part

Sales of good contract (topic 1 for Evening class)

SALE OF GOODS

          DEFINITION

          Section  3 (1) of the Act defines a sale of goods as "a contract
whereby the seller transfers or agrees to transfer the property in goods to
the buyer for a money consideration called the price".

          ESSENTIAL ELEMNENTS IN A SALE OF GOODS

CONTRACT

a) Goods

b) Buyer and seller

c) Property in goods

d)Transfer of property in goods

e) Price

f)  Agreement to transfer property in goods

 
           GOODS

           The term "goods" include "all chattels personnel other than things
in action and money". This covers anything that can be touched, moved
or taken away but does not cover land and other species of commercial
property such as shares, debts, etc which cannot be physically moved or
taken away.

          TYPE OF GOODS

          The Act classifies goods into:

          (i)      Specific Goods

                   Specific goods are "goods" which are identified and agreed
upon at the time the contract of sale is made . This definition embraces
nearly all the goods which people buy in shops, market places and super-
markets.

          (ii)     Unascertained Goods

                   The phrase "unascertained goods" is used in

contradistinction to specific goods. It includes goods to be manufactured
or acquired by the seller after the making of the contract of sale.
                       The distinction between specific and unascertained goods
is important because it                              governs the
moment                        of transfer of property.

(iii)        Existing and future goods

Existing goods are goods owned and possessed by the seller when the
contract of sale is made.  Future goods are goods to be acquired or
manufactured by the seller after the contract is made.

          CONTRACT FOR "WORK AND MATERIALS"

          In Robinson v Graves a dispute arose over an agreement under

which an artist had promised to make a portrait for 250 guineas. The
question which had to be considered was whether the agreement
constituted a sale of goods so that the provisions of the Act applied to it.
It was held by the English Court of Appeal that the agreement was not
sale of goods but a contract for "work and materials". Although a good
was to be ultimately delivered, the substance of the contract was not
a transfer of its ownership (since it did not exist at the time of the
contract) but the application of the artist's skill towards its production.
What was to be paid for was the work to be done by him, and having
been paid for the work, he must deliver the physical object

          FORM

 
          Sale of goods act provides that a contract for the sale of goods to
the value of two hundred shillings or more cannot be enforced unless
the buyer accepts and receives the goods, or gives an earnest or made
past payment, or unless the party to be charged (whether buyer or seller)
signed a written memorandum thereof. Contracts for the sale of goods
whose value is less than two hundred shillings may be made in writing,
by word of mouth, or implied from conduct.

          SUBJECT-MATTER OF THE CONTRACT

          Sale of goods act which form the subject-matter of a contract of

sale may be either existing goods, owned or possessed by the seller, or
future goods, to be manufactured or acquired by the seller after the
making of the contract of sale.

          (a)       in a contract for the sale of specific goods, the goods have,
without the knowledge of the seller, perished at the time when the
contract was made, the contract is void.

                  

          (b)      Where the contract is for the sale of unascertained or future
goods and subsequently the goods, without any fault of the seller or
buyer, perish before the risk passes to the buyer, the agreement is
thereby avoided.

          THE PRICE

 

          Section 10 provides that the price for goods may be fixed by:

          (i)      Contract;

          (ii)     The manner provided in the contract; or

          (iii)    The course of dealing of the parties.

          If the price is not fixed or determined as aforesaid, the buyer must
pay a reasonable price.

          Where the contract specifies that the price is to be fixed by the
valuation of a third party and he does not make the valuation the contract
is unvoiced. If however the goods (or part of them) have been delivered
to and appropriated by the buyer he must pay a reasonable price for
them. If the failure to value is as a result of the fault of the buyer or
seller, he must pay damages.

          TERMS OF CONTRACT

          IMPLIED TERMS

          There are certain terms, called conditions and warranties;-

 
          The implied terms are as follows.;

          1.       Conditions

                   The conditions which are implied are:

                    (a)     Right to sell.

                            There is an implied condition that the seller has a right

to sell the goods and, in the case of an agreement to sell, that he will
have a right to sell at the time that the property is to pass.

                   (b)     Correspond with description

                            Where goods are sold by description, there is an

implied condition that the goods correspond with the description.

                                  A sale is by description when:

                            (a)     The goods are unascertained or future goods

                            (b)     The goods are specific but are bought as "a thing
corresponding with specific description".

                    `(c)   Correspond to sample and description

                              Where there is a sale of goods by sample as well as

by description, the goods must                             correspond with the
description as well as the sample.

                   (d)     Merchantable quality.

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

(e)          fitness for purpose

                            Those goods which are bought for a particular purpose

are reasonably fit for that purpose

                            This condition is implied only if:

                            •   The particular purpose was made known to the

seller, expressly or by implication.

                            •   The goods are of a description which it is in the

course of the seller's business to supply.

                   (f)     Bulk   goods shall correspond with the sample.

                            Where the goods are bought by sample, there is an

implied condition that the bulk will correspond with the sample in
quality. If a sale is by sample and description the goods supplied must
correspond with both the sample and the description

 
 

                   (g)     Opportunity to compare bulk and sample

                            That the buyer will have a reasonable opportunity of

comparing the bulk with the sample:. The seller cannot therefore
demand the price when he delivers the goods. He must wait for a
reasonable time during which the buyer will examine the goods to check
if the bulk corresponds with the sample.

                         Goods free from defect rendering them

unmerchantable

                             That the goods will be, free from any defect rendering
them unmerchantable which would not be apparent on a reasonable
examination of sample.

          2.       Warranties

                   The following are the warranties -:-

                   (a)     Quiet possession  This provision is intended to protect

the buyer against defects of title which arise after the contract is entered
into. Although such situations are extremely rare, they may arise
occasionally

                   (b)     Free from charge or enaumbrance

                           

                            That the goods shall be free from any charge or

encumbrance in favour of any third party which is not declared or made
known to the buyer before or at the time when the contract is made:

          "NEMO DAT QUOD NON HABET"

          Another common law maxim that applies to sale of goods is

"nemo dat quod non habet": a person cannot give that which he does not
have. This maxim has been incorporated into every contract of sale of
goods by s.23, which provides that "where goods are sold by a person
who is not the owner thereof and who does not sell them with the
consent or authority of the owner, the buyer acquires no better title to the
goods than the seller had".

          This principle was developed by the common law courts to protect
the interest of the true owner of the goods.  

          Exceptions

          The "nemo dat" rule is subject to the following exceptions which

are provided by the Act:
 

          (a)     Estoppel

                   The sale of goods act provides that the "nemo dat" rule will
not apply if "the owner of the goods is by his conduct preluded from
denying the seller's authority to sell". This is illustrated by Pickard v
Sears (44). An estoppel will be raised against the owner of the goods
only if his conduct misled a third party into believing that the person
who was selling the disputed goods was either their owner, or had the
owner's authority to sell them.

          (b)     Sale by a Factor

                   Sale by a factor gives a good title to the buyer in good faith.
The factor is a mercantile agent whose business is to sell or otherwise
deal in goods. A factor can sell goods entrusted to him and give a good
title provided the conditions of the Act are complied with. These
conditions are that the goods shall have been entrusted to him in the
ordinary course of his business and that they shall be in his possession
with consent of the owner.

          (c)     Sale under a Voidable Title

                   Where the seller of goods has a voidable title thereto but his
title has not been avoided at the time of the sale, a buyer in good faith
without notice of the defect in the seller's title acquires a good title.
          (d)     Resale by a Seller in Possession

                   If a person who has sold goods, but has remained in

possession of them or of the documents of title to them, transfers the
goods or documents of title to a third person, that person acquires a good
title if he receives the goods in good faith and without notice of the
previous sale

          (e)     Sale by a buyer in Possession

                   Where a person having bought or agreed to buy goods

obtains with the seller's consent possession of the goods or the
documents of title to them, a transfer by that person of the goods or
documents of title to a third person receiving them in good faith and
without notice of lien or other right of the original seller in regard to the
goods, has the same effect as if the person making the transfer were a
mercantile agent in possession of the goods or documents of title with
the consent of the owner. The seller has rights against the original
purchaser but cannot claim the goods from the second purchaser

          (f)      Sale under a common law power of sale, such as a sale by
an agent of necessity.

          Sale under a court order.

(i)            Sale in market.

          TRANSFER OR PASSING OF PROPERTY

          Assuming that the seller has a right to sell the goods, it becomes
necessary to determine the precise moment when the transfer of the
property in goods, envisaged by the contract of sale, takes place. Such
determination is important because:

                  

(a)             It determines when risk in the goods pass to the buyer; if the
goods were destroyed accidentally it would be necessary to know which
party has to bear the loss.

(b)            It determines the remedies available to the parties.

(c)             It is the essence of the contract of sale of that property.

          General Rule

          The general rule is that the property passes in accordance with the
intention of the parties, express or implied.

 
          (a).    Where there is an unconditional contract for sale of
specific goods in a deliverable state, the property passes to the buyer
at the time when the contract is made.

         

          (b).    Where there is a contract for the sale of specific goods

not in a deliverable state, and the seller has to do something to the
goods to put them in deliverable state, the property does not pass until
that thing is done and the buyer has notice of it.

          (c)     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.

          (d).    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 assent of
the seller, the property in the goods thereupon passes to the buyer.

          (e).    Seller's reservation regarding disposal

 
                   Where the seller reserves the right of disposal of the goods
until certain conditions are fulfilled, the property in the goods does not
pass until such conditions are fulfilled.

          (f).     Sale by Auction

                   On a sale by auction the property in the goods knocked

down passes to the buyer at the fall of the hammer, in the absence of any
agreement to the contrary.

          PERFORMANCE OF CONTRACT

          Obligations of the parties

          Duties of the seller

a)      Duty to deliver the goods

b)      Duty to pass a good title

c)      Duty to put the goods into a deliverable state

d)      Duty to Deliver Right quantity

 

          DUTIES OF THE BUYER

a)          Take delivery;  it is the duty of the buyer to take delivery of the

goods failing which the seller may maintain        an action against him
for damages for non-acceptance

b)         Pay the price: it is the duty of the buyer to pay the price of the
goods failing which the seller may maintain         an action against him
for the price.

DELIVERY

This is the voluntary transfer of possession from one person to another. 

Delivery generally takes any of the following forms, namely

(a)    Physical transfer of the goods

(b)   Delivery to common carrier

(c)    Delivery of documents of title

(d)   Transfer of the means of obtaining the delivery

(e)    Delivery by attornement

RULES OF DELIVERY

(a)    The goods must be in a deliverable state

(b)   Unless otherwise agreed, the cost of putting the goods into a

deliverable state is borne by the seller

(c)    Whether it is for the seller to transmit the goods to the buyer or for
the buyer to take delivery thereof depends on the terms of the contract

(d)   Unless otherwise agreed the place of delivery is the sellers place of

business, if any if not, his residence.

(e)    In a sale specific  goods which the parties know are in some other
place, that other place is the place of delivery.

(f)    If the goods are in the hands of a third party, delivery takes place
when such party notifies the buyer that he holds goods on his behalf.

(g)   If the seller is bound to transmit the goods

 
    Delivery by common carrier is prima facie complete when the
goods are handed on to the carrier.

(i)     If the seller delivers more goods than contracted the buyer is
entitled to

      (i)          Reject all the goods

(i)                   Accept those included in the contract and reject the

balance or

(ii)                 Accept all the goods and pay at the contract rate.

(j)     If the seller delivers less goods than contracted, the seller is entitled
to:

(i)           reject all the goods or

(ii)         accept and pay at the contract rate.

(k)   If the goods delivered are mixed with goods of a different

description, the buyer is entitled to

(i)      reject the goods or

(ii)         accept those included in the contract and reject the balance.

 
(l)     Unless otherwise agreed the buyer is not bond to accept delivery
by instalments

(m) Where delivery is by instalments to be paid for separately and the

seller makes one or more defective deliveries or the buyer neglects or
refuses to accept and pay one or more deliveries, whether this is treated
as a severable breach or a total repudiation of the contract depends on

(i)           the terms of contract

(ii)         the circumstances of the case.

   if the buyer refuses to take delivery as of right he would not be

bound to return the goods but must notify the seller his refusal.

           BREACH OF CONTRACT

          Remedies of the parties

         A buyer commits a breach of the contract of sale if he wrongfully

fails to pay for the goods in accordance with the terms of the contract. In
such a case, the seller is legally known as "the unpaid seller".

 
          Section 39 defines an unpaid seller as follows:

          (a)     The seller of goods is deemed to be an unpaid seller within

the meaning of this Act:

                   (i)      When the whole of the price has not been paid or
tendered.

                   (ii)     When a bill of exchange or other negotiable

instrument has been received as conditional payment, and the condition
on which it was received has not been fulfilled by reason of the
dishonour of the instrument or otherwise.

          (b)     In this part of the Act, the term "seller" includes any person
who is in the position of a seller, as for instance, an agent of the seller to
whom the bill of landing has been endorsed, or a consignor or agent who
has himself paid, or is directly responsible for, the price".

