regards the time fixed by the delivery of goods, time is usually held to be the essence
of the contract.
- whether a stipulation in a contract of sale is a condition or a warranty depends in each
case of the construction of the contract.

Stipulation regarding time of payment of price.

The general rule regarding time fixed for payment of price, is that in a contract the
stipulation to time of payment is not the essence of the contract. However, this rule is
subject to the intention of the parties. The intention of the parties may be gathered from
the following:-
i. The language of the agreement.
ii. The nature of the property sold.
iii. The conduct of the parties and surrounding circumstances at or before the contract.
N/B
(I) Whether any stipulation as to time is of the essence of the contract or
not depends on the terms of the contract.
(II) Stipulation as to time except those relating to time of payment, are
deemed to be of the essence of the contract in the commercial
contracts.
(III) Time is considered as essence of contract of sale in the following
cases;

a. Where the parties have expressly agreed to consider it as of the

essence of the contract.
b. Where delay operates as an injury and
c. Where the nature and necessary of the contract require it to be so
construed.

(IV) A party in whose favor the stipulations are may waive them if so
waived, he has no right to rescind the contract.

40
 LESSON 3

CONDITION AND WARRANTY DISTINGUISHED

Condition Warranty

1. Purpose A condition is a stipulation which is A warranty is a stipulation

which
essential to the main purpose of the is only collateral or
subsidiary to
contract. the main purpose of
the contract.

2. Right of Breach A breach of condition gives the A breach of warranty

gives only
aggrieved party a right to sue for the right to sue for
damages. The
damages as well as the right to contract cannot be
repudiated.
Repudiate the contract.

3. Treatment/option A breach of condition may be treated A breach of warranty cannot

be
as a breach of warranty. Treated as a breach of
condition.

4. Damages The buyer has an option to claim The buyer can in no

case repudiate
damages, instead of repudiating the the contract. If there
is a breach of
contract. warranty, he can only
claim
damages.

5. Root of the Contract It goes direct to the root or sub- It does not go
direct to the root of
stance of the contract. the contract.

WHEN CONDITION SINKS TO THE LEVEL OF A WARRANTY.

A Condition is s stipulation essential to the main purpose of the contract, the breach of
which gives rise to a right to treat the contract as repudiated. But a warranty is a
stipulation not so essential to the main purpose of the contract and its breach simply gives
rise to a claim for damages and not to a right to reject the goods and treat the contract as
repudiated.

41
 However, under certain circumstances, a condition may be treated as a warranty.
These circumstances are
i. By waiver.
ii. By acceptance

By waiver
When the buyer waves the condition or elects to treat it as a breach of warranty, the
condition will become a warranty. He cannot in these circumstances repudiate the
contract, he can only claim for damages.

By acceptance
If the buyer accepts the goods or part thereof, the breach of condition to be fulfilled by
the seller can only be treated as a breach of warranty and not as a ground for rejecting the
goods and treating the contract as repudiated. This however, is subject to the following
conditions: -
The contract of sale is not reversable
There is no contrary term of the contract, express or implied, to that effect.

The goods are said to have been accepted in the following cases:-
i. When the buyer intimates the seller that he has accepted the goods.
ii. When the goods have been delivered to him and he does any act in relation to them
which is inconsistent with the ownership of the seller. or
iii. When after the lapse of a reasonable time, he retains the goods without any
intimation to the seller.
N/B
When a condition is reduced to a warranty, it does not mean that the condition becomes a
warranty , it means that it the legal remedies for the breach of condition becomes limited
to the remedies which exists in the case of a breach of warranty.
Express and implied conditions and warranties.
Conditions and warranties may be either express or implied.

Implied conditions
Unless otherwise agreed, the law incorporates a contract of sale of goods the following
implied conditions.
They are said to be “expressed” when the terms of the contract expressly provide for
them. They are said to be “implied” when the law deems their existence in the contract.
Hence the maxims-
Expressum facit ceassare tacitum (what is expressed makes what is implied) and
Muduset conventio Vincent legem (Custom and agreement overrule law)
Condition as to title.
In a contract of sale, unless the circumstances of the contract are such as to show a
different intention, there is an implied condition on the part of the seller that, in the case
of 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 at the time when the property is to pass.

42
 If a person having no right to sell, sells some goods to a buyer who has to return the
goods to the true owner, the seller will be bound to pay the price to the buyer.
Sale by description.
A person may have no right to sell in the following circumstances;
(I) He may not be the owner of the goods sold and.
(II) He may be the owner yet due to certain reasons he may not have the
right to sell i.e. if the sale is illegal or without jurisdiction the seller
may not have a right to sell.
N/B there will be no implied condition as to title if the circumstances of the contract are
such as to show a different intention. E.g. when a person sells not as the owner but in
some special capacity and the buyer is aware of this special capacity.

"Where there is a contract of sale of goods by description, there is an implied

condition that the goods shall correspond with the description".
The protection to the buyer under this section is available subject to two conditions: -
i. There should be a sale by description.
ii. The goods should not correspond with the description.
The section represents a general principle of law which if you contract to sell, you
cannot. Accept to take a good if the description of the good tendered is different in any
respect for its not the good bargaining for, hence you are not bound to take it.
The term sale of goods by description applies to cases where the buyer has not seen the
goods.

The term sale of goods by description also applies to a condition even where the buyer
has seen the goods but he relies not on what he has but what was stated to him and the
deviation of the goods from the description was not apparent.

Example
If a buyer buys two pictures described to be by a renowned artist, he is allowed to reject
these if it is discovered that they are not the work of that artist.
NB
(1) If the written contract specifies conditions of weight measurement and the like,
these conditions must be complied with.
(2) The court generally insists in substantial compliance of commercial contracts
though they may allow or ignore microscopic deviations.
(3) Requirement of “correspondence with description is a strict one, hence the goods
must answer to the description even where they are sold with all faults.” If they
do not do so, the buyer may reject them even if the contract specially provides
that the buyer shall not reject the goods. This is so because no provision of an
exemption clause can compel. A person to buy a thing different from what he
contracted to buy.
Sale by sample (section 17)
A contract of sale is a contract for sale by sample where there is a term in the contract,
express or implied, to that effect.

43
 When under a contract of sale, goods are to be supplied according to a sample agreed
upon, the implied conditions are: -
i. That the bulk shall correspond with the sample in quality.
ii. That the buyer shall have a reasonable opportunity of comparing the bulk with the
sample.
iii. That the goods shall be free from any defect, rendering them unmerchantable, which
would not be apparent on reasonable examination of the sample.

Illustration
A retailer purchased a number of plastic toy catapults from a wholesaler in a sale by
sample. He sold one of the toys to a boy of six. When the boy tried to play with the toy,
it broke and injured his left eye which had ultimately to be removed. The retailer had to
pay compensation to the boy. He in turn, claimed compensation from the wholesaler.
While purchasing the toys the retailer had examined the sample and could not find any
defect. It was held that the goods were unmerchantable and, therefore, the wholesaler
was liable to indemnify the retailer for the loss suffered by him.

Sale by discription as well as by sample

When goods are sold by sample as well as by description, there is an implied condition
that the bulk of the goods shall correspond both with the sample and with the description
under the contract.

The basic insistence of the act is "correspondence with description".

(ii) Condition as to fitness or quality (section 16 (1)

Ordinarily, in a contract of sale there is no implied condition or warranty as to quality or
fitness for any particular purpose of goods supplied, the rule being "caveat emptor", that
is, let the buyer beware. Section 16 (1) however, provides that in a contract of sale, a
condition will be implied that the goods shall be reasonably fit for the buyers purpose if
the following conditions are fulfilled: -
i. The buyer, expressly or impliedly, should make known to the seller the particular
purpose for which the goods are required.
ii. The buyer should rely on the seller's skill or judgement.
iii. The goods sold must be of a description which the seller deals in the ordinary course
of his business whether he be the manufacturer or not.

If the above conditions are fulfilled and the goods are not suited to that particular
purpose, then the buyer is entitled to reject the goods.

Where the goods can be used for more than one purpose, it is the duty of the buyer to
inform the particular purpose for which he requires them.

The purpose need not be expressed if the goods are fit for one particular purpose only if
the nature of the goods itself dictates the purpose by implication. In such cases, the
purpose is deemed to be made known to the seller impliedly.

44
 The implied condition as to fitness applies only in the case of sale of goods to a
normal buyer. If the buyer is sufferings from abnormality, and it is not known to the
seller at the time of sale, this condition does not apply.

Implied condition annexed by the usage of trade:-

An implied condition as to quality or fitness for a particular purpose may be annexed by
the usage of trade.

Implied condition as to quality or fitness of goods for the buyers purpose will not apply in
case of a contract for the sale of a specified article under its patent or trade name. If the
buyer purchases the goods under some patent or trade name and the seller supplies the
genuine goods asked for, he will not be liable if the goods are found to be not fit for the
buyer's purpose.

Note
This exception applies only if the buyer does not rely on the skill and judgement of the
seller. If he relies on the skill and judgement of the seller, implied conditions as to the
fitness or quality of goods for buyer's purpose will apply.

Condition as to merchantable quality section 16 (a)

Where the goods are bought by description from a seller who deals in goods of that
description, there is an implied condition that the goods shall be of merchantable quality.

