business law for - ican

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

Thanks.

i

BUSINESS LAW

FOR

ACCOUNTING TECHNICIANS SCHEME

WEST AFRICA

(ATSWA)

STUDY PACK


Thanks.

ii

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.


Thanks.

iii

PREFACE

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

recognized the difficulty of students when preparing for the Accounting Technicians

Scheme West Africa examinations. One of the major difficulties has been the non-

availability of study materials purposely written for the Scheme. Consequently, students

relied on text books written in economic and socio-cultural environments quite different

from the West African environment.

AIM OF THE STUDY PACK

In view of the above, the quest for good study materials for the subjects of the

examinations 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.


Thanks.

iv

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.


Thanks.

v

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


Thanks.

vi

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 Institute’s

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 (SAS’s) 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


Thanks.

vii

PAPER 3: BUSINESS LAW

AIMS:

To examine candidates’ knowledge and understanding of:

the legal environment in which organisations in general and the accountancy

profession in particular operate; and

the legal implications of business relationships and the relevance of legal rules to

business sector, commerce and industry.

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 12½ marks each.

1. The Legal System 15%


Thanks.

viii

(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.

3. Special Contracts 30%

(a) Agency:

Creation and types; authority of agents; rights and duties of principals and

agents and termination of agency

(b) Sales of Goods

Meaning and Types of goods. Implied terms. The Caveat Emptor Doctrine.

Transfer of title, passing of risk and the Nemo Dat Quod Non Habet rule.

Breach of contract for sale of goods and remedies of the parties.

(c) Hire Purchase and Equipment Leasing

Meaning Formalities under the Common Law and the Hire Purchase Act.

Implied and Void terms. Rights and Obligations of the parties. Termination.

Operating and Finance Leasing.

(d) Contract of Employment

Nature and formation. Rights and Duties of the parties. Termination and

Dismissal. Remedies for breach of contract. Redundancy.

(e) Insurance:

Meaning and Classification. Share capital. Meaning and features of the

following concepts and principles – insurable interest, premium, indemnity,

utmost good faith, conditions and warranties, subrogation and contribution.

4. Law of Business Associations 20%

(a) Partnership


Thanks.

ix

Types and determination of existence. Authority of partners. Rights and duties of

partners inter se. Partners and third parties. Dissolution of partnership.

(a) Companies:

Nature and functions of the Corporate Affairs Commission. Types of

companies. Process of incorporation. Company securities (shares and

debentures), directors, company meetings. Majority Rule and Minority

protection. Winding-up or liquidation.

(a) Others:

Business Names, Incorporated Trustees and Unit trusts.

5. Banking and Negotiable Instruments 15%

(a) The legal relationship between banker and customer and their respective duties.

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

Cheques and Promissory notes. Crossing of cheques.

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

(d) Rights and Duties of the parties.

RECOMMENDED TEXTS

1. ATSWA Study Pack on Business Law

2. Obilade, A.O. - The Nigerian Legal System, Spectrum Books.

3. Bondzi-Simpson, P.E. - Company Law in Ghana, Methodist Book Depot,

Accra

OTHER REFERENCE BOOK

Atiyah, P. S. - Sales of Goods, Pitman, London


Thanks.

x

TABLE OF CONTENTS

PREFACE ….……………………………………………………………. iii

FOREWORD ………………………………………………………........… v

ACKNOWLEDGMENT …………………………………………........….. vii

CHAPTER 1 - SOURCES OF LAW

1.0 - Learning Objectives …………………………………….......….. 19

1.1 - Introduction ……………………………………….......……….. 19

1.2 - Law and its Sources…………………………….……….......….. 19

1.2.1 - Meaning of Law…………………………………………............19

1.2.2 - Sources of Laws…………………………………………............19

1.3 - The Common Law ………………………………………........... 20

1.3.1 - Meaning Of Common Law………………………………........... 20

1.3.2 - Nature and Development of The Common Law …………......... 20

1.3.3 - Meaning, Nature and Development of Equity………….............. 20

1.4 - Customary Law……………………………………........……… 21

1.4.1 - The Meaning and Development of Customary Law……........….21

1.4.2 - Examples of Customary Law…………………………........……21

1.5 - Legislation…………………………………………….......……..22

1.5.1 - Sources of Legislation………………………………….......…... 22

1.5.2 - Interpretation of Statutes………………………………........….. 23

1.6 - Case Law, Precedent and Law Reporting………….................... 25

1.6.2 - Law Reporting……………………………………….......……... 26

1.7 - Summary and Conclusion………………………….......………. 26

1.8 - Revision Questions……………………………………......……. 26

CHAPTER 2 - THE COURTS SYSTEM

2.0 - Learning Objectives……………………………….......……….. 27

2.1 - Introduction…………………………………………......……… 27

2.2 - The Courts- Hierarchy and Structure…………………........…. 27

2.3 - The Superior Courts…………………………………........……. 27

2.3.1 - The Supreme Court…………………………………........…….. 27

2.3.2 - The Court Of Appeal……………………………........………… 28

2.3.3 - The High Court and others of coordinate jurisdiction…......…….29

2.4 - The Inferior Courts…………………………………........……... 30

2.4.1 - The Circuit Court…………………………………………… 30

2.4.2 - The District Court…………………………………………… 30

2.4.3 - Other Lower Courts…………………………………………. 30

2.5 - Important Judicial Processes……………………………… 30

2.5.1 - Writ of Summons……………………………………………. 30

2.5.2 - Writ of Execution…………………………………………… 30

2.6 - Criminal and Civil Liability……………………………….. 31

2.6.1 - Criminal Liability…………………………………………… 31

2.6.2 - Civil Liability………………………………………………. 31

2.7 - Basic Tortious Liability……………………………………. 32

2.7.1 - Defamation………………………………………………….. 32


Thanks.

xi

2.7.2 - Negligent Misstatements……………………………………. 32

2.7.3 - Passing Off………………………………………………….. 33

2.8 - Summary and Conclusion…………………………………. 33

2.9 - Revision Questions……………………………………….... 33

CHAPTER 3 - LAW OF CONTRACT 1

3.0 - Learning Objectives……………………………………….. 35

3.1 - Introduction………………………………………………... 35

3.2 - Definition and Elements of Contract……………………… 35

3.2.1 - Definition of Contract……………………………………….. 35

3.2.2 - The Elements of Contract……………………………………. 35

3.3 - Offer and Acceptance…………………………………….... 36

3.3.1 - Offer………………………………………………………... 36

3.3.2 - Invitation to Treat………………………………………….... 36

3.3.3 - Acceptance………………………………………………….. 38

3.4 - Consideration……………………………………………... 38

3.4.1 - Definition………………………………………………….... 38

3.4.2 - Types………………………………………………………... 39

3.4.3 - General Rules……………………………………………….. 39

3.4.4 - Modifications……………………………………………….. 40

3.5 - Intention to Create Legal Relations……………………...... 41

3.5.1 - Domestic and Social Agreements………………………….... 41

3.5.2 - Commercial Agreements…………………………………..... 42

3.6 - Capacity…………………………………………………..... 43

3.7 - Summary and Conclusion………………………………..... 45

3.8 - Revision Questions……………………………………….... 45

CHAPTER 4 - LAW OF CONTRACT II

4.0 - Learning Objectives…………………………..........…………… 47

4.1 - Form and Contents of a Contract…………………............…….. 47

4.1.1 - Form of a Contract……………………………………..........… 47

4.1.2 - Contents (or terms) of a Contract……………………….............. 48

4.2 - Vitiating Elements of Contract……………………..........……... 52

4.2.1 - Mistake………………………………………………….........… 53

4.2.2 - Misrepresentation…………………………………………........ 55

4.2.3 - Duress……………………………………………………......... 57

4.2.4 - Undue Influence…………………………………………......... 57

4.2.5 - Illegality……………………………………………………......... 58

4.2.6 - Termination or discharge of Contract…………………….......... 62

4.3 - Summary and Conclusions …………………………….........… 66

4.4 - Revision Questions ……………………………………….......… 67

CHAPTER 5 - AGENCY

5.0 - Learning Objectives……………………………...............…….. 69

5.1 - Introduction……………………………………........………….. 69

5.2 - Definition and Types……………………………….........…… 69


Thanks.

xii

5.2.1 - Definition of Agency…………………………………........….. 69

5.2.2 - Types of Agency………………………………………........…. 70

5.3 - Creation of Agency 1- Consent……………………….........… 71

5.3.1 - Express Agency………………………………………........….. 71

5.3.2 - Implied Agency………………………………………........….. 71

5.4 - Creation of Agency 11- Operation of Law……………............ 73

5.4.1 - Agency of Necessity………………………………….........…… 73

5.4.2 - Agency of Cohabitation……………………………….......…… 73

5.5 - Creation of Agency 111- Ratification……………........……… 74

5.6 - Obligations of Agency………………………………........……. 74

5.6.1 - The Duties of the Agent……………………………….......…… 74

5.6.2 - The Duties of the principal and the rights of the principal and

the agent

5.7 - The Effects of Agency………………………………….......…… 75

5.7.1 - Where the agent contracts as an agent for a named principal…... 75

5.7.2 - Where the agent contracts for an unnamed principal………........ 76

5.7.3 - Where the agent contracts for an undisclosed principal……....... 76

5.8 - Termination of Agency……………………………………...... 77

5.8.1 - Act of the Parties…………………………………………......… 77

5.8.2 - Operation of Law………………………………………………. 77

5.9 - Summary and Conclusions…………………………………… 77

5.10 - Revision Questions……………………………………………. 78

CHAPTER 6 - SALES OF GOODS

6.0 - Introduction…………………………………………………...… 79

6.1 - Classification of Goods………………………………………..... 80

6.2 - Form of the Contract………………………………………...….. 82

6.3 - The terms of the contract of sale of goods………………….....…83

6.3.1 - Title…………………………………………………………..… 84

6.3.2 - Description………………………………………………….…. 85

6.3.3 - Merchantable Quality…………………………………….......... 86

6.3.4 - Sales by sample…………………………………………........… 88

6.4 - Other Terms……………………………………………….......… 88

6.4.1 - Implied terms as to time………………………………….......… 89

6.4.2 - Implied terms as to price…………………………………........ 89

6.4.3 - Transfer of property between seller and buyer…………….....…. 89

6.4.4 - Passing of Risk…………………………………………….....…. 92

6.5 - Transfer of a title by a Non-owner……………………….......… 95

6.5.1 - The exceptions…………………………………………........…. 95

6.6 - Breach of Sale of Goods Contract and the Remedies of the

Parties

6.6.1 - Buyers' Rights…………………………………………........……98

6.6.2 - Sellers' Rights………………………………………........……… 99

CHAPTER 7 - HIRE PURCHASE


Thanks.

xiii

7.0 - Introduction………………………………………..............……. 103

7.1 - Definition of Hire Purchase………………………….......……… 103

7.1.1 - A Credit Sale Agreement……………………………........…… 104

7.1.2 - A Conditional Sale Agreement……………………………......... 104

7.2 - Obligations of the Parties to a Hire Purchase……………........... 104

7.2.1 - Reasons for the adoption of the Hire Purchase System…………..105

7.3 - Obligations and Rights of the Parties………………………........ 106

7.3.1 - Obligations of the Parties at Common Law……………………...106

7.3.2 - Rights of the Parties at Common Law…………………………...108

7.4 - The Hire-Purchase Act 1965………………………………......…108

7.4.1 - The Purpose of the Act…………………………………………..108

7.4.2 - The Contents of the Act………………………………….............109

7.4.3 - Effect of Non-compliance……………………............................. 110

7.4.4 - Void Provisions……………………………………………....… 110

7.5 - Obligations and Rights of the Parties under the Hire Purchase Act

7.5.1 - Implied Terms Under the Hire Purchase Act……………............ 111

7.5.2 - Exclusion of the Terms Implied by the Act………………........... 112

7.5.3 - Hirer's right to terminate agreement…………………….............. 112

7.5.4 - Recovery of Goods…………………………....……….....…....... 113

7.6 - Summary and Conclusions ………………………............…...... 125

7.7 - Revision Questions ………………...……............…………..... 126

CHAPTER 8 - CONTRACT OF EMPLOYMENT

8.0 - Learning Objectives……………………………....……………. 117

8.1 - Introduction…………………………………………....………. 117

8.2 - The Nature and formation of the Contract of Employment……...118

8.2.1 - Formation of the Contract of Employment…………….....……. 118

8.2.2 - Approaches to determining the nature of the Contract of

Employment

8.2.3 - Incidents of the Contract of Service and Contract for Service….. 119

8.3 - The Rights of the Employer and the Worker………………......... 120

8.3.1 - The Rights of the Employer…………………………………......120

8.3.2 - The Rights of the Worker……………………………………..... 120

8.4 - The Duties of the Employer and the Worker………………....… 120

8.4.1 - Duties of the Employer……………………………………..… 120

8.4.2 - Duties of the Worker…………………………………….......… 122

8.5 - Contracts in Restraint of trade………………………….....…… 122

8.6 - Termination of Employment………………………………....… 123

8.6.1 - General grounds for termination……………………………..... 123

8.6.2 - Fair termination……………………………………………...... 123

8.6.3 - Unfair termination ……………………………………....……. 124

8.7 - Redundancy …………………………………...........………… 124

8.8 - Remedies ………………………………………………. ........... 125

8.9 - Summary and Conclusions ………………........….....… ........... 125


Thanks.

xiv

8.10 - Revision Questions ……………………………………............ 126

CHAPTER 9 - LAW OF INSURANCE

9.0 - Learning Objectives …………………………………………. 127

9.1 - Introduction…………………………………………………… 127

9.2 - Formation of Contract of Insurance………………………… 128

9.2.1 - Temporary Cover………………………………………………. 131

9.2.2 - Insurable Interest……………………………………………….. 131

9.3 - Types of Policy………………………………………………… 132

9.3.1 - Life Insurance…………………………………………………… 132

9.3.2 - Personal Accident Insurance………………………………….. 133

9.3.3 - Fire Insurance…………………………………………………… 133

9.3.4 - Liability Insurance………………………………………………. 133

9.3.5 - Motor Vehicle Insurance………………………………………. 133

9.3.6 - Marine Insurance……………………………………………….. 134

9.3.7 - Burglary Insurance……………………………………………... 134

9.3.8 - All Risks Insurance…………………………………………….. 134

9.4 - The Concepts of Indemnity and Subrogation……………… 134

9.4.1 - Indemnity……………………………………………………… 134

9.4.2 - Subrogation……………………………………………………. 135

9.4.3 - Contribution…………………………………………………… 135

9.5 - Re-insurance…………………………………………………. 136

9.6 - Summary and Conclusions ………………………………… 136

9.7 - Revision Questions ………………………………………… 137

CHAPTER 10 - LAW OF BUSINESS ASSOCIATIONS 1- COMPANIES

10.0 - Learning Objectives……………………………………… 139

10.1 - Introduction………………………………………………. 139

10.2 - Definition and Types of Companies…………………….. 139

10.2.1 - Definition…………………………………………………… 139

10.2.2 - Types of Companies………………………………………… 140

10.3 - Incorporation and Effects…………………………………. 140

10.3.1 - Promoters…………………………………………………….. 140

10.3.2 - Pre- Incorporation Contracts…………………………………. 140

10.3.3 - Registration…………………………………………………… 141

10.3.4 - Effects of Incorporation……………………………………… 141

10.4 - General Principles………………………………………….. 142

10.4.1 - Regulation of the Company…………………………………... 142

10.4.2 - The Ultra vires principle……………………………………… 143

10.4.3 - Lifting the Corporate veil…………………………………….. 144

10.5 - Company Securities……………………………………….......... 146

10.5.1 - Shares…………………………………………………………... 146

10.5.2 - Debentures…………………………………………………….... 147

10.6 - The Securities and Exchange Commission………………….... 148

10.7 - Notices, Meetings and Resolutions………………………… 149


Thanks.