2.             Remedies of the Unpaid Seller

Remedies of the unpaid seller are either real or personal.  Real remedies
are remedies against the goods and are enforceable without judicial
intervention.  Personal remedies are remedies against the buyer and
enforceable through the courts.

 
                      Personal Remedies:

          (a)     Action for Price

                   Section 49 provides that the unpaid seller has a right of

action for the price of the goods:

                   (i)      Where the property in the goods has passed to the
buyer and he refuses to pay for them according to the contract.

                   (ii)     If the buyer has agreed to pay for the goods on a
certain day, and he wrongfully refuses to pay for them.

          (b)     Action for damages

                   Section 50 provides that where the buyer wrongfully

neglects or refuses to accept and pay for the goods (i.e. the property in
the goods has not been passed to the buyer) the seller may maintain an
action against him for damages for non-acceptance. The amount of
damages will be the estimated loss caused by the buyer's breach of
contract.

                  
                   Real remedies

                  

          (c)     Right of Lien or retention of goods

                   Sections 41 to 43 give the unpaid seller who is still in

possession of the goods the right of lien (i.e. the right to retain them until
payment or tender of price ) in the following cases:

                   (i)      Where the goods have been sold on credit but the term
of credit has expired.

                   (ii)     Where the goods have been sold without any
stipulation as to credit.

                   (iii)    Where the buyer becomes insolvent.

                   The lien will be lost if the unpaid seller delivers the goods to
a carrier or other bailee for transport to the buyer, without reserving the
right of disposal of the goods. It will also be lost where the buyer (or his
agent) lawfully obtains possession of the goods, or where the unpaid
seller waives his rights.

                   Where part delivery has been made, the unpaid seller has a
lien over the rest of the goods, provided that the part delivery already
made does not amount to a waiver of the right of lien.
                   The lien is for the price or for the unpaid balance of price
only, and not for any accidental expenses, such as storage charges.

          (d)     Stoppage in transitu

                    Where a buyer becomes insolvent, the unpaid seller has a

right of stopping the goods "in transitu". This right is exercisable only
while the goods are still in transit. If transit is at an end, the right is also
at an end.

                    Goods are in transit from the time they are delivered to a
carrier by land or water or other bailee, for the purpose of transport to
the buyer, until the buyer or his agent takes delivery of them from the
carrier or bailee. If the buyer obtains the goods before they reach the
appointed destination the transit is at an end. The transit is also at an end
when the goods reach the appointed destination and the carrier or bailee
informs the buyer that he (the carrier or bailee) holds them on his (i.e.
the buyer's) behalf.

                    Where part delivery has been made, the right of stoppage in
transitu is effective over the remainder of the articles, unless the part
delivery was made in such a way as to show that the seller has agreed to
give up possession of the whole of the goods.

                    The unpaid seller exercises his right of stoppage in transitu

either by taking possession of the goods or by giving notice to the carrier
or bailee that he wishes to exercise the right. The carrier or bailee must
then return the goods to the unpaid seller who must pay all the expenses
connected with such return.

 
          (c)     Right of Re-Sale

                   The seller may re-sale the goods under if the buyer does not
pay for the goods, or tender their price, within the agreed or a reasonable
time.

                   This right of re-sale is allowed in the following three cases:

                   (i)      Where the goods are of a perishable nature.

                   (ii)     Where the unpaid seller gives notice to the buyer of
his intention to re-sell, and the buyer does not within a reasonable time
pay or tender the price.

                   (iii)    Where the seller expressly reserves a right of re-sale.

          3.       Remedies of the buyer

                   (a)     Damages for non-delivery

 

                            Where the seller wrongfully neglects or refuses to

deliver the goods to the buyer, the buyer may maintain an action against
the seller for damages for non-delivery.

                   (b)     Specific Performance

                            In any action for breach of contract to deliver specific

or ascertained goods, the Court may, if it thinks fit, on the application of
the plaintiff, by its judgement or decree, direct that the contract shall
be performed specifically, without giving the defendant the option of
retaining the goods on payment of damages. The judgement or degree
may be unconditional, or upon such terms and conditions as to damages,
payment of the price, and otherwise, as to the Court may seem just, and
the application of the plaintiff may be made at any time before
judgement or decree". This is the remedy of specific performance.

                  

                   (c)     Damages for Breach of Warranty

                           Where  there is a breach of warranty by the seller, the

buyer is not entitled to reject the goods on that account. He may,
however, "set up against the seller, the breach of warranty in diminution
of extinction of the price"; or he may sue the seller for damages for the
breach of warranty. Here again, the measure of damages is the
"estimated loss directly and naturally resulting, in the ordinary course of
events, from the breach of warranty". If the buyer has set up breach of
warranty in diminution or extinction of the price, he is not thereby
prevented from maintaining an action for the same breach of warranty if
he suffered further damage.

                             Where there is breach of warranty of quality, the

measure of damages is the difference between the value of the goods at
the time of delivery to the buyer, and the value they would have had if
they had answered to the warranty.

(d)   Recovery of price

(e)Rejection of the goods

                 IMPORT AND EXPORT TRADE

                A Kenyan businessman may wish to import goods from

another country, or to export his goods to a                  buyer in another
country. He may do so under one or other of the following standard
contracts.

          1.       F.O.B. Contracts

 
                   Under an f.o.b. (free on board) contract it is the duty of the
seller to put the goods on board a ship for the purpose of their
transmission to the buyer. The contract of carriage by sea has to be made
by, or on behalf of, the buyer.

                   The cost of putting the goods on board must be borne by the
seller, but once the goods cross the ship's rail they remain at the risk of
the buyer. Delivery is complete when the goods are put on board the
ship, but the seller should give notice of the shipment to the buyer so as
to enable him to insure; if the seller fails to do this, the goods will be at
his risk.

                  

          2        C.I.F. Contacts

                   A c.i.f. (cost, insurance, freight) contract is a contract for the

sale of goods to be performed  by the delivery of documents
representing the goods, i.e. of documents giving the right to have the
goods delivered, or the right, if they are lost or damaged, of recovering
their value, from the shipowner, or from insurers, respectively. The
duties of the seller under such a contract were explained in Clemens
Horst v Biddel Brothers and are:
 

                   (i)      To ship at the port of shipment goods of the

description contained in the contract.

                   (ii)     To procure a contract of carriage by sea, under which

the goods will be delivered at the destination contemplated by the
contract.

                   (iii)    To arrange for insurance upon the terms current in the
trade which will be available for the benefit of the buyer.

                   (iv)    To make out an invoice for the goods

                   (v)     To tender, within a reasonable time after shipment, the

bill of lading, the policy or certificate of insurance and the invoice to the
buyer so that he may obtain delivery of the goods, if they arrive, or
recover for their loss if they are lost on the voyage. The bill of lading
tendered must correctly state the date of shipment, otherwise the buyer
can reject the goods:

                   The duties of the buyer under a c.i.f. contract are:

1.      To pay the price, less the freight, on delivery of the documents. He
cannot defer payment until after he has inspected the goods.
 

2.      To pay the cost of unloading, lighterage and landing at the port of
destination according to the bill of lading.

3.      To pay all import duties and wharfage charges, if any.

                  

          3.       EX-SHIP CONTRACTS

                   When goods are sold ex ship, the duties of the seller are-

                   (i)      To deliver the goods to the buyer from a ship which
has arrived at the port of delivery at a place from which it is usual for
goods of that kind to be delivered.

                   (ii)     To pay the freight or otherwise release the shipowner's

lien.

                   (iii)    To furnish the buyer with delivery order, or some

other effectual direction to the ship to deliver.

 
LAW OF PARTNERSHIP

PARTNERSHIP

An association of two or more persons engaged in a business enterprise

in which the profits and losses are shared proportionally. The legal
definition of a partnership is generally

From the accounts point of view, the chief point to remember is that the
relations among the partners will be governed by mutual agreement
called Partnership Deed.

It is usual, therefore, to find out, in the Partnership Deed, clauses

covering the following:

1. The name of the firm and the nature and location of the partnership
business.

2. The commencement and duration of the partnership.

3. The amount of capital to be contributed by each partner.

4. The rate of interest to be allowed to each partner on his capital and on

his loan to the firm, and that to be charged on his drawings.
5. The disposal of profits, particularly the ratio in which the profits are to
be shared by the partners.

6. The amount to be allowed to each partner as drawings and the timing

of such drawings.

7. Whether a partner will be allowed a salary.

8. Any variations in the usual rights and duties of partners.

9. The method by which goodwill is to be calculated on the retirement or

death of a partner.

10. The procedure by which a partner may retire and the method of
payment of his dues to him.

11. The basis of determination of the sums due to the executors of a

deceased partner and the method of payment.

12. The treatment of losses arising out of the insolvency of a partner.

13. The procedure to be followed for settlement of disputes among

partners.

14. Preparation of accounts and their audit.

Rights of Partners:

Broadly, the provisions of the Act regarding rights, duties and powers of
partners are as under:

(a) Every partner has a right to take part in the conduct and management
of business.

(b) Every partner has a right to be consulted and heard in all matters
affecting the business of the partnership.
(c) Every partner has a right of free access to all records, books and
accounts of the business, and also to examine and copy them.

(d) Every partner is entitled to share the profits equally.

(e) A partner who has contributed more than the agreed share of capital
is entitled to interest at the rate of 6 per cent per annum. But no interest
can be claimed on capital.

(f) A partner is entitled to be indemnified by the firm for all acts done by
him in the course of the partnership business, for all payments made by
him in respect of partnership debts or liabilities and for expenses and
disbursements made in an emergency for protecting the firm from loss
provided he acted as a person of ordinary prudence would have acted in
similar circumstances for his own personal business.

(g) Every partner is, as a rule, joint owner of the partnership property.
He is entitled to have the partnership property used exclusively for the
purposes of the partnership.

A partner has power to act in an emergency for protecting the firm

from loss, but he must act reasonably.

(i) Every partner is entitled to prevent the introduction of a new partner

into the firm without his consent.

(J) Every partner has a right to retire according to the Deed or with the
consent of the other partners. If the partnership is at will, he can retire by
giving notice to other partners.

(k) Every partner has a right to continue in the partnership.

(l) A retiring partner or the heirs of a deceased partner are entitled to

have a share in the profits earned with the aid of the proportion of assets
belonging to such outgoing partner or interest at six per cent per annum
at the option of the outgoing partner (or his representative) until the
accounts are finally settled.

Duties of Partners:

(a) Every partner is bound to diligently carry on the business of the firm
to the greatest common advantage. Unless the agreement provides, there
is no salary.

(b) Every partner must be just and faithful to the other partners.

(c) A partner is bound to keep and render true, proper, and correct
accounts of the partnership and must permit other partners to inspect and
copy such accounts.

(d) Every partner is bound to indemnify the firm for any loss caused by
his willful neglect or fraud in the conduct of the business.

(e) A partner must not carry on competing business, nor use the property
of the firm for his private purposes. In both cases, he must hand over to
the firm any profit or gain made by him but he must himself suffer any
loss that might have occurred.

(f) Every partner is bound to share the losses equally with the others.

(g) A partner is bound to act within the scope of his authority.

No partner can assign or transfer his partnership interest to any other

person so as to make him a partner in the business.

Relationship of Partners to Third Persons

A partner is an agent of the partnership.

When a partner has the apparent or actual authority and acts on behalf of
the business, the partner binds the partnership and each of the partners
for the resulting obligations. Implied Authority of a Partner
Each partner in a business has the implied authority to act in the name of
the company. Such acts are binding on the other partners, so long as they
fall within the ordinary course of the company’s normal business. Such
acts of implied authority may include:

·         Buying or selling goods on behalf of the company

·         Accepting payments on debts owed to the firm

·         Accepting, making, or issuing bills on the firm’s behalf

·         Taking on a new lease on the firm’s behalf

On the other hand, implied authority does not authorize a partner

to:                  

·         Submit a company dispute to arbitration

·         Relinquish any claim made by the firm

·         Withdraw or proceed in a legal suit

·         Admit liability in a legal suit against the firm

·         Purchase property on the firm’s behalf

·         Enter a new partnership on the firm’s behalf

A firm may be dissolved under the following circumstances:

(a) Dissolution by Agreement

A partnership firm can be dissolved by an agreement among all the

partners.

(b) Dissolution by Notice

If a partnership is at will, it can be dissolved by any partner giving a
notice to other partners.

(c) Compulsory Dissolution

A firm may be compulsorily dissolved under the following situations:

(i) Insolvency of Partners:

When all the partners of a firm are declared insolvent or all but one
partner are insolvent, then the firm is compulsorily dissolved.

(ii) Illegal Business:

The activities of the firm may become illegal under the changed
circumstances. If government enforces prohibition policy, then all the
firms dealing in liquor will have to close down their business because it
will be an unlawful activity under the new law.