For making this condition applicable, the sale must not only be by description, the
following conditions must also be satisfied.
i. The seller should be a dealer in goods of that description.
ii. The buyer must have an opportunity if examining the goods.

Where the goods are purchased for reselling, they must be resaleable.

When the goods are purchased for self use, they must be reasonably fit for the purpose
for which the goods in question are generally use.

The phrase "merchantable quality" means that the goods are of such quality and in such
condition that a reasonable man, acting reasonably, would accept them under the
circumstance of the case in performance of his offer to buy those goods, whether he buys
them for his own use or sell again.

Implied warranties
The law incorporates into a contract of sale of goods the following implied warranties: -

Warranty of quiet possession (section 14 (b)

In a contract of sale, unless contrary intention appears, there is an implied warranty that
the buyer shall have and shall enjoy quiet possession of the goods. It means, if the right
of enjoyment or possession of the buyer is disturbed by the seller or any other person, the

45
 buyer is entitled to sue the seller for damages. The rule of implied warranty also
applies in cases where the seller has no right to sell. This means that nobody shall
interfere with the possession of the goods by reason of want of title of the vendor, or of
any act done or committed by anyone having authority from the vendor. It is more than a
covenant for title. It is a warranty that the vendor shall not, nor shall nobody claiming
under superior title or his authority, interfere with the quiet enjoyment of the vendee.
This rule applies also in cases where the seller has no right to sell.

Implied warranty of freedom from encumbrance section (14 (c)

It is an implied warranty on the part of the seller that the goods shall be free from any
charge or encumbrance in favor of any third party not declared or known to the buyer
before or at the time when the contract of sale is made

The breach of this warranty occurs only when the buyer in fact discharges the amount of
the encumbrance, and he had no notice of that at time of the contract of sale.
If the buyer knows about.

Warranty of disclosing the dangerous nature of goods to the buyer.

It is an implied warranty on the part of the seller to warn the ignorant buyer of the
probable danger in the goods in case the goods sold are dangerous.

Exclusion of implied condition and warranties

Implied conditions and warranties in a contract of sale may be negativated or varied by: -
i. Express agreement between the parties.
ii. The course of dealing between them or
iii. The custom or usages of trade.

LESSON 4

DOCTRINE OF CAVEAT EMPTOR

The maxim of "caveat emptor" means, "let the buyer beware". I.e. it is duty of the buyer
to be careful while purchasing goods of his requirement, and in the absence of any
enquiry from the buyer, the seller is not bound to disclose every defect in goods of which
he may be aware.

Exceptions
The doctrine of ‘caveat emptor’ is subject to the following exceptions:

46
 1. Where the seller makes a mis-representation and the buyer relies on it, the
doctrine of caveat emptor does not apply. Such a contract being voidable at the
option of the innocent party, the buyer has a right to rescind the contract.
2. Where the seller makes a false representation amounting to fraud and the buyer relies
on it, or where the seller actively conceals a defect in the goods so that the same could
not be discovered on a reasonable examination, the doctrine of caveat emptor does
not apply. Such contract is also voidable at the option of the buyer and the buyer is
entitled to avoid the contract and also claim damages for fraud.
3. Where the goods are purchased by description and they do not correspond with the
description.
4. Where the goods are purchased by description from a seller who deals in such class of
goods and they are not of ‘merchantable quality’ the doctrine of caveat emptor does
not apply.
5. Where the goods are bought by sample, the doctrine of caveat emptor does not apply
if the bulk does not correspond with the sample, or if the buyer is not provided an
opportunity to compare the bulk with the sample, or if there is any hidden or latent
defect in the goods.
6. Where the goods are bought by sample as well as by description and the bulk of
goods does not correspond both with the sample and with the description, the buyer is
entitled to reject the goods.
7. Where the buyer makes known to the seller the purpose for which he requires the
goods and relies upon the seller’s skill and judgement but the goods supplied are unfit
for the specified purpose, the principle of caveat emptor does not protect the seller
and he is liable in damages.
8. Where the trade usage attaches an implied condition or warranty as to quality or
fitness and the seller deviates from that, the doctrine of caveat emptor does not apply
and the seller is liable in damages.

Transfer of property and title

A contract of sale is a contract whereby the seller transfer or agrees to transfer property in
the goods to the buyer for a price. Transfer of property is therefore the essence of a
contract of sale.

Rules regarding transfer of property

(a) Transfer of property is specific or ascertained goods (section 19 (1) (2)
Where there is a contract for the sale of specific or ascertained goods, the property in
them is transferred to the buyer at such time as the parties to the contract intend it to be
transferred. The intention of the parties is the governing principle as to the passing of
property in goods. The intention of the parties is gathered from:-
(a) The terms of the contract.
(b) The conduct of the parties.
(c) The circumstances of the case.

When the intention of the parties cannot be judged from their contract, or conduct, the
following rules laid down by section 20 will apply.

47
 Section 20 when goods are in a deliverable state.
Where there is an conditional contract for the sale of specific goods in a deliverable
state, the property in the goods passes to the buyer when the contract is made, and it is
immaterial whether the time of payment of the price, or the time of delivery of the goods,
or both, is postponed. Hence: -
i. The contract must be unconditional.
ii. The contract must be for the sale of specific goods - goods identified and agreed
upon at the time of the contract.
iii. Goods must be in a deliverable state.

Section 20 (b) specific goods to be put into a deliverable state.

Where there is a contract for the sale of specific goods and the seller is bound to do
something to the goods for the purpose of putting them into a deliverable state, the
property does not pass until such thing has been done and the buyer has notice thereof.

Section 20 (c) specific goods in a deliverable state when the seller has measure or to
ascertain the price.
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 some other act or thing with reference to the goods
for the purpose of ascertaining the price, the property does not pass until such act or thing
is done and the buyer has notice thereof.

Section 20 (a) when goods are delivered on approval.

When goods are delivered to the buyer on approval or on sale or return or on other
similar terms, the property therein passes to the buyer: -
i. When he signs his approval or acceptance to the seller.
ii. When he does any act amounting to adoption of transaction.
iii. If he retains the goods, without giving notice of rejecting beyond the time fixed for
the return of goods, if no time is fixed, the property passes to the buyer on the
expiry of a reasonable time.

(b) Transfer of property in an unascertained and ascertained future goods.

Section 20 (e) (I) (ii)
Where goods contracted to be sold are not ascertained or where they are future goods, the
property in goods does not pass to the buyer unless and until the goods are ascertained or
unconditionally appropriated to the contract so as to bring them in a deliverable state,
either by the seller or by the buyer.

Until goods are ascertained or appropriated there is "merely an agreement to sell".

Ascertainment of goods: - means establishing their identity, it’s a condition
precedent to the passing of property.
“Where there is a contract for the sale of unascertained goods, no property in the goods is
transferred to the buyer unless and until the goods are ascertained.

48
 Appropriation of goods
After the goods have been ascertained, the next process is to appropriate
Stands for common intention of the parties to attach the contract irrevocably to those
goods so that those goods and no others are the subject of the sale and become the
property of the buyer. The Act makes it clear that in case of a contract of sale of
unascertained goods, the property in the goods passes to the buyer when the goods are
unconditioned appropriated to the buyer.

It requires the mutual assent of the seller and the buyer. Such assent may be implied or
express from the conduct of the parties.
Appropriation by the seller may be done in the following manner
(a) By putting the quantity contracted into suitable receptance e.g by putting the goods
into a box or gunny.
(b) By delivering to the carrier, port office, railway companies etc

Distinction between ascertainment and appropriation

Ascertainment is a unilateral act and is usually done by the seller alone. Appropriation
involves the element of common intention.

Reservation of Property
The property in goods whether specific or ascertained does not pass if the seller reserves
a right of disposal of the goods. The seller, however is deemed to reserve the right of
disposal in the following courses:

(i)Where goods are stripped and by bill of lading the goods are deliverable to the order of
the seller or his agent.
(ii) Where the seller sends bills of exchange for the price of the goods to the buyer for his
acceptance, together with the bill of lading, the property in the goods does not pass to the
buyer unless he accepts the bill of exchange.

NB/Reservation of title clauses is majorly concerned with cases f sale of large quantities
of industrial goods on credit.

Passing of risk
The act states that
"Risk prima-facie passes with property". According to this the moment the property in
goods (ownership in goods) vests with the buyer, the goods are at the buyers risk,
irrespective, of the fact whether the delivery has been made or not to the buyer.

Hence delivery of the goods is immaterial, the most important thing to be considered in
each case is the stage or moment when the property passes.

Exception though "risk" and "property"

Generally go together, at times risk may be one party and property in another such cases
are: -

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 i. Goods at the risk of party at fault 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.
ii. Trade custom– risk and property may be separated by a trade custom.
iii. By agreement– the parties may by agreement separate the risk from the property.

LESSON 5
TRANSFER OF TITLE

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 The general rule is that only the owner of goods can transfer a good title. I.e. no one
can give a better title than he himself has. The act further provides that: -

Subject to the provisions of the act and of any other law at the time in force, where goods
are sold by a person, who is not the owner thereof and who does not sell under the
authority or with the consent of the owner, the buyer acquires no better title to the goods
than what the seller had, unless the owner is precluded by his conduct from denying the
sellers authority for sell.