xv

10.7.1 - Notices………………………………………………………...... 149

10.7.2 - Meetings………………………………………………………... 149

10.7.3 - Resolutions……………………………………………………... 150

10.8 - Liquidation…………………………………………………...... 150

10.8.1 - Private liquidation…………………………………………….... 150

10.8.2 - Official liquidation………………………………………............151

10.9 - Summary and Conclusion……………………………….......... 152

10.10 - Revision Questions……………………………………............. 153

CHAPTER 11 - PARTNERSHIPS

11.0 - Introduction Learning Objectives……………...……..….......... 155

11.1 - Types of Partnership……………………………...…….............. 155

11.1.1 - General/Limited Partnership……………………….……............ 155

11.1.2 - Features of Limited Partnership……………………..……......... 156

11.1.3 - Dormant or Sleeping Partner…………………………..….......... 156

11.1.4 - Partner by Estoppel……………………………………...…........ 156

11.2.0 - Formation of Partnership…………………………………......... 156

11.3.0 - Determining the Existence of Partnership………………............ 157

11.3.1 - Joint Tenancy and Tenancy in Common……………………...... 157

11.3.2 - The Sharing of Gross Returns………………………………...... 158

11.3.3 - Receipt of a Share of the Profits……………………………....... 159

11.4.0 - Examples of Relationships where Persons carry on Business

but Are not Partners ...................................................................... 159

11.4.1 - Legality of Partnerships……………………………………........ 160

11.4.2 - Relationship between Partners………………………………......160

11.4.3 - Remedy for Breach of Partnership Agreement………………..... 162

11.5.0 - Relations of Partners and Third Parties…………………............ 162

11.5.1 - Partners' Powers……………………………………………........ 162

11.5.2 - Extent of Power……………………………………………….... 162

11.5.3 - Partner's Liabilities…………………………………………....... 163

11.6.0 - Dissolution of Partnership…………………………………........ 165

11.6.1 - On Application by Partner the Court may decree Dissolution..... 165

11.6.2 - The Effect of a Dissolution…………………………………....... 166

11.6.3 - Application of Partnership Property on Dissolution……........….166

11.7 - Summary and Conclusions ……………………………......…… 167

11.8 - Revision Questions ………………………………………...... 167

CHAPTER 12 - NEGOTIABLE INSTRUMENTS AND BANKING

12.0 - Learning Objectives…………………………………........…..... 169

12.1 - Introduction……………………………………….............….... 169

12.2 - Meaning, Types and Characteristics of Negotiable Instruments

12.2.1 - Negotiable Instruments……………………………..............….. 169

12.2.2 - Promissory Notes…………………………………..............….... 170

12.2.3 - Certificates of Deposit……………………………..............….... 170

12.2.4 - Bill of Exchange…………………………………..............…......170


Thanks.

xvi

12.2.5 - Cheques……………………………………………..............….. 170

12.2.6 - Negotiability………………………………………..............…... 171

12.2.7 - Order Paper and Bearer Paper……………………...............…... 171

12.2.8 - Endorsement………………………………………..............…... 171

12.3 - Rights and Duties of Parties to a Bill of Exchange...................... 172

12.3.1 - Holders………………………………………………..................172

12.3.2 - Dishonour………………………………………….............….... 172

12.3.3 - Discharge……………………………………………...........…... 173

12.4 - Rights and Duties Bankers and Customers…………................. 173

12.4.1 - Banking…………………………………………….........…….... 173

12.4.2 - Relationship of Banker and Customer………………...........…... 174

12.4.3 - Termination of Duty to pay…………………………….............. 174

12.5 - Unit Trusts…………………………………………..........…...... 175

12.6 - Summary and Conclusion…………………………........…….... 175

12.7 - Revision Questions…………………………………........……... 176

APPENDIX …………………………………………………………………........177

APPENDIX II ………………………………………………………………...........195

SAMPLE QUESTION 2 ………………………………………………….........…..197

SAMPLE II ……………………………………………………………….......….205

BIBLIOGRAPHY ……………………………………………………….....…...209


Thanks.

xvii

TABLE OF CASES

A

Angu v Atta (1916) PC '24-28

Ashbury Railway Carriage Co v Riche (1875) L R 7 H L 653

B

Buama v Oppong, [1992] 2 GLR 213

C

Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256

Curie v Misa (1875) LR 10 Ex 153

D

De Francesco v Barnum [1890] 45 Ch.D. 430, Ch.D

Diab v Quansah [1974] 1GLR 101

Doyle v White City Stadium Ltd [1935] 1 KB 110 CA

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] A C 847, H L

E

Edwards v Skyways Ltd [1964]1 WLR 349

G

Gordon v Essien, [1992] 1 GLR 232

H

Hughes v Metropolitan Railway Co. (1877) 2 App Cas 439 H.L

Hyde v Wrench (1840) 3 Beav 334

I

In Cohen (WA) Ltd v Comet Construction Co Ltd; Ghana Commercial Bank (Claimants)

[1966] GLR 777

In Re McArdle [1951] Ch 669

In Republic v James Town Circuit Judge Ex parte Annor [1978] GLR 453

J

Jones v Padavatton [1969] 1WLR 328

K

Kessie v Charmant [1973] 2 GLR 194

M

Merritt v Merritt [1970] 1 WLR 1121, CA


Thanks.

xviii

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


Thanks.

1

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


Thanks.

2

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


Thanks.

3

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


Thanks.

4

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


Thanks.

5

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


Thanks.

6

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.


Thanks.

7

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


Thanks.

8

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.


Thanks.

9

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 court’s 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


Thanks.

10

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. Explain what you understand by law.

2. What purpose do laws serve?

3. Make a list of the laws of Ghana / Nigeria.

4. Discuss the scope of the common law.

5. Explain what you understand by equity.


Thanks.

11

6. What is customary law and what is its scope today?

7. Make a list of the various sources of legislation.

8. Describe three common approaches to the interpretation of statutes.

9. What do you understand by judicial precedent?

10. Describe the scope and purpose of law reporting.

MULTIPLE CHOICE QUESTIONS

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

A. Customary Law is used as an instrument by the rulers to fix the power

sector.

B. The Customary Law is not required to pass validity test because it is

derived from the culture and customs of the people.

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

community as binding upon them

D. Customary Law is a written law.

E. Customary law is rigid and not flexible.

2. Which of these statements is true?

A. The rules of English Common Law are the body of laws which were

developed in England in the 12th

century.

B. The rules of English Common Law and the doctrine of Equity have their

origin in African Customary Law.

C. The English Common Law is not rigid but finds its adaptation in our legal

system very cumbersome.

D. The Status of General Application is a law only applicable to England.

E. The English Common Law is a written Law.

3. Which of these statements is true concerning the literal rule?

A. It is very absurd.

B. It is a rule manufactured by the judges for the court’s convenience.

C. It is for giving words their ordinary meaning.


Thanks.

12

D. It is a rule that developed from long usage of cannon of interpretation by

the lawyers.

E. It is a rule developed from the Customary Law usage and practice.

4. The doctrine of stare decisions is basically on

A. Decision of customary court.

B. The decision of superior court as binding on the lower courts.

C. Decision of the Chancery court.

D. Decisions only emanating from tribunal.

E. Decision of a Chief Judge of a State.

5. The Supreme Court of Nigeria is composed of how many justices ?

A. 22

B. 21

C. 23

D. 26

E. 19

SHORT ANSWER QUESTIONS

1. Common Law has its origin in………………….

2. The Doctrine of Equity emanated from………………

3. The bench mark for the statute of General application as one of the sources of

Nigerian Law is …………….

4. The concept of stare decisis in the Nigerian Legal system means………………

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


Thanks.

13

CHAPTER TWO

THE COURTS SYSTEM



explain the role of courts in the administration of justice

identify the two broad groups of Courts and list the courts under

them

explain the composition of each of the courts

discuss the scope of the jurisdiction of each of the courts

explain the process of initiating and enforcing an action

distinguish between criminal and civil liabilities

explain defamation, misstatement and passing off

2.1 INTRODUCTION

The courts are the major places for conflict resolution and the interpretation

of laws. Courts are institutions designed for settling disputes. They are

concerned with the administration of justice. The processes within these

courts and the ease or difficulty with which justice may be obtained 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.


Thanks.

14

2.3 THE SUPERIOR COURTS

2.3.1 The Supreme Court

The Supreme Court is the highest court of the land. It consists of the Chief

Justice as the head, and not less than nine (not more than 21 in Nigeria)

other Justices of the Supreme Court. In both Ghana and Nigeria, the

Supreme Court is duly constituted(quorum) for its work by not less than

five Justices of the Supreme Court and for the purpose of reviewing its own

decision by not less than seven Justices of the Court. The qualification for

appointment as a Justice of the Supreme Court is high moral character,

proven integrity and not less than fifteen years standing as a qualified legal

practitioner.

The Supreme Court in Nigeria has the same status with the Supreme Court

of Ghana in terms of composition, powers and requirement for

appointment. The Supreme Court in Nigeria is created under S. 230 of the

1999 Constitution of the Federal Republic, as amended. S.232 gives

original jurisdiction to the Supreme Court in any matter between the

Federal Government and the States, or between any two or more States, or

the National Assembly and the Federation, or State Houses of Assembly

and the Federation.

The Supreme Court has original, appellate, supervisory, review and special

jurisdiction. The Supreme Court has exclusive original jurisdiction in all

matters relating to the enforcement or interpretation of the Constitution and

all matters arising as to whether an enactment was made in excess of the

powers conferred on Parliament or any other authority or person by l aw or

under the Constitution.

However, by S.233 of the Constitution, the Supreme Court shall not have

original jurisdiction in respect of criminal matters.

The Supreme Court is the final appellate court. In Ghana, the Supreme

Court shall have appellate jurisdiction to the exclusion of the Court of


Thanks.

15

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


Thanks.

16

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


Thanks.

17

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. The Federal High Court has both civil and criminal

jurisdictions.

2.3.5. Regional Tribunal

This is applicable only in Ghana. Each region in Ghana is expected to have a

Regional Tribunal established in it. A Regional Tribunal consists of the Chief

Justice, one Chairman and such members who may not be lawyers as shall be

designated by the Chief Justice to sit as panel members. A Regional Tribunal shall

have concurrent original jurisdiction with the High Court in all criminal matters

and shall in particular try the special offences of causing loss, damage or injury to

public property; import of explosives and using public office for profit.

In addition, it tries offences arising under Customs, Excise and Preventive Services

Management Law, Income Tax Decree Narcotic Drugs (Control, Enforcement and

Sanctions) Law and any other offence involving serious economic fraud and loss

of state funds or property. A Regional Tribunal shall have appellate jurisdiction to

hear and determine appeals from the judgment or order of a Circuit Court or

District Court in any criminal trial.


Thanks.

18

2.4 THE INFERIOR COURTS

2.4.1 The Circuit Court

In Ghana, the civil jurisdiction of a Circuit Court consists of original jurisdiction in

civil matters in personal actions arising under contract or tort where the amount

involved is not more than100 million cedis. It includes cases or matters involving

the ownership, possession and occupation or title to land. The Circuit Court may

grant injunctions or orders in any action to stay waste or alienation or for the

detention or preservation of any property which is the subject matter of that action

or restrain breaches of contract or the commission of any tort. There is jurisdiction

for the Circuit Court in claims for relief by way of inter pleader for land or

property attached by order of a Circuit Court.

There is no equivalent of Circuit Court in Nigeria.

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


Thanks.

19

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


Thanks.

20

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


Thanks.

21

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


Thanks.

22

another person who relies upon such skills, a duty of care will arise. The duty of

care with regard to negligent misstatement was limited to cases where a special

relationship existed. Four requirements for the existence of a special relationship

have been laid down by the judicial authorities.

They are:

i) there must be an inquirer who consults another with special

knowledge,

ii) reliance by the inquirer,

iii) Such reliance is reasonable and the person of whom the inquiry was

made knows reliance is likely and

Iv) the person relying on the representation suffers loss.

Thus a duty of care exists where one party seeking information and advice was

trusting the other to exercise such a degree of care as the circumstances required

where it was reasonable for him to do that and where the other party gave the

information or advice when he knew or ought to have known the enquirer was

relying on him.

2.7.3 Passing off

The tort of passing off occurs/arises whenever a person, company or other business

organisation carries on or proposes to carry on business under a name, trademark

or appearance calculated to deceive the public or where a person in a manner

calculated to deceive in the course of trade, passes off his goods or business as

those of another. It may be done by imitating their appearance or selling them

under a similar name or trademark Its essence is deceit practiced on the public. The

purpose of an action for passing off is to prevent one trade from damaging or

exploiting the goodwill and reputation built up by another. The principle is that no

man is entitled to represent that his goods or his business are that of another.

A valid course of action for passing off may be granted on a misrepresentation,

made by a trader in the course of a trade to prospective customers of his or ultimate

consumers of goods and services he supplies, calculated to injure the business or


Thanks.

23

goodness of another trader and which causes actual damage to the business or

goodwill of the trader who brought the action.


Courts are important institutions within the legal environment. A general study of

the courts in terms of the hierarchy and their general jurisdictions is required for a

proper appreciation of their role. The introduction to the basic judicial processes

by which an action may be initiated and the various forms of enforcement will

further expose the candidate to other aspects of the legal system. Attention was

also placed on the critical distinction between criminal and civil liability. The

chapter also introduced candidates to tort which in no small measure will

contribute to their understanding of the law.


1. Identify the two main groups of Courts in Ghana or Nigeria and list the

Courts under them.

2. What jurisdiction has the Supreme Court of Ghana or Nigeria?

3. Explain the qualifications for appointment as a judge to the courts of Ghana

or Nigeria.

4. Describe the jurisdiction of the Court of Appeal.

5. Identify and describe the jurisdiction of the High Court.

6. What is the jurisdiction of the Regional Tribunal?

7. Compare the jurisdictions of the Circuit and District

Courts.

8. Write brief notes on each of the following:

a) Writ of Summons

b) Writ of Fifa

c) Garnishee order

9. Distinguish between criminal and civil liability.

10. Define defamation and describe the main types.


Thanks.

