JKUAT

BUSINESS LAW II
ASSIGNMENT QUESTIONS

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QUESTION ONE
“In the development of our law, two principles have striven for mastery. The first is for protection of
property; no one can give a better title than he himself possesses. The second is the protection of
commercial transactions; the person who takes in good faith and for value without notice should get a
better title. The first principle has held sway for a long time, but it has been modified by the Common
Law itself and by statute so as to meet the needs of our time.”- Per Denning L.J. in Bishops Gate
Motor Finance v Transport Brakes Ltd (1949) 1 KB 332.
Discuss.

QUESTION TWO
a) Hire purchase is a contract. As such, the formation of a valid hire purchase contract must be
predicated by established elements that are well defined under the law. In reference to the relevant
statute law, elaborate on these elements.
b) Kinyago, a small scale farmer agreed to take a television set and a radio from Malipo Rahisi Ltd., a
hire purchase firm last year. The hire purchase price for both items was Sh. 90,000. He paid a
deposit of Sh. 30,000 and the balance was payable by monthly instalments of Sh. 5,000. After
paying instalments for six months, he defaulted. Malipo Rahisi ltd. Promptly repossessed the
goods.
Discuss the legal position.
c) Under Section 7 of the Hire Purchase Act Cap. 507, Laws of Kenya, certain provisions are deemed
void if contained in a hire purchase agreement.
Identify and explain these provisions

QUESTION THREE
Wanjiku, Atieno and Nafula formed a partnership to run a petrol station. The partnership agreement
expressly stated that the partnership business was to be limited exclusively to the sale of petrol. In
January 2007 Wanjiku received KSh.5 Million from the partnership’s bank drawn on its overdraft
facility. She told the bank that the money was to finance a short-term partnership debt but in fact she
used the money to pay for around the world cruise ship tour. In February Atieno entered into a KSh.
15 Million contract on behalf of the partnership to buy some used cars which she hoped to sell from
the garage forecourt. In March the partnership’s bank refused to honour its cheque for the payment of
its monthly petrol account, on the basis that there were no funds in its account and it had reached its
overdraft facility.
Required:
Advise Wanjiku, Atieno and Nafula as to their various rights and liabilities in relation to
partnership law.

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QUESTION FOUR
On Friday, November 11, 2011, the president of Kenya assented to the Limited Liability Partnership
Act, which repeals and replaces the Limited Partnership Act. Critically analyse how the Act changes
Kenya’s Partnership Law.
Issues to Highlight
- Formation requirements for Limited Liability Partnership (deed, application, documents required,
registration certificate)
- Membership- who qualify, capacity
- Applicability of the twin concepts of Limited Liability and Separate Legal Personality to such
bodies.
- Registrar of limited liability Partnerships (appointment, qualifications, functions and powers)
- Management of the partnership (managers)
- Differences with other ordinary/general partnerships
- Insolvency (how its wound up, etc)

QUESTION FIVE
(a) Describe the advantages and disadvantages of carrying on business as a partnership as opposed to
a limited liability company.
(b) What are the differences between a partnership and a limited liability company
(c) You have been asked to draft a partnership deed for a small retail firm of five partners. State the
matters, that you will omit from the partnership deed on the basis that they are implied by the
Partnership Act (Cap 29) Laws of Kenya.
(d) One of the principal duties of an agent is expressed by the maxim “delegates non potest delegare.”
Discuss this maxim citing circumstances under which this rule or maxim does not apply.

QUESTION SIX
(a) Geo, Ho and Io formed a partnership three years ago to run a hairdressing business. They each
provided capital to establish the business as follows:
Geo £20,000;
Ho £12,000; and
Io £8,000.
The partnership agreement stated that all profits and losses were to be divided in proportion to the
capital contribution. After 18 months Geo provided the partnership with a loan of £3,000 in order to
finance the purchase of more stock. The loan was to be paid back from the profits of the business.
Unfortunately the business was not successful and the partners decided to dissolve the partnership
rather than risk running up any more losses. At the time of the dissolution of the partnership its assets
were worth £20,000. Its external debts were £7,000 and none of the debt to Geo has ever been paid.
Required:
Advise the partners as to how the financial aspects of the dissolution will be conducted and how the
assets will be distributed.