If a person purchases stolen property, the true owner can recover it from him.

The rule is expressed by the maxim "Nemo dat quod non habet" which means that no
one can give what he himself has not". Hence if the seller has no title or has a defective
title, the buyers title will be equally wanting or defective even though he may be a
purchaser bona fide and for value.

Exceptions to the rule / principle of nemo dat quod non-habet.

Contrasted with above maxim is the principle that a person who buys in good faith for
value and without notice should get a title. Hence in the interest of trade and commerce,
some exceptions to the above rule have been recognized. Therefore the law relating to
transfer of title seeks to balance these two conflicting principles to meet the interest of
trade and commerce in modern times.

The exceptions are: -

i. Estoppels; when one person has by – his declaration, act or omission or intentionally
caused or permitted another person to believe a thing to be true, and act upon such
belief, neither he nor his representative shall be allowed in any suit or proceeding
between himself and such person or his representative to deny the truth of that thing.
ii. Sale by a mercantile agent–a mercantile agent having any authority to sell goods
conveys a good title to the buyer, even though he sells the goods without having any
authority from the principal to do so provided the following conditions are fulfilled.
(a) The sale must be made by a mercantile agent.
(b) He must be in possession of the goods or of a document or of a title to the goods.
(c) He must be in possession of the goods with the consent of the owner.
(d) He must be acting in the ordinary course of business of a mercantile agent.
(e) The buyer must have acted in good faith and had not at the time of the contract of sale
notice that the seller had no authority to sell.
N/B Mercantile agent means an agent having in the customary course of
business an authority either to sell the goods or to consign the goods for purposes of sale,
or to buy goods, or to raise money on the security of goods.
iii. Sale by one of several joint owners. where one of the several owners of goods
has the sole possession of them by permission of the co-owners, and the property in
the goods is transferred to any person who buys them from such joint owner in good
faith and has not at the time of the contract of sale notice that the seller has no
authority to sell. A buyer can acquire good title, but this can only be so when:-
a. the sale is done by one of several joint owners of goods.

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 b. The goods are in his possession with the permission of the co-owners
c. The buyer buys in good faith and has not at the time of contract of sale notice
that the seller has no authority to sell.
iv. Sale by a person in possession of goods under avoidable contract.
When the seller of goods has obtained their possession under a voidable contract, but the
contract has not been rescinded at the time of the sale, the buyer acquires a good title to
the goods, provided he buys them in good faith and without notice of the sellers defect of
title, it must be noted that the contract under which the seller has obtained possession the
goods must be voidable and not void.

However, where a contract under which the seller, obtains goods in void, then even an
innocent buyer of the goods from such a seller does not acquire title to the goods.

v. Sale by seller in possession after sale

Where a seller, having sold goods, continue to be in possession of the goods or of the
documents of title to the goods and sells them either himself or through a mercantile
agent to a person who buys them in good faith and without notice of the previous sale, the
buyer gets a good title. The possession of the seller must be as a seller and not as hirer
or bailee.

Note
The seller here does is not required to have physical possession of the goods, it is enough
that he should have such control over the goods as to transfer possession by making over
a document of title. But a person in possession of goods under hire purchase agreement
which gives him only an option to buy is not covered, until and unless it amounts to
actual sale.

vi. Sale by an unpaid seller

Where an unpaid seller who has exercised his right of lien or stoppage in transit resells
the goods the buyer acquires a good title to the goods as against the original buyer.

vii. Sale by a finder of goods; A finder of goods may confer a good title to the buyer
as shown below:-
When a thing which is commonly the subject sale is last, if the owner cannot be found
with reasonable diligence, or if he refuses, upon demand, to pay the lawful charges of
the finder, the finder may sell it in the following situations:-
(a) When, the thing is in danger of perishing or of losing the greater part of its value.
(b) When the lawful charges of the finder, in respect of a thing found amount to two-
thirds of its value

viii. Sale by a Pawnee in case where pawner makes default in payment.

If the pawner makes default in payment of the debt or performance, at the stipulated time
of the promise, in respect of which the goods were pledged, the Pawnee may sell the

52
 thing pledged on giving the pawner a reasonable notice of the sale. In such a case,
the buyer shall acquire a good title.
ix. Sale by official receiver or official assignee
Sale by an official receiver or official assignee in case of insolvency of an individual or
any liquidator of a company, though not being the true owner, can confer on the buyer a
good title.
x. Purchase in market overt.
Where goods are sold in market overt the buyer acquires a good title to them though the
seller may not be having a good title if the following conditions are satisfied: -
i. The goods are sold in accordance with the custom of the market.
ii. The buyer acts in good faith and has no reason to believe the ownership of the seller
to goods was either defective or non-existent.

xi) Under the negotiable instrument Act

Under the negotiable instrument Act, a holder in due course gets a better title than
that what endorser had. I.e. A person who takes a negotiable instrument in good faith and
for value becomes the true owner even if he takes it from a thief or a finder.

LESSON 6

PERFORMANCE OF THE CONTRACT OF SALE

It is the duty of seller to deliver the goods and of the buyer to accept and pay for them.
Unless otherwise a delivery of the goods and payment of the price are concurrent
conditions. Unless they do so, the seller should be ready and willing to pay the price of
the goods in exchange for possession of the goods.
-The duty of the seller is to be ready and willing to deliver the goods to the buyer. He
(the seller) is not bound to deliver the goods until the buyer applies for delivery.

Delivery
Delivery of goods sold may be made by doing anything which the parties agree shall be
treated as delivery in which has the effect of putting the goods in possession of the buyer
or of any person authorised to hold them in his behalf.
-Delivery of goods this means a voluntary transfer of possession of goods from one
person to another.

Kinds of Delivery
Actual Delivery- Delivery will be actual delivery when actual or physical delivery of
goods is made by the seller to the buyer or his authorised agent.

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 Symbolic Delivery- Delivery is said to be symbolic when without a change in actual
possession of the goods, they are put in the possession of the buyer or his authorised
agent bill of lading, a rail may receipt examples of symbolic delivery.

Constructive Delivery of Delivery by Attornment

-Delivery is said to be constructive when without any change in physical and actual
custody, there is a change in the legal character of the goods i.e the person having the
physical and actual custody of the goods agrees to hold them on behalf of the buyer.
-This may happen:-
(i) When the seller in possession of the goods agrees to hold them on behalf of the
buyer.
(ii) When the buyer is in possession of the goods and the seller agrees to the buyers
holding the goods as owner.
(iii) When the third person in possession of the goods acknowledges to the buyer that
he holds them on his behalf.

Rules as to Delivery
The following are rules as regards delivery.
(i) Delivery may be either actual or symbolic or constructive.
(ii) Delivery and payment are concurrent conditions. unless otherwise agreed i.e. the
seller shall be ready and willing to give possession of the goods to the buyer in
exchange for the price and the buyer shall be ready and willing to pay the price in
exchange for possession of the goods.
(iii) The buyer to apply for delivery: unless otherwise, the seller is not brand to
delivery goods till the buyer applies for delivery. Even where the goods are to be
acquired by the seller, the duty of the seller end with notifying the buyer to apply
for delivery.
(iv) Place of delivery- The place of which the delivery of the goods is to take place
must be stated in the contract. Where this is not stated, the place of delivery will
be at the place at which they are at the time of sale.
(v) Time of delivery- where the seller is bound to send the goods to the buyer, but no
time for sending them is agreed, the seller is bound to send them within a
reasonable time.
(vi) Delivery by Atonement:- Where the goods are in the possession of a third person ,
there is no delivery unless and until such third person acknowledges to the buyer
that he holds the goods on his behalf.
(vii) Delivery of Goods in Possession of Third Persons- where the goods at the time of
sale are in possession of a third person, there is no delivery by the seller to the
buyer unless and until such third person acknowledges to the buyer that he holds
the goods on his behalf. This rule does not apply in case of transfer of any
document of title to the goods.

Reasonable Hour of Delivery – Demand of or tender of delivery must be made at a

reasonable hour.

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 Cost of Delivery- The expenses and incidental to putting the goods into a deliverable
state shall be borne by the seller unless there is a contract to the contrary between the
parties.
Delivery of wrong Quantity- The delivery of quantity of goods contracted for should be
strictly in accordance with the terms of contract. Hence:-
(a) Where the seller delivers to the buyer a quantity of goods less than he contracted to
sell, the buyer is entitled to reject them, however if he accepts the goods so delivered,
he will pay at the contracted rate.
(b) Where the seller delivers to the buyer a quantity of goods larger than he contracted to
sell, the buyer may accept the goods included in the contract and reject the rest or he
may reject the whole. However, where the excess is so small that is negligible in
view of the whole quantity, the buyer will not be entitled to reject the whole.

Delivery of Mixed Goods- Where the seller delivers to the buyer the goods he contracted
to sell mixed with goods of a different description not included in the contract, the buyer
may accept the goods which are in accordance with the contract and reject the rest, or
may reject the whole.

Instalment Deliveries- Unless otherwise agreed, the buyer of goods is not bound to accept
delivery thereof by installments.

Seller’s Duty
Unless the buyer requires to dispatch the goods at owners risk, it is the duty of the seller,
when he delivers the goods to the carrier to enter into a reasonable contract on behalf of
the buyer for the safety of the goods and if he fails to do so and the goods are lost or
damaged, the buyer may decide to treat the delivery to the carrier as a delivery to himself
or may hold the seller responsible for damages.