24


1. The highest court in Nigeria or Ghana is

A. Court of Appeal.

B. Federal High Court.

C. National Industrial Court.

D. The Supreme Court.

E. Customary Court of Appeal.

2. The Supreme Court in Nigeria or Ghana is headed by

A. The Deputy Chairman National Judicial Council.

B. The Chief Justice of Nigeria.

C. The President Court of Appeal (PCA)

D. The Minister of Justice and Attorney General of the Federation.

E. The President of the Nigerian Bar Association.

3. The fastest means of resolving dispute in Nigeria Ghana is

A. Litigation.

B. Arbitration.

C. Adjudication.

D. Self help.

E. Petition to the National Judicial Council (NJC).

4. The major disadvantage of Arbitration is

A. Privacy

B. Confidentiality

C. High cost

D. Publication in the Newspaper

E. Swearing of oath in the Court.

5. Civil Law is associated with one of the following

A. Punishment to the litigants.

B. Award of damages to the claimants.

C. Imprisonment.

D. Death sentence,

E. Arraignment.

6. The Customary Court of Appeal has appellate and Supervisory Jurisdiction over

proceedings coming on appeal from……………..

A. Magistrate Court

B. Customary Court

C. Industrial Court

D. National Judicial Council (NJC)

E. Rent Tribunal


Thanks.

25

7. Civil Law is associated with one of the following

A. Punishment to the litigants

B. Award of damages to the claimants

C. Imprisonment

D. Death sentence

E. Arraignment


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.


Thanks.

26

CHAPTER THREE

LAW OF CONTRACT 1



explain what amounts to a contract.

identify the elements of contract

explain offer and distinguish it from invitation to treat.

explain acceptance

discuss the scope of consideration.

demonstrate an understanding of the intention to create legal relations.

explain the concept of capacity

discuss the scope of the forms and contents of a contract

3.1 INTRODUCTION

The law of contract is at the centre of most human activities. All of us within a day

make several contracts without sometimes even realizing that. When you engage

somebody to weed around your house for pay you have established a contractual

relationship. When you enter a bus going to a particular place along a particular

route and you pay the fare you have made a contract with the party running the

service. When you put an item on sale at a particular price and another person

agrees to buy it at that rate you have both 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.


Thanks.

27

3.2 DEFINITION AND ELEMENTS OF CONTRACT

3.2.1 Definition of contract

Whenever two or more people undertake to engage in an activity for which either

of them may resort to the law for it to be enforced if a party fails to perform, a

contract is said to have been formed. A contract has therefore been simply referred

to as a promise or set of promises which the law will enforce.

3.2.2 The elements of contract

For a valid contract to be in place there must be some essential elements. These

are agreement, consideration, intention to create legal relations, form, capacity and

legality. There is the requirement that there must be two or more parties to the

contract who have agreed to it. Such agreement must have been entered into freely.

The parties must also give promises which are supported by consideration. It

means each party must give or do something for the other. The intention to create

legal relations means that each party is ready to have his or her promise enforced

by the law. Some contracts must also meet a certain form; they will only be valid

when they are in writing. Again only persons who are legally competent or have

capacity can enter into a contract. Finally the agreement must not be for an illegal

purpose and also not contrary to public policy.

3.3 OFFER AND ACCEPTANCE

3.3.1 Offer

Whenever a person proposes terms to another person and shows willingness that if

that person accepts those terms he is ready to contract with him, then those terms

constitute an offer. For example if Kofi tells Adenuga that he will sell his house to

him at a certain price, that constitutes an offer which will bind him should

Adenuga agree to buy the house on the same terms. An offer is thus a definite

promise made by one party with the intention that it shall be binding on him

once it is accepted by the party to whom it is addressed. Generally an offer may be

made expressly by words but may also be implied from the conduct of the person

making the offer (the offeror). An offer may be directed to an individual, a group


Thanks.

28

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

terminated. These include the offer or withdrawing the offer before it is

accepted which amounts to a revocation and the offeree not accepting the terms of

the offer which is a rejection. Where an offer is made and it is to be accepted 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 self-


Thanks.

29

service supermarket with a pharmacist on hand, to supervise the sale of specified

drugs which could only be lawfully sold under him. Two customers selected such

drugs from the shelves and put them in a wire basket provided by the defendants.

The Pharmaceutical Society brought an action alleging an infringement of the Act.

The Court of Appeal held that the display was merely an invitation to treat. The

customer by presenting the goods at the cash desk, made an offer to buy which the

cashier under the pharmacists supervision could accept or reject.

When an auctioneer makes a request for bids it amounts to an invitation to treat.

The bids that are made in response to the request constitute offers. It is when a bid

is accepted that a contract is made. In Payne v Cave (1789) 3 Term Rep. 148,

KB, Cave withdrew his bid at an auction before the fall of the auctioneer's

hammer. It was held that the bid was the offer, the auctioneer only made an

invitation to bid. As Cave's offer had been withdrawn before the auctioneer had

accepted it, there was no contract.

Invitations for tender are also invitations to treat. The tender is the offer and it may

be accepted or rejected. In Spencer v Harding (1870) L.R.5.C.P. 561, the

defendants sent out a circular inviting tenders for the purchase of certain stock-in-

trade. The plaintiff's tender proved to be the highest submitted but the defendants

refused to sell to them. Judgment was given to the defendants because a tender

itself is an offer, which the party who invited it may or may not accept. The

defendants could only have been bound if they had promised to sell to the highest

bidder.

3.3.3 Acceptance

It is the expression of assent to the terms of the offer made by the person to whom

the offer was made (the offeree). In the example where John offered his house to

Adenuga at a certain price, the agreement by Adenuga to buy the house on those

terms constituted acceptance. An offer is not accepted by mere silence on the part

of the offeree. Acceptance has to be communicated to the offeror. It is not

deemed to be communicated until it is actually brought to the notice of the offeror.

When acceptance is by a return promise its performance leads to a unilateral


Thanks.

30

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.


Thanks.

31

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


Thanks.

32

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


Thanks.

33

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


Thanks.

34

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.


Thanks.

35

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


Thanks.

36

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 contract

was therefore binding and his action failed.


Thanks.

37

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


Thanks.

38

transfer is not necessarily invalid simply because it is ultra vires. The Code shows

that no act of a company and no conveyance or transfer of property to or by a

company shall be invalid by reason of the fact that such act, conveyance or transfer

was done ultra vires. This modification reduces the harsh effects of the doctrine on

third parties. This means that a third party is not without a remedy. However if the

third party had knowledge of the absence of power or the irregularity of it then the

company shall not incur any liability.

3.7 SUMMARY AND CONCLUSION

Since contracts constitute an integral part of human existence it is worthwhile to

have a fair understanding of them. It was therefore necessary to introduce

candidates to the elements of contract and to let them have a full appreciation of

them. The issues of enforceability of contracts and the obligations imposed on

parties have to be well appreciated to avoid liabilities. Matters relating to intentions

of parties in agreements and the competence of parties were also focused on.


1. State the elements of contract

2. Distinguish between invitation to treat and an offer

3. Write on each of the following:

a) Cross offers

b) Counter offers

c) Acceptance

4. How may an offer be terminated?

5. Explain the term consideration.

6. What is meant by the following:

a) Executory consideration

b) Executed consideration

c) Past consideration

7. Explain promissory estoppel.

8. Explain and describe the scope of the intention to create legal relations.


Thanks.

39

9. Identify individuals and bodies which do not have capacity to contract.

10. Describe the exceptions to the rule that a minor is not bound by any

contract made during his minority.


1. An offer can be discharged by the following, EXCEPT

A. Death of the offerror

B. Capacity of the offerror

C. Acceptance

D. Revocation

E. Rejection

2. Which of these is NOT among the rules of consideration?

A. Consideration must move from the promisee

B. Consideration must not be past.

C. Consideration can move from the promisor.

D. Consideration may be executed or executory

E. Consideration must be of value but may not be adequate.

3. Which of these is not among the essential elements of a valid contract

A. Offer

B. Acceptance

C. Intention to create legal relations

D. Capacity

E. Authority

4. Circumstances which amount to invitation to treat include the following EXCEPT

ONE. A. Display of goods for sale

B. Auctions

C. Tenders

D. Advertisement

E. Negotiation

5. Which of these statements is not true?

A. As a general rule contracts made by a minor with an adult are binding on

the adult and not the minor.

B. There is no protective principle in a minor’s 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.


Thanks.

40


1. What remedy requires a party to a contract to carry out his contractual obligations

specifically

2. A contract is defined as a promise or set of promises which the Law will………..

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

exemplify…………

4. What is a counter offer?

5. The doctrine of promissory estoppel applies only to……………….


Thanks.

41

CHAPTER FOUR

LAW OF CONTRACT II



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. These

are the exceptions but they need to be mentioned.

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.


Thanks.

42

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.


Thanks.

43

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


Thanks.

44

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


Thanks.

45

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


Thanks.

46

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 (1949). Thornton Vs. Shoe Lane Parking4

(1971).

It is also important to note that a notice of a clause is effectively given if both parties

are in the same trade and such clauses are widely known and in common use in that

trade.

(2) That it covered the damage complained of by the plaintiff. Baldry Vs. Marshall

(1925)5.

It does not suffice for the party who is relying on the exclusion clause to prove that it

was part of the contract to have it upheld 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.


Thanks.

47

4.2 VITIATING ELEMENTS OF CONTRACT

The parties to a contract must have agreed to the terms of their contract. It must

indeed be very clear that they have agreed freely, without some form of

compulsion or some other defect which may make the apparently valid contract

defective. Where there is such an element which may spoil or make such contract

defective, such an element is known as a vitiating element. The vitiating elements

we shall consider are mistake, misrepresentation, duress, undue influence and

illegality. The nature of the vitiating element determines the kind of defect the

contract may have, the contract may not be enforceable at all, it may be

enforceable in certain ways or manners, or there may be no contract at all. It is thus

apposite to explain the nature of the defects first to better appreciate the effect of

the vitiating elements before considering the elements themselves.

Unenforceable Contracts: These are contracts where the contract truly exists but

neither party can sue the other. Examples abound from our earlier consideration

of types of contracts which must be in writing or be evidenced in writing. Such

contracts if entered into contrary to the requirements of the law are binding

between the parties, but neither party can sue for a breach in the absence of written

evidence. Goods or money which are passed under such a contract are validly

transferred and cannot be reclaimed, but the Courts will not give effect to the

contract if one of the parties fail to abide with the terms.

Voidable Contracts:

These types of contracts are generally recognisable 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.


Thanks.

48

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.


Thanks.

49

A mutual mistake could also arise as when the parties misunderstand each other

and thus work at cross purposes. Ben may have three BMW cars of the same

model, Danie may want to buy the blue model while Ben intends to sell the white

one, this is an example of a mutual mistake and it is also further explained in

relation to the subject matter later on.

A unilateral mistake occurs where only one party is mistaken, for example as to the

identity of the other party he is contracting with or as to the nature of documents he

is signing.

(a) Mistake as to the nature of the instrument i.e. as to signed documents.

This mistake rarely avails a party, for any party to successfully raise it,

however he must show that:

(i) the document signed was radically different from the one he thought he

signed.

(ii) the signing had not been done negligently (carelessly)

(iii) had the true contents of the documents been made known to him he would

not have signed.

See Foster Vs. McKinnon (1869)6 Here the Defendant, an old man with failing

eyesight was induced to sign a document which he thought was a guarantee,

whereas he was indorsing a bill of exchange for 3000 pounds for which he would

be personally liable. He was able to succeed because he satisfied the Court as to

the three elements above particularly that he was not negligent.

This plea is also known as Non est factum (i.e. It is not my deed.)

(b) Mistake by one party as to the identity of the other party. It is a vitiating factor if

identity is a material factor. In case of ordinary shopping, it is not a vitiating factor,

as you intend to contract with the person in front of you. The test is did the

mistaken party intend to contract with one person and with him only? It makes no

difference that the contracting parties met face to face. The pertinent question is


Thanks.

50

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”.


Thanks.

51

Also equity could alter a written contract made pursuant to an oral one where it does not

represent the intention of the parties and it is a mistake of expression only since at

common law parties were bound by what they had written. Equity allows the document

to be altered to represent what was agreed. i.e “Rectification”.

4.2.2 Misrepresentation: This is a false statement of fact (not law) made by one party

which induces the other (innocent) party into making a contract. The Statement

must have been intended to be acted upon and must have actually induced the other

party to make the contract. For it to avail a party he must show that:

(a) the statement is a statement of fact as opposed to an expression of an opinion e.g.

“doctors have recommended that this product is good” as opposed to “this is the

best caviar in the World”. The first is a statement of fact which may induce a

party to buy a particular drug which if it turns out was not what it is stated to do

may amount to a misrepresentation. The second statement is only an expression of

opinion by the Seller as to his wares and does not amount to a representation where

it turns out to be false.

It is important to note that there are instances where even silence could amount to a

misrepresentation as where a party has a positive duty to speak and nothing is said

as may arise in the following instances:

(i) Contracts uberrimae fidei (or of the utmost good faith i.e contracts where one party

alone has full knowledge of the material facts and the law imposes on him a duty

to disclose)

(ii) Fiduciary Relationships e.g. Solicitor and Client, Doctor and Patient etc.

(iii) Changed circumstances etc.

(iv) Where a past truth amounts to a falsehood.

(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.


Thanks.

52

Remedies available to an innocent party: This depends on the type of

misrepresentation which could be either innocent or fraudulent.

Fraudulent Misrepresentation: arises where any statement is made fraudulently i.e.

deliberately or without belief in its truth or being careless whether it is true, or

false.

Remedies

(i) The innocent party can sue for damages in tort for deceit.

(ii) He can affirm the contract and go on with it.

(iii) He can disaffirm the contract and refuse further performance and under

here he may either:

(a) take no legal action and plead fraud as a defence and sue for

damages.

(b) bring an action for rescission of the contract.

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

innocent.

Remedies:

(i) He may affirm the contract and treat it as binding.

(ii) He may claim for rescission in the Courts.

It is important to note however that there is no general right to damages. It should

also be noted that rescission means taking the contract apart and it is usually

accompanied by an order for restitution i.e. each party will have his property

returned but since it is an equitable right it may be lost as where an innocent third

party has acquired title to goods under the contracts, as the effect of

misrepresentation is that the contract is only voidable. Also where restitution is

impossible the right to sue for rescission is lost.


Thanks.

53

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.


Thanks.

54

(a) Contracts prohibited by statute By the old Exchange Control Act of 1962 the

buying and selling of gold by unauthorised persons was prohibited.

(b) Contracts prohibited at common law: These set of contracts are basically

prohibited under the concept called “Public policy”. Although no new categories

are created there 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.


Thanks.

55

(vi) Contracts designed to defraud the revenue. In Miller Vs Karlinski, (1945)18 an

agreement between employer and employees to hide part of their salary as

expenses in order to avoid paying tax was held illegal, thus the employee could

not reclaim salary arrears from the employer.

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

Defendant, a woman who was married under customary law, promised to marry

the Plaintiff and received N100 from him to enable her divorce her husband. It

was held that since the agreement tended to break up the existing marriage and

encourage immorality it was void. Likewise in Pearce Vs. Brooks (1866)20. A

prostitute made a form of hire purchase contract for a carriage to assist her in her

trade. The seller knew what she wanted it for. Held: He could not enforce the

contract against her.

Consequences of illegality: The general rule is that no action can be brought by a

party to an illegal contract, i.e. ex turpi causa non oritur actio. Thus:

(i) No action will lie, for the recovery of the money paid or property transferred

under an illegal contract as in Parkinson's case above.

(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


Thanks.

56

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.


Thanks.

57

(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


Thanks.

58

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


Thanks.

