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BUSINESS LAW

FOR

ACCOUNTING TECHNICIANS SCHEME WEST AFRICA

(ATSWA)

STUDY PACK
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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

Copy (c) 2009 by Association of Accountancy bodies in West Africa (ABWA). No rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of the copyright owner. Including, but not limited to, in any network or other electronic storage or transaction or broadcast for distance learning.

Published by ABWA PUBLISHERS Akintola Williams House Plot 2048, Michael Okpara Street Off Olusegun Obasanjo Way Zone 7, P. O. Box 7726 Wuse District, Abuja, FCT Nigeria.

DISCLAIMER The book is published by ABWA, however, the views are entirely that of the writers.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

PREFACE INTRODUCTION
The Council of the Association of Accountancy Bodies in West Africa (ABWA) recognized the difficulty of students when preparing for the Accounting Technicians Scheme West Africa examinations. One of the major difficulties has been the nonavailability of study materials purposely written for the Scheme. Consequently, students relied on text books written in economic and socio-cultural environments quite different from the West African environment.

AIM OF THE STUDY PACK In view of the above, the quest for good study materials for the subjects of the examinations and the committee of the ABWA Council to bridge the gap in technical accounting training in West Africa led to the production of this Study Pack. The Study Pack assumes a minimum prior knowledge and every chapter reappraises basic methods and ideas in line with the syllabus.

READERSHIP The Study Pack is primarily intended to provide comprehensive study materials for students preparing to write the ATSWA examination.

Other beneficiaries of the Study Pack include candidates of other Professional Institutes, students of Universities and Polytechnics pursuing first degree and post graduate studies in Accounting, advanced degrees in Accounting as well as Professional Accountants who may use the Study Pack as reference materials.

APPROACH The Study Pack has been designed for independent study by students and as concepts have been developed methodically or as a text to be used in conjunction with tuition at schools and colleges. The Study Pack can effectively be used as course text and for revision. It is recommended that readers have their own copies.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

STRUCTURE OF THE STUDY PACK The layout of the chapters has been standardised so as to present information in a simple form that is easy to assimilate.

The Study Pack is organised into chapters. Each chapter deals with a particular area of the subject, starting with learning objective and a summary of sections contained therein.

The introduction also gives specific guidance to the reader based on the contents of the current syllabus and the current trends in examinations. The main body of the chapter is subdivided into sections to make for easy and coherent reading. However, in some chapters, the emphasis is on the principles or applications while others emphasise methods and procedures.

At the end of each chapter is found the following Summary Points to note (these are used for purpose of emphasis or clarification) Examination type questions and; Suggested answers

HOW TO USE THE STUDY PACK Students are advised to read the Study Pack and attempt the questions before checking the suggested answers.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. FOREWORD

The ABWA Council, in order to actualise its desire and ensure the success of students at the examinations of the Accounting Technicians Scheme West Africa (ATSWA), put in place a Harmonisation Committee, to among other things, facilitate the production of Study Packs for student. Hitherto, the major obstacle faced by students was the dearth of study text which they needed to prepare for the examinations. The Committee took up the challenge and commenced the task in earnest. To start off the process, the existing syllabus in use by some member Institute were harmonised and reviewed. Renowned professionals in private and public sectors, the academia, as well as eminent scholars who had previously written books on the relevant subjects and distinguished themselves in the profession, were commissioned to produce Study packs for the twelve subjects of the examination. A minimum of two Writers and a Reviewer were tasked with the preparation of a Study Pack for each subject. Their output was subjected to a comprehensive review by experienced imprimaturs. The Study Packs cover the following subjects: PART I 1. Basic Accounting Processes and Systems 2. Economics 3. Business Law 4. Communication Skills PART II 1. Principles and Practice of Financial Accounting 2. Public Sector Accounting 3. Quantitative Analysis 4. Information Technology PART III 1. Principles of Auditing 2. Cost Accounting 3. Preparing Tax Computation and Returns 4. Management Although, these Study packs have been specially designed to assist candidates preparing for the technicians examinations of ABWA, they should be used in conjunction with other materials listed in the bibliography and recommended text.
PRESIDENT, ABWA

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

ACKNOWLEDGMENTS
The ATSWA Harmonisation Committee, on the occasion of the publication of the first edition of the ATSWA Study Packs acknowledge the contributions of the following groups of people. The ABWA Council, for their inspiration which gave birth to the whole idea of having a West African Technicians programme. Their support and encouragement as well as financial support cannot be overemphasized. We are eternally grateful. To the Councils of Institute of Chartered Accountants of Nigeria (ICAN) and Institute of the Chartered Accountants of Ghana (ICAG), for their financial commitment and the release of staff at various points to work on the programme and for hosting the several meetings of the Committee, we say kudos. We are grateful to the following copyright holders for permission to use their intellectual properties: The Institute of Chartered Accountants of Nigeria (ICAN) for the use of the Institutes examination materials; International Federation of Accountants (ICAC) for the use of her various publications; International Accounting Standards Board (NASB) for the use of Statements of Accounting Standards (SASs) and Owners of Trademarks and Trade names referred to or mentioned in this study packs. We have made every efforts to obtain permission for use of intellectual materials

Lastly, but not the least, to the members of the Committee, we say well done.

Mrs. E. O. Adegite Chairperson ATSWA Harmonisation Committee

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. BUSINESS LAW

PAPER 3: AIMS:

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

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

STRUCTURE OF THE PAPER The paper will be a three-hour paper divided into two sections: Section A (50 Marks): This shall consist of 50 compulsory questions made up of 30 multiple-choice questions and 20 short answer questions covering the entire syllabus. Section B (50 Marks): Six questions, out of which, candidates are expected to answer any four, at 12 marks each. 1. The Legal System 15%

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(a) Sources of Law: Common law, equity and statutes of general application; Judicial Precedent, Legislation, Customary Law and International treaties. (b) The Court System: An outline of the structure and hierarchy of courts; Qualification of judges; composition and jurisdiction of the various courts. Special courts. (c) Forms of Legal Liability: Distinction between criminal and civil liability (d) Professional Ethics: Negligent misstatements 2. Law of Contract 20% Nature and essential elements of a valid contract: offer, acceptance, consideration, intention to create legal relations, capacity and consent. Conditions, warranties and exemption clauses. Illegal contracts and contracts in restraint of trade, vitiating factors. Discharge of contracts and remedies for breach of contract. Special Contracts 30%

3.

(a) Agency: Creation and types; authority of agents; rights and duties of principals and agents and termination of agency (b) Sales of Goods Meaning and Types of goods. Implied terms. The Caveat Emptor Doctrine. Transfer of title, passing of risk and the Nemo Dat Quod Non Habet rule. Breach of contract for sale of goods and remedies of the parties. (c) Hire Purchase and Equipment Leasing Meaning Formalities under the Common Law and the Hire Purchase Act. Implied and Void terms. Rights and Obligations of the parties. Termination. Operating and Finance Leasing. (d) Contract of Employment Nature and formation. Rights and Duties of the parties. Termination and Dismissal. Remedies for breach of contract. Redundancy. (e) Insurance: Meaning and Classification. Share capital. Meaning and features of the following concepts and principles insurable interest, premium, indemnity, utmost good faith, conditions and warranties, subrogation and contribution. 4. Law of Business Associations 20%

(a) Partnership viii

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Types and determination of existence. Authority of partners. Rights and duties of partners inter se. Partners and third parties. Dissolution of partnership. (a) Companies: Nature and functions of the Corporate Affairs Commission. Types of companies. Process of incorporation. Company securities (shares and debentures), directors, company meetings. Majority Rule and Minority protection. Winding-up or liquidation.

5.

(a) Others: Business Names, Incorporated Trustees and Unit trusts. Banking and Negotiable Instruments

15%

(a) The legal relationship between banker and customer and their respective duties. (b) Meaning and characteristics of Negotiable Instruments. Cheques and Promissory notes. Crossing of cheques. Holder, Holder for value and holder-in- due-course. Bills of exchange,

(c)

(d) Rights and Duties of the parties. RECOMMENDED TEXTS 1. 2. 3. ATSWA Study Pack on Business Law Obilade, A.O. The Nigerian Legal System, Spectrum Books. Company Law in Ghana, Methodist Book Depot, Bondzi-Simpson, P.E. Accra

OTHER REFERENCE BOOK Atiyah, P. S. Sales of Goods, Pitman, London

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. TABLE OF CONTENTS PREFACE .. iii FOREWORD ........ v ACKNOWLEDGMENT .......... vii

CHAPTER 1 1.0 1.1 1.2 1.2.1 1.2.2 1.3 1.3.1 1.3.2 1.3.3 1.4 1.4.1 1.4.2 1.5 1.5.1 1.5.2 1.6 1.6.2 1.7 1.8 CHAPTER 2 2.0 2.1 2.2 2.3 2.3.1 2.3.2 2.3.3 2.4 2.4.1 2.4.2 2.4.3 2.5 2.5.1 2.5.2 2.6 2.6.1 2.6.2 2.7 2.7.1

SOURCES OF LAW Learning Objectives ......... 19 Introduction ......... 19 Law and its Sources.......... 19 Meaning of Law............19 Sources of Laws............19 The Common Law ........... 20 Meaning Of Common Law........... 20 Nature and Development of The Common Law ......... 20 Meaning, Nature and Development of Equity.............. 20 Customary Law........ 21 The Meaning and Development of Customary Law.........21 Examples of Customary Law........21 Legislation.........22 Sources of Legislation.......... 22 Interpretation of Statutes.......... 23 Case Law, Precedent and Law Reporting.................... 25 Law Reporting.......... 26 Summary and Conclusion........ 26 Revision Questions....... 26 THE COURTS SYSTEM Learning Objectives......... 27 Introduction...... 27 The Courts- Hierarchy and Structure......... 27 The Superior Courts......... 27 The Supreme Court.......... 27 The Court Of Appeal........ 28 The High Court and others of coordinate jurisdiction.......29 The Inferior Courts........... 30 The Circuit Court 30 The District Court 30 Other Lower Courts. 30 Important Judicial Processes 30 Writ of Summons. 30 Writ of Execution 30 Criminal and Civil Liability.. 31 Criminal Liability 31 Civil Liability. 31 Basic Tortious Liability. 32 Defamation.. 32 x

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 2.7.2 2.7.3 2.8 2.9 Negligent Misstatements. Passing Off.. Summary and Conclusion. Revision Questions.... LAW OF CONTRACT 1 Learning Objectives.. Introduction... Definition and Elements of Contract Definition of Contract.. The Elements of Contract. Offer and Acceptance.... Offer... Invitation to Treat.... Acceptance.. Consideration... Definition.... Types... General Rules.. Modifications.. Intention to Create Legal Relations...... Domestic and Social Agreements.... Commercial Agreements..... Capacity..... Summary and Conclusion..... Revision Questions.... 32 33 33 33

CHAPTER 3 3.0 3.1 3.2 3.2.1 3.2.2 3.3 3.3.1 3.3.2 3.3.3 3.4 3.4.1 3.4.2 3.4.3 3.4.4 3.5 3.5.1 3.5.2 3.6 3.7 3.8 CHAPTER 4 4.0 4.1 4.1.1 4.1.2 4.2 4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.2.6 4.3 4.4 CHAPTER 5 5.0 5.1 5.2

35 35 35 35 35 36 36 36 38 38 38 39 39 40 41 41 42 43 45 45

LAW OF CONTRACT II Learning Objectives.......... 47 Form and Contents of a Contract.............. 47 Form of a Contract.......... 47 Contents (or terms) of a Contract.............. 48 Vitiating Elements of Contract............. 52 Mistake......... 53 Misrepresentation........ 55 Duress......... 57 Undue Influence......... 57 Illegality......... 58 Termination or discharge of Contract.......... 62 Summary and Conclusions ......... 66 Revision Questions ....... 67

- AGENCY - Learning Objectives................. 69 - Introduction.......... 69 - Definition and Types......... 69 xi

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 5.2.1 5.2.2 5.3 5.3.1 5.3.2 5.4 5.4.1 5.4.2 5.5 5.6 5.6.1 5.6.2 5.7 5.7.1 5.7.2 5.7.3 5.8 5.8.1 5.8.2 5.9 5.10 Definition of Agency.......... 69 Types of Agency......... 70 Creation of Agency 1- Consent......... 71 Express Agency.......... 71 Implied Agency.......... 71 Creation of Agency 11- Operation of Law............ 73 Agency of Necessity......... 73 Agency of Cohabitation....... 73 Creation of Agency 111- Ratification........ 74 Obligations of Agency......... 74 The Duties of the Agent....... 74 The Duties of the principal and the rights of the principal and the agent The Effects of Agency....... 75 Where the agent contracts as an agent for a named principal... 75 Where the agent contracts for an unnamed principal........ 76 Where the agent contracts for an undisclosed principal....... 76 Termination of Agency...... 77 Act of the Parties...... 77 Operation of Law. 77 Summary and Conclusions 77 Revision Questions. 78

CHAPTER 6 6.0 6.1 6.2 6.3 6.3.1 6.3.2 6.3.3 6.3.4 6.4 6.4.1 6.4.2 6.4.3 6.4.4 6.5 6.5.1 6.6 6.6.1 6.6.2

SALES OF GOODS Introduction... 79 Classification of Goods..... 80 Form of the Contract..... 82 The terms of the contract of sale of goods.....83 Title.. 84 Description.. 85 Merchantable Quality.......... 86 Sales by sample........ 88 Other Terms....... 88 Implied terms as to time....... 89 Implied terms as to price........ 89 Transfer of property between seller and buyer...... 89 Passing of Risk...... 92 Transfer of a title by a Non-owner....... 95 The exceptions......... 95 Breach of Sale of Goods Contract and the Remedies of the Parties - Buyers' Rights........98 - Sellers' Rights........ 99

CHAPTER 7 - HIRE PURCHASE xii

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 7.0 7.1 7.1.1 7.1.2 7.2 7.2.1 7.3 7.3.1 7.3.2 7.4 7.4.1 7.4.2 7.4.3 7.4.4 7.5 7.5.1 7.5.2 7.5.3 7.5.4 7.6 7.7 Introduction............... 103 Definition of Hire Purchase....... 103 A Credit Sale Agreement........ 104 A Conditional Sale Agreement......... 104 Obligations of the Parties to a Hire Purchase........... 104 Reasons for the adoption of the Hire Purchase System..105 Obligations and Rights of the Parties........ 106 Obligations of the Parties at Common Law...106 Rights of the Parties at Common Law...108 The Hire-Purchase Act 1965......108 The Purpose of the Act..108 The Contents of the Act.............109 Effect of Non-compliance............................. 110 Void Provisions.... 110 Obligations and Rights of the Parties under the Hire Purchase Act Implied Terms Under the Hire Purchase Act............ 111 Exclusion of the Terms Implied by the Act........... 112 Hirer's right to terminate agreement.............. 112 Recovery of Goods................ 113 Summary and Conclusions .................. 125 Revision Questions .................... 126

CHAPTER 8 8.0 8.1 8.2 8.2.1 8.2.2 8.2.3 8.3 8.3.1 8.3.2 8.4 8.4.1 8.4.2 8.5 8.6 8.6.1 8.6.2 8.6.3 8.7 8.8 8.9

CONTRACT OF EMPLOYMENT Learning Objectives..... 117 Introduction..... 117 The Nature and formation of the Contract of Employment...118 Formation of the Contract of Employment...... 118 Approaches to determining the nature of the Contract of Employment Incidents of the Contract of Service and Contract for Service.. 119 The Rights of the Employer and the Worker......... 120 The Rights of the Employer......120 The Rights of the Worker..... 120 The Duties of the Employer and the Worker.... 120 Duties of the Employer.. 120 Duties of the Worker....... 122 Contracts in Restraint of trade..... 122 Termination of Employment.... 123 General grounds for termination..... 123 Fair termination...... 123 Unfair termination ..... 124 Redundancy ........... 124 Remedies . ........... 125 Summary and Conclusions ............. ........... 125 xiii

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 8.10 Revision Questions ............ 126

CHAPTER 9 9.0 9.1 9.2 9.2.1 9.2.2 9.3 9.3.1 9.3.2 9.3.3 9.3.4 9.3.5 9.3.6 9.3.7 9.3.8 9.4 9.4.1 9.4.2 9.4.3 9.5 9.6 9.7

LAW OF INSURANCE Learning Objectives . 127 Introduction 127 Formation of Contract of Insurance 128 Temporary Cover. 131 Insurable Interest.. 131 Types of Policy 132 Life Insurance 132 Personal Accident Insurance.. 133 Fire Insurance 133 Liability Insurance. 133 Motor Vehicle Insurance. 133 Marine Insurance.. 134 Burglary Insurance... 134 All Risks Insurance.. 134 The Concepts of Indemnity and Subrogation 134 Indemnity 134 Subrogation. 135 Contribution 135 Re-insurance. 136 Summary and Conclusions 136 Revision Questions 137 - LAW OF BUSINESS ASSOCIATIONS 1- COMPANIES Learning Objectives 139 Introduction. 139 Definition and Types of Companies.. 139 Definition 139 Types of Companies 140 Incorporation and Effects. 140 Promoters.. 140 Pre- Incorporation Contracts. 140 Registration 141 Effects of Incorporation 141 General Principles.. 142 Regulation of the Company... 142 The Ultra vires principle 143 Lifting the Corporate veil.. 144 Company Securities.......... 146 Shares... 146 Debentures.... 147 The Securities and Exchange Commission.... 148 Notices, Meetings and Resolutions 149 xiv

CHAPTER 10 10.0 10.1 10.2 10.2.1 10.2.2 10.3 10.3.1 10.3.2 10.3.3 10.3.4 10.4 10.4.1 10.4.2 10.4.3 10.5 10.5.1 10.5.2 10.6 10.7 -

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 10.7.1 10.7.2 10.7.3 10.8 10.8.1 10.8.2 10.9 10.10 Notices...... 149 Meetings... 149 Resolutions... 150 Liquidation...... 150 Private liquidation.... 150 Official liquidation............151 Summary and Conclusion.......... 152 Revision Questions............. 153 - PARTNERSHIPS Introduction Learning Objectives............... 155 Types of Partnership................. 155 General/Limited Partnership.............155 Features of Limited Partnership........... 156 Dormant or Sleeping Partner............ 156 Partner by Estoppel........... 156 Formation of Partnership......... 156 Determining the Existence of Partnership............ 157 Joint Tenancy and Tenancy in Common...... 157 The Sharing of Gross Returns...... 158 Receipt of a Share of the Profits....... 159 Examples of Relationships where Persons carry on Business but Are not Partners ...................................................................... 159 Legality of Partnerships........ 160 Relationship between Partners......160 Remedy for Breach of Partnership Agreement.....162 Relations of Partners and Third Parties............ 162 Partners' Powers........162 Extent of Power.... 162 Partner's Liabilities....... 163 Dissolution of Partnership........ 165 On Application by Partner the Court may decree Dissolution..... 165 The Effect of a Dissolution....... 166 Application of Partnership Property on Dissolution.........166 Summary and Conclusions ...... 167 Revision Questions ...... 167

CHAPTER 11 11.0 11.1 11.1.1 11.1.2 11.1.3 11.1.4 11.2.0 11.3.0 11.3.1 11.3.2 11.3.3 11.4.0 11.4.1 11.4.2 11.4.3 11.5.0 11.5.1 11.5.2 11.5.3 11.6.0 11.6.1 11.6.2 11.6.3 11.7 11.8 -

CHAPTER 12 12.0 12.1 12.2 12.2.1 12.2.2 12.2.3 12.2.4 -

- NEGOTIABLE INSTRUMENTS AND BANKING Learning Objectives............. 169 Introduction................. 169 Meaning, Types and Characteristics of Negotiable Instruments Negotiable Instruments................ 169 Promissory Notes..................170 Certificates of Deposit.................. 170 Bill of Exchange....................170 xv

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 12.2.5 12.2.6 12.2.7 12.2.8 12.3 12.3.1 12.3.2 12.3.3 12.4 12.4.1 12.4.2 12.4.3 12.5 12.6 12.7 Cheques................ 170 Negotiability................. 171 Order Paper and Bearer Paper.................. 171 Endorsement................. 171 Rights and Duties of Parties to a Bill of Exchange...................... 172 Holders..................172 Dishonour................. 172 Discharge.............. 173 Rights and Duties Bankers and Customers................. 173 Banking............. 173 Relationship of Banker and Customer.............. 174 Termination of Duty to pay.............. 174 Unit Trusts................ 175 Summary and Conclusion............ 175 Revision Questions........... 176

APPENDIX

........177

APPENDIX II ...........195 SAMPLE QUESTION 2 ...........197 SAMPLE II ........205 ........209

BIBLIOGRAPHY

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

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N Nash v Inman [1908] 2 K B 1 O Orthodox School of Peki v Tawlma Abels [1974] GLR 421 P Partridge v Crittenden [1968] WLR 204 Payne v Cave (1789) 3 Term Rep. 148 Pharmaceutical Society v Boots Cash Chemists Ltd [1953] QB 40 Pinnel's case (1602) 5 Co Rep 117 Pioneer Construction Products Ltd v Faddool [1974] 1 GLR 76 R Rose and Frank Co. v Crompton Brothers [1925] AC 445 HL S Salomon v Salomon [1897] AC 22 Spencer v Harding (1870) L.R.5.C.P. 561

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CHAPTER 1
SOURCES OF LAW 1.0 LEARNING OBJECTIVES Upon completion of this chapter, readers should be able to: Define law. Explain the purpose of law. identify the laws of Ghana as Ghanaian candidates and the laws of Nigeria as Nigerian candidates discuss the scope of each of the laws of Ghana and Nigeria mention and explain the forms of legislation in Ghana and Nigeria differentiate the approaches to legal interpretation

1.1

INTRODUCTION Legal issues confront us all the time. Some legal knowledge is therefore important for everybody. Laws ensure orderliness in society and every human activity is regulated by law. To be very functional persons we need to appreciate the laws that regulate the various activities we are engaged in. The purpose of this chapter is to explain what the law is and its role in society. The chapter is also to identify all the laws of Ghana and Nigeria and where they are derived from. To avoid chaos and ensure orderliness every human grouping must have rules and regulations that guide behaviour. The development of the law and how the laws are applied are also discussed. Finally the chapter examines the various ways by which the laws are interpreted to give meaning to them.

1.2

LAW AND ITS SOURCES 1.2.1 Meaning of Law The primary area of interest is the law and where it is derived from. It is important to know that the law basically is the rules and regulations by which a society is governed. All human behaviour is shaped in one way or the other by various laws. People may not voluntarily want to meet the 1

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. expectations of the law. However they may conform because of the realisation that failure to do so will attract sanctions.

1.2.2

Sources of Laws These laws may originate from several sources. Article 11 of the

Constitution of the Republic of Ghana, 1992 enumerates the laws of Ghana. Article 11. (1) States: The laws of Ghana shall comprise - (a) this Constitution; (b) enactments made by or under the authority of the Parliament established by this

Constitution; (c) any Orders, Rules and Regulations made by any person or authority under a power conferred by this Constitution; (d) the existing law; and (e) the common law.'

1.3

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

1.3.2

Nature and development of the common law The rules of common law are the body of laws which were developed in England in the 12th Century. They emerged out of the mass of customary law of the English. After the Norman Conquest, a body of important and powerful men known as the Curia Regis (Kings Council) assisted the Norman Kings to rule. They performed many functions. It eventually led to the development of courts to hear cases of a particular kind. By the 13th 2

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Century these courts became known as the Courts of Common Law and they sat at Westminster. As they went to all parts of the country they were confronted with different local customs. Through sifting, certain customs were ultimately selected and applied in all similar future cases. It is out of this that the common law of England emerged. The common law later developed a rigid system which made it difficult to obtain justice from the courts.

1.3.3

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

1.4

CUSTOMARY LAW

1.4.1 The Meaning and development of customary law Customary law means the rules of law which by custom are applicable to particular communities in Ghana and Nigeria. They are therefore the customs accepted by 3

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. members of a particular community as binding upon them. The Constitution, however, prohibits all customary practices which dehumanize or are injurious to the physical and mental well-being of a person.

Under the Supreme Court Ordinance of 1876, customary laws were applied and enforced if they were not repugnant to natural justice, equity and good conscience. Under the High Court (Civil Procedure) Rules, 1954, the content and existence of customary law was regarded by the court as question of fact in much the same way as English courts treat foreign laws as facts. A further indication of the direction of development of customary law is stated in Angu v Atta (1916) PC '24-28, 43 thus: As is the case of all customary law, it has to be proved in the first instance by calling witnesses acquainted with the native customs until the particular customs have, by frequent proof in the Courts, become so notorious that the Courts take judicial notice of them. The situation in Ghana is almost the same in Nigeria. Customary Law is one of the sources of Nigerian Law. Under the received clause, Customary laws and practices that are repugnant to natural justice and good conscience are not recognised as part of the Nigerian legal system.

1.4.2 Examples of customary law Customary law continues to be the major law that regulates matters relating to chieftaincy, family relationships and property rights. Customary rules and

practices regulate the institution of chieftaincy in terms of enstoolment or enskinment, operation and removal. Acquisition of rights in land especially family or stool ones is also based on customary practices. The whole spectrum of family relationships covering marriage, birth, adultery, divorce, death, succession and inheritance among others are mainly on customary law. Generally there is

patrilineal and matrilineal inheritance and succession and different communities are regulated by one or the other. There are also a variety of customary practices that regulate various economic activities in different communities. There is,

therefore, a multiplicity of customary laws. Due to the impact of political and 4

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. socio-economic changes in society existing customary laws are increasingly ceasing to be applied in their traditional forms.

In Nigeria, the 1999 Constitution recognises the supremacy of the constitution, and also the principle of federalism which devolves power between the Federal Government and the federating 36 States and the Federal Capital Territory, Abuja.

1.5

LEGISLATION

1.5.1 Sources of legislation Legislation is law passed by Parliament in the form of Acts of Parliament or Statutes. Legislation may also be exemplified by the Constitution, Acts, Decrees, Edicts and Subsidiary legislation.

A body usually set up to draft a constitution for a country is known as a Constituent Assembly. The body that was formed to draw up the 1992 Constitution was called the Consultative Assembly. The Constitution is the highest and

fundamental law of any country. The 1992 Constitution is therefore the supreme law of Ghana and as indicated in Article 1(2) of the Constitution any law that is inconsistent with any provision of the Constitution is to the extent of the inconsistency void. This is also applicable n Nigeria. Sect of 1999 Constitution marks the constitution as the grand norm. The Constitution determines the kind of government suitable for the country and in the preamble identifies it as that ensuring liberty, equality of opportunity and prosperity. Other principles are

universal adult suffrage, the rule of law and the protection and preservation of fundamental human rights and freedoms. Article 4(1) of the 1992 Constitution shows Ghana as a sovereign state which is a unitary republic. Under Article 3(1) of the Constitution, Parliament has no power to pass a law to make Ghana a one-party state. The Constitution regulates many aspects of the country. It creates and defines the scope and powers of the three organs of state namely the Executive, the Legislature and the Judiciary. It also touches on citizenship, fundamental human

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. rights, chieftaincy and the code of conduct for Public Officers among others. This provision is also applicable to Nigeria.

Statutes cover a very broad scope.

They may be received English Statutes,

colonial ordinances, Acts of Parliament and Decrees made under military regimes. It is important to note that some statutes of England apply in Ghana as statutes of general application by virtue of S 119 of the Courts Act, 1993 (Act 459). They are however subject to the statutes of Ghana and so where there is a conflict the laws of Ghana will prevail. Laws passed by military governments are known as

Decrees. They constitute an important part of the existing written laws. The National Liberation Council Decrees, (NLCDs) National Redemption Council Decrees, (NRCDs) the Supreme Military Council Decrees (SMCDs), The Armed Forces Revolutionary Council Decrees (AFRCDs) and the Provisional National Defence Council Laws (PNDCLs) are still part of our statutes. In Nigeria, the 1st day of January 1900 is the bench mark. Any law that was in force as at 1st January 1900 is a statute of General Application.

Since the coming into force of the Constitution, 1992 many Acts of Parliament have been passed. These are the enactments made by or under the authority of the Parliament established by the Constitution. Their numbers are growing by the day and it is expected that the dire need for law reforms in many areas will continue to increase their scope.

Finally there are the body of laws referred to as delegated or subsidiary legislation. These are Orders, Rules and Regulations made by any person or authority under a power conferred by the Constitution or any other law. Parliament confers this power by an Act of Parliament. They may come by way of constitutional

instruments, executive instruments or legislative instruments. They are subsidiary laws because they are subject to being published in the Gazette and also being laid before Parliament before they come into effect.

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Legislation constitutes today the most widespread of the laws and will continue to be so because the law has to respond to changes taking place in society and therefore the necessary laws will have to be passed to meet that need. In addition the need to keep the law effective and up to date will call for reforms and new legislations.

Edicts are proclamations of laws made. Historically, they could be royal pronouncements from the King or the Queen or commands from the Chiefs and their council of elders.

The situation in Ghana is almost the same with that of Nigeria, except for the federal constitution operating in Nigeria while Ghana has a unitary constitution. In Nigeria, the military Decrees are now part of the Laws of the federation, with each codified as an Act of the Parliament; while military Edicts at the State level are being referred to as the Laws of the various component States.

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

Acts usually have an interpretation section which contains definitions of certain key words used in that Act. These are of immense help to not only judges but all who require the understanding of such Acts. In Ghana, the Interpretation Act, 1960(CA 4) is the major guide to statutory interpretation. It lays down certain basic rules of interpretation for all Acts. The internal aids include the long title of 7

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. the Act and its preamble. Headings, side notes and punctuation may also be looked at to bring out the meaning of ambiguous words. There is also the use of extrinsic material. These are the sources of information about a legislation apart from the Act itself. There was a severe restriction on their use but this is now relaxed. Reference may be made to international conventions and treaties which form the basis of the legislation, reports to the Law Reform Commission and the Hansard.

The Literal rule, is for giving words their ordinary and plain meaning if they are clear and unambiguous. Under this rule it is argued that even if the interpretation produces an absurd or perverse decision it was up to Parliament to put matters right and not judges.

Under the Golden rule the judge adopts the interpretation which produces the least absurd result. This is adopted especially where the words of a statute are

capable of two or more meanings. It is even argued that it can be resorted to where the words have only one meaning but a literal interpretation would lead to an absurdity.

The Mischief rule is based on looking at what mischief or defect in the common law the Act was passed to remedy and do the interpretation on that basis. It is associated with the modern purposive approach to interpretation on that basis. It is associated with the modern purposive approach to interpretation where the construction which will promote the aims and purposes underlying the provision is what is adopted by the judge. Under the Ejusdem generis rule where general words follow particular words the general words should be construed as meaning persons or things of the same class or genus. For example if the Act referred to 'lions, tigers and other animals', the general words 'other animals', should be interpreted in terms of the particular words, lions, tigers to mean other kinds of wild animals and not domesticated animals.

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. The expressio unius est exclusio alterius rule means that the express mention of one or more things implies the exclusion of others. For example if the Act simply mentioned 'lions and tigers' other kinds of wild animals are excluded.

The Noscitur a sociis rule is where the meaning of a word is derived from the context in which it is found.

All these collectively facilitate statutory interpretation and thereby make for the understanding of the Acts.

1.6

CASE LAW, PRECEDENT AND LAW REPORTING

1.6.1 Case law and Precedent Decisions of judges constitute a large part of the laws. The existing unwritten law is the decisions of the Superior Courts of Ghana. The doctrine of stare decisis et non quieta movere is followed both in Ghana and Nigeria. It simply means stand by past decisions and do not disturb things at rest. This is also known as the doctrine of binding judicial precedent. The principle is that a courts decision based on a particular set of circumstances is binding on other courts in later cases n situations where the relevant facts are the same or similar. In simple terms it means judges make use of previously decided cases. This is however within certain limits since it is linked with the succession of Courts. Courts are bound by the decisions of courts superior in the judicial hierarchy. This however is not applicable to inferior courts since higher inferior courts do not bind lower inferior courts. The High Courts and Regional Tribunals are not bound by their own decisions but their decisions bind all lower courts. The Court of Appeal is bound by its own previous decisions which also bind all Courts lower than it. The decisions of the Supreme Court bind all other courts. All those constitute authoritative precedent which is generally binding and must be followed. The Courts of Ghana also respect the decisions of the Superior Courts of other common law jurisdictions. They may be referred to and relied upon but only of persuasive authority. Judicial precedent brings out rules of law which help to ensure 9

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. uniformity, consistency and certainty. This is also applicable in the Nigerian judicial system

1.6.2 Law Reporting The most meaningful way of showing the application of the doctrine of judicial precedent is the reporting of such cases. The reporting of a series of cases on a matter or issue will help to illustrate the relevant rule of law running through it. Precedents have to be reported and available. Law Reports are the repository of the precedents. In Ghana the Council for Law Reporting has the responsibility for the preparation and publication of the Ghana Law Reports which contain the judgments, rulings and opinions of the Superior Courts of the country. The

Council for Law Reporting also publishes the Review of Ghana Law which is made up of legal articles, opinions, critiques and general expositions on various aspects of the Law.

In Nigeria, there are different Law Reports, which also contain judgements of the superior courts. These include the Supreme Court Law Report, Nigerian weekly Law Report, Nigerian Monthly Law Report etc.

1.7

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

1.8

REVISION QUESTIONS 1. 2. 3. 4. 5. Explain what you understand by law. What purpose do laws serve? Make a list of the laws of Ghana / Nigeria. Discuss the scope of the common law. Explain what you understand by equity. 10

NOTE:

6. 7. 8. 9. 10.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. What is customary law and what is its scope today? Make a list of the various sources of legislation. Describe three common approaches to the interpretation of statutes. What do you understand by judicial precedent? Describe the scope and purpose of law reporting.

MULTIPLE CHOICE QUESTIONS 1. Which of these statements is true on the meaning of Customary Law? A. Customary Law is used as an instrument by the rulers to fix the power sector. The Customary Law is not required to pass validity test because it is derived from the culture and customs of the people. Customary Law deals with customs accepted by members of a particular community as binding upon them Customary Law is a written law. Customary law is rigid and not flexible.

B.

C.

D. E. 2.

Which of these statements is true? A. The rules of English Common Law are the body of laws which were developed in England in the 12th century. The rules of English Common Law and the doctrine of Equity have their origin in African Customary Law. The English Common Law is not rigid but finds its adaptation in our legal system very cumbersome. The Status of General Application is a law only applicable to England. The English Common Law is a written Law.

B.

C.

D. E. 3.

Which of these statements is true concerning the literal rule? A. B. C. It is very absurd. It is a rule manufactured by the judges for the courts convenience. It is for giving words their ordinary meaning. 11

NOTE:

D. E. 4.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. It is a rule that developed from long usage of cannon of interpretation by the lawyers. It is a rule developed from the Customary Law usage and practice.

The doctrine of stare decisions is basically on A. Decision of customary court. B. The decision of superior court as binding on the lower courts. C. Decision of the Chancery court. D. Decisions only emanating from tribunal. E. Decision of a Chief Judge of a State. The Supreme Court of Nigeria is composed of how many justices ? A. 22 B. 21 C. 23 D. 26 E. 19

5.

SHORT ANSWER QUESTIONS 1. Common Law has its origin in. 2. The Doctrine of Equity emanated from 3. The bench mark for the statute of General application as one of the sources of Nigerian Law is . 4. The concept of stare decisis in the Nigerian Legal system means 5. The appointment of a justice to the Supreme Court in Nigeria requires

12

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CHAPTER TWO THE COURTS SYSTEM

2.0

LEARNING OBJECTIVES Upon completion of this chapter, readers should be able to: explain the role of courts in the administration of justice identify the two broad groups of Courts and list the courts under them explain the composition of each of the courts discuss the scope of the jurisdiction of each of the courts explain the process of initiating and enforcing an action distinguish between criminal and civil liabilities explain defamation, misstatement and passing off

2.1

INTRODUCTION The courts are the major places for conflict resolution and the interpretation of laws. Courts are institutions designed for settling disputes. They are concerned with the administration of justice. The processes within these courts and the ease or difficulty with which justice may be obtained all have a strong impact on business.