QUESTION SEVEN
(a) Chi, Di and Fi formed an ordinary partnership to run an art gallery. Each of them paid £100,000
into the business. As Fi had no prospect of raising any more money it was agreed between them that
her maximum liability for any partnership debts would be fixed at her original contribution of
£100,000. The partnership agreement specifically restricted the scope of the partnership business to
the sale of ‘paintings, sculptures and other works of art.’ In January 2010 Chi took £10,000 from the
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partnership’s bank drawn on its overdraft facility. She had told the bank that the money was to finance
a short-term partnership debt but in fact she used the money to pay for a holiday. In February Di
entered into a £25,000 contract on behalf of the partnership to buy some books, which she hoped to
sell in the gallery.
Required:
Advise Chi, Di and Fi as to their various rights and liabilities in relation to the operation of the
business under partnership law.
(b) A partnership is basically a matter of agreement between the parties or partners in the business.
Section 24 of the Partnership Act sets out rules which apply in the absence of express o implied
agreement to the contrary. Discuss these rules.

QUESTION EIGHT
(a) Clare, Dan and Eve formed a partnership 10 years ago, although Clare was a sleeping partner and
never had anything to do with running the business. Last year Dan retired from the partnership. Eve
has subsequently entered into two large contracts. The first one was with a longstanding customer
Greg, who had dealt with the partnership for some five years. The second contract was with a new
customer Hugh. Both believed that Dan was still a partner in the business. Both contracts have gone
badly wrong leaving the partnership owing £50,000 to both Greg and Hugh. Unfortunately the
business assets will only cover the first £50,000 of the debt.
Required:
Explain the potential liabilities of Clare, Dan, and Eve for the partnership debts.

QUESTION NINE
(a) Detail the grounds upon which a partnership can be terminated
(b) Harry and Thuku agreed to meet for a business lunch at a restaurant in town. During the lunch,
Chuma one of Thuku’s friends joined the two and began to participate in the discussions. Chuma told
Harry that he was Thuku’s agent to which Thuku did not object. A week later, Chuma obtained goods
on credit from Harry, allegedly on behalf of Thuku.
Chuma has since disappeared and Harry is demanding payment from Thuku.
Advise Thuku.
(c) Explain what is meant by ‘apparent authority’ in the context of partnership law
(d) What are the main requirements for a limited liability partnership as regards to formation and
publicity

QUESTION TEN
Sell agreed to sell to Ahmed seventy (70) cases of fruits to be despatched from Mombasa to Nakuru.
As he already had a large consignment of five hundred (500) cases in transit to Nyeri, under one
consignment note to his order, he telegrammed the railway company with instructions to forward fifty
(50) cases to Ahmed at Nakuru and the rest to be held in store awaiting collection by other local
buyers. To complete Ahmed’s order, Sell sent a further twenty (20) cases under a separate
consignment note on the next train direct to Ahmed in Nakuru. Both consignments are delayed in
transit prior to reaching Nairobi and as a result, both are rotten on reaching Ahmed in Nakuru.
Required
(a) Advise the parties as to their respective rights and obligations.
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(b) What difference would it make if the contract provides for Ahmed to weigh the fruit for the
purpose of ascertaining the price?

QUESTION ELEVEN
“Undoubtedly, the most important and central feature of the agency relationship is the power of an
Agent to affect his Principal’s relation with third parties. In the vast majority of cases, this power
flows from what is known as authority- the Principal authorizes an Agent to do an act and the Agent
does it. Sometimes however, the power arises as a result of the conduct of the Principal which creates
the appearance of the authority although it does not actually exist.”
Critically discuss the above statement

QUESTION TWELVE
From your reading of the Sale of Goods Act, Chapter 31 of the Laws of Kenya, is the statute in need
for reform? And if so, in what areas and in what direction?

QUESTION THIRTEEN
(a) The principle of caveat emptor in sale of goods law has been said to champion the interests of the
producers of commodities at the expense of the ultimate consumer. Is this a correct assessment?
Explain
(b) The Sale of Goods Act, Chapter 31 of the Laws of Kenya, was meant to ameliorate the harshness
of the doctrine of buyer be ware under common law rules. How far if at all has the legislation met
those aspirations?