(d) Contingent Dissolution

In case there is no agreement among partners regarding certain

contingencies, partnership firm will be dissolved on the happening of
any of the situations:

(i) Death of a Partner:

A partnership firm is dissolved on the death of any of the partner.

(ii) Expiry of the Term:

A partnership firm may be for a fixed period. On the expiry of that

period, the firm will be dissolved.

(iii) Completion of Work:

A partnership concern may be formed to carry out a specified work. On

the completion of that work the firm will be automatically dissolved.
(iv) Resignation by a Partner:

If a partner does not want to continue in the firm, his resignation from
the concern will dissolve the partnership.

(e) Dissolution through Court

A partner can apply to the court for dissolution of the firm on any of
these grounds:

(i)    Insanity of a Partner:

If a partner goes insane, the partnership firm can be dissolved on the

petition of other partners.

(ii)    Misconduct by the Partner:

When a partner is guilty of misconduct, the other partners can move the
court for dissolution of the firm.

(iii) Incapacity of a Partner:

If a partner other than the suing partner becomes incapable of

performing his duties, then partnership can be dissolved.

(iv) Breach of Agreement:

When a partner willfully commits breach of agreement relating to

business, it becomes a ground for getting the firm dissolved.

Types of partnership

General partnerships

A general partnership is an arrangement by which two or more persons

agree to share in all assets, profits and financial and legal liabilities of a
business. Such partners have unlimited liability, which means their
personal assets are liable to the partnership's obligations. In fact, any
partner can be sued for the entirety of a partnership's business debts.

Limited Partnerships, the liability of certain partners may be limited to

a certain extent. 

(a)The number of partners in a limited partnership is restricted to twenty.

(b)In a limited partnership there must be one, or more, general partners

who are liable for all the debts and other liabilities of the firm.

(c)In addition to the general partner or partners, there will be one or

more limited partners

(d)Concerning the Capital of the partnership, a limited partner cannot,

during the lifetime of the firm withdraw or receive back from the firm
his contribution or any part of it.

(e)The death or bankruptcy of a limited partner does not cause the

dissolution of a limited partnership.

(f)Similarly, the lunacy of a limited partner is not a cause of dissolving a

limited partnership, unless the share of that partner cannot be separated
from the assets of the firm by any other method.

(g)A limited partner has no right to participate in the firm's management.

Obligations of a limited partner

·         Not to take part in the management of the firms business.

·         Not to compete with the firm.

·         Disclose any personal interest to avoid conflict of interest.

·         Not to withdraw or receive back his share during the currency of
the firm.

Rights of a limited partner

·         To inspect the firms books of accounts.

·         To assign his share to another person.

·         To receive his share of profit.

·         Right not to be compelled to contribute to the assets of the

company.

Comparing a partnership and a company

 (a) A company can be created only by certain prescribed methods -

most commonly by registration under the Companies Act 1985 while A
partnership is created by the express or implied agreement of the parties,
and requires no formalities, though it is common to have a written
agreement.

(b) A company incurs greater expenses at formation, throughout its life

and on dissolution,

(c) A company is an artificial legal person distinct from its members

while partnership has a separate legal personality it is much more limited
than the personality conferred on companies.

(d) A company can be formed by one member with no maximum

number while .A partnership must have at least two members and has a
maximum number of 20 members.

  (e) Shares in a company are normally transferable while a partner

cannot transfer his share of the partnership without the consent of all the
other partners.
 (f) Members of a company are not entitled to take part in the
management of the company unless they are also directors of it while in
a partnership every partner is entitled to take part in the management of
the partnership business.

 (g) The liability of a member of a company for the debts and obligations
of the company may be limited while A partner in an ordinary
partnership can be made liable without limit for the debts and
obligations of the firm:

Advantages of partnerships

An advantage of a partnership compared to a limited company is that

you can set up a partnership with any starting capital.

In  a partnership means less bureaucracy and a more flexible structure.

For example, it is not required to hold formal board meetings annually or
generally. This shows that this type of business is easier to run.

Partners can't be expelled and can stop new incoming partners according
to Partnership Act 1890

. There are no requirements to publish full financial details, so there is

more privacy for partners. Finances only need be declared for tax and
VAT.

costs, risks and responsibility is shared between the partners, keeping the
control of the company to a minimum.

Disadvantages of partnerships

Unlimited liability of the debts.-All partners is liable together for the

debts and other liabilities of the firm.

Slow decision making because all the partners must be consulted when
making the decision
However one partner must be a general partner meaning this partner
would be fully liable for the firm's debts. If one partner does a wrongful
act or an omission in the course of the business, the firm is liable for the
wrongful act or the omission of the partner.

A partnership is not convenient for huge structure businesses, as

disagreement between partners can cause difficulties in decision
making

LAW OF INSURANCE

LAW OF INSURANCE

          THE CONTRACT OF INSURANCE

          According to Professor Ivamy, "a contract of insurance in the

widest sense of the term may be defined as a contract whereby one
person, called the "Insurer," undertakes, in return for the agreed
consideration, called the "Premium", to pay to another person, called the
"Assured", a sum of money, or its equivalent, on the happening of a
specified event".

          To be an enforceable agreement, a contract of insurance must

contain the following essential elements of a contract:

          i         offer and acceptance;

          ii        consideration;

          iii       legal purpose;

          iv       competent parties, and

          v        legal form.

          The offer

          Since the contract of insurance is constituted by the acceptance of

an offer, it is necessary in the first instance to make certain that an offer
has in fact been made which is capable of being accepted.

          To constitute an offer capable of being accepted, the following

conditions must be fulfilled:

          (a)     The alleged offer must be intended by the party making it to
be an offer. The party who begins the negotiate ions does not necessarily
make an offer thereby; he may merely indicate his readiness to consider
an offer.

          (b)     The alleged offer must be complete. It must show with
precision the contract into which the party making it is prepared to enter.

          (c)     The alleged offer must be communicated to the other party.

 
                   In Rose v Medical Invalid Life Assurance Society (1848)
the insurers stated in a letter handed to their own agent the premium at
which they were willing to accept the proposal. The agent did not hand
over the letter to the proposed assured. It was held that there was no
contract of assurance.

          (d)     The alleged offer must be in force at the time when the other
party purports to accept it.

                   An offer may be revoked before acceptance; and an offer

once refused ceases to be in force and cannot afterwards be accepted
unless it is repeated (see Hyde v Wrench).

          Who makes the insurance offer?

          The offer to enter into a contract of insurance may, as a general

rule, be considered as addressed to the insurers by the person who is
seeking to protect himself by insurance against loss. He may have been
invited by the insurers to put himself into communication with them;
but, whether the invitation comes to him from the insurers direct, or
through the medium of an agent, or whether it is given to him
personally, or only as a member of the public through an advertisement,
the position remains unchanged, and he must submit his proposal,
which they may accept or decline at their pleasure. The offer therefore
proceeds from the proposed assured when he has filled up the proposal
form and forwarded it to the insurers.

 
 

          The terms of an ordinary contract of insurance are not specially

arranged between the parties; the insurers have their own terms upon
which they are prepared to contract and from which, as a rule, they are
not willing to depart. There is no real negotiation between the parties,
the assured being compelled to contract with the insurers upon their own
terms. There is, therefore, no difficulty, in an ordinary case, in
ascertaining from whom the offer proceeds.

          The proposal form

          Proposal forms vary in their content according to the nature of the
proposed insurance and also according to the practice of different
insurers. All proposal forms, however, contain questions which the
proposed assured is required to answer, and these questions, whatever
the nature of the insurance, are framed on the same general lines.

          The matters to which the questions relate may be classified as

follows:

          i.        The description of the proposed assured.

          ii.       The description of the risk proposed to be insured.

          iii.      The description of circumstances affecting the risk.

          iv.      The previous history of the proposed assured.

 

          Acceptance

          A proposal is not necessarily accepted at once, since the insurance

company may take time to consider it. If the proposal is submitted
through an agent, the agent usually has no authority to accept it himself,
but must forward it to the insurers in order that they may decide whether
to accept it or not. There is therefore as a rule an interval of time
between the making of the proposal and the final decision.

          "Cover notes”

          In the case of some types of insurance, especially motor, burglary

and fire insurance, it is the practice of insurance companies to issue a
"cover note" to the proposer pending the issue of the policy.

          The cover note "is issued at once on receipt of a proposal and
covers the assured and puts the underwriters on risk for the period while
the proposal is being considered and until a policy is either granted or
refused" (per Pearson, J): Julien Praet v H.G. Poland Ltd (1960).
Cover notes are not issued in cases of life assurance.

          Form of the cover note

 
          The cover note is, in practice, printed in common form; it is
usually signed on behalf of the insurance company by the agent through
whom the proposal was submitted, and issued by him to the proposer.

          The effect of the cover note

          In Mackie v European Assurance Co. Malins, V.C, stated that

the cover note is in itself a contract of insurance, governing the rights
and liabilities of the parties in the event of a loss taking place during its
currency. The assured is, therefore, entitled to enforce the contract
contained in the cover note, provided that he has complied with its
conditions, e.g. as to payment of the premium. However, if a policy is
issued before the payment of the premium, the issue may amount to a
waiver of the condition: Roberts v Security Co. Ltd

            The incorporation of the terms of the policy

          The cover note itself may contain no terms at all, but usually it
incorporates the conditions of the company's policy, e.g. as in Queen
Insurance Co v PARSONS (1881) where the cover note stated that the
proposer "has proposed to effect an insurance against fire, subject to all
the usual terms and conditions of this company". Sometimes the cover
not incorporates the terms of the policy not by referring to them directly
but by referring to the PROPOSAL FORM which itself alludes to them.

 
 

          Replacement of the cover note by a policy

          The cover note is normally replaced in due course by A POLICY,

but the insurance company is NOT BOUND to issue one, unless there is
an agreement to that effect. The assured, too, is not bound to accept the
policy.

          In Mackie v European Assurance Society Malins, V-C stated:

          "During that month (i.e when the cover note was in force) it was
open to the [company] on further inquiry to REFUSE to grant the policy
and to terminate the contract at the end of the month. It was equally open
to the assured to say that he did not like the (company), not thinking the
capital sufficient, or for other reasons."

          Broker’s cover note

          Where the insurance is effected through a broker, the broker,

pending the preparation of the policy, issues a "broker's COVER
NOTE", certifying that the insurance has been effected and setting out
its terms. By issuing the cover note, the broker does not incur liability
upon the insurance, since he does not purport to be an insurer. But he is
presumed to warrant to the proposer that his instructions have been
properly carried out, and that the insurance has been effected. If,
therefore, there is no insurance in fact, he will be liable for breach of the
warranty. Such a cover note is not binding on the insurers.

          The acceptance

          (i)      What constitutes acceptance

                   There cannot be an acceptance so long as the terms of the

contract of insurance are still under discussion and the premium remains
to be fixed, since there is NO CONTRACT until complete agreement
has been reached, and nothing remains to be done by either party except
to perform what has been agreed.

                   The offer, therefore, must be complete on the face of it, and
the acceptance must be in the VERY TERMS of the offer - in
accordance with the rules of the common law relating to offer and
acceptance.

          (ii)     The methods of acceptance

                   The methods of accepting the OFFER will depend on

whether the offer is made by the proposer as it normally will be, or
whether it is made by the insurer.

 
                   Where the offer is made by the proposer, the final
acceptance of a proposal may be signified by the insurers in one or other
of the following ways:

                   (a)     By a formal acceptance which is UNCONDITIONAL.

                   (b)     By the issue of a policy.

                   (c)     By acceptance of the premium.

                   (d)     By the conduct of the insurers.

          (a)     Issue of policy

                   The issue of the policy is a conclusive intimation that the

insurers have accepted the proposal.

                   In WRIGHT v SUN MUTUAL LIFE INSURANCE CO.

it was explained that, if an insurance company is by its constitution
bound to issue its policies under seal, a policy issued WITHOUT A
SEAL may be effective as a valid contract to issue a policy under seal.

 
                   Once the policy is issued, the insurers are bound by their
acceptance and will be estopped by the issue of the policy and the
receipt of the premiums from alleging that there was no contract on the
ground that NO PROPOSAL had ever been signed:  Pearl Life
Assurance Co. v Johnson (1909).

                   In the case of a policy under seal, the acceptance is

completed by the execution of the policy. In Roberts v Security Co.
(1897) Lopes, L.J stated:

                   "The question we have to consider is whether there was a

concluded agreement for insurance, or the matter had not gone beyond
the stage of negotiation. In my opinion the policy, being duly executed
as it was by the SEALING AND SIGNATURE by the directors and
secretary of the company, constituted a concluded agreement ..... in my
opinion if the day after its being so executed, the plaintiff had tendered
the premium and demanded the policy, there would have been no answer
to the demand".

                   It is therefore immaterial that the policy is retained by the

insurers in their possession, and never handed over to the proposer, in as
much as no formal acceptance is required from him, nor need he take
away the policy in order to complete the delivery.

                   The policy, as an enforceable contract of insurance, is

complete as from the date of its issue, even though NO PREMIUM HAS
BEEN PAID at the time of the losses in respect of which the proposer
seeks to enforce it.
 

