Wednesday 17 June 2015

Commercial Law (Introduction to Law) Q&A

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REVISION QUESTIONS

QUESTION ONE

“Both parliament and courts of law have in various ways attempted to control delegated legislation however, neither organ can effectively do so by reason of inherent and operational weaknesses” Discuss”


Suggested solution:

This statement is a correct observation of the prevailing circumstances. This is because in the first instance parliamentary safeguards or mechanisms are ineffective.

·         Parliament delegates legislative power to specific persons or bodies, for example governments, ministers, professional bodies, local authorities and statutory bodies.

·         Parliament prescribes the scope and procedure of law making. The delegates can only exercise their legislative power in accordance with such scope and procedure.

·         The enabling or Parent Act may require or insist that the draft legislation be circulated to interested parties of comments for example by-laws.

·         The enabling or Parent Act may require or provide that the rules and regulations made may be laid before the minister concerned for approval.

·         Under section 27(1) of the Interpretation and General Provisions Act, (Cap 2), unless otherwise provided all delegated legislation must be published in the Kenya Gazette before coming into operation. However, the date of commencement may be backdated.

·         Under section 34 (1) of the Interpretation and General Provision Act, Cap 2, unless otherwise provided delegated legislation must be laid before parliament for approval. However, parliament is empowered to annul the rules by resolution to the effect.

·         Judicial control

Courts of law attempt to control delegated legislation through the doctrine of UltraVires, which literally means beyond the powers. A court of law is empowered to declare delegated Legislation ultra vires where upon the rules become null and void and therefore in operative.

A court of law may declare delegated legislation substantively or procedurally UltraVires.

·         Substantive ultra vires

A court of law may declare delegated legislation substantively ultravires if on application it satisfied that.

o The delegate has exceeded the power prescribed by the enabling or Parent Act. o The delegate acted unreasonably.

o The delegate exercised his powers for a purpose other than that for which the power was conferred.

·         Procedural ultra vires

The procedure of law making prescribed by the enabling or Parent Act is mandatory and must be complied with by the delegate. Delegated legislation made without compliance with the procedure thereby prescribed is procedurally defective and may be declared procedurally ultra vires if challenged before a court of law. In Maina andMwangi V. R (1950) the appellants were convicted by Resident Magistrates Court in Nairobi for overcharging a hair cut contrary to the Defence Control Regulations 1948. These regulations empowered the price controller to fix charges for various services including a hair cut. He had fixed the price of a haircut at 50 cent. The appellants had charged Sh.1. On appeal, the appellants argued that their conviction and sentence was null and void as the rules under which they had been convicted were procedurally defective in that they had not been published in Government Gazette as required by law. Since the rules were procedurally defective they were declared procedurally ultra vires and the appellants conviction and sentence was set aside.

Courts of law cannot effectively control delegated legislation by reason of their passive nature. Secondly, an application must be made to the court and the applicant must at the very least discharge the burden of proof.





QUESTION TWO

Write briefly on:

(a)                 Court Martial

(b)                Industrial Court.

Suggested solution:

Court Martial
Establishment: it is established by section 85 (1) of the Armed Forces Act as a subordinate court.

Composition: the court consists of a presiding officer who sits with not less that two other persons or not less than four others if an officer is being tried or where the maximum penalty for the offence is death. The court is assisted by a Judge/Advocate who advises on questions of procedure.

Jurisdiction: it exercises original jurisdiction in criminal cases relating to offences committed by the members of the armed forces within its jurisdiction e.g. mutiny, disobeying lawful order or desertion.

The court had jurisdiction to impose the following sentences:

·         Imprisonment

·         Fine
·         Dismissal from the armed forces
·         Reprimand
·         Reduction of rank
·         Capital punishment

A decision of the court may be appealed against in the High Court. The convict may appeal against conviction or sentence or both.

Industrial Court.
Establishment: it is established under section 14 (1) of the Trade Disputes Act. It was established in 1964.

Composition: it is presided over by judge appointed by the president. The judge sits with two other persons selected by him from a panel of four persons appointed by the minister for labour in consultation with COTU and Federation of Kenya Empoyers. At the moment there are two industrial court judges.

Jurisdiction: it exercises original jurisdiction in civil matters, namely, industrial disputes for example, employers and employees. Disputes may be referred to the court by the minister for labour or a registered trade union. Decisions of the court are known as AWARDS and are final i.e. cannot be appealed against, stayed or reviewed.

·         An award must be published in the Kenya Gazette where upon it becomes effective.

·         The Industrial court maintains a register of all collective agreements registered with it.

·         The principal function of the industrial court in determining industrial disputes is to promote industrial harmony.