Duty of the Seller where Goods are sent by sea transit

Where the goods are sent by sea transit wherein insurance is usual, the seller should give
to the buyer such notice as shall enable him to insure the goods. If the seller fails to give
the notice, the goods shall be at his risk during the sea transit. Where, however, the buyer
has sufficient information about the goods to enable him to insure, he cannot insist on
particular information.

Deterioration During Transit

Where the seller of goods agrees to deliver the goods at his own risk at a place other than
that where they are when sold, the buyer shall, nevertheless, take any risk of deterioration
in the goods necessarily incidental to the course of transit.
- The principle where is that the risk and property go together. This however does not
apply to goods delivered to a distant place.

Exceptions
a. Any risk of deterioration in the goods necessary incidental to the course of transit fall
in the buyer. But -
(i) In case of perishable goods, the seller has to ensure the merchantability of quality.

55
 (ii) A buyer is not allowed to reject the goods after he has accepted them.
(iii) The buyer is deemed to have accepted goods in the following circumstances.
(a) When he intimates to the seller that he has accepted them.
(b) When the goods have been delivered to him and he does nay act in relation to them
which is inconsistent with the ownership of seller.

Buyer’s Right
(i) To examine the goods before accepting them. The seller hence must give the
buyer reasonable time to examine the goods.
(ii) To take delivery in conformity with the contract.
(iii) To repudiate the contract if delivery is not according to contract.
(iv) To file a suit against the seller so as to recover damages or price of goods if he
wrongfully neglects or refuses to deliver the goods.
(v) To file a suit against the seller for specific performance of the contract to sell
when the goods are specific or ascertained.

Duties of Buyer
(i) To take delivery and pay for the goods.
(ii) To apply for delivery
(iii) To take risk of deterioration unless agreed otherwise

Liability of the buyer:

NB/ Where the seller is ready and willing to deliver the goods and requests the buyer for
this, who does not bother, then he will be liable for any loss occasioned by his negligence
or refusal to take delivery and also for a reasonable charge in connection with care and
custody of the goods;
1. Any loss caused by his neglect or refusal to take delivery and
2. He will pay a reasonable charge for the care and custody of the goods and
for damages.

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 LESSON 6

UNPAID SELLER AND HIS RIGHTS

Unpaid seller: A seller of goods is deemed to be an unpaid seller within the meaning of
the Sales of Goods Act.
(a) When the whole of the price has not been paid or tendered.
(b) When the bill of exchange or other negotiable instruments has been received as
conditional payment, and the conditions on which it was received has not been
fulfilled by reason of the dishonour of the instrument or otherwise.
(c) A seller who has been partly paid is also on unpaid seller.

The term “seller” includes any person who is in the position of a seller.

Characteristics of Unpaid Seller

-He must sell goods against cash only and not on credit, and he must be unpaid.
-He must be unpaid either wholly or partially.
-He must not refuse payment when tendered- Otherwise he will cease to be an unpaid
seller.

Rights of Unpaid Seller

(i) In case the property in goods has not passed.
- Where the property in goods has not passed to the buyer, the unpaid seller has in
addition to his other remedies, a right to withhold delivery until payment is made.

(ii) In case the property in Goods has passed to the Buyer

-Where the property in goods has passed to the buyer, the unpaid seller has the following
rights:-
(i) A lien on the goods for price when he is in possession of them.
(ii) Right of re-sale
(iii) In case of the insolvency of the buyer, a right of stoppage of the goods in transit
after he has parted with the possession of the goods.
N/B
These rights of an unpaid seller do not depend upon any agreement , express or implied
between the parties. They arise by implication of law.
Right of lien on goods
Lien means the right to retain possession of the goods. If possession is lost, lien is lost.
Hence the unpaid seller of goods who is in possession of good is entitled to retain them
until payment or tender of price in the following circumstances:-
(a) Where goods have been sold against cash only i.e. sold without stipulation to credit.
(b) Where the goods have been sold on credit but the term of credit has expired, while
the possession of goods is with the seller.
(c) Where the buyer becomes insolvent.
(d) Where he (the seller) is in possession of the goods as an agent or bailee for the buyer.

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 - The right of lieu can be exercised only when:-
(i) The ownership has passed to the buyer
(ii) The goods must be in possession of the seller or under his control or bailee. The
possession of the goods by the seller does not expressly exclude the right of lien.
(iii) The whole or part of the price must remain unpaid.

NOTE
(i) Where the unpaid seller has made part-delivery of the goods, he may exercise
right of lien on the remainder.
(ii) The lien of unpaid seller is a particular lien
(iii) It is a personal right which can be exercised only by him and not his a signee or
his creditors.
- Right lien may be terminated in the following cases:-
(i) When he delivers the goods to a carrier or other bailee for the purpose of
transmission to buyer without reserving the right of disposal o f the goods.
(ii) When the buyer or his agent obtains the possession of the goods larrfully.
(iii) When the unpaid seller waives his right of lieu expressly or impliedly.
NOTE:
- Express waiver is when the sale provides that the seller shall not retain possession
of goods even of the price remains unpaid
Implied waiver means that the seller by his conduct waives the right of lien. The
lieu is however waived when
(a) the goods are sold in credit or the seller on the expiry of
the original term of credit, grants a fresh term of credit. Lien in this case
revives in the expiry of the new credit term.
(b) the seller agrees to sub-sale the lien is waived
(c) unpaid seller pays for the price.

Right of Stoppage in Transit

The seller has right of stopping the goods in transit after he has parted with the
possession of the goods. It is meant to stop the goods from being delivered to the
buyer.

This right can be exercised subject to the following conditions:

(a) The seller must be unpaid
(b) The buyer must have been declared insolvent.
(c) The property in goods must have passed to the buyer.
(d) The goods must be in transit. i.e the buyer must have not acquired the
goods which are not in the possession of the seller. This right can only be
exercised when the goods are in the cruse of transit.
- Goods are deemed to be in the course of transit from the time when they are
delivered to carrier or other bailee for the purpose of transmission to the buyer,
until the buyer or his agent takes delivery of them (on his behalf) from that
carrier.
- The transit comes to the end:-
- When the buyer obtains delivery

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 - As soon as the goods are handed over to the buyer
- When the buyer or his agent obtains delivery of the goods before their arrival
at the appointed destination.
- When the carrier or other Bailee acknowledges to buyer that he holds the goods
on his behalf.
- When the buyer rejects the goods.
The unpaid seller may effect stoppage of good in transit by:-
(a) actually taking possession of the goods
(b) giving notice of his claim to the carrier or other bailee in whose possession the
goods are.

Right of Re-Sale
The unpaid seller has a right to re-sale the goods:-
(i) without asking the buyer if the goods are of perishable nature
(ii) in case of other goods, the seller has to give a notice to the buyer of his intention
to resale the goods.
(iii) When the seller has expressly reserved the right of re-sale in case the buyer fails
to pay.

Right of Unpaid Seller against the buyer personally

The unpaid seller has:-
(i) right for suit of price id:-
(a) the buyer refuses to pay for the goods.
(b) The buyer refuses to pay at the day or time agreed.
2. Damages for non-acceptance

Buyer’s rights against the seller

A buyer has the following rights against the seller:-
(i) right for damages for non-delivery. He may sue the seller for damages.
NB:
- When goods are readily available in the market, the buyer is entitled to get
damages equal to the difference between the contract price and the market price.
(ii) Right of specific performance:-
Where the contract is for the sale of specific or ascertained goods and the seller refuses to
deliver them, the court may require him to deliver the goods in terms of contract instead
of permitting him to retain them in payment of damages. This however is allowed where:
-
(a) the contract is for sale of specific or ascertained goods.
(b) When the damage would not be an adequate remedy.

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LECTURE THREE: AGENCY

Introduction
In this lecture we are going to discuss principles, characteristics and formation of
Agency. We will also discuss types of Agents, their authority and effects of contracts on
third party and the principal. Lastly will be liabilities, rights and duties of agents,
principal and third party, and how agency relationship is terminated.

Objectives

At the end of this lecture, the learner should be able to:-

• Understand the principles, characteristics and formation of Agency
• Know the types of agents, and their rights, obligations and duties to the principal and
the third party.
• Know how agency relationship is terminated.

AGENCY

Introduction
According to the law of contract, a person who is not a party to a contract cannot acquire
any right or incur any obligation under the contract, agency, however is own exception to
this law i.e The agent can enter into a contract on behalf of another party ( principal) as
his/her agent. He will however after the contract generally drop out of the transaction,
and the real contract is made between the principal and the third party.

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 Illustration
If P enters into a contract with K as an agent of W, P is not generally liable for the
contract for the contract has been made between W and K.

The Agency law of England based on common Law of Contract is applicable in Kenya.

- An agent is a person who brings his principal into contractual relations with third
parties, he does not make a contract on his behalf, hence it is not necessary that he
should have contractual capacity.
- The principal however must have full contractual capacity, the same must be to the
third party.

Definitions
Agent- Is a person employed to do any act for another or to represent another in dealings
with third persons. The person for whom such act is done, or who is so represented, is
called the principal.
- The contract that creates the relationship of principal and agent is called an agency.