QUESTION FOURTEEN
(A) Akili Mingi owns a house at Muthaiga in Nairobi valued at Sh. 20 million. He insured it against
fire with Linda Mali Insurance Co. Ltd and Pokea Insurance Co. Ltd for Sh. 15 million and Sh. 10
million respectively. He also insured his household goods against burglary with Lipa Insurance Co.
Ltd. for Sh. 5 million. One night while he was away, burglas broke into the house, stole all household
goods and set the house on fire completely destroying it.

Akili Mingi claims the sum assured from the three insurance companies. Advise them.

QUESTION FIFTEEN
(a) Mr. Karanja signed blank cheques and left them with his wife to draw cash while he was away
attending to business affairs. Mrs Karanja instructed Hatari, a clerk in the firm of Karanja and Karanja
Associates to fill in the cheques. Hatari filled in the amount leaving a gap after the words “Sh.” and
wrote the amount in words from the middle of the line without using a capital letter. Hatari showed
the cheques to Mrs Karanja written “Sh. 50,000” and ………. fifty thousand only.” He was
authorized to encash the cheque. However before presenting the cheque for payment Hatari added
figure “3” to the amount in figures and “three hundred” in the words. He encashed the chequed for
Sh. 350,000. He then gave Mrs. Karanja Sh. 50,000 only. These facts have come to light after
Hatari’s resignation and Mr. Karanja intends to sue his bankers.
Advise the bank.

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QUESTION SIXTEEN
(a) Terry is a tenant of Lucas under a lease agreement signed and executed by both parties. At the
time of signing the lease, Lucas had promised Terry that he would repair a window which had broken.
A year has lapsed and the window is not yet repaired.

In the meantime, Lucas has been constructing a house next to the house occupied by Terry. He has
been using Terry’s compound as a storage for timber and other construction materials.

Terry has been under constant disturbances by the builders requiring her to open the gate so that the
building materials, could be bought in and taken out. This has made the compound dirty and noisy.

Terry seeks to know the rights which would protect her against these inconveniences under the lease
agreement. Advise her.

QUESTION SEVENTEEN
(a) Muthoga entered into a five year lease agreement for office premises with Njenga. After the end of
the lease period, the parties agreed that Njenga would continue occupying the office premises for
another five years. On that basis, Njenga made extensive renovations to the office premises. Muthoga
has now given Njenga notice to vacate the office premises claiming that the lease agreement had
expired.
Advise Njenga on his legal rights.

QUESTION EIGHTEEN
Charlie Kabue leased his shop at High Pole Commercial centre to Ray Matata for a period of two
years. In the lease agreement, Ray Matata was prohibited from using the shop for any other business
other than for sale of groceries. Charlie Kabue has discovered that Ray Matata has rented out the room
used as a store of the shop to Ben Chege. Moreover, Ray Matata is in rent arrears. Mr. Charlie Kabue
is aggrived and seeks your advice on the remedies available to him.
Advise him.

QUESTION NINETEEN
(b) Onyango signed a cheque and crossed it “not negotiable.” He told Atieno, his secretary, to fill in a
certain amount and to X’s name as payee. Atieno filled in a large amount made the cheque payble to
Nairobi Harambee Secondary School and gave it to her brother to take it to the school in order to pay
the outstanding school fees. The Nairobi Harambee secondary school cashed the cheque in good faith.
Onyango wants to know his rights, if any, against the school. Advice onyango.

QUESTION TWENTY
(a) Discuss the legal effect of bills of exchange drawn in the following terms:
(i) Pay Nit Ndekle Kshs.3,000/- one week after the end of Ramadhan; and
(ii) Pay Kamino Buolo Kshs.15,000/- if and when he wins the Safari Rally.
(b) Hesabu, an accountant of Speed Company Ltd, prepared a bearer cheque for Haraka’s signature
who was the duly authorized signatory. The amount appeared in figures as Sh. 2000, but the amount
was not written in words. Haraka signed a cheque. Hesabu then altered the amount to read Sh. 20,000
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and he indicated the amount in words, withdrew Shs. 20,000 from the company’s account. Hesabu
handed over Sh. 2000 to Haraka but pocketed the 18,000 being the difference between Sh. 20,000 and
Sh. 2,000. Speed Company Ltd has ascertained the true position and is insisting that the bank credit
its account with the sum of Kshs. 18,000. Advise the bank.