QUESTION THREE

State and explain the various types of offers


Suggested solution:

·         Cross offers

This is a phenomenon whereby a party submits an offer to another who has already dispatched a similar offer and two offers cross in the course of transmission. No agreement arises between the parties for lack of consensus ad idem.

·         Counter-offer:

This is the variation or modification or change of the terms of the offer by the offeree. The offeree in such a case gives a qualified or conditional acceptance which is not an acceptance in law. A counter offer is an offer in its own right and if accepted by other offeror, an agreement arises.

Effect of a counter offer

The legal effects of a counter offer is to terminate the original offer. It therefore remains as the offer. In Hyde V. Wrench (1940). On June 6th the defendant made a written offer to sell a farm to the plaintiff for 1000 pounds on 8th June the plaintiff wrote back accepting to buy the land for pound 950. On June 27th the defendant wrote refusing the pound 950. On June 29 the plaintiff wrote accepting to pay 1000 pound for the farm but the defendant declined. It was held that there was no agreement between the parties as the plaintiff counter offer of 950 terminated the original offer of the defendant which therefore did not exist when the plaintiff purported to accept it. An offer differs from an inquiry or request for information.

Standing offer

This is an offer which arises when a persons tender to supply goods or services is “accepted” by the other party. Such “acceptance” is not an acceptance in a legal sense. In converts the tender to a standing offer for the duration specified and the offeror is bound to supply the goods or services whenever requested by the offeree. However, a standing offer may be revoked by the offeror or at any time before an order or requisition is made unless the parties have by a separate contract agreed that the offeror is to keep his standing offer open. Such a contract is referred to as an “option.”

In Great Northern Railway Company V. Witham the plaintiff company invited tenders for the supply of “stores” for 12 months. The defendants submitted a tender indicating his desire to supply the stores for 12 months. Such quantities as required by the company. The plaintiff company accepted the defendants tender and subsequently made a requisition for stores within the 12 months but the defendants failed to supply and was sued. It was held that the defendant was liable in damages for breach of contract as his standing offer had been accepted by the railway company



QUESTION FOUR

In relation to partnership law: discuss
(a)                 Registration of a limited partnership

(b)                In capacities of a limited partner


Suggested solution:

(a)                 Under the provisions of the Limited Partnership Act a limited partnership must be registered with the registrar of companies. To facilitate registration, a memorandum containing the following particulars must be delivered to the registrar:


·         Name of the firm

·         General nature of the business o Principal place of business
·         Full name of each partner

·         The term, if any, for which the partnership is entered into at the date of its commencement.
·         A statement that the partnership is limited and a description of every limited partner.

·         The sum contributed by each limited partner and whether paid in cash or otherwise.

If during the subsistence of a limited partnership any change occurs in the afore mentioned particulars, a statement to that effect must be delivered to the registrar within 7 days of the change.

If a limited partnership is not registered, it is deemed to be a general partnership.

(b)

·         Cannot withdraw or receive back his interest during the currency of the firm.

·         May not take part in the management of the firms business. If he does, he becomes a general partner for the duration he acted and may be held personally liable.

·         does not bind the firm

·         Cannot dissolve the partnership by notice.
·         His death of bankruptcy or insanity does not lead to dissolution.
·         Charging of his interest for a private debt does not lead to dissolution.

·         Unless otherwise provided the firms affairs are wound up by a general partner.

·         A person may be admitted as partner without consent of the limited partner.


QUESTION FIVE

(a)                 Why is it important to determine when property in goods passes from seller to buyer?
(b)                What are the rules that govern the passing of property?



Suggested solution:

(a)

·         It is the essence of the contract of the sale of goods that property in the goods pass to the buyer.

·         It determines when risk in the goods pass to the buyer hence the party is liable in the event of loss or destruction.

·         It determines the remedies available to the parties, for example, the seller can only sue for the price after property in the goods had passed.

(b)    Property in goods passes to the buyer at different times in different contracts hence the passage of property is governed by the following rules:
·         Sale of unascertained goods

Under section 18 of the Act, where there is a contract for the sale of unascertained goods, property passes to the buyer when the goods are ascertained.

·         Sale by auction

Under section 58 (1) of the Sale of Goods Act where there is a sale by auction, property passes to the buyer when the auctioneer announces its competition by the fall of the hammer, or in such other customary manner. Until the hammer falls, the bidder may retract his bid.

·         Sale by reservation

Under section 21 (1) of the Act, where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract but the seller reserves the right of disposal of the goods until certain conditions are fulfilled, property in the goods pass to the buyer when the conditions imposed by the seller are fulfilled.