59

(1) Agreement: Since contracts come into being by agreements, they can also come

to an end where the parties bound by it agree to end the contract. For the discharge

to be operative, this agreement to terminate must be supported by consideration.

Where neither party has performed there is a full release as consideration is

easily furnished by their agreement to be released from their obligations under the

contract. This is known as waiver. But where a party has already performed his

obligation under the contract, the other party has to provide some fresh

consideration. This kind of discharge is known as accord 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


Thanks.

60

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). by failing to fulfil his obligations when purporting to perform the contract.

(c). by his self incapacitating act of performance of the contract

Remedies for Breach of Contract

(a) A right of action for damages in respect of the breach of the contract or

some term of it. An innocent party has the right to get damages for the

losses occasioned him from the breach.

(b) A right of action on quantum meruit i.e. a right to sue in respect of what he

had already done before the breach occurred. This remedy avails a party

when one party abandons or refuses to perform the contract, when work has

been done and accepted under a void contract and when there is no

provision for remuneration. Thus 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.


Thanks.

61

(c) A decree of specific performance compelling the other party to carry out

his obligations. This is an equity based remedy, thus it is based on the

discretion of the Court and cannot be insisted upon by the party. A party

is not entitled to specific performance

where damages would be adequate;

in contracts for personal services;

where it cannot be awarded to the other party (e.g. a minor)

where the court cannot supervise the execution of the contract,

e.g. a building contract ;or

in contracts to lend money.

(d) An injunction restraining him from violating them. An injunction like

specific performance is also a discretionary remedy and is not available to

a party where damages would be adequate compensation. It is generally

given to prevent a party from acting in breach of a contract.

(e) Rescission. The effect of this remedy is to put the parties where they were

before they entered the contract.

(f) Rectification. 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:

there was complete agreement between the parties on all important

terms;

the agreement continued unchanged until it was reduced into

writing; and

the writing did not express what the parties had already agreed.

(g) Action to account for profits from breach. In exceptional circumstances, the

court may allow an injured party to get an account of the profits which may

have accrued from that breach to the party in breach. A-G v. Blake (2001).

The equitable remedy is available and allowed only where remedies of

damages, specific performance and injunction would be inadequate remedy.


Thanks.

62

(h) Action for price or some other sum. This is appropriate where property

has passed, and the breach consists of a party`s failure to pay the agreed

price, remuneration or debt due under the contract.

(4) Death: Ordinarily, the death of a party to a contract will not operate to

vitiate the contract. However, a contract may be discharged upon the death

of one of the parties where the contract is for personal service, and he dies

before the personal service could be performed.

(5) Frustration: Occurs when a contract has become incapable of performance.

It generally does not discharge a contract and the defaulting party is liable

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


Thanks.

63

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.


Thanks.

64

The Law also allows severance of a wholly performed contract from

frustrated contracts if severance is possible and the law shall only apply to

the part affected by frustration.

It should be noted however that the Law does not apply to the following:

a. Contracts containing a provision to meet the case of frustration.

b. Contracts for the sale of specific goods, which have perished before

the risk has passed to the buyer, and any contract of sale where the

contract is frustrated because of the fact that the goods have

perished.

3. Where the frustrating event was brought about by his own fault or deliberate conduct,

that party cannot rely on the doctrine of frustration. Maritime National 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.


Thanks.

65


1. State four instances when a contract may be discharged by frustration.

2. List four relationships under Contract where undue influence is presumed.

3. Dinah left her travelling bag at the baggage room of a cinema, since people

were not allowed to carry luggage into the cinema. When she paid the fee

she was handed a ticket which she did not read. She pushed it into her

pocket. After the show she went to collect her bag. It could not be found.

She threatened to sue the proprietors, but then the manager referred her to a

notice on the shelf where luggage is kept in the baggage room and on the

ticket which claimed that the proprietors were excluded from liability.

Dinah now asks for your advice. She says she did not see either notice.

4. State, if any, the instances when a party to an illegal contract may sue to

recover money paid or property transferred under such contract.

5. Mention 3 ways by which a contract may be terminated or discharged.

6. 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.


1. Contract under seal must contain the following EXCEPT ONE

A. Deeds

B. Specialty

C. Contract

D. Covenant

E. Execution

2. For a simple contract to be enforceable there must be…………….

A. Promisor

B. Promisee

C. Consideration


Thanks.

66

D. Offeree

E. Seal

3. The only remedy available for misrepresentation in contract is…………….

A. Equitable remedy of rescission

B. Derivative action

C. Representative action

D. Action for breach of warranty

E. Action for breach of condition

4. Vitiating elements of contract include the following EXCEPT ONE

A. Mistake

B. Misrepresentation

C. Duress

D. Solicited influence from friends

E. Illegality

5. Remedies available to an innocent party in fraudulent misrepresentation include

the following EXCEPT ONE.

A. The innocent party can sue for damages in tort for deceit.

B. He can affirm the contract and go on with it.

C. He can disclaim the contract and refuse further performance

D. Bring an action for rescission of the contract.

E. He can invite the other party to his office for a chart.


1. The contracts required by Law to be under seal are……………………

2. Explain briefly the term Bill of Exchange.

3. The Latin word commendatio non obligio means……………………….

4. What is a puff

5. Explain the term warranty


Thanks.

67

CHAPTER FIVE

AGENCY


At the end of this chapter, readers should be able to:

v explain what is meant by agency

v identify types of agency

v explain consent as basis of agency and distinguish between express and

implied consent.

v explain generally what is meant by agency due to operation of law

v discuss agency of necessity and agency of cohabitation

v describe ratification

v describe the rights of the principal and that of the agent

v distinguish between the obligations on the principal and the agent

v 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


Thanks.

68

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.


Thanks.

69

A factor is an agent entrusted with possession of goods or of the documents of title.

He normally sells in his own name without disclosing that of his principal. A

broker is a go between, a negotiator. He makes contracts for the purchase or sale

of property or goods of which he is not entrusted with the possession or documents

of title. An auctioneer is an agent who is employed to sell at a public auction. He

is an agent for both the seller and the buyer. He may not be entrusted with the

possession of the goods to be sold or the documents thereon.

As already indicated a del credere agent is an agent who usually for extra

remuneration undertakes to indemnify his employer against loss arising from the

failure of persons with whom he contracts to carry out their contracts. He is an

agent charging additional commission for risk. Other agents include Insurance

Agents or Brokers who negotiate and effect policies of insurance and Estate

Agents who arrange for the sale, acquisition or leasing of real estate.

5.3 CREATION OF AGENCY 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


Thanks.

70

the instrument which confers the agency and the production of a copy of it would

be conclusive evidence of the existence of such agency.

5.3.2 Implied Agency

This is agency that arises by implication. Parties are taken as having agreed or

consented to an agency relationship due to the way they have conducted

themselves towards each other. Implied agency may arise through usual,

customary and apparent or ostensible authority. Usual authority relates to the kind

of authority that an agent in a trade, business and profession or at his place of

employment is vested with to enable him discharge his commission. In terms of

customary authority, the agent must 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


Thanks.

71

detriment. To establish estoppel there must be a representation by words or

conduct that the agent has authority, the representation must be made by the

principal to the third party and the third party must have relied on the

misrepresentation thus entering into the contract.

In Buama v Oppong, [1992] 2 GLR 213 the defendant was the owner /driver of a

commercial vehicle. The plaintiff who paid a fare to travel on the vehicle could not

find his bag on reaching his destination. He had paid freight for the bag to a

bookman who took the bag from him and kept it in the boot of the vehicle. The

plaintiff sued for the value of the bag and the items in it, consequential loss and

damages. In his defence the defendant contended inter alia that the bookman was

not his agent. It was found that the bookman gave the money he had received as

freight from the plaintiff to the defendant and that even though the bookmen were

employees of the Ghana Private Road Transport Union they were the ones who

dealt with the passengers by collecting the fares and freight from them. The

defendant was vicariously liable for the loss of the plaintiff's bag by the bookman

because if a person is represented or permitted himself to be represented, that

representative had authority to act on his behalf, and he would be bound in the

same way as he would be if that other had in fact authority to act. Since the

defendant was present when the fee was charged and also clear that the defendant

had given authority to him, it was an apparent authority to the bookman to act on

his behalf. Accordingly, there was an agent and principal relationship between the

bookman and the driver. Again, in law, the usage of the trade or business in which

an agent was employed would in the absence of express direction frequently

determine the liability of the principal.

5.4 CREATION OF AGENCY 1I- OPERATION OF LAW

There is no prior agreement between the parties to create an agency relationship

and there is no representation to each other or others that one of them was acting as

an agent of the other. The law imposes the consequences of agency on their

actions. They may arise as agency of necessity or agency of co-habitation


Thanks.

72

5.4.1 Agency of Necessity

Under agency of necessity it becomes necessary for a person entrusted with

another's property to do something to preserve that property. In essence the need to

act on behalf of another is unforeseen but arises out of sudden danger to property

or some interest of the person on whose behalf the intervention is made. Although

the person who is entrusted with the property has no express authority to do the act

necessary to preserve it the authority is presumed because of the necessity. A

master of a ship's exercise of authority to safeguard a vessel or cargo in danger of

perishing is an example. There is the shipmaster's presumed authority to do what

is reasonably necessary taking into account the danger, distance, accommodation,

expense and such like factors. It is especially so when it is impossible to

communicate with the owners to take instructions. He is expected to act in good

faith. Agency of necessity can arise as long as there exists a real emergency. The

three conditions which must be satisfied before an agency can be created by

necessity are: the impossibility of getting the principal's instructions, an actual and

definite commercial necessity for the creation of the agency and the agent of

necessity acting bona fide in the interest of the principal.

5.4.2 Agency of Cohabitation

At common law as long as a married couple lives together, it is presumed that the

wife has the husband's authority to pledge his credit for necessaries. The

requirements for such agency are cohabitation and domestic establishment. The

goods or services ordered must be necessaries suitable to the style in which the

couple customarily lives, otherwise the husband will not be liable to pay. The

presumption can be rebutted by the husband proving that he expressly forbade his

wife to pledge his credit or warned the supplier not to supply his wife with goods

on credit or the wife was sufficiently supplied with the same kind of goods, or

sufficient allowance or sufficient means for buying the goods was supplied to the

wife or that even though the order was for necessaries it was excessive and


Thanks.

73

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

the date of ratification. The principal must at the time of ratification have full

knowledge of all the material facts. The principal must adopt the whole contract.

The principal must ratify within the time set or within a reasonable time.

5.6 OBLIGATIONS OF AGENCY

Agency imposes rights and duties on both the agent and the Principal.

5.6.1 The duties of the agent

Among the many duties of the agent is the duty to obey all lawful instructions. An

agent must comply with his obligations under the contract or perform the

undertaking according to instructions. The agent is to exercise due diligence in the

performance of his duties. An agent is expected to exercise due or reasonable care

and skill in the course of any business on behalf of the principal. An agent in


Thanks.

74

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.


Thanks.

75

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.


Thanks.

76

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. It may also be through

renunciation of the agency by the agent.


Thanks.

77

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.’


Agency is one kind of relationship that runs through several human endeavours. In

almost every activity we sometimes find ourselves acting on behalf of other people

or asking other people to act on our behalf. The proper understanding of agency is

therefore essential for a true appreciation of its practical significance. The whole

realm of what constitutes agency in terms of what agency is, the types, its creation,

operation, effects and termination were highlighted to ensure a good grasp of the

area of study.


1. Define agency

2. List the types of agents and describe each of them.

3. Explain agency by consent and distinguish between express and implied

consent.

4. What is meant by agency by operation of law?

5. Distinguish between agency of necessity and agency by cohabitation

6. Explain agency by ratification.


Thanks.

78

7. Compare the rights of the principal to that of the agent.

8. List the duties of a) the principal and b) the agent

9. Discuss the effects of agency among the principal, agent and third parties

10. Explain how an agency may be terminated.


1. A person appointed by another person to act on his behalf generally is known as

…………………

A. Envoy

B. Representative

C. Agent

D. Proxy

E. Delegate

2. An agent is entitled to claim from his principal……………..

A. Remuneration

B. Commission

C. Reimbursement

D. Interest

E. Set off

3. Agency can be created by the following ways EXCEPT

A. Agency by conduct/Estoppel

B. Agency by ratification

C. Agency by Auction

D. Agency by Cohabitation

E. Agency by necessity

4. Duties of an agent include the following EXCEPT.

A. Duty of loyalty

B. Duty to exercise skill

C. Duty to assist the wife of the principal to recruit driver whenever the

principal travels

E. Duty not to make undisclosed profit/commission

5. Agency relationship may be terminated by the following EXCEPT ONE

A. Death of either party

B. Bankruptcy of either party

C. Effluxion of time


Thanks.

79

D. Advice of the principal’s banker

E. Insanity of either party.


1. What is the meaning of the maxim “Delegatus non Potest delegare” as it appears to

a contract of Agency?

2. Explain the term implied agency.

3. Explain the term express agency.

4. A del cedere agent is ………………

5. Explain the duties of an Insurance Agent or broker.


Thanks.

80

CHAPTER SIX

SALES OF GOODS

LEARNING OBJECTIVES


define contract for sales of goods

understand the general principles of a contract for sales of goods

describe a contract for sales of goods

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”.


Thanks.

81

Under the general principles of Contract, certain elements are essential for the

validity of contracts and for emphasis these are reiterated as follows:

i. Agreement which consists of the Offer and Acceptance

ii. Consideration

iii. Intention to Create Legal Relations

iv. Capacity

v. Genuine Consent / Vitiating factors. Some knowledge of the above

mentioned essentials of a valid contract is thus necessary for an appreciation of this

specialized Contract of Sales of Goods. The contract of Sales of Goods is basically

governed by common law, the Sales of Goods Act of 1893 (by virtue of the fact

that it is a Statute of General Application which applies to most parts of Nigeria

other than the states which make up the Old Western Region of Nigeria who have

their own Sales of Goods Law ) still retained as the Sales of Goods Act in the Laws

of the Federation of Nigeria 1990 and the 2004 Laws of the Federation of Nigeria,

and the Sales of Goods Law 1978 in Ogun State.

Thus what is a Contract of Sales of Goods? By Section1 (1) of the Sale of Goods

Act 1893, it is a contract whereby the seller transfers, or agrees to transfer, the

property in goods to the buyer for a money consideration called the price. The

essence of a Sale of Goods Contract is that the parties intend to transfer ownership

of property in the goods from the seller to the buyer. Where the property in the

goods is transferred from the seller to the buyer, the contract is called a sale, but

where the transfer of the property is to take place at a future time subject to some

condition thereafter to be fulfilled, it is called an agreement.

Certain important issues are raised by these definitions. First, there must be a

contract before the Sale of Goods Act applies and this stresses the point made

earlier that the Act builds upon the common law of Contract.. Secondly, the

property may be transferred under the contract immediately, or it may be agreed to

be transferred later. This is known as an agreement to sell. This Contract is still

binding and the Act still applies to it. Thirdly, the subject matter of the contract is

not the physical possession of the goods at all but the ownership of them, thus “the


Thanks.

82

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”.


Thanks.

83

(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


Thanks.

84

Courts decided that this was a contract of sale. If Alex goes to the carpenter's and

buys a table out of ten tables he sees at his workplace what they entered into is a

simple sale of goods contract. But while at his workplace he sees an 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


Thanks.