QUESTION TWENTY ONE

Narok Wheat Farmers Co. Ltd., entered into an agreement to sell its entire wheat crop to Ponda Unga
Limited. They also agreed to use Mcharo Valuers, a Tanzanian firm which specializes in evaluating
farm products, to fix the price of the wheat after harvest. The Tanzanian firm failed to come to Kenya
for its part due to border restrictions following the harvest but by then the farming company has
already delivered to the warehouse of Ponda Unga Limited about one-third of the crop.
In a letter to Narok Wheat Farmers Co. Ltd., Ponda Unga Limited has indicated that it will not accept
any further deliveries of wheat.
Advise Narok Wheat Farmers Co. Ltd.

QUESTION TWENTY TWO

Martin Kebugele is a graduate from Jomo Kenyatta University of Science and Technology. Recently,
he developed a machine that uses solar energy to cut grass. No such machine has been known to exist
and is the first type of its kind. He wants to approach Majani Grass Cutting Industries who sell grass
cutting equipment to help him produce his new machine commercially to satisfy a fast growing
market. He is, however, anxious to ensure that he legally protects his Intellectual Property rights from
being hijacked. He has come to your law firm (Wakili & Wakili Advocates) and seeks your opinion
on what he should do to protect his invention.
Proceed to advise him noting to identify the instrumentation you will employ to secure his rights and
the steps you will follow to do so.

QUESTION TWENTY THREE

2. Kwaka is a cashier working with Sombro & Company, Advocates, whose proprietor and only bank
signatory is Raki. Kwaka received a cheque drawn on Samanga Bank Limited in his employer’s
name. Being familiar with Raki’s signature he forged the latter’s endorsement in favour of his wife
Nyigwech.
A week later, Nyigwech presented the cheque to Taifa Bank Limited’s branch in Kandito township,
for payment. She explained that the cheque was a deposit in respect of a parcel of land she was
selling. She did not have any bank account with Taifa Bank and was advised to open one, which she
did.
On the fourth day, Nyigwech visited her new bank and withdrew all the proceeds of the cheque. She
left town and has not been seen for a long time.
Sombro & Company have instructed you to advise them on how to deal with the matter. Proceed.

QUESTION TWENTY FOUR

To what extent is a hirer of goods under a hire-purchase arrangement protected by legislation in
Kenya? What reform, if any, would you suggest to the present law?
Outline
- Background to the Act
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- Does the Act protect the hirer? Illustrate with examples
- Criticisms of the Hire-Purchase Act
- Proposals for reform

QUESTION TWENTY FIVE

(a) The Bill of Lading is a very important document when it comes to International Sale of Goods.
Explain at least four legal effects/functions of the Bill of Lading, and the various types of bills of
lading that exist.
(b) Kirut obtained a television set from Mosmos Traders and agreed to pay for it over a period of
twenty months. Sixteen months later, Kirut decided to sell the set to Reja along with other household
goods since he (Kirut) is going overseas for further studies. Mosmos Traders later learns of Kirut's
departure and claims the set from Reja.
Advise Mosmos Traders.

QUESTION THIRTY SIX

(a) Diki set out to buy a radio set for use with his record player. He explained this to Kola, a dealer in
radio and other electrical goods giving him the make of his record player. Kola recommended and
offered to sell to Diki "a suitable" model; but Diki could not immediately raise Kshs.6,000/= required
at once.
However Kola gave Diki the set upon a down payment of Kshs.2,400/=, the balance to be paid by
equal installments over eight subsequent months before final transfer. A clause in the agreement duly
signed by both parties stated in effect that no implied conditions or warranties should arise, whether at
common law or under any statute.
Diki took the radio set to his residence but it would not work with the record player. He returned it as
soon as he could to Kola and claimed back his down payment. Kola refused to take back the set and
would not refund the money.
Advise Diki.
(b) Buda Limited authorized Hongo & Co. to buy certain goods on their behalf. The latter proceeded
to A. Duodi Holdings Limited (ADHL) and upon issuing their own cheque, collected the goods which
they duly delivered to Buda Limited. The cheque was subsequently dishonoured by the bank on
presentation for payment. ADHL had no idea for whom the goods were purchased.
On receiving the goods, Buda Limited paid Hongo & Co. In the meantime A. Duodi Holdings Limited
has discovered who sent Hongo & Co. to buy the goods and now wish to claim the price of the goods
from them.
Advise ADHL