2.2

THE COURTS HIERARCHY AND STRUCTURE The Courts for a long time have been divided into two main groups namely the Superior Courts of Judicature and the inferior or lower courts. The Superior Courts of Judicature consist of the Supreme Court, the Court of Appeal and the High Court or Regional Tribunal. The inferior courts are made up of the Magistrate Courts (Nigeria), Circuit Court, the District Court, the Juvenile Court, the National House of Chiefs, the Regional House of Chiefs and every Traditional Council in respect of the jurisdiction of any such House or Council to adjudicate over any cause or matter affecting chieftaincy (all in Ghana); Customary/Area Courts (Nigeria); and such other lower courts as Parliament may by law establish. 13

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. THE SUPERIOR COURTS 2.3.1 The Supreme Court The Supreme Court is the highest court of the land. It consists of the Chief Justice as the head, and not less than nine (not more than 21 in Nigeria) other Justices of the Supreme Court. In both Ghana and Nigeria, the

2.3

Supreme Court is duly constituted(quorum) for its work by not less than five Justices of the Supreme Court and for the purpose of reviewing its own decision by not less than seven Justices of the Court. The qualification for appointment as a Justice of the Supreme Court is high moral character, proven integrity and not less than fifteen years standing as a qualified legal practitioner. The Supreme Court in Nigeria has the same status with the Supreme Court of Ghana in terms of composition, powers and requirement for appointment. The Supreme Court in Nigeria is created under S. 230 of the 1999 Constitution of the Federal Republic, as amended. S.232 gives

original jurisdiction to the Supreme Court in any matter between the Federal Government and the States, or between any two or more States, or the National Assembly and the Federation, or State Houses of Assembly and the Federation. The Supreme Court has original, appellate, supervisory, review and special jurisdiction. The Supreme Court has exclusive original jurisdiction in all matters relating to the enforcement or interpretation of the Constitution and all matters arising as to whether an enactment was made in excess of the powers conferred on Parliament or any other authority or person by l aw or under the Constitution. However, by S.233 of the Constitution, the Supreme Court shall not have original jurisdiction in respect of criminal matters.

The Supreme Court is the final appellate court. In Ghana, the Supreme Court shall have appellate jurisdiction to the exclusion of the Court of 14

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Appeal to determine matters relating to the conviction or otherwise of a person for high treason or treason by the High Court. An appeal from a decision of the Judicial Committee of the National House of Chiefs shall lie to the Supreme Court with the leave of that Judicial Committee or the Supreme Court.

The Supreme Court has supervisory jurisdiction over all courts and over any adjudicating authority and may in the exercise of that supervisory jurisdiction, issue orders and directions including orders in the nature of habeas corpus, certiorari, mandamus, prohibition and quo warranto for the purpose of enforcing or securing the enforcement of its supervisory power. The Supreme Court may also review any decision made or given by it. The Supreme Court has special jurisdiction which it exercises in three ways. It has the exclusive jurisdiction to determine whether an official document should not be produced in Court because its contents will be prejudicial to the security of the state or will be injurious to the public interest. In Ghana, the Supreme Court has the jurisdiction to entertain a petition challenging the validity of the election of a person as President of Ghana. It also has the jurisdiction for the removal of the President on stated grounds. In both countries, only the Supreme Court can entertain appeals from the Court of Appeal.

2.3.2

The Court of Appeal The Court of Appeal is the next most senior court to the Supreme Court. In Ghana, it has only appellate jurisdiction and no original jurisdiction; and consists of the Chief Justice and not less than ten Justices of the Court of Appeal. The Chief Justice is however empowered to request other Judges of the Superior Courts of Judicature to sit in the Court of Appeal to hear and determine a particular cause or matter. The Court of Appeal is duly

15

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. constituted by any three of its Judges and when so constituted the most senior of the Judges presides.

In Nigeria however, the Court of Appeal is presided over by the President of the Court of Appeal; and in addition to being an appellate court, by virtue of S, 239 of the 1999 Constitution, has original jurisdiction to hear and determine any question as to whether any person has been validly elected into the office of the President or Vice President; or whether their terms of office have ceased, or their office have become vacant.

The qualification for appointment to the Court of Appeal is high moral character, proven integrity and not less than twelve years standing as a lawyer. A single Judge of the Court of Appeal is empowered to sit alone to deal with applications to the Court which do not involve the decision of a cause or matter before the Court of Appeal.

2.3.3 The High Court and others of Co-ordinate jurisdiction In Ghana, the High Court is made up of the Chief Justice and not less than twenty Justices of the High Court and such other Justices of the Superior Court of Judicature as the Chief Justice may by writing signed by him request to sit as High Court Justices. In Nigeria, the High Court is known as the State High Court, created under S.270 of the 1999 Constitution, headed by a Chief Judge, consisting of as many Judges as there are Courts. The State High Courts have unlimited jurisdiction in both civil and criminal matters. The High Court has jurisdiction in all matters and in particular in civil and criminal matters and such original, appellate and other jurisdiction conferred on it by the Constitution or any other law. In addition the High Court has jurisdiction to enforce the fundamental human rights and freedoms guaranteed by the Constitution. The High Court has appellate jurisdiction in the judgment of the Circuit Court in the trial of a criminal case. It also has appellate jurisdiction in any 16

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. judgment of a District Court or Juvenile Court. The High Court has supervisory jurisdiction over all lower courts and any lower adjudicating body and may issue orders and directions including orders in the nature of habeas corpus, certiorari, mandamus, prohibition and quo warranto for the purpose of enforcing or securing the enforcement of its supervisory powers.

2.3.4 Federal High Court S.251 of the Constitution provides for the creation of the Federal High Court with jurisdiction to entertain matters relating to the revenue of Government, taxation, customs and excise, banking, banks and other financial institutions, Companies and Allied Matters, aviation, arms, drugs and poison, explosives, diplomatic and consular matters etc. jurisdictions. The Federal High Court has both civil and criminal

2.3.5. Regional Tribunal This is applicable only in Ghana. Each region in Ghana is expected to have a Regional Tribunal established in it. A Regional Tribunal consists of the Chief Justice, one Chairman and such members who may not be lawyers as shall be

designated by the Chief Justice to sit as panel members. A Regional Tribunal shall have concurrent original jurisdiction with the High Court in all criminal matters and shall in particular try the special offences of causing loss, damage or injury to public property; import of explosives and using public office for profit. In addition, it tries offences arising under Customs, Excise and Preventive Services Management Law, Income Tax Decree Narcotic Drugs (Control, Enforcement and Sanctions) Law and any other offence involving serious economic fraud and loss of state funds or property. A Regional Tribunal shall have appellate jurisdiction to hear and determine appeals from the judgment or order of a Circuit Court or District Court in any criminal trial.

17

NOTE:

2.4

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. THE INFERIOR COURTS

2.4.1 The Circuit Court In Ghana, the civil jurisdiction of a Circuit Court consists of original jurisdiction in civil matters in personal actions arising under contract or tort where the amount involved is not more than100 million cedis. It includes cases or matters involving the ownership, possession and occupation or title to land. The Circuit Court may

grant injunctions or orders in any action to stay waste or alienation or for the detention or preservation of any property which is the subject matter of that action or restrain breaches of contract or the commission of any tort. There is jurisdiction for the Circuit Court in claims for relief by way of inter pleader for land or property attached by order of a Circuit Court.

There is no equivalent of Circuit Court in Nigeria. 2.4.2 The District / Magistrate Courts In Ghana, the District Court has jurisdiction in virtually all the areas identified for the Circuit Courts with the exception that the value must not exceed 50 million cedis. In Nigeria, the Magistrate Courts are the equivalent of the District Court in Ghana; they are not mentioned in the Constitution, but are the creation of various states and governed by the various States Magistrate Courts Laws. Magistrate Courts, like the High Courts, have jurisdiction in civil and criminal matters in most southern states. They also administer both common law and equity, with powers to grant virtually all legal and equitable remedies, up to certain prescribed limits specified by the law setting them up in each instance. In addition, both the Magistrate and District Courts act as Juvenile Court by hearing and determining matters affecting juveniles and also function as family tribunal.

2.4.3 Other lower Courts In Ghana, these include the National House of Chiefs, the Regional Houses of Chiefs and every Traditional Council in respect of the jurisdiction of any such 18

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. House or Council to adjudicate over any cause or matter affecting chieftaincy and such other lower courts as Parliament may by law establish. In Nigeria, the lower courts include Customary Courts, Sharia Court, Area Courts in the Northern States. The Customary Court is presided over by a President, while the Alkali presides over Area Court.

In Nigeria, Tribunals (especially under the military), are inferior courts exercising judicial or quassi-judicial functions, complimentary to the regular courts in the judicial system. Tribunals, in most cases, handle specialised matters or cases which require specialised experience and expertise.

2.5

IMPORTANT JUDICIAL PROCESSES

2.5.1 Writ Of Summons Civil proceedings are generally commenced by the filing of a writ of summons. The writ is prepared by the plaintiff or claimants, his solicitor, the Registrar of the court or a letter writer. Every writ shall be endorsed with a statement of the nature of the claim, relief or remedy sought in the action. 2.5.2 Writ of Execution There are various modes of execution of a judgment based on the relief claimed and granted. A judgment for the payment of money can be enforced through a writ of fiera facias (fi fa ), garnishee order and summons to show cause among others. Judgment for the delivery of property other than land may be enforced by a writ of sequestration, writ of attachment and writ of delivery. If the judgment is for the

recovery of possession of land then the mode of execution is by a writ of possession. The writ of fi fa and the garnishee order will receive attention by way of example in this text.Writ of Fieri Facias A writ of fi fa commands the sheriff to cause to be made out a writ of attachment on the property of the judgment debtor and by it the property is sold in satisfaction of the judgment debt and costs and immediately after such sale the sheriff should bring the money realised into court to be paid to the judgment creditor. The principle is that if the judgment debtor has sufficient immovable property which 19

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. when sold will satisfy the judgment debt and cost then his movable property must not be attached.

2.5.3. Garnishee Orders When the judgment creditor knows that a third party has money due to the judgment debtor he can apply for a garnishee order by which the court may order the third party called the garnishee to appear before the court to show cause why he should not pay to the judgment creditor the debt due him to the judgment debtor in satisfaction of the judgment debts and costs.

2.5.4. Others In Nigeria, there are other means of civil proceedings e.g. originating summons which is used for declarative reliefs; and undefended list procedure which is for action in recovery of money owed under liquidated sum.

2.6

CRIMINAL AND CIVIL LIABILITY

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

2.6.2 Civil liability The civil law deals with the private rights and obligations which arise between individuals. The purpose of the action is to remedy the wrong that has been suffered. Two great areas of civil liability are in contract and tort. The plaintiff sues the defendant and will be successful if he can prove his case on a balance of 20

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. probabilities. The distinction between the criminal and civil law is not based on the nature of the wrongful act because the same act may give rise to both civil and criminal proceedings.

2.7

BASIC TORTIOUS LIABILITY

2.7.1 Defamation Every man is entitled to his good name and to the esteem in which he is held by others, and has a right to claim that his reputation will not be disparaged by defamatory statements made about him to a third person without lawful justification or excuse. Defamation in an oral or some other transient form

constitutes the tort of slander. Defamatory statements made in writing or some other permanent form constitutes libel for which the law presumes damage.

In order to establish a prima facie case in an action for libel or slander it is necessary for the plaintiff to prove that the words complained of were published against him, that the words were defamatory to him and that the words were published by the defendant in circumstances in which the defendant is responsible for the publication. The main defences to an action for libel or slander are

justification that is the words are true; fair comment on a matter of public interest; absolute privilege; qualified privilege; apology and payment into court. The Freedom of Information Act has created a paradigm shift in our jurisprudence, in that the Act makes it possible as of right for the ordinary citizen to obtain information from and in respect of government functionaries.

2.7.2 Negligent misstatements Tort of negligent misstatement arises where there is a false statement of fact made knowing it to be false, or be covering it to be false, or recklessly not caring whether it is true or false. It is made with the intention that it should be acted upon by another, and if so acted upon it can then constitute a ground for an action against the maker. The principle is that if someone possessed of a special skill undertakes, quite irrespective of contract to apply that skill for the assistance of 21

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. another person who relies upon such skills, a duty of care will arise. The duty of care with regard to negligent misstatement was limited to cases where a special relationship existed. Four requirements for the existence of a special relationship have been laid down by the judicial They are: i) there must be an inquirer who consults another with special knowledge, ii) iii) reliance by the inquirer, Such reliance is reasonable and the person of whom the inquiry was made knows reliance is likely and Iv) the person relying on the representation suffers loss. authorities.

Thus a duty of care exists where one party seeking information and advice was trusting the other to exercise such a degree of care as the circumstances required where it was reasonable for him to do that and where the other party gave the information or advice when he knew or ought to have known the enquirer was relying on him.

2.7.3 Passing off The tort of passing off occurs/arises whenever a person, company or other business organisation carries on or proposes to carry on business under a name, trademark or appearance calculated to deceive the public or where a person in a manner calculated to deceive in the course of trade, passes off his goods or business as

those of another. It may be done by imitating their appearance or selling them under a similar name or trademark Its essence is deceit practiced on the public. The purpose of an action for passing off is to prevent one trade from damaging or exploiting the goodwill and reputation built up by another. The principle is that no man is entitled to represent that his goods or his business are that of another. A valid course of action for passing off may be granted on a misrepresentation, made by a trader in the course of a trade to prospective customers of his or ultimate consumers of goods and services he supplies, calculated to injure the business or 22

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. goodness of another trader and which causes actual damage to the business or goodwill of the trader who brought the action.

2.8

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

2.9

REVISION QUESTIONS 1. Identify the two main groups of Courts in Ghana or Nigeria and list the Courts under them. 2. 3. What jurisdiction has the Supreme Court of Ghana or Nigeria? Explain the qualifications for appointment as a judge to the courts of Ghana or Nigeria. 4. 5. 6. 7. Describe the jurisdiction of the Court of Appeal. Identify and describe the jurisdiction of the High Court. What is the jurisdiction of the Regional Tribunal? Compare the jurisdictions of the Circuit and District Courts. 8. Write brief notes on each of the following: a) Writ of Summons b) Writ of Fifa c) Garnishee order 9. 10. Distinguish between criminal and civil liability. Define defamation and describe the main types.

23

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. MULTIPLE CHOICE QUESTIONS 1. The highest court in Nigeria or Ghana is A. Court of Appeal. B. Federal High Court. C. National Industrial Court. D. The Supreme Court. E. Customary Court of Appeal. The Supreme Court in Nigeria or Ghana is headed by A. The Deputy Chairman National Judicial Council. B. The Chief Justice of Nigeria. C. The President Court of Appeal (PCA) D. The Minister of Justice and Attorney General of the Federation. E. The President of the Nigerian Bar Association. The fastest means of resolving dispute in Nigeria Ghana is A. Litigation. B. Arbitration. C. Adjudication. D. Self help. E. Petition to the National Judicial Council (NJC). The major disadvantage of Arbitration is A. Privacy B. Confidentiality C. High cost D. Publication in the Newspaper E. Swearing of oath in the Court. Civil Law is associated with one of the following A. Punishment to the litigants. B. Award of damages to the claimants. C. Imprisonment. D. Death sentence, E. Arraignment.

2.

3.

4.

5.

6. The Customary Court of Appeal has appellate and Supervisory Jurisdiction over proceedings coming on appeal from.. A. Magistrate Court B. Customary Court C. Industrial Court D. National Judicial Council (NJC) E. Rent Tribunal

24

NOTE:

7.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Civil Law is associated with one of the following A. Punishment to the litigants B. Award of damages to the claimants C. Imprisonment D. Death sentence E. Arraignment

SHORT ANSWER QUESTIONS 1. The Justices of the Supreme Court of Nigeria Ghana including the Chief Justice are to be appointed by the President on the recommendation of 2. The Supreme Court of Nigeria or Ghana when it is exercising its original jurisdiction or when matter before it involves questions as to the interpretation of the Constitution would sit as a panel of .justices. 3. A person is not qualified for appointment as a Justice of the Court of Appeal except he has been qualified to practice as a legal practitioner in Nigeria for at least years.

25

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CHAPTER THREE LAW OF CONTRACT 1

3.0

LEARNING OBJECTIVES Upon completion of this chapter, readers should be able to: explain what amounts to a contract. identify the elements of contract explain offer and distinguish it from invitation to treat. explain acceptance discuss the scope of consideration. demonstrate an understanding of the intention to create legal relations. explain the concept of capacity discuss the scope of the forms and contents of a contract

3.1

INTRODUCTION The law of contract is at the centre of most human activities. All of us within a day make several contracts without sometimes even realizing that. When you engage somebody to weed around your house for pay you have established a contractual relationship. When you enter a bus going to a particular place along a particular route and you pay the fare you have made a contract with the party running the service. When you put an item on sale at a particular price and another person agrees to buy it at that rate you have both set up a contract. Since contracts regulate a lot of our activities it is necessary to have an appreciation of it. This will

make it easy for parties to know the obligations they have imposed on themselves. Parties will then be in no doubt about what their liabilities are on failure to fulfil their part of the contract and what will be their remedies if the other party is in breach.

26

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. DEFINITION AND ELEMENTS OF CONTRACT

3.2

3.2.1 Definition of contract Whenever two or more people undertake to engage in an activity for which either of them may resort to the law for it to be enforced if a party fails to perform, a contract is said to have been formed. A contract has therefore been simply referred to as a promise or set of promises which the law will enforce. 3.2.2 The elements of contract For a valid contract to be in place there must be some essential elements. These are agreement, consideration, intention to create legal relations, form, capacity and legality. There is the requirement that there must be two or more parties to the contract who have agreed to it. Such agreement must have been entered into freely. The parties must also give promises which are supported by consideration. It means each party must give or do something for the other. The intention to create legal relations means that each party is ready to have his or her promise enforced by the law. Some contracts must also meet a certain form; they will only be valid when they are in writing. Again only persons who are legally competent or have capacity can enter into a contract. Finally the agreement must not be for an illegal purpose and also not contrary to public policy.

3.3 3.3.1

OFFER AND ACCEPTANCE Offer Whenever a person proposes terms to another person and shows willingness that if that person accepts those terms he is ready to contract with him, then those terms constitute an offer. For example if Kofi tells Adenuga that he will sell his house to him at a certain price, that constitutes an offer which will bind him should Adenuga agree to buy the house on the same terms. An offer is thus a definite promise made by one party with the intention that it shall be binding on him

once it is accepted by the party to whom it is addressed. Generally an offer may be made expressly by words but may also be implied from the conduct of the person making the offer (the offeror). An offer may be directed to an individual, a group 27

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. of persons or the world at large. It means an offer has to be communicated to the person intended for (the offeree). It is said that if one is ignorant of an offer he cannot accept it. There are a number of ways by which an offer may be withdrawing the offer before it is

terminated. These include the offer or

accepted which amounts to a revocation and the offeree not accepting the terms of the offer which is a rejection. Where an offer is made and it is to be accepted by a particular time failure to do so terminates the offer by lapse of times. The death of the offeror or offeree before acceptance terminates the offer. Even death after acceptance where personal service is involved terminates the contract. 3.3.2 Invitation to treat This precedes an offer. It is thus a preliminary communication which indicates a willingness to enter into negotiations. It is an invitation to the person to whom it is directed (the recipient) to make an offer. It is therefore described as an offer to negotiate or an offer to receive an offer. An invitation to treat cannot be accepted to bring a contract into being. Circumstances which amount to invitation to treat include advertisements, display of goods for sale, auctions and tenders. When there is an advertisement it is only intended to be an invitation to treat ie. to negotiate. In Partridge v Crittenden [1968] (WLR) 204 where an advertisement was put in the periodical 'Case and Aviary Birds' which stated 'Bramble finch cocks, bramble finch hens, 25 shillings each, a reader wrote in for a hen which Partridge sent to him. The appellant was charged with unlawfully offering for sale a wild live bird contrary to the Protection of Birds Act. His conviction was quashed by the Divisional Court on the ground that he had made no offer for sale, merely an invitation to treat. Goods on display with price tickets attached in a self service store exemplify an invitation to treat. Any potential customer who enters the shop is invited to make an offer. The picking of the goods by the customer and the presentation to the cashier constitute the offer. The cashier then has an option to either accept the offer or reject it. If he accepts the offer a contract comes into being but if he rejects it no contractual obligation would be imposed. In Pharmaceutical Society v Boots Cash Chemists Ltd [1953] (QB 40), the defendants, Boots, operated a self28

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. service supermarket with a pharmacist on hand, to supervise the sale of specified drugs which could only be lawfully sold under him. Two customers selected such drugs from the shelves and put them in a wire basket provided by the defendants. The Pharmaceutical Society brought an action alleging an infringement of the Act. The Court of Appeal held that the display was merely an invitation to treat. The customer by presenting the goods at the cash desk, made an offer to buy which the cashier under the pharmacists supervision could accept or reject.

When an auctioneer makes a request for bids it amounts to an invitation to treat. The bids that are made in response to the request constitute offers. It is when a bid is accepted that a contract is made. In Payne v Cave (1789) 3 Term Rep. 148, KB, Cave withdrew his bid at an auction before the fall of the auctioneer's hammer. It was held that the bid was the offer, the auctioneer only made an invitation to bid. As Cave's offer had been withdrawn before the auctioneer had accepted it, there was no contract. Invitations for tender are also invitations to treat. The tender is the offer and it may be accepted or rejected. In Spencer v Harding (1870) L.R.5.C.P. 561, the defendants sent out a circular inviting tenders for the purchase of certain stock-intrade. The plaintiff's tender proved to be the highest submitted but the defendants refused to sell to them. Judgment was given to the defendants because a tender itself is an offer, which the party who invited it may or may not accept. The defendants could only have been bound if they had promised to sell to the highest bidder. 3.3.3 Acceptance It is the expression of assent to the terms of the offer made by the person to whom the offer was made (the offeree). In the example where John offered his house to Adenuga at a certain price, the agreement by Adenuga to buy the house on those terms constituted acceptance. An offer is not accepted by mere silence on the part of the offeree. Acceptance has to be communicated to the offeror. It is not deemed to be communicated until it is actually brought to the notice of the offeror. When acceptance is by a return promise its performance leads to a unilateral 29

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. contract. In instances where the offeror authorizes acceptance by post, postage of a properly addressed letter of acceptance indicates proper communication of acceptance. The offeree may revoke his acceptance at any time before it is

communicated to the offeror. Since an acceptance cannot be made in ignorance of an offer, where two parties each simultaneously make identical offers to each other they amount to cross offer which do not conclude a contract. It is important at this stage to make a distinction between acceptance and a counter offer. As indicated earlier on acceptance connotes assent to the terms of the offer. In a counter offer the offeree's reply indicates a willingness to be bound on terms different from those contained in the offer. In Hyde v Wrench (1840) 3 Beav 334, Wrench offered to sell his farm to Hyde for 1000. Hyde offered to buy it for 950. Wrench wrote to reject the counter-offer. Hyde then purported to accept Wrench's original offer of 1000 and sued for the farm. The Court held that the counter offer of 950 destroyed the original offer which could not then be revived by Hyde. A counter-offer thus puts an end to the previous offer and is in fact a new offer which the original offeror (now the offerce) may accept to bring a contract into being or reject and terminate the negotiations.

3.4

CONSIDERATION

3.4.1 Definition Consideration is something of value in the eye of the law. It is also seen as the price which need not be monetary paid by each party for the promise of the other. In Curie v Misa (1875) LR 10 Ex 153, consideration was described as 'A valuable consideration in the sense of the law, may consist either in some right, interest, profit or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other'. 3.4.2 Types Consideration may be executory or executed. Under executory consideration, valuable consideration may be provided by mutual promises which will give rise to a bilateral contract. It is a promise to do or forbear from doing some act in the future. The whole transaction remains to be performed in the future. 30

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Executed consideration is an act by one party in exchange for a promise made or an act done by the other. A promise for an act gives rise to a unilateral contract as in Carlill vs. Carbolic Smoke Ball Company [1893] 1 QB 256. An

advertisement by the company promised to pay one hundred pounds to anyone who caught influenza after using the carbolic smoke ball as directed. Mrs Carlill purchased the ball and used it as directed but contracted influenza. She therefore sued for the one hundred pounds. The Court of Appeal decided that the Company had made an offer to the whole world which would ripen into a contract with

anybody who bought and used the ball in the specified way. 3.4.3 General rules Past consideration is no consideration. It is a promise which follows a completed act. Such a promise is independent of the act or service performed. It is therefore not enforceable. In Re McArdle [1951] Ch 669, on the death of McArdle his widow under his will obtained a bungalow for her lifetime and their children were to become owners after that. Monty McArdle and his wife, Majorie who lived there made extensive repairs to the bungalow after which all the children wrote to Majorie promising to pay her 'in consideration of your carrying out certain alterations and improvements'. The money was not paid and the widow died. The Court of Appeal held that, as all the work had been finished before the promise was made, the work was past consideration and so there was no obligation to pay. A promise to perform an existing obligation is not good consideration but a

promise to do something different is good consideration. Thus if a creditor agrees to take a smaller sum of money in full satisfaction its payment is not a satisfaction of an agreement to pay a larger sum. In Pinnel's case (1602) 5 Co Rep 117 it was stated that 'payment of a lesser sum on the day it is due in satisfaction of a greater cannot be any satisfaction for the whole The payment and acceptance before the day in satisfaction of the whole would be good satisfaction'.

The doctrine of promissory estoppel adds a new dimension to consideration. It applies only to a promise made between parties who are already in a contractual relationship. Where one of the parties makes a promise which is intended to be 31

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. binding and is relied on and acted upon, the promissor would be prevented from enforcing his original rights since it will amount to his going back on his promise. In Hughes v Metropolitan Railway Co. (1877) 2 AppCas 439 H.L., the appellant landlord gave the respondents six months in which to repair some houses as they were expected to do under their lease. They later started negotiations to purchase the freehold and based on that did nothing about the repairs. The negotiations however failed two months after commencement and the appellant when the original six months were up brought an action to eject the respondents for their failure to repair. The House of Lords held that the appellant must fail since the respondents had relied on the negotiations as being in effect, a promise that the appellant landlord would not enforce his demands while the negotiations continued. The six months notice must run from the failure of the negotiations. Consideration must move from the promisee. Its import is that the promisee must provide the consideration. It is based on the principle that a stranger to a contract cannot sue on it. This is the doctrine of priority of contract. In Dunlop

Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] A C 847, H L, the appellants sold some of their tyres to Dew & Co. under a contract whereby they undertook not to sell the tyres below Dunlop's hit prices and agreed, as Dunlop's agent to obtain a similar undertaking from other traders. Dew & Co sold some of the tyres to the respondents who agreed not to sell below Dunlop's list prices. They broke this contract and Dunlop sued for its breach. They failed. Dunlop could not enforce the contract because no consideration moved from them. The appellants were not a party to the contract between Dew & Co and the respondents and only a person who is a party to a contract can sue on it. 3.4.4 Modifications This rule is however subject to several exceptions. Under the common law

exceptions cover the trust device, land, agency, assignment and insurance matters. Many statutory provisions have reinforced these exceptions. The Contracts Act, 1960 (Act 25) has provisions that modify the scope of consideration in contract. The Contracts Act, 1960 (Act 25) S 5 shows that a provision can be made in a contract for the benefit of a third party. In Kessie v Charmant [1973] 2 GLR 194 32

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. it was argued that the law of Ghana no longer requires proof of consideration in any contract. The judge however ruled that the Contracts Act has not changed the common law position but that cases for the absence of consideration must be brought within any one of sections 8, 9 and 10 of the Contracts Act, 1960 (Act 25). Section 8(1) indicates that a promise to keep an offer open for acceptance for a specified time is not invalid as a contract due to the absence of consideration. Under section 8(2) absence of consideration shall not render a promise to waive the payment of a debt or part of it or the performance of some legal obligation invalid as a contract. As indicated in section 9, the performance of an act or the promise to perform an act may be consideration for another promise notwithstanding that the performance of that act may be enjoined by some legal duty. The Act shows in section 10 that consideration need not move from the promisee which is a counter to the general premise of privity. Thus no promise shall be invalid as a contract by reason only that consideration was supplied by someone other than the promisee.

3.5

INTENTION TO CREATE LEGAL RELATIONS Parties intend to create legal rights and duties out of their agreement and thus to invoke the assistance of the ordinary courts on breach of the contract. The law determines whether or not there is an intention to create relations through the aid of presumptions. In a given set of circumstances the law presumes a certain intent. In a domestic or social setting or act of friendship there is a rebuttable presumption that the parties do not intend to create legal relations. In a commercial setting there is a rebuttable presumption that the parties intend to create legal relations. Both presumptions are rebuttable ie the assumption stands until the contrary can be proved.

3.5.1 Domestic and Social Agreements Domestic arrangements are made between husband and wife, parent and child and among relatives. Within this class the rule is that there is a rebuttable presumption that the parties do not intend to create legal relations. Those arrangements or many of them do not result in contracts at all because the parties did not intend that they 33

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. should be attended by legal consequences. In Jones v Padavatton [1969] 1WLR 328, Mrs Padavatton was working as a secretary in the United States. Her mother, Mrs Jones, offered to provide her daughter's keep if she would return to England and read for the Bar. Her, daughter accepted. A little later Mrs Jones offered in addition to provide a house for her daughter, some of the rooms to be left to tenants. Mrs Padavatton accepted this, too, but later she became so unco-operative that two years later, Mrs Jones claimed possession of the house. Her daughter resisted this on the ground that her mother was contractually bound to this arrangement. It was held that Mrs Jones was entitled to possession. The original agreement was motivated by the mother's desire for her daughter to succeed at the Bar. They were originally on good terms and they had no intention to enter a stiff contractual operation. The presumption that domestic arrangements are not intended to be legally binding is displaced where the spouses are not living together in amity at thetime of the agreement. It does not apply where the spouses are about to separate or are separated or are contemplating a divorce or are divorced. Whether there is

contractual intention or not may be ascertained from the words used in the agreement or the surrounding circumstances of the case. In Merritt v Merritt [1970] 1 WLR 1121, CA the defendant left his wife to live with another woman. The matrimonial home which was in their joint names was subject to an outstanding mortgage. Mr Merritt, at his wife's insistence, signed a document which stated : 'In consideration of the fact that you (the wife) will pay all charges in connection with the house until such time as the mortgage repayment has been completed ... I will agree to transfer the property in to your sole ownership.' Mrs Merritt paid off the mortgage, but her husband refused to transfer the house to her. The Court of Appeal held that the usual presumption as to agreements

between spouses living happily together did not apply when they were unhappy and separated, or about to separate, and the written document was therefore a binding contract with which Mr, Merritt must comply.

34

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Social agreements are those between parties who are not relatives. They are largely acts of friendship. Many social arrangements do not amount to contracts because they are not intended to be legally binding.

3.5.2 Commercial Agreements In commercial transactions there is a strong presumption that the parties intend to create legal relations. The parties intend legal consequences to follow. In

Edwards v Skyways Ltd [1964]1 WLR 349 the defendants declared the plaintiff, one of their pilots to be redundant, and ultimately agreed to pay all pilots who were made redundant an ex gratia sum. The defendants then refused to make any such payments (mainly because of the large number of redundancies). The plaintiff brought an action for breach of contract. The Court held that in business relations the presumption is that the parties intend to create legal relations by their agreements. The strong presumption may be displaced either expressly or impliedly. To oust expressly the presumption, clear words must be used. The burden of rebutting contractual intention in commercial transactions is an extremely difficult one and is not lightly shaken. In Rose and Frank Co. v Crompton Brothers [1925] AC 445 HL, the appellants dealers in carbon paper and the respondents signed a document by which the appellants were appointed soleagents of the respondents to sell their products in the United States. The document concluded 'This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement but is only a definite expression and record of the purpose and intention of the parties concerned, to which they each honourably pledge themselves ' The respondents later ended the agreement, and the appellants sued for its enforcement. It was held that the usual presumption that commercial agreements constitute enforceable contracts was rebutted by the clear words used, although individuals orders given and accepted were enforceable contracts.

3.6

CAPACITY Capacity is the ability to incur legal rights and obligations. The law presumes that everyone is competent to bind himself to any contract he chooses to make provided 35

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. that it is not illegal or void on public policy grounds. A few classes of people are under a disability. These are infants or minors, mentally disordered persons or lunatics, drunken persons and corporations or companies.

As a general rule contracts made by a minor with an adult are binding on the adult and not the minor. There is a protective principle in a minor's contractual capacity. Valid contracts for minors are divisible into contracts for necessaries and beneficial contracts of service or contracts for employment. Necessaries are articles which are reasonably necessary to the minor in terms of his status in life. A minor is only liable when the goods are suitable to his condition in life, necessary to his requirements at the time of delivery. Goods will not be

necessaries if the minor was already well supplied with such goods. A minor must pay a reasonable price for necessities supplied to him. In Nash v Inman [1908] 2 K B 1, the defendant an undergraduate at Cambridge, bought eleven fancy waistcoats from the plaintiff tailor. At the time he was adequately provided with clothes. It was held that the waistcoats were not necessaries and the defendant was not liable to pay for any of them.

Not every contract for the benefit of a minor is binding on him. However contracts for his education, service or apprenticeship or for enabling him to earn his living are binding unless they are detrimental to the interests of the minor. In Doyle v White City Stadium Ltd [1935] 1 KB 110 CA, the plaintiff was an infant professional boxer. He entered into a contract with the defendants to box at the White City. The contract was made subject to the Rules of the British Boxing Board of Control, one of which provided that if a boxer were disqualified he would lose his purse. Doyle was disqualified for hitting below the belt, and the purse was withheld. The plaintiff sued for it. The Court of Appeal held that, taken as a whole, his contract was advantageous to him, as it allowed him to get a licence to box which allowed him to become proficient in his chosen career. The was therefore binding and his action failed. contract

36

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. In De Francesco v Barnum [1890] 45 Ch.D. 430, Ch.D, an infant and her mother executed a deed by which the infant was to be apprenticed to the plaintiff for seven years in order to learn stage dancing. They further agreed that the infant would not marry; would not accept any professional engagements during the apprenticeship without the plaintiff's consent, and would get no pay unless the plaintiff actually employed her (which he was not bound to do). After a fair trial the plaintiff could end the contract if the infant were unsuitable. The infant broke the agreement by accepting a contract to dance for the defendant. The plaintiff sued. He failed. The deed was unreasonably harsh and could not be enforced against the infant or her mother. Certain contracts are voidable in that they are binding on a minor unless he repudiates them during his minority or within a reasonable time after he comes of age. They cannot be enforced against him during his minority but after he attains full age he will be bound unless he repudiates them within reasonable time. Such contracts include leases, partnerships and shareholding in a company. Companies or corporations which act beyond their powers are said to have acted 'ultra vires'. Ultra vires contracts are void with the result that no legal action would be permitted on them. Ratification may sometimes give relief. In Ashbury

Railway Carriage Co v Riche (1875) L R 7 H L 653 the objects of the appellant company, which had been established by statute, were to make and sell, or lend on hire, railway carriages and wagons, and all kinds of railway plant, fittings, machinery and rolling stock; to carry on the business of mechanical engineers and general contractors; to purchase, lease and sell mines, minerals, land and buildings; to purchase and sell as merchants, timber, coal, metals and other materials; and to buy and sell any such materials on commission, or as agents. The company purchased a concession for building a railway in Belgium and contracted the respondent, Riche, that he should construct the railway track. The appellants subsequently repudiated the contract on the ground that it was ultra vires. The respondent sued. The House of Lords held that the contract for the construction of a railway was indeed ultra vires and void as it was not a type envisaged in the objects of the company. In Ghana however an ultra vires act, conveyance or 37

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. transfer is not necessarily invalid simply because it is ultra vires. The Code shows that no act of a company and no conveyance or transfer of property to or by a company shall be invalid by reason of the fact that such act, conveyance or transfer was done ultra vires. This modification reduces the harsh effects of the doctrine on third parties. This means that a third party is not without a remedy. However if the third party had knowledge of the absence of power or the irregularity of it then the company shall not incur any liability.

3.7

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

3.8

REVISION QUESTIONS 1. 2. 3. State the elements of contract Distinguish between invitation to treat and an offer Write on each of the following: a) b) c) 4. 5. 6. Cross offers Counter offers Acceptance

How may an offer be terminated? Explain the term consideration. What is meant by the following: a) b) c) Executory consideration Executed consideration Past consideration

7. 8.

Explain promissory estoppel. Explain and describe the scope of the intention to create legal relations. 38

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9. 10.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Identify individuals and bodies which do not have capacity to contract. Describe the exceptions to the rule that a minor is not bound by any contract made during his minority.