85

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


Thanks.

86

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.


Thanks.

87

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.


Thanks.

88

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


Thanks.

89

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


Thanks.

90

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

condition-

a. That the bulk must correspond with the sample in quality.

b. That the buyer must have a reasonable opportunity of comparing the bulk

with the sample.

c. That the goods will be free from any defect, rendering them unmerchatable,

which would not be apparent on reasonable examination of the sample.


Thanks.

91

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 terms

as to time:

The Act allows the parties the freedom to contract concerning the duties to

deliver and to pay, but if they make no such terms the provisions of Section 28 of

the Act applies. It provides thus-

Unless otherwise agreed, delivery of the goods and payment of the price are

concurrent conditions, that is to say, the seller must be ready and willing to give

possession of the goods to the buyer in exchange for the price and the buyer must

be ready and willing to pay the price in exchange for the possession of the goods.

Notwithstanding the above stipulations as to time of payment or delivery being

either conditions or warranties are however to be found in sections 8 and 9.

(a) As to payment:- The Act provides that unless a different intention appears from

the contract, stipulations as to the time of payment are not deemed to be the

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


Thanks.

92

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).


Thanks.

93

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.


Thanks.

94

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.


Thanks.

95

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 illustration

of exhaustion.

6.4.4 Passing of Risk.

Risk covers a wide range of misfortunes that may befall goods from slight damage

through theft to loss or total destruction. Who bears such loss is thus the basic

question that arises for consideration herein. The applicable Section 20 which

helps in determining this issue provides thus:

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:


Thanks.

96

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.


Thanks.

97

(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


Thanks.

98

does agree to deliver goods at his risk his liability is governed by Section

33 which provides as follows:

“Where the seller of goods agrees to deliver them at his own risk at a place

other than that where they are when sold, the buyer must nevertheless,

unless otherwise agreed, take any risk of deterioration in the goods

necessarily incident to the course of transit”.

The seller must, however, take the risk of extraordinary or unusual

deterioration of loss.

6.5 TRANSFER OF TITLE BY A NON-OWNER

Generally only the owner of goods can validly transfer property or ownership in

them to a third party. The law however allows his agent to do so too. But there are

other instances where property in goods is transferred to a third party by a person

who is not the owner or his agent. It is this troublesome area that we will consider

now for a buyer may not be getting what he bargained for or indeed anything at all.

In this area of the law there is a simple basic rule which however has so many

exceptions. The basic rule favours the original owner while the exceptions favour

the innocent purchaser from a seller who had no right to sell or title to transfer to

him.

This basic rule is expressed in the Latin phrase nemo dat quod non habet and it

literally means nobody can give what he has not got. The courts have tried to

explain why this basic rule must have so many legally recognised exceptions. The

best and finest expression of this rationale is found in the under mentioned dictum

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


Thanks.

99

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.


Thanks.

100

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 in market overt to “C”, “C”

acquires a good title to it. But if “A” is thereafter convicted of theft “C's”

title ceases and “B's” title revives.

(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.


Thanks.

101

(e) 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.


Thanks.

102

(g) Disposition of goods under common law and statutory powers:

Examples are:-

i. The right of a pawnbroker to sell unredeemed goods pledged with him.

ii. The right of a hotel to sell the property of guests to satisfy debts.

iii. The right of landlords in certain circumstances to sell tenant's goods

for arrears of rent

iv. The rights of repairers such as watch repairers, cobblers, or those of

electronic items to sell uncollected goods.

The exercises of the power of sale by these categories of non owners are subject to

restrictions such as the need to give notice and time. The Courts also of course can

exercise the rights to dispose off perishable goods or in execution of a judgment

debt.

6.6 BREACH OF A SALE OF GOODS CONTRACT AND THE

REMEDIES OF THE PARTIES

Where either of the parties to the contract of a Sale of Goods contract breach its

terms the following are the remedies which the law provides

6.6.1 Buyer's Rights.

(a) The right to reject the goods-

The buyer can reject the goods if the seller is in breach of condition, e.g.

one of the implied conditions noted above. If he does so he 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 damages-

He can sue for damages for non-delivery of the goods.

(c) Action for specific performance.

The buyer can only exercise this right compelling the seller to

deliver the goods when the goods are specific or ascertained. This


Thanks.

103

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. when the goods have been sold without any stipulation as to credit;

ii. when the goods have been sold on credit but the term of credit has

expired;

iii. when the buyer becomes insolvent.

By the provisions of Section 43 this right is lost:

a. when the goods are delivered to a carrier for the purpose of

transmission to the buyer, without reserving the right of disposal;

b. when the buyer or his agent lawfully obtains his possession of the

goods;

c. by waiver.

(b) Right of stoppage in transit, i.e. the right of stopping the goods while

they are in transit and resuming possession of them until payment of the

price. This is provided by Section 44 of the Act. It is available when:-

i. the buyer becomes insolvent; and

ii. the goods are in transit.


Thanks.

104

(c) Right of Resale. There is no general right to resell. The right of a lien or

that of stoppage in return does not also entitle the seller to resell. The

seller even though unpaid who resells is generally in breach. He must

deliver the goods in return. However, in the following instances he has

a right to resell.

i. where the goods are of a perishable nature.

ii. where he gives notice to the buyer of his intention to resell, and the

buyer does not within a reasonable time pay or tender the price.

iii. where the seller expressly reserves a right of resale in case the

buyer should 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.


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


Thanks.

105

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.


1. Define a contract for sale of goods.

2. How does a contract for sale of goods differ from

a. hire purchase agreements

b. work and materials

c. sale and bailment

3. Mention and explain three implied terms in a contract for sale of goods.

4. Explain the difference between a condition and a warranty

5. In what instances is a transfer of title by a non owner valid?

6. State the remedies available to a seller in the case of a breach of the contract for

the sale of goods.

7. State the classes of goods that we have..

8. What is a warranty, condition?

9. When is the seller's duty regarding merchantable quality inapplicable in a sale of

goods contract.

10. List 3 ways in which unascertained goods may become ascertainable.

11. State 4 exceptions to the nemo dat rule.

12. When is the seller's right to resell exercisable upon a breach of a contract of sale of

goods.


Thanks.

106

13. When may a seller exercise his right to stop goods in transit in a sale of goods

contract.

14. State the rights of a buyer for a breach of a Sale of goods contract.

15. State the personal rights of a seller where a sale of goods contract has been

breached.


1. The following essential elements are required for the contract of sales of good

EXCEPT ONE

A. Offer and acceptance.

B. Consideration

C. Intention to create legal relationship

D. Capacity

E. Insurance policy

2. The contract of 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.

3. 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.

4. Buyers right in sale of goods contract include the following EXCEPT ONE.

A. The right to reject the goods.

B. Action for damages.

C. Pre action notice.

E. Recovery of purchase price.

5. Sellers rights in the sale of goods contract include the following EXCEPT ONE.

A. Right of lien.

B. Right of stoppage in transit.

C. Right of resale.

D. Right of withholding delivery.

E. Right of preliminary objection.


Thanks.

107


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.


Thanks.

108

CHAPTER SEVEN

HIRE PURCHASE

LEARNING OBJECTIVES

At the end of this chapter, readers should be able to:

define a hire purchase contract.

differentiate a hire purchase agreement from other secured credit transactions.

know the reasons for the adoption of the hire purchase system.

understand the obligations and rights of the parties at common law and under the

Hire Purchase Act.

have an understanding of the purpose and contents of the Hire Purchase Act.

7.0 INTRODUCTION

In the preceding chapters, we have considered a contract in its basic form, i.e. an

agreement between two parties which is binding on them and which is enforceable

by the courts.

We have also discussed a contract for the sale of goods which simply, is an

agreement where the seller transfers or agrees to transfer the property in goods to

the buyer for a monetary consideration called price.

In this chapter, we shall be discussing a different kind of contract, i.e. 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.


Thanks.

109

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


Thanks.

110

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.


Thanks.

111

2. It affords a manufacturer or dealer in certain goods who cannot afford to

extend credit facilities to prospective consumers the services of third parties

such as finance houses to provide such credit. A finance house buys the

goods from the dealer and hires them to interested parties thus enabling the

manufacturer have sufficient finances to stay in business instead of dealing

straight with interested hirers who cannot provide all the cash at once.

3. It also allows for the evasion of the Moneylenders Act. Where a finance

company lends money to the hirer to initiate a transaction with the dealer or

manufacturer of goods such an agreement should come ordinarily within

the purview of the Moneylenders Act. Such finance company must thus

obtain a licence under the Moneylenders Act. However with the decision in

Old Discounts Ltd Vs Playfair Ltd (1938)1 stating that such a transaction

involving these three parties is not a money lending contract, the finance

company need not obtain a license.

7.3 OBLIGATIONS AND RIGHTS OF THE PARTIES

The obligations which the parties owe themselves are governed both by common

law and statute. The decisions of the courts laying down principles of law dealing

with hire purchase transactions make up the applicable principles of the common

law as regards hire purchase transactions. The applicable statute as regards hire

purchase transactions in Nigeria is the Hire Purchase Act 1965. A consideration

of this law shows a radical alteration of the common law principles. To appreciate

the major ways in which this statute altered the common law position it is apposite

to first consider the obligations and the rights of the parties under the common law

before looking at the position under the statute.

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


Thanks.

112

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


Thanks.

113

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.


Thanks.

114

7.3.2 Rights of the Parties at Common Law

(a) Rights of the Hirer: The Hirer being in possession of the goods has the

right to sue anybody who interferes with such right in trespass, conversion

or detinue. If he obtains damages he must account to the owner.

(b) Rights of the Owner: An owner of goods has no possession in the goods,

he cannot accordingly sue unless the contract has ended or the goods comes

into his possession however he can sue in conversion if the goods are

permanently destroyed as this affects his reversionary interest (i.e. his right

to have the goods back at the end of the day where the contract of hire does

not mature into purchase)

7.4 THE HIRE-PURCHASE ACT 1965

This Act is the first statute made in Nigeria to regulate Hire-Purchase transactions

in Nigeria. It used to apply only to Lagos, before it was extended to the whole of

Nigeria by the Hire Purchase (Application) Act 1966 and it came into force on 1st

October 1968 and it was amended slightly in 1970. It is now known as the Hire

Purchase Act Cap H4 Laws of the Federal Republic of Nigeria 2004.

7.4.1 The Purpose of the Act

The Act was passed to check various injustices and malpractices in Hire-

Purchase transactions which were perpetrated by owners under the common law

of hire purchase. Some of them may be highlighted as follows:-

1. Hirers were usually lured by owners into entering hire purchase 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.


Thanks.

115

3. 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. It ensures adequate information to the hirer to enable him evaluate the transaction.

ii. The owner can no longer easily escape liability for supplying useless goods

iii. The owner's right to repossess the goods is severely restricted.

7.4.2 The Contents of the Act

The Act provides for hire purchase, credit sale transactions and advertisements

relating to them.

The general requirements of the Act are as follows:-

1. Notification of cash price: By Section 2(1) of the Act before any Hire-Purchase

agreement is entered into the owner shall state in writing to the prospective hirer,

otherwise than in the agreement, the cash price of the goods.

The Act however allows this provision to be dispensed with where

(a) the hirer has inspected the goods which contain labels indicating the cash price

(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:


Thanks.

116

(i) a statement of the Hire-Purchase price and the cash price, the amount of

each instalment, the date and method of determining the date on which each

instalment is payable.

(ii) a statement of the deposit paid.

(iii) a statement of the true rate of interest.

(iv) a list of the goods to which the agreement relates.

(v) a notice as prominent as the contents of the agreement setting out

(a) the hirer's statutory right to terminate the agreement and

(b) the statutory restrictions on the owner's right to recover the goods.

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

days of the making of the agreement.

7.4.3 Effect of non-compliance:

Where there is non compliance with the above provisions of the Act relating to

the general requirements the owner is disallowed from enforcing any of the

following:

(i) the hire purchase agreement itself ; or

(ii) any contract of guarantee relating to it; or

(iii) any right to recover the goods from the hirer; or

(iv) any security given by the hirer or a guarantor.

However, as long as there is an agreement signed by the hirer, if the court is

satisfied that the failure to comply with any of the other requirements has not

prejudiced the hirer the court may exercise its discretion where it is equitable to do

so and dispense with such requirement for the purpose of the action.

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


Thanks.

117

b. Whereby the hirer's right under the Act to terminate the agreement is

excluded or restricted or any additional liability (other than those imposed

by the Act) is imposed on the hirer for terminating the agreement or

c. Whereby after termination of the agreement the hirer is subjected to any

liability in excess of the liability which he would have incurred if the

agreement was terminated by him under the Act; or

d. Whereby anyone acting on behalf of the owner or seller in connection with

the formation or conclusion of the agreement is deemed to be hirer's agent;

or

e. Whereby an owner or seller is relieved from liability for the acts or default

of any person acting on his behalf in connection with the formation or

conclusion of the agreement; or

f. Whereby the services of a person as insurer, repairer, or in other capacity

whatsoever, are imposed on the hirer.

7.5 OBLIGATIONS AND RIGHTS OF THE PARTIES UNDER THE HIRE

PURCHASE ACT

As under a sale of goods contract the parties are free to make their contracts and

impose obligations on themselves, and where they fail to the Sale of Goods Act

implies certain terms into their contract. Likewise in a hire purchase transaction,

Section 4 of the Hire-Purchase Act implies certain terms into every contract of hire

purchase. These are however implied in addition to, not in exclusion of, any other

terms the parties may make or may be implied by any other statute. They are

substantially the same as the terms implied by the Sale of Goods Act into contracts

of sale of goods. The following are the terms implied by the Act:

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.


Thanks.

118

2. Right to Sell the Goods: By Section 4(1) (b) there is also an implied

condition on the owner's part that he has a right to sell the goods when

property will pass. The time when the property is to pass is when the option

to purchase is exercised.

3. Freedom from Encumbrance: An implied warranty that the goods shall be

free from any charge or encumbrance in favour of any third party at the

time when the property is to pass e.g. a lien. See Section 4(1)(c)

4. Merchantable Quality: There is also an implied condition that the goods

shall be merchantable under Section 4(1)(c) of the Act although the section

also provides three exceptions which are as follows:-

(a) Where the goods are second hand goods and this is stated in the

agreement.

(b) If the defects are such that the owner could not reasonably have

been aware of them.

(c) If the hirer has examined the goods or a sample of them and the

examination ought to have revealed the defects.

5. Fitness for Purpose: Where the hirer expressly or by implication makes

known the particular purpose for which the goods are required there shall

be an implied condition that the goods shall be reasonably fit for that

purpose.

Under the common law breaches of similar conditions are not strict as can be seen

in Anoka Vs. S.C.O.A (1956)4, that the owner is not liable for defects which

cannot be discovered by the exercise of due care and skill. Under the Act however

liability is strict just as in a sale of goods contract if we remind ourselves of the

facts of Frost Vs Aylesbury Diary Co. under a consideration of the same term

under Sale of Goods.

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


Thanks.

119

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.


Thanks.

120

For motor vehicles if 3 or more instalments of the Hire Purchase price are due and

unpaid the owner may remove the motor vehicles to premises under his control to

protect it from damage or depreciation until such action is determined by the

Court.