Principles:
- Two important principles or essentials with regard to the agency relationship are:-

(i) What a person is competent to do by himself, he may get it done the same through
an agent too. However things which are of purely personal nature cannot be done
by an agent.
(ii) Qui facit per alium facit per se – i.e He who does through another , does by
himself” ( the acts of the agent are, for all legal purposes, the acts of the
principal”.
- The agency law provides that contracts entered into through an agent, and obligations
arising from acts done by an agent, may be enforced in the same legal consequences,
as if the contracts had been entered into and the acts done by the principal in person.

Essential Elements of Agency

- The principal appointing the agent must be competent to contract.
- It is not necessary that appointment of an agent be followed with some consideration
i.e no consideration is necessary to create an agency
- Any person can be appointed as an agent i.e the law does not require an agent to be
competent to contract

Agent and Servant distinguished

- An agent has the authority to create contractual relations on behalf of his principal,
whereas a master does not enjoy this kind of authority.
- The principal has the right to direct what the agent has to do, a master on the other
hand has the right to say how it should be done.
- A servant is paid by way of salary or wages, an agent may be paid by way of
commission on the basis of the work done.

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 - A master is liable for the wrong of his servant if it is committed in the course of
the servants’ employment, a principal is liable for his agent’s wrong done within
the scope of authority.
- A servant usually serves only one master, an agent may work for several principals at
the same time.

Agent and Bailee distinguished

- The relationship of bailor and bailee exists only when the bailee holds goods
belonging to bailor, the existence of agency however may be as a bailee as well as an
agent.
- An agent have authority to contract with the third party on behalf of the principal , a
bailee does not have that power.

Agent and Independent Contractor distinguished

- The contractor does not represent his employer in relation to other persons.
- The contractor cannot bind the employer by contracts entered into by him with others.
- The agent does represent his principal in relation to other third parties and can bind
the principal by contracts entered into with other persons within the scope of his
authority.

Agent and Trustee distinguished

- A trustee exercises powers in his own name and on his own behalf, an agent exercise
powers given to him by the principal.
- The property, which a trustee manages is vested in him, an agent deals not with his
own property but with the property of the principal.
- An agent creates a privity of contract between the principal and the third party a
trustee however acts for himself.
- An agent represents and acts for his principal, a trustee represents and acts for the
beneficiary.

Formation of Agency
The relationship between principal and agent may be created in any of the following
ways:-
(a) By express agreement/appointment
(b) By implication of conduct
(c) By necessity

1. By Express agreement / appointment

An agent may be appointed by an express agreement either verbally or in writing. The
appointment must state the authority of the agent. No particular form is required,
however where the agent is to make a contract under seal, power of attorney must be
given.
2. By Implication of conduct
If the person by words or conduct holds out another as having authority to make contracts
on his behalf, he will be bound by such contracts as if he had expressly authorised them.
The implied agencies arise from the conduct, situation or relationship of parties.

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 - Implied agency may take the following ways:-

(a) Agency by estoppel:-

Agency by estoppel is based on the “doctrine of estoppel” which may be stated as “
where a person by his words or conduct has willfully led another to believe that certain
set of circumstances or facts exists, and that other person has acted on that belief, he is
estopped or precluded from denying the truth of such statements, although such a state of
things did not in fact exist”.
- Agency by estoppel hence refers to situations when:-

(a) agent without authority

(b) does acts or
(c) incurred obligations to third persons

On behalf of his principal- the principal will be bound by such acts.

The principal however will be bound by such acts or obligations if he ( the principal) has
by his words or conduct induced such third persons to believe that such acts and
obligations were within the scope of the agents authority.

Illustration
(i) A entrusts B with negotiable instruments endorsed in blank. B sells them to C in
violation of orders from A. The sale is good.
(ii) O consigns goods to B for sale and gives him instructions not to sell under a fixed
price. D being ignorant of B’s instructions, enters into a contract with B to buy
the goods at a lower price than the reserved price. O is bound by the contract.

(b) By Holding out:-

Agency by holding out is based on the doctrine of holding out which is a branch of the
agency by estoppel. In this case, some affirmative or positive act or conduct on the part
of the principal is required to establish agency. The doctrine of holding out has been
described as:-
“ Where a principal has by his voluntary act placed an agent in such a situation that a
person of ordinary prudence, conversant with business wages and the nature of the
particular business, is justified in presuming that such agent has authority to perform
a particular act and therefore deals with the agent, the principal is estopped of against
such third person from denying the agent’s work”.

NB/ Where the agent is ‘held out’ as having only a limited authority to do acts, the
principal is not bound by acts outside the authority.

3) Agency by Necessity
- Agency by necessity occurs when a person is entrusted with another’s property and it
becomes necessary to do something to preserve that property. This rule covers only
these acts which are done on the ground of extreme necessity.

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 - By necessity is meant that an unforeseen situation has arisen which carries with
it sudden danger to the property, or similar interests of the person on whose
behalf the act is done. The law assumes the consent of the owner to the creation of
the relationship of principal and agent.

The following conditions must be satisfied for creating a valid agency by necessity:-

(i) Inability of the agent to communicate with his principal within the available time.
(ii) There must be an actual or defined and definite commercial necessity the creation
of the agency.
(iii) The agent of necessity must act bonafide in the interest and for the benefit of the
principal.
(iv) The agent must adopt a reasonable and practicable course under the
circumstances.

NB/ There is no agency of necessity unless there is a real emergency, such as may arise
out of the possession of perishable goods.

Agency by necessity however occurs in the following circumstances.

- Where the agent exceeds authority, bonafide in an emergency.

- Where a husband improperly leaves his wife without providing proper means for her
survival.
4) By Ratification
The doctrine of ratification applies where one person does something for another without
his knowledge and authority. The person on whose behalf the act is done if accepted the
acts, the agency by ratification is created. The effect of ratification is to make the
contract or action binding-on the principal as if the agent had been properly authorised.
Ratification goes back to the original making of the contract. Ratification may be either
expressed or implied by the conduct of the principal.

Essentials of a Valid Ratification

- A contract can be ratified under the following conditions:- /ess
(i) The agent must expressly have contracted as agent.
(ii) The contract can only be ratified by the principal who was named when the
contract was made.
(iii) The agent must have a principal who was actually existing at the time when the
contract was made.
(iv) The principal must have had contractual capacity at the date of the contract and of
the date of ratification
(v) The principal must have full knowledge of the material facts or intend to ratify the
contract whatever the facts may be- at the time of ratification i.e a person who has
defective knowledge of the facts cannot make a valid ratification. No person is
allowed to ratify only the beneficial part of the transaction.

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 (vi) Ratification of part of a transaction means ratification of the whole of the
transaction. A person ratifying any unauthorised act done on his behalf
ratifies the whole of the transaction of which such act formed a part.
(vii) An act which is void abinited cannot be ratified.
(viii) Ratification must not injure a third party i.e
The act states that:-
“ An act done by one person on behalf of another, without such other person’s
authority which if done with authority, would have the effect of subjecting a third
person to damages, or of terminating any right or interest of a third person to
damages, or of terminating any right or interest of a third person, cannot by
ratification, be made to have such effect”.
ix) Ratification must be done within reasonable time

Effects of Ratification
- By ratification, a contractual obligation is created between the principal and third
party.
- The ratification relates back to the original date in which the contract was created or
made by the agent.
- Ratification of a part of the transaction means ratification of whole of transaction

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LESSON 2
AUTHORITY OF THE AGENT
The authority of an agent may be:-
(i) Implied or express
(ii) Ostensible or apparent authority

Express or Implied Authority

- An authority is said to be express when it is given by words spoken or written. On
the other hand the authority is said to be implied when it is to be inferred from the
circumstances of the case i.e drawn from things spoken or written, or the ordinary
course of dealing between the parties.

Illustration
“ A” owns shop in Nairobi, but living in Thika and visiting the shop occassionally. The
shop is managed by B who regularly orders goods from C in the name of “A” for the
purpose of selling in the shop, he pays these goods not of A’s funds with A’s knowledge.
B has an implied authority from A to order goods from C in A’s name for the purpose of
selling these goods in the shop.

Apparent or Ostensible Authority

Ostensible or apparent authority is the authority of an agent as it appears to others i.e the
authority which the third parties dealing with the agent can presume to be with the agent
in relation to a particular business, ( authority to do every lawful thing which is necessary
in order to do such act of business).

Agent’s authority in Emergency

- An agent has authority in an emergency to all such acts for the purpose of protecting
his principal from loss or would be done by a person of ordinary prudence , in his
own care, under similar circumstances.

Breach of Implied Authority by the Agent

(i) When an agent does more than he is authorised to do, and when the part of what
he does, which is within his authority, can be separated from the part which is
beyond his authority, so much only of what he does as is within his authority, is
binding as between him and his principal.
- If an agent, acting within the scope of his authority has notice of a fraud commited by
a third party with whom he negotiates and eventually contracts, the principal, even if
acting in good faith is treated as having notice of the fraud.
(ii) Where an agent does more than he is authorised to do, and what he does beyond
the scope of his authority cannot be separated from what is within it, the principal
is not bound to recognize the transaction.
- The principal may be brund by unathorised acts of the agent in two cases:-

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 (i) Where the principal of estoppel, the principal precluded from denying the
authority of the agent.
(ii) Where an agency has been terminated but notice of termination has not been
received by the other parties concerned.