                   By the terms of the policy, however, he may be, in some

cases, precluded from enforcing it in respect of any loss happening
before he has complied with its conditions, e.g. by paying the premium.

                   The issue of a policy is not, however an acceptance in the

following cases;

                   (i)      Where the assured does not treat the policy as an
acceptance, but continues the negotiations for the purpose of obtaining
an alteration in its terms, as occurred in Sickness and Accident
Assurance Association v General Accident Assurance Corporation.

                   (ii)     Where the policy, as issued, departs from the proposal
by introducing a fresh term, and thus constitutes not an acceptance but a
counter-offer. This was stated by Lord Loreburn L.C in Allis-Chalmers
Co v Maryland Fidelity and Deposit Co.

                            The introduction of the fresh term shows that the

agreement is not yet complete, since something remains to be done by
the proposer to declare his adoption of it.

          (b)     Conduct of the insurer

 
                   Even where the premium has not been paid, nor the policy
issued, the facts may clearly show that the insurers have accepted the
proposal, and that there is a binding contract between the parties, on the
part of the proposer to pay the premium, and on the part of the insurers
to issue a policy. Where this is the case, the insurers cannot  refuse to
accept  the premium when tendered, or otherwise repudiate their
contract, and will be liable for a loss happening even before a policy is
issued or the premium is paid.

          (c)     What facts constitute an acceptance on the part of the

insurers will depend upon the circumstances of the particular case. A
mere demand for the premium is sufficient. But mere delay in dealing
with an application for insurance does not constitute an acceptance,
unless it is the duty of the insurers to intimate their rejection promptly.

          (d)     Acceptance and retention of the premium

                   Where no policy has been issued to the proposer before the
loss, the receipt of the premium and its retention by the insurers, though
by no means conclusive, may raise the presumption, in the absence of
any circumstances leading to a contrary conclusion, that the insurers
have definitely accepted his proposal. In such a case they are not entitled
to refuse to issue a policy to him, and they are, therefore, liable to him in
the event of a loss.

          The effect of the acceptance

 
          On the final acceptance of the proposal the negotiations come to
an end and the duty of disclosure ceases. The assured, therefore, is under
no obligation either to disclose any material facts which only come to
his knowledge or to correct any misrepresentation the inaccuracy in
which is only discovered after acceptance.

          An acceptance once given binds the parties and cannot be

withdrawn except by mutual consent. It is immaterial that the parties
have misapprehended their position and have cancelled the policy on the
assumption that no contract exists between them.

         Non-disclosure (Utmost good faith) Uberrima Fides

         

          It is a fundamental principle of insurance law that the utmost

good faith must be observed by each party. This rule was stated by Lord
Mansfield in CARTER v BOEHM (1766) as follows:

          "Insurance is a contract upon speculation. The special facts, upon

which the contingent chance is to be computed, lie more commonly in
the knowledge of the insured only: the underwriter trusts to his
representation, and proceeds upon confidence that he does not keep back
any circumstance in his knowledge, to mislead the underwriter into a
belief that the circumstance does not exist, and to induce him to estimate
the risk as if it did not exist.

 
 

               Non- disclosure

          The assured is under a duty to disclose all material facts relating
to the insurance which he proposes to effect. In addition he must make
no misrepresentation regarding such facts.

          1.       The extent of the assured’s duty

                   The assured must disclose all material facts which are within
his actual or presumed knowledge.

                   (a)     Actual Knowledge

                            The special facts distinguishing any proposed

insurance are, as a general rule, unknown to the insurers who are not in a
position to ascertain them. They lie, for the most part, solely within the
knowledge of the proposed assured. Good faith, therefore requires that
he should not, by his SILENCE, mislead the insurers into believing that
the risk, as proposed, differs, to their detriment, from the risk which
they will actually run. On the contrary, he should help them by every
means in his power to estimate the risk at its proper value: JOEL v
LAW UNION AND CROWN INSURANCE CO. (Per Fletcher-
Moulton L.J)
 

                            A failure on the part of the assured to disclose a

material fact is sometimes called "concealment". Strictly speaking,
however, the word implies the keeping back  or suppression of
something which it is the duty of the assured to bring specifically to the
notice of the insurers, and not merely an inadvertent omission to
disclose it. Hence, where the failure to disclose is not due to DESIGN
and the assured has no intention to deal otherwise than frankly and fairly
with the insurers, the term 'NON-DISCLOSURE" may perhaps be more
appropriate.

                            Every contract of insurance proceeds on the basis that

the duty of disclosure has been discharged by the proposed assured, and
the failure to discharge it renders the contract VOIDABLE at the
instance of the insurer.

                   (b)     Presumed knowledge

                            The duty of making disclosure is not confined to such

facts as are within the actual knowledge of the assured. It extends to all
material facts which he ought in the ordinary course of business to
HAVE KNOWN, and he cannot escape the consequences of not
disclosing them on the ground that he did not know them. This was
stated by Cockburn, L.J in PROUDFOOT v MONTEFIORE (1867).

                            There is, however, no duty to disclose FACTS which

the assured DID NOT KNOW,  and which he could not be reasonably
expected to know at any material time.
 

                            In JOEL v LAW UNION AND CROWN

INSURANCE CO. Fletcher-Moulton, L.J stated:

                            "But the question always is: Was the knowledge you
possess such that you ought to have disclosed it?  Let me take an
example. I will suppose that a man, as is the case with most of us,
occasionally had a headache. It may be that a particular one of these
headaches would have told a brain specialist of hidden mischief. But to
the man it was an ordinary headache undistinguishable from the rest.
Now, no reasonable man would deem it material to tell an insurance
company of all the casual headaches he had had in his life, and, if he
knew no more as to this particular headache than that it was an ordinary
casual headache, there would be no breach of his duty towards the
insurance company in not disclosing it. He possessed no knowledge that
it was incumbent on him to disclose, because HE KNEW OF NOTHING
WHICH A REASONABLE MAN WOULD DEEM MATERIAL, or of
a character to influence the insurers in their action. It was what he did
not know which would have been of that character, but he cannot be
held liable for non-disclosure in respect of facts WHICH HE DID NOT
KNOW"

                            In BLACKBURN, LOW AND CO. v VIGORS

(1887) Lord Halsbury stated that, where a fact could have been
discovered by the assured if he had made reasonable enquiries, he is
guilty of a breach of duty towards the insurers who would be entitled to
avoid  the policy. This is so because his ignorance was due to his
intentional failure to make such enquiries as he might reasonably have
been expected to make in the circumstances.

 
                            Where the assured's failure to make is unintentional,
the policy is equally liable to be avoided on the ground that it is
inconsistent with his duty towards the insurers to have neglected to make
them. Whether he had failed in his duty will in each case depend on the
circumstances of the case.

                   Agent’s knowledge imputed to principal

                   If the proposed assured employs an agent to represent him

during the negotiations leading up to the policy, it is the duty of the
agent to disclose to the insurers all material facts which are within his
knowledge, however acquired, or which ought to have come to his
knowledge in the ordinary course of business.

                   The Marine Insurance Act (Cap 390) s.19..... provides that:

                   "....Where an insurance is effected for the assured by an

agent, the agent must disclose to the insurer -

                   Every material circumstance which is known to himself, and

an agent to insure is deemed to know every circumstance which in the
ordinary course of business ought to be known, or to have been
communicated to him..."

                   Any failure to discharge this duty, whether by non-

disclosure or by misrepresentation, entitles the insurer to avoid the
policy as against the proposed assured, since he has delegated the duty
of disclosure to his agent and is responsible for the manner in which it is
performed. *In BLACKBURN LOW & CO v VIGORS* Lord
Macnaghten expressed the view in a case of marine insurance, that
concealment by an agent is not a case of knowledge imputed to the
principal but is a direct breach of duty on the part of the agent who is,
equally with the principal, bound to disclose all material facts within his
knowledge.

                  

          What are “Material Facts?”

          The English courts developed various tests which have been
adopted by Kenya courts in order to ascertain what facts are to be
regarded as material.

          The test which is usually applied is whether the non-disclosure of

the facts would influence a "prudent" insurer, (though in some cases the
term "reasonable" has been substituted for "prudent"). Another test is
whether a "reasonable" assured would consider them material.

          In no case is it relevant to consider whether the non-disclosure

would influence the particular insurer concerned or whether the
assured himself thought that the facts were material. In JOEL v LAW
UNION AND CROWN INSURANCE CO. Fletcher-Moulton, L.J.
stated:
 

          "The disclosure must be of all you ought to have realised to be 
material, not of that only which you DID IN FACT realise to be so.....
Your opinion of the materiality of that knowledge is of no moment. If a
reasonable man would have recognised that it was material to disclose
the knowledge in question, it is no excuse that you did not recognize it to
be so".

           "Prudent Insurer Test”

          As far as marine insurance is concerned, s.18(2) of the Marine

Insurance Act (Cap 390) provides that:

          "A circumstance is material if it would influence the judgement of

a prudent insurer in fixing the premium, or determining whether he
will take the risk"

          Regarding the meaning of the term "prudent insurer" Atkin, J in

Associated Oil Carriers Ltd v Union

          Materiality is a question of fact

          Whether a particular fact is material depends upon the particular

circumstances of the particular case. It does not necessarily follow that
because a fact has been held to be IMMATERIAL in one case, a similar
fact is not material in another. At the same time, similar circumstances
may be assumed to be equally material or immaterial, whatever the
nature of the insurance. The question is one of fact to be decided, if
necessary, by the judge hearing the case after receiving relevant
evidence. (See Marine Insurance Act s.18(4)).

          Time of materiality

          The materiality of a fact is determined by reference to the date at

which it should, if at all, have been communicated to the insurers.

          If at that date the fact was material its non-disclosure is a ground
for avoiding the contract, notwithstanding that it afterwards turns out to
be immaterial, or indeed untrue.

          On the other hand, the non-disclosure of a fact which was not at
that date material, and which was, therefore, not a fact to which the duty
of disclosure then attached, does not affect the validity of the policy,
even though the fact afterwards becomes material and actually brings
about the loss: WATSON v MAINWARING (1813) in which the
proposed assured was suffering and ultimately died of a disease which
was not generally a "disorder tending to shorten life" within the meaning
of the proposal.

 
          Matters which need not be disclosed

          Facts which would, in ordinary circumstances, be material, may

become immaterial in the special circumstances of the case; and the
assured is then under no obligation to disclose them. Facts which may
thus become immaterial may be grouped under the following classes:

(a)           Facts which are known to the insurers or which they may
reasonably be presumed to know.

(b)          Facts which they could have discovered by making enquiry.

(c)           Facts as to which they waive information.

(d)          Facts tending to lessen the risk.

(e)           Facts the disclosure of which is unnecessary by reason of a

condition. (See the Marine Insurance Act, s.18(3).

(f)           Provisions or propositions of law.

(g)          Unknown facts.

          Matters of public notoriety.

          The duration of the duty of disclosure

          The duty of disclosure continues throughout the negotiations and

until at least the contract has been completed by acceptance: RE
YAGER AND GUARDIAN ASSURANCE CO. LTD Channell J.
stated:

          "The time up to which it must be disclosed is the time when the
contract is concluded. Any material fact that comes to his knowledge
before the contract must be disclosed".

          In WHITWELL v AUTOCAR FIRE AND ACCIDENT

INSURANCE CO. LTD (1927) - In a proposal form for motor-
insurance there was a question which asked the proposer whether any
insurance company had DECLINED his insurance. He gave the answer
"NO". This was in fact a true statement at the time at which he made it.
But in fact, quite unknown to him, two days before the proposal was
accepted another insurance company had declined to insure him. It was
held that there was no duty to disclose this fact AFTERWARDS
because the contract was concluded when the proposal was accepted.

          The effect of non-disclosure

          In CARTER v BOEHM which was a case involving marine

insurance it was held that a failure on the part of the assured to disclose a
material fact within his actual or imputed knowledge renders the policy
VOIDABLE at the option of the insurers. This is so whether the failure
to disclose is attributable to fraud, or carelessness, inadvertence,
indifference, or mistake, error of judgement, or even to his failure to
realise that the fact is material. Ignorance of a fact which he ought to
have known and, hence, disclosed, will also render the policy voidable at
the option of the insurers.
 

          As far as marine insurance is concerned s.18(1) of the Marine

Insurance Act (Cap.390) states:

          "Subject to this section, the assured must disclose to the insurer,
before the contract is concluded, every material circumstance which is
known to the assured, and the assured is deemed to know every
circumstance which, in the ordinary course of business, ought to be
known by him; and, if the assured fails to make such disclosure, the
insurer may avoid the contract".

          Misrepresentation

          A representation is a statement of fact made by one party to the

contract (the representor) to the other (the representee) which, while not
forming a term of the contract, is yet one of the reasons that induces the
representee to enter into the contract. A misrepresentation is a
representation that is UNTRUE.