The owner is liable for any loss or damage caused by the removal. If the owner

contravenes these provisions, by the provisions of Section 9 of the hire purchase

agreement comes to an end and the hirer and guarantor can recover from the owner

all sums paid under the agreement.

Some regulations were also made pursuant to this Act by the relevant Minister.

These regulations contain provisions regulating the terms of Hire Purchase

transactions including the payment of a mandatory minimum as deposit by the

hirer. There are also regulations fixing a maximum period for repayment of the

balance in respect of various types of goods set out in the schedule. 7.6


This chapter has given a detailed explanation of the hire purchase agreement, showing the

difference between the hire purchase agreement and other secured credit transaction. It

further shows the obligations of the parties under the hire purchase agreement; stating the

obligations and rights of the parties at common law, as well as the rights and obligations of

the parties under the Hire Purchase Act. A further study would reveal the rationale behind

the adoption of the hire purchase agreement. The Hire Purchase Act, its contents and

purposes have all been discussed. The general requirements of the Act such as notification

of cash price, written agreement 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.


Thanks.

121

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.


1. The Hire Purchase Act has radically altered the common law principles of

hire purchase. How true is this assertion?

2. What are the reasons for the adoption of the hire purchase system?

3. A hire purchase agreement consists of three parts. Name them.

4. Distinguish between a hire purchase contract and a conditional sale

agreement.

5. State the duties of an owner in hire purchase agreement at common law.

6. State the duties of the hirer at common law.

7. State 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. State 4 terms which are implied in a Hire Purchase agreement.

14. Is it in all instances that the terms implied in a HP agreement by statute

may not be excluded?

15. Explain the term relevant proportion in a HP agreement and explain its

relevance.


Thanks.

122

16. What is the effect of the exclusion of the terms implied by the Hire

Purchase Act by a party to the HP contract?


Thanks.

123

CHAPTER EIGHT

CONTRACT OF EMPLOYMENT



define employment

distinguish between contract of service and contract for services.

compare the rights of the employer with that of the worker.

discuss the duties of employers

describe the duties of the worker

discuss contracts in restraint of trade

explain the concept of termination and discuss its scope

discuss redundancy

explain the remedies available.

8.1 INTRODUCTION

The right to work is one of the fundamental human rights. It is the main means of

sustenance for man. This is especially so in economies like ours where 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.


Thanks.

124

Forms of termination, redundancy and dismissal must necessarily receive attention.

Finally the remedies available in the event of a breach of a contract of employment

are explained to ensure a proper appreciation of them.

8.2 THE NATURE AND FORMATION OF THE CONTRACT OF

EMPLOYMENT

8.2.1 Formation of the contract of employment

Traditionally the law has not regulated the process of the selection of employees by

an employer. Such selection remains largely an area of managerial discretion. It

must however be exercised subject to the statutory provisions relating to non-

discrimination among others. In general a contract of employment need not be in

any particular form. A contract of employment may thus be inferred from conduct

which shows that such a contract was intended although never expressed. To be

legally binding a contract must generally be sufficiently clear and certain. An

employer now has a statutory obligation to give an employee a written statement of

the major terms and conditions of employment. A contract of employment will not

be enforced if it is based on a consideration which is wholly illegal. A contract

may generally be illegal because it is contrary to a statute or is an immoral

contract. Express terms are agreed between the employer and the employee.

Implied terms must be read, subject to any express terms in the contract. Implied

terms arise out of custom and practice or through the courts which will determine

whether an implied term is part of the contract.

8.2.2 Approaches to determining the nature of the contract of employment.

There is no single test for determining whether a person is an employee or not.

The test that used to be considered the control test- can no longer be considered

sufficient. The control test extends to not just what the employee does but how it is

done. The question whether the person was integrated into the enterprise or

remained apart from and independent of it has been suggested as an appropriate

test. The integration test considers how far or to what extent the employee is


Thanks.

125

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


Thanks.

126

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.


Thanks.

127

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.


Thanks.

128

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.


Thanks.

129

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.


Thanks.

130

8.5 CONTRACTS IN RESTRAINT OF TRADE

A contract in restraint of trade restricts a person wholly or partially in the carrying

on of his trade or business. All such contracts are prima facie void, but may be

valid if the person imposing it has a legitimate interest to protect and the restriction

is reasonable as between the parties and is not contrary to public interest.

Employers cannot protect themselves against competition from an ex-employee

except where they have a legitimate interest to protect. The purchaser of the

goodwill of a business has a legitimate interest in protecting that goodwill by

getting the seller to agree not to set up the same line of business immediately

against him. An employer in addition has a legitimate interest to prevent an

employee from revealing trade secrets or siphoning off customers to the competitor

of the employer.

A provision which is wider than is necessary to protect a legitimate interest is

unenforceable. The longer the period of time covered by the restraint the more

likely it is to be set aside. A solus agreement where a trader agrees to restrict his

business or some aspect of it to a sole supplier would only be enforceable if the

courts find the restraint reasonable.

The doctrine of restraint of trade is of a broad scope and the categories are said not

to be closed. It is not limited to contracts between employer and employee, vendor

and purchaser and solus agreements. It is also applicable to restrictions intended to

promote trade.

8.6 TERMINATION OF EMPLOYMENT

Termination may be fair or unfair.

8.6.1 General grounds for termination.


Thanks.

131

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


Thanks.

132

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


Thanks.

133

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.


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.


1. Distinguish between a contract of service and a contract for services.

2. Briefly describe the various tests for determining whether a person is an

employee or not.

3. Compare the rights of the employer to that of the employee.


Thanks.

134

4. Make a list of the duties of employers.

5. What are the duties of employees?

6. What is meant by termination?

7. Explain what fair termination is.

8. Discuss unfair termination.

9. Explain redundancy.

10. Discuss the remedies for unfair termination.


Thanks.

135

CHAPTER NINE

LAW OF INSURANCE


At the end of this chapter, readers should be able to know:

the differences between insurance and assurance

the different types of insurance contracts

the formation of an insurance contract

the different types of insurance policies

the concepts of indemnity, subrogation and contribution.

the concept of reinsurance

9.1 INTRODUCTION

The owner of a property such as a car or a house is never certain that his property

is free from loss or damage; he thus enters into a contract for a sum of money to be

paid to him when either such loss or damage occurs to his car or house. This is the

nature of a contract of insurance and it is fairly known today and it shows the

importance of Insurance both in the commercial and personal spheres.

Thus a contract of Insurance is one whereby a person or company (the insurer)

agrees in consideration of a single or periodical payment (called the premium) to

pay a sum of money to another person or company (the insured) on the happening

of a certain event or to indemnify against loss caused by the risk insured against.

It is important to note that the 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


Thanks.

136

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.


Thanks.

137

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.


Thanks.

138

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) Motor Policy: Prior accidents, and convictions for dangerous driving.

(3) 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


Thanks.

139

(a) which diminishes the risk e.g. the existence of fire fighting equipment on

premises proposed for fire insurance or a burglar alarm on premises insured

against theft.

(b) which 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) regarding matters of law.

(d) 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.


Thanks.

140

9.2.2 Insurable Interest:

It is a requirement in a contract of insurance that the insured has insurable interest

i.e. that the happening against which he insures must be one adverse to him and

likely to cause him loss or saddle him with a liability or when he stands to gain

profit in its preservation and to suffer loss or damage in its destruction. By the Life

Assurance Act 1774, Section 1; any insurance made by one person on the life of

another is null and void unless the person making the insurance has an insurable

interest in the life insured.

Thus an insurable interest means that the person effecting the insurance will

sustain some pecuniary loss on the death of the person whose life is insured.

Examples:

1. A creditor has an insurable interest in the life of his debtor to the extent of the

debt and the policy money is recovered even though the debt is paid before the

maturity of the policy. However he, generally, has no insurable interest in the

property of his debtor.

2. A surety has an insurable interest in the principal debtor's life.

3. An employee engaged for a term of years has an insurable interest in his

employer's life.

4. The legal owner of a property also has insurable interest in his property,

likewise the vendor and purchaser as well as a mortgagee, mortgagor, a

trustee and a bailee.

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


Thanks.

141

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.


Thanks.

142

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


Thanks.

143

the categories of the policy. Thus a policy covering liability for negligence is valid

although an insured person cannot recover for an intentional tort committed like

defamation.

9.3.5 Motor Vehicle Insurance:

Although a motorist will often take out a comprehensive policy covering a variety

of risks, there is however a statutory duty on the motorist to insure in respect of

injury to third parties. Failure to take out this compulsory insurance is a criminal

offence and both owner and driver where they are different persons are liable to

prosecution.

9.3.6 Marine Insurance:

A contract of marine insurance is one whereby the insurer undertakes to indemnify

the insured, in the manner and to the extent agreed against marine losses i.e.

losses incidental to a marine adventure.

9.3.7 Burglary Insurance:

This provides cover against loss or damages to the insured's property by

burglary or housebreaking.

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


Thanks.

144

fundamental principle is that the insured cannot recover or retain for his benefit

more than his actual loss.

In Darrell Vs. Tibbitts4. A landlord of property received 750 pounds under a fire

insurance policy when his property was damaged by fire. Thereafter the tenant who

had agreed under their lease to repair did so. The Court decided that the landlord

had to return the insurance money back to the company since the contract of

insurance was one of personal indemnity and he had not suffered any loss as the

tenant had repaired.

Accordingly, in the event of loss the insured shall be placed in the same position he

occupied immediately before the happening of the event insured against.

In practice an insured may recover less than a complete indemnity where he under-

insures, but it is illegal and against public policy for the insured to recover more

than his loss. It is in the overall interest of the public that an insured should not

profit from what essentially is a misfortune. If an insured is allowed to profit from

the loss or destruction of his property he would be tempted to destroy, 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.


Thanks.

145

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. The risk which occurred must be common to both policies.

2. The insurances must have a common subject matter.

3. The policies must cover the same interest.

4. Each policy must be enforceable at the date of loss.

9.5 RE-INSURANCE

An insurer who has undertaken a risk on a policy of insurance may wish to be

relieved of his commitment and the law gives him an insurable interest in his risk

and the right to reinsure. The re-insurance is the transfer of insurance business

from one insurance company to another insurance company. The original insurer is

called a direct insurer or ceding company and the other the re-insurer.


Thanks.

146

Reasons for re-insurance include;

(a) The unwillingness to run a large risk on single hazard.

(b) The wish to be rid of certain elements of a comprehensive risk.

Here the re-insurer takes over all or part of the liability contracted for by the ceding

company for a consideration of a part or the whole premium as the case may be.

There is no contractual relationship between the re-insurer and the insured unless

the policy otherwise states, hence in the event of a loss the insured cannot bring an

action against the re-insurers to enforce a reinsurance contract.


This chapter has given a comprehensive study of the law of insurance. It contains a

detailed explanation of the contract of insurance, showing the distinction between

insurance and assurance as well as providing different examples of insurance.

The chapter further explains the formation of the insurance contract, the

importance of the proposal form and the duty of disclosure of material facts, as

well as definition of terms such as temporary cover and insurable interest.

The chapter states different types of policy such as life insurance, personal accident

insurance, fire insurance, marine insurance etc. It ends by explaining the concepts

of indemnity, subrogation and contribution.

It is pertinent to emphasise to candidates that a person cannot recover under an

insurance contract if he has no insurable interest and also that time is also

important in determining the presence of insurable interest.


1. What is insurable interest? Give two examples.

2. State 4 instances when an insured need not disclose any circumstances contrary to

his duty under a contract of insurance as a contract uberrimae fidei.


Thanks.

147

3. List 5 kinds of insurance policies that may be taken.

4. What is indemnity?

5. When may subrogation arise?

6. State the conditions that must be satisfied for contribution to arise.

7. What is reinsurance? State the reasons for reinsurance.


Thanks.

148

CHAPTER TEN

LAW OF BUSINESS ASSOCIATIONS -1 COMPANIES



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.


Thanks.

149

10.2 DEFINITION AND TYPES OF COMPANIES

10.2.1 Definition

The word company implies an association of a number of individuals for a

common purpose. Any individual may form a company. The purpose may be to

undertake business with a view to make profits or to undertake other activities of a

social, educational, religious, sporting or charitable nature and not with a view of

profit making.

In Ghana, companies are regulated by the Companies Code 1963, (Act 179),

whereas in Nigeria, they are regulated by the Companies and Allied Matters

Act,(CAMA) Cap 20, LFN 2004; while companies in Liberia are regulated by

Associations Laws, 1976 Liberia Codes of Laws Revised .

10.2.2 Types of Companies

An incorporated company may be either a company limited by shares where the

liability of its members is limited to the amount, if any, unpaid on the shares

respectively held by them; or a company limited by guarantee where the liability of

its members is limited to the amount the members may respectively undertake to

contribute to the assets of the company in the event of it being wound up; or an

unlimited company where there is no limit on the liability of its members. Any of

the three types of Companies may either be a private company or a public

company.

A private company restricts the right to transfer its share, limits the total number of

its members and debenture holders to fifty, prohibits the company from making an

invitation to the public to acquire any shares or debentures of the company and

prohibits the company from making any invitation to the public to deposit money

for fixed periods or payable at call. Any other company shall be a public company.


Thanks.

150

10.3 INCORPORATION AND EFFECTS

10.3.1 Promoters

Any person who concerns himself with the bringing about of the company and its

registration is a promoter. Any person deemed to be a promoter of a company is

one who is or has been engaged or interested in the formation of a company. The

term however excludes those acting in a professional capacity for the persons

engaged in procuring the formation of the company. Examples of such people are

lawyers, accountants 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.


Thanks.

151

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


Thanks.

152

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


Thanks.

153

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


Thanks.

154

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


Thanks.

155

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


Thanks.

156

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.


Thanks.

157

10.5 COMPANY SECURITIES

After a company has been incorporated it must raise capital to enable it operate.

Funding is required to carry on business or purchase an existing business and pay

employees. Private business companies cannot raise funds from the public at all

and must raise funds from their promoters, members and by borrowing if

authorised. Shares and debentures are instruments by which business companies

raise funds. They are securities.

10.5.1 Shares

Shares mean the interests of members of a body corporate who are entitled to share

in the capital or income of such body corporate. The shares of any member in a

company shall be personal estate and shall not be in the nature of real estate or

immovable property.101 Shares are purchased to attain membership or shareholder

status. A share is the interest of the member in the company measured by a sum of

money for the purposes of liability in the first place and of interest in the second

place and may include other mutual covenants.

There are two main types of shares namely preference shares and equity shares.

Preference shares do not entitle the holder to any right to participate beyond a

certain amount in any distribution by way of dividend, or redemption or winding

up. 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


Thanks.

158

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


Thanks.

159

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


Thanks.

160

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


Thanks.

161

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.


Thanks.

162

10.8 DIRECTORS

10.8.1 Definition

A company is an artificial person which must, of necessity act through human

agents who manage the affairs of the company. Thus, a director is “an officer of a

company who is responsible for its management”. By S. 244 (1) of CAMA, a

director of a company so registered under the Act is defined as anybody who has

been duly appointed by the company to direct and manage the business of the

company. It does not matter by whatever name he is called. Anyone who holds

himself out as a director, not being one, is guilty of an offence and is liable to pay a

penalty of N100 per each day of default.