Delegation of Agent’s Authority

The general rule is that an agent must execute his acts personally hence the minimum “
Delegations non-protest dele-gane”
The Acts states that
“An agent cannot lawfully employ another to perform acts which he has expressly or
impliedly undertaken to perform personally”.

- Authority given to an agent to sell goods does not of necessity imply authority to
receive payment of the price.

However, the agent may delegate his/her authority:-

(i) When it is permitted by the custom of the trade with which the agency is
concerned and
(ii) When it is necessary due to the nature of the agency

Types of Agent

(a) Nature of their work

Commission Agent:- A commission agent secures buyers for a seller of goods and sellers for
a buyer of goods in return he get a commission on the sale. Commission agents act on
their own names but for the account of the principal. A commission agent may or may
not be in actual possession of the goods.

Auctioneer- is one who is authorised to sell goods of his principal to the highest bidder at a
public sale for a commission. He has a particular lieu on the goods in his possession and
can sue the buyer in his own name for the purchase price.

- An auctioneer acts in a double capacity. He is an agent of the seller at the time of sale
and after sale he is an agent of the buyer. He has an implied authority to sell the
goods without any restrictions ( sell “without reserve”), hence a sale by him in
violation of instructions is binding on the owner.
- Broker- is an agent who is employed to sell or buy on behalf of another. He differs
from mercantile agent by not having possession of goods, hence he has no lieu and he
cannot sue in his own name on the contract. It is through broker that a contract is
made between the principal and third party. He receives commission or brokerage for
his service.
Factors – Is an agent entrusted with the goods he sells. These goods are under his
control on behalf of the principal. He sells the goods in his name, receives payment
and gives valid receipts. He can sell them at such times and prices as he thinks best.
He has ostensible authority to dispose off the goods or to do such things as are usual

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 in the conduct of his business. A factor has a general lieu on the goods in his
possession for all charges and expenses incurred by him.
Del Credere Agents:- Is an agent who is employed to sell goods and undertakes to
make good the losses that arises if the buyer for any reason fails to pay the price. He
gets a higher rate of commission than other agents. He undertakes to sell goods on
behalf of the principal. He however does not make himself liable to his principal if
the buyer refuses to take delivery of the goods.

(b) Extent of their authority

General Agent
A general agent is one who acts on behalf of the principal in all matters concerning a
particular business. General agents are appointed by executing a general power of
attorney which gives them authority to do certain things.

Particular Agent- Is one who is appointed by the principal for a specific purpose. They are
appointed by executing a special power of attorney which authorises him to do specific
acts or things. A man dealing with a particular agent is required to find out the limits of
the authority of such agent.

- NB/ Power of attorney must be written and stamped.

Effects of contracts made by Agents

The effect of contracts made by agents vary according to the circumstances under which
the agent contracted these contracts. Hence the legal consequences of the dealings or
position of principal and agent with regards to their dealings with third parties is:-

1. Where the principal is named or disclosed i.e name and existence of principal is
disclosed to third party.

(i) The principal is bound by the acts done by the agent within his actual authority.
(ii) Any notice given or information obtained by the agent is the cause of his authority
and business transacted by him on behalf of the principal, shall be between the
principal and the third party and hence shall have the same legal consequence as if
given or obtained by the principal.
(iii) Any misrepresentation or fraud of the agent done in within the scope of
employment or within the scope of the agent’s apparent authority, binds the
principal.
(iv) The principal is liable for unauthorised acts of an agent if the principal has by his
act induced such third person to believe that such acts and obligations are within
the scope of the agents authority.

2. Unnamed Principal i.e the existence of the principal is disclosed but not his name.
(i) The principal not agent will be brand. Hence the third party can proceed only
against the principal not the agent.

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 (ii) Where the agent fails or expresses inability to disclose the name of the
principal when asked by the third party, he shall become personally and
completely liable to the third party.

Undisclosed Principal

(i) Where an agent makes a contract with a person who neither knows, nor has
reason to suspect that he is an agent, his principal will be bound and the third
party has as against the principal the same rights as he would home if the contract
were between him and the principal.

Personal Liability of Agent

The position is that an agent cannot personally enforce contracts entered into by him on
behalf of his principal nor is he personally bound by them. ( This principle is known as
the principle of the agent’s immunity for personal liability) once contractual relationship
between his principal and third parties is established.

Exceptions to this rule

- When an agent makes a contract for a merchant residing a broad, there is general
presumption that the agent undertake personal liability, however where an agent
contracts in a manner showing an intention not to incur personal liability, he will not
be liable to the third party.
- Where an agent does not disclose the name of his principal, the agent shall be
personally liable.
- If the agent has personal interest or special interest in the subject matter of the
contract or has a beneficial interest in the contract, he can sue on the same, in such
case he is personally liable to the extent of his interest.
- Where an agent receives a bribe or pays money to third party by mistake or fraud with
regard to matters which do not fall within his authority or n the ordinary course of his
business for his principal, he shall be personally liable.
- Where an agent exceeds his authority or professes to act as an agent but has no
authority from the allaped principal, he shall be personally liable for breach of
warranty of authority.
NB/
- When a person who made a contract with an agent induces the agent to act upon the
belief that the principal only will be held liable, he cannot subsequently hold the agent
liable on the contract.
- Where a person induces the principal to act on the belief that the agent only will be
held liable, he cannot afterwards hold the principal liable on the contract.

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 LESSON 3

RIGHTS AND DUTIES BETWEEN PRINCIPAL AND AGENT

Principal and Agent

Rights of Agent
- The right to agreed remuneration , where there is no agreed remuneration, to a
reasonable remuneration.
- The agent has a right of lieu i.e the right to retain goods, papers and other property in
his possession. Until the amount due to the agent for commission, disbursements and
services in respect of the same has been paid.
- An agent has a right to be idemnized against the consequences of all lawful acts done
by him in the cause of his authority and employment. Also against consequences of
acts done in good faith.
- An agent has a right of set off i.e rights to retain net of the sum received in behalf of
the principal all monies due to him in respect of his unpaid remuneration or advances
made or properly incurred in the cause of conducting the business of agency. This
right is exercised where the remunerations or advances are due but not paid within
reasonable time.
- An agent has a right to be compensated for injuries sustained by him during the cause
of his employment or due to principal’s neglect or warrant of skill.

Duties of Agent
- To exercise due diligence in the performance of his duties and to apply any special
skill which he professes to have.
- He must disclose to his principal anything coming to his knowledge which is likely to
influence the principal in making of the contract.
- Right to render an account when required.
- Not to let his interest conflict with his duty.
- Not to make any profit beyond the commission or other remuneration paid by his
principal i.e he is accountable to his principal for any profit which he makes without
the principals’ consent , however he is not accountable when the information or
knowledge is not of a special or secret character and is not dealing with the property
of his principal. Where the agent makes a secret profit from the party with whom he
contracts on behalf of his principal, the principal has the right:-
(a) To recover the amount of the secret profit from the agent.
(b) To refuse to pay the agent his commission or other remuneration.
(c) To discuss the agent within notice
(d) To repudiate the contract, whether or not the secret payment had any effect on the
agent
(e) Not to delegate his authority

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 Duties of Principal
- To pay the agent the commission or other remuneration agreed.
- To idemnify the agent for acts lawfully done and liabilities incurred in the execution
of his authority.

NB/
An agency is said to be irrevocable when it cannot be terminated or put to an end. It may be
irrevocable:-

(a) - Where the agency is coupled with interest i.e when created for securing some
personal gain or benefit to the agent.

Illustration
A gives authority to D to sell A’s land, and to pay himself, not of the proceeds, the debt due
to him A. A cannot revoke his authority, nor can it be terminated by insanity or death.

- To constitute an agency coupled with interest it is necessary that:-

(i) The agent’s interest in the subject-matter must be substantial.
(ii) The interest of agent must exist at the time of the creation of the agency.
(iii) The purpose of creating an agency should be at secure some gain or benefit over
and above ordinary commission or remuneration.
(b) Where the Agent has incurred a personal liability, the agency becomes irrevocable,
the principal in such case, cannot revoke agency living the agent exposed to the risk
of liability he has already incurred.
(c) Where the agent has already partly exercised the authority, given to by the principal,
the principal cannot revoke the agency.

Termination of Agency
Agency may be terminated:-
(i) By the act of the parties
(ii) By operation of law

Termination by Acts of Parties

The contract of agency can be terminated by the act of parties in the following cases:-
- by mutual agreement
- by revocation by the principal at any time before the agent exercises his authority so
as to bind the principal. However where the agency has been created by a fixed
period, and the principal revokes it, without sufficient notice or cause, the principal
will be bound to pay compensation to the agent for any loss suffered due to the
revocation.
- by renuciation by the agent, reason being that an agent cannot be compelled to
continue as agent against his right. However the agent must give sufficient notice of
his intention to terminate the agency, otherwise he will be liable to compensate the
principal for any damage resulting due to termination of agency.

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 Termination by Operation of Law

The authority of an agent is revoked by the principal in the following ways:

(i) The agency is terminated when the business of agency is completed.

