Download Business Law November 2017 Past Paper
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Commercial Law November 2017 Past paper
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QUESTION ONE
(a) With reference to the Sale of Goods Act, or the equivalent law on the sale of goods in your country:
(i) Explain the meaning of the rule “nemo dat quod non habet’. (4 marks)
(ii) Discuss four exceptions to the rule in (a)(i) above. (8 marks)
(b) Allan Bora, the proprietor of Pesa House, placed a warning sign outside the entrance to the building that the floors of the premises were slippery. Brian Mbiyo, who was in a hurry to attend classes in the building, did not see the notice. As Brian Mbiyo was rushing to class, he slipped, fell and fractured his hand. Brian Mbiyo is now seeking compensation from Allan Bora.
Advise Allan Bora on his legal position. (8 marks)
QUESTION TWO
(a) With reference to the law of agency: (2 marks)
(i) Distinguish between a “special agent” and a “general agent”.
(ii) Highlight five conditions which must be fulfilled for a principal to effectively ratify the acts of an agent. (5 marks)
(b) Outline three obligations of an agent to the principal. (3 marks)
(c) i) Summarise three basic principles of insurance. (6 marks)
ii) Explain the meaning of the principle of double insurance. (4 marks)
QUESTION THREE
(a) (i) Explain two differences between “hire-purchase sale” and “credit sale”,. (4 marks)
(ii) Explain three duties of the hirer in a hire purchase agreement. (6 marks)
(b) Many clauses in a contract purport to exclude liability for injury, loss or damage.
Explain five rules which determine the effectiveness of such clauses. (10 marks)
QUESTION FOUR
(a) With reference to the law of intellectual property, discuss four advantages of registering an industrial design. (8 marks)
(b) With regard to administrative law:
(i) Explain the term “separation of powers”. (2 marks)
(ii) Summarise three grounds upon which courts might interfere with the decisions of an administrative body. (6 marks)
(c) Describe the procedure of registering a primary society. (4 marks)
QUESTION FIVE
(a) (i) List three functions of international treaties. (3 marks)
(ii) Outline five sources of international law. (5 marks)
(b) (i) Distinguish between “mediation” and “arbitration”. (4 marks)
(ii) Analyse four disadvantages of mediation over civil litigation. (8 marks)
QUESTION SIX
(a) Milka Pendo and Joseph Karani are partners carrying on business in the name and style of Moja Enterprises. Joseph Karani has nevertheless set up a similar competing business while retaining his partnership in Moja Enterprises. Milka Pendo feels aggrieved and intends to expel Joseph Karani from Moja Enterprises.
Analyse the legal principles applicable in the above case and advise Milka Pendo. (10 marks)
(b) Hannah Asahani has received a document in her office which she is unable to identify. The document is dated 1 October 2017, written in Nairobi and addressed to Hannah Asahani Peris Tunda in the following words: “Ten days after sight, pay to my order Sh.20,000 for value received”.
Required:
(i) State the name of the above document. (1 mark)
(ii) Identify the three parties, in legal terms, to the above document. (3 marks)
(iii) Highlight six essentials of the above document. (8 marks)
QUESTION SEVEN
(a) Describe the jurisdiction of the Employment and Labour Relations Court (formerly the Industrial Court) in your country. (6 marks)
(b) With reference to the law of persons, distinguish a “corporation” from an “unincorporated association”. (8 marks)
(c) Highlight six reasons why the law is important in commercial transactions. (6 marks)
Here are the suggested answers
QUESTION ONE
(a) With reference to the Sale of Goods Act, or the equivalent law on the sale of goods in your country:
(i) Explain the meaning of the rule “nemo dat quod non habet’. (4 marks)
Nemo dat quod non habet literally means “no one gives what he doesn’t have.” The general rule is used where goods are sold a person without the consent of the original owner. It means that a seller of goods cannot give the buyer a better title in goods than he himself has.
The nemo dat quod non habet rule is found in Section 23(1) of the Sale of Goods Act Cap 31 Laws of Kenya. It states:
“Where goods are sold 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 his conduct precluded from denying the seller’s authority to sell.”
The nemo dat rule protects the rightful owner of goods against one who buys goods from a person who has sold to them without his authority or having any right in them.
Situations where the seller doesn’t have the right to pass the title or possession include:
1. Where a thief sells goods to a person who buys them in good faith without knowledge of the defect in title.
2. Where goods are handed over to an agent to obtain offers but the agent sells them without authority to do so.
3. Where a swindler induces the seller to sell on credit and then the swindler resells or pledges with those goods.
4. Where a person having sold goods but retains their possession or documents of title fraudulently, then resells them to a 3rd party.
The rule usually stays valid even if the buyer does not know that the seller has no right to claim ownership of the goods. The question that arises is which of the two innocent people is to suffer for the fraud of a third party.
In these circumstances the law has to balance and decide which of the two innocent parties to favour: the buyer who bought in good faith or the original owner who has a right to his property. This led to exceptions to the nemo dat non quod habet general rule.
QUESTION ONE
(ii) Discuss four exceptions to the rule in (a)(i) above. (8 marks)
Exceptions to the nemo dat principle are either expressly recognized statute or common law. These exceptions are:
1. Owner is Estopped from Denying Seller’s Authority (Section 23(1))
Estoppel is found in the concluding words of Section23 (1): “unless the owner of goods is conduct precluded from denying the seller authority to sell.”
In a contract of sale, estoppel may arise where the owner leads a buyer to believe that the seller has the right to sell any act or omission. In such circumstances, the buyer gets good title and the owner is estopped from denying the authority of the seller to sell.
