BUSINESS LAW BED 212

1. Meaning of Law and source of Nigerian Law

2. The law of Contract
3. Meaning of Tort and its relevance to Business
4. Agency
5. The Nature and legal interpretation of Sales of Goods
6. The definition of negotiable instrument and types of negotiable instruments

Topic 1: Meaning of Law and source of Nigerian Law

Introduction
Law basically consists of a body of rules and regulations. These rules and regulations are
usually designed to regulate human conduct in the society. All human behaviour is shaped in
one way or the other by various laws. Law, once made is meant to be obeyed, but it is
discovered that people may not voluntarily want to meet the expectations of the law. As a
result, there may be the need to introduce some elements of sanctions against acts of violation
or defiance so as to ensure compliance with the law.

Meaning of Law
We can breifly define Law in the following ways:
i. Law is a set of rules, enforceable by the courts, which regulate the government of
the state and govern the relationship between the state and its citizens and between
one citizen and another.

ii. Law can also be defined as writen and unweriten rules on human conduct derived
from former enactment, customs and the judicial precedent, which are recognised
as generally binding on human being based on its enforcement directly by the
state on all members of the community through the imposition of appropriate
sanction.

Sources of Laws
The term “source of law” is used in various senses but we shall restrict ourselves to just three
senses: the formal, the literary and the legal sources of law. The formal source means the
origin of the whole body of legal system – the source from which the system derives its
validity, be it the electorate, a special body, the general will or the will of a dictator. The
literary source of law refers to materials containing the rules of law. Statute books, law
reports and textbooks are sources of law in this sense. The legal source of law means the
fountain of authority of a rule of law, that is, the origin from which a legal rule derives its
authority. It is the means through which through which a rule forms part of the body of law.
Examples of legal sources are legislation and judicial precedents. It is in this third sense that
the term is used in Nigeria.
The sources of Nigerian law are: (a) Nigerian Constitution; (b) Nigerian legislation; (c) the
Received English law which consists of: (i) the common law; the doctrines of equity; statutes
of general application in force in England on January 1, 1900 and (ii) English law made
before October 1, 1960 and extending into Nigeria; (d) Customary law and (e) Judicial
precedents.

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 1) Constitution
A Constitution is a document containing the rules and regulations including the norms and
ethics concerning the ways and manner in which a country is to be governed. The
Constitution regulates the activity of the government as well as safeguards and protects the
interests of the governed.
The Constitution of the Federal Republic of Nigeria 1999 has the following features or
characteristics:

(a) Supremacy of the Constitution

The provisions of the Constitution are binding on all authorities and persons throughout
Nigeria. Being the basic law of the land, its provisions are supreme over all other laws and
any law inconsistent with its provisions shall be null and void. In addition, no part of the
country shall be governed except in accordance with the Constitution.

(b) Written form: The Constitution of the Federal Republic of Nigeria is a written
Constitution. It is written not merely in the sense that it is a document, but essentially because
it is one in which fundamental principles concerning the organisation of government, the
powers of its various agencies and the rights of the subjects are written in one document

(c) Rigidity
The Constitution of Nigeria is rigid. A rigid constitution cannot be changed or amended
easily because it requires special process which is not only difficult but is also complicated
and the special process is actually laid down in the Constitutions themselves.

(d) Federal System

The Constitution creates a federal system of government. In a federal system of governance,
the powers of government have been distributed between one level of government and
another. Each state is autonomous to the extent of the powers and duties conferred on it by
the constitution. Under the 1999 Federal Constitution, Nigeria remains a federation consisting
of thirty-six States and the Federal Capital Territory. See sections 2(2) and 3 of the CFRN,
1999. The Federal structure recognises three tiers of government namely: The Federal, State
and Local government

(e) Separation of powers

The Constitution separates the powers of government into Executive, Legislative and Judicial
branches. Separation of powers implies that the various organs of government should
function separately and independently of one another. That way, they constitute checks and
balances. Under the Constitution of the Federal Republic of Nigeria 1999, the various
functions to be performed by each organ of government are clearly stated in such a way and
manner that each organ was made to know the extent and limits of its functions and
jurisdictions. No arm of government is entitled to infringe on the functions of the other.

(f) Fundamental rights

These are basic rights to which every citizen is entitled within the polity as entrenched in the
Constitution of the Federal Republic of Nigeria, 1999. They are often referred to as
inalienable rights. Any attempt by any person, group or the government to tamper with the
rights may be subject of court action. Fundamental rights are preserved and protected under
the Constitution.
The fundamental rights are as follows:
i) rights are right to life;

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 ii) right to dignity of human person;
iii) right to personal liberty;
iv) right to fair hearing;
v) right to private and family life;
vi) right to freedom of thoughts, conscience and religion;
vii) right to freedom of expression and the press;
viii) right to peaceful assembly and association;
ix) right to freedom of movement;
x) right to freedom from discrimination;
xi) right to acquire immovable property anywhere in Nigeria; and
xii) right to compensation upon compulsory acquisition.

2) The Common Law

The term Common Law as a part of the Received English Law in Nigeria means the law
developed by the old common law courts of England, namely, the King‟s Bench, the Court of
Common Pleas and the Court of Exchequer. There were originally several systems of local
customs in England. But under the guise of enforcing the customs of the realm, the common
law judges developed a system of law known as the common law of England. Rules of the
common law are, therefore, found in judicial decisions.