          A statement of belief or opinion as to a particular fact is not a

representation. At common law, a misrepresentation may be :

          (i)      fraudulent—if it was made knowingly, recklessly or without

belief in its truth; or
 

          (ii)     innocent—if the maker honestly believed it to be true.

                   A misrepresentation, whether fraudulent or innocent, renders

a contract VOIDABLE at the option of the person to whom the
misrepresentation was made: Derry v Peek. This applies equally to
insurance in cases where representations have been made by one of the
parties during the negotiations with a view of inducing the other party to
enter into the contract.

          The effect of the answers

          The effect of the proposer's answers will depend upon whether
there is or is not a "basis" clause in the proposal form.

          Where there is a "basis" clause

          The result of the presence of a "basis" clause in a proposal form is

to render irrelevant any question either of the materiality of the
information given therein, or the honesty or care with which it is
given. If the answer given is inaccurate, the insurers are at liberty to
repudiate the policy. In addition, the proposer remains under the
common law duty to disclose material facts which are not
specifically covered by the proposal form.

 
 

          The effect of a basis clause is illustrated by DAWSONS LTD v

BONNIN (1922).

        Where there is no "Basis” clause

          Where there is no condition making the proposal the "basis" of the
contract, the inaccuracy of the answers does not entitle the insurers to
repudiate liability unless it amounts to the NON-DISCLOSURE OR
MISREPRESENTATION of a material fact. A fraudulent
representation relating to a material fact avoids the contract. If the fact is
not material, the validity of the contract is not affected.

          As far as marine insurance is concerned, the insurer is entitled to

avoid liability on the policy, whether the misrepresentation is
FRAUDULENT or innocent. Section 20 (1) of the Marine Insurance Act
(Cap 390) states:

          "Every material representation made by the assured or his agent

to the insurer during the negotiations for a contract of marine insurance,
and before the contract is concluded, must be true; and if any such
representation is untrue the insurer may AVOID THE CONTRACT".

          Insurable interest

 

          Another fundamental principle of insurance law is the concept of

"insurable interest". The general rule is that a policy of insurance would
be void as constituting a wager if the proposer had no insurable interest
in the life or property insured.

          Definition

          In Lucena v Craufurd (1806) (House of Lords), Lawrence J.

stated:

          "A man is interested in a thing to whom advantage may arise or

prejudice happen from the circumstances which may attend it... and
whom it imported that its condition as to safety or other quality should
continue... having some relation to, or concern in the subject of the
insurance, which relation or concern by the happening of the perils
insured against may be so affected as to produce a damage, detriment or
prejudice to the person insuring; and where a man is so circumstanced
with respect to matters exposed to certain risks or damages, or to have a
moral certainty of advantage or benefit, but for those risks or dangers,
he may be said to be interested in the safety of the thing".

          This definition forms the basis of s.5(2) of the Marine Insurance
Act (Cap.390) which provides:

 
          "In particular, a person is interested in a marine adventure where,
he stands in any legal or equitable relation to the adventure or to any
insurable property at risk therein, in consequence of which he may
benefit by the safety or due arrival of insurable property, or may be
prejudiced by its loss, or by damage thereto, or by the detention thereof,
or may incur liability in respect thereof"

(a)    A direct relationship between the insured and the subject matter

(b)   The insured is directly responsible for any loss arising

(c)    The insured has a legal or equitable interest or right in the subject
matter

(d)           The insured’s interest in the subject matter is capable of

financial or pecutiary estimation or quantification

7        Time for insurable interest

          The rules relating to insurable interest are as follows:

          1.       In case of marine insurance, the Marine Insurance Act

(Cap.390), s.6(1) provides that:

                   "The assured must be interested in the subject-matter insured

at the time of the loss, though he need not be interested when the
insurance is effected".
 

          2.       In the case of life assurance, the interest must exist at the
time the policy is effected, and it need not continue thereafter. The other
rules are as follows:

                   (a)     A person has an unlimited interest in his own life.

                   (b)     A man has an unlimited interest in the life of his wife: 
GRIFFITHS v FLEMING (1909) IK.80(c)

                   iii      A woman has an unlimited interest in life of her

husband: REED v ROYAL EXCHANGE ASSURANCE CO. (1795),
Peake Add. Cas.70.

                   (d)     A lady has an insurable interest in the life of her

fiance, for his contract to marry her is recognized by the common law as
having pecuniary value, and the remedy for breach of promise to marry
is in damages. Similarly, a man has an insurable interest in the life of his
fiancee.

                   (e)     At common law, a child has no insurable interest in the

life of his parent, and vice versa.  Harse v Pearl Life Insurance Co.
Ltd.

                            Question:

 
                            Should the Kenya law be changed to allow a parent to
have an insurable interest in the life of his child who supports him - the
interest to be insured being limited to the amount which is necessary to
protect the parent against the contingency of the death of the child?  That
change, if made, would make Kenya law correspond to the law in
Scotland where a parent has a right to be supported by his child.

                   (f)     A creditor has an insurable interest in the life of the

debtor to the extent of the debt:  Godsall v Boldero (1807), 9 East 72.
See Dalby's case.

                   (g)     A master has an insurable interest in the life of his

servant to the extent of the value of the services agreed to be rendered: 
Simcock v Scottish Imperial Insurance Co. (1902) 10 S.L.T.286.

                        A servant has an insurable interest in the life of his

master to the extent of his remuneration for the agreed period of service,
if the contract of employment is for a fixed duration, or the agreed
period of notice in other cases:  Hebdon v West (1863) 3B and S.579. -
An employee who was to be employed for 7 years at a salary of £600 per
annum effected a policy on his employer's life, 2 years after the
employment commenced, for £2500. The employer died and he claimed
the sum insured. It was held that he had an insurable interest in the
employer's life to the extent of the value of the salary for the
REMAINING TERM OF EMPLOYMENT.

          Subrogation
 

          Where one person has a claim against another, a third person is, in
certain circumstances, allowed to have the benefit of the claim and the
remedy for enforcing it,  although it has not been assigned to him, and
he is then said to be subrogated to the rights of the first person (14
Halsbury's Laws (3rd Ed.)618).

          Where the insurer pays for a total loss, either of the whole, or in
the case of goods of any proportionate part, of the subject matter
insured, he thereupon becomes entitled to take over the interest of the
assured in whatever may remain of the subject matter so paid for, and he
is thereby subrogated to all the rights and remedies of the assured in and
in respect of that subject matter as from the time of the casualty causing
the loss. Subject to the foregoing, where the insurer pays for a partial
loss, he acquires no title to the subject matter insured, or such part of it
as may remain, but he is thereupon subrogated to all rights and remedies
of the assured in and in respect of the subject matter insured as from the
time of the casualty causing the loss, in so far as the assured has been
indemnified by the insurer for the loss. (22 Halsbury's Laws (3rd Ed.)
160).

         

          Indemnity

 
          The concept of indemnity was explained by Brett, J. in Castellain
v Preston as follows:

          "The very foundation, in my opinion, of every rule which has been
applied to insurance law is this, namely, that the contract of insurance
contained in a marine or fire policy is a contract of indemnity, and
of indemnity alone, and that this contract means that the assured, in
case of a loss against which the policy has been made, shall be fully
indemnified, but shall never be more than fully indemnified".

          This means that the assured would be compensated for the actual
loss he has suffered up to the sum insured. For example, if Kamau
insures his house for one million shillings and it is burnt down, if
Shs100,000 will restore it, then he may claim Shs100,000 and no more.
If, due to inflation, it will cost two million shillings to restore it, then he
can only claim one million shillings (the sum insured). He can never
recover more than the sum for which the property is insured.

          Double Insurance

          "Double insurance" arises where a person effects more than one
insurance with different insurers on the same risk and interest, and the
sums assured exceed the value of the property insured.

          Examples:

 
          (i)      X insures property worth £10,000 with Co. A for £7,500 and
Company B for £5,000. This is double insurance because the value of
the property, £10,000, has been exceeded.

(i)            X insurers the property (above) with Company A for £4,500

and Company B for £5,500. This is not double insurance because the
aggregate sums insured do not exceed £10,000 (the value of the property
insured). The principle of double insurance is intended to safeguard the
indemnity principle, by ensuring that the insured does not recover more
money than he has lost by the simple devise of insuring with different
insurers and recovering the insured amount from each one of them.

          Contributions and apportionment

          Where there is more than one policy enforceable at the time of
loss covering the same subject matter, risk and interest the insured may
recover the total loss from either insurer. Any insurer who pays more
than his share may claim a contribution from the others in proportion to
the sum insured with each.

          Example:

          X insures property worth £10,000 with Company A for £4,500

and Company B for £5,500. The property is damaged to the extent of
£1,000. X can recover the £1,000 from either A or B company, and the
other company would then pay to the company which has compensated
X in the ratio 9:11.

 
          Conditions for Contribution

(i)           There must be more than one policy on the same subject matter
and risk

(ii)         All must be taken out by the same person

(iii)           

                    i.       All must be legally binding and in force

                  ii.       None of the policies should exempt itself from liability
to contribution

                  Average clause

          If the policy contains what is known as the "subject to average

clause", the assured can only recover such proportion of any loss as the
amount insured bears to the value of the property insured. This will
occur if property is insured for an amount which is less than its value
and the property is partially destroyed.

          Example:

          X's building worth £100,000 is insured for £10,000. The building
is damaged to the extent of £10,000. If the policy contains a "subject to
average clause, X can only recover £100. The amount payable is
calculated on the basis of:

                   I.V x Loss  10,000 x 1,000

                       A.V            10,000

                   =       £100

          Note:

          I.V = Insured Value

          A.V = Actual Value

          In such a case, the insurer and the insured are regarded as sharing
the loss. If the policy does not contain an average clause, the insured can
recover the whole loss he has suffered up to the extent of the amount
insured (in the above example, £1,000).

          The average clause is inserted by insurance companies as a means

of compelling the owner of the property to insure it up to its full value.
In that case the premium payable increases and, of course, the insurer's
premium income also increases. It should be remembered that, as a
general rule, very few properties covered by insurance policies are
actually damaged or destroyed.

Abandonment: This is the surrender by the insured of the remains of

the subject matter for full indemnity. It entails the giving up the residue
to the insurer for indemnity.

Salvage: This is the recovery by the insurer of the remains of the subject
matter after the indemnity.

Reinstatement: This is the repair or replacement of the subject matter in

circumstances in which it may be reinstated.

          Reinsurance

          Reinsurance occurs if an insurer who has already insured specific

property insures it with another insurer, usually a larger company. This
is done in order to spread the risk over a number of insurers. The person
originally insured has rights only against the insurer who has issued the
policy, due to the privity of contract rule.

            Types of Insurance

          The types of insurance which are generally available are:

          i.        Life assurance

                   This is a contract by which the insurer, in return for either a

lump sum or periodical payments, undertakes to pay the person for
whose benefit the policy is effected, a sum of money:

                   (a)     On the death of the person whose life is insured, or

                   (b)     on a specified date, or on the death of the person

whose life is insured, whichever happens first.

                   In the case of (a), the policy is called a Whole life policy. In
the case of (b), the policy is called an endowment policy.

 
                   In Dalby v The India and London Assurance Co. it was
explained that a life assurance policy is not a contract of indemnity.
This is because a human being has no market value.

          ii.       Fire insurance

                   A fire insurance contract is intended to cover loss caused by

fire during a specified period. The word "fire" is usually defined in the
policy. A fire insurance policy is a contract of indemnity.

          iii.      Motor Vehicle Insurance

                   A motor vehicle insurance contract is one effected pursuant

to the Motor Insurance (Motor Vehicle Third Party Risks) Act to cover
any liability which a motorist may incur as a result of causing the death
or injury of a third party (including other motorists).

                   The third party has a statutory right to sue the insurer direct,
and is not affected by the privity of contract rule.

          iv.      Burglary insurance

                   A burglary insurance is a contract to indemnify the assured

against loss arising from burglary. Such a policy would be voidable at
the option of the insurer if the property insured is deliberately
overvalued.
 

          v.       Accident insurance

                   An accident insurance is a contract by which the insurer

agrees to pay a specified sum of money upon the happening of certain
events, usually death of the insured in an accident. A smaller sum is
usually payable in the event of the insured's disablement (total or
partial), either on a monthly or weekly basis. An accident insurance is
not a contract of indemnity.

          Regulation

          Insurance business is regulated in Kenya by the Insurance

Companies Act under which persons carrying on insurance business as
insurers need the authorization of the Commissioner of Insurance who
has very wide powers of regulation and invest

TERMINATION OF INSURANCE CONTRACT

1.      Payment of indemnity or the sum assured in the event of total loss.
In the case of partial loss reinstatement does not terminate the policy

2.      Mutual agreement: The parties may at any tim agree to terminate
the contract at the instance of the insured.

3.      Breach of condition or warranty: the insured is entitled to apply

for cancellation of the policy if the proposer breached a condition or a
warranty to procure the policy.