MULTIPLE CHOICE QUESTIONS 1. An offer can be discharged by the following, EXCEPT A. Death of the offerror B. Capacity of the offerror C. Acceptance D. Revocation E. Rejection Which of these is NOT among the rules of consideration? A. Consideration must move from the promisee B. Consideration must not be past. C. Consideration can move from the promisor. D. Consideration may be executed or executory E. Consideration must be of value but may not be adequate. Which of these is not among the essential elements of a valid contract A. Offer B. Acceptance C. Intention to create legal relations D. Capacity E. Authority Circumstances which amount to invitation to treat include the following EXCEPT ONE. A. Display of goods for sale B. Auctions C. Tenders D. Advertisement E. Negotiation Which of these statements is not true? A. As a general rule contracts made by a minor with an adult are binding on the adult and not the minor. B. There is no protective principle in a minors contractual capacity. C. Necessaries are articles which are reasonably necessary to the minor in terms of his standing in life D. Good will not be necessaries if the minor was already well supplied with such goods. E. A minor must pay a reasonable price for necessities supplied to him. 39

2.

3.

4.

5.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

SHORT ANSWER QUESTIONS 1. 2. 3. 4. 5. What remedy requires a party to a contract to carry out his contractual obligations specifically A contract is defined as a promise or set of promises which the Law will.. Goods on display with price tickets attached in a self service store exemplify What is a counter offer? The doctrine of promissory estoppel applies only to.

40

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CHAPTER FOUR LAW OF CONTRACT II

4.0

LEARNING OBJECTIVES Upon completion of this chapter, readers should be able to: understand the form and contents of a contract identify the vitiating elements of a contract mention and explain the remedies for breach of a contract understand the consequences of illegality in contracts explain the various methods by which a contract may be discharged

4.1

INTRODUCTION Form and Contents of a Contract.

4.1.1 Form of a Contract There is no particular form in which a contract may be made since contracts are just as enforceable whether they are made in writing or orally. There are however some that must be made in a particular way for them to be enforceable. are the exceptions but they need to be mentioned. These

Contracts Under Seal: A contract under seal exists where a person signs, seals and delivers a document. Such documents are known as deeds, specialty contracts or covenants. The law takes these kinds of contracts very seriously. In the olden days, red wax and signets were used to seal documents but nowadays little round red stick or seals are used. It is also important to know that a contract is generally not binding unless consideration is given but a contract under seal binds the parties without the requirement of consideration. The contracts required by law to be under seal are conveyances or grants of property, leases for more than three years and transfer of Nigerian ships or shares in them.

41

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Contracts which must be in writing: Any contract which is not under seal is said to be a simple or parol contract and for such a contract to be enforceable there must be consideration. A simple contract may be oral or written, for such a contract to be enforceable there must be consideration. However, Nigerian Law requires that for certain contracts to be enforceable they must be in writing and these include Bills of Exchange, Promissory Notes, Hire Purchase Agreements, Contracts for the transfer of shares in a public company, Marine Insurance Contracts, Bills of Sale, Acknowledgments of debts which have been barred by the Limitation Laws.

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

4.1.2 Contents (or Terms) of a Contract In law parties are to make their contracts. The Courts will not make the contracts but will only interpret them as discernible from what the parties have put in their contracts i.e. what are the terms of the contract. The terms of a contract may be express or implied. They are express when the parties state clearly what they want in their contract, and are otherwise implied when though not expressly stated but are read into the contract to give business efficacy to it. 42

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

Terms of a contract may be implied in the following instances: (1) Where a contract relates to a particular trade, the Courts may imply the trade custom or usage in the agreement unless it is repugnant or inconsistent with the express terms of the agreement. (2) Sometimes terms are also implied into contracts by statute. Under the Sale of Goods Act 1893, a number of terms are implied in contracts of sale of goods with regard to title, description and quality of the goods. (3) Also the Courts at times imply some terms into contract to give business efficacy to the contract. It is still however pertinent to distinguish between those statements which are terms of the contract and those which are not. A seller hoping to sell goods may make some statements during negotiations and the courts are to determine the precise nature and legal effects of such statements if they are untrue. The test of deciding the nature of the statement is the intention of the parties which can be gathered from the conduct of the parties, their words and behaviour and the totality of the circumstances. All these help in determining whether a statement is: (1) a mere puff:- The praising of goods by traders in glowing terms is a universal fact of commercial life and the lifeblood of the advertising industry. Phrases like, Super Value for money the most popular car in Nigeria are commonplace. This is typical sales pattern or pitch; such praise in general, is not intended to give rise to legal liability and it does not do so - simplex commendatio non obligatio (i.e. simple commendations create no legal obligation - because the prospective seller is not regarded in law as making a positive representation as to the existence of a fact.

(2)

(mis) representations: It is not everything which is said when a contract is being agreed upon which goes into the contract. There are some statements which induce the contract and yet are not part of it. These are representations. Everything that goes into the contract is a term of the contract. A representation is accordingly a 43

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

It is also important to remember in distinguishing between a term and a representation that:(a) The conclusion of a written contract containing no reference to the statement is some evidence that it is only a representation and not a contractual term. (b) A person with no direct personal knowledge who merely passes on a statement will not normally be taken to warrant its accuracy (c) If the parties are on equal bargaining footing, the courts may again be reluctant to find a contractual term.

(3) Contractual Terms: - As stated earlier, everything that goes into a contract is a contractual term. The terms however are not all of equal importance. A very 44

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. important term in a contract is called a condition. A term of lesser importance is called a warranty. For a breach of condition the buyer can cancel the contract. For a breach of warranty, he cannot. He does not have to put up with it. He can have damages. For any breach, he is entitled to damages, but he cannot cancel the contract for just a minor breach.

The reason for distinguishing terms from one another is mainly connected with the right of cancellation for breach of condition. The courts are often concerned whether the right to cancel exists. A particular term in a contract may be a condition because it is said to be so by a statute or by the common law.

Thus the actual terms of the contract may be condition or warranties. A Condition: Is thus an undertaking that a certain state of affairs exists or will exist or a promise that a certain thing shall or shall not be done the fulfilment of which undertaking is very fundamental to the contract. A condition is an essential term which goes to the root of the contract, the breach of which entitles the party to revoke the contract. A Warranty: on the other hand, is an agreement with reference to the goods which are the subject of a contract but is not the main purpose of the contract. Its breach gives rise to a claim for damages only but not a right to reject the goods or treat the contract as repudiated.

(a)

Exclusion and Limiting Terms: are terms used by parties in limiting or excluding their obligations otherwise attached to such undertakings. They are mostly found in the so called standard form contracts i.e. contracts where terms are contained in printed form and are used for all contracts of the same kind and are basically found in contracts for laundry, dry cleaning services, hotel accommodation, for journeys by land, rail, air or sea. They exempt the supplier from his contractual liability; their purpose is to deprive the consumer of compensation due to him for loss or injury arising 45

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. from the contract. The courts do not like exemption clauses because they go against the spirit and intent of a contract. They enforce them but only if the party for whose benefit it was made can satisfy them about the following.

(1)

That it was a term of the Contract: There are two ways by which an exclusion clause can enter a contract and become a term of the contract and these are:

(a)

By Signature: The law takes a serious view of signatures on document. The general rule is that a man is bound by what he signs whether or not he has read it, and if he has read it whether or not he understands it. Lestrange Vs. Graucob1 (1934)

(b)

By Notice: The need here arises where the clause is not on a document to be signed but in some other form such as a poster or sign on a wall or a ticket. Such notice given must be effective notice e.g. as in the ticket cases, was the ticket a contractual document or just a ticket, was it folded. Also it must be given

precontractually i.e. before the contract is formed. The crucial issue always is that whatever the circumstances the other party must have an opportunity to see it so

that he knows it is a term of the contract. See Chapelton Vs. Barry U.D.C.2 (1940) Olley Vs. Marlborough Court3 (1971). It is also important to note that a notice of a clause is effectively given if both parties are in the same trade and such clauses are widely known and in common use in that trade. (1949). Thornton Vs. Shoe Lane Parking4

(2)

That it covered the damage complained of by the plaintiff. Baldry Vs. Marshall (1925)5. It does not suffice for the party who is relying on the exclusion clause to prove that it was part of the contract to have it upheld by the Courts, he must go further to

establish that the exclusion clause covers the damage complained of by the Plaintiff, otherwise it will be unavailable to him as a defence. 46

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. VITIATING ELEMENTS OF CONTRACT The parties to a contract must have agreed to the terms of their contract. It must indeed be very clear that they have agreed freely, without some form of compulsion or some other defect which may make the apparently valid contract defective. Where there is such an element which may spoil or make such contract defective, such an element is known as a vitiating element. The vitiating elements we shall consider are mistake, misrepresentation, duress, undue influence and illegality. The nature of the vitiating element determines the kind of defect the contract may have, the contract may not be enforceable at all, it may be enforceable in certain ways or manners, or there may be no contract at all. It is thus apposite to explain the nature of the defects first to better appreciate the effect of the vitiating elements before considering the elements themselves.

4.2

Unenforceable Contracts: These are contracts where the contract truly exists but neither party can sue the other. Examples abound from our earlier consideration of types of contracts which must be in writing or be evidenced in writing. Such contracts if entered into contrary to the requirements of the law are binding between the parties, but neither party can sue for a breach in the absence of written evidence. Goods or money which are passed under such a contract are validly transferred and cannot be reclaimed, but the Courts will not give effect to the contract if one of the parties fail to abide with the terms.

Voidable Contracts: These types of contracts are generally recognisable at law and even given effect which is however subject to certain conditions. The law allows one of the parties to Such contracts to withdraw from them if he wants to. These contracts include contracts entered into by minors, or other contractual persons affected by lack of capacity such as illiterates, drunks or insane persons. Contracts vitiated by misrepresentation, undue influence and duress also come under these kind of contracts. 47

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Void Contracts: These are contracts which have no legal effect. The parties have only attempted to contract as the Courts will not give effect to their agreements at all. The effect of mistake as a vitiating element is to make a contract void, i.e. destitute of all legal rights. The distinction between void and voidable contracts is better appreciated when third party rights are considered. Where a contract of a sale of goods is void, the buyer does not become owner of the goods, so he cannot sell them to anyone else, the original owner can recover them from whoever he sells them to. Whereas if it was voidable, for example as one affected by duress, it is still a valid contract until the aggrieved party decides to cancel it, thus if the buyer resells it before the aggrieved party takes steps to cancel the contract, the third party who buys from him will have a good title where he is not aware of his seller's (i.e. the original buyer) defective title.

4.2.1 Mistake: The general rule is that mistake does not affect a contract. If a man makes a mistake as to the value or the type of things he buys, it is his ill luck, as there is no remedy for him unless the other party has given him a wrong impression. Likewise, mistake of law never affects the validity of a contract since ignorance of the law never avails a party, otherwise every party will plead that he was mistaken as to the law. However in some circumstances mistake of fact may affect a contract, and if sufficiently serious may spoil the contact, render it void. Let us now examine such instances where a mistake of fact may vitiate a contract.

Mistake could also be common mistake i.e. when the mistake is made by both parties. Here the parties are labouring under the same mistake. They are simply both wrong. An example of this simply arises as where both of them make a mistake as to the existence of the subject matter, which is considered hereunder. The subject matter has been destroyed last night in a distant warehouse unknown to both parties.

48

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. A mutual mistake could also arise as when the parties misunderstand each other and thus work at cross purposes. Ben may have three BMW cars of the same model, Danie may want to buy the blue model while Ben intends to sell the white one, this is an example of a mutual mistake and it is also further explained in relation to the subject matter later on.

A unilateral mistake occurs where only one party is mistaken, for example as to the identity of the other party he is contracting with or as to the nature of documents he is signing.

(a)

Mistake as to the nature of the instrument i.e. as to signed documents. This mistake rarely avails a party, for any party to successfully raise it, however he must show that: (i) the document signed was radically different from the one he thought he signed. (ii) (iii) the signing had not been done negligently (carelessly) had the true contents of the documents been made known to him he would not have signed.

See Foster Vs. McKinnon (1869)6 Here the Defendant, an old man with failing eyesight was induced to sign a document which he thought was a guarantee, whereas he was indorsing a bill of exchange for 3000 pounds for which he would be personally liable. He was able to succeed because he satisfied the Court as to the three elements above particularly that he was not negligent.

This plea is also known as Non est factum (i.e. It is not my deed.) (b) Mistake by one party as to the identity of the other party. It is a vitiating factor if identity is a material factor. In case of ordinary shopping, it is not a vitiating factor, as you intend to contract with the person in front of you. The test is did the mistaken party intend to contract with one person and with him only? It makes no difference that the contracting parties met face to face. The pertinent question is 49

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. did the mistaken party intend to contract with the person in front of him irrespective of his identity. If this is so, he cannot successfully plead mistake. However if he wants to contract with A, and he believes that B who he is contracting with is A, he may be able to successfully plead mistake. See LewisVs. Averay (1972) 7. Herein the Plaintiff sold and parted with his car to a person (C) who pretended to be Richard Greene, the actor. C paid by a cheque which was not honoured, and then sold the car to Averay. The Court held that the contract between Lewis and C was not vitiated by mistake as Lewis could not prove that he wanted only to sell to Richard Greene and to nobody else. See CundyVs. Lindsay (1878)8 Phillips Vs .Brooks (1919)9.

(c)

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

Equity's attitude to mistake: Where a mistake is operative at common law, the contract is void, otherwise it binds both parties and this can be punitive on the parties. Equity however assists where common law is unjust. It could admit that the contract is not void but valid (because the mistake is inoperative) but then take it apart in order to be fair to both parties and this is called Rescission on Terms.

50

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Also equity could alter a written contract made pursuant to an oral one where it does not represent the intention of the parties and it is a mistake of expression only since at common law parties were bound by what they had written. Equity allows the document to be altered to represent what was agreed. i.e Rectification.

4.2.2 Misrepresentation: This is a false statement of fact (not law) made by one party which induces the other (innocent) party into making a contract. The Statement must have been intended to be acted upon and must have actually induced the other party to make the contract. For it to avail a party he must show that: (a) the statement is a statement of fact as opposed to an expression of an opinion e.g. doctors have recommended that this product is good as best caviar in the World. opposed to this is the

The first is a statement of fact which may induce a

party to buy a particular drug which if it turns out was not what it is stated to do may amount to a misrepresentation. The second statement is only an expression of opinion by the Seller as to his wares and does not amount to a representation where it turns out to be false. It is important to note that there are instances where even silence could amount to a misrepresentation as where a party has a positive duty to speak and nothing is said as may arise in the following instances: (i) Contracts uberrimae fidei (or of the utmost good faith i.e contracts where one party alone has full knowledge of the material facts and the law imposes on him a duty to disclose) (ii) (iii) (iv) Fiduciary Relationships e.g. Solicitor and Client, Doctor and Patient etc. Changed circumstances etc. Where a past truth amounts to a falsehood.

(b)

The statement must also induce the contract i.e. one party must have been taken seriously by the other party so that he relied on it and not upon his own judgment. It is immaterial whether the means of verifying a statement was made available to him. Redgrave Vs. Hurd (1881)12.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Remedies available to an innocent party: This depends on the type of misrepresentation which could be either innocent or fraudulent. Fraudulent Misrepresentation: arises where any statement is made fraudulently i.e. deliberately or without belief in its truth or being careless whether it is true, or false.

Remedies (i) (ii) (iii) The innocent party can sue for damages in tort for deceit. He can affirm the contract and go on with it. He can disaffirm the contract and refuse further performance and under here he may either: (a) take no legal action and plead fraud as a defence and sue for damages. (b) bring an action for rescission of the contract.

Innocent Misrepresentation: any statement made with an honest belief in its truth is innocent.

Remedies: (i) (ii) He may affirm the contract and treat it as binding. He may claim for rescission in the Courts.

It is important to note however that there is no general right to damages. It should also be noted that rescission means taking the contract apart and it is usually accompanied by an order for restitution i.e. each party will have his property returned but since it is an equitable right it may be lost as where an innocent third party has acquired title to goods under the contracts, as the effect of misrepresentation is that the contract is only voidable. Also where restitution is impossible the right to sue for rescission is lost.

52

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 4.2.3 Duress: is pressure brought to bear upon one of the contracting parties to induce him to enter into the contract. It consists in the actual or threatened personal violence, imprisonment or restraint of personal liberty either to him, wife, child or parent. It has been held in decided cases that threat to goods are not enough See Cummings Vs. Ince (1887).13 It should also be noted that the effect of misrepresentation is to render the contract voidable, and not void.

4.2.4 Undue Influence: Undue Influence is the use of any influence by which the exercise of free will and deliberate judgment is excluded i.e. it relies upon the wrongful use of influence that one party may have over the other although influence by itself is not unlawful. It may arise anyhow but the substance is that the parties to a contract are not on equal footing. It is for the party benefiting from the contract to show that the other party contracted freely using his own free will or had other independent advice. The actual relations may show that one has exerted overbearing influence on the other e.g. Parent & Child, Lawyer & Client, Doctor & Patient, Spiritual Advisor & Devotee, Accountant & Client, Trustee & Beneficiary and other fiduciary relationships. The effect is to allow the weaker party rescind the contract promptly after the withdrawal of the overbearing influence; otherwise it will be termed as consent. It also renders a contract voidable and not void. See Williams Vs. Bayley (1866)14 A father gave security for his son's debts because of the lender's threat to prosecute his son. The Courts held this contract to be vitiated by undue influence.

4.2.5 Illegality: A contract which is illegal is absolutely void. It may be illegal because it is forbidden by law, or because the Courts will not enforce it because of the overriding consideration of public policy. Thus some contracts are prohibited by statute, some are prohibited at common law. These are properly called illegal contracts. Some contracts are not completely prohibited, but they are denied full validity, either by statute or at common law. These, we will call Void Contracts.

(1)

Illegal Contracts: There are two kinds of these contracts. 53

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(a)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Contracts prohibited by statute By the old Exchange Control Act of 1962 the buying and selling of gold by unauthorised persons was prohibited.

(b)

Contracts prohibited at common law: These set of contracts are basically prohibited under the concept called Public policy. Although no new categories are created there is however seven settled categories:

(i)

Contracts to commit a crime, tort or fraud e.g. Beresford Vs. Royal InsuranceCo. Ltd.15 R shot himself a few minutes before his life insurance policy expired. The court held that it is against public policy to allow a man benefit his estate by committing a crime hence the sum assured was not recoverable. Likewise in Allen Vs Rescous (1676) the Plaintiff paid the Defendant 20 shillings to assault and evict another person, which the defendant failed to do. The Court held that the Plaintiff could not recover his money. Contracts involving maintenance or champerty fall into this class i.e. contracts whereby a person promises to support another improperly in bringing an action at law.

(ii)

Contracts prejudicial to the safety of the country (e.g. trading with the enemy in wartime).

(iii)

Contracts prejudicial to the Country's foreign relations e.g. to trade with South Africa during the apartheid regime would be contrary to Nigeria's foreign policy.

(iv)

Contracts prejudicial to the administration of justice. A Contract not to prosecute, or to compromise criminal proceedings is illegal unless the proceedings could have been initiated in civil law for torts. In addition, a contract where an accused person indemnifies a person who has got bail for him is illegal.

(v)

Contracts prejudicial to honesty in public life (e.g. trying to buy or bribe merit awards). Parkinson Vs. College of Ambulance (1925)17. Parkinson gave the Secretary of a charitable organization $3000 on the understanding that he would secure a knighthood for him. The title was not forth coming and he sought to recover his money. It was held that the agreement was illegal, and Parkinson could not recover.

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(vi)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Contracts designed to defraud the revenue. In Miller Vs Karlinski, (1945)18 an agreement between employer and employees to hide part of their salary as expenses in order to avoid paying tax was held illegal, thus the employee could not reclaim salary arrears from the employer.

(vii)

Contracts to promote sexual immorality. Alake Vs. Oderinlo (1975)19.

The

Defendant, a woman who was married under customary law, promised to marry the Plaintiff and received N100 from him to enable her divorce her husband. It

was held that since the agreement tended to break up the existing marriage and encourage immorality it was void. Likewise in Pearce Vs. Brooks (1866)20. A prostitute made a form of hire purchase contract for a carriage to assist her in her trade. The seller knew what she wanted it for. Held: He could not enforce the contract against her.

Consequences of illegality: The general rule is that no action can be brought party to an illegal contract, i.e. ex turpi causa non oritur actio. Thus: (i)

by

No action will lie, for the recovery of the money paid or property transferred under an illegal contract as in Parkinson's case above.

(ii)

No action will lie for a breach of an illegal contract. Pearce Vs. Brooks21, Beresford Vs. Royal Insurance Co. Ltd22, Allen Vs Rescous23.

(iii)

Where part of an illegal contract would have been lawful by itself, the court will not sever the good from the bad.

(iv)

Any contract which is collateral to the illegal contract is also tainted with illegality and is treated as being illegal even though it would have been lawful by itself.

There are however exceptions to this general rule of non recovery: A party to an illegal contract may sue to recover money paid or property transferred as follows:-

(a)

Where the parties are not in pari delicto i.e. are equally at fault. Where a party is innocent of the illegality as may be where he does not know the purpose for which the other party is entering the contracting, as where the owner of the coach in the

55

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Pearce Vs Brooks24 case could have recovered where he did not know the purpose for which he was hired by the defendant.

(b)

Where a substantial part of the illegal act has not been performed, a truly repentant party may recover.

(c)

Where it is possible to sue without relying on the contract itself. i.e. suing in tort for conversion.

(2)

Void Contracts:

A contract, which is void, does not give rise to rights and

obligations, but the full consequences of illegality are not present. (a) Contracts declared void by statute: A good example is wagering contracts. The attitude of the legislature to these contracts can be seen in the Gaming Act 1845 Section 18 All contracts or agreements, whether by parol or in writing, by way of gaming or wagering shall be null and void; and no suit shall be brought or maintained in any court of law and equity for recovering any sum of money or valuable thing alleged to be won upon any wager or which shall have been deposited in the hands of any person to abide the event to which any wager shall have been made. i.e. that the loser cannot be made to pay and a stakeholder cannot be forced to handover money left with him. The Act also prevents agents recovering money or commission paid out or earned by them on behalf of a principal.

(b)

Contracts void at common law: (i) Contracts to oust the jurisdiction of the courts. If an agreement seeks to prevent access to court, the agreement is void to that extent. If however, access is not prevented but only made subject to an arbitration procedure first, this will usually be permitted, but the courts will not allow themselves to be excluded altogether. (i) Contracts prejudicial to the sanctity of marriage: Which includes agreements restraining the liberty to marry or to procure a marriage for a fee, encouraging immorality or infidelity in an existing marriage and promising marriage after a future separation. They are all against public policy and therefore void. 56

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. (iii) Contracts impeding parental duties: A contract by which a party deprives himself of the custody of his child is void. However a court order to the same effect is binding. (iv) Contracts in restraint of trade: The common law by tradition declares all contracts in restraint of trade as being contrary to public policy. This tradition protects the right to trade freely with goods, money and labour. Any restriction or limitation is prima facie void. It is a contract in restraint of trade. However, if the restrictions are regarded as being reasonable then it may be upheld inspite of being void. Thus, obviously, if the restraint is unreasonable, the contract or at least the offending part of it remains void. In assessing reasonableness there, the courts study the equality of the bargaining power between the parties, the extent of the interest being restricted and the extent of possible injury to the public interest.

These restraint clauses appear in 3 main kinds of contract: (a) Contract between the seller of a business and the buyer where the buyer will seek to prevent the seller from setting up a business again nearby that will compete with the business he bought from him.(or else he might be able to woo back all his old customers) Nordenfelt Vs. Maxim Nordenfelt.25 (b) Contracts between employers and their employees in order to prevent their servants working for competitors and taking trade secrets, or setting up business to compete with his employer and otherwise acting to the employer's disadvantage generally. The issues of the duration of the restraint and the area to be affected in terms of distance are relevant and material but more important is the nature of work the employee concerned was doing. For example if he was a chemist who knows the secret formula responsible for the large sales of the company's beverage, the court may uphold a restraint which prevents him from taking such to a rival company, however if he was an accounting technician the courts may be unwilling to uphold such restraint except where it would be prejudicial to the financial 57

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. well being of the company as during the times of mergers, amalgamations e.t.c. See Pearce Vs. Cullen (1912)26 where the Courts held a covenant restraining a grocery store counter-hand from working for competing firms within a radius of 2 miles of any of the employer's shops for a year as an unreasonable restraint. (c) Solus ties - A garage, a public house, or a food canteen will agree that, in return for financial advantages of one kind or another, it will sell only the product of one Petrol Company or brewery, or soft drinks or beverage company tied to it. These agreements are in restraint of trade and thus, prima facie void. However, the Courts are generally not willing to allow them, provided they are reasonable. Esso Petroleum Vs. Harper's Garage (1968).27 The

Defendant owned 2 garages. In return for lower prices for petroleum supplied and also for mortgage facilities, they were both tied to the company. One tie was for 4 years 5 months, the other was for 21 years. The former was held to be reasonable and the latter unreasonable. Consequences of void contract: Generally, only the part that offends aganst the various rules is affected. This is severed from the rest of the contract. What remains is then enforced.

4.2.6 TERMINATION OR DISCHARGE OF CONTRACT A contract is discharged when the obligation created by it ceases to be binding on the promisor who is no longer under a duty to perform his side of it. The

implication of discharge is that the parties are released and freed from their mutual obligations. This may arise in the following ways: Express agreement Performance Breach Frustration, or Death

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(1)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Agreement: Since contracts come into being by agreements, they can also come to an end where the parties bound by it agree to end the contract. For the discharge to be operative, this agreement to terminate must be supported by consideration. Where neither party has performed there is a full release as consideration is

easily furnished by their agreement to be released from their obligations under the contract. This is known as waiver. But where a party has already performed his obligation under the contract, the other party has to provide some fresh consideration. This kind of discharge is known as accord and satisfaction, i.e. apart from the agreement of the parties (accord), the party to be released from his original obligation is providing some consideration for the other party (satisfaction). An agreement to terminate a contract may also take the form of replacing the old contract with a new one and which may be made between the same parties with fresh terms or made by one of the old parties with a third party, and this is known as novation. On the other hand, the parties, by the contract itself, may have provided for the circumstances under which the contract will be discharged (i.e. come to an end). This could be on the occurrence of a certain event, or on the expiration of a specified period of time mutually agreed, or at the option of one or other of the parties, or on the fulfilment of a condition precedent.

(2)

Performance: Where the parties have done that which they contracted to do the contract becomes discharged by performance. However, if performance is to be an absolute discharge of a contract nothing must remain to be done thereunder by either party i.e. they must have fulfilled both their promises. Cutter v. Powell (1795)

(3)

Breach: A breach occurs where one party fails to do that which he has promised under the contract, either wholly or partly. Such failure destroys the contract. Truly speaking, a breach does not discharge a contract but the injured party may rescind the contract and sue for damages. It also relieves him from further obligations under the contract. Every breach of a contract entitles the injured party 59

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. to claim damages. It is not every breach however, that entitles the injured party to rescind the contract and say he is no longer going on with it. He can only treat the contract as discharged where the breach is total as where it affects a vital part of

the contract that makes the contract incapable of performance. It is also total where it is discernible that the party guilty of the breach has no intention to go on with the contract. It is important to also note that where the party guilty of the breach has informed the injured party before he is to perform his own part of the contract that he does not so intend, such will be known as anticipatory breach. Here the injured party can either sue on the breach immediately or wait until the due date, but if he must wait he must continue to perform his own side of the contract. Generally, a party to a contract may commit a breach of contract in the following ways: (a). by repudiating his liability under the contract before the time for performance is due (i.e. anticipatory breach) (b). (c). by failing to fulfil his obligations when purporting to perform the contract. by his self incapacitating act of performance of the contract

Remedies for Breach of Contract (a) A right of action for damages in respect of the breach of the contract or some term of it. An innocent party has the right to get damages for the

losses occasioned him from the breach. (b) A right of action on quantum meruit i.e. a right to sue in respect of what he had already done before the breach occurred. This remedy avails a party when one party abandons or refuses to perform the contract, when work has been done and accepted under a void contract and when there is no provision for remuneration. Thus on the event of a breach of contract, the injured party may not claim damages, but claim payment for that he has done under the contract. His right to payment is not based on the original contract, but on an implied promise by the other party arising from the acceptance of an executed consideration.

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(c)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. A decree of specific performance compelling the other party to carry out his obligations. This is an equity based remedy, thus it is based on the discretion of the Court and cannot be insisted upon by the party. A party is not entitled to specific performance where damages would be adequate; in contracts for personal services; where it cannot be awarded to the other party (e.g. a minor) where the court cannot supervise the execution of e.g. a building contract ;or in contracts to lend money. An injunction like the contract,

(d)

An injunction restraining him from violating them.

specific performance is also a discretionary remedy and is not available to a party where damages would be adequate compensation. given to prevent a party from acting in breach of a contract. (e) Rescission. The effect of this remedy is to put the parties where they were before they entered the contract. (f) Rectification. Here this equitable remedy allows the parties to rectify their documents in order to give effect to the true intent of their contract. To obtain rectification it must however be proved that: (g) there was complete agreement between the parties on all important terms; the agreement continued unchanged until it was reduced into writing; and the writing did not express what the parties had already agreed. It is generally

Action to account for profits from breach. In exceptional circumstances, the court may allow an injured party to get an account of the profits which may have accrued from that breach to the party in breach. A-G v. Blake (2001). The equitable remedy is available and allowed only where remedies of damages, specific performance and injunction would be inadequate remedy.

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(h)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Action for price or some other sum. This is appropriate where property has passed, and the breach consists of a party`s failure to pay the agreed price, remuneration or debt due under the contract.

(4)

Death: Ordinarily, the death of a party to a contract will not operate to vitiate the contract. However, a contract may be discharged upon the death of one of the parties where the contract is for personal service, and he dies before the personal service could be performed.

(5)

Frustration: Occurs when a contract has become incapable of performance. It generally does not discharge a contract and the defaulting party is liable in damages inspite of the fact that his inability to perform is due to circumstances beyond his control. However it will discharge a contract:(a) Where the impossibility is caused by a change in the law or supervening circumstance. For example, where A agrees to import an item for sale to B and Government bans the importation of such an item, such contract of sale becomes discharged by frustration. (b) Where the accidental destruction of a specific thing upon which the contract depends renders performance impossible Taylor Vs. Caldwell (1863)28 A, hired a music hall from B, an accidental fire destroyed the hall. It was held that the contract was discharged. (c) Where the contract depends upon the happening of a specific event which does not occur. Krell Vs. Henry (1903)29 The Defendant hired a room to view a coronation procession that will pass along there, the procession was however cancelled. It was decided by the Court that the contract had become discharged upon the procession being called off. (d) Where through vital change of circumstances the contract as a commercial venture is frustrated-war. For example a carrier who has agreed to haul goods through a shorter route may be availed by frustration where such route is destroyed and he has to go through a 62

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. longer and costlier route that the contract is no longer commercially viable. (e) The death of either party to a personal contract terminates it generally. Likewise bankruptcy or illness which goes to the root of the contract will also terminate the contract.

The effect of frustration on a contract is to automatically bring the contract to an end and render it void, thus all sums paid before the discharge by frustration in respect of the contract could be recovered while those sums not yet paid need not be paid. In the old Western Region of Nigeria, this general rule was rested in its Contracts Law, but with two exceptions, which now forms part of the laws of the States who are heirs to the laws made by the Region in 1958/59.(i.e. the states of Ogun, Oyo, Osun, Ekiti, Ondo, Edo and Delta) An example of such applicable provisions are found in the Contracts Law of Ogun State, Cap. 25, Vol I, Laws of Ogun State 1978. The whole of Part 3 containing Sections 6 - 12 deal with frustrated contracts. The relevant Sections show the following: 1. All sums paid to any party in pursuance of the contract before it is discharged are in principle, recoverable. Sums payable but yet to be paid, cease to be payable. 2. Where one party has, by reason of anything done by the other party to the contract, obtained a valuable benefit (other than the payment of money)

that other party may recover from him such sum as the Court considers just.

Payments under contracts of insurance are to be discountenanced when considering sums due for retention or recovery in the instances mentioned above.

63

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. The Law also allows severance of a wholly performed contract from frustrated contracts if severance is possible and the law shall only apply to the part affected by frustration. It should be noted however that the Law does not apply to the following: a. b. Contracts containing a provision to meet the case of frustration. Contracts for the sale of specific goods, which have perished before the risk has passed to the buyer, and any contract of sale where the contract is frustrated because of the fact that the goods have perished.

3. Where the frustrating event was brought about by his own fault or deliberate conduct, that party cannot rely on the doctrine of frustration. Maritime National Fist Ltd v. Ocean Trawlers Ltd.(1935)

4.3

SUMMARY & CONCLUSIONS This chapter dealt extensively with the law of contract, highlighting the different forms of a contract, terms of a contract, differentiating between a mere puff, misrepresentations and contractual terms. Furthermore, it discusses the vitiating elements of contract, pointing out the effects of mistake, misrepresentation, duress, and undue influence on a contract and then distinguishes between void and voidable contracts.

Further study of the chapter would reveal the different types of illegal contracts, and the consequences of illegality in a contract, as well as different types of void contracts and the consequences of void contracts. Lastly, there is a detailed explanation of termination or discharge of contract, showing the different means of discharging a contract, the remedies for the breach of contract and frustration of contract.

Remember that a contract is basically on agreement between the parties, which is binding on them and would be enforced by the Courts, as long as it is not illegal or void, or contain any vitiating elements. 64

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4.4

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. REVISION QUESTIONS 1. 2. 3. State four instances when a contract may be discharged by frustration. List four relationships under Contract where undue influence is presumed. Dinah left her travelling bag at the baggage room of a cinema, since people were not allowed to carry luggage into the cinema. When she paid the fee she was handed a ticket which she did not read. She pushed it into her pocket. After the show she went to collect her bag. It could not be found. She threatened to sue the proprietors, but then the manager referred her to a notice on the shelf where luggage is kept in the baggage room and on the ticket which claimed that the proprietors were excluded from liability. Dinah now asks for your advice. She says she did not see either notice. 4. State, if any, the instances when a party to an illegal contract may sue to recover money paid or property transferred under such contract. 5. 6. Mention 3 ways by which a contract may be terminated or discharged. In June Denise gave an oral promise to XYZ Bank that she would guarantee Frank's overdraft. In August, Frank defaulted and the bank asked Denise to discharge her liability as she had promised. Denise replied in writing, admitting that she had given the guarantee but claimed that the guarantee was defective and is not binding on her. Is her claim correct? 7. Mention three instances when terms will be implied into a contract in addition to those expressly stated by the parties.

MULTIPLE CHOICE QUESTIONS 1. Contract under seal must contain the following EXCEPT ONE A. Deeds B. Specialty C. Contract D. Covenant E. Execution For a simple contract to be enforceable there must be. A. Promisor B. Promisee C. Consideration 65

2.

NOTE:

D. E. 3.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Offeree Seal

The only remedy available for misrepresentation in contract is. A. Equitable remedy of rescission B. Derivative action C. Representative action D. Action for breach of warranty E. Action for breach of condition Vitiating elements of contract include the following EXCEPT ONE A. Mistake B. Misrepresentation C. Duress D. Solicited influence from friends E. Illegality Remedies available to an innocent party in fraudulent misrepresentation include the following EXCEPT ONE. A. The innocent party can sue for damages in tort for deceit. B. He can affirm the contract and go on with it. C. He can disclaim the contract and refuse further performance D. Bring an action for rescission of the contract. E. He can invite the other party to his office for a chart.

4.

5.

SHORT ANSWER QUESTIONS 1. The contracts required by Law to be under seal are 2. Explain briefly the term Bill of Exchange. 3. The Latin word commendatio non obligio means. 4. What is a puff 5. Explain the term warranty

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CHAPTER FIVE AGENCY

5.0

LEARNING OBJECTIVES At the end of this chapter, readers should be able to: v v v explain what is meant by agency identify types of agency explain consent as basis of agency and distinguish between express and implied consent. v v v v v v explain generally what is meant by agency due to operation of law discuss agency of necessity and agency of cohabitation describe ratification describe the rights of the principal and that of the agent distinguish between the obligations on the principal and the agent discuss the modes of termination of agency

5.1

INTRODUCTION It is not always that we can do by ourselves all the things we want to do for ourselves. In many instances we may ask other people to do them on our behalf. Anytime we ask somebody to do something for us which will create a legal relationship between us and third parties, we create an agency relationship. We are the principals and the persons we ask to act on our behalf are the agents. As already indicated the agents are able to create a contractual relationship between the principal and third parties.. The ways of creating agency are varied and will be looked at. The rights and obligations of agency and the ways of terminating agency are also of great importance.

5.2

DEFINITION AND TYPES 5.2.1 Definition of Agency Agency is a relationship arising out of the use of one person by another for the performance of certain tasks on his behalf. It is a situation where one 67

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. person called the agent has an authority or capacity to create legal relations between a person called the principal and 3rd parties. The relationship exists between the two persons because one of them has expressly or impliedly consented that the other should represent him or act on his behalf, and the other has similarly consented to represent the former as directed. Agency has been described as a triangular relationship. These are Principal/Agent relationship, Agent/Third Party relationship and

Principal/Third Party relationship. The three features of agency are service, representation and power to affect the legal position of the principal. An agent can acquire rights for his principal and subject his principal to liabilities.