Doctrines of Equity
Equity is the law developed by the old English Court of Chancery as a result of the rigidity of
the common law. Whenever the rules of the common law worked hardship or injustice, the
litigant sent a petition to the sovereign as the fountain of justice and the Royal Council. The
Lord Chancellor granted relief on behalf of the sovereign and the Council as the thought fit.
He followed no established principles in dealing with such matters. Accordingly, whenever
there was a conflict between a rule of equity and a rule of common law on the same matter,
the rule of equity was to prevail. Finally, it should be mentioned that because equity was
developed by a court, its rules are found only in judicial decisions, except that there are many
equitable rules that have been incorporated into statutes

Rules of Equity
Rules of equity are legal maxims that serve as a set of general principles or rules which are
said to govern the way in which equity operates.
The twelve equitable maxims are:
1. Equity will not suffer a wrong without a remedy;
2. Equity follows the law;
3. Where there is equal equity, the law shall prevail;
4. Where the equities are equal, the first in time shall prevail;
5. He who seeks equity must do equity;
6. He who comes into equity must come with clean hands;
7. Delay defeats equity;
8. Equality is equity;
9. Equity looks to the intent rather than the form;
10. Equity looks on that as done which ought to be done;
11. Equity imputes an intention to fulfil an obligation; and,
12. Equity acts in personam.

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Statutes of General Application
Statutes of general application that were in force in England on the 1st day of January, 1900,
form the third group of Received English Law in Nigeria. The courts are entrusted with the
responsibility of ascertaining and applying those statutes that meet the laid down criteria for
application under the general provision. Statutes of General Application do not apply in
States of the Federation of Nigeria that have their local laws or statutes

3) Judicial Precedents
Judicial precedent or case law consists of laws found in judicial decisions. A judicial
precedent is the principle of law on which a judicial decision is based. It is the ratio decidendi
(literally, the reason for the decision). It follows that only the pronouncement on law in
relation to the material facts before the judge constitutes a precedent. This also includes law
reports.

4) Legislation
Legislations are laws passed by Parliament or the legislative branch of government, which is
the State House of Assembly or the National Assembly. They are called Acts at the federal
level and Laws at the state level. Legislation may also be exemplified by the Constitution and
Subsidiary legislation.

5) Customary Law
The Meaning and development of customary law
Customary law means the rules of law which by custom are applicable to particular
communities in Nigeria. They are the customs accepted by members of a particular
community as binding upon them. In Nigeria, customary law consists of two classes, namely,
ethnic customary law and Islamic customary law (Sharia‟h). Ethnic customary law in Nigeria
is indigenous. Each system of such customary law applies to members of a particular ethnic
group. Moslem law is religious law based on the Moslem faith and applicable to members of
the faith. In Nigeria, it is not indigenous law; it is received customary law introduced into the
country as part of Islam. Ethnic customary law is unwritten. There are several systems of
customary law in the country, each ethnic group having its own separate system. Unlike
ethnic customary law, Islamic customary law is principally in written form. The sources of
Moslem law are the Holy Koran, the practice of the Prophet, the consensus of scholars, and
analogical deductions from the Holy Koran and from the practice of the prophet.

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 Topic Two: The Law of Contract
Introduction
The law of contract is at the centre of most human activities. All of us, within a day, make
several contracts without sometimes even realizing it. When you engage somebody to weed
around your house for pay, you have established a contractual relationship. When you enter a
bus going to a particular place along a particular route and you pay the fare, you have made a
contract with the party running the service. When you put an item on sale at a particular price
and another person agrees to buy it at that rate you have both entered into a contract. Since
contracts regulate a lot of our activities it is necessary to have an appreciation of it. This will
make it easy for parties to know the obligations they have imposed on themselves. Parties
will then be in no doubt about what their liabilities are on failure to fulfil their part of the
contract and what will be their remedies if the other party is in breach.

Definition and Elements of Contract

Definition of contract
A contract can be simply referred to as a promise or set of promises which the law will
enforce. Also, A Contract can be simply be defined an agreement between two or more
parties which will be enforced by law.

Requirements for a contract to hold (Essential elements of contract)

For a valid contract to be in place there must be some essential elements
a) There must be an agreement between two or more persons.
b) The parties must intend that their agreement will result in legal relations
c) The contract must comply with any required statutory formalities.
d) In English law, there is a requirement that the agreement must be supported by what
is called „consideration‟.
e) The parties to the agreement must have „legal capacity‟ to contract. For example, a
contract with a person who is mentally unsound is not valid.
f) The agreement must be genuine and not be affected by factors such as mistake,
misrepresentation, fraud, undue influence and duress.
g) The agreement must be for a purpose of object which is not illegal or contrary to
public policy. These requirements can be summarized as follows:
i) Offer and Acceptance (Agreement)
ii) consideration
iii) intention to create legal relations
iv) contractual capacity
v) Void of vitiation elements (mistake, misrepresentation, fraud, duress & undue
influence)
vi) Legality of agreement object.

i) Offer and Acceptance

Offer
Whenever a person proposes terms to another person and shows willingness that if that
person accepts those terms he is ready to contract with him, then those terms constitute an
offer. For example if Kofi tells Adenuga that he will sell his house to him at a certain price,
that constitutes an offer which will bind him should Adenuga agree to buy the house on the
same terms. An offer is thus a definite promise made by one party with the intention that it
shall be binding on him once it is accepted by the party to whom it is addressed. Generally an
offer may be made expressly by words, but may also be implied from the conduct of the

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person making the offer (the offeror). An offer may be directed to an individual, a group of
persons or the world at large.