(ii) When an agency is for a specific time, it terminates at the expiry of that time.
(iii) The authority of an agent is terminated when the principal dies becomes mentally
disordered or insolvent.
(iv) It also terminates when the agent dies or becomes mentally disordered.
(v) Where the principal becomes an enemy the agency is terminated.
(vi) When the subject-matter of an agency is destroyed, the agency is terminated.
(vii) Where the principal and agent are incorporated persons, the agency terminate
when:-

(a) The company is dissolved

(b) The principal or agent becomes a lieu company
(c) The insolvency of the principal

NB/ Although mental disorder of the principal revokes the authority of the agent, the
principal will be bound by contracts made with third parties who have no notice of that
incapacity.

LECTURE FOUR: HIRE-PURCHASE AGREEMENTS

Introduction
In this lecture, we will discuss nature of hire-purchase agreements, requirements,
registration, formation and termination of hire-purchase agreements.

Objectives

At the end of this lecture, the learner should be able to:

• Understand the nature of Hire-purchase Agreement
• Understand requirement, registration and formation of hire-purchase agreement
• Understand how hire-purchase agreement can be terminated

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LESSON 1
HIRE PURCHASE

Definition
Is a contract by which goods are delivered to a person who agrees to make periodical
payments by way of hire with an option of buying the goods after the stated hire
instalments have been paid. Until the option is exercised there is no agreement to buy the
goods.

Hire purchase consists of three parts:-

(i) Contract of bailment – under this contract, the hirer obtains possession of goods
while the ownership remains with the owner.
(ii) An option enabling the hirer to use purchase the goods after payment of periodical
instalments.
(iii) A contract of sale making the hirer the owner of the goods already in his
possession.

- Hire Purchase Act( cap. 507) defines the following terms relating to hire purchase.

Hire-Purchase Agreement:- means on agreement for the bailment of goods under which
the bailee may buy the goods or under which the property in the goods will or may pass
to the bailee. It does not involve the customer in a legal obligation to buy.

Hire-Purchase Business:- means a business, whether carried on alone or with other business
of entering into hire purchase agreements, whatever the hire-purchase price under any
agreement.

Hire Purchase Price: means the total sum payable by the hirer under a hire-purchase
agreement in order to complete the purchase of goods to which the agreement relates,
including any sum payable by the hirer by way of a deposit or other initial payment.

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 Contract of guarantee:- means a contract made at the express or implied request of
the hirer, to guarantee the performance of the hirer’s obligation under the hire
purchase agreement.

Distinguish between different type of installment agreement

Hire-purchase agreement does not involve the customer in a legal obligation to buy, hence
does not attract the application of the sale of Goods Act.

- A credit sale agreement does involve the customer in a legal obligation to buy and
contains no express provision us to the transfer of property, with the result that
property transfers to the buyer at the time the contract is made. Hence anyone
purchasing from the buyer will obtain a good title.
- A conditional sale agreement involves the buyer in a legal obligation to buy but
contains own express provision preventing the property from the passing to the buyer
until he has paid his instalments, sold the goods under a conditional sale agreement
the buyer sold the goods to a good faith purchaser, the latter obtains good title by
virtue of sale of Goods Act.
- The condition however does not apply where the conditional sale agreement is a
consumer credit agreement, here the original owner can recover the goals from the
good faith purchaser.

Nature of Hire Purchase

Agreement
The buyer signs Hire purchase agreement firms where he undertakes to pay for the
commodity in instalments.

- He then takes possession of the commodity and can use it.

- As soon as he completes payments of agreed instalments, the ownership of the
commodity revert to him ( i.e he nor becomes the legal owner of the commodity)
- Where the buyer fails to pay the agreed instalments, the seller will take back the
commodity and any instalment paid earlier by the buyer will not be refunded as the
amount paid will be treated as hire charges for the use of commodity.
- In Hire-purchase, the sale is complete only when the buyer pays the final instalment.

Sec. 6 of the Act provides that before a hire purchase agreement is entered into, a
statement of the cash price must be furnished by the owner to the hirer, otherwise the
contract and any guarantee or security based on it will not be enforced.

- The agreement must be signed by the hirer and should contain:- a

(i) Notice relating to hire’s rights
(ii) Statement of amount of instalments and dates of payment
(iii) A description of the goods

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 N/B: The owner shall not enforce a hire purchase or any contract of guarantee
unless all the statutory requirements are fulfilled. The court however may dispense
with any of such requirements on being satisfied that the hirer has not been prejudiced.

Minimum payment clause

The hire purchase agreement generally contains minimum payment clause whereby the
purchaser undertakes to pay the owner a calculated amount. This is referred to as
downpayment. The justification of minimum payment clause is that if the owner regains
possession of the goods, they have often depreciated in value, if he hence is to resell these
goods; he will resell them as used goods.

With the introduction of check off system, minimum payment clause is gradually becoming
irrelevant.

Registration
According to Sec. 5 of the Act, every hire-purchase agreement must be submitted for
registration to the Registrar within thirty days. On registration the registrar will issue a
certificate of registration to the owner.

- If the hire-purchase is not registered then:-

(i) The Person shall be entitled to enforce the agreement against the hirer or against
the guarantor.
(ii) The owner shall not be entitled to enforce any right to recover the goods from the
hirer.
(iii) No security given by the hirer or by a guarantor shall be enforceable against the
hirer or the guarantor by the holder thereof.

Implied terms of Hire-Purchase Agreement

According to this section, it is implied:-

(i) Condition that the owner will have a right to sell the goods at the time when the
property in the goods passes to him.
(ii) Warranty that the hirer shall have and enjoy quiet possession of goods.
(iii) Warranty that the goods will be free from any charge or encumbrance in favour of
a third party at the time when the property in the goods passes and
(iv) Except where the goods are second-hand goods and the agreement contains a
statement to that effect, a condition that the goods will be of merchantable quality.
(v) Where the hirer expressly or by implication makes known the particular purpose
for which the goods are required, there shall be implied condition, that the goods
will be reasonably fit for that purpose.

NB/
(a) Condition is a stipulation essential to the main purpose of the contract,the breech of
which gives rise to treat the contract as repudiated.

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 (b) Warranty is, a stipulation collateral to the main purpose of the contract, the
breach of which gives rise to a claim for damages but not for a right to reject the
goods and treat the contract are replediated.

LESSON 2

TERMINATION OF AGREEMENT
- A hire-purchase agreement can either be terminated in accordance with the terms of
the agreement or it may be broken. It is terminated in accordance with its terms if the
hire-purchase exercises his option to return the goods to the owner. It is broken if the
hire-purchase defaults on his instalments.

Debtor’s Statutory right of termination

Sec. 12 provides that the hirer may terminate the agreement at any time before the final
payment becomes due.

(i) He may terminate the agreement by returning the goods to the owner and
(ii) By giving him written notice of termination of the agreement.
- Where a hirer terminates the agreement, he will be liable to pay all the instalments
due by that time, together with the sum, if any as will make his total payment not less
than one-half of the total hire purchase price, unless a lesser sum is specified in the
agreement.
(iii) He will be liable to pay damages if he failed to take reasonable care of the goods.
(iv) He must return the goods of his own expense to the place from which they were
originally supplied to him as to a place directed by the owner.

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 Right of Completion of Agreement
Sec. 13 provides that a hirer may give notice in writing to the owner to complete the hire-
purchase agreement before the due date. He will however pay the next instalment due to
the owner under the agreement on a specified day.
-This right can be exercised:

(i) At any time during the continuance of the agreement

(ii) Within twenty eight days after the owner has taken possession of goods.

In this case the hirer is to pay to the owner the expenses incurred by him in taking possession
storage or repair of goods.

Recovery of Possession (Sec. 15)

Under this section, if the hirer has already paid a sum equal to or in excess to two thirds of
the hire-purchase price, the owner cannot take any step to recover possession of the
goods in the event of default, he can however only recover the goods through court
decision,if the contract has been terminated by the hirer.

- If the owner takes possession of goods against this section, the contract shall be
considered terminated and:-

(a) The hirer shall be released from all liability under the agreement.
(b) Hirer shall be entitled to recover from the owner all sums paid by the hirer
under the agreement or under any security given by him.
(c) The guarantor shall be entitled to recover from the owner all sums paid by
him under the contract of guarantee or under any security given by him.

- If the suit is filled by the owner, the court may make one of the following orders:
(a) For the delivery of all goods to the owner
(b) For the delivery of part of goods to the owner and postpone the operation of the order
on condition that the hirer or any guarantors pays the unpaid balance of the hire-
purchase price at specific times.

Sec. 34 provides that any person who knowingly gives false information in any proposal
form or document is guilty of an offence and liable to a fine not exceeding five thousand
shillings or to imprisonment not exceeding six months or to both such fine and such
imprisonment.

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 ILLUSTRATIONS

PARTNERSHIP
1. S and S were iron masters and corn merchants in a partnership named “B” Smith and
Sons. In 1949, they became financially embarrassed and therefore made a compromise
with creditors. Under this compromise, the property of the firm was assigned to a few
creditors selected as trustee including cox. They were given power to run the business
and divide the profits among the creditors in the ratio of their outstanding debts and after
the debts had been discharged, the business was to be returned to sounds. Now Cox
never acted while other trustee were carrying on the business. They purchased some coke
from the plaintiff ( Hickman) and gave him a bill of exchange which remained unpaid.
Hickman filed a suit against the trustees including Cox for the recovery of his debt. Held.
The trustees were not liable because they were not partners.