5.2.2 Types of Agency There are many ways of classifying agents. It may be based on the authority granted the agent giving rise to general and special agents or agents specialised in particular business, trade or profession giving rise to professional agents. There are also commission agents who contract with third parties as principals in their own right and del credere agents who for additional commission will guarantee payment to the principal.

A general agent has the authority to do some acts in the ordinary course of his business, trade or profession on behalf of his principal. Such an agent may act on behalf of his principal in all matters. A special agent on the other hand has authority to act for a particular occasion or purpose or a series of such occasions or purposes.

Examples of professional agents are mercantile agents and solicitors. Mercantile agents are agents who in the customary course of business, have authority to sell goods or to consign goods for the purpose of sale or to buy goods or to raise money on the security of goods. The term covers factors, brokers, auctioneers and del credere agents. 68

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. A factor is an agent entrusted with possession of goods or of the documents of title. He normally sells in his own name without disclosing that of his principal. A broker is a go between, a negotiator. He makes contracts for the purchase or sale of property or goods of which he is not entrusted with the possession or documents of title. An auctioneer is an agent who is employed to sell at a public auction. He is an agent for both the seller and the buyer. He may not be entrusted with the possession of the goods to be sold or the documents thereon.

As already indicated a del credere agent is an agent who usually for extra remuneration undertakes to indemnify his employer against loss arising from the failure of persons with whom he contracts to carry out their contracts. He is an agent charging additional commission for risk. Other agents include Insurance Agents or Brokers who negotiate and effect policies of insurance and Estate Agents who arrange for the sale, acquisition or leasing of real estate.

5.3

CREATION OF AGENCY 1 - CONSENT Consent, operation of law or ratification are the ways by which agency may be created Consensual authority can be granted expressly by contract or may be implied from a contractual relationship.

5.3.1 Express Agency Under this agency, the principal expressly appoints the agent. Such an appointment may be done orally, by writing under hand or by deed. The expectation is that both the principal and the agent must be competent to act. Generally if the principal is not competent he cannot cure it by acting through an agent who is competent. The principle is that whatever a person has power to do himself he may do by means of an agent, but what a person cannot do himself, he cannot do by means of an agent. The requirement is that the purpose of the contract must be lawful and possible. Agency may be created through a power of attorney. The power of attorney then is

69

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. the instrument which confers the agency and the production of a copy of it would be conclusive evidence of the existence of such agency.

5.3.2

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

With apparent or ostensible authority, a person is allowed to appear as if he is the principal's agent when in fact he is not. The principal has led other parties to believe that a person has the authority to represent him. It may also be situation where the principal permits his agent to give the impression that he has more authority than he actually possesses or where the principal allows his agent to appear as an agent where actually the relationship there has been a termination of the relationship.

Apparent authority has been described as a form of estoppel. Even though no principal-agent relationship actually exists in fact, the principal is prevented from denying the existence of the agency relationship and is therefore bound by it. The principal is said to hold out as his agent the person represented as having authority to act on his behalf. Estoppel means that a person who has allowed another to believe that a certain state of affairs exists, with the result that there is reliance upon such belief cannot afterwards be heard to say that the true state was far different, if to do so would involve the other person in suffering some kind of 70

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. detriment. To establish estoppel there must be a representation by words or conduct that the agent has authority, the representation must be made by the principal to the third party and the third party must have relied on the misrepresentation thus entering into the contract.

In Buama v Oppong, [1992] 2 GLR 213 the defendant was the owner /driver of a commercial vehicle. The plaintiff who paid a fare to travel on the vehicle could not find his bag on reaching his destination. He had paid freight for the bag to a bookman who took the bag from him and kept it in the boot of the vehicle. The plaintiff sued for the value of the bag and the items in it, consequential loss and damages. In his defence the defendant contended inter alia that the bookman was not his agent. It was found that the bookman gave the money he had received as freight from the plaintiff to the defendant and that even though the bookmen were employees of the Ghana Private Road Transport Union they were the ones who dealt with the passengers by collecting the fares and freight from them. The defendant was vicariously liable for the loss of the plaintiff's bag by the bookman because if a person is represented or permitted himself to be represented, that representative had authority to act on his behalf, and he would be bound in the same way as he would be if that other had in fact authority to act. Since the defendant was present when the fee was charged and also clear that the defendant had given authority to him, it was an apparent authority to the bookman to act on his behalf. Accordingly, there was an agent and principal relationship between the bookman and the driver. Again, in law, the usage of the trade or business in which an agent was employed would in the absence of express direction frequently determine the liability of the principal.

5.4

CREATION OF AGENCY 1I- OPERATION OF LAW There is no prior agreement between the parties to create an agency relationship and there is no representation to each other or others that one of them was acting as an agent of the other. The law imposes the consequences of agency on their actions. They may arise as agency of necessity or agency of co-habitation 71

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

5.4.1 Agency of Necessity Under agency of necessity it becomes necessary for a person entrusted with another's property to do something to preserve that property. In essence the need to act on behalf of another is unforeseen but arises out of sudden danger to property or some interest of the person on whose behalf the intervention is made. Although the person who is entrusted with the property has no express authority to do the act necessary to preserve it the authority is presumed because of the necessity. A master of a ship's exercise of authority to safeguard a vessel or cargo in danger of perishing is an example. There is the shipmaster's presumed authority to do what is reasonably necessary taking into account the danger, distance, accommodation, expense and such like factors. It is especially so when it is impossible to

communicate with the owners to take instructions. He is expected to act in good faith. Agency of necessity can arise as long as there exists a real emergency. The three conditions which must be satisfied before an agency can be created by necessity are: the impossibility of getting the principal's instructions, an actual and definite commercial necessity for the creation of the agency and the agent of necessity acting bona fide in the interest of the principal.

5.4.2 Agency of Cohabitation At common law as long as a married couple lives together, it is presumed that the wife has the husband's authority to pledge his credit for necessaries. The requirements for such agency are cohabitation and domestic establishment. The goods or services ordered must be necessaries suitable to the style in which the couple customarily lives, otherwise the husband will not be liable to pay. The presumption can be rebutted by the husband proving that he expressly forbade his wife to pledge his credit or warned the supplier not to supply his wife with goods on credit or the wife was sufficiently supplied with the same kind of goods, or sufficient allowance or sufficient means for buying the goods was supplied to the wife or that even though the order was for necessaries it was excessive and

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. extravagant in respect of the husband's income. This principle is of doubtful application today in the light of the equality of the sexes.

5.5

CREATION OF AGENCY BY RATIFICATION A person acts without authorisation but the person on whose behalf the act was purported to have been carried out subsequently adopts the act. It is a retrospective constitution of agency. What it means is that the agent in fact, has no authority to do what he does at the time he does it and the principal on whose behalf and without whose authority the agent has acted, subsequently accepts the agent's act and adopts it just as if there had been a prior authorisation by the principal to do exactly what the agent has done. It may be a situation where the agent has no authority to contract on behalf of the principal or exceeds the authority he has. The contract is not binding on the principal until ratification. A contract can be ratified only under certain circumstances. These include the fact that the agent must expressly have contracted as an agent. The contract can only be ratified by the principal who was named or can be ascertained when the contract was made. An undisclosed principal cannot ratify a contract. The principal must have been in existence at the time the agent entered into the contract. The principal must have had legal capacity to enter into the contract at the time when it was made and at ratification. The principal must at the time of ratification have full

the date of

knowledge of all the material facts. The principal must adopt the whole contract. The principal must ratify within the time set or within a reasonable time.

5.6

OBLIGATIONS OF AGENCY Agency imposes rights and duties on both the agent and the Principal.

5.6.1 The duties of the agent Among the many duties of the agent is the duty to obey all lawful instructions. An agent must comply with his obligations under the contract or perform the undertaking according to instructions. The agent is to exercise due diligence in the performance of his duties. An agent is expected to exercise due or reasonable care and skill in the course of any business on behalf of the principal. An agent in 73

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. addition has a duty to render account when required. The standard is that the agent must keep his own money and property different from that of his principal. Acting in good faith and not letting his interest conflict with his duty is another obligation on the agent.

The agent has a duty not to make secret profit. He is not to make any profit beyond the commission or other remuneration paid by his principal. The agent is therefore accountable to his principal for any profit which he makes without the principal's consent. The agent is not to delegate his authority. He is to carry out instructions personally. The relationship between the principal and his agent is a personal and confidential one. There are however exceptions to this principle. These may include circumstances where the principal expressly consents or unforeseen circumstances make it necessary to delegate or for purely administrative tasks. The agent must not disclose confidential information or documents entrusted to him by his principal. The agent as one of his duties of good faith must not act against the principal's interest. Others are respect for the principal's title and the duty not to take bribe.

5.6.2 The duties of the principal and the rights of both the agent and the principal. The Principal has the duty to pay the agent for his service in terms of the commission or other remuneration agreed. The principal is to indemnify the agent for all acts lawfully done and liabilities legitimately incurred in the performance of his service.

Generally the rights of the agent can be inferred from the duties of the principal and vice versa. In that respect the rights of the agent include the claim for

remuneration for services provided, the claim for reimbursement for all expenses and the claim for indemnity against all liabilities incurred in the performance of his services. He can also exercise a lien over property owned by the principal in respect of claims against the principal.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. The remedies available to the Principal for the default of the agent are action for damages, action for account and payment of interest.

5.7

THE EFFECTS OF AGENCY The agent is able to affect the legal relationship of his principal in the making of contracts and in the disposition of authority. The relationship has a fiduciary nature. The specific rights and liabilities depend on contract.

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

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 5.7.3 Where the agent contracts for an undisclosed principal The agent sometimes discloses neither the existence nor the identity of the principal and in that wise contract with the third party as if he were the principal. Where the agent acts within his authority the undisclosed principal has the right to intervene and sue the third party directly and therefore render himself personally liable to the third party. Once the Principal remains undisclosed the agent may sue and be sued on the contract. The agent can enforce the contract against the third party. The Principal can enforce the contract against the third party. The agent's right of action is lost when the principal decides to intervene.

When the third party becomes aware that there is a principal he may act in a manner as to indicate that he has elected to deal with the principal. On discovery of the principal by the third party, the third party can exercise his option and elect to enforce the contract against the agent or the principal. Where the third party has settled with the agent in a situation of undisclosed principal, such settlement may be a complete defence to the principal's action to recover payments due from the third party. Where the third party had a special reason to contract with the agent the principal may be excluded from the contract. An undisclosed principal cannot ratify any contract made outside of the agent's actual authority.

5.8

TERMINATION OF AGENCY An agency may be terminated by the act of the parties or by operation of law.

5.8.1 Act of the Parties The parties can bring the contract of agency to an end by mutual agreement between them. This is when the termination is from both of them. In other

instances the termination comes from only one of the parties. It may either originate from the principal or from the agent. The termination may be through revocation by the principal by notice or summarily. renunciation of the agency by the agent. It may also be through

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 5.8.2 Operation of Law An agency becomes terminated at the expiration of the time agreed upon for the duration of the agency, or on the complete performance of the undertaking. It may also be due to the frustration of the contract or the happening of an event rendering the continuance of the agency unlawful. The agency may also come to an end where either party becomes incapable of continuing the contract by reason of death, insanity or bankruptcy. In Gordon v Essien, [1992] 1 GLR 232 where the principal had died and the daughter of the agent she had earlier appointed continued to collect rents on her behalf it was stated that It was trite law that death was one of the events which automatically determined an agency; the conception of authority demanded a continuing consent of the principal to the agent's act on his behalf and with the death of the principal the consent would not continue because the mind from which it issued had ceased to exist.

5.9

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

5.10

REVISION QUESTIONS 1. 2. 3. Define agency List the types of agents and describe each of them. Explain agency by consent and distinguish between express and implied consent. 4. 5. 6. What is meant by agency by operation of law? Distinguish between agency of necessity and agency by cohabitation Explain agency by ratification. 77

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7. 8. 9.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Compare the rights of the principal to that of the agent. List the duties of a) the principal and b) the agent Discuss the effects of agency among the principal, agent and third parties

10. Explain how an agency may be terminated.

MULTIPLE CHOICE QUESTIONS 1. A person appointed by another person to act on his behalf generally is known as A. Envoy B. Representative C. Agent D. Proxy E. Delegate An agent is entitled to claim from his principal.. A. Remuneration B. Commission C. Reimbursement D. Interest E. Set off Agency can be created by the following ways EXCEPT A. B. C. D. E. 4. Agency by conduct/Estoppel Agency by ratification Agency by Auction Agency by Cohabitation Agency by necessity

2.

3.

Duties of an agent include the following EXCEPT. A. B. C. E. Duty of loyalty Duty to exercise skill Duty to assist the wife of the principal to recruit driver whenever the principal travels Duty not to make undisclosed profit/commission

5.

Agency relationship may be terminated by the following EXCEPT ONE A. B. C. Death of either party Bankruptcy of either party Effluxion of time 78

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D. E.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Advice of the principals banker Insanity of either party.

SHORT ANSWER QUESTIONS 1. 2. 3. 4. 5. What is the meaning of the maxim Delegatus non Potest delegare as it appears to a contract of Agency? Explain the term implied agency. Explain the term express agency. A del cedere agent is Explain the duties of an Insurance Agent or broker.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

CHAPTER SIX SALES OF GOODS

LEARNING OBJECTIVES Upon completion of this chapter, readers should be able to: define contract for sales of goods understand the general principles of a contract for sales of goods describe a contract for sales of goods mention and explain the terms of a contract for sales of goods differentiate between a contract for sales of goods and other transactions.

6.0

INTRODUCTION In the previous chapter, the law of contract was considered and discussed in detail. In this chapter, the focus will be on the contract of sales of goods, which is a kind of contract. So, the readers would do well to recall all that was discussed about contracts, as that would provide a basis for their understanding of this chapter. The same basic rules which apply to a contract also apply to a contract for sales of

goods, but a contract for sales of goods has further detailed and extensive rules which would be considered.

The Contract of Sales of Goods is perhaps the most common of all commercial contracts. It is the best known specialised contract. Several hundreds of them are entered into and concluded, each day. The basic principles which govern

this specialized contract are still found within the general principles of law of Contract. Thus to appreciate the contract of Sales of Goods, a grasp of the fundamental principles of the general Contract law is essential. A contract for our purposes is accordingly defined as an Agreement which is binding on the parties thereto and which may be enforced by the Courts against the defaulting party. 80

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Under the general principles of Contract, certain elements are essential for the validity of contracts and for emphasis these are reiterated as follows: i. ii. iii. iv. v. Agreement which consists of the Offer and Acceptance Consideration Intention to Create Legal Relations Capacity Genuine Consent / Vitiating factors. Some knowledge of the above

mentioned essentials of a valid contract is thus necessary for an appreciation of this specialized Contract of Sales of Goods. The contract of Sales of Goods is basically governed by common law, the Sales of Goods Act of 1893 (by virtue of the fact that it is a Statute of General Application which applies to most parts of Nigeria other than the states which make up the Old Western Region of Nigeria who have their own Sales of Goods Law ) still retained as the Sales of Goods Act in the Laws of the Federation of Nigeria 1990 and the 2004 Laws of the Federation of Nigeria, and the Sales of Goods Law 1978 in Ogun State.

Thus what is a Contract of Sales of Goods? By Section1 (1) of the Sale of Goods Act 1893, it is a contract whereby the seller transfers, or agrees to transfer, the property in goods to the buyer for a money consideration called the price. The essence of a Sale of Goods Contract is that the parties intend to transfer ownership of property in the goods from the seller to the buyer. Where the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property is to take place at a future time subject to some condition thereafter to be fulfilled, it is called an agreement. Certain important issues are raised by these definitions. First, there must be a contract before the Sale of Goods Act applies and this stresses the point made earlier that the Act builds upon the common law of Contract.. Secondly, the property may be transferred under the contract immediately, or it may be agreed to be transferred later. This is known as an agreement to sell. This Contract is still binding and the Act still applies to it. Thirdly, the subject matter of the contract is not the physical possession of the goods at all but the ownership of them, thus the 81

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. property in goods means the ownership of them. It can and it does often move to the buyer before the physical possession of the goods. Fourthly, the Goods, the subject matter of the transfer of the property is defined by Section 61 to include all personal chattels other than things in action and money....... and, in particular goods includes emblements; industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Emblements comprises crops and vegetable (e.g. corn and potatoes) produced by the labour of man and ordinarily yielding a present annual profit.

6.1

CLASSIFICATION OF GOODS Many of the rules of the applicable Statute depend largely upon the type of goods which are the subject matter of the contract which we have seen basically is the transfer of ownership. (i) Specific Goods: By Section 62 of the Act these are goods which are identified and agreed on at the time a contract of sale is made. It must thus be perfectly clear which goods are being sold, e.g. that blue car there in the car sales room or those baking items there on the shelf in the Supermarket. See Underwood V. Burgh Castle1, Brick & Cement Syndicate (1922)2

(ii)

Unascertained goods: The Act does not define this. However, goods are either specific or they are not. The time the distinction is made is when the contract of sale is made. At that time, if the goods are identified and agreed on they are specific goods; if they are not identified and agreed on they are unascertained goods e.g. where the contract relates to part of a larger quantity of goods as in 500 bags of rice out of the bags kept in my warehouse. It is important to remember that unascertained goods can become ascertained goods but they can never be specific goods again because goods are only specific when they are identified and agreed upon at the time the contract is made. 82

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. (iii) Existing goods: By Section 5(1), these are goods which the seller owns or possesses at the time of the contract and they may be either specific or unascertained. (iv) Future goods: Also by Section 5(1), they are goods which the seller is to manufacture or acquire after the contract of sale is made, they are generally unascertained goods.

Finally, what moves in exchange is money, a money consideration called the price. The point being made is to distinguish a contract of sale from a contract of exchange where the principal object of the contract is the exchange of goods. It should be noted however that the price need not however be wholly in money. See Aldridge V. Johnson3 where a contract for the sale of 52 bullocks valued at $6 each against 100 quarters of barley valued at $3 per quarter, the difference to be paid in cash was treated as a sale of goods contract.

A consideration of other variety of transactions that are not sales of goods within the Act is also necessary here. (a) Hire Purchase Agreements: - Here, the hirer is only given possession of the goods, (thus making him a bailee) together with an option to purchase them. Since he is not bound to exercise the option (i.e. the payment of a small final payment which transfers ownership to him), he has not agreed to buy them and is therefore not a buyer within the Act.

(b)

Work and Materials:- If the main purpose of the contract is not for the sale of goods, i.e. for the transfer of ownership in goods, the Act does not apply as in a contract for the supply or provision of labour where the substance of the contract is an undertaking to use skill in producing a particular article. See Robinson V. Graves (1935)4 G. commissioned R, an artist to paint a portrait of X for 250 guineas. R supplied the canvas and other materials. The Courts decided that it was a contract for work and materials and not for sale of goods. Lee V. Griffin (1861)5 A Dental mechanic was employed to make to measure a set of false teeth. The 83

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Courts decided that this was a contract of sale. If Alex goes to the carpenter's and buys a table out of ten tables he sees at his workplace what they entered into is a simple sale of goods contract. But while at his workplace he sees an inquisitively carved table made for a third party and he requests the carpenter to make another similar to that for him with extra trimmings, this would most likely be a contract for work and materials because he relies on his skill in producing this specially designed table.

(c)

Sale and Bailment:- Bailment arises where the ownership and the possession of goods become vested in different persons, e.g. where a car is given to the mechanic for repairs, the car owner still remains the owner of it and the mechanic acquires the possession of it in the interim for the purposes of repair thus becoming its bailee. A bailment is thus a delivery of goods on a condition, expressed or implied that they shall be restored by the bailee to the bailor or delivered according to his direction as soon as the purpose for which they are bailed shall be fulfilled. It shows that this transaction will not be governed by the Sale of Goods Act since the parties do not intend that that property (ownership) of the goods should pass.

6.2

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

6.3

THE TERMS OF THE CONTRACT OF SALE OF GOODS As in all contracts the agreement between the parties will show the obligations which the parties owe each other. These obligations known as terms of the contract may be expressly spelt out by the parties as that which will bind them. However apart from these express terms certain other terms are also implied into their contract by the Sale of Goods Act. The major term are those contained in Sections 12-15 of the Act and consists of the seller's main obligations in a sale of goods 84

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. contract. These terms as we have learnt under the general principles of contract are not all of equal importance. A very important term in a contract of sale of goods is called a condition. A term of lesser importance is called warranty. For a breach of condition the buyer can cancel the contract. For a breach of warranty, he cannot. He does not have to put up with it. He can have damages. For any breach, he is entitled to damages, but he cannot cancel the contract for just a minor breach. Section 62 of the Act further emphasises this point by defining a warranty as follows: An agreement with reference to goods which are the subject of contract of sales, but collateral to the main purpose of the contract the breach which gives rise to a claim for damages, but not to a right to reject the goods and treat the contract as repudiated.

The reason for distinguishing terms from one another is mainly connected with the right of cancellation for breach of condition. The courts are often concerned whether the right to cancel exists. A particular term in a contract may be a condition because it is said to be so by a statute or by the common law. The Sale of Goods Act also states that whether a term is a condition or warranty depends on the construction of the particular contract of sale. The Act set out to preserve the freedom of the parties to make their own bargain so they may put any terms which they like in their contracts and these are called express terms. However, the Act also implies various terms into the contract which the parties in the exercise of their freedom to bargain and contract may exclude from their contract. A consideration of these implied terms which we are about to undertake now shows that these terms are implied by statute to mitigate the harshness of the common law principles of caveat emptor (Let the buyer beware). Under this principle, it was for the parties to make their own bargain i.e. it was up to the buyer to decide whether the goods were merchantable and fit before he agreed to buy them, if he finds they were not after the sale, there was nothing he could do, he thus becomes saddled with useless goods, hence the intervention by statute to avoid the supply of useless goods by the seller to the buyer. This caveat emptor principle has been severely eroded by the under mentioned terms implied in a sale of goods contract 85

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. but they are however not extinct. The principal obligation of the parties is as contained in Section 27 of the Sale of Goods Act and it is as follows - It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them in accordance with the contract of sale. Thus what the parties must do must be in accordance with the express and implied terms of their contract of sale.

The terms implied in a contract of sale of goods are as follows

6.3.1 TITLE (a). Section 12(1) provides as follows: An implied condition on the part of the seller that in the case of a sale he has a right to sell the goods, and that in the case of an agreement to sell he will have a right to sell the goods when the property is to pass.

There is thus an implied condition on the part of the seller that he shall have a right to sell the goods. If therefore the seller has no title, as maybe where the goods are stolen, he is liable to the buyer. See Rowland V. Divall (1923)6. The buyer of a car used it for three months, but then found that it was stolen and had to return it to the true owner. The Court held that the buyer was entitled to recover the full

purchase price even though he had used it for some time.

Akoshile V Ogidan (1950).7 The plaintiff bought a car from the defendant which turned out to be a stolen car, which was later taken away by the police. He recovered his full purchase price from the Defendant.

The decisions in these cases shows that the purchaser in both cases bought

to

become owners, but did not so become owners because the sellers breached this implied condition of title; hence they were entitled to their full purchase price. These cases also help to bring out the distinction between conditions and warranties, as they show that truly for a condition the innocent party can truly cancel the contract and get his full money back as well as ask for damages. 86

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Section 12 also implies certain warranties into a sale of goods contract. For the breach of a warranty we should remember that the injured party can only ask for damages and cannot cancel the contract but go on with it.

(b).

Section 12(2):- An implied warranty that the buyer shall have and enjoy quiet possession of the goods i.e. the seller will be liable in damages if the buyer is disturbed in the enjoyment of the goods in consequence of the seller's defective title

(c).

Section 12(3):- An implied warranty that the goods shall be free from any charge or encumbrance in favour of a third party, not declared or known to the buyer before or at the time when the contract is made. A failure to disclose that a repairman's fees (which entitle him to a lien to retain the car) are still outstanding in respect of a sale concerning a second hand car amounts to a charge or an encumbrance which entitles the buyer to seek damage for this breach of warranty.

6.3.2 DESCRIPTION Section 13 provides as follows: Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description, and if the sale be by sample, as well as by description it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description. Goods are sold by description when they are described in the contract and the buyer contracts in reliance on that description.

See Re-Moore & Co. Vs. Landauer & Co. (1921)8. The buyer described in the contract of sale how he wanted his consignment of goods, i.e. canned fruit, to be packed. The seller packed them differently, however, the Courts held that he was entitled to reject.

87

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Arcos V. Ronaasen (1933)9. This contract was for the supply of 1/2 inch wooden staves. The seller supplied some staves as thick as 9/16 of an inch thick. The Court held that the buyer could reject the goods as they did not correspond with the description.

It is important to note that if the buyer does not see the goods, he must be buying by description. Even where he sees them he may still be buying by description as long as they are sold not as specific goods but as goods answering a description. For example, a mother may send her young child to the fish monger's to buy sardine fish, the daughter may see the fish among other types being sold by the fish monger but may not know it and still request for sardine, she is still buying by description even though she can see them as long as she does not point to any.

The courts have given a very wide meaning to the term description. It has been held to include not only the class of type to which the goods belong but also to such matters as ingredients, thickness, packaging, quantity and date of shipment.

6.3.3

Merchantable Quality: There are two conditions provided for under Section 14 and they relate to quality and fitness for purpose. These two conditions unlike the other terms implied by the Act only apply where the seller sells in the course of a business whereas the other terms apply to all contracts of sales. Generally Section 14 provides that a seller owes no obligation as regards the quality or suitability of the goods except as regards those contracted under the provisions of Section 14(1) and Section 14(2). We shall consider the one that deals with merchantable quality first under Section 14(2) before considering the exception relating to fitness of purpose under Section14 (1).

Section 14(2) Where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not) there is an implied condition that the goods shall be of merchantable quality; provided that 88

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed. The phrase Merchantable Quality means fit for its normal purpose So a badminton racquet must be reasonably good for playing badminton. The quality which the buyer is entitled to expect however depends on many factors. If he buys cheap goods, it is expected that the quality would not be as that of more expensive goods. Likewise second hand goods would be merchantable as such although they may not be satisfactory if the contract concerns new goods. See Bartlett Vs Sidney Marcus Ltd. (1965)10 where a second hand car sold with a defective clutch was held to be of merchantable quality by the court, because the buyer was already aware of this defect and the relatively low price paid for it took account of this defect. Although it has been stated that this condition applies only where a seller sells in the course of a business, the mere fact that the seller is handling a particular product for the first time is immaterial.

The condition of merchantable quality can apply not only to the contents of a bottle but also to the bottle itself even if it is to be returned after use. So if the goods actually bought contain a foreign body (e.g. worms, glass cork) the totality of the goods supplied are unmerchantable.

Also where the buyer has examined the goods no condition is implied as regards defects which the examination would have revealed as contained in the proviso to Section 14(2). See Heil V. Hedges (1951).11 the buyer of pork chops failed to cook them properly and became ill as the result of the chops becoming infected by worms. Had she cooked them properly, the infection would not have occurred. Her claim for damages failed.

(a)

For How Long must Goods be Merchantable Cases involving the sale of perishable goods such as eggs, rabbits and potatoes show that if defects appear soon after purchase this may show that the goods were 89

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. unmerchantable at the time of the contract, thus goods must be of merchantable quality both at the time of the contract and remain so for a reasonable time for perishable goods. See Beer V. Walker (1877).12 Sellers of rabbits sent them by train from London where they were still merchantable, but on arriving at Brighton they were putrid and useless inspite of the fact that the journey was a perfectly normal one: The sellers were held liable for selling unmerchantable goods.

(b)

Fitness for Purpose Section 14(1): Where the buyer expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that he relies on the seller's skill and judgment and the goods are

of a description, which it is in the course of the seller's business to supply (whether he be the manufacturer or not), there is an implied condition that the goods must be reasonably fit for such purpose,... Hence, if the buyer points out what he wants the goods for, then the goods must be fit for that purpose. This applies whether or not the purpose is the normal one. See Frost V. Aylesbury Diary Co. Ltd. (1905)13. Seller supplied milk

to Buyer, it contained some germs and Buyer's wife contracted typhoid and died. Buyer sued Seller in contract and Seller argued that no amount of care on his part could have discovered the germ. It was held that the seller was therefore liable.

6.3.4 Sales By Sample: Section 15(2) In the case of a contract for sale by sample there is an implied conditiona. b. That the bulk must correspond with the sample in quality. That the buyer must have a reasonable opportunity of comparing the bulk with the sample. c. That the goods will be free from any defect, rendering them unmerchatable, which would not be apparent on reasonable examination of the sample. 90

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. In Godley Vs Perry (1960)14 a boy bought a plastic catapult from a retailer, it broke and injured the boy in an eye. The retailer had bought from a wholesaler and had tested a sample with no defect showing at the time. The Court held that the retailer was liable to the boy for a breach of Section 14 i.e. that of merchantable quality and fitness for purpose. The Court held as well that the retailer could recover damages from the

wholesaler for breach of Section 15.

As stated earlier these conditions and warranties implied by the Sale of Goods Act can however be expressly excluded or modified by the parties to the contract as stated under Section 55.

6.4

OTHER TERMS: It is important to consider such other terms which binds the parties which are also f equal significance as those considered under Sections 12-15. 6.4.1 Implied as to time: The Act allows the parties the freedom to contract concerning the duties to deliver and to pay, but if they make no such terms the provisions of Section 28 of the Act applies. It provides thusterms

Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for the possession of the goods.

Notwithstanding the above stipulations as to time of payment or delivery being either conditions or warranties are however to be found in sections 8 and 9.

(a)

As to payment:- The Act provides that unless a different intention appears the contract, stipulations as to the time of payment are not deemed to be

from the

essence of a contract of sale. Whether any other stipulation as to time is of the 91

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. essence depends upon the terms of the contract. Section 9 1). The effect of this seems to be that failure to pay on time is treated as each of warranty than as that of a condition.

(b)

As to delivery:- The Act lays down no rules here but the decided cases show that where the time of delivery is fixed by the contract, failure to deliver or allow collection on time is a breach of contract entitling the buyer to rescind the contract.

6.4.2 Implied term as to price This may be fixed by the contract or may be determined by the course of dealing between the parties. In the absence of either of these, the buyer must pay a reasonable price the amount of which is determined by the circumstances of each particular case. Section (8).

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

time when the parties intend it to pass. Thus intention can be gathered from the terms of the contract, the conduct of the parties and the circumstances of the case (Section 17). Unless a contrary intention appears, however the following rules are applicable for ascertaining the parties' intention (Section18).

92

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Rule 1. Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property passes to the buyer when the contract is made and it is immaterial whether the time of payment or the time of delivery, or both be postponed.

The Rule provided above is self explanatory, howbeit it is to the effect that unless the contract states otherwise the buyer becomes the owner of the goods of a sale of goods contract when the contract is made as long as the goods are ready for delivery even where the seller agrees to deliver the goods later and the buyer agrees to pay later. Thus if anything happens to such goods, generally it is the buyer that will bear the risk.

Rule 2: Where there is a contract for the sale of specific goods not in a deliverable state, i.e. the seller has to do something to the goods to put them in a deliverable state, the property does not pass until that thing is done and the buyer has notice of it.

The only difference between this Rule and Rule 1 above lies in the fact that the goods in Rule 1 are ready for delivery while those under this Rule are not yet ready for delivery. Once they become ready for delivery however the seller must inform the buyer, it is upon such notice that ownership in the goods passes to the buyer.

Rule 3. Where there is a contract for the sale of specific goods in a deliverable state but the seller is bound to weigh, measure, test or do something with reference to the goods for the purpose of ascertaining the price, the property does not pass until that thing is done and the buyer has notice of it. See Turley V. Bates (1863)15. S sold B a heap of clay at a price of $x per ton and it was agreed that the buyer would load the clay and weigh it to ascertain the price. The Court held that property passed to the buyer when the contract was made.

93

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Rule 4: When goods are delivered to the buyer on approval or on sale or return basis the property therein passes to the buyer:(a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction. Kirkham V. Attenborough (1897)16, K delivered jewellery to W on sale or return. W pledged it with A. It was held that the pledge was an act by W adopting the transaction, and therefore, the property in the jewellery passed to him so that K could not recover from A.

Another example is where someone delivers a pair of shoes to you, and you are undecided whether to buy them but promise to return them within two weeks. If you put them on and wear them on the third day, this rule comes into play to show that you become the owner of them when you wear them.

(b)

if he retains the goods without giving notice of rejection, beyond the time fixed for the return of goods, or if no time is fixed beyond reasonable time.

This is self explanatory as what this subsection simply says that when you hold onto goods for an agreed period or for a long time you become the owner of it.

Unascertained Goods Section 16 - Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. This section states the obvious as I cannot become the owner of 50 bags of rice in a warehouse containing 1000 bags without my 50 bags being ascertained. By the provisions of Rule 5 ascertainment does not make them mine until certain acts listed under the Rule are carried out.

94

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Rule 5: Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods then passes to the buyer; and the assent may be express or implied and may be given either before or after the appropriation is made.

The under mentioned are some of the ways in which unascertained goods may become ascertained (a) if the seller separates the sold goods from the consignment and informs the buyer. (b) by measuring the sold portion from the whole and informing the buyer. (c) by a process of exhaustion. An example is where Linda wants to buy 5 bowls (kongos) of gari from a seller who has about 30 bowls in her basin. The process of continual and continuous selling of relatively small bowls of gari until 5 bowls is left is an of exhaustion. illustration

6.4.4 Passing of Risk. Risk covers a wide range of misfortunes that may befall goods from slight damage through theft to loss or total destruction. Who bears such loss is thus the basic question that arises for consideration herein. The applicable Section 20 which helps in determining this issue provides thus:

Unless otherwise agreed, the goods remain at the seller's risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not:

95

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Provided that where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault: Provided also that nothing in this section shall affect the duties or liabilities of either seller or buyer as bailee of the goods of the other party.

Loss may arise in these possible ways (a) Loss occurring before the Contract is made: A reading of the applicable Section 20 shows that the seller bears this loss. He is however protected from liability to the buyer by Section 6 of the Act where the contract concerns specific goods. Section 6 provides as follows: Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void. The seller of course still bears the loss but it should be noted that he has no liability to the buyer as the

contract is void. See Barrow, Lane & Ballard Ltd. Vs Phillips & Co. Ltd. (1929)17 109 bags of 700 bags of specific oods which formed the subject matter of the contract of a sale of goods had been stolen before the contract was made, and this was unknown to the sellers. The Courts held that the specific 700 bags had perished thus rendering the contract void.

(b)

Loss occurring between the Contract and the Passing of property: This will also be borne by the seller since property has not passed by the provisions of section 20. The buyer may also recover damages for non delivery where the seller fails to find other supplies. Section 7 however protects the seller from liability to the buyer although he still bears the loss. It provides thus: Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided.

96

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. (c) Loss occurring after the Passing of property: By the provisions of Section 20 this is borne by the buyer even where the goods are still in the custody of the seller. Tarling V. Baxter (1827)18, S sold to B a haystack which was to remain on the seller's premises until the following May. Before May arrived, the haystack was destroyed in an accidental fire. It was held that property and risk had passed to the buyer who remained liable to pay the price. It is important to note here that if the fire that destroyed haystack had not been caused by accident but by the negligence of the seller he could well have been liable for the loss, although not as seller but as bailee of the good having regard to the second proviso of Section 20 relating to duties and liabilities of either of the parties as such. Where a party also delays delivery as provided under the first proviso to Section 20 he bears the risk.

See Demby Hamilton & Co Ltd. Vs Barden (1949)19. The contract concerned the supply of 30 tons of apple juice by weekly consignments to the buyer. The buyer delayed in taking delivery of some of the juice which went bad. The Court held him responsible to pay for the loss occasioned by his delay.

The provisions of the Act can however be varied by agreement or by trade custom. In some cases the parties may agree that the risk passes before property. See Sterns Ltd. Vs. Vickers Ltd (1923)20 - Sale of 120,000 gallons of white spirit out of m 200,000 in a tank on wharf. No appropriation to the contract is made, but a delivery warrant is issued to the buyer, and the wharfingers attorn to the buyer. The warrant is not acted on for some time and the spirit deteriorates. The loss falls on the buyer.