Invitation to treat
This is not an offer. It is a preliminary communication which indicates a willingness to enter
into negotiations. It is an invitation to the person to whom it is directed (the recipient) to
make an offer. It is therefore described as an offer to negotiate or an offer to receive an offer.
An invitation to treat cannot be accepted to bring a contract into being. Circumstances which
amount to invitation to treat include advertisements, display of goods for sale, auctions and
tenders. When there is an advertisement it is only intended to be an invitation to treat

Counter Offer
It is important at this stage to make a distinction between acceptance and a counter offer. As
indicated earlier, an acceptance means assent to the terms of the offer. In a counter offer, the
offeree's reply indicates a willingness to be bound on terms different from those contained in
the offer.

Termination of an offer:
An offer may be terminated in the following ways:
a) Non-acceptance of the offer
b) Revocation: withdrawing the offer before it is accepted and the offeree not accepting
c) Lapse of times the terms: where an offer is made and it is to be accepted at a
particular time, failure to do so terminate the offer by lapse of times.
d) The death of the offeror or offeree before acceptance terminates the offer. Even death
after acceptance, where personal service is involved terminates the contract.
e) Counter offer: making a new offer instead of acceptance terminates the original
offer.
Acceptance
It is the expression as sent to the terms of the offer made by the person to whom the offer was
made (the offeree). In the example where John offered his house to Adenuga at a certain
price, the agreement by Adenuga to buy the house on those terms constituted acceptance. An
offer is not accepted by mere silence on the part of the offeree. Acceptance has to be
communicated to the offeror. It is not deemed to be communicated until it is actually brought
to the notice of the offeror.

ii) Consideration
Consideration is something of value in the eye of the law. It is also seen as the price, which
need not be monetary alone, paid by each party for the promise of the other.
It is also important to know that a contract is generally not binding unless it is supported by
consideration, but a contract under seal binds the parties without the requirement of
consideration. In other words, a contract under seal may dispense with consideration. A
contract under seal exists where the parties sign, seal, and deliver the contract document.
Such a document is known as a deed, or specialty contracts, or a formal contract. The law
takes these kinds of contracts very seriously.

Types of Consideration
Consideration may be executory or executed.
Under executory consideration, valuable consideration may be provided by mutual
promises which will give rise to a bilateral contract. It is a promise to do or forbear from
doing some act in the future. The whole transaction remains to be performed in the future.

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Executed consideration is an act by one party in exchange for a promise made or an act
done by the other. A promise for an act gives rise to a unilateral contract
.
General rules
Past consideration is no consideration. It is a promise which follows a completed act. Such a
promise is independent of the act or service performed. It is therefore not enforceable.

iii) Intention to create Legal Relations

Parties intend to create legal rights and duties out of their agreement and thus to invoke the
assistance of the ordinary courts on breach of the contract. In a domestic or social setting or
act of friendship there is an assumption that the parties do not intend to create legal relations.
But in a commercial setting there is an assumption that the parties intend to create legal
relations. Both the assumptions stands until the contrary can be proved.
Domestic and Social Agreements
Domestic arrangements are made between husband and wife, parent and child and among
relatives. Within this class the rule is that there is an assumption that the parties do not intend
to create legal relations. Those arrangements or many of them do not result in contracts at all
because the parties did not intend that they should be attended by legal consequences.
.
Commercial Agreements
In commercial transactions, there is a strong presumption that the parties intend to create
legal relations. The strong presumption may be displaced either expressly or impliedly. To
oust expressly the presumption, clear words must be used.

iv) Capacity to enter into Contract (Contractual Capacity)

Capacity is the ability to incur legal rights and obligations. The law presumes that everyone is
competent to bind himself to any contract he chooses to make provided that it is not illegal or
void on public policy grounds. A few classes of people are under a disability. These are:
a) infants or minors
b) mentally disordered persons or lunatics
c) drunken persons
d) corporations or companies.

v) Legality of the agreement

The object of the agreement must be a legal tender.
Example: If someone offers you the sum of One Million Naira (#1,000,000:00) for you to
jump down from Stores building, such a contractual agreement is illegal and cannot be
accepted in the law court.

vi) Void of vitiating elements

The parties to a contract must have agreed to the terms of their contract. It must indeed be
very clear that they have agreed freely, without some form of compulsion or some other
defect which may make the apparently valid contract defective. Where there is such an
element which may spoil or make such contract defective, such an element is known as a
vitiating element. These include:
i) mistake,
ii) misrepresentation,
iii) duress,
iv) undue influence and
v) illegality

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Mistake: The general rule is that mistake does not affect a contract. If a man makes a mistake
as to the value or the type of thing she buys, it is his ill luck, as there is no remedy for him
unless the other party has given him a wrong impression. Likewise, mistake of law never
affects the validity of a contract since ignorance of the law never avails a party, otherwise
every party will plead that he was mistaken as to the law. However, in some circumstances,
mistake of fact may affect a contract, and if sufficiently serious may spoil the contact, render
it void. Let us now examine such instances where a mistake of fact may vitiate a contract.
i. Common mistake: Mistake could be common mistake when the mistake is made
by both parties. Here the parties are labouring under the same mistake. They are
simply both wrong. An example of this arises when both of them make a mistake
as to the existence of the subject matter, which is considered hereunder. The
subject matter has been destroyed last night in a distant warehouse unknown to
both parties.
ii. Mutual mistake: A mutual mistake could arise when the parties misunderstand
each other and thus work at cross purposes. Ade may have three BMW cars of the
same model; Ayoola may want to buy the blue model while Ayo intends to sell
the white one.
iii. Unilateral mistake: A unilateral mistake occurs where only one party is
mistaken, for example as to the identity of the other party he is contracting with or
as to the nature of document she is signing.