·         Sale by description

Under section 20 (e) (i) of the Act where there is a contract for the sale of unascertained goods by description, property in them passes to the buyer when:

o Goods of that description, o In a deliverable state,
o  Are unconditionally appropriated to the contract,

o    By the buyer with consent of the seller or by the seller with consent of the buyer.

·         Sale by approval or on sale or return

Under section 20 (d) of the Act where goods are delivered to the buyer on approval or on sale or return or other similar terms, property in them passes to the buyer.

·         When he signifies his approval or acceptance or

·         When he does any other act adopting the transaction e.g. reselling or pledging the goods or

·         When he retains the goods after expiration of the stipulated or reasonable time without signifying his rejection.

·         Unconditional sale of specific goods in a deliverable: under section 20 (d) of the Sale of Goods Act, where there is an unconditional Sale of Specific goods in a deliverable state, property passes to the buyer when the contract is made.

·         Sale of specific of goods to be put into a deliverable state: under section 20 (b) of the Act where there is a contract for the sale of specific goods and the seller if bound to do something for the purpose of putting the goods into a deliverable state, property in them passes to the buyer when they are put into a deliverable state and he is notified.

·         Sale of specific goods to the weighted, measured or tested: under section 20 (c) of the Act, where there is a contract for the sale of specific goods but the seller is bound to weigh, measure, test or do some other act or thing for the purpose of ascertaining the price, property in the goods passes to the buyer when they are weighted, measured, tasted, or that other thing is done and the buyer is notified.



QUESTION SIX

Discuss the liability of parties to a bill of exchange.

Suggested solution:

Under the provisions of the Bills of Exchange Act,

·         A bill of itself does not operate as an assignment of funds in the hands of the drawee available for payment of the bill. The drawee of a bill who does not accept it is therefore not liable on it (53).

·         The acceptor of a bill, by accepting it according to the tenor of his acceptance engages that he will pay it according to the tenor of his acceptance is precluded from denying to a holder in due course.

·         The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the bill.

·         In the case of a bill payable to the drawers order, then the capacity of the drawer to endorse, but not the genuineness or validity of his endorsement.

·         In the case of the bill payable to the order of a third person, the existence of the payee and his capacity to endorse, but not the validity or the genuineness of his endorsement.

The drawer of a bill by drawing it

·         Engages that on due presentment, it shall be accepted and paid according to its tenor, and if it be dishonoured he will compensate the holder or any endorser who is compelled to pay it, so long as the requisite proceedings on dishonour by duly taken.

·         Is precluded for denying to a holder in due course the existence of the payee and his capacity to endorse.

The endorser of a bill by endorsing it.

·         Engages that on due presentment, it shall be accepted and paid according to its tenor, and if it be dishonoured he will compensate the holder or subsequent endorser who is compelled to pay it so long as the requisite proceedings on dishonour be duly taken.

·         Is precluded from denying to a holder in due course the genuineness or regularity in all respects of the drawers signature and all previous endorsements.

Is precluded from denying to his immediate or subsequent endorsee that the bill was at the time of his endorsement a valid and substituting bill, and that he had then a good title thereto.

QUESTION SEVEN

a.        What are the advantages from a legal point of view of converting an unincorporated association to a corporation?
b.       Discuss the doctrine of ultra vires in relation to companies

Suggested solution:
(a)                 By incorporating a partnership, it becomes a company limited by shares and certain advantages accrue there from:

·         Limited Liability: Members’ liability for debts and other obligations is limited by shares. They are not liable to pay more.

·         Perpetual succession: the death of a member or members of the corporation has no effect on its existence. This encourages investment.

·         Owning of property: the property of a corporation does not belong to its member. The company has capacity to invest to promote its profitability.

·         Suing or being sued: members are not bound to sue to remedy wrongs done to the company and cannot generally be sued for the wrongs of the company.

·         Capacity to contract: the fact that a company can enter into contractual relationships means that it can engage in commercial transactions for the benefit of its members and society.

·         Wide capital base: compared to other forms of business associations registered companies have the widest capital base by reason of the wide spectrum of membership.

·         Qualified management: companies are managed by directors elected by members. Members have the opportunity to elect qualified persons as managers.

·         Transferability of shares: under the Provision of the Companies Act the shares or other interest of any member shall be movable property transferable in manner provided by the articles. Company shares are transferable, thus membership keep on changing from time to time and the company could take advantage of the entrepreneurial skills of new members.

·         Borrowing by floating charge: a registered company is free to utilize the facility of floating charge to borrow. This is an equitable charge securing a debenture on the assets of a going concern but which remain dormant until crystallization. A floating charge:

o  Enables companies with no fixed assets to borrow

o Enhances the borrowing capacity of companies with fixed assets. o Enables companies to use future assets as security.

o  Does not interfere with the ordinary business of the company

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