At other times the property may pass before the risk as where the seller agrees to send specific goods to the buyer at the seller's risk. If the seller 97

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. does agree to deliver goods at his risk his liability is governed by Section 33 which provides as follows: Where the seller of goods agrees to deliver them at his own risk at a place other than that where they are when sold, the buyer must necessarily incident to the course of transit. nevertheless, goods

unless otherwise agreed, take any risk of deterioration in the

The seller must, however, take the risk of extraordinary or unusual deterioration of loss. 6.5 TRANSFER OF TITLE BY A NON-OWNER Generally only the owner of goods can validly transfer property or ownership in them to a third party. The law however allows his agent to do so too. But there are other instances where property in goods is transferred to a third party by a person who is not the owner or his agent. It is this troublesome area that we will consider now for a buyer may not be getting what he bargained for or indeed anything at all. In this area of the law there is a simple basic rule which however has so many exceptions. The basic rule favours the original owner while the exceptions favour the innocent purchaser from a seller who had no right to sell or title to transfer to him.

This basic rule is expressed in the Latin phrase nemo dat quod non habet and it literally means nobody can give what he has not got. The courts have tried to explain why this basic rule must have so many legally recognised exceptions. The best and finest expression of this rationale is found in the under mentioned dictum of Denning L.J (as he then was) in Bishopsgate Motor Finance Corporation Vs Transport Brakes Ltd. (1949)21. It goes thus In the development of our law, two principles have striven for mastery. The first is for the protection of property: no one can give a better title than he himself possesses. The second is for the protection of commercial transactions: The person who takes in good faith and for value without notice should get a better title. The first principle has held sway for a 98

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. long time, but it has been modified by the common law itself and by statute so as to meet the needs of our times The said basic rule is also the basis of Section 21(1) of the Sale of Goods Act which reads thus: ....where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell:

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

(c)

Sale in Market Overt. This is provided for under Section 22 which provides as follows: Where goods are sold in market overt, according to the usage of the market the buyer acquires a good title to the goods provided he buys them in good faith and without notice of any defect or want of title on the part of the seller.

99

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. This is the most ancient of the exceptions and was incorporated in the Act upon its enactment. If a person's property was stolen, and such person was reasonably diligent, such property could be found if it went on display att he local market. The concept is one of an open public market selling openly to customers who buy in good faith. The doctrine covers any open, public, legally constituted market. The sale must take place on the customary market day, during the usual hours of business. The goods must ways be on open, public display. In Bishopsgate Motor Finance corporation Vs transport Brakes Ltd. (1949)22. A car was sold in Maidstone Market, the seller was not the owner, and the car was the subject of a Hire-Purchase agreement. Nevertheless, Maidstone was held to be a legally constituted market for the purpose of the market overt rules. Cars were commonly sold there and the buyer took in good faith and us obtained a good title. It is important to however note that if the goods are stolen goods and the thief is afterwards convicted, property in the goods reverts to the true owner of them notwithstanding any intermediate dealing with them either by sale in market overt or otherwise (See Section 24 of the Act), this means that if A steals B's watch and sells it title ceases and B's title revives. (d) Sale under Voidable Title: If the seller has a voidable title to goods and his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided that he did not know of the seller's defect of title and bought in good faith. This exception is provided by Section 23. e.g. If A by duress obtains goods from B, A has only a voidable title to the goods, and B can rescind the contract. If A, before B rescinds the contract sells to C, who buys in good faith and in ignorance of the vitiating element of duress, C will get a good title. in market overt to C, C acquires a good title to it. But if A is thereafter convicted of theft C's

100

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(e)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Sale by Seller in Possession: Section 25(1) of the Act provides this exception. It states: Where a person having sold goods continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or disposition thereof, to any person receiving the same in good faith and without notice of the previous sale, has the same effect as if the person taking the delivery or transfer were expressly authorised by the owner of the goods to make the same.

If Alex sells to Bob but retains physical possession of the goods or documents of the title, then Alex can sell them again to Chris as long as Chris does not know of the previous transaction, Bob will however be able to recover his money back from Alex.

(f)

Sale by Buyer in Possession: This exception is provided by Section 25(2) Where a person having bought or agreed to buy goods obtains with the consent of the seller possession of the goods or of the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or disposition thereof, or under any agreement for sale pledge or disposition thereof ,to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have the same effect as if the person making the delivery or transfer were mercantile agent in possession of the goods or documents of title with the consent of the owner. This is the converse position of Section 25(1) and it generally arises where the buyer has possession but does not have title in the goods .e.g. where Bob agrees to buy goods from a seller who gives possession of the goods to him, where he sells to an innocent third party of his defective title such third party acquires title. 101

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. (g) Disposition of goods under common law and statutory powers: Examples are:i. ii. iii. The right of a pawnbroker to sell unredeemed goods pledged with him. The right of a hotel to sell the property of guests to satisfy debts. The right of landlords in certain circumstances to sell tenant's goods for arrears of rent iv. The rights of repairers such as watch repairers, cobblers, or those of electronic items to sell uncollected goods.

The exercises of the power of sale by these categories of non owners are subject to restrictions such as the need to give notice and time. The Courts also of course can exercise the rights to dispose off perishable goods or in execution of a judgment debt.

6.6

BREACH

OF

SALE

OF

GOODS

CONTRACT

AND

THE

REMEDIES OF THE PARTIES Where either of the parties to the contract of a Sale of Goods contract breach its terms the following are the remedies which the law provides 6.6.1 Buyer's Rights. (a) The right to reject the goodsThe buyer can reject the goods if the seller is in breach of condition, e.g. one of the implied conditions noted above. If he does so he need to not pay price and if he has paid it, he can recover it. The right to reject is lost if the goods have been accepted. (b) Action for damagesHe can sue for damages for non-delivery of the goods. (c) Action for specific performance. The buyer can only exercise this right compelling the seller to deliver the goods when the goods are specific or ascertained. This

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. remedy is only also exercisable where damages will not be an adequate remedy (d) Recovery of purchase price Where seller fails to deliver the goods the subject matter of the contract.

6.6.2.1 Seller's Rights. They are of two kinds. He has right over the goods which are called real rights as against his rights against the buyer himself which are regarded as personal rights.

Real Rights: An unpaid seller of goods, even though the property in the goods has passed to the buyer has the following rights (a) A Lien: A lien is the right to retain possession of the goods, until payment of the price. It arises by the provision of Section 41 of the Act as follows i. ii. when the goods have been sold without any stipulation as to credit; when the goods have been sold on credit but the term of credit has expired; iii. when the buyer becomes insolvent.

By the provisions of Section 43 this right is lost: a. when the goods are delivered to a carrier for the purpose of transmission to the buyer, without reserving the right of disposal; b. when the buyer or his agent lawfully obtains his possession of the goods; c. by waiver.

(b)

Right of stoppage in transit, i.e. the right of stopping the goods while they are in transit and resuming possession of them until payment of the price. This is provided by Section 44 of the Act. It is available when:i. ii. the buyer becomes insolvent; and the goods are in transit.

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(c)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Right of Resale. There is no general right to resell. The right of a lien or that of stoppage in return does not also entitle the seller to resell. The seller even though unpaid who resells is generally in breach. He must deliver the goods in return. However, in the following instances he has a right to resell. i. ii. where the goods are of a perishable nature. where he gives notice to the buyer of his intention to resell, and the buyer does not within a reasonable time pay or tender the price. iii. where the seller expressly reserves a right of resale in case the buyer should make default.

If the seller however suffers loss from the resale he can claim such from the buyer as damages.

(d)

Right of withholding delivery: This right arises where property in the goods has not passed to the buyer and possession is also with the seller.

Personal Rights: A seller is also entitled to these personal rights against the buyer where the buyer breaches the contract. (a) To sue for the Price By Section 49 of the Act this right avails the seller when the property in the goods have passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods. (b) To sue for Non-Acceptance. This action for damages lies when the buyer refuses or neglects to accept the goods.

6.7

SUMMARY AND CONCLUSION This chapter has explained what a contract for sale of goods means and the laws that govern such contract. Also, it shows the classifications of goods, differentiating between specific goods and unascertained goods and the difference between a contract for sale of goods and other transactions that seem similar to it. Further, it shows the form and terms of the contract, differentiating between a 104

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. condition and a warranty; and explains the implied terms in a contract such as title, description, merchantable quality etc.

It discusses and explains other terms like time, price. It further explains transfer of title by non-owner, passing of risks, and breach of the contract and remedies available to the parties.

Please, remember that a contract for sale of goods is in its basic form, a contract, which is an agreement between the two parties, which is binding on them, and enforceable by the Courts.

6.8 1. 2.

REVISION QUESTIONS Define a contract for sale of goods. How does a contract for sale of goods differ from a. b. c. hire purchase agreements work and materials sale and bailment

3. 4. 5. 6.

Mention and explain three implied terms in a contract for sale of goods. Explain the difference between a condition and a warranty In what instances is a transfer of title by a non owner valid? State the remedies available to a seller in the case of a breach of the sale of goods. the contract for

7. 8. 9.

State the classes of goods that we have.. What is a warranty, condition? When is the seller's duty regarding merchantable quality inapplicable in a sale of goods contract.

10. 11. 12.

List 3 ways in which unascertained goods may become ascertainable. State 4 exceptions to the nemo dat rule. When is the seller's right to resell exercisable upon a breach of a contract of sale of goods.

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13.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. When may a seller exercise his right to stop goods in transit in a sale of goods contract.

14. 15.

State the rights of a buyer for a breach of a Sale of goods contract. State the personal rights of a seller where a sale of goods contract has been breached.

MULTIPLE CHOICE QUESTIONS 1. The following essential elements are required for the contract of sales of good EXCEPT ONE A. Offer and acceptance. B. Consideration C. Intention to create legal relationship D. Capacity E. Insurance policy The contract of sales of good is basically governed by. A. The sales of goods Act 1893 B. The 1999 Constitution of the Federal Republic of Nigeria as amended. C. The Company and Allied Matters Act CAMA LFN 2004. D. The Banks and other Financial Institution Act (BOFIA) LFN 2004. E. The Land use Act of 1978 now codified in LFN 2004. The following are the exceptions to the Nemo dat rule EXCEPT ONE A. Estoppel. B. Sales by Merchantile Agent or factor. C. Sale in market overt. D. Sale by seller in possession. E. Sale by owner of the supermarket on behalf of any licensed agent. Buyers right in sale of goods contract include the following EXCEPT ONE. A. The right to reject the goods. B. Action for damages. C. Pre action notice. E. Recovery of purchase price. Sellers rights in the sale of goods contract include the following EXCEPT ONE. A. Right of lien. B. Right of stoppage in transit. C. Right of resale. D. Right of withholding delivery. E. Right of preliminary objection. 106

2.

3.

4.

5.

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

SHORT ANSWER QUESTIONS 1. Explain the word existing goods. 2. What is future goods? 3. Bailment of goods is .. 4. The phrase merchantable quality means.. 5. The phrase NEMO DAT QUOD NON HABET.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CHAPTER SEVEN HIRE PURCHASE

LEARNING OBJECTIVES At the end of this chapter, readers should be able to: define a hire purchase contract. differentiate a hire purchase agreement from other secured credit transactions. know the reasons for the adoption of the hire purchase system. understand the obligations and rights of the parties at common law and under the Hire Purchase Act. have an understanding of the purpose and contents of the Hire Purchase Act.

7.0

INTRODUCTION In the preceding chapters, we have considered a contract in its basic form, i.e. an agreement between two parties which is binding on them and which is enforceable by the courts. We have also discussed a contract for the sale of goods which simply, is an agreement where the seller transfers or agrees to transfer the property in goods to the buyer for a monetary consideration called price. In this chapter, we shall be discussing a different kind of contract, i.e. the Hire Purchase Simply put, it is an agreement whereby the possession of goods is delivered to a person, who agrees to make payments periodically, and with an option of buying the goods after the agreed instalments have all been paid. This contract or agreement differs from the others that have been discussed so far, and the distinction would be revealed upon a careful study of the chapter.

7.1

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

108

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. The above definition clearly shows o There is no obligation on the hirer to pay all the instalments. o Until the option is exercised there is no agreement to buy the goods. We can then safely say that a hire purchase contract consists of 3 parts: i. a contract of bailment under which the hirer obtains possession of the goods which remain in the ownership of the owner and so uses them before they are fully paid up. ii. an option in favour of the hirer entitling him after payment of the periodical instalments and usually for a nominal consideration to purchase the goods; and, if the hirer exercises the option iii. a contract of sale making him the owner of the goods already in his possession.

We are thus very clear as to the nature of a hire purchase agreement as that which is a contract of hire and not sale, although there is a general misconception that since the hirer has possession of the goods he has ownership in them. It can be seen clearly that a hire purchase contract does not come within the purview of the Sale of Goods Act since property (or ownership) which is the essence of a sale of goods contract may not pass to the hirer if he fails to pay all the stipulated instalments. Let us also distinguish a hire purchase agreement from other secured credit transactions.

7.1.1

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

7.1.2

A conditional sale agreement: Is an agreement for the sale of goods under which the purchase price is payable by instalments, until the last instalment is paid and the property in the goods is to remain in the seller (notwithstanding that the buyer is to be in possession of the 109

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. goods) until such conditions as to the payment of instalments or otherwise as may be specified in the agreement are fulfilled. The difference between hire purchase and this is that there is an obligation, not merely an option to purchase the goods.

7.2

OBLIGATIONS OF THE PARTIES TO A HIRE-PURCHASE. The obligations of the parties to a Hire purchase agreement may be express or implied. They are express if they are set out in the agreement. Both under the common law and the Hire Purchase Act obligations are implied in Hire-Purchase agreements. These may be either conditions or warranties and we are aware of the consequences of breach of either a condition or a warranty.

Before talking about the obligations it is important to state the parties to a hire purchase agreement. There are usually two parties to a hire purchase agreement (i.e The Owner- who undertakes to let out the goods on hire with an option to purchase when all payments have been made and the Hirer- who undertakes to pay the hire purchase charges that are involved. In certain instances however there are three parties to the transaction, the owner, the hirer and a finance company. Here the goods to be hired are selected by the hirer and the owner then sell the goods to a finance company which hires the goods to the hirer under Hire Purchase agreement, and this has been touted as one of the reasons for the adoption of the hire purchase system. It is perhaps better to also consider the reasons for the adoption of this system before considering the obligations of the parties.

7.2.1 Reasons for the adoption of the Hire Purchase System 1. It allows credit to someone who is unable to pay cash for the goods he has to have. He can thus pay a deposit and make instalmental payments of the balance at an agreed rate of interest. He can then become the owner of the goods if and when he finishes payment of the instalments and he exercises the option to purchase.

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NOTE:

2.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. It affords a manufacturer or dealer in certain goods who cannot afford to extend credit facilities to prospective consumers the services of third parties such as finance houses to provide such credit. A finance house buys the goods from the dealer and hires them to interested parties thus enabling the manufacturer have sufficient finances to stay in business instead of dealing straight with interested hirers who cannot provide all the cash at once.

3.

It also allows for the evasion of the Moneylenders Act. Where a finance company lends money to the hirer to initiate a transaction with the dealer or manufacturer of goods such an agreement should come ordinarily within the purview of the Moneylenders Act. Such finance company must thus obtain a licence under the Moneylenders Act. However with the decision in Old Discounts Ltd Vs Playfair Ltd (1938)1 stating that such a transaction involving these three parties is not a money lending contract, the finance company need not obtain a license.

7.3

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

7.3.1 Obligations of the Parties at common law (a) Obligations of the owner 1. Delivery of the goods:- The owner must deliver the goods to the hirer and can be sued for non-delivery if he fails to do so. The 111

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. breach of this duty allows the hirer to repudiate the contract of hire purchase.

2.

Good title to the goods: The common law implies into every hire purchase contract a condition that the owner has title to the goods at the time when the hiring commences. If the owner has no title the hirer may repudiate the contract and recover any deposits or instalments that he has paid, on the ground of a total failure of consideration.

3.

Fitness for purpose: A condition that the goods are reasonably fit for the purpose for which they are hired is implied into every contract

of hire purchase. Held in Anoka Vs. S.C.O.A. (1956)2 that this implied condition does not extend to a hidden defect. Here a lorry

was let on hire purchase, the engine had a hidden defect and it ceased to function. The owner was held not liable for breach of this implied condition because the defect could not have been discovered by due care and skill on his part.

4.

Warranty of quiet possession:- There is an implied warranty that the hirer shall also have and enjoy quiet possession of the goods The owner was allowed to exclude any or all of these terms at common law as the courts did not interfere with the contract made by the parties. This was however subject to the rules of construction of

exclusion clauses and the doctrine of fundamental breach. See Ogwu Vs. Leventis Motors Ltd. (1963)3.

(b)

Obligations of Hirer at common law: 1. To take delivery of the goods: The place of delivery unless otherwise agreed is the owner's place of business. If the hirer

112

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. neglects to take delivery the owner may sue him for damages for non-acceptance.

2.

To take care of the goods: He has a duty to take reasonable care of the goods. If the contract is determined and he returns damaged goods to the owner, he will be liable in damages unless he proves that he has taken reasonable care of them. He is not liable for loss or damage occurring accidentally or without default on his part.

3.

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

4.

To redeliver the goods: The hirer is bound to redeliver the goods to the owner at the termination of the hire. If he fails to do so he is strictly liable for any subsequent damage to the goods. Also the owner may repossess the goods or maintain an action against the hirer where the hirer does anything with the goods which is inconsistent with the owner's title e.g. selling the goods. The hirer will be liable in conversion to the owner. 113

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

7.3.2 Rights of the Parties at Common Law (a) Rights of the Hirer: The Hirer being in possession of the goods has the right to sue anybody who interferes with such right in trespass, conversion or detinue. If he obtains damages he must account to the owner.

(b)

Rights of the Owner: An owner of goods has no possession in the goods, he cannot accordingly sue unless the contract has ended or the goods comes into his possession however he can sue in conversion if the goods are permanently destroyed as this affects his reversionary interest (i.e. his right to have the goods back at the end of the day where the contract of hire does not mature into purchase)

7.4

THE HIRE-PURCHASE ACT 1965 This Act is the first statute made in Nigeria to regulate Hire-Purchase transactions in Nigeria. It used to apply only to Lagos, before it was extended to the whole of Nigeria by the Hire Purchase (Application) Act 1966 and it came into force on 1st October 1968 and it was amended slightly in 1970. It is now known as the Hire Purchase Act Cap H4 Laws of the Federal Republic of Nigeria 2004.

7.4.1 The Purpose of the Act The Act was passed to check various injustices and malpractices in HirePurchase transactions which were perpetrated by owners under the common law of hire purchase. Some of them may be highlighted as follows:1. Hirers were usually lured by owners into entering hire purchase transactions without a grasp of the financial obligation involved. 2. Hirers obtained goods under agreements of which copies were not given to them and such agreements usually excluded all conditions and warranties thereby passing off useless goods to the hapless hirer.

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3.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Owner reserved the right to recover the goods on the slightest breach using once or entering the hirer's premises although only a small fraction of the ire purchase remains to be paid as in Atere Vs. Amao3.

4.

Where an owner sells goods after seizure he was not accountable to the Hirer for any excess he might realize over the amount outstanding. But here he sells at a loss he could claim for the balance from the hirer.

5.

The lack of regulations governing Hire purchase transactions occasioned high levels of prices and rates of interest.

The Hire-Purchase Act therefore attempted to reduce the exploitation of the hirer in many ways, some of which are:i. ii. iii. It ensures adequate information to the hirer to enable him evaluate the transaction. The owner can no longer easily escape liability for supplying useless goods The owner's right to repossess the goods is severely restricted.

7.4.2 The Contents of the Act The Act provides for hire purchase, credit sale transactions and advertisements relating to them.

The general requirements of the Act are as follows:1. Notification of cash price: By Section 2(1) of the Act before any Hire-Purchase agreement is entered into the owner shall state in writing to the prospective hirer, otherwise than in the agreement, the cash price of the goods. The Act however allows this provision to be dispensed with where (a) the hirer has inspected the goods which contain labels indicating the cash price (b) the hirer selected the goods using a catalogue, a price list or an advertisement showing the cash price. 2. Written Agreement: By Section 2(2) there must be a note or memorandum of the agreement which must be made and signed by the hirer and or on behalf of the other parties to the agreement and the note or memorandum must contain the following: 115

NOTE:

(i)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. a statement of the Hire-Purchase price and the cash price, the amount of each instalment, the date and method of determining the date on which each instalment is payable.

(ii) (iii) (iv) (v)

a statement of the deposit paid. a statement of the true rate of interest. a list of the goods to which the agreement relates. a notice as prominent as the contents of the agreement setting out (a) (b) the hirer's statutory right to terminate the agreement and the statutory restrictions on the owner's right to recover the goods.

A copy of the agreement must be sent to the hirer or delivered to him within 14 days of the making of the agreement.

7.4.3 Effect of non-compliance: Where there is non compliance with the above provisions of the Act relating to the general requirements the owner is disallowed from enforcing any of the following: (i) (ii) (iii) (iv) the hire purchase agreement itself ; or any contract of guarantee relating to it; or any right to recover the goods from the hirer; or any security given by the hirer or a guarantor.

However, as long as there is an agreement signed by the hirer, if the court is satisfied that the failure to comply with any of the other requirements has not

prejudiced the hirer the court may exercise its discretion where it is equitable to do so and dispense with such requirement for the purpose of the action.

7.4.4 Void Provisions. Section 3 of the Act renders void any provision in a hire purchase agreement:a. Whereby an owner or his agent is authorised to enter any premises to recover goods let on hire purchase or is relieved from liability for any such entry; or

116

NOTE:

b.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Whereby the hirer's right under the Act to terminate the agreement is excluded or restricted or any additional liability (other than those imposed by the Act) is imposed on the hirer for terminating the agreement or

c.

Whereby after termination of the agreement the hirer is subjected to any liability in excess of the liability which he would have incurred if the agreement was terminated by him under the Act; or

d.

Whereby anyone acting on behalf of the owner or seller in connection with the formation or conclusion of the agreement is deemed to be hirer's agent; or

e.

Whereby an owner or seller is relieved from liability for the acts or default of any person acting on his behalf in connection with the formation or conclusion of the agreement; or

f.

Whereby the services of a person as insurer, repairer, or in other capacity whatsoever, are imposed on the hirer.

7.5

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

7.5.1 Implied Terms Under The Hire-Purchase Act. 1. Quiet Possession: By Section 4(1) (a) of the Act there is an implied warranty that the hirer shall have and enjoy quiet possession of the goods. This is similar to the one under the common law.

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2.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Right to Sell the Goods: By Section 4(1) (b) there is also an implied condition on the owner's part that he has a right to sell the goods when property will pass. The time when the property is to pass is when the option to purchase is exercised.

3.

Freedom from Encumbrance: An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party at the time when the property is to pass e.g. a lien. See Section 4(1)(c)

4.

Merchantable Quality: There is also an implied condition that the goods shall be merchantable under Section 4(1)(c) of the Act although the section also provides three exceptions which are as follows:(a) Where the goods are second hand goods and this is stated in the agreement. (b) If the defects are such that the owner could not reasonably have been aware of them. (c) If the hirer has examined the goods or a sample of them and the examination ought to have revealed the defects.

5.

Fitness for Purpose: Where the hirer expressly or by implication makes known the particular purpose for which the goods are required there shall be an implied condition that the goods shall be reasonably fit for that purpose.

Under the common law breaches of similar conditions are not strict as can be seen in Anoka Vs. S.C.O.A (1956)4, that the owner is not liable for defects which cannot be discovered by the exercise of due care and skill. Under the Act however liability is strict just as in a sale of goods contract if we remind ourselves of the facts of Frost Vs Aylesbury Diary Co. under a consideration of the same term under Sale of Goods.

7.5.2 Exclusion of Terms Implied by the Act. Under the Hire-Purchase Act (Section 4) there 3 conditions and 2 warranties implied in the Hire Purchase contract. The implied conditions as to right to sell 118

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. and merchantable quality and the implied warranties as to quiet possession and freedom from encumbrance cannot be excluded notwithstanding any contrary agreement made by the parties, unlike under the Sale of Goods Act where such terms could be excluded under Section 55 of that Act. However the condition of fitness for purpose may be excluded where such exclusion clause is brought to the notice of the hirer and its effect made clear to him.

7.5.3 Hirer's right to terminate agreement At any time before the final payment under a hire purchase agreement falls due, the hirer may terminate the agreement by giving notice in writing to any person entitled or authorized to receive any sums payable under the agreement.

Thus the hirer must, where appropriate, pay such sum as would make the total amount paid under the contract equal to 1/2 of the total Hire-Purchase price. See Section 8(1). However by the provisions of Section 8(2) if he fails to take reasonable care of the goods he is liable to pay damages for such failure. Upon the termination of the agreement the hirer must return the goods to the owner and settle all outstanding liabilities.

If however he wrongfully retains the goods, the Court may order the goods to be delivered to the owner without allowing the hirer exercise his option to purchase the goods, in an action brought by the owner. The Court may however still allow the hirer exercise his option to purchase where it would be just and equitable to do so having regards to the circumstances of the case. See Section 8(3)

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

119

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. For motor vehicles if 3 or more instalments of the Hire Purchase price are due and unpaid the owner may remove the motor vehicles to premises under his control to protect it from damage or depreciation until such action is determined by the Court.

The owner is liable for any loss or damage caused by the removal. If the owner contravenes these provisions, by the provisions of Section 9 of the hire purchase agreement comes to an end and the hirer and guarantor can recover from the owner all sums paid under the agreement.

Some regulations were also made pursuant to this Act by the relevant Minister. These regulations contain provisions regulating the terms of Hire Purchase transactions including the payment of a mandatory minimum as deposit by the hirer. There are also regulations fixing a maximum period for repayment of the balance in respect of various types of goods set out in the schedule. 7.6

7.6

SUMMARY AND CONCLUSIONS

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

120

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. The Hire Purchase Act has radically altered the common law principles, as it has been discussed in this chapter. The hire purchase agreement is distinctive in its nature, as it is a contract of hire, and not of sale, thereby making it different from a contract for sales of goods.

7.7

REVISION QUESTIONS 1. The Hire Purchase Act has radically altered the common law principles of hire purchase. How true is this assertion? 2. 3. 4. What are the reasons for the adoption of the hire purchase system? A hire purchase agreement consists of three parts. Name them. Distinguish between a hire purchase contract and a conditional sale agreement. 5. 6. 7. State the duties of an owner in hire purchase agreement at common law. State the duties of the hirer at common law. State 3 injustices or malpractices that the Hire Purchase Act was enacted to check. 8. State 4 terms that must be contained in a Hire Purchase agreement as stipulated by statute. 9. What is the effect of non compliance with the general requirements of the Hire Purchase Act. 10. When may a Hire Purchase agreement which does not conform with the general requirements of the Hire Purchase Act be enforceable. 11. State 3 provisions which if contained in a Hire purchase agreement are void. 12. When may a hirer exercise his right to terminate a hire purchase agreement under the relevant statute? 13. 14. State 4 terms which are implied in a Hire Purchase agreement. Is it in all instances that the terms implied in a HP agreement by statute may not be excluded? 15. Explain the term relevant proportion in a HP agreement and explain its relevance. 121

NOTE:

16.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. What is the effect of the exclusion of the terms implied by the Hire Purchase Act by a party to the HP contract?

122

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CHAPTER EIGHT CONTRACT OF EMPLOYMENT

8.0

LEARNING OBJECTIVES Upon completion of this chapter, readers should be able to: define employment distinguish between contract of service and contract for services. compare the rights of the employer with that of the worker. discuss the duties of employers describe the duties of the worker discuss contracts in restraint of trade explain the concept of termination and discuss its scope discuss redundancy explain the remedies available.

8.1

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

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Forms of termination, redundancy and dismissal must necessarily receive attention. Finally the remedies available in the event of a breach of a contract of employment are explained to ensure a proper appreciation of them.

8.2

THE

NATURE

AND

FORMATION

OF

THE

CONTRACT

OF

EMPLOYMENT

8.2.1

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

8.2.2

Approaches to determining the nature of the contract of employment. There is no single test for determining whether a person is an employee or not. The test that used to be considered the control test- can no longer be considered sufficient. The control test extends to not just what the employee does but how it is done. The question whether the person was integrated into the enterprise or remained apart from and independent of it has been suggested as an appropriate test. The integration test considers how far or to what extent the employee is 124

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. integrated into the employer's business. Like the control test it is only one of the relevant factors. The modern approach is to balance all of those factors in deciding on the overall classification of the individual. This is the multiple test. Thus there may be an employment relationship even if there is no actual control. Conversely a person can be under a high degree of control but still be an independent contractor because of other factors.

The factors relevant in a particular case may include in addition to control and integration; the method of payment, any obligation to work only for that employer, stipulations as to hours, overtime, holidays etc arrangements for payment of income tax and national insurance contributions, the nature of the Work (in some cases), whether the individual may delegate work, who provides tools and equipment, who ultimately bears the risk of loss and the chance of profit and how the contract may be terminated. Particular problems in determining who the employer is have arisen where employees are loaned out to another employer. The key to who has responsibility for the employee depends on who retains the ultimate right of control, significantly the right to hire and fire even though day to day control may have passed to the other employer. A servant has been given different definitions. In one respect a servant is defined as one who for a consideration agrees to work subject to the orders of another. The relation of master and servant is also said to exist between persons of whom the one has the order and control of the work done by the other. It is again stated that the servant is an agent who works under the supervision and direction of his employer and an independent contractor is one who is his own master.

8.2.3 Incidents of the Contract of Service and Contract for Service A contract of employment is a contract of service or apprenticeship whether express or implied and if it is express whether it is oral or in writing. An employee is an individual who has entered into or works under, or where the employment has ceased, worked under a contract of employment. An employee is employed under a contract of employment or contract of service whereas an independent contractor is 125

NOTE:

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

8.3

THE RIGHTS OF THE EMPLOYER AND THE WORKER

8.3.1 Rights of the Employer The rights of an employer include the right to employ a worker, discipline, transfer, promote and terminate the employment of the worker. What it means is that there is discretion in recruitment even though there must be the avoidance of discrimination a set targets.

Modify, extend or cease operations. Determine the type of products to make or sell and the prices of its goods and services.

8.3.2

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

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

8.4

THE DUTIES OF THE EMPLOYER AND THE WORKER There are duties imposed on the employer and the employee (worker) by virtue of their contractual relationship.

8.4.1

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

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

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. This consists of provisions of safe premises and equipment and a reasonably safe system of work. The provision and maintenance of plant and systems of work that are as far as is reasonable practicable safe and without risks to health are important obligations. There should be care in the choice of safe competent workmen. The provision of such information, instruction, training and supervision as necessary to ensure so far as is reasonably practicable, the health and safety at work of employees is an obligation of the employer. He is also to ensure as far is reasonably practicable safety and absence of risks to health in connection with the use, handling, storage and transportation of articles and substances. In sum the employer has a duty to provide and maintain a working environment for his employees that is safe, without risks to health and adequate as regards facilities and managements for their welfare at work.

The traditional view is that the normal obligation of an employer under a contract of employment is to provide the employee with the agreed remuneration, not necessarily to provide him with work to do. The exceptions to this are where the attendant publicity in such work is as important to the employee as the as the remuneration as in the case of the actor or singer, where it is important for the employee to be provided with work to do in order to earn the remuneration as in the case of employees remunerated by commission or on a piece of work basis or where the employee is engaged to fill a particular office notably of a professional nature. The duties of an employer include the duty to provide work and appropriate raw materials, machinery, equipment and tools.

The employer owes the duty to treat employees with respect. In a contract of employment there is an implied term that the employer will not, without reasonable and proper cause conduct himself in a manner calculated as likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. The kinds of behaviour which may breach the term of trust and respect are varied. They may include abuses and false accusation, intolerable behaviour and bad language and unmerited reprimanding in humiliating circumstances. 128

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Others may be persistent attempts to vary conditions of employment, failure to follow established procedures and failure to take seriously a complaint of sexual harassment.

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

insubordination among others.

129

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CONTRACTS IN RESTRAINT OF TRADE A contract in restraint of trade restricts a person wholly or partially in the carrying on of his trade or business. All such contracts are prima facie void, but may be valid if the person imposing it has a legitimate interest to protect and the restriction is reasonable as between the parties and is not contrary to public interest.

8.5

Employers cannot protect themselves against competition from an ex-employee except where they have a legitimate interest to protect. The purchaser of the goodwill of a business has a legitimate interest in protecting that goodwill by getting the seller to agree not to set up the same line of business immediately against him. An employer in addition has a legitimate interest to prevent an employee from revealing trade secrets or siphoning off customers to the competitor of the employer.

A provision which is wider than is necessary to protect a legitimate interest is unenforceable. The longer the period of time covered by the restraint the more likely it is to be set aside. A solus agreement where a trader agrees to restrict his business or some aspect of it to a sole supplier would only be enforceable if the courts find the restraint reasonable.

The doctrine of restraint of trade is of a broad scope and the categories are said not to be closed. It is not limited to contracts between employer and employee, vendor and purchaser and solus agreements. It is also applicable to restrictions intended to promote trade.

8.6

TERMINATION OF EMPLOYMENT Termination may be fair or unfair.

8.6.1

General grounds for termination.

130

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. The grounds for the termination of employment are by mutual agreement between the employer and the worker; by the worker on grounds of ill-treatment or sexual harassment; by the employer if the worker is found on medical examination to be unfit for employment; by the employer because of the inability of the worker to carry out his or her work due to sickness or accident, or the incompetence of the worker or proven misconduct of the worker

8.6.2

Fair Termination Termination is fair on any of the following grounds: That the worker is incompetent or lacks the qualification in relation to the work for which the worker is employed; The proven misconduct of the worker; Redundancy; Due to legal restriction imposed on the worker prohibiting the worker from performing the work for which he or she is employed.

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

8.6.3 Unfair Termination A worker's employment shall not be unfairly terminated by his employer. A worker's employment is terminated unfairly if the termination is due to his joining or intention to join or ceasing to join or taking part in the activities of a trade union. That the worker seeks office as or is acting or has acted as a workers' representative. That the worker has filed a complaint or participated in proceedings against the employer for alleged violations. On grounds of the worker's gender, race, colour, ethnicity, origin, religion, creed, social, political or economic status.

In the case of a woman worker, due to the pregnancy of the worker or the absence of the worker from work during maternity leave. In the case of a worker with a 131

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. disability, due to the worker's disability. Where the worker is temporarily ill or injured and has been certified by a recognised medical practitioner. That the worker does not have the level of qualification now required for his work which is different from the one required at the commencement of his employment. Refusal or intention to refuse to work because the worker was taking part in a lawful strike unless the work was necessary to prevent actual danger to life, personal safety or health or the maintenance of plant and equipment.

8.7

REDUNDANCY When an employer contemplates that the introduction of major changes in production, programme, organisation, structure or technology of an undertaking are likely to entail terminations of employment of workers in the under taking, the employer will be expected to provide in writing to the Chief Labour Officer and the trade union concerned, not later than three months before the contemplated changes all relevant information including the reasons for the termination, the number and categories of workers likely to be affected and the period within which any termination is to be carried out. He is also to consult the trade union concerned on measures to be taken to avert or minimize the termination as well as measures to mitigate the adverse effects of any termination on the workers concerned such as finding alternative employment. Redundancy implies the severance of the legal relationship of worker and employer due to the close down, arrangement or amalgamation and the worker becoming unemployed or suffering a diminution in the terms and conditions of employment. This situation called for called for the payment of redundancy pay. Payment to the worker by the undertaking at which he was immediately employed before the close down, arrangement or amalgamation as a form of compensation is what is known as redundancy pay. The amount of redundancy pay and the terms and conditions of payment are subject to negotiations between the employer and the worker or their representatives.

8.8

REMEDIES

132

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Damages are the normal remedy available for a breach of a contract of employment. This is usually monetary compensation to the injured party. Reinstatement may be another option. It means appointing the employee back to the position he occupied before and therefore the enjoyment of all the benefits that go with the position. Reinstatement is often impracticable and the courts are reluctant to make such orders since positions may have been filled already and may also create a hostile working environment. However in situations where a public officer may have been removed without just cause then the remedy of reinstatement may be granted. Re-employment of the worker either in the work for which he was employed before the termination or in other reasonably suitable work on the same terms and conditions enjoyed by the worker before the termination is the other alternative.

8.9

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

8.10

REVISION QUESTIONS 1. 2. Distinguish between a contract of service and a contract for services. Briefly describe the various tests for determining whether a person is an employee or not. 3. Compare the rights of the employer to that of the employee. 133

NOTE:

4. 5. 6. 7. 8. 9. 10.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Make a list of the duties of employers. What are the duties of employees? What is meant by termination? Explain what fair termination is. Discuss unfair termination. Explain redundancy. Discuss the remedies for unfair termination.