Misrepresentation: This is a false statement of fact (not law) made by one party which
induces the other (innocent) party into making a contract. The Statement must have been
intended to be acted up on and must have actually induced the other party to make the
contract. For it to avail a party he must show that:
(a) The statement is a statement of fact as opposed to an expression of an opinion e.g.
“doctors have recommended that this product is good” as opposed to “this is the best
caviar in the World”. The first is a statement of fact which may induce a party to buy
a particular drug which if it turns out was not what it is stated to do may amount to a
misrepresentation. The second statement is only an expression of opinion by the
Seller as to his wares and does not amount to a representation where it turns out to be
false. It is important to note that there are instances where even silence could amount
to a misrepresentation as where a party has a positive duty to speak and nothing is
said as may arise in the some instances.

(b) The statement must also induce the contract i.e. one party must have been taken
seriously by the other party so that here lied on it and not upon his own judgment. It is
immaterial whether the means of verifying a statement was made available to him.

Duress: is pressure brought to bear upon one of the contracting parties to induce him to enter
into the contract. It consists in the actual or threatened personal violence, imprisonment or
restraint of personal liberty either to him, wife, child or parent. It should also be noted that the
effect of misrepresentation is to render the contract voidable and not void.

Undue Influence: Undue Influence is the use of any influence by which the exercise of
freewill and deliberate judgment is excluded i.e. it relies upon the wrongful use of influence
that one party may have over the other although influence by itself is not unlawful. It may
arise anyhow but the substance is that the parties to a contract are not on equal footing. It is
for the party benefiting from the contract to show that the other party contracted freely using

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his own freewill or had other independent advice. The actual relations may show that one has
exerted overbearing influence on the other. It also renders a contract voidable and not void.

Illegality: A contract that is illegal is absolutely void. It may be illegal because it is forbidden
by law, or because the Courts will not enforce it because of the overriding consideration of
public policy. Thus, some contracts are prohibited by statute; some are prohibited at common
law. These are properly called “illegal contracts”. Some contracts are not completely
prohibited, but they are denied full validity, either by statute or at common law. Examples
are Void and voidable Contracts.
i) Void Contracts:
These are contracts which have no legal effect. The parties have only attempted to contract as
the Courts will not give effect to their agreements at all. The effect of mistake as a vitiating
element is to make a contract void, i.e. destitute of all legal rights. The distinction between
void and voidable contracts is better appreciated when third party rights are considered.
Where a contract of a sale of goods is void, the buyer does not become owner of the goods,
so he cannot sell them to anyone else, the original owner can recover them from whoever he
sells them to. Whereas if it was voidable, for example as one affected by duress, it is still a
valid contract until the aggrieved party decides to cancel it, thus if the buyer resells it before
the aggrieved party takes steps to cancel the contract, the third party who buys from him will
have a good title where he is not aware of his seller's (i.e. the original buyer) defective title

ii) Voidable Contracts:

These types of contracts are generally recognisable in law and even given effect which is
however subject to certain conditions. The law allows one of the parties to such contracts to
withdraw from them if he wants to. These contracts include contracts entered into by minors,
or other contractual persons affected by lack of capacity such as illiterates, drunks or insane
persons. Contracts vitiated by misrepresentation, undue influence and duress also come under
these kind of contracts.

PRIVITY OF CONTRACT
The principle of privity of contract is that a person who is not a party to a contract cannot
bring action on it. Except expressly stated in the contract, a person who is not a party to a
contract cannot enjoy the benefit or suffer the burdens of the contract, because it is a
relationship that exists between parties to the contract.

There are however exemptions to this rule, and they are as follows:
a. Insurance contract
Under third party motor vehicle insurance contract, a third party can sue the insurance
company for loss or injury sustained in vehicle accident caused by the insured;

b. Trust
A trustee that holds property in trust for another can sue in respect of the trust property;

c. Inheritance under will

Although a legatee or beneficiary under a will is not a party to the will, he may sue on the
legacy or bequeath;

d. Agency
Under the law of agency, a principal may sue or be sued in respect of transactions entered
into on his behalf by his agent;

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e. Negotiable Instruments
In a situation where a person stands as a guarantor to another in deals with negotiable
instruments, the guarantor can be sued in substitution of the person involved in the contract;

f. Chose in action
Under legal assignment, the assignee of chose in action on a debt or financial liability may
sue the original debtor;

g. Restrictive Covenants
This occurs in land law and relates to restriction as to the purpose the land is to be used for as
agreed between the original owner and the first purchaser. This will be binding on the
subsequent purchaser.

Conditions and Warranties

The actual terms of a contract may be conditions or warranties. Of the two terms,
conditions are more fundamental than warranties. In other words, a very important term in a
contract is called a “condition”. A term of lesser importance is called a “warranty”. For a
breach of condition, the buyer can cancel or repudiate the contract. For a breach of warranty,
he cannot, but may sue for damages.