4.      Lapse of time: indemnity contact or property insurances lapses

after one year. It’s the duty of the insured to renew cover.
5.      Operation of the law: these are circumstances which renders the
maintenance of the policy impossibl

QUESTIONS

NOVEMBER 2019 2A

JULY 2019 2A

NOVEMBER 2018 2A

JULY 2018 6B

JULY 2017 2A

NOVEMBER 2014 2A

NOVEMBER 2013 4 A

Law of insurance summary

A contract of insurance is  one by which a person called the insurer

agrees in consideration of money paid to him called the premium by
another person called the assured to indemnify the assured against any
loss resulting to him on the happening of certain specified events.

The instrument which contains the conditions of contact of insurance is

called the policy, and the loss insured against is called the risk.

Essentials of an insurance contract :- -Agreement, uncertainty,

insurable interest, control, accidental or negligent loss & risk

General characteristics of insurance:-

1. IT IS SAID TO BE ALEATORY

2. IT IS A CONDITIONAL CONTRACT

3. it is a contract of utmost good faith

4. it is a personal contract

5. it is a contract of indemnity

6. insurance does not cover intentional damage

NOTE; A contract of insurance comes into existence when an offer by

the proposer is accepted by the insurer

the proposer makes the offer by completing and submitting to the insurer
the proposal form.

this form seeks information in relation to:

- particulars of the proposer

- particulars of the subject matter

- circumstances affecting the risk

- the history of attachment of the risk

CLASSIFICATION OF INSURANCE CONTRACTS

1. the event insured.eg. fire, burglary, marine, fidelity, motor etc.

2. the interest insured: 

a. personal insurance eg life insurance

b. property insurance

c. liability insuring eg. NSSF, NHIF, 3RD PARTY MOTOR

d. nature of the contract : indemnity or non- indemnity contract

types or kind of insurance

Life insurance, fire insurance, marine insurance, motor- vehicle
insurance

Principles of insurance: indemnity, insurable interest utmost good

faith, subrogation, salvage, abandonment,  average clause, proximate
clause, re-insurance , reinstatement, contribution and apportionment etc.

Termination

1. payment

2. mutual agreement

3. breach of a condition or warranty

4. lapse of time

5. operation of law

6. sale of the subject matter

Contract of guarantee

Contract of guarantee.

·         Meaning of guarantee.

·         Rights and liabilities of parties.

·         Discharge of contract.

 
 Meaning of guarantee

Contract of guarantee

This is a contract whereby a party referred to as the guarantor or surety

undertakes to be secondarily or collaterally responsible for the monies or
acts of another known as the principal debtor. The undertaking is made
to the creditor.

A contract of guarantee is a tripartite agreement. In a debtor – creditor

relationship, the guarantor makes the undertaking to the creditor for the
benefit of the principal debtor.

Types of guarantee

1.      Sole Guarantee: This is a contract of guarantee whereby the

guarantor’s liability is restricted to a single transaction.

2.      Continuing Guarantee: It is a contract of guarantee under which the

guarantors to a series of transactions. This type of guarantee terminates
on the death of the guarantor provided the notice is made know to
creditor as was the case in Bradbury V. Morgan. The guarantor is also
free to revoke the guarantee at any time.

3.      Fidelity Guarantee: It is a contract of guarantee whereby a person

guarantees the honesty good behavior of another purpose of
employment.

Characteristics of contract of guarantee

1.      It consists of 3 parties namely the guarantor, creditor and the

principal debtor.
2.      The guarantor’s liability is secondary or collateral

3.      The guarantor has no interest in the transaction between the

parties.

4.      The contact must be evidenced by some note or memorandum.

The guarantor is only liable if the principal debtor is unable to honour

his obligation. If two or more persons guarantee the same transaction(s)
they are referred to as co- guarantors and are jointly liable for any
liability arising. However if a co-guarantor makes god the liability, he
has a right of contribution against other co-guarantors.

If the creditor discharges a co-guarantor, all are discharged.

Rights of the guarantor

Right against the principal debtor;

The surety has a right before the payment has been made of compelling
the principal debtor to relieve him from liability by paying of the debt. If
the guarantor pays the debt on the default of the principal debtor, he is
entitled to claim all sums with interest from him.

 Rights against the creditor

The surety may enforce the following rights:

a.       At anytime after the guaranteed debt has become due and before
he has been asked to pay it, he can require the creditor to call upon the
debtor to pay on the undertaking to indemnify the creditor against the
cost, risk and delay involved.

However, he cannot compel the creditor to sue the debtor unless it was
the term of the guarantee to sue the debtor before the guarantor himself.

b.      If the surety pays the principal debt, he gets into the position of the
creditor and is entitled to all the securities which the creditor may have
against the principal debtor when the contract was made.

c.       On being sued by the creditor he can plead any set off or counter
claim which the principal debtor to which he is a guarantor

d.      In the case of fidelity guarantee, he can call upon the creditor or
the employer to dismiss the employee whose honesty he has guaranteed
in the event of proven dishonesty of such an employee

Against co- guarantors

It arises when the same debt has ben guaranteed by two or more sureties.

All sureties in this situation are required to contribute equally if the

principal debtor defaults

Incase one surety has paid more than his share under the guarantee, he
has a right of contribution from his co- sureties who are equally bound to
pay with him. If one of the sureties becomes insolvent, the co- sureties
shall have to contribute the whole amount equally.

Liabilities of a guarantor

 
1.               The extent of the liability of a guarantor will be as specified
in the guarantee document.

2.               A guarantor may be held liable for the liabilities of the

borrower in accordance with the terms of the guarantee document

3.               A guarantor can only be rendered liable under a guarantee if

the borrower is in default of any payment to the financial institution and
the financial institution makes a demand on the guarantor.

4.1  - Discharge of a guarantor or surety

1.       Payment of the amount due by the debtor or fulfilment of the

obligation arising.

2.       If the creditors action against the debtor becomes statute barred.

3.       If the transaction between the credit and the principal debtor
becomes illegal by reason of change of law or otherwise.

4.       Revocation of the guarantee by the guarantor

5.       Variation of the terms of the contract without the guarantor’s

consent

6.       If it is established that the guarantee was obtained by fraud,

misrepresentation or concealment of material facts.

7.       Failure by the creditor to take steps that was necessary to protect

his own interest.

8.       Discharge of a co-guarantor discharges all.

Contract of bailment

Contract of bailment.

·         Meaning of bailment.

·         Parties to a contract of bailment.

·         Rights and liabilities of parties in a contract of bailment.

·         Factors which contribute to the discharge of a contract of

bailment.

 Meaning of bailment

A bailment is a transaction under which goods are delivered by one

party (the bailor) to another (the bailee) on terms, which normally
require the bailee to hold the goods and ultimately to redeliver them to
the bailor or in accordance with his directions. The property in the goods
is not intended to pass and does not pass on delivery, though it
sometimes be the intention of the parties that it should pass in due
course, as in the case of the ordinary hire-purchase contract.

But where goods are delivered to another on terms which indicate that
the property is to pass at once, the contract must be one of sale and not
bailment.

In bailment, the goods are delivered by the bailor to the bailee on terms
which normally require the bailee to hold the goods and ultimately
deliver those goods in accordance with the instructions of the bailor.
There is no intention in bailment that property in ownership is to pass
from the bailor to the bailee. The bailee only has custody for a small fee
to take care. The bailee is empowered to sell the goods only for purposes
of recouping the demurrages.

Bailment involves goods and is for the most part contractual whereas
possession changes hands, ownership does not. However, in certain
circumstances, physical possession does not change hands since the
person who becomes the bailor was in possession of the goods in some
capacity. Such a bailment is referred to as a bailment by attonement.

Types of Bailment

1.      Deposit: This may take place when the owner deposits the goods in
a cloak room or left- luggage office for safe custody.

The bailee is not entitled to bring the goods in his use and must exercise
reasonable care of them while in his custody

2.      Hire: The hirer of goods under the ire- purchase agreement or

otherwise is responsible to exercise care of the care of the goods as long
as they remain in his possession.

3.      Loan: sometimes goods are left as security with the money- lender
for raising a temporary loan. In this case the lender is not allowed to
bring the goods in his use unless he was permitted to do so in the
contract.

4.      For repair or work to be done/ Deposit for work to be done: this

type of bailment is very common and takes place when the owner of the
goods delivers the same for repair or alteration such as giving a watch
for repair or a painting for framing

Bailment differs from agency in that:

▪          The bailee does not represent the bailor

▪          Acts of the bailee do not affect the legal position of the bailor

  Parties to a contract of bailment

▪          Bailor: A person who owns goods and takes them for bailment

▪          Bailee: A person who takes possession of goods on bailment

Duties of the bailor

i)         He is bound to deliver the goods to the bailee for purposes of the
transaction

ii)       He must disclose any defects in the goods or in the title

iii)     He is bound to indemnify the bailee for loss or liability arising by
reason of defects in the goods or of title

Duties of the bailee

i)         To take delivery of the goods, the subject matter of the bailment.

ii)       To deal with the goods only for the purpose for which for which
they were bailed.

iii)     Take reasonable care of the goods.

iv)     Insure the goods in his custody.

v)       Return the goods to the bailor as soon as the purpose for which
they were bailed is accomplished.

vi)     He must not be negligent.

vii)    Unauthorized use of the goods: the bailee in any type of bailment

is under duty not to use the gods in a manner inconsistent with the terms
of bailment.

A contract of bailment terminates when the purpose for which they were
bailed is accomplished or when the bailor deals with the goods in a
manner inconsistent with the bailment.

5.1  - Rights and liabilities of parties in a contract of bailment

Rights of Bailor
 

1.               If bailee does not take care and destruction of goods takes
place, bailor can claim compensation.

2.               If bailee uses the goods for un-authorized purposes, bailor

has the right to claim compensation.

3.               Bailor has the right to claim return of goods.

4.               Bailor has right to claim not only delivered goods but also
accruals on goods if any.

5.               In case where bailee has mixed the goods and they are of
sufferable nature, bailor can claim cost of separation from bailee.

6.               In case where the goods are of insufferable nature, bailor has
ri ght to claim compensation.

7.               Bailor has right to repudiate the Contract of bailment

whenever he wants but, by doing so, if bailee comes across any
suffering, bailor has to compensate.

Rights of Bailee

1.       Bailee has right to claim compensation for injuries arising out of

faults present in goods, if it is gratuitous bailment, bailee can make
bailor answerable with regard to known faults only. But not to un-known
faults. In case of Non-gratuitous bailment bailee can make bailor
answerable to known as well as un-known faults.

2.       Bailee has right to claim contribution for expenses. If it is

Gratuitous bailment, bailee can claim only extraordinary expenses. But
in case of Non- Gratuitous bailment, bailee can claim both ordinary and
ordinary expenses.

3.       In case where bailor has given goods with defective title and
bailee, therefore, comes across suffering, then such bailee has right to
get compensated by defective titled bailor.

4.       Bailee has right of indemnity, for making involvement in bailment

Contract, bailor can make bailee answerable.

5.        Bailee has right of lien. It is only particular lien. That means he
can exercise right of lien against those goods only on which amount is
due.

6.       Bailee can return the goods to any one of the joint owners.

7.       In times of need Bailee has right to approach Court of law.

Liability of the Bailor

▪  Negligence of Bailor - A bailor may be held liable for negligence. If

the bailor receives a benefit from the bailment, then he has a duty to
inform the bailee of known defects and to make a reasonable inspection
for other defects. Suppose the Tranquil Chemical Manufacturing
Company produces an insecticide that it wants the Plattsville Chemical
Storage Company to keep in tanks until it is sold. One of the batches is
defectively acidic and oozes out of the tanks. This acidity

could have been discovered through a routine inspection, but Tranquil

neglects to inspect the batch. The tanks leak and the chemical builds up
on the floor until it explodes. Since Tranquil, the bailor, received a
benefit from the storage, it had a duty to warn Plattsville, and its failure
to do so makes it liable for all damages caused by the explosion. If the
bailor does not receive any benefit, however, then his only duty is to
inform the bailee of known defects. Your neighbor asks to borrow your
car. You have a duty to tell her that the brakes are weak, but you do not
need to inspect the car beforehand for unknown defects.

Liability of the Bailee

▪  Duty of Care - The basic rule is that the bailee is expected to return to
its owner the bailed goods when the bailee’s time for possession of them
is over, and he is presumed liable if the goods are not returned. But that
a bailee has accepted delivery of goods does not mean that he is
responsible for their safekeeping no matter what. The law of bailments
does not apply a standard of absolute liability: the bailee is not an insurer
of the goods’ safety; her liability depends on the circumstances.

▪  The Ordinary Care Rule - Some courts say that the bailee’s liability is
the straightforward standard of “ordinary care under the circumstances.”
The question becomes whether the bailee exercised such care. If she did,
she is not liable for the loss.