134

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CHAPTER NINE LAW OF INSURANCE

9.0

LEARNING OBJECTIVES At the end of this chapter, readers should be able to know: the differences between insurance and assurance the different types of insurance contracts the formation of an insurance contract the different types of insurance policies the concepts of indemnity, subrogation and contribution. the concept of reinsurance

9.1

INTRODUCTION The owner of a property such as a car or a house is never certain that his property is free from loss or damage; he thus enters into a contract for a sum of money to be paid to him when either such loss or damage occurs to his car or house. This is the nature of a contract of insurance and it is fairly known today and it shows the importance of Insurance both in the commercial and personal spheres.

Thus a contract of Insurance is one whereby a person or company (the insurer) agrees in consideration of a single or periodical payment (called the premium) to pay a sum of money to another person or company (the insured) on the happening of a certain event or to indemnify against loss caused by the risk insured against.

It is important to note that the benefit accruing to the insured must be of a monetary nature.

It is also pertinent at this point to distinguish between 'insurance' and 'assurance' since there is a practical difference between the terms, although there is an increasing tendency to treat them as synonymous. Insurance implies that the

135

NOTE:

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

business and group life insurance business and they include:

(i)

Life And Endowment Assurance: Often, a lump sum or annuity (i.e. money paid yearly or at some other regular intervals) is payable on attaining a specified age or on death.

(ii)

Personal Accident Insurance: A football club may insure the limbs of their star players, as where Arsenal football team insures their star striker Thierry Henry or Chelsea insures their Michael Essien or John Obi Mikel. Whereas General Insurance business is divisible into many including:

(iii)

Liability Insurance: People also insure against legal liability, examples include negligence policies as where third parties or employees are injured in motor accidents. This kind of insurance is outside the mandatory Third Party Insurance required by the Road Traffic Law as well as other Policies which may cover both the employer's vicarious liability to third parties and also his personal liability to his employees.

(iv)

Property Insurance: Mr. Mann may insure his house and the property therein against fire and theft and his car against damage.

9.2

FORMATION OF CONTRACT OF INSURANCE.

136

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. A contract of insurance as with other contracts may be in any form but in practice it is usually embodied in a written document called a policy. A contract of insurance comes into being when one party makes an offer and the other party makes a valid acceptance. Sometimes as when luggage is insured, it is the insurer who makes the offer and the insured by signing a standardised form or even by merely paying a premium, acquires the right of insurance set out in the form. In most cases, however, the insured fills in a proposal form inviting the insurer who if he accepts this proposal a contract of insurance comes into being. Although acceptance may have taken place earlier, it is normally conclusive once a policy has been issued in accordance with the proposal. Writing is only essential in marine insurance, there is no legal necessity in other cases and if the insurer accepts the proposal and a premium without qualification he would probably be held bound after a reasonable time has elapsed. However in view of the practical difficulties which would arise in ascertaining the precise terms of the contract if it was wholly oral most insurance contracts are evidenced in writing.

The Proposal: A standard form called a proposal form is usually handed by the insurer to the proposed insured and contains details of the risk the insured wishes to be covered. It asks him a number of questions on the basis of which the insurer will decide whether to accept the risk and complete the contract.

When an insurer issues a blank proposal form he is not making an offer of insurance even if premium rates are quoted in the form. The blank proposal form is an invitation to treat. Accordingly the usual procedure is for the person seeking the insurance to complete the proposal form and submit it to the insurance company. If the company rejects the proposal there is no contract. If it does accept it, there is a contract although the precise time at which a contract is formed depends on

the interpretation of the germane documents. Hence if the acceptance requires that there is no insurance until the first premium is received, it is crystal clear that there is no protection until such premium is paid.

137

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. The party to be insured also has a duty to make full disclosure of all material facts so he must scrutinize the proposal form with great care. Where the specific questions to be answered appear to be exhaustive the matter is comparatively simple but in other cases, the proposed insured may be in doubt as to what additional information he ought to supply and the line between what is material and what is immaterial is not always easy to draw. He should therefore, in his own interests, amplify the information specifically requested if he feels that there are other material facts he ought to disclose. Neglect to do this may mean that if the insurer accepts the proposal and the loss actually occurs, the insured may find that the insurer can avoid the contract and have no liability beyond the return of the premium paid.

This duty of disclosure is based on the idea that when a person applies for insurance he is in the possession of all the information whereas the prospective insurer knows nothing at all. This is why the contract of insurance is a contract of the utmost good faith or a contract of uberrimae fidel. Examples of Material Facts. A fact is material if it would affect the decision of the insurer in his consideration of the acceptance of the risk and the terms for so doing. The under mentioned contain what the Courts have decided are material facts to be disclosed by the proposed insured in filling a policy form. (1) Life Policy: The fact that the insured is suffering from a serious or terminal illness such as HIV AIDS. (2) (3) Motor Policy: Prior accidents, and convictions for dangerous driving. Fire Policy: Previous fires on the premises or contiguous or neighbouring premises. (4) Theft Policy: Employees' previous convictions for stealing, smuggling or shop breaking. (5) Accident Policy: The Insured's recent acquisition of eyeglasses.

However where there are no such questions the insured may not disclose any circumstances 138

NOTE:

(a)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. which diminishes the risk e.g. the existence of fire fighting equipment on premises proposed for fire insurance or a burglar alarm on premises insured against theft.

(b)

which is known or presumed to be known to the insurer such as matters of common knowledge e.g. the existence of a state of war.

(c) (d)

regarding matters of law. which it is superfluous to disclose because it is already covered by an express or implied warranty.

(e)

which the insurer's representative fails to notice.

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

It is also common for the insurance to be effected by an employee of the insurer who often fills in or assists in filling in the proposal form. In doing so, such an agent is not regarded as the agent of the insurer but of the insured, so when the insured signs the form he should read carefully, since he is bound by the answers as if he had filled them by himself.

9.2.1 Temporary Cover: Where a person wants immediate insurance while his proposal is being considered temporary cover can be given by way of a cover note. This is a separate contract distinct from the policy itself although most of the policy's terms which are appropriate are read into the cover note. The note is usually expressed to provide cover until a certain date unless in the meantime the insurers decline the proposal. If the insured subsequently decides not to proceed with the policy this will not rob him of the protection of the cover note. 139

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

9.2.2 Insurable Interest: It is a requirement in a contract of insurance that the insured has insurable interest i.e. that the happening against which he insures must be one adverse to him and likely to cause him loss or saddle him with a liability or when he stands to gain profit in its preservation and to suffer loss or damage in its destruction. By the Life Assurance Act 1774, Section 1; any insurance made by one person on the life of another is null and void unless the person making the insurance has an insurable interest in the life insured. Thus an insurable interest means that the person effecting the insurance will sustain some pecuniary loss on the death of the person whose life is insured.

Examples: 1. A creditor has an insurable interest in the life of his debtor to the extent of the debt and the policy money is recovered even though the debt is paid before the maturity of the policy. However he, generally, has no insurable interest in the property of his debtor. 2. 3. A surety has an insurable interest in the principal debtor's life. An employee engaged for a term of years has an insurable interest in his employer's life. 4. The legal owner of a property also has insurable interest in his property, likewise the vendor and purchaser as well as a mortgagee, mortgagor, a trustee and a bailee. 5. A person always has an insurable interest in his own life and one's spouse has an insurable interest in the life of the other spouse without special proof of pecuniary interest. In Griffiths Vs. Fleming1, it was held that the husband who had been involved in a mutual insurance policy with his deceased wife was entitled to the benefits of the policy. It is also to be noted that a parent generally has no insurable interest in a child's life; the child also does not generally have an insurable interest in the life of the parent unless the parent is supported by the child. The fact of dependency and support are therefore not enough, there must be a legally 140

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. enforceable right to support or reimbursement. Thus to amount to insurable interest there must be some legally recognised right so a mere expectation of benefit in the future is not enough.

For a party to an insurance contract to recover even when he has insurable interest in the life or property insured, it is important to determine the time when such party had insurable interest in the life or property insured.

In life insurance cases the material time for insurable interest is at the time of the contract, otherwise such party will not be able to recover. For example if Victor insures the life of his neighbour, Benjamin before he loaned him money, he had no insurable interest in his life at that time and so he cannot recover any sum if anything happens to Benjamin thereafter. Indemnity, insurable interest is required both at the time of the contract and at the time of loss.

9.3

TYPES OF POLICY.

9.3.1 Life Insurance: This can be defined as any insurance in which the insurer's liability is dependent upon human life. The characteristics of life insurance are that the person insured pays specified premiums at regular intervals and the amount for which he is covered is payable on his death. In the case of endowment insurance which is also regarded as life insurance the insured pays regular premiums for a specified term of years and an agreed sum is payable either at the end of the period to the insured himself or on his earlier death to his personal representatives.

As stated earlier, a policy of insurance is designed to guard against the consequences of accidental events so that it will not cover a loss caused by the wilful act of the insured, such as murder, suicide or manslaughter. Likewise a person entitled to a policy (i.e. the beneficiary), cannot recover for loss due to his intentional criminal act. 141

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. See Amicable Society Vs. Bolland 2- Here the life insured committed forgery and was executed. The Court held that those entitled to his estate could not recover under the policy. In Cleaver Vs. Mutual Reserve Fund Life Association3 a man took out a policy on his life for the benefit of his wife who eventually poisoned him. The Court held that where the beneficiary murdered the insured, the policy moneys were payable but the murderer and/or his estate could not benefit.

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

9.3.3 Fire Insurance: This is a common form of insurance and is intended to indemnify the insured against loss of property by fire, including lightning and explosion. Ordinarily, it does not matter what caused the fire, but an insured cannot recover if he intentionally sets fire to his property. In order to constitute a loss by fire there must be actual ignition. Loss by heating or fermentation is not enough. Most fire policies contain exempted perils which include fires caused by riot, civil commotion and war.

9.3.4 Liability Insurance: Every man runs the risk of becoming liable to damages to some other person as a result of committing a tort or in some other way. Cover for such liability is frequently part of other types of insurance e.g. the insurance of houses or of motor vehicles but the scope of third party liability is very wide and can be separately insured against like employer's liability insurance. The object of such an interest is to be indemnified against legal liabilities, but such legal liability must come within 142

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. the categories of the policy. Thus a policy covering liability for negligence is valid although an insured person cannot recover for an intentional tort committed like defamation.

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

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

9.3.7 Burglary Insurance: This provides cover against loss or damages to the insured's property by burglary or housebreaking.

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

9.4

THE CONCEPTS OF INDEMNITY AND SUBROGATION.

9.4.1 Indemnity: Apart from contracts of life insurance and personal accident insurance other contracts of insurance are contracts of indemnity. Under an indemnity contract the 143

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. fundamental principle is that the insured cannot recover or retain for his benefit more than his actual loss. In Darrell Vs. Tibbitts4. A landlord of property received 750 pounds under a fire insurance policy when his property was damaged by fire. Thereafter the tenant who had agreed under their lease to repair did so. The Court decided that the landlord had to return the insurance money back to the company since the contract of insurance was one of personal indemnity and he had not suffered any loss as the tenant had repaired.

Accordingly, in the event of loss the insured shall be placed in the same position he occupied immediately before the happening of the event insured against.

In practice an insured may recover less than a complete indemnity where he underinsures, but it is illegal and against public policy for the insured to recover more than his loss. It is in the overall interest of the public that an insured should not profit from what essentially is a misfortune. If an insured is allowed to profit from the loss or destruction of his property he would be tempted to destroy, hence this principle of indemnity. There are 3 basic rules and these are as follows:(a) In the event of a total loss the insurers under an unvalued policy are liable to pay the market value of the property at the time and place of the loss or the sum insured whichever is less. So where a car is insured for N 1,250,000.00 the insured only receives N 800,000, where the market value of the car is such, irrespective of the fact that N 1250,000.00 was the agreed sum on which premiums was based. Also where the car increases in value to N 1,500,000 he can only take N 1,250,000, which is the sum insured. (b) Where the property has no market value (e.g. a valuable but unsaleable machine) the insurers are liable to pay the cost of reinstatement or the sum insured whichever is less. (c) In case of a partial loss (e.g. where a car is merely damaged) the insurer's liability is essentially based on the cost of the repairs or the sum insured whichever is less. 144

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

9.4.2 Subrogation: This is a corollary of the principle of indemnity and its purpose is to protect the fundamental principle of indemnity by making it impossible for an insured to profit from his loss. Subrogation is the right of one person to stand in the place of another in order to enjoy that other person's rights or remedies.

In insurance, it is the right of the insurer who has granted an indemnity by paying the insured's claim to receive the advantage of every right of the insured against third parties which may reduce or extinguish the insurer's loss. Thus if a house insured against fire is damaged by a fire caused by K, the insurers having paid on the policy can sue K to recoup themselves.

9.4.3 Contribution: This is the right of the insurer who has paid under a policy to call upon other insurers equally or otherwise liable for the same loss to contribute to the payment. It occurs where there has been a double insurance and in addition, the following condition must be satisfied. 1. 2. 3. 4. The risk which occurred must be common to both policies. The insurances must have a common subject matter. The policies must cover the same interest. Each policy must be enforceable at the date of loss.

9.5

RE-INSURANCE An insurer who has undertaken a risk on a policy of insurance may wish to be relieved of his commitment and the law gives him an insurable interest in his risk and the right to reinsure. The re-insurance is the transfer of insurance business from one insurance company to another insurance company. The original insurer is called a direct insurer or ceding company and the other the re-insurer.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Reasons for re-insurance include; (a) (b) The unwillingness to run a large risk on single hazard. The wish to be rid of certain elements of a comprehensive risk.

Here the re-insurer takes over all or part of the liability contracted for by the ceding company for a consideration of a part or the whole premium as the case may be. There is no contractual relationship between the re-insurer and the insured unless the policy otherwise states, hence in the event of a loss the insured cannot bring an action against the re-insurers to enforce a reinsurance contract.

9.6

SUMMARY AND CONCLUSION This chapter has given a comprehensive study of the law of insurance. It contains a detailed explanation of the contract of insurance, showing the distinction between insurance and assurance as well as providing different examples of insurance.

The chapter further explains the formation of the insurance contract, the importance of the proposal form and the duty of disclosure of material facts, as well as definition of terms such as temporary cover and insurable interest.

The chapter states different types of policy such as life insurance, personal accident insurance, fire insurance, marine insurance etc. It ends by explaining the concepts of indemnity, subrogation and contribution.

It is pertinent to emphasise to candidates that a person cannot recover under an insurance contract if he has no insurable interest and also that time is also important in determining the presence of insurable interest.

9.7 1. 2.

REVISION QUESTIONS What is insurable interest? Give two examples. State 4 instances when an insured need not disclose any circumstances contrary to his duty under a contract of insurance as a contract uberrimae fidei. 146

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3. 4. 5. 6. 7.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. List 5 kinds of insurance policies that may be taken. What is indemnity? When may subrogation arise? State the conditions that must be satisfied for contribution to arise. What is reinsurance? State the reasons for reinsurance.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CHAPTER TEN LAW OF BUSINESS ASSOCIATIONS -1 COMPANIES

10.0

LEARNING OBJECTIVES Upon completion of this chapter, readers should be able to: o define company o classify companies o describe the process of incorporation. o discuss the effects of incorporation o explain what company securities are o examine the role of the Securities and Exchange Commission o distinguish between types of resolutions at company`s meetings o discuss liquidation

10.1

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

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10.2

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. DEFINITION AND TYPES OF COMPANIES

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

10.2.2 Types of Companies An incorporated company may be either a company limited by shares where the liability of its members is limited to the amount, if any, unpaid on the shares respectively held by them; or a company limited by guarantee where the liability of its members is limited to the amount the members may respectively undertake to contribute to the assets of the company in the event of it being wound up; or an unlimited company where there is no limit on the liability of its members. Any of the three types of Companies may either be a private company or a public company.

A private company restricts the right to transfer its share, limits the total number of its members and debenture holders to fifty, prohibits the company from making an invitation to the public to acquire any shares or debentures of the company and prohibits the company from making any invitation to the public to deposit money for fixed periods or payable at call. Any other company shall be a public company.

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10.3

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. INCORPORATION AND EFFECTS

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

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 10.3.3 Registration It is a legal requirement that all business organisations be registered with the Registrar General's Department. For a company to be incorporated there shall be delivered to the Registrar for registration, a copy of its proposed Regulations. When the Registrar is satisfied that the Regulations comply with the Code he shall register the Regulations. Upon registration of the Regulations, the Registrar shall certify under his seal that the company is incorporated. From the date of registration mentioned in the certificate of incorporation, the company shall be a body corporate by the name contained in the Regulations and shall be capable of exercising all the functions of an incorporated company. The Registrar shall insert a notice in the Gazette stating the issue of the certificate and on what terms. Conclusive evidence that the company has been duly registered shall be provided by the certificate of incorporation or a copy of it certified by the Registrar or the Gazette containing the notice.

In Liberia, registration of companies is handled by the Minister of Foreign Affairs. Copies of the proposed regulations will be delivered to the Minister of Foreign Affairs, who is regarded as the Registrar.

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

The company as a corporate entity becomes an artificial legal person with a separate and distinct identity from its members, directors and incorporators. It has its own name and identity. A company is also vested with power and can do anything authorised in its Regulations. It has all the powers of a natural Person of full capacity. In Salomon v Salomon [1897] AC 22, Mr Salomon carried on 151

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. business as a leather merchant and boot manufacturer and later formed a limited company to take over the business. Mr Salomon was the major shareholder with his wife, daughter and four sons a share each. Twenty thousand shares were issued to Mr Salomon and were paid for out of the purchase money. In part payment of the purchase money debentures forming a floating security were issued to the vendor. The company went into liquidation later and Mr Salomon as a secured creditor had priority over the unsecured creditors .The unsecured creditors claimed all the remaining assets on the grounds that Mr Salomon and the company were one. The House of Lords held that the company was a separate and distinct person.

The company has its own rights, liabilities and responsibilities which belong to it alone and as a general rule cannot be enforced by or against its directors, agents or members personally. The company may own property and any property of the company, is not the property of members. The company can sue and be sued. It also has a common seal. The company also has perpetual succession. Members will come and go by way of death, resignation, bankruptcy or becoming of unsound mind but the company will continue to exist unless there is a formal procedure to dissolve it.

10.4

GENERAL PRINCIPLES

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. names of the first directors of the company. These must be two since the Code prescribes the minimum of two. There must be a statement that the powers of the directors are limited in accordance with section 202 of the Code. Treatment of property after winding up, Membership, subscriptions, accounts, Auditing, meetings and resolutions and the role of the governing council are among other areas covered

From time to time, it may become necessary for companies to alter their Memo or Articles. There is however the need to avoid easy and frequent alteration and equally the need to make change possible. Both objectives are met by the requirement that a special resolution be passed in order to be able to alter the Regulations or adopt new Regulations. A special Resolution of the company is always required as a minimum and necessary condition for the alteration of the company's Regulations. It is however not necessarily a sufficient condition for the alteration of company's Regulations or Memo and Articles.

There are several instances when other requirements such as the approval of the Registrar or the court, have to be met to validly alter a company's Regulations. This may include changing the company's name and changing the company's business or objects. There are also instances where there are limitations on the power of alteration. No alteration shall have effects of converting an unlimited company to a limited company or a company limited by guarantee to a company limited by shares. The court can restrain or cancel an alteration in the event of illegal or irregular activity. The court can again restrain or cancel an alteration to provide a remedy against oppression.

The Regulations when registered shall have the effect of a contract under seal between the company and its members and officers and between the members and the officers themselves. They are bound by it and so agree to observe and to perform their duties according to the provisions of the Regulations. The Regulations vest power in any person stated by it whether or not the person is a 153

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. member or an officer, to appoint or remove any director or officer of the company. Finally any suit by a member or an officer for breach of the Regulations shall be brought in a representative capacity on behalf of oneself and the members or officers who may be affected.

10.4.2 The Ultra Vires Doctrine A company's Regulations sets out its authorised business and powers. A company is therefore limited to conduct the business authorised by the Regulations and to exercise the powers conferred by the Regulations and nothing more. Any purported conduct of unauthorised business and exercise of excess power is considered ultra vires. The Code specifies that: A company shall not carry on any business not authorised by its Regulations and shall not exceed the powers conferred upon it by its Regulations or this Code. The company therefore has no capacity to act outside its Regulations except for implied acts. This is the traditional common law position and any contract entered into by a company which is not within its objects was said to be ultra vires and therefore void ab initio. It created neither rights nor liabilities for the parties involved. Thus any such contract could not be ratified or made effective even by the unanimous agreement of the members of the company.

The doctrine prevents a company from doing what is not in its Regulations and also Directors from doing what they do not have powers to do. If a Director does what is not within his powers (ie ultra vires the Director) but within the powers of the company then the company may ratify it. If however the Director acts beyond the powers of the company then the company cannot ratify it. The doctrine in its unadulterated form may have very harsh effects on third parties.

In Ghana however an ultra vires act, conveyance or transfer is not necessarily invalid simply because it is ultra vires. The Code shows that no act of a company and no conveyance or transfer of property to or by a company shall be invalid by reason of the fact that such act, conveyance or transfer was done ultra vires. This modification reduces the harsh effects of the doctrine on third parties. This means 154

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. that a third party is not without a remedy. However if the third party had knowledge of the absence of power or the irregularity of it then the company shall not incur any liability.

Any member of the company or a debenture holder can apply to the court for an order of injunction to prohibit the performance of an ultra vires act being done or about to be done. The court may also set aside the performance of a contract and pay compensation for the loss or damage from it but not for anticipated profits. An action can also be brought for breach of duty. Also the fact that the company had been engaged in an ultra vires act may be relied upon by a member of the company to call for the winding up of the company. There are thus elaborate mechanisms to check ultra vires acts in order to protect the company its members and the public at large.

10.4.3 Lifting the Corporate Veil On incorporation, a company becomes an artificial legal person separate and distinct from the persons who may be behind it or who may control it. It becomes clothed with a corporate veil. The idea of corporate personality can lead to abuse and where it has been used to avoid legal obligations the courts have been prepared to ignore the separate legal personality of the company. Whenever the separate legal status of a company is ignored and liability is ascribed to various individuals and corporations in it, the corporate veil is said to have been lifted or pierced.

The corporate veil may be lifted by the Companies Code, 1963 (Act 179), by other legislations like the Bodies Corporate (Official Liquidation) Act, 1963 (Act 180) and by the courts when it is just and in the public interest to do so. Whenever the corporate veil is lifted the consequences attendant may include civil liability of individuals, penal liability of individuals usually by way of fines or / and the ascription of tax liability on others. There may also be disregard of transactions apparently entered into by the company. There are many circumstances under which the veil may be lifted under the Code. If a company ceases to have members 155

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. or carries on business for more than six months without at least one member every person who is a director during that time that it so carries on business after those six months shall be jointly and severally liable for the full payment of all the debts and liabilities of the company incurred during that period. Where a company carries on business for more than four weeks after the number of its directors falls below two, there shall be penal liability of the company and every director in default and every member in default who shall all be liable to a fine. In addition every director and member of the company who is cognisant of the fact shall be jointly and severally liable for all the debts and liabilities of the company incurred during the time.

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

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10.5

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. COMPANY SECURITIES After a company has been incorporated it must raise capital to enable it operate. Funding is required to carry on business or purchase an existing business and pay employees. Private business companies cannot raise funds from the public at all and must raise funds from their promoters, members and by borrowing if authorised. Shares and debentures are instruments by which business companies raise funds. They are securities.

10.5.1 Shares Shares mean the interests of members of a body corporate who are entitled to share in the capital or income of such body corporate. The shares of any member in a company shall be personal estate and shall not be in the nature of real estate or immovable property.101 Shares are purchased to attain membership or shareholder status. A share is the interest of the member in the company measured by a sum of money for the purposes of liability in the first place and of interest in the second place and may include other mutual covenants.

There are two main types of shares namely preference shares and equity shares. Preference shares do not entitle the holder to any right to participate beyond a certain amount in any distribution by way of dividend, or redemption or winding up. Any other share is equity share. Preference shares have a right to a fixed dividend before any dividend is paid on the other shares. Preference shares may be cumulative or non-cumulative. Preferential shareholders do not have the right to speak and vote in a general meeting on every item on the agenda except resolutions that affect them or resolutions to remove the Auditor or wind up the company. Equity shares rank for dividend after the preference shares. Nothing may be left for them after Preference shareholders have taken their share of the profits. They receive fluctuating dividend and therefore carry most risk. However they have most of the voting rights in general meetings and therefore control the company. Issued shares require corresponding valuable consideration

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. which has to be paid or be payable to the company. The payment invariably has to be in cash. Shareholders have to be issued with share certificates.

10.5.2 Debentures It is a written acknowledgement of the indebtedness of a company setting out the terms and conditions of the loan. A single debenture evidences a loan from a person where the lender is in privity of contract with the company and is a creditor of it. Debenture stock may be created for which debenture stock certificates may be issued to separate holders. A debenture holder is not a member of the company. Debentures may either be unsecured by any charge or may be secured by a charge over the company's property. Debentures without security are simple or naked. Holders of such debentures are always at a disadvantage for in the event of winding up they rank with unsecured creditors. They cannot have any redress in court since a receiver or manager shall not be appointed as a means of enforcing debentures not secured by any charge. Debentures may be secured by a fixed charge on certain property of the company or a floating charge over the whole or a specified part of the company's undertaking and assets or by both a fixed charge on certain property and a floating charge.

A fixed charge is created on one or more specific assets of the company. The assets must be clearly identifiable. The company cannot freely deal with the property so charged. A fixed charge on any property has priority over a floating charge affecting that property unless the earlier floating charge prohibited a further charge and the person granted the latter charge had actual knowledge of such prohibition. A floating charge is an equitable charge over the whole or a specified part of the company's undertaking and assets both present and future. The charge shall not preclude a company from dealing with such assets. The charge is deemed to crystallize on the appointment of a receiver or manager or when the company goes into liquidation. All charges both fixed and floating have to be registered with the Registrar. In Cohen (WA) Ltd v Comet Construction Co Ltd; Ghana Commercial Bank (Claimants) [1966] GLR 777 it was held that if the charge 158

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. was valid, it prevailed over the claim of an execution creditor. In that case Cohen obtained judgment against Comet Construction for a certain sum of money. A writ of fi fa was subsequently issued against two vehicles of the judgment debtors.

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

10.6

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

159

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. activities with a view to maintaining proper standards of conduct and acceptable practices in the securities business.

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

10.7

NOTICES, MEETINGS AND RESOLUTIONS

10.7.1 Notices Meetings shall be convened by written notices. Notice shall be given generally for not less than twenty one days except a special resolution for voluntary liquidation which requires seven day's notice in writing. The notice of a meeting shall specify the place, date and hour of the meeting. The general nature of the business to be transacted must be provided in sufficient detail to enable those to whom it is given to decide whether to attend or not. The people entitled to attend a general meeting are every member, every director, the secretary and every auditor of the company.

10.7.2 Meetings The highest organ of the company is members at a general meeting. General meetings are of two kinds namely annual general meetings and extraordinary general meetings. Every company shall hold an annual general meeting in each 160

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. year and not later than fifteen months after the last annual general meeting. Other meetings may be held in the year, for example an extraordinary general meeting may be convened by the Directors whenever they think fit. The directors of a private company shall proceed to duly convene an extraordinary general meeting on the requisition of any two or more members of the company or a single member holding not less than one tenth of the shares of the company. In the case of a public company it shall be convened on the requisition of members of the company holding not less than one-twentieth of the shares of the company.

A company meeting shall not proceed unless there is a quorum. Proxy is allowed at company meetings so any member of a company entitled to attend and vote at the company's meeting shall be entitled to appoint a proxy. Proxy refers to the agent of the member duly appointed by that member to attend, speak and vote on his behalf at company meetings or the document or instrument by which a proxy appointed. Voting by members or their proxies could be done by show of hands at meetings, by polling at meetings and by postal ballot in lieu of meeting. This method is applicable in all the jurisdictions of Nigeria, Ghana and Liberia.

10.7.3 Resolutions The decisions of a company taken at general meetings are described as resolutions. There are two types of resolutions namely ordinary and special. An ordinary resolution is one passed by simple majority of votes of members present in person or by proxy at a general meeting. A special resolution is passed by not less than three fourths of votes cast by the members of the company in person or by proxy at a general meeting of which notice specifying the intention to propose the special resolution has been given. Resolutions have the effect of binding decisions on the company and its members.

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10.8

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. DIRECTORS

10.8.1 Definition A company is an artificial person which must, of necessity act through human agents who manage the affairs of the company. Thus, a director is an officer of a company who is responsible for its management. By S. 244 (1) of CAMA, a director of a company so registered under the Act is defined as anybody who has been duly appointed by the company to direct and manage the business of the company. It does not matter by whatever name he is called. Anyone who holds

himself out as a director, not being one, is guilty of an offence and is liable to pay a penalty of N100 per each day of default.

10.8.2 Minimum Number Every registered company must have at least two directors ( for a private company), and a minimum of seven directors in case of a public company.

10.8.3 Directors qualification Under the Nigerian law, directors are not required to have special qualifications, except where such is specially stated in the articles of association; and this must be fulfilled within 2 months, otherwise the appointment ceases.

However, the following persons are disqualified from being directors: An infant ( a person under 18 years of age). A lunatic or person of unsound mind. A person convicted in connection with promotion, formation and management of a company(limited to up to ten years). An undischarged bankrupt. A corporation other than its representative.

A person who is unable to hold his share qualification.

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

10.8.5 Age limit There is no age limit to the appointment of directors. However, for public company, a person of 70 years old and above must disclose the fact of his age to the members at the general meeting. Also, for him to be appointed as a director, a special notice and special resolution is required.

10.8.6 Removal All that is required to remove a director, including a permanent director or director for life is an ordinary resolution at a general meeting of the company.

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 10.8.8 Managing Director S.263(5) provides that he must be a director appointed by the Board of Directors; and his appointment may be terminated by the Board or by ordinary resolution passed by members in a general meeting.

10.8. 9 Retirement/ Rotation of Directors Unless there is a contrary provision in the Articles, all directors must retire at the first Annual General Meeting(AGM), and one third of them at subsequent AGMs, based on their length of service. However, retiring directors are allowed to offer

themselves for re-appointment; otherwise new directors will be appointed to replace them.

10.9

LIQUIDATION The process by which a company is dissolved or liquidated is called winding up. The Liquidator is the person who carries out the winding up process. The Liquidator has the obligation to administer the assets of the company being wound up for the benefit of creditors and members. There are two ways of winding up of a company. These are private liquidation under the Companies Code and official liquidation under the Bodies Corporate Official Liquidation Act.

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

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. A resolution for a private winding up shall include the appointment of a liquidator. The liquidator who is appointed shall indicate his consent in writing. An infant, person of unsound mind adjudged so by a court of competent jurisdiction and a corporate body shall not be competent to be appointed as liquidators. In addition, any person convicted of an offence involving fraud or dishonesty within Ghana and Nigeria or elsewhere, any offence in connection with the promotion, formation or management of a corporate body; an undischarged bankrupt; a director or auditor of the company are also not competent to be appointed as liquidators.

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

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. by a special resolution of the company, a petition addressed to the Registrar, a petition addressed to the court or by a conversion of a private liquidation. If within twelve months of private liquidation the company is found to be unable to pay its debts then it will be converted to public liquidation on informing the Registrar. When a special resolution is passed by the company for winding up and if it is official liquidation the resolution shall state that it is for official winding up. The Registrar shall publish a copy in the Gazette. Any creditor or member of the company may present a petition to the Registrar for official winding up of the company. The Registrar may order official winding up if he is satisfied that the company is unable to pay its debts.

A petition to the court for the official winding up of a company may be brought by a creditor of the company, a member or contributory of the company or the Attorney General on specified grounds. The court may order an official winding up of a company on a petition if the company does not within a year from its incorporation commence to carry on all the businesses which it is authorised by its Regulations to carry on or suspends any of such businesses for a whole year. It may also be that the company has no members or that the business or objects of the company are unlawful or the business that the company is carrying out are not authorised by its regulations. Other grounds may be where the company is unable to pay its debts or the court is of the opinion that it is just and equitable that the company be wound up.

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

NOTE:

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

10.10

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

10.11 REVISION QUESTIONS 1. 2. 3. 4. 5. List the types of companies and briefly describe each of them Who is a promoter and what are his duties? Explain pre-incorporation contracts and their effects What is meant by incorporation and what are the procedures for attaining it? Discuss the effects of incorporation 167

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6. 7. 8. 9.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Define shares and distinguish between the two main types. Describe the functions of the Security and Exchanges Commission. Write briefly on meetings and notices. Describe resolutions and distinguish between the two types.

10. Explain liquidation and contrast the two types.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CHAPTER ELEVEN PARTNERSHIPS

11.0

LEARNING OBJECTIVES After studying this chapter, readers should be able to know and understand the following: o What a partnership is o Types of Partnership o The applicable laws o The essential elements of Partnership o Relationship amongst partners and between third parties o How a partnership may come to an end

11.1

INTRODUCTION The Partnership Act 1890 which is also retained in the Laws of the Federation of Nigeria 1990 (now 2004) by its Section 1(1) defines a partnership as the relationship which subsists between persons carrying on business in common with a view to profit. A partnership is usually referred to as a firm and it gives two or more people the means of joining together in business. It is a kind of unincorporated association with no identity apart from its members.

The precise nature of the firm and the rights and duties of the partners are always a matter for agreement between them which they can vary as much as they like as long as they all agree. The Partnership Act sets out a model version of rights, duties, division of profits and contribution of initial capital, right to participate in management e.t.c. although if the firm agreed differently then their agreement apply to them. The firm is very popular amongst small businessmen and is most common where incorporation is not allowed or is disapproved and it is also used by professionals like Lawyers, Accountants and Surveyors etc.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. TYPES OF PARTNERSHIP

11.2

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

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

11.2.3 Dormant or Sleeping Partner: There is a distinction between active and dormant partners. A dormant partner takes no part in management although his name must be included in the firm's 170

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. name and be registered under the Registration of Business Names Act. He is at most times often concealed. If he is not concealed and enters into a contract with a third party who knows him to be a partner in the firm, the firm will be bound.

11.2.4 Partner by Estoppel: Where someone holds himself out as partner in a firm and thereby induces another person to act upon that representation, he is not a partner hence he will be liable to a 3rd party as if he really were a partner.

11.3

FORMATION OF PARTNERSHIP Partnership Agreements may be made with or without formality. They may be oral or written and may or may not be under seal. The ordinary rules of contract are applied to test whether an agreement has been reached. Where a partnership agreement is in writing the document is called the articles of partnership and this may be varied by subsequent agreements, express or implied between the parties. Two other formalities which follow the commencement of partnership operations are as follows:(i) Registration of the partnership name under part B of the Companies and Allied Matters Act Cap C20 Laws of the Federation 2004. Every firm having a place of business in Nigeria is required to register with the State office of the Registry of Business Names of the Corporate Affairs Commission not later than 28 days after it begins operations if the name of the partnership is different from the real surnames of the partners (without any additions). It is an offence if this is not done and each partner shall be liable on conviction to a fine of N50 for everyday that the default continues.

(ii)

Each partnership is required to register upon request a copy of their Articles of Partnership (if any) or a written summary of their agreement to be supplied with the local tax laws in accordance with the Income Tax Laws. Capacity to enter into a partnership is governed by the ordinary law of contract. Thus a minor can enter into a partnership and the contract is 171

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. binding on him unless he repudiates it before or within a reasonable time of his attaining full age. If he repudiates it, he is not liable for partnership debts contracted while he was a minor.

11.4

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

11.4.1 Joint Tenancy and Tenancy in common (i). Co-ownership of property does not of itself create a partnership whether or not the co-owners share any profits made by the use of the property. (ii) Partnership is necessarily the result of an agreement between the parties thereto, Co-ownership is not, e.g. X may by will leave his house to A and B jointly. A and B are co-owners of the house but not partners, although the rent will be shared equally between them. (iii) Partnership necessarily involves the working for profit, co-ownership does not. (iv) A partner cannot transfer his share of the partnership to a 3rd party without the consent of his partners. A co-owner's consent is not needed to transfer his right to a third party. (v) A partner is the agent of the partnership to bind the firm. A co-owner has no implied authority to bind the other co-owners.

An illustration of the above is found in the case of Davis Vs Davis (1894)1 where a father left his two sons his business and three houses in equal shares as tenants in common. They let one of the houses and employed the rent in enlarging the workshops attached to the two houses. They continued to carry on the business. 172

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. They each drew out from it a weekly sum, but no accounts were kept, the rent of the third house was divided between them. The Court Held, that there was a

partnership as to the business, but not as to the houses.