A Condition is an essential term which goes to the root of the contract, the breach of which
entitles the affected party to repudiate the contract. It is thus an undertaking that a certain
state of affairs exists or will exist or a promise that a certain thing shall or shall not be done,
the fulfilment of which undertaking is very fundamental to the contract.

A Warranty, on the other hand, is an agreement on goods, which are the subject of a
contract, but is not the main purpose of the contract. Its breach, gives rise to a claim for
damages only, but not a right to reject the goods or treat the contract as repudiated.

TERMINATION OR DISCHARGE OF CONTRACT

A contract is discharged when the obligation created by it ceases to be binding on the
promisor who is no longer under a duty to perform his side of it. The implication of discharge
is that the parties are released and freed from their mutual obligations. This may arise in the
following ways:-
• Express agreement
• Performance
• Breach
• Frustration, or
• Death

Agreement: Since contracts come into being by agreements, they can also come to an end
where the parties bound by it, agree to end the contract. For the discharge to be operative, this
agreement to terminate must be supported by consideration. An agreement to terminate a
contract may also take the form of replacing the old contract with a new one and which may
be made between the same parties with fresh terms or made by one of the old parties with a
third party, and this is known as novation.

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 (2) Performance: Where the parties have done that which they contracted to do the contract
becomes discharged by performance. However, if performance is to be an absolute discharge
of a contract nothing must remain to be done there under by either party i.e. they must have
fulfilled both their promises.

(3) Breach: A breach occurs where one party fails to do that which he has promised under
the contract, either wholly or partly. Such failure destroys the contract. Truly speaking, a
breach does not discharge a contract but the injured party may rescind the contract and sue
for damages. It also relieves him from further obligations under the contract. Every breach of
a contract entitles the injured party to claim damages.
Generally, a party to a contract may commit a breach of contract in the following ways:
a) by repudiating his liability under the contract before the time for performance is
due(i.e. anticipatory breach)
b) by failing to fulfil his obligations when purporting to perform the contract.
c) by his self-incapacitating act of performance of the contract
Remedies for Breach of Contract
a) A right of action for damages in respect of the breach of the contractor some term of
it. An innocent party has the right to get damages for the losses occasioned him from
the breach.
b) A right of action on quantummeruit i.e. a right to sue in respect of what he had
already done before the breach occurred. This remedy avails a party when one party
abandons or refuses to perform the contract, when work has been done and accepted
under a void contract and when there is no provision for remuneration. Thus in the
event of a breach of contract, the injured party may not claim damages, but claim
payment for that he has done under the contract. His right to payment is not based on
the original contract, but on an implied promise by the other party arising from the
acceptance of an executed consideration.
c) A decree of specific performance compelling the other party to carry out his
obligations. This is an equity based remedy. Thus, it is based on the discretion of the
Court and cannot be insisted upon by the party. A party is not entitled to specific
performance
i) where damages would be adequate
ii) in contracts for personal services;
iii) where it cannot be awarded to the other party (e.g. a minor)
iv) where the court cannot supervise the execution of the contract, e.g. a building
contract ;or
v) in contracts to lend money.
d) An injunction restraining him from violating them. An injunction like specific
performance is also a discretionary remedy and is not available to a party where
damages would be adequate compensation. It is generally given to prevent a party
from acting in breach of a contract.
e) Rescission. The effect of this remedy is to put the parties where they were before they
entered the contract.
f) Rectification. This equitable remedy allows the parties to rectify their documents in
order to give effect to the true intent of their contract. To obtain rectification it must
however be proved that:
i) there was complete agreement between the parties on all important terms;
ii) the agreement continued unchanged until it was reduced into writing;
iii) the writing did not express what the parties had already agreed.

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 g) Action to account for profits from breach. In exceptional circumstances, the court may
allow an injured party to get an account of the profits which may have accrued from
that breach to the party in breach. A-Gv. Blake (2001). The equitable remedy is
available and allowed only where remedies of damages, specific performance and
injunction would be inadequate remedy.
h) Action for price or some other sum. This is appropriate where property has passed,
and the breach consists of a party`s failure to pay the agreed price, remuneration or
debt due under the contract.

(4) Death: Ordinarily, the death of a party to a contract will not operate to vitiate the
contract. However, a contract may be discharged upon the death of one of the parties where
the contract is for personal service, and he dies before the personal service could be
performed.

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

It generally, does not discharge a contract and the defaulting party is liable. In damages, in
spite of the fact that his inability to perform is due to circumstances beyond his control
However it will discharge a contract:-
a) Where the impossibility is caused by a change in the law or supervening
circumstance. For example, where A agrees to import an item for sale to B and
Government bans the importation of such an item, such contract of sale becomes
discharged by frustration.
b) Where the accidental destruction of a specific thing upon which the contract depends
renders performance impossible Taylor v. Caldwell (1863) 28. A, hired a music hall
from B, and an accidental fire destroyed the hall. It was held that the contract was
discharged.
c) Where the contract depends upon the happening of a specific event which does not
occur. Krell v. Henry (1903) 29. The Defendant hired a room to view a coronation
procession that will pass along there, but the procession was however cancelled. It
was decided by the Court that the contract had become discharged upon the
procession being called off.
d) Where, through vital change of circumstances, the contract as a commercial venture is
frustrated-war. For example a carrier who has agreed to haul goods through a shorter
route may be availed by frustration where such route is destroyed and he has to go
through a longer and costlier route such that the contract is no longer commercially
viable.
e) The death of either party to a personal contract terminates it generally. Likewise
bankruptcy or illness which goes to the root of the contract will also terminate the
contract.
The effect of frustration on a contract is to automatically bring the contract to an end and
render it void, thus all sums paid before the discharge by frustration in respect of the contract
could be recovered while those sums not yet paid need not be paid