There are two situations in which the owner may be estopped from denying the seller’s authority:
1. Estoppel representation- where the owner, words or conduct represented to the buyer that the seller is the true owner of the goods or the seller has the authority of the owner to sell the goods.
2. Estoppel negligence- where the owner of goods has negligent failure to act, allowed the seller to appear as the true owner of the goods or has the owner’s authority to sell. This is representation through an omission.
Elements of Estoppel
For estoppel to operate, the following must exist:
a) Representation of facts which can be inferred from conduct
b) Representation must be unambiguous
c) Representation must have been relied upon a 3rd party, and acted upon
2. Sale an Agent (Section 23(2)(a))
A mercantile agent is an agent authorized a principal to buy or sell goods, and/or to raise a loan using the principal’s goods as collateral. He is entrusted with possession of goods and sells in his own name.
Section 26(3) of the Sale of Goods Act defines mercantile agent as one who has authority to sell goods or to confine goods for purposes of sale, to buy goods or to raise money on security of goods.
Therefore, if a mercantile agent in possession of the principals goods sells them to a third party in the ordinarily course of business, the buyer acquires a good title, provided he receives them in good faith and without notice of right of original seller in respect of the goods.
A person who buys goods from a factor, broker or auctioneer (types of mercantile agents) will get a good title even if the seller has exceeded his authority or the authority has been revoked the true owner.
Certain conditions must be fulfilled for mercantile agent to pass good title to the 3rd party:
a) The party selling must have been a mercantile agent within the meaning of Section 26(3) of the Sale of Goods Act, Cap 31 Laws of Kenya.
b) The agent must be in possession of the goods, with the owner’s consent, which could be expressed or implied.
c) The mercantile agent must have acted in the ordinary course of his business.
d) The buyer must have taken those goods in good faith and without notice that the sale was without owner’s authority.
3. Sale Under Special Powers of Sale (Section 23(2)(b)
Where goods are sold under special common law, statutory power of sale or on sale order of a court of competent jurisdiction, the buyer gets a good title.
a)Common law power of sale
This power is exercisable various persons.
i. Pledges of goods or documents of title exercise this power in that the pledges carry with it power of sale.
ii. Agents acting within the scope of the apparent ostensible authority can pass good title when they sell their principal’s goods.
iii. Agents of necessity pass good title when they dispose of their principal’s goods. However, the requirements for agency of necessity must be satisfied for agent to pass a good title e.g, a ship with perishable goods on a voyage.
b)Statutory power of sale
Under Section 47 and 48, an unpaid seller can sell goods to a 3rd party and pass a good title e,g trustees in bankruptcy under the Insolvency Act can sell such property and pass a good title. Liquidators of companies under Companies Act can sell the property of a company and pass a good title.
c)Sale Court Order
A court may order the sale of goods for any just and sufficient reason, despite any objections or claims the original owner A sale made pursuant to an order made a court of competent jurisdiction passes a good title. For property to pass, the person to sell must be an authorized court broker.
4. Sale in a Market Overt
Market overt is an open, public and legally constituted market. In the eighteenth century, sales in an open market were an exception to the nemo dat principle. At common law, buyers in a market overt acquired a good title even in relation to stolen goods provided that:
a) The buyer took them in good faith without notice of any defect in title and
b) The sale took place in a public place.
This common law doctrine was embodied in Section 22 of the English Act. However, after the growth of car boot sales in the UK, it led to opportunities for rogues to sell stolen property. In 1994, the Sale of Goods (Amendment) Act was passed which led to the abolition of the “market overt” exception to the nemo dat rule in 1995.
This exception does not apply in Kenya. The reason Section 22 is missing in the Kenyan Sale of Goods Act is that there were no large markets in Eat Africa when the Act was adopted in 1931.
5.Sale Under Voidable Title (Section 24)
The Act provides that when the seller has voidable title to goods but the title is not avoided at the time of the sale, the buyer acquires a good title. This is provided that the buyer buys in good faith and without notice of the seller’s defect of title.
The party entitled to avoid that title cannot claim to do so once a 3rd party buys. The title is extinguished.
6.Resale Seller in Possession (Section 26)
According to Section 26, if a seller has already sold goods but retains possession of the goods or documents of title to the goods and then again resells them to another genuine buyer or pledges them himself or through a mercantile agent, to a person who takes them in good faith and without notice of previous sale, he passes a good title.
However, the following conditions must be fulfilled:
a) The person must have sold the goods to another person and having sold, he retains the possession of those goods or documents of title where the contract has passed to the 1st
b) There must be no break in continuity of possession, where continuity in possession is broken, no title can pass.
c) The seller must transfer to the 3rd party physical delivery of the goods or the documents of the title.
7.Sale Buyer in Possession (Section 26(2))
If a person who has agreed to buy goods obtains possession of those goods or documents of title to them before ownership passes to him but he sells them to a genuine purchaser who takes in good faith without notice of the original seller’s lien, he acquires a good title.
Section 26(2) of the Sale of Goods Act expressly states:
“Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer that person, or a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge or other disposition thereof, to any person receiving them 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 a mercantile agent in possession of the goods or documents of title with the consent of the owner.”
However, the following conditions must be fulfilled.
a) Buyer must have acquired title with consent of the seller.
b) The 1st buyer must have bought or agreed to buy goods- a mere option for purchases is not a contract of sale until the option is exercised in hire purchase.
c) Possession must be actual physical possession of goods or documents to title and must have been obtained the buyer as a buyer.
d) The 3rd party must have taken goods in good faith and without notice of lien of the seller.
8.Sale After Delivery of Writs of Execution
A writ is an order issued court requiring performance of specified acts or giving authority that the act be done e,g where court issues on order, for certain goods be seized. An authorized court broker can execute the order to sell those goods and pass good title to a 3rd party.
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