11.4.2 The Sharing of Gross Returns. The sharing of gross returns does not of itself create a partnership, whether or not the persons sharing in the returns have a common interest in the property from which the returns are derived. It is not even evidence of partnership. So where a publisher agrees to pay to an author a royalty on the value of the number of copies of his book sold by the publisher, this does not create a partnership between them.

Likewise an agreement whereby the owner of a theatre lends his theatre to the producer of a play in consideration of the theatre owner receiving part of the sums paid for seats does not make the owner and the producer partners, as in Cox Vs Coulson(1916)2. Therein the defendant was the manager of a theatre and agreed with a Mr. Mill to provide the theatre, and pay for the lighting and for the playbills. he was to receive 60 per cent of the gross takings, whilst Mr. Mill was to provide and pay for the theatrical company and provide the scenery and receive the remaining 40 per cent. The plaintiff was injured by a shot fired by an actor during the performance of a play at the theatre. She sought inter alia to make the defendant liable on the ground that he was a partner of Mr. Mill. Held, by the Court of Appeal, that the defendant could not be made liable on this ground because he was not a partner, for by s. 2 (2) of the Partnership Act the sharing of gross returns did not of itself create a partnership. 11.3.3 the Profits The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business. But this evidence may be rebutted where it can be shown that the purpose of the share of the profits was for any of the following: (i) The payment of a debt by fixed instalments. 173 Receipt of a Share of

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Thus if Anthony lends a partnership N50,000 and receives payment of the debt by instalments of N10,000 for each of 5years out of the profits of the business does not make him a partner (ii) Where a servant or agent is engaged in a business and is remunerated by a share in the profits. The fact that a marketing officer is employed by a partnership on a salary plus a share of the profits does not make the employee a partner in the firm. (iii) Where a widow or child of a deceased partner receives a portion of the profits by way of annuity. (iv) Where a person has lent money to a person engaged or about to engage in business and receives a rate of interest varying with the profits or a share of the profits, such person is not regarded as a partner as long as the contract is in writing and signed by or on behalf of the parties thereto. (v) Where a person has sold the goodwill of a business and in consideration of the sale receives a portion of the profits. By Section 3 of the Act, where the person carrying on business in (iv) and (v) above becomes bankrupt, the lender of the money and the vendor of the business are postponed until all the other creditors are paid in full.

If losses as well as profits are shared the evidence of partnership is stronger, but it is not conclusive and in every case the question of partnership depends on the intention of the partners.

11.5

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

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

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

(ii)

Illegal purpose: A partnership is illegal when it is formed for an illegal purpose. For example, where 5 persons come together to form a partnership of smugglers, hired assassins or armed robbers. Herein no action can be brought for a breach of it, no account of profits will be ordered and no proceedings can be brought in respect of it.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 11.5.2 Relationship between Partners Partners' Rights and Duties: The mutual rights and duties between partners are ascertained by: (i) (ii) the express and implied terms of the Partnership agreement and the provisions of the Partnership Act. In either case the rights and duties may be varied by the consent of all the partners of a firm and such consent could be implied from a course of dealing. To ascertain the terms of the partnership agreement, ordinary rules of contract apply, although the Articles of Partnership usually contain detailed terms of the partnership to help in determining the mutual rights and obligations of the partners.

The Partnership Act provides set rules which apply subject to any agreement expressor implied between the partners (Section 24). It provides for the following unless acontrary agreement is reached: (a) Equal Share:- All partners are entitled to share equally in the capital and profits of the business and must contribute equally towards the losses whether of capital or otherwise sustained by the firm. (b) Management:- Every partner may take part in the management of the partnership business. (c) Remuneration:- No partner shall be entitled to remuneration for acting in the partnership business. (d) Introduction of Partners:- No person shall be introduced as a partner without the consent of all existing partners. (e) Internal disputes:- Any difference arising out of the ordinary matters connected with the partnership business may be decided by a majority of the partners but no change may be made in the nature of the partnership business without the consent of all existing partners. (f) Indemnity:- The firm must indemnify every partner in respect of payments made and personal liabilities incurred by him in the ordinary and proper conduct of the business of the firm. 176

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(g)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Interest on Capital:- A partner is not entitled, before the ascertainment of profit, to interest on capital subscribed by him.

(h)

Books:- The Partnership books are to be kept at the place of business of the partnership and every partner may when he thinks fit have access to and inspect any copy of them.

(i)

Assignment of a Share in A Partnership: An assignment by any partner of his share in the partnership either absolutely or by way of mortgage or redeemable charge does not entitle the assignee to interfere in the management, require accounts or inspect the partnership books. He is only entitled to receive a share of the profits which the assigning partner would otherwise be entitled to.

(j)

Transmission of Shares in the Partnership:- When a partner dies or becomes bankrupt, his property vests by operation of law in his Personal representatives or trustee in bankruptcy as the case may be. They do not become partners in the firm, indeed the firm will have been dissolved by the death or bankruptcy unless the partnership agreement otherwise provides.

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

Specific performance is rarely available to enforce a partnership agreement since a partnership is a contract for personal services and such contracts are rarely enforceable by specific performance.

11.6

RELATIONS OF PARTNERS AND THIRD PARTIES

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. business in the usual way will bind the firm and his partners. However the firm and the co-partners will not be bound; (i) Where the partner who acts has no authority to bind the firm in the particular matter, and; (ii) Where the person who deals with him knows that he has no authority or does not believe him to be partner (Section 5).

11.6.2 Extent of Power: Decided cases indicate that the implied authority of a partner envisaged above is as follows: (i) (a) (b) (c) (d) (e) All Partnerships: Partners have implied authority to Buy, pledge and sell goods of the type in which the firm deals Give valid receipts Sign Cheques Engage and dismiss employees Sue on behalf of firm or defend an action against it.

(ii)

Trading Partnerships i.e partnerships where business consists in the buying and selling of goods. The partners have these additional powers.

(a)

To borrow money and give security over the firm's land or chattels. (b) To draw, accept or indorse bills of exchange and promissory notes.

(iii)

Non Trading Partnerships such as Firms of Solicitors, quarry workers, auctioneers, Accountants, Cinema proprietors. For such partnerships

(a)

A partner cannot accept, make or issue negotiable instruments other than ordinary cheques

(b)

A partner cannot borrow or pledge the partnership property

There are however certain acts that are not within the usual authority of a partner whether it is a trading partnership or a non trading partnership, thus a partner does not have the usual authority to: (a) execute a deed , unless his authority is expressly conferred by deed 178

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(b)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. give a guarantee in the firm's name unless a trade custom in that regard is proved;

(c) (d) (e) (f)

submit a dispute to arbitration accept property in lieu of money to satisfy a debt owed to the firm make his partners into partners with other persons in another firm authorise a third person to make use of the firm's name in legal proceedings

11.6.3 Partner's Liabilities (1) Liability for Debts and Contract: Every partner in a firm is liable jointly with the other Partners for all debts and obligations of the firm incurred while he is a partner and after his death his estate is also severally (i.e separately or individually) liable for such debts and obligations so far as they remain unsatisfied subject to the prior payment of his separate debts. The term joint here means, the Plaintiff can only bring one action and not several separate actions against the members of the firm since there is only one contract. He is not bound to join all members of the firm in the action but if he does not do so, he loses his rights against those whom he has omitted. So a firm's creditor may sue any or all the partners in the event of judgment being unsatisfied. It is advisable however to bring an action against the firm in the firm's name since this has the same effect as if the action were brought against each and every partner.

(2)

Liability of the Firm for Torts: Where a partner commits a tort while acting in the ordinary course of the partnership business, the firm is vicariously liable. The firm is similarly liable where a partner commits a tort with the authority of his copartners. The firm's liability is joint and several. This

means that an unsatisfied judgment against one or some of the partners is not a bar to a further action against the remaining partners.

(3)

Liability of New Partners: The general rule is that an incoming partner is not liable for the firm's debts incurred before he became a partner although 179

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. he could become liable for debts from a continuing contract made before he become a partner. The new partner can however assume liability by novation. Novation here must be a tripartite agreement between (i) creditors of the firm (ii) the partners existing at the time debt was incurred and (iii) the incoming partner.

(4)

Liability of Retiring Partner: This depends primarily on whether the debt was incurred before or after retirement. (a) Before Retirement: Obviously, a partner who retires from a firm would still be liable for debts or obligations incurred before his retirement though he could be discharged by novation as explained above. The parties here however are (i) (ii) (iii) the retiring partner the firm as newly constituted after the retirement and the creditor.

(b)

After Retirement: For the debts of the firm incurred after his retirement he is liable to persons who (i) dealt with the firm before his retirement unless he has given them notice that he is no longer a partner (ii) had no previous dealings with the firm, unless he has either given notice of his retirement or had advertised it.

He is not liable, however to persons who had no previous dealings with the firm and did not know him to be a partner. The estate of a partner who dies or who becomes bankrupt or is not liable for partnership debts contracted after the date of death or bankruptcy.

(5)

Liability of Person by Holding Out: A person may be liable like a partner for the debts of the firm although he is not in fact a partner, if by the words spoken or written or by conduct represent himself or allows himself to be represented as a partner in the firm. His liability in such a case is only to 180

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. those persons who have on the faith of such representation given credit to the firm. He is not however liable for the torts or wrongs of the

partnership firm.

11.7.

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

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. himself that it is not reasonably practicable for the other partners to carry on the business in partnership with him. 5. 6. When the partnership business can only be carried on at a loss. Whenever the court thinks it just and equitable to dissolve the partnership.

11.7.2 The Effect of A Dissolution: is basically to revoke the power of each partner to bind the firm, except to complete transactions began, but not finished at the time of dissolution and to do what may be necessary to wind up the partnership affairs.

11.7.3 Application of Partnership Property On Dissolution On dissolution each partner is entitled to have the partnership property including the goodwill, sold and the proceeds applied in payment of the debts and liabilities of the firm. The Act provides that in settling accounts and the partnership assets are insufficient to discharge the debts and liabilities of the firm, subject to agreement, the partners must bear the deficiency in the proportion in which they were entitled to share profits in this order. (i) (ii) (iii) Out of profit Out of capital By the partner individually in the proportion in which they were entitled to share profits.

Aside from this, the assets, including any sums contributed by the partners to make up the losses or deficiencies of capital are applied in the following manner:(i) In paying the debts and liabilities of the firms to persons who are not partners. (ii) (iii) (iv) In paying the debts and liabilities of the firm to persons who are partners. In paying each partner rateably what is due to him in respect of capital. The ultimate residue if any is to be divided among the partners in the proportion in which profits are divisible.

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

11.8

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

It further explains the legality of partnerships, the relationship between the partners, their rights and duties, and the rules that apply to partners such as remuneration, indemnity, management etc.

It discusses the relationship between partners and third parties, explaining the partners' powers, its extent and their liabilities.

It further explains the various ways by which a partnership can be dissolved; viz by operation of law or by the Courts, the effect of dissolution and the application of partnership property upon dissolution.

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11.9

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. REVISION QUESTIONS (a) (b) In which order must partnership debts be paid on dissolution? Ebere and Williams have for several years carried on business in partnership. It has now been agreed that Ebere shall retire and receive N100,000.00 in satisfaction of her share while Williams shall take over the all the assets and liabilities and carry on the business in the old firm name. Advise Ebere as to the steps which should be taken in order that she may be adequately protected, giving your reasons. (c) State the order in which partners must bear losses on the dissolution of a partnership. (d) (e) State the order in which partnership debts are paid on a dissolution. List three differences between general partnerships and limited

partnerships. (f) (g) (h) (i) What is a partnership? List four disabilities of a limited partner. How may we distinguish co-ownership from partnerships. State three instances where a person who receives a share of the profits may not be regarded as a partner. (J) List four ways by which a partnership may be dissolved without a Court order. (k) (L) List four ways by which a partnership may be dissolved by the Court. When may a partnership name be registered and state the effect of the non registration of a registrable partnership name.

184

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CHAPTER TWELVE BANKING AND NEGOTIABLE INSTRUMENTS

12.0

LEARNING OBJECTIVES Upon completion of this chapter, readers should be able to: o define negotiable instruments o identify the types of negotiable instruments o distinguish among bills of exchange, cheques and promissory notes. o explain what order and bearer papers are o discuss the rights and duties of the holder o describe the mode and scope of dishonour and discharge. o explain the basis for banking and the relationship between the banker and the customer discuss unit trusts

12.1

INTRODUCTION Negotiable instruments have become the most acceptable way of monetary transactions today. The meaning, types and characteristics of negotiable instruments are therefore necessary to look at to ensure a proper understanding of them. It is equally important to be able to make a distinction among bills of

exchange, cheques and promissory notes. Again the rights and duties of bankers and customers are also relevant and receive attention. The chapter is concluded with a discussion of unit trusts.

12 .2

MEANING, TYPES AND CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS

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

185

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. There are two types namely Promises to pay money and Orders to pay money. Promises to pay money include Promissory notes and certificates of deposit. Examples of Orders to pay money are Bills of exchange like Cheques and other drafts.

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

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

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. the bill. The term bill of exchange usually refers to foreign exchanges, rather than domestic transactions. On accepting a bill of exchange, the drawee becomes the party primarily responsible for paying it. Bills of exchange are negotiable and constitute one of the principal forms of commercial documents in most countries. The most common bill of exchange is the cheque.

12.2.5 Cheques A Cheque is a draft payable upon demand and drawn on a bank. The issuer of the cheque is the drawer who orders the bank at which he has an account referred to as the drawee to pay a named individual or entity or the bearer of the cheque, the payee a specified sum of money upon presentation of the cheque. A cheque includes a money order. Draft is a written order for the payment of money drawn by one person, directing a second person or financial institution to pay a third person. Whereas bills of exchange are always negotiable, drafts may be nonnegotiable. A draft is payable on sight or on demand; however, in some transactions drafts are often payable at a stated date in the future.

12.2.6 Negotiability In order to be negotiable, (capable of being transferred-transferability) an instrument must meet several qualifications: It must be in writing; It must contain an unconditional promise to pay a certain sum in money, on demand or at a fixed and determinable future time; It must be made payable to bearer or order; It must be signed by the maker of a promissory note or the drawer of a bill of exchange.

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. signature may write Pay to the order of Jeff. To effect negotiation and therefore transferability of a bearer paper all that is required is delivery of possession of the instrument to the one to whom it is being transferred.

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

12.3

RIGHTS AND DUTIES OF PARTIES TO A BILL OF EXCHANGE

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

The rights and powers of the holder of a bill include suing on the bill in his own name. The holder in due course as a transferee generally takes free of claims and 188

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. defences between the original parties to the instrument and may enforce payment against all parties liable on the bill. Claims relating to ownership, lien on the instrument or right of rescission of endorsement can be sustained against the holder in due course if they arise subsequent to taking but not claims arising before taking. In Diab v Quansah [1974] 1GLR 101, it was shown that by the effect of s 28 (2) of Act 55 every holder of a bill was to be deemed to be a holder in due course, if however evidence was given to show that there was fraud, illegality or duress in the negotiation of the bill, the onus of proof lies on the person who assists.

12.3.2

Dishonour A bill may be dishonoured by non-acceptance or by non- payment and the holder can sue prior parties on their implied promises. A bill is dishonoured by nonacceptance when it is duly presented for acceptance and such acceptance is refused or cannot be obtained or when presentment for acceptance is excused and the bill is not accepted. A bill is dishonoured by non-payment when it is duly presented for payment and payment is refused or cannot be obtained and when presentment is excused and the bill is overdue and unpaid. When a bill has been dishonoured by non-acceptance or by non-payment, notice of dishonour must be given to the drawer and each endorser, and any drawer or endorser to whom such notice is not given is discharged.

12.3.3

Discharge A negotiable instrument may be discharged in the following ways: Payment of the instrument in full discharges liability on it. After all the essence is to effect payment and therefore once the payment is effected the obligation is fully fulfilled. By express waiver where the holder absolutely and unconditionally renounces his rights against the acceptor. The waiver must be in writing unless the bill is delivered up to the acceptor. Any material alteration discharges any party whose obligation is affected by the alteration. By intentional and apparent

189

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. cancellation by the holder or his agent. By negotiation back to the acceptor sometimes called a merger. By the bill becoming statute barred.

12. 4 RIGHTS AND DUTIES OF BANKERS AND CUSTOMERS 12.4.1 Banking Banking entails providing financial services to consumers and businesses. Any financial institution that receives, collects, transfers, pays, exchanges, lends, invests or safeguards money for its customers may be referred to as a bank. Banking services supply customers with the basic mediums-of-exchange (cash, cheque accounts, and credit cards). In that sense banks assist very much in the purchasing of goods and services. Banks also encourage the flow of money to productive use and investments through accepting deposits from savers and lending them to borrowers. This is how the economy grows since savings do not sit idle but money is made available for borrowing and thereby ensures the purchasing of a wide variety of goods and services. It also facilitates the setting up of many businesses essential for production and further expansion. Although deposits and loans are the basic banking services provided by banks, these institutions provide a wide variety of other services to customers. For consumers, these include cheque cashing, foreign currency exchange, safety deposit boxes in which consumers can store valuables, electronic wire transfer through which consumers can transfer money and securities from one financial institution to another among others.

Electronic banking through the use of computers has become a fast and convenient way of money transfer. Automated teller machines (ATMs) enable bank customers to withdraw money from their current or savings accounts by inserting an ATM card and a private electronic code into an ATM. This gives all time access. 12.4.2 Relationship of Banker and Customer. A banker is defined as a body of persons who carry on the business of banking. A person becomes a customer either when the banker opens an account in his name or when the banker accepts his instruction to open an account and receives a deposit to be credited to it. Relationship between banker and customer vary from 190

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. transaction to transaction. When the banker accepts the custody of documents or goods he acts a bailee. When he agrees to hold moneys on trust he becomes a trustee.

When a banker opens an account for the customer the relationship established is that of debtor and creditor. When the account is in credit the customer is the creditor and the banker the debtor. The position is reversed when the account is overdrawn. Customer's deposit of money in a bank under the banker's control but not held in the form of a trust although he has obligations in connection with it. The banker has an obligation to repay.

A Banker can invest the money as he pleases but is under an obligation to pay it on demand or to pay it to third parties on the order of the customer. The bank must honour a customer's deposit or alternatively up to the amount of an agreed overdraft but not without enquiry in unusual cases.

The banker has an obligation not to disclose. The bank has an obligation not to disclose information concerning the customer's affairs. The obligation extends to all facts discovered by the banker while acting in that capacity and is not confined merely to the state of the account. On principle disclosure is excusable under compulsion of law, where there is a duty to the public to disclose, where the interests of the bank require disclosure or where the disclosure is made with the express or implied consent of the customer.

12.4.3 Termination of Duty to Pay The banker should not honour a cheque if the customer has countermanded or

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. should not rather be made to the judgment creditor. Forged and altered cheques are obviously not genuine and cannot be honoured. The bank has an obligation to act with reasonable care and skill to ensure that there is no improper withdrawal of money from the customer's account. Bankers give advice on investment to customers and potential customers and will be liable in damages if the advice is negligent.

12.5

UNIT TRUSTS Under the Companies Code of Ghana, a unit trust means any arrangement whereby securities or any other property other than a charge to secure debentures are vested in trustees. The beneficial interests in them are then divided into units or sub-units or other interests with a view that they would be acquired through invitations to the public.

The Registrar in his absolute discretion and subject to such conditions and restrictions that he shall think fit may declare any unit established in Ghana or elsewhere to be an authorized unit trust by a legislative instrument. The instrument shall be made only when the manager and the trustees deliver to the Registrar particulars of an address in Ghana for service of notices and documents.

Any revocation of the instrument or a variation of its terms by the Registrar will have to be served on the manager and the trustees of the unit trust by a written notice. Any representations in respect of them will have to be made within one month from the date of service of the notice. The Registrar may proceed after the period having taken into consideration the representations. Invitations to the public to acquire any units can lawfully be made in respect of authorized unit trusts and under the restrictions and conditions imposed on them. Any invitations to the public made in breach of these conditions attract a fine in respect of a body corporate and imprisonment in all other cases.

192

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

12.6

12.8

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. CHAPTER 13 THE ALTERNATIVE DISPUTE RESOLUTION (ADR)

13.0 LEARNING OBJECTIVES 13.1 INTRODUCTION Litigation should always be a last resort for a business.1This view was expressed by Ewan Macintyre in his book Business Law. In every legal instrument prepared for execution of contract or agreement between two or more parties Arbitration clause is usually inserted. The Alternative Dispute Resolution consists of Arbitration, Mediation and conciliation. DEFINITION OF TERMS ARBITRATION Arbitration has been defined as the reference of a dispute or difference between not less than two parties for determination after hearing both sides in a judicial manner by persons or persons other than a court of competent jurisdiction.2 A person to whom a reference to arbitration is made is called an Arbitrator.3 The Law regulating Arbitration in Nigeria is the Arbitration and Conciliation Act. The Act lays down both the Law and procedure for Arbitration proceedings.

13.2

13.3

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. According to Section 1 of the Arbitration Act, every arbitration agreement shall be in writing and may be contained in a document signed by the parties or in an exchange of letters, telex, telegrams etc. which provide a record of the arbitration agreement or in exchange of points of claim or defence in which the existence of an arbitration agreement is alleged by one party and not denied by another.5 Usually, an agreement to go for arbitration may either be made by the parties as an integral part of their initial contract (that is where the contract would contain an arbitration clause) or the parties may agree to go for arbitration after the dispute has arisen.

Not all disputes can be referred to arbitration for settlement as was held in the case of KSUB v Fanz Construction Limited. The following matters cannot be referred to arbitration: (a) (b) An indictment for an offence Disputes arising from agreement which are void abinitio e.g. gambling or disputes arising from illegal contract and disputes arising from divorce petition.6

13.4 BINDINGNESS OF ARBITRATION AGREEMENT Except where a contrary intention is expressed in the agreement, an arbitration agreement is irrevocable except by agreement of the parties or by leave of the court. It was held in the case of Commerce Assurance Ltd. v Alli that a person who has submitted to an arbitration cannot turn to the court to ask it to review the award. The court has no power to alter an award.

Justice Nnaemeka Agu in this case stated that the general rule is that parties took the arbitrators for better or worse.7

13.5 ENFORCEMENT OF AWARD This is the final decision of the Arbitrator. It is usually based on sound premises and well adduced reasons like the judgement of the court. Both the claimant and 195

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. the defendant shall have copies of the award which is expected to be final and binding on the parties.

A party that is not satisfied with the award may go to the court for redress. The court may order the award to be remitted back to the Arbitrator or may decide to set it aside. This was the situation in Governor of Niger State v Albishir, Baker Marine (Nig) Ltd. v Chevron (Nig) Ltd. and Aaka v Ejeagwu.8 Usually, it is the losing party that goes to court to ask for a setting aside order. The court does not have power to alter an award. The winning party may also approach the court for an order to enforce the award as was decided in Commerce Assurance Ltd. v Alli .

Once an order is made for the enforcement, the successful party may levy execution under the Sheriff and Civil Process Act. Where the award is made in a foreign country against any organization or company in Nigeria, it must first be registered under the Reciprocal Enforcement of judgement Act 1960 Application shall be made to the court for enforcement by way of originating summons.9 However, by virtue of the New York Convention of 1958, which is an International Treaty to which Nigeria is a subscriber, it could be inferred that judgements of other countries apart from the United Kingdom can also be registered and enforced reciprocally between Nigeria and the other countries.

Enforcement of Foreign Awards has become easier than executing court judgements because of the existence of number of rules and international conventions like the 1958 United Nations Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention). This convention supercedes the 1923 General Protocol on Arbitration clauses and the 1927 General Convention on execution of Foreign Arbitration awards.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 13.6 CONDUCT OF ARBITRAL PROCEEDINGS Section 14 of the Arbitration Act provides that in any arbitral proceedings, the arbitral tribunal shall ensure that the parties are accorded equal treatment and that each party is given full opportunity of presenting his case.10

13.7 PLACE OF ARBITRATION This is usually determined by the arbitral tribunal having regard to the circumstance of the case including the convenience of the parties.

13.8

LANGUAGE OF THE PROCEEDINGS The language is usually determined by the parties.

13.9 COMPOSITION - NUMBER OF ARBITRATORS The parties are free to determine the number of arbitrators to be appointed. The number may be based on the original arbitration agreement or after the dispute had arisen. In the absence of any prior agreement, the number of arbitrators shall be deemed to be three. (3)

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

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

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. 13.12 METHOD OF COMMENCEMENT OF THE ARBITRAL PROCEEDINGS Two parties to an arbitral proceeding are referred to as the claimant and Respondent. The claimant is the party that initiates recourse to arbitrator while the other party is the Respondent. Note that proceedings are commenced by the claimant giving the Respondent notice of intention to go for arbitration. Arbitral proceedings commences on the date notice is received by the respondent.

13.13 MAKING AN AWARD The decision of the arbitral tribunal is called an award.12 Where the tribunal consists of more than one arbitrator, any decision of the tribunal is made by a majority of all its members.

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

2. CONFIDENTIALITY/PRIVACY

Arbitration

guarantees

privacy

and

confidentiality of the parties, the proceedings and the evidence given at the proceedings. This is because, unless agreed to by the parties to the Arbitration, members of the public do not have access to the proceedings or evidence given at such proceedings. A disputant who wants confidentiality would be better off with arbitration.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. This situation contrast sharply with the position with the regular court system where the courts are generally speaking, open to the general public and evidence/documents in court sessions are considered as public document and within the domain of the members of the public.

3. FAIRER AND MORE ACCEPTABLE SETTLEMENTS Arbitrator is considered to lead to a more informed and more acceptable settlements of disputes. The reason for this is that the parties have a say in the appointment of arbitrators, they are more likely to accept and be satisfied which the decision of an arbitrator appointed by them.

This position contrasts with the normal litigation where the dispute resolution organ is dictated by the state without a reference to or impute from the disputants.

13.15 DISADVANTAGES OF ARBITRATION 1. More expensive The greatest drawback of arbitration as an alternative dispute resolution is that it is more expensive to the disputants, than the normal court litigation. All the cost of the process like payment of the arbitrators and other associated cost like accommodation, transport etc. are borne entirely by the parties.

2. ENFORCEMENT Enforcement is another drawback of arbitration because it does not have direct enforcement machinery. Where an award is made, and not satisfactory enforcement may be difficult. At times the aggrieved disputant would have to apply to normal court to enforce the award. In doing so, some of the advantages of the arbitration process especially confidentiality and speed would be compromised.

This contrast with the situation in which regular court litigation where the machinery of enforcement are automatically available to enforce any court judgement. 199

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

13.16 MEDIATION As regards litigation and arbitration the dispute is resolved for the parties by an independent body.14 In mediation, the parties themselves agree to the resolution of the dispute. The mediators try to facilitate an agreement between the two parties. There is no fixed rule in mediation. The parties would first present an outline of their case to each other, in the presence of the mediator and reply to the other partys case.

The role of mediator is to set out the rules, trying to keep matters simple and also striving to identify the key issues in dispute.

In mediation, the two parties will retire to different rooms and the mediator will spend time with one group, before passing on the position of that party to the other party. At times a large number of such visits might be needed and ideally the parties would move closer to agreement until they finally agree to settle. It should be noted that it is not always the case that those taking part in mediation are generally attempting to settle the case. At times they might merely be trying to find out the strengths and weakness of the other partys case.

Mediation is a voluntary process, which offers disputants meaningful and creative solution at a fraction of the cost of the litigation system.

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

Mediation is different from arbitration. The role of the neutral third party in Arbitration is to consider the issues and make a decision, which at times is binding on the parties, the neutral third party in mediation does not have any authority to 200

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. make any decision or award for the parties. Where the mediator expresses a view about the merits of the disputes, that opinion is not binding on the disputants, and in no circumstances would a mediator have the power to impose his views on the disputants, Exercise of such power would be contrary to the spirit of mediation, which is inherently consensual. Where mediation falls, the two parties retire to court room. Decision of mediation cannot be enforced in the court.

13.17 CONCILIATION Conciliation is similar to mediation except that the conciliation actually suggests a basis for settlement to the parties. Mediation and conciliation suffer from the problem that they may well prove futile in that no settlement will be reached or become any closer. In the final analysis, the two parties usually go to court for litigation.

201

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

APPENDIX 1 SUGGESTED SOLUTIONS TO REVISION

QUESTIONS1.8 1. Law is the rules and regulations which govern the society. Every society has acceptable behaviour patterns. Deviations from them are usually proscribed and attract sanctions. Law in essence determines what is acceptable and what is not. Since there are many different classifications of society there are also many types of laws to meet them. A social club has its laws, so does an ethnic group and the country as a whole. There are also laws that relate to specific activities of humanity. Thus there are laws that relate to contract generally and to specific ones like employment, sale of goods and insurance among others.

2.

Laws shape human behaviour in one way or the other. There are those who may voluntarily meet the expectations of the law. There are however others who may conform for fear of the sanctions the law imposes. The law therefore ensures conformance. It also sets the standard as to what is acceptable and what is not.

3.

The laws of Ghana and Nigeria are the Constitution,1992 and 1999 respectively; enactments made by or under the authority of the Parliament established by the Constitution,1992 and 1999; any Orders, Rules and Regulations made by any person or authority under a power conferred by the Constitution 1992 and 1999 respectively. It also includes the existing law and the common law.

4.

The Common law of Ghana and Nigeria is made up of the rules of law referred to as the common law, the doctrines of equity and the rules of customary law. It sometimes in a narrow sense refers only to the rules of common law developed in England or that with the principle of equity. Generally however the common law has three components namely the common law developed in England, the doctrines

202

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. of equity which developed to mitigate the harshness of the common law and the customary laws of the various ethnic groups of the country.

5.

Equity means fairness. It is based on impartiality. On the failure of the English Common law to keep pace with the needs of the society then, it became expedient to mitigate its harshness and rigours. Its processes were slow and the remedy inadequate. Equity developed to address these shortcomings. Aggrieved persons petitioned the King for assistance with the Chancellor presiding over such hearings. By the 15th Century the petitions were made directly to the Chancellor. The body of rules applied by the Chancellor's court became known as equity. Equity developed to remedy the defects of the common law and has many fundamental principles known as the maxims of equity upon which it operates. Some of them are equity follows the law, equity aids the vigilant not the indolent and equity looks at the substance rather than the form. Equitable remedies are discretionary and include specific performance and injunctions.

6.

Customary law is the rules of law which by custom are applicable to particular communities in Ghana and Nigeria. They are customs accepted by members of a particular community as binding upon them. It used to be applied and enforced only when they were not repugnant to natural justice, equity and good conscience. Customary law in Ghana and Nigeria regulates matters relating to chieftaincy, family relationships and property rights. Its role cannot be overemphasised considering the fact that it regulates the basic human grouping- the family. Marriage, birth, divorce, death, succession and inheritance are commonly regulated by customary law. Patrilineal and matrilineal inheritance and succession regulate offices and even property rights and economic activities. Indeed there are multiplicities of customary laws affecting different commodities. Many customary laws have seen transformation due to the impact of patrilineal and socio-economic changes in society.

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7.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Legislation is law passed by Parliament in the form of Acts of Parliament or Statutes. They may be in the form of Constitution, Acts, Decrees or Edicts: The other is subsidiary or delegated legislation which is made up of orders, rules and regulations made by any person or authority under a power conferred by the Constitution or any other law.

8.

There are several approaches to the interpretation of statutes. The common rules include the literal rule, the golden rule, the mischief rule, the ejusdem generis rule, the expression unius est exclusion alterius rule and the noscitur a sociis rule. The three common approaches described here are the literal, golden and mischief rules. The literal rule is for giving words their ordinary and plain meaning if they are clear and unambiguous. Under the golden rule the judge adopts the interpretation which produces the least absurd result. This is adopted especially where the words of a statute are capable of two or more meanings. The mischief rule is based on looking at what mischief or defect in the common law the Act was passed to remedy.

9.

The doctrine of judicial precedent simply means stand by past decisions and do not disturb things at rest. It means that a court's decision based on a particular set of circumstances is binding on other courts in later cases in situations where the relevant facts are the same or similar. Judges make use of previously decided cases. Courts are bound by the decisions of courts superior in the judicial hierarchy. The High Courts and Regional Tribunals are not bound by their own decisions but their decisions bind all lower courts. The Court of Appeal is bound by its own previous decisions which also bind all courts lower than it. The decisions of the Supreme Court bind all other courts. This is authoritative precedent which is binding and must be followed. Decisions of Superior Courts of other common law jurisdictions are of persuasive effect and need not be followed. Judicial precedent brings out rules of law which help to ensure uniformity, consistency and certainty.

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10.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Law reporting is the most meaningful way of showing the application of the doctrine of judicial precedent. Law reporting helps to illustrate the relevant rule running through a series of cases. Law reports therefore are the repository of precedents. Law reporting provides a record for the procedures and substance of the law for the benefit of the profession and society as a whole.

QUESTION 2.9 1. The two main courts of Ghana are the Superior Courts of Judicature and the lower courts The Superior Courts are made up of the Supreme Court, the Court of Appeal, the High Court or the Regional Tribunal. This is also applicable in

Nigeria save for Regional Tribunal which is peculiar to Ghana

The Lower Courts are made up of the Circuit Court, the District Court, the Juvenile Court, the National House of Chiefs and every Traditional Council in respect of matters affecting chieftaincy and other lower courts as established by law by the Parliament by law establish. The Supreme Court has original, appellate, supervisory, review and special jurisdiction. Its original jurisdiction is in respect of the enforcement or interpretation of the Constitution and matters as to whether an enactment was made in excess of the powers conferred on Parliament or any other authority. The Supreme Court is the final appellate court. It has jurisdiction in all matters. The Supreme Court has supervisory jurisdiction over all courts and over any adjudicating authority. It may issue orders and directions in the form of certiorari, mandamus, prohibition etc to enforce or secure the enforcement of its powers. The Supreme Court may also review any decision made or given by it. Finally the Supreme Court has special jurisdiction in terms of whether a document should be produced in public or not due to security reasons, entertain a petition challenging the validity of the election of the President of Ghana and Nigeria and the removal of the President on stated grounds.

3. The qualification for appointment as a judge to the courts of Ghana is high moral character, proven integrity and a number of years standing as a lawyer. For the 205

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Supreme Court the standing as a lawyer is not less than fifteen years. For the Court of Appeal not less than twelve years and for the High Court or Regional Tribunal not less than ten years. For the Circuit Court it is not less than five years and not less than three years for the District Court.

4.

The Court of Appeal has only appellate jurisdiction and no original jurisdiction. No case therefore starts at the Court of Appeal. Same for Nigeria where it has

jurisdiction on matters connecting with the election of the President and Vice President.

5.

The High Court has jurisdiction in all matters and in particular in civil and criminal matters. It also has original jurisdiction in almost all civil matters. It can enforce the fundamental human rights guaranteed by the Constitution. It has appellate jurisdiction over the District and Circuit Courts. It also issues orders and directions in its supervisory role under the lower courts. The unlimited jurisdiction of the High Court in Nigeria has been curtailed by the virtue of Act. 251 of 1999 Constitution as amended.

6.

A Regional Tribunal has concurrent original jurisdiction with the High Court in all criminal matters. It also tries the special offences of causing loss, damage or injury to public property, import of explosives and using public office for profit. Its jurisdiction includes offences arising under the Customs, Excise and Preventive Services Management Law, Internal Revenue Act, Narcotic Drugs (Control, Enforcement and Sanctions) Law and other offence involving serious economic fraud and loss of state funds or property. It also has appellate jurisdiction to hear and determine appeals in criminal trials from the circuit and District Courts.

7.

The Circuit Court and District Courts have virtually the same jurisdiction in terms of the civil and criminal matters handled. However Circuit Courts deal with civil matters not exceeding 100 million cedis whiles District Courts have a ceiling of 50 million cedis. District Courts also act as Juvenile Courts and family tribunals 206

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. A writ of summons is the means by which a civil proceeding is commenced. It is prepared by the plaintiff, his solicitor, the registrar of the court or a letter writer. It usually indicates the nature of the claim and the relief or remedy sought in the action.

8. a)

b)

A writ of fi fa commands the sheriff to cause to be made a writ of attachment on the property of the judgment debtor for the property to be sold in satisfaction of the judgment debt and costs. The sheriff after the sale is expected to bring the money realized into court to be paid to the judgment creditor.

c)

Garnishee orders cause a third party to appear before the court to show cause why he should not pay to the judgment creditor the debt due to him to the judgment debtor in satisfaction of the judgment debt and costs.

9.