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 Topic 3: Meaning of Tort and its relevance to Business
Definition and Types of Torts
Tort is conduct that harms other people or their property. It is a private wrong against a
person for which the injured person may recover damages. The injured party may sue the
wrong doer (tortfeasor) to recover damages to compensate for the harm or loss incurred.
The conduct that is a tort may also be a crime. Some torts require intent before there will be
liability and some torts require no intent. In other words, in some cases, there is liability for a
tort even though the person committing the tort did not have any intent to do wrong.

Tort can come in the following ways:

1) intentional torts ( Trespass, false imprisonment and defamation)
2) torts based on negligence (Negligent, malpractice, and nuisance)
3) strict liability torts (Vicarious/ Strict Liability)

1. An intentional tort is a civil wrong that occurs when the wrongdoer engages in
intentional conduct that results in damage to another. Striking another person in a
fight is an intentional act that would be the tort of battery. Striking a person
accidentally would not be an intentional tort since there was not intent to strike the
person. This may, however, be a negligent act. Careless conduct that results in
damage to another is negligence. The intent element of these torts is satisfied when
the tortfeasor acts with the desire to bring about harmful consequences and is
substantially certain that such consequences will follow. If a person commits an
intentional tort, this means that he intentionally violated a legal duty he owed to the
victim.
2. Torts based on negligence: This occurs as a result of lack of good care when the
tortfeasor violated the duty that every member of society has to exercise reasonable
care in their actions with others. The distinction between an intentional tort and a
negligent tort is important for several reasons. First, if an individual wants to sue for
an intentional tort, he must prove that the tortfeasor acted with "intent." This is a
separate legal requirement that the plaintiff must fulfil, in addition to proving all the
other facts of the case and proving actual damage.

3. Strict liability torts: Strict liability, sometimes called absolute liability, is the legal
responsibility for damage, or injury, even if the person found strictly liable was not at
fault or negligent. An example of strict liability is injury caused by wild animals in the
care of the tortfeasor; because the tortfeasor owns tigers, the tortfeasor is responsible
for any injury, without the need for the injured party to prove negligence. Other
example of strict liability is imposing product liability in the case of defectively
manufactured products. Strict liability applies especially in cases involving hazardous
or dangerous activities. Generally, liability based on a tort only arises where the
defendant either intended to cause harm to the plaintiff or in situations where the
defendant is negligent. However, in some areas, liability can arise even when there is
no intention to cause harm or negligence. For example, when a contractor uses
dynamite which causes debris to be thrown onto the land of another and damages a
landowner‟s house, the landowner may recover damages from the contractor even if
the contractor was not negligent and did not intend to cause any harm. Example:
Acme Construction Company was constructing a highway. It was necessary to blast
rock with dynamite. The corporation‟s employees did this with the greatest of care. In
spite of their precautions, some flying fragments of rock damaged a neighbouring
house. The owner of the house sued the corporation for damages. The corporation

13
 raised the defence that the owner was suing for tort damages and that such damages
could not be imposed because the corporation had been free from fault. But the
defence was not upheld. Other examples of absolute liability situations would be harm
caused by storage of flammable gas and explosives, factories which produce
dangerous fumes or smoke in populated areas, and the production of nuclear material.

Main types of torts:

i) Trespass
ii) False imprisonment
iii) Negligence
iv) Malpractice
v) Nuisance
vi) Defamation
vii) Vicarious/ Strict Liability

Trespass: A trespass is an unauthorized action with respect to a person or property. It covers

all forcible or direct injuries to land (trespass to land), person (trespass to person) or goods
(trespass to goods). This is the origin of the modern torts of Trespass, Assault, and Battery
etc.

A trespass to the person consists of any contact with someone‟s person for which consent
was not given. The trespass to person covers assault, battery and false imprisonment.
a) Assault: An assault is an attempt or threat to apply force to the person of another,
whereby he is put in reasonable fear of present violence. Example of an assault would
be where one person swings his fist at another person. If the person made contact, this
would be an assault and battery. A defence to assault and battery would be in cases of
self-defence.
b) Battery: This is touching another person, however slightly, directly or with missile
with hostile intent and against his/her will.
c) False imprisonment: this is an unauthorized total deprivation of freedom of another,
with or without his knowledge. False imprisonment involves detaining a person
without that person‟s consent. It can take the extreme form of kidnapping or the less
extreme form of detaining a shopper for suspected shoplifting without reasonable
grounds.

A trespass to land involves going on or above the property of another without permission. A
trespass can also involve the unpermitted use of the airspace of another‟s property as well as
actually going on the actual property. However, this rule has been modified to allow the flight
of aircraft above the land as long as it does not interfere with the proper use of the land.