10.8.2 Minimum Number

Every registered company must have at least two directors ( for a private

company), and a minimum of seven directors in case of a public company.

10.8.3 Directors qualification

Under the Nigerian law, directors are not required to have special qualifications,

except where such is specially stated in the articles of association; and this must be

fulfilled within 2 months, otherwise the appointment ceases.

However, the following persons are disqualified from being directors:

An infant ( a person under 18 years of age).

A lunatic or person of unsound mind.

A person convicted 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.


Thanks.

163

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.


Thanks.

164

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.


Thanks.

165

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


Thanks.

166

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.


Thanks.

167

In Pioneer Construction Products Ltd v Faddool [1974] 1 GLR 76, the plaintiff,

a creditor of the defendant company took out summons against the company at the

High Court. Before the summons was heard the company passed a special

resolution for winding up. Notice of the liquidation was given in a Gazette by the

Registrar. Notwithstanding the liquidation, the proceedings continued in the court

and judgment was given for the plaintiff. A director of the company brought an

application moving the court for an order to set aside the judgment. It was held that

under s 17 of Act 180, no action or civil proceedings except an action by a secured

creditor should have been proceeded with or commenced since the directors had

passed the special resolution winding up the company.


The company is a very important business organisation which has to be properly

understood in order to really appreciate its numerous activities. The processes

entailed in its formation and the legal consequences of its incorporation are of

much relevance. The doctrine of separate personality by which a company exists in

its own rights as a legal person distinct from its members is especially noteworthy

for such understanding. Apart from how a company is generally run the way of

raising capital is also of much importance. Useful insights were given in respect of

the types of Shares and of debentures. The role of the Securities and Exchange

Commission was also drawn attention to. Another way of understanding the

workings of a company is to know about notices, meetings and resolutions. Finally

the procedures for the winding up the activities of a company were also looked at.


1. List the types of companies and briefly describe each of them

2. Who is a promoter and what are his duties?

3. Explain pre-incorporation contracts and their effects

4. What is meant by incorporation and what are the procedures for attaining it?

5. Discuss the effects of incorporation


Thanks.

168

6. Define shares and distinguish between the two main types.

7. Describe the functions of the Security and Exchanges Commission.

8. Write briefly on meetings and notices.

9. Describe resolutions and distinguish between the two types.

10. Explain liquidation and contrast the two types.


Thanks.

169

CHAPTER ELEVEN

PARTNERSHIPS


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.


Thanks.

170

11.2 TYPES OF PARTNERSHIP

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 A limited partner is liable only to the extent of his contribution.

o He cannot bind the firm.

o He cannot contribute to its management although he can advise and inspect

the books.

o His death, bankruptcy or insanity will not dissolve the firm as that of a

general partner.

o He can assign his share with the other partners' consent.

o He cannot dissolve the firm by notice.

o A general partner however is an active member of the firm with the right to

participate in the management of the firm.

11.2.3 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


Thanks.

171

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


Thanks.

172

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.


Thanks.

173

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 Receipt of a Share of

the Profits

The receipt by a person of a share of the profits of a business is prima facie

evidence that he is a partner in the business. But this evidence may be rebutted

where it can be shown that the purpose of the share of the profits was for any of the

following:

(i) The payment of a debt by fixed instalments.


Thanks.

174

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.


Thanks.

175

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.


Thanks.

176

11.5.2 Relationship between Partners

Partners' Rights and Duties: The mutual rights and duties between partners are

ascertained by:

(i) the express and implied terms of the Partnership agreement and

(ii) the provisions of the Partnership Act.

In either case the rights and duties may be varied by the consent of all the

partners of a firm and such consent could be implied from 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.


Thanks.

177

(g) Interest on Capital:- A partner is not entitled, before the ascertainment of

profit, to interest on capital subscribed by him.

(h) Books:- The Partnership books are to be kept at the place of business of the

partnership and every partner may when he thinks fit have access to and

inspect any copy of them.

(i) Assignment of a Share in A Partnership: An assignment by any partner of

his share in the partnership either absolutely or by way of mortgage or

redeemable charge does not entitle the assignee to interfere in the

management, require accounts or inspect the partnership books. He is only

entitled to receive a share of the profits which the assigning partner would

otherwise be entitled to.

(j) Transmission of Shares in the Partnership:- When a partner dies or becomes

bankrupt, his property vests by operation of law in his Personal

representatives or trustee in bankruptcy as the case may be. They do not

become partners in the firm, indeed the firm will have been dissolved by

the death or bankruptcy unless the partnership agreement otherwise

provides.

11.5.3 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


Thanks.

178

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) All Partnerships: Partners have implied authority to

(a) Buy, pledge and sell goods of the type in which the firm deals

(b) Give valid receipts

(c) Sign Cheques

(d) Engage and dismiss employees

(e) Sue on behalf of firm or defend an action against it.

(ii) Trading Partnerships i.e partnerships where business consists in the buying

and selling of goods. The partners have these additional powers.

(a) To borrow money and give security over the firm's land or chattels. (b)

To draw, accept or indorse bills of exchange and promissory notes.

(iii) Non Trading Partnerships such as Firms of Solicitors, quarry workers,

auctioneers, Accountants, Cinema proprietors. For such partnerships

(a) A partner cannot accept, make or issue negotiable instruments other than

ordinary cheques

(b) A partner cannot borrow or pledge the partnership property

There are however certain acts that are not within the usual authority of a partner

whether it is a trading partnership or a non trading partnership, thus a partner does

not have the usual authority to:

(a) execute a deed , unless his authority is expressly conferred by deed


Thanks.

179

(b) give a guarantee in the firm's name unless a trade custom in that regard is

proved;

(c) submit a dispute to arbitration

(d) accept property in lieu of money to satisfy a debt owed to the firm

(e) make his partners into partners with other persons in another firm

(f) authorise a third person to make use of the firm's name in legal proceedings

11.6.3 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 co- partners. The firm's liability is joint and several. This

means that an unsatisfied judgment against one or some of the partners is

not a bar to a further action against the remaining partners.

(3) Liability of New Partners: The general rule is that an incoming partner is

not liable for the firm's debts incurred before he became a partner although


Thanks.

180

he could become liable for debts from a continuing contract made before he

become a partner. The new partner can however assume liability by

novation. Novation here must be a tripartite agreement between (i) creditors

of the firm (ii) the partners existing at the time debt was incurred and (iii)

the incoming partner.

(4) Liability of Retiring Partner: This depends primarily on whether the debt

was incurred before or after retirement.

(a) Before Retirement: Obviously, a partner who retires from a firm

would still be liable for debts or obligations incurred before his

retirement though he could be discharged by novation as explained

above. The parties here however are

(i) the retiring partner

(ii) the firm as newly constituted after the retirement and

(iii) the creditor.

(b) After Retirement: For the debts of the firm incurred after his

retirement he is liable to persons who

(i) dealt with the firm before his retirement unless he has given

them notice that he is no longer a partner

(ii) had no previous dealings with the firm, unless he has either

given notice of his retirement or had advertised it.

He is not liable, however to persons who had no previous dealings with the

firm and did not know him to be a partner. The estate of a partner who dies

or who becomes bankrupt or is not liable for partnership debts contracted

after the date of death or bankruptcy.

(5) Liability of Person by Holding Out: A person may be liable like a partner

for the debts of the firm although he is not in fact a partner, if by the words

spoken or written or by conduct represent himself or allows himself to be

represented as a partner in the firm. His liability in such a case is only to


Thanks.

181

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) If entered into for a fixed term, by the expiration of that term.

(b) If entered into for a simple adventure or undertaking by the

termination of that adventure or undertaking.

(c) If entered into for an undefined term, by any partner giving notice

of dissolution to the others.

(2) Bankruptcy or Death: Subject to any agreement between the partners, a

partnership is dissolved by the death or bankruptcy of any partner.

(3) Charge: If one partner suffers his share to be charged for his separate debt,

the others have the option of dissolving the partnership.

(4) Illegality: If an event which makes it unlawful for the business of the firm

to be carried on by the members occurs the partnership is dissolved.

11.7.1 On application by partner the court may decree dissolution:

1. When a partner becomes a lunatic by inquisition.

2. When a partner other than the partner suing become in any other way

permanently incapable of performing his duties under the contract of

partnership.

3. When a partner other than the partner suing has been guilty of conduct

calculated to prejudicially affect the carrying on of business.

4. When a partner, other than the partner suing, wilfully or persistently

commits a breach of the partnership agreement or otherwise so conducts


Thanks.

182

himself that it is not reasonably practicable for the other partners to carry

on the business in partnership with him.

5. When the partnership business can only be carried on at a loss.

6. Whenever the court thinks it just and equitable to dissolve the partnership.

11.7.2 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) Out of profit

(ii) Out of capital

(iii) By the partner individually in the proportion in which they were

entitled to share profits.

Aside from this, the assets, including any sums contributed by the partners to make

up the losses or deficiencies of capital are applied in the following manner:-

(i) In paying the debts and liabilities of the firms to persons who are not

partners.

(ii) In paying the debts and liabilities of the firm to persons who are partners.

(iii) In paying each partner rateably what is due to him in respect of capital.

(iv) The ultimate residue if any is to be divided among the partners in the

proportion in which profits are divisible.


Thanks.

183

Partners as agents: Every partner is an agent of the firm and his other partners for

the purpose of the business of the partnership. Thus a partner like an agent also has

the following duties which are however incorporated into the Partnership Act under

Sections 28 -30 unlike Agency where such duties arise at common law.

(i) To render true accounts and full information in all things affecting the

partnership to any partner.

(ii) Not to make secret profits which he must account for to the firm or any other

benefit derived by him from his use of the partnership property.

(iii) Not to compete with the firm.


This chapter has given an in depth study of the nature of a partnership, what

constitutes a partnership and the various laws applicable. It explains the types of

partnership, the formation of partnership and the formalities involved. It has

clearly stated the rules for determining the existence of a partnership showing how

a partnership differs from a joint tenancy and a tenancy in common, sharing of

gross returns or receipt of a share of the profits. The chapter further shows

relationships where persons are not partners although they carry on business in

similar circumstances such as promoters or executors.

It further explains the legality of partnerships, the relationship between the

partners, their rights and duties, and the rules that apply to partners such as

remuneration, indemnity, management etc.

It discusses the relationship between partners and third parties, explaining the

partners' powers, its extent and their liabilities.

It further explains the various ways by which a partnership can be dissolved; viz

by operation of law or by the Courts, the effect of dissolution and the application

of partnership property upon dissolution.


Thanks.

184


(a) In which order must partnership debts be paid on dissolution?

(b) Ebere and Williams have for several years carried on business in

partnership. It has now been agreed that Ebere shall retire and receive

N100,000.00 in satisfaction of her share while Williams shall take over the

all the assets and liabilities and carry on the business in the old 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) State the order in which partnership debts are paid on a dissolution.

(e) List three differences between general partnerships and limited

partnerships.

(f) What is a partnership?

(g) List four disabilities of a limited partner.

(h) How may we distinguish co-ownership from partnerships.

(i) State three instances where a person who receives a share of the profits may

not be regarded as a partner.

(J) List four ways by which a partnership may be dissolved without a Court

order.

(k) List four ways by which a partnership may be dissolved by the Court.

(L) When may a partnership name be registered and state the effect of the non

registration of a registrable partnership name.


Thanks.

185

CHAPTER TWELVE

BANKING AND NEGOTIABLE INSTRUMENTS



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 transferors.

They are substitutes for money.


Thanks.

186

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


Thanks.

187

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 non-

negotiable. A draft is payable on sight or on demand; however, in some

transactions drafts are often payable at a stated date in the future.

12.2.6 Negotiability

In order to be negotiable, (capable of being transferred-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


Thanks.

188

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


Thanks.

189

defences between the original parties to the instrument and may enforce payment

against all parties liable on the bill. Claims relating to ownership, lien on the

instrument or right of rescission of endorsement can be sustained against the holder

in due course if they arise subsequent to taking but not claims arising before

taking. In Diab v Quansah [1974] 1GLR 101, it was shown that by the effect of s

28 (2) of Act 55 every holder of a bill was to be deemed to be a holder in due

course, if however evidence was given to show that there was fraud, illegality or

duress in the negotiation of the bill, the onus of proof lies on the person who

assists.

12.3.2 Dishonour

A bill may be dishonoured by non-acceptance or by non- payment and the holder

can sue prior parties on their implied promises. A bill is dishonoured by non-

acceptance when it is duly presented for acceptance and such acceptance is refused

or cannot be obtained or when presentment for acceptance is excused and the bill is

not accepted. A bill is dishonoured by non-payment when it is duly presented for

payment and payment is refused or cannot be obtained and when presentment is

excused and the bill is overdue and unpaid. When a bill has been dishonoured by

non-acceptance or by non-payment, notice of dishonour must be given to the

drawer and each endorser, and any drawer or endorser to whom such notice is not

given is discharged.

12.3.3 Discharge

A negotiable instrument may be discharged in the following ways:

Payment of the instrument in full discharges liability on it. After all the essence is

to effect payment and therefore once the payment is effected the obligation is fully

fulfilled. By express waiver where the holder absolutely and unconditionally

renounces his rights against the acceptor. The waiver must be in writing unless the

bill is delivered up to the acceptor. Any material alteration discharges any party

whose obligation is affected by the alteration. By intentional and apparent


Thanks.

190

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


Thanks.

191

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


Thanks.

192

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.


Thanks.

193


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.


1. Explain negotiable instruments

2. List the qualifications for negotiability.

3. Describe a bill of exchange.

4. Write briefly on cheques and promissory notes.

5. Explain endorsement.

6. Discuss the rights and duties of holders.

7. What amounts to discharge of a negotiable instrument?

8. Explain the duties of the banker to the customer.

9. Which circumstances terminate the banker's duty to pay?

10. Write briefly on Unit Trusts.


Thanks.

194

CHAPTER 13

THE ALTERNATIVE DISPUTE RESOLUTION (ADR)


13.1 INTRODUCTION

Litigation should always be a last resort for a business.1This view was expressed

by Ewan Macintyre in his book Business Law. In every legal instrument prepared

for execution of contract or agreement between two or more parties Arbitration

clause is usually inserted.

The Alternative Dispute Resolution consists of Arbitration, Mediation and

conciliation.

13.2 DEFINITION OF TERMS – ARBITRATION

Arbitration has been defined as the reference of a dispute or difference between not

less than two parties for determination after hearing both sides in a judicial manner

by persons or persons other than a court of competent jurisdiction.2 A person to

whom a reference to arbitration is made is called an Arbitrator.3

The Law regulating Arbitration in Nigeria is the Arbitration and Conciliation Act.

The Act lays down both the Law and procedure for Arbitration proceedings.

13.3 ARBITRATION AGREEMENT

Arbitration proceedings will only arise where there is an agreement providing for

such proceedings - that is, the dispute should go for arbitration. The legal basis for

arbitration is voluntary agreement. The voluntary submission of both parties of

their cases or 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.


Thanks.

195

According to Section 1 of the Arbitration Act, every arbitration agreement shall be

in writing and may be contained in a document signed by the parties or in an

exchange of letters, telex, telegrams etc. which provide a record of the arbitration

agreement or in exchange of points of claim or defence in which the existence of

an arbitration agreement is alleged by one party and not denied by another.5

Usually, an agreement to go for arbitration may either be made by the parties as an

integral part of their initial contract (that is where the contract would contain an

arbitration clause) or the parties may agree to go for arbitration after the dispute

has arisen.