2. Adultry with a co-partner’s wife is a breach of the duty imposed upon the partners to
be just and faithful to each other and may be a ground for dissolution of partnership.

3. Kuria and Kamau agreed to buy a piece of land for Ksh 100,000 with a view of
reselling it at a profit. Kuria was authorised to sell it for Ksh 180,000 to Owino
and divide the profit of Ksh 80,000 equally. But Kuria sold the land to Winas Co.
where he had a large interest for Ksh 200,000. He however did not disclose this to
Kamau. It was held that the Kuria was bound to fully disclose the real amount to
Kamau, and since he did not do so, he was liable for equal share of profit
(disclosed or not) realized to Kamau.

4. Cragg V Ford
Cragg and Ford were partners in a farm. Ford was the managing partner. The
partnership was dissolved and he winding up of its affairs was made the responsibility of
Ford. Ford was asked to sell stock of cotton bales by Cragg immediately, but he delayed
the sale, later, the bales had to be sold of a much lower price. Mr Cragg filed a suit
against Ford for loss caused. It was held that Ford was not liable to indemnify the loss as
in delaying the sale he acted bonafide and in exercise of his discretion, the loss cannot be
borne only by Ford, but ought to be shared by Cragg also.
5.If a partner deals with a third party in a matter not within the scope of the partnership,
he deals with that not as an agent of the firm but in his private account. In such
circumstances the liability of the firm shall not arise.

SALES OF GOODS
6. Wilson who owns a showroom of bicycles has 200 byslces and agrees to sell any one
of them to William. The contract is for unascertained goods since a particular byscle
which shall be the subject matter of sale is not separated at the time of contract of
sale. As soon as a particular byscle is separated not of those for delivery, it becomes
a contract of sale for ascertained or specific goods.
7. A agrees to sell to W all the fish which he will harvest next year. This is a contract for
sale of future goods.

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 8. Kaunda purchased a motor car from Kimbo and used the car for many months.
Kimbo had defective title. When the true owner surfaced, Kaunda had to return
the car to the true owner. Kaunda sued Kimbo to recover back the price which he had
already paid. It was held that Kaunda was entitled to recove the while of the price
paid by him despite the fact that he had used the car for some months.
9. A buyer asked the seller to supply feeding barley’which he required for feeding cons.
Neither the buyer disclosed this to the seller nor did the seller disclosed this to the
buyer. The barley so supplied was unfit for feeding cons. The buyer could not reject
the goods because these was no break of condition as the buyer had not disclosed the
particular purpose of buying of the buying the barley.
10. Awino person purchased a hot water bottle from a chemist. The hot water bottle is
generally used for applying heat to human body. While Anyango (Owino’s wife) was
using it, it burst and injured her. It was held that the seller impliedly knew the
purpose of the buyer and therefore these was a breach of implied condition, hence the
seller was liable to pay compensation to Owino.
11. Eliud wanted a car for lowering purpose. He asked the dealer who advised him to
purchase a “Toyota” Car. Later on Eliud found the car was not suitable for touring
purposes. Eliud now wants to return the car to the dealer. It was held that Eliud
could return the car. The reason being that although the car was purchased under a
trade name, Eliud still relied on the skill and judgement of the seller.
12. A agreed to sell to B Bags Maize Meal. A lodged these bags in an open track but did
not cover them. On the cause of transporting these bags, they were rained on so that
when they reached their destination , the were damaged by moisture so much that the
bags could not be sold. It was held that B was entitled to claim damages from A in
the ground that the goods were not of merchantable quality.
13. Where a computer is purchased and the purchaser also spends some money on its
repairs. Subsequently if it is found to be stolen and is returned over to its true owner,
it will be a breach of warranty of quiet possession and the buyer can recover not only
the original price but also the money spent on repairing the computer.
14. Kuria purchased a horse from Ben. Kuria required the horse for riding but he did not
mention this fact to Ben. Ben knows the horse is only suitable for being used for
pulling a cart. Kuria can neither reject the horse nor claim compensation from B.
15. The terms of the contract of sale of a motor-care provided for the payment of price by
monthly instalments. According to the contract, in case of default in paying and
instalment, the seller could take back the car and was not supposed to refund the
money already paid by the buyer. It was held that the parties intended the property in
the car would not pass until the price was paid.
16. Okelo agreed to sell to Omolo 2000 bags of cement not of a larger quantity lying in
Okelo’s store. The agreed price is to be paid on a fixed date under the contract.
Unless and until the required quantity of 2000 bags of cement is separated from the
larger quantity and the goods are thus ascertained, the property cannot pass from the
seller to the buyer.

ACTIVITIES

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 PARTNERSHIP
1. What is a partnership? Discuss its essential elements.
2. “The general concept of partnership still is that a firm is not an entity or persons
in law but is only an association of individuals”. Explain stating whether a firm
as such can enter into an agreement with another firm.
3. Discuss the effect of non-registration of partnership.
4. Discuss the implied authority of partners citing restrictions imposed on the
implied authority of a partner.
5. (i) Explain the position of a minor in a partnership.
(ii) Explain the type of partners in a partnership.
6. (i) Discuss the rights and liabilities of incoming and outgoing
partner.
(ii) When is a firm said to be reconstituted? Explain.

7. Explain circumstances under which a partnership may be dissolved.

SALES OF GOODS
1. Distinguish between Sales and Agreement to sale, sales and
hire-purchase, sale from gift.

2. Explain how a contract of sale is made.

3. In sales of goods what do you understand by the terms warranty and conditions?
4. Explain the rule of “correct emptor” and menodatquod non habet and discuss their
exceptions.
5. Explain when the property pass from seller to the buyer.
6. (i) Who is an unpaid seller of goods?
(ii) Discuss the rights of an unpaid seller and remedies available to buyer and
seller.

AGENCY
1. Discuss in details the ways in which the agency relation may be formed and
terminated.
2. Explain the effects and requisites of ratification.
3. Explain the extent of the agents authority and discuss the modes in which this
authority may be terminated.
4. Explain the duties and liability of an agent a genest the firm, other partners and
the third party.
5. Discuss the position of principal and agent with regard to their dealings with third
parties in the following cases:-
(i) Named or Disclosed principal
(ii) Unnamed principal
(iii) Undisclosed principal

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 CASES

PARTNERSHIP
1. Kamau, Otieno and Ismael agreed to purchase on joint account Owino’s estate,
each paying one-third interest in it, and to from a new firm to deal with the
property. In your opinion does this agreement constitute a partnership between
Kamau, Otieno and Ismael? Discuss.

2. Decide the following problems, giving reasons in each case.

(i) P, Q and D are partners in a trade. D without the knowledge of
P and Q obtained for his own benefit a lease of a house in which
partnership business is carried on. In your opinion are P and Q entitle to
participate in the benefit of the lease?
(ii) Daudi and Omolo are partners in business dealing in clothes.
Omolo starts a competing business with that of the firm (while still a
partner) in the same market. Advice Daudi on what to do? Will the

3. Auchiel and Ben are working in partnership as accountants. Kuria gives Auchiel
Ksh. 100,000 for investment in some good security. Auchiel hides this to co-
partner (Ben) and misappropriates the money. Kuria files a suit on the firm for
the recovery of his Ksh. 100,000. In your opinion, will he succeed? Give
reasons.

4. X and Y were carrying on a business, as partners. They admitted a minor(P) into

the partnership for profit only. P gave Ksh. 100,000 as credit to the firm on 16th,
July 1960, the date on which ‘T’ was still a minor. The firm was declared
insolvent on 16th July 1961. P filed a suit against the firm after one year. On the
same year ‘T’ also become major , however he has not given a notice to remain or
not to remain a partner. In your opinion is T liable with X and Y to P? Give
reasons.

SALES OF GOODS
1. An hotailier made a consolidated charge for residence, services and supply of
food. No rabate was allowed if food was not take. In your opinion does the
supply of food amount to sale. Discuss giving reasons for your judgement.

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 2. Daudi agrees to supply to Benson a certain quantity of timber of half-inch
thickness. The timber actually supplied varied in thickness from one-third inch to
five-eighth inch. The timber is merchantable and commercially fit for the purpose
for which it was ordered.
Benson rejects the timber. In your opinion is his action justified? Explain with
reference to sales of goods Act.

3. Paul contracted to purchase timber from oak tree which belongs to Kimani. Paul
marked out the selected parts of the tree. Kimani had to remove the rejected
portions from the tree according to the custom of the trade. However, before this
could be done, Kimani became bankrupt. Can Paul take away selected portion?
Explain.

4. Owino agreed to keep a cow after selling it to Maina who agreed to pay the
charges for the upkeep of the cow. The cow was moved from one part of the
stable to another. Was there delivery? Explain.

5. Tom sells to John 100 quintals of grain nut of a large quantity lying in his store.
John sells 60 quintals nut of those, the goods having not yet been ascertained to
Jack. Jack forwarded delivery order from John to Tom, who informs Jack that he
will send the grain in due course. John then becomes insolvent. Can Tom refuse
to deliver the 60 quintals of grain to Jack? Give reasons for your answer.

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