▪  The Benefit-of-the-Bargain Rule - Most courts use a complex (some

say annoying) tripartite division of responsibility. If the bailment is for
the sole benefit of the owner (the bailor), the bailee is answerable only
for gross neglect or fraud: the duty of care is slight. For example,
imagine that your car breaks down

on a dark night and you beg a passing motorist to tow it to a gas station;
or you ask your neighbor if you can store your utility trailer in her gara
ge.

▪  Burden of Proof - In a bailment case, the plaintiff bailor has the

burden of proving that a loss was caused by the defendant bailee’s
failure to exercise due care. However, the bailor establishes prima facie
(“at first sight”—on first appearance, but subject to further investigation)
case by showing that he delivered the goods into the bailee’s hands and
that the bailee did not return them or returned them damaged. At that
point, a presumption of negligence arises, and to avoid liability the
defendant must rebut that presumption by showing affirmatively that he
was not negligent. The reason for this rule is that the bailee usually has a
much better opportunity to explain why the goods were not returned or
were returned damaged. To put this burden on the bailor might make it
impossible for him to win a meritorious case.

 Factors which contribute to the discharge of a contract of bailment

▪          Discharge by Performance

▪          Discharge by repudiatory Breach
▪          Discharge by Agreement

▪          Discharge by Frustration

Law of Bankruptcy

Law of Bankruptcy

·         Meaning of bankruptcy

·         Procedure in bankruptcy proceedings

·         Rights and disqualifications of a bankrupt

Meaning of bankruptcy

The bankruptcy law applicable in Kenya is found in The Insolvency Act,

2015 (which consolidated provisions of corporate insolvency under the
Winding-up provisions of the Companies Act and insolvency of natural
persons was covered in the Bankruptcy Act.

If a debtor commits an act of bankruptcy the court may, on bankruptcy

petition being presented either by a creditor or by the debtor, make a
receiving order.

Generally, the committal of act(s) of bankruptcy by a debtor is what

gives a creditor, loosely speaking, the locus standi to lodge a bankruptcy
petition against the debtor. What amounts to an act of bankruptcy is
provided for under section 3 of the Bankruptcy Act. The subsection 3(1)
which provides:

"3. (1) A debtor commits an act of bankruptcy in each of the

following cases—

(a)    if in Kenya or elsewhere he makes a conveyance or assignment of

his property to a trustee or trustees for the benefit of his creditors
generally;

(b)   if in Kenya or elsewhere he makes a fraudulent conveyance, gift,

delivery or transfer of his property, or of any part thereof;

(c)    if in Kenya or elsewhere he makes any conveyance or transfer of

his property, or of any part thereof, or creates any charge thereon, which
would under this or any other Act be void as a fraudulent preference if
he were adjudged bankrupt;

(d)   if with intent to defeat or delay his creditors he does any of the
following things, namely, departs out of Kenya, or being out of Kenya
remains out of Kenya, or departs from his dwelling-house, or otherwise
absents himself, or begins to keep house;

(e)   if execution against him has been levied by seizure of his goods in
any civil proceeding in any court, and the goods have been either sold or
held by the bailiff for twenty-one days...;

(f)     if he files in the court a declaration of his inability to pay his debts
or presents a bankruptcy petition against himself;

(g)    if a creditor has obtained a final decree or final order against him
for any amount, and, execution thereon not having been stayed, has
served on him in Kenya, or, by leave of the court, elsewhere, a
bankruptcy notice under this Act, and he does not within seven days
after service of the notice, in case the service is effected in Kenya, …
either comply with the requirements of the notice or satisfy the court that
he has a counter-claim, set-off or cross-demand which equals or exceeds
the amount of the decree or sum ordered to be paid, and which he could
not set up in the action in which the decree was obtained, or the
proceedings in which the order was obtained; and for the purposes of
this paragraph and of section 4, any person who is, for the time being,
entitled to enforce a final decree or final order shall be deemed to be a
creditor who has obtained a final decree or final order;

   if the debtor gives notice to any of his creditors that he has
suspended, or that he is about to suspend, payment of his debts. "

In essence, for a creditor to be entitled to petition, the following

conditions must be met:

1)              The amount owed is not less than 50 pounds or Kshs. 1000 as

fixed under the English Bankruptcy Act of 1914;

2)              The debt is a liquidated sum payable either immediately or at

some certain future time;

3)              The act of bankruptcy on which the petition is grounded has

occurred within 3 months before the presentation of the petition;
4)              The debtor is domiciled in Kenya or within a year before the
date of the presentation or the petition has ordinarily resided or other
dwelling house or a place of business in Kenya or has carried on
business in Kenya personally or by means of an agent or manager or is
or within that period has been a member of a firm or partnership of
persons which has carried on business in Kenya by means of a partner or
partners or an agent or manager.

Who may be adjudged bankrupt

In general any person capable of entering into a contract may be made

bankrupt. Specifically, bankruptcy law applies as stated below to the
following special persons:

1.  In relation to Infants - Generally, infants are not capable of

incurring debts or contracting except contracts for necessaries. Also,
infants are not liable in respect of debts that they have incurred. But if an
infant fraudulently contracts a debt during his infancy he will be held
liable for the debt and the creditor may claim in bankruptcy on his
acquiring the age of majority. This is as per the Infants Relief Act of
England 1874 which is a statute of general application to Kenya.

2.  Insane Persons - These are also subject to bankruptcy proceedings.

Generally persons of unsound mind cannot be adjudicated bankrupt
without the court's consent. See Bankruptcy Rules Rule 247.
3.  Married Women - Section 117 of the BA provides that every
married woman shall be subject to the law relating to bankruptcy as if
she were 'feme sole'.

4.  Aliens & Persons Domiciled Abroad - They are also subject to

bankruptcy proceedings if Section 6(1) (d) of the Act is met in respect of
them. That is, if within a year before the date of presentation of the
petition the debtor had ordinarily resided or had a dwelling house or
place of business or has carried on business in Kenya personally or by
means of an agent or manager. In alternative, such a person must also
have within a year have been a member of a firm or partnership of
persons which carried on business in Kenya by means of a partner or
partners or an agent or manager.

5.  Companies/Corporations - Bankruptcy proceedings are not

applicable to companies. These are dealt with under liquidation and
winding up provisions of the Companies Act Cap 486.Section 118 of the
BA provides that a "Receiving Order shall not be made against any
corporation or against any association or company registered under the
Companies Act or any enactment repealed by that Act." The position in
England has been reformed by the Insolvency Act.

6.  Partnerships - Whether the partnership is general or limited, it is

subject to the provisions of the Bankruptcy Act. Section 119 thereof
states as follows "subject to such modifications as may be made by rules
under Section 122 this Act shall apply to limited partnerships in the
same manner as if limited partnerships were ordinary partnerships and
on all the general partners of a limited partnership. Being adjudged
bankrupt the assets of the limited partnership shall vest in the Trustee in
Bankruptcy. But in case of a partnership, a joint petition against the
entire partnership instead of a petition for each partner is the way to go.

7.  Deceased Persons - There is a provision for administration in

bankruptcy of the estate of a deceased person under Section 121 (1) of
the Act Section 107 of the
Actalso enables proceedings already commenced to continue as if the
debtor were alive. Where the debtor is dead a petition may be presented
by his personal representative when its purpose is to obtain an
administration order.

8.  Judgment Debtor - The Bankruptcy Act does not prevent an

undischarged bankrupt from creating valid debts and since he may
commit an act of bankruptcy, institution of subsequent bankruptcy
proceedings before he is discharged from a prior bankruptcy is
permissible.

- Procedure in bankruptcy proceedings

There are seven stages in the process by which a debtor is declared

bankrupt and ultimately obtains his discharge to start a new life in his
trade or profession.

1.      Bankruptcy petition:

A bankruptcy petition may be presented by a creditor or the debtor. If

presented by a creditor the following conditions are set out:

a.       The debt owing to him is at least one thousand shilling.  It is

possible for two or more creditors to join in the petition.

b.      The debt is a liquidated sum, payable either immediately or at

some certain future time

c.       The act of bankruptcy has been committed by the debtor

d.      The act of bankruptcy on which the petition is based has been
committed within the last three months

2.      Receiving order:

The order is made immediately if the petition is made by the debtor

himself. In case the petition is made by the creditor, the court will
appoint a court receiver after a formal court hearing of the creditor

3.      Debtor’s statement of affairs:

The debtor must provide the official receiver with the statement of his
affairs supported by his affidavit. The debtor must also submit the names
and addresses of all of his creditors together with any securities in their
control.

4.      Creditors’ first meeting:

The official receiver summons the creditors to a meeting with the debtor,
at which he will be a chairman. The object of this meeting is to decide
whether to accept composition or any scheme of arrangement or to have
the debtor keeps his assets and pays from them a certain sum to his
creditors while in schemes the debtor’s assets are transferred to a trustee
who will then make payment to the creditors

5.      Public Examination:

As soon as possible after a receiving order is made by the court, the

official receiver arranges for the debtor to be public ally examined as to
his conduct, dealings and property.

6.      The adjudication order:

If the creditors do not accept composition or a scheme of arrangement,
the debtor will be adjudicated bankrupt. All his assets are applied by the
trustee or the official receiver to satisfy his debts.    

7.      Annulment of adjudication: an adjudication of bankruptcy may be

annulled by the court:

a.       When the debtor ought not to have been adjudged bankrupt

b.      If the creditors accept a composition or scheme after adjudication

c.       Where the debts of the bankrupt are paid in full

DISCHARGE OF THE DEBTOR

A bankrupt may apply for an order of his discharge as soon as the debt
have been paid in full or proportionately out of the available assets

Refusal of discharge

In certain circumstances the court cannot grant an absolute discharge

these are:

1.      If the assets of the bankrupt are not sufficient to pay a dividend of
at least ten shillings in the pound, unless this is not the fault of the
bankrupt

2.      He has not kept proper books of account for his business for three
years prior to bankruptcy

3.      He has contracted a debt I the bankruptcy without any hope of

being able to repay

4.      He has failed to account satisfactorily for any loss or deficiency of

his assets

5.      He has caused any of his creditors to pay unnecessary expenses by

a frivolous defences to any action properly brought against him
6.      He gave undue preference to one of his creditors within three
months of the receiving order and when unable to pay his debts as they
fell due.

7.      That within three months of the receiving order and with the
prospect of bankruptcy before him, he incurred dets in order to make his
assets ten shillings in a pound

8.      There have been previous bankruptcy proceedings against him, or

he has previously made a composition with his creditors

9.      He is guilty of fraudulent breach of trust

Disabilities of undischarged bankrupt

a.       He cannot acquire credit for more than two hundred shillings
without disclosing his bankruptcy

b.      He cannot acquire property free from the claims of the trustee in
bankruptcy

c.       He must not trade in a name that is not his own without disclosing
that he is undischarged bankrupt

d.      He cannot be appointed or continue to be a director of a company

e.       He cannot be elected to sit as a member of a local authority or the

National Assembly

 Rights and disqualifications of a bankrupt

A bankrupt has the right to be heard in a court of law.

 
The order of discharge may be revoked or varied at the court’s discretion
on the following grounds;

a.       Failure by the debtor to give all necessary aid to trustee for

realization of estate, or

b.      Failure to file a verified statement or attend court for examination

when required or to answer any questions put to him by the court.

Last modified: Tuesday, 27 April 2021, 1:47 PM

LAW OF CARRIAGE OF GOODS

Definitions

▪         "Carrier" means any person by whom or in whose name a contract

of carriage of goods by sea has been concluded with a shipper.

▪         "Actual carrier" means any person to whom the performance of

the carriage of the goods, or of part of the carriage, has been entrusted
by the carrier, and includes any other person to whom such performance
has been entrusted.

▪         "Shipper" means any person by whom or in whose name or on

whose behalf a contract of carriage of goods by sea has been concluded
with a carrier, or any person by whom or in whose name or on whose
behalf the goods are actually delivered to the carrier in relation to the
contract of carriage by sea.
 

▪         "Consignee" means the person entitled to take delivery of the

goods.

▪         "Goods" includes live animals; where the goods are consolidated

in a container, pallet or similar article of transport or where they are
packed, goods includes such article of transport or packaging if supplied
by the shipper.

▪         "Contract of carriage by sea" means any contract whereby the

carrier undertakes against payment of freight to carry goods by sea from
one port to another; however, a contract which involves carriage by sea
and also carriage by some other means is deemed to be a contract of
carriage by sea for the purposes of this Convention only in so far as it
relates to the carriage by sea.

▪         "Bill of lading" means a document which evidences a contract of

carriage by sea and the taking over or loading of the goods by the
carrier, and by which the carrier undertakes to deliver the goods against
surrender of the document. A provision in the document that the goods
are to be delivered to the order of a named person, or to order, or to
bearer, constitutes such an undertaking.

▪         "Writing" includes, inter alia, telegram and telex.

 
 

Meaning of the law carriage of goods

The persons, organizations or associations which carry goods are known

as carriers. Goods may be carried by land (including inland waterways),
sea or air. Accordingly, the law relating to carrying of goods in Kenya
territory is contained in the United Nations Convention On The Carriage
Of Goods By Sea (Hamburg Rules), 1978, of which Republic of Kenya
is among the 34 nations that have ratified the rules.