Not all disputes can be referred to arbitration for settlement as was held in the case

of KSUB v Fanz

Construction Limited. The following matters cannot be referred to arbitration:

(a) An indictment for an offence

(b) Disputes arising from agreement which are void abinitio e.g. gambling or

disputes arising from illegal contract and disputes arising from divorce

petition.6

13.4 BINDINGNESS OF ARBITRATION AGREEMENT

Except where a contrary intention is expressed in the agreement, an arbitration

agreement is irrevocable except by agreement of the parties or by leave of the

court. It was held in the case of Commerce Assurance Ltd. v Alli that a person

who has submitted to an arbitration cannot turn to the court to ask it to review the

award. The court has no power to alter an award.

Justice Nnaemeka Agu in this case stated that the general rule is that parties took

the arbitrators for better or worse.7

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


Thanks.

196

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.


Thanks.

197

13.6 CONDUCT OF ARBITRAL PROCEEDINGS

Section 14 of the Arbitration Act provides that in any arbitral proceedings, the

arbitral tribunal shall ensure that the parties are accorded equal treatment and that

each party is given full opportunity of presenting his case.10

13.7 PLACE OF ARBITRATION

This is usually determined by the arbitral tribunal having regard to the

circumstance of the case including the convenience of the parties.

13.8 LANGUAGE OF THE PROCEEDINGS

The language is usually determined by the parties.

13.9 COMPOSITION - NUMBER OF ARBITRATORS

The parties are free to determine the number of arbitrators to be appointed. The

number may be based on the original arbitration agreement or after the dispute had

arisen. In the absence of any prior agreement, the number of arbitrators shall be

deemed to be three. (3)

13.10 TERMINATION OF MANDATE OF AN ARBITRATOR

The mandate of an arbitrator terminates:

(a) If he withdraws from office

(b) If the parties agree to terminate his appointment by reason of his inability to

perform his function

(c) If for any other reason he fails to act without delay.11

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.


Thanks.

198

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 court’s 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.


Thanks.

199

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.


Thanks.

200

13.16 MEDIATION

As regards litigation and arbitration the dispute is resolved for the parties by an

independent body.14 In mediation, the parties themselves agree to the resolution of

the dispute. The mediators try to facilitate an agreement between the two parties.

There is no fixed rule in mediation. The parties would first present an outline of

their case to each other, in the presence of the mediator and reply to the other

party’s case.

The role of mediator is to set out the rules, trying to keep matters simple and also

striving to identify the key issues in dispute.

In mediation, the two parties will retire to different rooms and the mediator will

spend time with one group, before passing on the position of that party to the other

party. At times a large number of such visits might be needed and ideally the

parties would move closer to agreement until they finally agree to settle. It should

be noted that it is not always the case that those taking part in mediation are

generally attempting to settle the case. At times they might merely be trying to

find out the strengths and weakness of the other party’s case.

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


Thanks.

201

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.


Thanks.

202

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


Thanks.

203

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.


Thanks.

204

7. Legislation is law passed by Parliament in the form of Acts of Parliament or

Statutes. They may be in the form of Constitution, Acts, Decrees or Edicts: The

other is subsidiary or delegated legislation which is made up of orders, rules and

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.


Thanks.

205

10. Law reporting is the most meaningful way of showing the application of the

doctrine of judicial precedent. Law reporting helps to illustrate the relevant rule

running through a series of cases. Law reports therefore are the repository of

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


Thanks.

206

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


Thanks.

207

8. a) A writ of summons is the means by which a civil proceeding is

commenced. It is prepared by the plaintiff, his solicitor, the registrar of the

court or a letter writer. It usually indicates the nature of the claim and the

relief or remedy sought in the action.

b) A writ of fi fa commands the sheriff to cause to be made a writ of

attachment on the property of the judgment debtor for the property to be

sold in satisfaction of the judgment debt and costs. The sheriff after the sale

is expected to bring the money realized into court to be paid to the

judgment creditor.

c) Garnishee orders cause a third party to appear before the court to show

cause why he should not pay to the judgment creditor the debt due to him to

the judgment debtor in satisfaction of the judgment debt and costs.

9. One is criminally liable for an unlawful act or default which is offence against the

public. It is and offence against the state and the person who is guilty is liable to

punishment. There must be the proof of the mens rea (guilty mind) and the actus

reus (prohibited act). The standard of proof for a crime is beyond reasonable

doubt. Civil liability deals with remedying the wrongs arising between

individuals. Two broad areas of civil liability are in contract and tort. The

plaintiff sues the defendant and will be successful if he can prove his case on a

balance of probabilities.

10. Every man is entitled to his good name and to the esteem in which he is held by

others. Whenever a man's reputation is disparaged by statements made about him

to a third person without lawful justification or excuse he is said to have been

defamed.


Thanks.

208

Defamatory statements in an oral or some other transient form constitute the tort of

slander. Where the defamatory statements are in writing or some other permanent

form constitute libel. 3.8

1. The elements of contract are agreement, consideration, and intention to

create legal relations, form, capacity and legality.

2. Whenever a person comes out with terms to another person and shows

willingness that if that person accepts those terms he is ready to contract

with him those terms constitute an offer. In the case of an invitation to treat,

it precedes an offer it is rather an offer to make an offer. It is an indication

of willingness to enter into negotiations. It cannot be accepted to bring a

contract into being. It is invitation to make an offer. Circumstances which

amount to invitation to treat include advertisements, display of good with

price tickets, auctions and tenders.

3 a) Where two people simultaneously make identical offers to each other

they amount to cross offers. In such circumstances the other party

make an offer independent of the other. None is a reaction to the other

and thus none can constitute an acceptance. They therefore do not

conclude a contract.

b) In a counter offer, the offeree's reply indicates a willingness to be

bound but on terms different from those contained in the offer. If

Kojo offers his car to Taiwo for one hundred million cedis but

Taiwo agrees to buy it for eighty million cedis, Taiwo's purported

acceptance amounts to a counter offer. It terminates the original

offer and may end the negotiations unless Kojo accepts the new

price which then becomes a new offer which is accepted by him.

c) Acceptance is the expression of assent to the terms of an offer.

Acceptance therefore means that the offeree adopts all the terms in


Thanks.

209

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.


Thanks.

210

7. When parties are already in a contractual relationship and one of the parties

makes a promise which is intended to be binding and is relied on and acted

upon, the promissory would be prevented from enforcing his original rights

since it will amount to going back on his promise.

8. The law presumes an intention to create legal relations or not depending on

the situation. In a domestic or social setting there is a presumption that the

parties do not intend to create legal relations. The arrangements do not

result in contracts at all because the parties do not intend that they should

be attended by legal consequences. The presumption may however be

rebutted to show that even though the relationship is a domestic or social

one, legal consequences are intended or the circumstances call for them.

On the other hand there is a strong presumption that the parties in a

commercial transaction intend to create legal relations. In business relations

the parties are presumed to intend to create legal relations by their

agreements. The presumption may however be displaced either expressly or

impliedly. Clear words have to be used to expressly oust the presumption.

9. Infants or minors

Mentally disordered persons or lunatics

Drunken persons

Corporations

Companies have limited or no capacity

10. Valid contracts for minors are contracts for necessaries and beneficial

contracts of service or contracts for employment.

Necessaries are articles which are reasonably necessary to the minor having

regard to his status in life. Thus the goods must be suitable to his condition

of life and necessary to his requirements at the time of delivery. Where the


Thanks.

211

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.


Thanks.

212

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


Thanks.

213

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


Thanks.

214

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


Thanks.

215

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.


Thanks.

216

- 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.


Thanks.

217

- 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


Thanks.

218

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 pre-

incorporation contracts. Even though the company is not yet in existence or a legal

person it is allowed to enter into transactions in expectation of the incorporation.

Pre-incorporation contracts are subject to ratification or rescission. Until

ratification the risks associated with such contracts are borne by the parties

themselves. Thus there will be personal liability. On ratification however the

company becomes bound and entitled 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.


Thanks.

219

6. Shares refer to the interests of members in a body corporate which entitle them to

the share in the capital or income of such body corporate. They are purchased to

obtain membership or shareholding status. It is used to determine liability and

interest.

The two main types of shares are preference and equity shares. Preference shares

do not entitle the holder to a right to participate beyond a certain amount in terms

of dividend distribution. They have a first claim to dividends. Equity shares rank

after preference shares in terms of dividends. Equity shares have most of the voting

rights in a general meeting.

7. The Securities and Exchange Commission is a body set up to advise the Minister

of Finance on all matters that relate to the Securities industry. It is 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.


Thanks.

220

9. Resolutions are the decisions taken at meetings. The two main types of resolutions

are ordinary and special resolutions. Where a decision by virtue of a simple

majority is made it is referred to as an ordinary resolution. In a special resolution

the decision is taken by seventy five per cent (3/4) of the members. It is usually for

very critical changes.

10. A company's life is brought to an end through liquidation or winding up. The two

ways of liquidation 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


Thanks.

221

- 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


Thanks.

222

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.


Thanks.

223

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


Thanks.

224

b) What are the ways by which an agency relationship could be brought to

an end?

4. a) Describe the incidents of a contract of service.

b) Discuss the remedies available to an employee whose employment is

unfairly terminated.

5. Discuss the remedies available to the unpaid Seller under the Sale of Goods

Act, 1902 ( Act 137)

6. The partners in a firm are Kofi, John and Mary. The firm deals in

stationery. In January 2006, John met an old friend Steven who introduced

him to Barbara. Barbara made an offer to purchase fifty million cedis

(50,000,000) worth of stationery from the firm. Kofi duly informed his

partners. On second thought however Kofi decided to have it all to himself

and informed his partners that Barbara has withdrawn the offer. Kofi

subsequently supplied the stationery through a firm he had established in

the name of the wife. The partners have discovered Kofi's act and other

previous ones. What general legal issues are involved and what remedial

steps are available to the partners.

7. In dealing with a company, one can make several assumptions. This is

referred to as the presumption of regularity. Discuss its scope and

significance.

SAMPLE 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


Thanks.

225

thereupon Mr Benson made a down payment of one hundred and fifty million cedis

with the remainder to be paid upon completion. House Designs Ltd in June 2006,

informed Mr Benson that the house will be ready by August 2006 and made a

further request for the payment of fifty million cedis. Mr Benson agreed and

effected payment. At the end of August 2006 no house was allocated to Mr

Benson. In December 2006, House Designs Ltd informed Mr Benson that the

house now cost four hundred million cedis. Mr Benson dissatisfied with the turn of

events has sued House Designs Ltd. What legal issues are involved and what

remedies are available to Mr Benson?

3. Write brief notes on each of the following:

a) insurable interest

b) premium

c) utmost good care

d) subrogation

4. a) Describe the requirements of a hire purchase agreement.

b) Explain protected goods under the Hire Purchase Decree.

5. Discuss the grounds for the removal of a partner on the application by a partner to

the court.

6. Eclipse Ltd is a company that deals in Solar Panels. The main shareholder was

David Stevens with 60%. Other shareholders are Mrs Grace Welbeck with 30%

and Mr Gregory Opoku with 10%. David Stevens has died recently and his

personal representatives have demanded that the assets of the company be split

proportionately. You have been consulted to advise the personal representatives.

What appropriate advice will you offer?

7. a) What is a negotiable instrument?


Thanks.

226

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.


Thanks.

227

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


Thanks.

228

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


Thanks.

229

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.


Thanks.

230

4 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.


Thanks.

231

The unpaid seller can also hold the goods in lien. It means he has the right to

retain possession of the goods but not to resell them until the contract price is

paid. He may exercise his lien when the period of credit has expired or on the

Insolvency of the buyer.

The seller can stop, regain possession and retain the goods until the payment is

received. This may be done when the buyer becomes insolvent, the property

has not passed even on delivery or the contract confers the right of recovery on

the seller.

The seller has a right to resale especially where the goods are perishable and

the buyer does not pay or tender the price within a reasonable time. It may also

happen on repudiation by the buyer and its acceptance by the seller.

6. Partners shall stand in a fiduciary relationship towards the firm and their co-

partners. Every partner is bound to make full disclosure to the firm and other

partners.

Partners should not make secret profits.

Partners must account to the firm any benefits gained in any transaction.

Partners should not carry on business which is in competition with the firm

without the consent of the other partners.

Kofi by refusing to make full disclosure of the business deal has breached the

fiduciary duty towards the firm and other partners.

Kofi should hand over the profit and account to the firm.

7. Any person dealing with the company is entitled to assume that the company's

Regulations have been duly complied with.


Thanks.

232

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.


Thanks.

233

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


Thanks.

234

- 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.


Thanks.

235

- 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


Thanks.

236

o Has its own seal

7.a) A negotiable instrument is a contract in writing that is transferable by

endorsement or by delivery and to which the holder takes free from any

defences or objection to its validity.

b) The banker's duty to pay is terminated under the following circumstances:

Countermand of the payment. The banker should not honour the cheque when

the customer has stopped it.

Death of the customer. Where the banker has notice of the customer's death the

duty to pay is terminated.

Mental disorder of the Customer. A customer with a mental disorder is not

legally competent so a banker with such knowledge must not honour cheques

from him.

Bankruptcy. When the banker has notice of bankruptcy or receiving

proceedings against a customer then the banker must not honour cheques from

him.

Garnishee orders. Service of a garnishee order on a bank stops the banker from

making payments to the customer. Forged or altered cheques. Since forged and

altered cheques are not genuine, the banker with such knowledge cannot pay.


Thanks.

237

BIBLIOGRAPHY

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

Butterworks & Co Ltd

2. Keenan Denis and Riches Sarah (1998) Business Law, Financial Times Pitman

Publishing

3. Brobbey S.A (2000) Practice and Procedure in the Trial Courts and Tribunals of

Ghana, Black Mask Ltd

4. Ghartey Joe (2004) Doing Business and Investing in Ghana- Legal &

Institutional Framework. Janel Publications Ltd

5. Kom Enoch D (1971) Civil Procedure in the High Court. Ghana Publishing

Corporation.

6. Dobson Paul (1997) Charlesworth's Business Law London Sweet & Maxwell

7. Ewan Macintyre, Business Law Essex

(2005) p. 62

8. Bolaji Alabi, Business Law in Nigeria, Lagos (2006) p.277

9. Bolaji Alabi ibid

10. Bolaji Alabi opp.cit p.278

11. Section 1 Arbitration and Conciliation Act cap 19 LFN 2004

12. KSUDB v Franz Construction, (1990) NWLR pt.

13. Commercial Assurance Ltd.v Alli (1986) 3NWLR pt. 29 p.404

14. Govt. of Niger State v Albishir (1985) 3 NWLK 1pt.13) 458


Thanks.

238

15. T.O. Dada General Principles of Law (2010) p.362

16. Section 10 Arbitration and Conciliation Act Cap 19 LFN 2004

17. Bolaji Alabi, opp.cit p.282

18. Bolaji Alabi opp. cit p.285

19. Bolaji Alabi opp.cit. p.287

20. Ewan Macintyre opp.cit p.64

business law for - ican

Documents