A trespass to goods: It is the use of someone‟s property without the person‟s permission.
This means wrongfully taking goods out of the possession of another or wrongfully
interfering with them while in his possession. Two torts derived from trespass to goods are:
a) Wrongful detention of goods belonging to the plaintiff, after their return has been
demanded.
b) Conversion: A conversion occurs when personal property is taken by a defendant
and kept from its true owner without permission of the owner. Conversion is the civil
side of the crime of theft. The concept is based on the tortfeasor converting something
to his/her use. It also requires an intention to deprive the true owner of his/her
ownership.

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Negligence: is a failure to follow the degree of care that would be followed by a reasonably
prudent person in order to avoid foreseeable harm. A person can be negligent if he or she acts
with less care than a reasonable person would use under similar circumstances. Dapo drove a
car on a country road at 40 km an hour. The maximum speed limit was 50 km an hour. He
struck and killed a ram that was crossing the road. The owner of the ram sued Dapo for the
value of the ram. Dapo said that since he was not driving above the speed limit, there could
be no liability for negligence. Was this defense valid? No. A person must at all times act in
the manner in which a reasonable person would act under the circumstances. The fact that
Dapo was driving within the speed limit was only one of the circumstances to consider. The
weather or the condition of the road may have made it unreasonable to drive at 40 km an
hour. Driving slower than the speed limit does not in and of itself prove that the driver was
acting reasonably.

Malpractice: Malpractice is a failure by a physician or other professional to use the skill and
care that other members of their profession would use under similar circumstances. When an
accountant, doctor, attorney, or some other professional contracts to perform services, there is
a duty to exercise skill and care as is common within the community for persons performing
similar services. Failure to fulfil that duty is malpractice.

Nuisance: Nuisance is a civil wrong, consisting of anything wrongfully done or permitted

that interferes with or annoys others in the enjoyment of their legal rights. It is anything that
annoys or disturbs the free use of one‟s property or that renders its ordinary use or physical
occupation uncomfortable.
A nuisance is differentiated from a trespass to land. A trespass is an invasion of a person‟s
interest in the exclusive possession of their land, whereas a nuisance is an interference with
the use and enjoyment of the land and does not require interference with the possession.
A person injured by a nuisance can recover damages in an action at law for tort. Similarly,
damages can also be recovered for injury resulting from the legal use of a property, if such
use substantially damages the property of another. Nuisances can be divided into public
nuisances or private nuisances.

A public nuisance exists when an act or condition is subversive of public order or constitutes
an obstruction of public rights. A public nuisance involves an unreasonable interference with
a right common to the general public. It is a public nuisance if the injury or annoyance affects
the people of a local neighbourhood. A public nuisance can constitute either a crime or may
be the subject of a civil action by public officials or private individuals and it covers a variety
of minor criminal offenses that interfere with the public health, safety, morals, peace, or
convenience.
Public nuisances include for example, a manufacturer who has polluted a stream and might
be fined and be ordered to pay the cost of clean-up. Public safety nuisances include shooting
fireworks in the streets or storing explosives.

A private nuisance is a civil wrong that affects a single individual or a definite number of
persons in the enjoyment of some private right which is not common to the public. In other
words, a private nuisance is a substantial and unreasonable interference with the private use
and enjoyment of one‟s land. Examples include interference with the physical condition of
the land, disturbing the comfort of its occupants, or threatening injury or disturbance in the
future. Nuisances that interfere with the physical condition of the land include vibration or
blasting that damages a house; destruction of crops; raising of a water table; or the pollution

15
of soil, a stream, or an underground water supply. Examples includes foul odours, noxious
gases, smoke, dust, loud noises, excessive light, or high temperatures, e.g. a landowner
burning plastic and old tyres so that the smell and smoke affect his neighbours.

Defamation of character
Defamation is the communication of a false statement that harms the reputation of an
individual.
The law of defamation protects a person‟s reputation and good name against communications
that are false and derogatory. Defamation consists of two torts:
i) libel and
ii) slander.

Libel consists of any defamation that can be seen, most typically in writing about a
person which would damage that person‟s reputation.

Slander is a form of defamation that consists of making false oral statements about a
person which would damage that person‟s reputation. If I spread a rumour that my
neighbour has been in jail and this is not true, I could be held liable for slander.

In order to prove defamation, the plaintiff must prove:

i. that a statement was made about the plaintiff‟s reputation, honesty or integrity that
is not true;
ii. there was publication to a third party (i.e., another person hears or reads the
statement);
iii. the plaintiff suffers damage as a result of the statement

Vicarious Liability
This is liability which falls upon an individual without his fault. It is liability imposed upon a
person by the actions of another person who is under his control. A good example is a
Master/Servant relationship. There are some tests used as criteria in determining whether the
relationship is a master/servant relationship where vicarious liability applies or a Master and
independent contractor. These include:
i) Whether the employer is a master who shows the employee how to do his work
which would distinguish the servant from an independent worker who is trained in
his trade or profession and works without supervision.
ii) Where one person pays the other wages and salaries.
iii) Where one person has power to hire and fire another.
iv) Whether the employee is an integral part of the organisation or not.
v) Whether the employee was acting within the scope of his employment.

The master is not liable for the tort of his servant unless the tort is committed in the course or
the scope of the servant‟s employment. The act must be lawful and incidental to the servant‟s
employment. The master may be vicariously liable if the act is either expressly or impliedly
authorised by the master or if the servant performs a duty which is authorised by the master
in a wrongful and unauthorised manner.
There are cases where a master gives the servant instructions and the servant fails to comply
with the instructions. Failure of the servant to comply with his master‟s instructions may
sometimes exonerate the master from liability. Thus, in Twine v. Bean’s Express Limited, a
master forbade a servant from giving lifts to passengers in its vehicles. The court held that the

16
master was not liable for the death of a passenger carried by the driver against his master‟s
instructions.
Where a servant however perpetrates fraud in the course of the master‟s business, the master
could be held liable whether or not the fraud was for his benefit.