One is criminally liable for an unlawful act or default which is offence against the public. It is and offence against the state and the person who is guilty is liable to punishment. There must be the proof of the mens rea (guilty mind) and the actus reus (prohibited act). The standard of proof for a crime is beyond reasonable doubt. Civil liability deals with remedying the wrongs arising between in contract and tort. The

individuals. Two broad areas of civil liability are

plaintiff sues the defendant and will be successful if he can prove his case on a balance of probabilities.

10. Every man is entitled to his good name and to the esteem in which he is held by others. Whenever a man's reputation is disparaged by statements made about him to a third person without lawful justification or excuse he is said to have been defamed.

207

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Defamatory statements in an oral or some other transient form constitute the tort of slander. Where the defamatory statements are in writing or some other permanent form constitute libel. 3.8 1. The elements of contract are agreement, consideration, and intention to create legal relations, form, capacity and legality.

2.

Whenever a person comes out with terms to another person and shows willingness that if that person accepts those terms he is ready to contract with him those terms constitute an offer. In the case of an invitation to treat, it precedes an offer it is rather an offer to make an offer. It is an indication of willingness to enter into negotiations. It cannot be accepted to bring a contract into being. It is invitation to make an offer. Circumstances which amount to invitation to treat include advertisements, display of good with price tickets, auctions and tenders.

a)

Where two people simultaneously make identical offers to each other they amount to cross offers. In such circumstances the other party make an offer independent of the other. None is a reaction to the other and thus none can constitute an acceptance. They therefore do not conclude a contract.

b)

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

c)

Acceptance is the expression of assent to the terms of an offer. Acceptance therefore means that the offeree adopts all the terms in 208

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. the offer without any variation. Thus Kojo's offer to sell his car to Taiwo for one hundred million cedis is agreed to by Taiwo. With such acceptance a contract is concluded.

4.

There are several ways by which an offer may be terminated. These include withdrawal of the offer by the offeror before its acceptance. This is revocation by the offeror. The offeror may also reject the terms of the offer by not accepting them. Failure to accept an offer within a given time also terminates it through lapse of time. Death o f either the offeror or the offeree may also terminate an offer.

5.

Consideration has been described as something of value in the eyes of the law. Anytime a party consideration is necessary in all contracts other than speciality contacts. It is the price which need not be monetary paid for the promise of the other. In a bilateral contract it may be an act for a promise in a unilateral contract. It has been described as a benefit/detriment situation.

6.

a)

Where consideration is provided by mutual promises it gives rise to a bilateral contract. It is a promise to do or forbear from doing some act in the future. The transaction remains to be performed in the future. This is executor consideration.

b)

Executed consideration is an act done by one party in exchange for a promise made or an act done by the other. A promise for an act gives rise to a unilateral contract.

c)

Past consideration is something done before the promise was made. It may constitute a motive but is not valuable consideration. The promise is independent of the act or service performed and is therefore not enforceable.

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7.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. When parties are already in a contractual relationship and one of the parties makes a promise which is intended to be binding and is relied on and acted upon, the promissory would be prevented from enforcing his original rights since it will amount to going back on his promise.

8.

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

On the other hand there is a strong presumption that the parties in a commercial transaction intend to create legal relations. In business relations the parties are presumed to intend to create legal relations by their agreements. The presumption may however be displaced either expressly or impliedly. Clear words have to be used to expressly oust the presumption.

9.

Infants or minors Mentally disordered persons or lunatics Drunken persons Corporations Companies have limited or no capacity

10.

Valid contracts for minors are contracts for necessaries and beneficial contracts of service or contracts for employment.

Necessaries are articles which are reasonably necessary to the minor having regard to his status in life. Thus the goods must be suitable to his condition of life and necessary to his requirements at the time of delivery. Where the 210

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. minor is already well supplied with such goods they would not be considered necessaries. A minor is required to pay a reasonable price for necessaries supplied to him.

Contracts for the education, service or apprenticeship of the minor to enable him earn a living are binding on him unless they are detrimental to the interests of the minor.

QUESTION 5.10 1. Agency arises out of one person acting on behalf of another. It is a situation where one person called the principal authorises another called the agent to act on his behalf. The agent by his acts creates a legal relationship between the principal and the third party. He therefore acquires rights for his principal and subjects him to liabilities. 2. Agents may be general or special. A general agent may act on behalf of the principal in all matters. He has the authority to do some acts in the ordinary course of his business, trade or profession on behalf of the principal.

A special agent has the authority to act for a particular occasion or purpose. He may be a mercantile agent like a factor, broker, auctioneer or del credere agent. A factor is entrusted with the possession of goods or the documents of Title. A broker is a go between who contracts for the purchase of goods whose possession or documents are not entrusted to him. An auctioneer is employed to sell at a public auction. A del credere agent for extra remuneration undertakes to indemnify his employer against any loss.

3.

Agency by consent arises from agreement between the principal and the agent to an agency relationship. In express agency the principal expressly appoints the agent either orally, by writing under hand or by deed. In Implied agency the principal and the agent are taken as having agreed or consented to an agency relationship due to the way they have conducted themselves towards each other. 211

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Implied agency may arise through usual, customary and apparent or ostensible authority.

4.

In agency by operation of law there is no prior agreement between the parties to create an agency relationship and there is no representation to each other or others that one of them was acting as the agent of the other. The law imposes the consequences of agency on their actions. They may arise as agency of necessity or agency of co-habitation.

5.

Agency of necessity arises when a person entrusted with another's property has to do something to preserve it. The need to act on behalf of another is unforeseen but arises not of sudden danger to the property of the person on whose behalf the intervention is made. The person entrusted with the property has no express authority to act, the authority is presumed because of the necessity. The three conditions for it are the impossibility of getting the principal's instructions, a definite commercial necessity for the agency and the agent acting in the interest of the principal.

Agency of co-habitation on the other hand arises out of cohabitation and domestic establishment of a married couple. At common law, as long as a married couple lives together, it is presumed that the wife has the husband's authority to pledge his credit for necessaries. The goods or services ordered must be necessaries suitable to the style of the couple. The presumption can be rebutted by the husband proving that he expressly forbade his wife to pledge his credit or named the supplier not to supply his wife with goods on credit or the wife was sufficiently provided with the goods or allowance for them, or they are excessive and extravagant in respect of the husband's income. 6. In agency by ratification, a person acts without

authorization but the person on whose behalf he purported to have acted subsequently adopts the act It means that at the time of the act there was no authority to so act but the person on whose behalf he acted accepts the agent's act

212

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. and adopts it as if there had been prior authorization by the principal to do what was done.

7.

The rights of the principal are action for damages, action for account and payment of interest in the event of default of the agent.

On the other hand the rights of the agent include the claim for remuneration for services provided, the claim for reimbursement for all expenses and the claim for indemnity against all liabilities incurred in the performance of his services. The agent in addition can exercise a lien over property owned by the principal in respect of claims against the principal.

8.

a)

The duties of the principal are Pay the agent for his service Indemnify the agent for all acts lawfully done and liabilities legitimately incurred in the performance of his service.

b)

The duties of the agent include Obeying all lawful instructions Exercising due diligence in the performance of his duties Exercising due care and skill in the course of any business Rendering account when required Acting in good faith and no allowing conflict of interest Not to make secret profit Not to delegate authority Not to disclose confidential information

9.

Legal consequences arise due to the creation of an agency which may vary due to the contract. Where the agent contracts as an agent for a named principal, it establishes a direct contractual relationship between the principal and the third party. The principal and the third party can sue and be sued by each other with the agent incurring neither rights nor liabilities under the contract. However the agent 213

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. may be able to sue on behalf of the principal and maintain an action for money had and received. An agent may also sue or be sued when he encloses a bill of lading, the third party insists on dealing with him even after the disclosure of the agency, in relation to deeds and when he does not operate within the scope of his authority. Where the agent discloses his agency but does not name the principal, he cannot be personally liable on the contract. Where the contract does not show that he is merely an agent he will be personally liable. The third party in that cause may exercise the option of suing him or the principal

Where the agent contracts for an undisclosed principal and therefore does not indicate the existence or the identity of the principal, he may sue or be sued on the contract. The agent can enforce the contract against the third party. However where the agent acts within his authority the undisclosed principal has the right to intervene and sue the third party. The Principal himself then becomes personally liable to the third party.

10.

Agency may be terminated by the act of the parties or by operation of law. Agency can be ended by a mutual agreement between the parties. It may also be the act of one of the parties either through revocation by the principal or renunciation by the agent.

By operation of law agency becomes terminated at the expiration of the time agreed for the duration of the agency or the completion of the performance of the undertaking. It may also be due to the frustration of the contract or the rendering of the continuance of the agency unlawful. Another way is when either party becomes incapable of continuing the contract because of death, insanity or bankruptcy.

QUESTION 8.10 1. An employee works under a contract of service whiles an independent contractor works under a contract for services. Employment rights accrue only in an 214

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. employer-employee relationship with social security and other remedies available. The independent contractor is not entitled to such rights. The employer is vicariously liable for the torts of the employee but this is not so in the case of an independent contracts. Thus generally the employee works for somebody but the independent contractor ie his own master.

2.

The approaches for determining whether a person is an employee or not are the control test, the integration test and the multiple test. The control test does not only look at what the employee does but how he does it. It is no longer considered as a sufficient test. The integration test considers how fat or to what extent the employee is integrated into the employer's business. The multiple test which is the modern approach is to look at all those factors relevant in deciding the overall classification of the individual3. The rights of the employer include that of

employing worker, disciplining, transferring, promoting and terminating his employment. He has the right to formulate policies and execute plans and programmes to set targets. He also has the right to modify, extend or cease operations and to determine the type of products to make or sell and the prices of its goods and services.

The employee on the other hand has the right to work under satisfactory, safe and healthy conditions. He has a right to receive equal pay for equal work without obstruction of any kind. He also has a right to rest, leisure, reasonable limitation of working hours and period of holidays. He can also form or join a trade union and be trained and retrained for the development of his or her skills. The employee is entitled to receiving information relevant to his or her work.

4.

The duties of the employer are payment of remuneration development of the human resources by training and retraining Provide and ensure the operation of an adequate procedure for the discipline of workers. 215

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Open channels of communication with workers. Protect interests of workers and treat them with respect Take reasonable care for the workers' safety, health and welfare. Indemnify the worker in respect of lawful losses and expenses.

5.

The duties of employees are personal service work conscientiously in lawfully chosen occupation. Exercise due care and skill Obey lawful and reasonable orders of employer Reasonable care for the safety and health of fellow workers Protect interests of the employer Show loyalty and good faith to the employer Take proper care of the employer's property Indemnify the employer Not disclose confidential information.

6.

Termination is the means of bringing the employment relation to an end. It may be effected through dismissal or without dismissal. Termination without dismissal may be through expiry, dissolution, insolvency, frustration, mutual consent or

death of a party. Termination may be considered to be fair on any of the following grounds: That the worker is incompetent or lacks the qualification requisite for his work. Proven misconduct of the worker. Redundancy Prohibition of the worker from that work prior to being employed.

7.

An employer's termination is unfair when it arises out of the following: due to his joining or taking part in trade union activities. Due to seeking office as worker's representative or acting as such. Due to a complaint filed against the employer for alleged invitations. 216

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. On grounds of gender, race, colour, ethnicity, religion etc On grounds of a woman's pregnancy or maternity leave On grounds of the disability of a worker On grounds of a worker's temporarily illness or sickness.

8.

Whenever employment has to be terminated because of major changes in the production, programme, organization, structure or technology of an organization the workers affected become redundant. Redundancy therefore implies the severance of the legal relationship of worker and employer due to the close down, arrangement or almagamation rendering the worker unemployed.

9.

Damages are the normal remedy available for a breach of contract of employment. This is monetary compensation to the affected worker. Another remedy is reinstatement which the appointment of the worker to the position he occupied before the unfair termination.

The other remedy is the re-employment of the worker either in the work for which he was employed before the termination or in other reasonably suitable work.

QUESTION 10.10 1. The types of companies are: a company limited by shares a company limited by guarantee an unlimited company. A company limited by shares has the liability of its members limited by the amount that remains unpaid on the shares held by him. A company limited by guarantee has the liability of its members limited by the amount undertaken to contribute to the assets of the company in the event of being used up.

An unlimited company is where there is no limit on the liability of its members. Each of the companies may be a public or a private one. A private company differs 217

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. from a public one in the following terms- It restricts the right to transfer shares, it limits the total number of members to fifty, it prohibits the making of public invitations to acquire shares and also invitations to deposit money.

2.

A promoter is any person who concerns himself with the bringing about of a company and sees to its registration. A promoter has a fiduciary relationship with the company. He is therefore to place the interest of the company above his personal interest. He has a duty to exercise utmost good faith towards the company. He has to compensate the company for any loss due his failure. He also has a duty to account.

3.

Contracts entered into before incorporation is effected are known as preincorporation contracts. Even though the company is not yet in existence or a legal person it is allowed to enter into transactions in expectation of the incorporation. Pre-incorporation contracts are subject to ratification or rescission. Until ratification the risks associated with such contracts are borne by the parties themselves. Thus there will be personal liability. On ratification however the company becomes bound and entitled t the benefits and liabilities of the contract.

4.

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

5.

Incorporation rests the company with a corporate entity which implies a distinct and separate identity from its members. It also gives the company certain powers. A company has its own rights and liabilities. It has its own property distinct from that of its members. A company can sue and be sued. It has its own common seal which is a father mark of its identity. Finally it has a perpetual succession. 218

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Shares refer to the interests of members in a body corporate which entitle them to the share in the capital or income of such body corporate. They are purchased to obtain membership or shareholding status. It is used to determine liability and interest.

6.

The two main types of shares are preference and equity shares. Preference shares do not entitle the holder to a right to participate beyond a certain amount in terms of dividend distribution. They have a first claim to dividends. Equity shares rank after preference shares in terms of dividends. Equity shares have most of the voting rights in a general meeting.

7.

The Securities and Exchange Commission is a body set up to advise the Minister of Finance on all matters that relate to the Securities industry. It is worked in policy formulation for the industry. It also administers the industry and sees to the registration, licensing, authorization and regulation of stock-exchanges, mutual funds, securities dealers etc. Prosecution of the integrity of the securities market. Generally creating the necessary atmosphere for the orderly growth and development of the capital market.

8.

The highest organ of the company is members at a general meeting. A company is expected to have an annual general meeting in each year and not later than fifteen months after the last one. It may also have extraordinary general meetings convened by Directors whenever necessary. Meetings are critical since they constitute the pint for all important decisions.

Meetings are convened by written notices. Notice shall be given generally for not less than twenty one days except a special resolution for voluntary liquidation which requires seven days notice. The notice of a meeting shall specify the place, date, time and general matters of the business to be transacted.

219

NOTE:

9.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Resolutions are the decisions taken at meetings. The two main types of resolutions are ordinary and special resolutions. Where a decision by virtue of a simple majority is made it is referred to as an ordinary resolution. In a special resolution the decision is taken by seventy five per cent (3/4) of the members. It is usually for very critical changes.

10.

A company's life is brought to an end through liquidation or winding up. The two ways of liquidation re private liquidation and official liquidation. Private liquidation starts with a special resolution for a private winding up. It is preceded by an affidavit by the directors that the company is able to pay its debts, within twelve months. The affidavit is registered. A liquidator is appointed who oversees the liquidation. On completion of his work and informing the Registrar the Registrar will strike off the name if he is satisfied.

Official liquidation is carried out by an Official liquidator under the Bodies Corporate (Official Liquidation) Act. It may be brought by a creditor, a member or contributory or the Attorney General. The grounds may be the cause it is unable to pay its debts or has breached aspects of the Code.

QUESTION 12.7 1. Negotiable instruments are contracts in writing. They are transferable by endorsement or by delivery. The holder takes title free from any defences or objections to their validity. They are substitutes for money and may be promises to pay money and orders to pay money.

2.

The qualifications for negotiability or transferability include the following: It must be in writing It must contain an unconditional promise to pay a certain sum of money on demand or at a fixed and determinable future time. It must be made payable to bearer or order

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. It must be signed by the maker of a promissory note or the drawer of a bill of exchange.

3.

A bill of exchange is an unconditional order in writing, signed and addressed by one person (the drawer) to another (the drawee) requiring the drawee to pay on demand, or at a determinable or fixed future date, a specified sum of money to a third person (the payee). The payee is frequently the same person as the drawer of the bill. On accepting a bill of exchange, the drawee becomes the party primarily responsible for paying it. 4. A cheque is a draft payable upon demand and drawn

on a bank. The issuer of the cheque is the drawer who orders the bank at which he has an account referred to as the drawee to pay a named individual or entity or the bearer of the cheque (the payee) a specified sum of money upon presentation of the cheque. A promissory note is a written instrument containing an unconditional promise by a party called the maker who signs the instrument to pay another called the payee, a definite sum of money either on demand or at a specified or ascertainable future date.

5.

A valid endorsement is written on the bill itself and signed by the endorser. The whole bill has to be endorsed and where it is payable to two or more payees or endorsees who are not partners all must endorse. An endorsement may be special, blank or restrictive. A special endorsement specifies the person to whom or to whose order the bill is payable. An endorsement in blank specifies no endorsee and a bill so endorsed becomes payable to bearer. A restrictive endorsement prohibits the further negotiation of the bill or expresses that it is, a mere authority to deal with the bill as directed and not a transfer of property.

6.

A person is a holder if he is either a payee in possession, or an endorsee in possession or a person in possession of a bearer bill. The holder has the rights and powers to sue on the bill in his own name. The holder in due course as a transferee takes free of claims and defences between original 221

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. parties to the instrument. He may enforce payment against all parties liable on the bill. Claims relating to ownership, lien on the instrument or right of rescission of endorsement can be sustained against the holder in due course if they arise subsequent to taking but not claims arising before taking.

7.

A negotiable instrument may be discharged in the following ways: Payment of the instrument in full discharges liability on it. Express waiver by the holder where he renounces absolutely and unconditionally his rights against the acceptor. It may also be by intentional and apparent cancellation by the holder or his agent. Discharge may also be by a merger where there is negotiation back to the acceptor. The bill is also discharged when it becomes statute barred.

8.

The banker has the duty of a bailee when he accepts the custody of documents and goods. He becomes a trustee when he agrees to hold money on trust.

The banker has an obligation to repay money deposited, on demand or a third party on the orders of the customer. The banker has a duty to honour the customer's orders but has the power of enquiry in unusual cases. The banker has a duty not to disclose information concerning the customer unless under the compulsion of law.

9.

The circumstances that terminate the banker's duty to pay include a countermand by the customer. Notice of the customer's death, notice of the customer's mental disorder and notice of bankruptcy or receiving order are other circumstances. Service of a garnishee order stops the banker from making payments. Forged and altered cheques cannot also be honoured since they are not genuine.

10.

A unit trust is any arrangement whereby securities or any other property other than a change to become debentures are vested in trustees. They are divisible into units or sub-units or other interests and could be acquired through invitations to the public. 222

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks.

APPENDIX II SAMPLE QUESTIONS 1 1. Identify the laws of Ghana and briefly describe each of them.

2.a)

John Adebayo picked a jacket on display at the Distinction Shop and presented it to the salesgirl with the money payment. The salesgirl refused to accept the payment with Adebayo insisting on paying and taking the jacket. This created a scene and Adebayo was escorted out. Adebayo is dissatisfied and has sought legal advice. Discuss the legal issues involved and if there are any remedies available to him.

b)

Johnson Badu a sixteen year old apprentice with 'Excellent Plumbers' was supplied with four sets of suits by 'Fine Cutouts' who deals in clothing. All efforts to get Badu to pay have failed. 'Fine Cutouts' has consulted you, what advice will you give.

c)

'Splendid Taste' sent out a circular inviting tenders to purchase curtains. Exquisite Brands Co submitted the highest tender but 'Splendid Taste' refused to sell to them Exquisite Brands Co has sued. Discuss the issues at stake and the chances of success.

d)

Autoco Ltd offered to sell a car to Joe Mensah for three hundred million cedis (300,000,000) and gave one month notice within which to respond. Within a week Mensah accepted the offer and asked if payment could be effected in three instalments. After waiting for two weeks without any response, Mensah tendered the payment and was told that the car was sold out. Discuss the legal issues and any remedies.

3.

a)

Discuss the creation and scope of agency by operation of law

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NOTE:

b)

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. What are the ways by which an agency relationship could be brought to an end?

4.

a) b)

Describe the incidents of a contract of service. Discuss the remedies available to an employee whose employment is unfairly terminated.

5.

Discuss the remedies available to the unpaid Seller under the Sale of Goods Act, 1902 ( Act 137)

6.

The partners in a firm are Kofi, John and Mary. The firm deals in stationery. In January 2006, John met an old friend Steven who introduced him to Barbara. Barbara made an offer to purchase fifty million cedis (50,000,000) worth of stationery from the firm. Kofi duly informed his partners. On second thought however Kofi decided to have it all to himself and informed his partners that Barbara has withdrawn the offer. Kofi subsequently supplied the stationery through a firm he had established in the name of the wife. The partners have discovered Kofi's act and other previous ones. What general legal issues are involved and what remedial steps are available to the partners.

7.

In dealing with a company, one can make several assumptions. This is referred to as the presumption of regularity. Discuss its scope and significance.

SAMPLE QUESTIONS 2 1. Identify the Courts of your country and discuss the jurisdiction of the highest Court.

2.

In November 2005, House Designs Ltd offered to sell a house to Mr John Benson for three hundred million cedis. Mr John Be offered to buy the house for two hundred and fifty million cedis. House Designs Ltd agreed to this offer and 224

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. thereupon Mr Benson made a down payment of one hundred and fifty million cedis with the remainder to be paid upon completion. House Designs Ltd in June 2006, informed Mr Benson that the house will be ready by August 2006 and made a further request for the payment of fifty million cedis. Mr Benson agreed and effected payment. At the end of August 2006 no house was allocated to Mr Benson. In December 2006, House Designs Ltd informed Mr Benson that the house now cost four hundred million cedis. Mr Benson dissatisfied with the turn of events has sued House Designs Ltd. What legal issues are involved and what remedies are available to Mr Benson?

3.

Write brief notes on each of the following: a) insurable interest b) premium c) utmost good care d) subrogation

4.

a) b)

Describe the requirements of a hire purchase agreement. Explain protected goods under the Hire Purchase Decree.

5.

Discuss the grounds for the removal of a partner on the application by a partner to the court.

6.

Eclipse Ltd is a company that deals in Solar Panels. The main shareholder was David Stevens with 60%. Other shareholders are Mrs Grace Welbeck with 30% and Mr Gregory Opoku with 10%. David Stevens has died recently and his personal representatives have demanded that the assets of the company be split proportionately. You have been consulted to advise the personal representatives. What appropriate advice will you offer?

7.

a) What is a negotiable instrument?

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. b) Describe any five circumstances under which the banker's duty to pay is terminated.

SUGGESTED SOLUTIONS TO SAMPLE QUESTIONS SAMPLE 1 1. The laws of Ghana are the Constitution, 1992; Enactments made by or under the authority of Parliament established by the Constitution; Any orders, Rules and Regulations made by any person or authority under a power conferred by the Constitution; the Existing law and the Common law.

The Constitution is the supreme law of the land. It creates and defines the scope and powers of the organs of government. Other principles are universal adult suffrage, the rule of law and the protection and preservation of fundamental human rights and freedoms. The Constitution proscribes Parliament from passing a law to make Ghana a one-party state.

Since the coming into being of the Constitution, 1992 many Acts of Parliament have been passed. These are the enactments made by or under the authority of the Parliament established by the Constitution. Their numbers are growing by the day.

There are received English Statutes and Acts and Decrees made earlier on before the Constitution, 1992 which constitute the existing written law. These laws include the Laws and Ordinances of the Gold Coast, Acts of the various Republics and the various Decrees of the numerous military dictatorships. They constitute an important part of the existing written laws.

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

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Finally there are those body of laws referred to as delegated or subsidiary legislation. These are Orders, Rules and Regulations made by any person or authority under a power conferred by the Constitution or any other law. Parliament confers this power by an Act of Parliament. They may come by way of

constitutional instruments, executive instruments or legislative instruments. They are subsidiary laws because they are subject to being published in the Gazette and also being laid before Parliament before they come into effect. The general concept of common law therefore has three components namely: the rules of common law, the principles of equity and customary law. Sometimes common law refers to both the rules of common law and the principles of equity which were received from England and other times only to the rules of common-law developed in England. The rules of common law are the body of laws which were developed in England in the 12th Century.

They emerged out of the mass of customary law of the English. Equity means fairness. It is based on impartiality. Equity was developed by the Court of

Chancery by the 15th Century to mitigate the harshness and rigours of the common law. This was because the common law was seen as having failed to keep pace with the needs of the society then. Customary law means the rules of law which by custom are applicable to particular communities in Ghana. They are therefore the customs accepted by members of a particular community as binding upon them.

2. a) The display of the jacket in the shop amounted to an invitation to treat. Distinction Shop asked John Adebayo to make an offer which he did. The shop was not bound to accept Adebayo's offer. The salesgirl's refusal amounted to a rejection of the offer which she was entitled to. No contract came into being. Mr Adebayo has no legal remedy.

b)

This is about capacity to contract. It is a contract with a minor. The question that arises is whether the four suits were necessaries considering 227

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Johnson Badu's status in life. Excellent Plumbers may not be able to retrieve the money for as long as they are not necessaries.

c)

Invitation for tender's amount to an invitation to treat. The circular was an Invitation to treat and the tender was the offer which was not bound to be accepted, in spite of its being the highest. Since Splendid Taste did not Promise to sell to the highest bidder; Exquisite Brands Co has no remedy Since the offer was not accepted.

d)

Request for information on acceptance of the offer. A contract came into Being on Mr Mensah's acceptance of the offer. The request for payment in Instalments did not amount to a counter offer. It only called for a positive or Negative response from Auto co Ltd. The sale of the car by Auto co Ltd amounted to a breach of contract. Mr Mensah was entitled to damages or Specific performance.

3 a)

In an agency by operation of law, there is no prior agreement between the Parties to create an agency relationship and there is no representation to each other or others that one of them was acting as an agent of the other. The law imposes the consequences of agency on their actions. They arise in two ways, namely as agency of necessity or agency of co-habitation. Under agency of necessity it becomes necessary for a person entrusted with another's property to do something to preserve that property. Although the person who is entrusted with the property has no express authority to do the act necessary to preserve it the authority is presumed because of the necessity. A master of a ship's exercise of authority to safeguard a vessel or cargo in danger of perishing is an example. It is especially so when it is impossible to communicate with the owners to take instructions. Agency

of necessity can arise as long as there exists a real emergency. The three conditions which must be satisfied before an agency can be created by necessity are: the impossibility of getting the principal's instructions, an

228

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. actual and definite commercial necessity for the creation of the agency and the agent of necessity acting bonafide in the interest of the principal.

At common law as long as a married couple lives together, it is presumed that the wife has the husband's authority to pledge his credit for necessaries. The requirements for such agency are cohabitation and domestic establishment. The goods or services ordered must be necessaries suitable to the style in which the couple customarily lives, otherwise the husband will not be liable to pay. The presumption can be rebutted by the husband proving that he expressly forbade his wife to pledge his credit or warned the supplier not to supply his wife with goods on credit or the wife was sufficiently supplied with the same kind of goods, or sufficient allowance or sufficient means for buying the goods was supplied to the wife or that even though the order was for necessaries it was excessive and extravagant in respect of the husband's income. This principle is of doubtful application today in the light of the equality of the sexes.

b)

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

An agency becomes terminated at the expiration of the time agreed upon for the duration of the agency, or on the complete performance of the undertaking. It may also be due to the frustration of the contract or the happening of an event rendering the continuance of the agency unlawful. The agency may also come to an end where either party becomes incapable of continuing the contract by reason of death, insanity or bankruptcy. 229

NOTE:

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

b)

Damages are the normal remedy available. Reinstatement may be another option but is often impracticable. Re-employment of the worker either in the work for which he was employed before the termination or in other reasonably suitable work on the same terms and conditions enjoyed by the worker before the termination.

5.

The remedies available to the unpaid seller are action for price, damages for non acceptance and lien. The others are stoppage in transit and resale.

The unpaid seller is entitled to sue the buyer for the price of the goods as agreed ie the contract price. Where in spite of the contract of sale there is refusal by the buyer to accept the goods, the unpaid seller is entitled to sue the buyer for damages for such an act. 230

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. The unpaid seller can also hold the goods in lien. It means he has the right to retain possession of the goods but not to resell them until the contract price is paid. He may exercise his lien when the period of credit has expired or on the Insolvency of the buyer.

The seller can stop, regain possession and retain the goods until the payment is received. This may be done when the buyer becomes insolvent, the property has not passed even on delivery or the contract confers the right of recovery on the seller.

The seller has a right to resale especially where the goods are perishable and the buyer does not pay or tender the price within a reasonable time. It may also happen on repudiation by the buyer and its acceptance by the seller.

6.

Partners shall stand in a fiduciary relationship towards the firm and their copartners. Every partner is bound to make full disclosure to the firm and other partners. Partners should not make secret profits. Partners must account to the firm any benefits gained in any transaction. Partners should not carry on business which is in competition with the firm without the consent of the other partners. Kofi by refusing to make full disclosure of the business deal has breached the fiduciary duty towards the firm and other partners. Kofi should hand over the profit and account to the firm.

7.

Any person dealing with the company is entitled to assume that the company's Regulations have been duly complied with.

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. Such a person is also entitled to assume that every officer whose particulars are filed with the Registrar has been duly appointed and have authority to exercise the powers customarily exercised by such officers.

A person is equally entitled to assume that officers of the company authorised to issue documents have authority to warrant the genuineness of the document. It can also be assumed that any sealed document signed by two persons can be assumed to be the director and the secretary. The company shall not be entitled to deny these assumptions except when a person had actual knowledge to the contrary or if having regard to his position with or relationship to the company he ought to have known the contrary. In Royal British Bank v Turquand the directors were expected to exercise the company's borrowing powers only after obtaining the approval of the members by ordinary resolution in general meeting. The directors borrowed money for the company but did not get the ordinary resolution. The question that arose was whether the loan was valid or not. The

court held that the bank could sue the company to recover its loan even though the directors were not qualified to borrow because the bank was an outsider and was entitled to assume that an ordinary resolution in general meeting had been passed.

SAMPLE 11 1. The Courts of Ghana are classified into the Superior Courts of Judicature and the inferior or lower courts. The Superior Courts of Judicature consist of the

Supreme Court, the Court of Appeal and the High Court or Regional Tribunal. The inferior courts are made up of the Circuit Court, the District Court, the Juvenile Court, the National House of Chiefs, the Regional House of Chiefs and every Traditional Council in respect of the jurisdiction of any such House or Council to adjudicate over any cause or matter affecting chieftaincy and such other lower courts as Parliament may by law establish.

232

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. The Supreme Court has original, appellate, supervisory, review and special jurisdiction. The Supreme Court has exclusive original jurisdiction in all matters relating to the enforcement or interpretation of the Constitution and all matters arising as to whether an enactment was made in excess of the powers conferred on Parliament or any other authority or person by law or under the Constitution.

The Supreme Court is the final appellate court. The Supreme Court has exclusive appellate jurisdiction in matters relating to the conviction or otherwise of a person for high treason or treason by the High Court and an appeal from a decision of the Judicial Committee of the National House of Chiefs.

The Supreme Court has supervisory jurisdiction over all courts and over any adjudicating authority. It may exercise the supervisory jurisdiction by the issue of orders and directions including orders in the nature of habeas corpus, certiorari, mandamus, prohibition and quo warranto.

The Supreme Court may also review any decision made or given by it.

The Supreme Court has special jurisdiction which it exercises in three ways. It has the exclusive jurisdiction to determine whether an official document should be produced in Court or not because of its security implications or injury to the public interest. The Supreme Court has the jurisdiction to entertain a petition challenging the validity of the election of a person as President of Ghana. It also has the jurisdiction for the removal of the President on stated grounds. John Benson's response to House Designs Ltd's offer was a counter offer which terminated House Design's offer. It constituted a new offer which was accepted by House Designs Ltd, leading to a part payment. Assurance of completion by August 2006 and further request for payment which was effected- further partial fulfilment. Non completion of the house by August 2006- Breach of contract 233

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. House now to cost four hundred million cedis-price variation after concluded contract-further breach

Mr Benson's cause of action- breach of House Designs Ltd in terms of time and then price variation

Specific performance and completion of payment in respect of the concluded contract / Refund and interest and damages as an alternative

3a)

Insurable interest gives an insured person a right to enforce a contract of insurance. It exists if the insured person is liable to sustain some monetary loss or if he may be claimed against following a loss to another. For example a creditor has an insurable interest in the life of his debtor to the extent of the debt.

b)

Premium is the periodical payment made for keeping up an insurance. Premiums allow the contract to give the assured a right to receive money or money's worth upon the happening of some event. The amount, manner and form of payment of the premium are decided by agreement between the parties.

c)

Utmost good faith is a contract in which the promisee must inform the promissor of all those facts and surrounding circumstances which could influence the promissor in deciding whether or not to enter into the contract. Full disclosure must be made voluntarily to the insurer of every material circumstance which is known to insured which would influence the judgment of a prudent insurer.

d)

Subrogation is the insurer's right to enforce a remedy which the assured could have enforced against a third party. By requiring by means of reducing or extinguishing a loss to be taken into account it prevents the assured from recovering more than a full indemnity. If the insured holds money to which the insurer is entitled by way of Subrogation, the latter has an equitable interest in the fund.

4a)

Every hire purchase agreement must contain a statement of the cash price and the hire purchase price or total purchase price of the goods. 234

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. It should also state the amount of each instalment by which the price is to be paid and the date or the mode of determining the date upon which each instalment is to be paid

There should also be a description or list of the goods to which the agreement relates sufficient to identify them.

It must also include a notice relating to the rights of the hirer and the buyer to terminate the agreement and the restrictions on the owner and the Seller's rights to recover the goods

b) Protected goods are goods that have been let under a hire purchase agreement or sold under a conditional sale agreement. One half of the hire-purchase price or total purchase price of such goods has been paid or tendered by or on behalf of the hirer or buyer or a guarantor. The hirer or buyer of such goods has not terminated the hire purchase agreement or the conditional sale agreement.

5.

The grounds upon which a partner may apply to the court for the removal of a partner include the partner being permanently of unsound mind or being incapable of performing his part of the agreement. It may also be because he is guilty of conduct that is prejudicial to the carrying on of the business. Another ground may be due to the fact that the partner has wilfully or persistently committed a breach of the partnership. It may also be due when it is just and equitable to do so.

6.

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

NOTE:

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. o Has its own seal A negotiable instrument is a contract in writing that is transferable by endorsement or by delivery and to which the holder takes free from any

7.a)

defences or objection to its validity. b) The banker's duty to pay is terminated under the following circumstances: Countermand of the payment. The banker should not honour the cheque when the customer has stopped it. Death of the customer. Where the banker has notice of the customer's death the duty to pay is terminated. Mental disorder of the Customer. A customer with a mental disorder is not legally competent so a banker with such knowledge must not honour cheques from him. Bankruptcy. When the banker has notice of bankruptcy or receiving proceedings against a customer then the banker must not honour cheques from him. Garnishee orders. Service of a garnishee order on a bank stops the banker from making payments to the customer. Forged or altered cheques. Since forged and altered cheques are not genuine, the banker with such knowledge cannot pay.

236

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This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. BIBLIOGRAPHY

1.

Furmston, M.P. (1991) Cheshire, Fifoot and Furmston's Law of Contract, Butterworks & Co Ltd

2.

Keenan Denis and Riches Sarah (1998) Business Law, Financial Times Pitman Publishing

3.

Brobbey S.A (2000) Practice and Procedure in the Trial Courts and Tribunals of Ghana, Black Mask Ltd

4.

Ghartey Joe (2004) Doing Business and Investing in Ghana- Legal & Institutional Framework. Janel Publications Ltd

5.

Kom Enoch D (1971) Civil Procedure in the High Court. Ghana Publishing Corporation.

6.

Dobson Paul (1997) Charlesworth's Business Law London Sweet & Maxwell

7.

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

8. 9. 10. 11. 12. 13. 14.

NOTE:

15. 16. 17. 18. 19. 20.

This is a work in progress. All topics in the syllabus are covered but editing for necessary corrections is in progress. Thanks. T.O. Dada General Principles of Law (2010) p.362 Section 10 Arbitration and Conciliation Act Cap 19 LFN 2004 Bolaji Alabi, opp.cit p.282 Bolaji Alabi opp. cit p.285 Bolaji Alabi opp.cit. p.287 Ewan Macintyre opp.cit p.64

238