Contract of Carriage - is a contract of bailment for reward, or locatio

operis faciends. However, the contract of bailment is modified by the
different statutes mentioned above in the case of carriage of goods by
land, sea or air.

 
 

Types of carriers

a.      Common Carriers

a common carrier as any individual, firm or company (other than the

government, who or which transports goods as a business, for money,
from place to place, over land or inland waterways, for all persons
(consignors) without any discrimination between them. A carrier must
carry goods of the consignor for hire and not free of charge in order to
be called a common carrier. Further, he must be engaged in the business
of carrying goods for others for money from one place to another. A
person who carries goods occasionally or free of charge is not a common
carrier. Furthermore, he is bound to carry goods for all persons
(consignors) without any discrimination provided:

-          the freight chargeable by him is paid to him;

-          there is accommodation on his conveyance; and

-          there is nothing objectionable or illegal about the carrying of

goods of a particular consignor.

 
 

If, in spite of the above conditions being satisfied, a carrier reserves to

himself the right to accept or reject an offer, he is not a common carrier.
It is worth noting that this is common carriers of goods and not
passengers.

b.      Private Carriers

A private carrier is one who does not transport goods from one place to
another regularly; he may engage in some casual jobs of carrying goods
for certain selected persons between certain terminals. In fact, he carries
his own goods and that’s why he is known as a private carrier and not a
common carrier. Also, he does not make a general offer to carry goods
for any one from one place to another for hire. However, he may enter
into a contract with someone to carry goods on the terms agreed upon
between them. In such a situation, it is a contract of bailment. Therefore,
such transactions are not covered bound to be common carriers.

 
 

c.       Gratuitous Carrier

When a person carries goods of another free of charge, he is a gratuitous

carrier. Similarly a person may give lift in his transport to another person
voluntarily without any compensation. Thus a gratuitous carrier may
carry not only goods but persons also

free                                                                                        
of                                                                                         charge.

Responsibility of Common Carrier and Bailee

We know that a bailee is responsible only when the goods entrusted to

him are lost or damaged due to his fault or negligence. But the
responsibility of a common carrier is more onerous; he is to deliver the
goods safely. Therefore, in the case of a common carrier, it is immaterial
whether the loss or damage to the goods is due to his or someone else’s
negligence.

 
 

Distinction between a Common Carrier and a Private Carrier

▪                     A common carrier publicly undertakes to carry from place

to place the goods of any person who chooses to employ him. A private
carrier does not carry regularly from place to place but is an occasional
carrier.

▪                     A common carrier is bound to carry the goods of any

person provided certain conditions are satisfied. A private carrier is free
to accept or reject the goods for carriage.

 Modes of carriage

̵            Carriage by by land (including inland waterways) – railway

wagons, road trailers, ferries, steamships, boats

̵            Carriage by sea – ships, ferries, steamships, boats

̵            Carriage by air – cargo planes

 

 Implied terms and

conditions              
ConditionsContained in a  Contract of Carriage by Sea.
The terms included in contractcarriage by sea of two kinds.
a ofare These are:
(i) Express terms, and (ii) Implied
terms.          
 

Express terms are those which the parties have specifically agreed to and
embodied in the contract. Implied terms are those which law implies in
every contract of carriage by sea unless excluded specifically. There are
four implied terms:

(i)                 Implied warranty of seaworthiness. The ship owner, when

he enters into a charter — party for a voyage impliedly warrants that the
ship is seaworthy. This is an assurance by the ship owner, at the time of
entering into the charter party, that (a) the ship is fit to encounter the
ordinary perils of navigation during voyage and (b) to carry the specific
cargo. This warranty of seaworthiness extends only to (a) seaworthiness
at the time of sailing and (b) ‘fitness at the time of loading the cargo.
Once the ship has sailed or the goods are on board, this warranty ceases
to operate. But in case the voyage is divided into stages, the ship must be
seaworthy at the commencement of each voyage.
 

(ii)              Implied warranty of commencement of voyage. Another

implied warranty is that the ship shall be ready to commence the voyage
and shall carry out the same with all reasonable dispatch and diligence.

(iii)            Non-deviation of voyage. Also there is an implied condition

that there shall be no unnecessary deviation. Deviation means the going
off from the settled or the usual or customary course of voyage between
the two termini.

(iv)             Shipper not to ship dangerous goods. The shipper (i.e., the

consignor of goods in case the charterer undertakes to carry goods of
others under bills of lading) shall not ship dangerous goods. If the
shipper ships dangerous goods and if on account of it the charterer
suffers any damage, he can recover it from the shipper.

Documents used in carriage

International contracts of sale: FAS, FOB, CIF, FCA, CPT, CIP, DAT,
DAP, DDP, CFR, DAF, DES, DDU, Ex-works and Ex-ship

 
FAS – Free Alongside Ship

FOB – Free On Board

CIF – Cost, Insurance & Freight

FCA – Free Carrier

CPT – Carriage Paid To

CIP – Carriage and Insurance Paid to

DAT – Delivered At Terminal

DAP – Delivered At Place

DDP – Delivered Duty Paid

 
CFR – Cost and Freight

DAF – Delivered At Frontier

DES – Delivered Ex-Ship

DDU – Delivered Duty Unpaid

Ex-works – Buyer collects the freight from seller’s premises

Ex-ship – Seller is responsible for all the costs even after unloading at
the port of destination

Language is one of the most complex and important tools of

International Trade. As in any complex and sophisticated business, small
changes in wording can have a major impact on all aspects of a business
agreement.

 
International Chamber of Commerce created "INCOTERMS" refers to a
type of agreement for the purchase and shipping of goods
internationally. INCOTERMS also deal with the documentation required
for global trade, specifying which parties are responsible for which
documents. Determining the paperwork required to move a shipment is
an important job, since requirements vary so much between countries.
Two items, however, are standard: the commercial invoice and the
packing list.

In global trade, "delivery" refers to the seller fulfilling the obligation of

the terms of sale or to completing a contractual obligation. "Delivery"
can occur while the merchandise is on a vessel on the high seas and the
parties involved are thousands of miles from the goods. In the end,
however, the terms wind up boiling down to a few basic specifics:

›          Costs: who is responsible for the expenses involved in a shipment

at a given point in the shipment's journey?

›          Control: who owns the goods at a given point in the journey?

 
›          Liability: who is responsible for paying damage to goods at a
given point in a shipment's transit?

It is essential for shippers to know the exact status of their shipments in

terms of ownership and responsibility. It is also vital for sellers & buyers
to arrange insurance on their goods while the goods are in their "legal"
possession. Lack of insurance can result in wasted time, lawsuits, and
broken relationships.

1.      EXW (EX-Works) - One of the simplest and most basic shipment

arrangements places the minimum responsibility on the seller with
greater responsibility on the buyer. In an EX-Works transaction, goods
are basically made available for pickup at the shipper/seller's factory or
warehouse and "delivery" is accomplished when the merchandise is
released to the consignee's freight forwarder. The buyer is responsible
for making arrangements with their forwarder for insurance, export
clearance and handling all other paperwork.

2.      FOB (Free On Board) - One of the most commonly used-and

misused-terms, FOB means that the shipper/seller uses his freight
forwarder to move the merchandise to the port or designated point of
origin. Though frequently used to describe inland movement of cargo,
FOB specifically refers to ocean or inland waterway transportation of
goods. "Delivery" is accomplished when the

shipper/seller releases the goods to the buyer's forwarder. The buyer's

responsibility for insurance and transportation begins at the same
moment.

3.      FCA (Free Carrier) - In this type of transaction, the seller is

responsible for arranging transportation, but he is acting at the risk and
the expense of the buyer. Where in FOB the freight forwarder or carrier
is the choice of the buyer, in FCA the seller chooses and works with the
freight forwarder or the carrier. "Delivery" is accomplished at a
predetermined port or destination point and the buyer is responsible for
Insurance.

4.      FAS (Free Alongside Ship)* - In these transactions, the buyer

bears all the transportation costs and the risk of loss of goods. FAS
requires the shipper/seller to clear goods for export, which is a reversal
from past practices. Companies selling on these terms will ordinarily use
their freight forwarder to clear the goods for export. "Delivery" is
accomplished when the goods are turned over to the Buyers Forwarder
for insurance and transportation.

5.      CFR (Cost and Freight) - This term formerly known as CNF

(C&F) defines two distinct and separate responsibilities-one is dealing
with the actual cost of merchandise "C" and the other "F" refers to the
freight charges to a predetermined destination point. It is the
shipper/seller's responsibility to get goods from their door to the port of
destination. "Delivery" is accomplished at this time. It is the buyer's
responsibility to cover insurance from the port of origin or port of
shipment to buyer's door. Given that the shipper is responsible for
transportation, the shipper also chooses the forwarder.

6.      CIF (Cost, Insurance and Freight) - This arrangement similar to

CFR, but instead of the buyer insuring the goods for the maritime phase
of the voyage, the shipper/seller will insure the merchandise. In this
arrangement, the seller

usually chooses the forwarder. "Delivery" as above, is accomplished at

the port of destination.
 

7.      CPT (Carriage Paid To) - In CPT transactions the shipper/seller

has the same obligations found with CIF, with the addition that the seller
has to buy cargo insurance, naming the buyer as the insured while the
goods are in transit.

8.      CIP (Carriage and Insurance Paid To) - This term is primarily used
for multimodal transport. Because it relies on the carrier's insurance, the
shipper/seller is only required to purchase minimum coverage. When
this particular agreement is in force, Freight Forwarders often act in
effect, as carriers. The buyer's insurance is effective when the goods are
turned over to the Forwarder.

9.      DAT (Delivered At Terminal) - This term is used for any type of

shipments. The shipper/seller pays for carriage to the terminal, except
for costs related to import clearance, and assumes all risks up to the
point that the goods are unloaded at the terminal.

10.  DAP (Delivered At Place) - DAP term is used for any type of

shipments. The shipper/seller pays for carriage to the named place,
except for costs related to import clearance, and assumes all risks prior
to the point that the goods are ready for unloading by the buyer.
 

11.  DDP (Delivered Duty Paid) - DDP term tend to be used in

intermodal or courier-type shipments. Whereby, the shipper/seller is
responsible for dealing with all the tasks involved in moving goods from
the manufacturing plant to the buyer/consignee's door. It is the
shipper/seller's responsibility to insure the goods and absorb all costs
and risks including the payment of duty and fees.

 Rights and liabilities of parties

Liabilities of a Common Carrier

the goods are classified into two categories: (i) Scheduled goods and (ii)
non-scheduled goods.

 
The scheduled goods are those which are enumerated in a Schedule to
the Act. They are valuable articles like gold, silver, precious stones and
pearls, bills, currency and bank notes, glass, china silk, articles of ivory,
time pieces, musical and scientific instruments, etc. All other goods are
non-scheduled.

For scheduled articles exceeding a specified amount in value, the carrier

is liable for loss and damage only:

̵            if the value and the description of the goods are disclosed by
the consignor to the carrier;

̵            if the loss or damage is due to a criminal act of the carrier, his
agent or servant.

̵            The carrier can charge extra for carrying scheduled articles, but
he cannot limit his statutory liability by any special agreement.

As regards non-scheduled articles, a common carrier can limit his

liability by special agreement with the consignor.

In case of loss or damage, the claimant must notify the carrier within six
months of the date of knowledge of the loss or damage.

 
 

 Remedies available to parties in the breach of a contract of carriage

1.      Compensation - The injured party is entitled to compensation for

the damage caused to him by the breach and its consequences and which
the breaching party foresaw or should have foreseen, at the time the contract was made, as
probable consequences of the breach.

2.      The injured party is entitled to enforcement of the contract, unless

in any of the following cases:

a.       It is impossible to perform the contract;

b.      Enforcement of the contract consists of compelling the

performance or acceptance of personal work or of a personal service;

c.       Implementation of the enforcement order requires an unreasonable

level of supervision on behalf of a court or an execution office;

d.      Under the circumstances of the case, enforcement of the contract is

unjust.

 
3.      Rescission - The injured party is entitled to rescind the contract, if
its breach was fundamental. "fundamental breach" - a breach about
which it may be assumed that a reasonable person would not have
entered into the contract had he foreseen the breach and its
consequences, or a breach about which it is agreed in the contract to
regard it as fundamental; a sweeping stipulation in a contract, which
makes breaches fundamental without differentiating between them, is
invalid, unless it was reasonable at the time the contract was concluded.
When the breach of the contract is not fundamental, the injured party
may rescind the contract if he has first given the breaching party an
extension of time for its performance, and the contract has not been
performed within a reasonable time after the extension was given,
unless, -under the circumstances of the case, rescission of the contract is
unjust; the pleas that rescission of the contract is unjust will not be
heard, unless the breaching party opposes the rescission within a
reasonable time after notice of rescission has been given.