Differences between Crimes and Torts

A crime is a wrong arising from a violation of a public duty. A tort is a wrong arising from
the violation of a private duty. Again, however, a crime can also constitute a tort. For
example, assault is a tort, but it is also a crime. A person who is assaulted may bring criminal
charges against the assailant and may also sue the assailant for damages under tort law. An
employee‟s theft of his employer‟s property that was entrusted to the employee constitutes
the crime of embezzlement as well as the tort of conversion. The police may prosecute a
crime, and the offender is imprisoned, but this does not compensate the injured party; to
obtain compensation the injured party will need to bring a claim in tort law.
Serious wrongs are called crimes and are punished by the state while lesser wrongs are called
torts and are not punished by the state. Instead, compensation in the form of damages is
awarded to the injured party. The damages awarded by the court are paid by the offender to
the injured person.

Distinction between Criminal and Civil Liability

The distinctions between criminal law and civil law are as follows:
a) Criminal law creates offences, that is, acts and omissions that are punishable. Civil
law, on the other hand, protects the rights and interests of citizens in their
interpersonal relationships;
b) The aim of criminal law is to punish offenders by way of imprisonment, fine or both.
Conversely, civil law aims at compensating an injured or aggrieved person;
c) The standard of proof in criminal law is proof beyond reasonable doubt, but the
standard of proof in civil law is preponderance of evidence or balance of probabilities;
d) In criminal cases, there is no limitation of time to prosecute the offender, but in civil
cases, the limitation time to institute an action ranges from six to twelve years,
otherwise, the case is statute-barred;
e) Prosecution in criminal matters is by the State or government, whereas it is a decision
for the aggrieved person to sue the defendant in a civil case;
f) In criminal law, once the case against the accused person is proved, the court
pronounces him guilty and convicts him. Conversely, in civil cases, once a plaintiff
proves his case against the defendant, the court pronounces the defendant liable and
makes him to pay damages/compensation to the plaintiff or subjects him to equitable
orders such as injunction or specific performance; and
g) The parties to a criminal case are the State and the Accused, but the parties to a civil
case are the Plaintiff and the Defendant.

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TOPIC FOUR: Agency
Definition of Agency
Agency is a relationship arising out of the use of one person by another for the performance
of certain tasks on his behalf. It is a situation where one person called the agent has an
authority or capacity to create legal relations between a person called the principal and third
parties. The relationships exists between the two persons because one of them has expressly
or impliedly consented that the other should represent him or act on his behalf, and the other
has similarly consented to represent the former as directed.
Agency has been described as a triangular relationship. These are Principal/Agent
relationship, Agent/Third Party relationship and Principal/Third Party relationship.

Creation of Agency
Agency relationship may be created or may arise in any of the following ways:

(a) Express Appointment

A principal may appoint an agent expressly either orally or in writing. The expectation is that
both the principal and the agent must be competent to act. Agency may be created through a
power of attorney. The power of attorney, then, is the instrument which confers the agency
and the production of a copy of it would be conclusive evidence of the existence of such
agency.

(b) Implied Agency

This is agency that arises by implication. Parties are taken as having agreed or consented to
an agency relationship due to the way they have conducted themselves towards each other.
Implied agency may arise through usual, customary and apparent or ostensible authority.
Usual authority relates to the kind of authority that an agent in a trade, business and
profession or at his place of employment is vested with, to enable him discharge his
commission.

(c) Agency of Necessity

This agency may arise in emergency situations where a person is obliged to act to prevent
irreparable loss to another. Such an agency may be implied where the following conditions
exist:
i. It must be impossible or impracticable to communicate with owner of the goods
so as to get his instructions;
ii. There must be real or imminent commercial necessity; and
iii. The agent must have acted in the best interest of the principal.

(d) Agency by Ratification

This is a situation whereby a person acts without authorisation but the person on whose
behalf the act was purported to have been carried out subsequently adopts the act. It is a
retrospective constitution of agency. The contract is not binding on the principal until
ratification. An action which is void ab initio cannot be ratified. In Brook v. Hook (1870)
where Jones forged the signature of Hook on a Promissory Note, the court decided that the
purported ratification by Hook was ineffective as this amounted to a nullity. A contract can
be ratified only under certain circumstances. These include the following:
i) The agent must expressly have been contracted as an agent. The contract can only
be ratified by the principal who was named or can be ascertained when the
contract was made.

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 ii) The principal must have been in existence at the time the agent entered into the
contract.
iii) The principal must have had legal capacity to enter into the contract at the time
when it was made and at the date of ratification.
iv) The principal must at the time of ratification have full knowledge of all the
material facts.
v) The principal must adopt the whole contract;
vi) The principal must ratify within the time set or within a reasonable time.

(e) Agency by Estoppel

It is a general principle of law that a person is not bound by the actions of another person who
acts without his written or oral authority. However, when the natural consequence of the
party‟s conduct it to portray someone as his agent, and as a result of the portrayal, an
innocent third party enters into a contract with the agent, the principal would be prevented or
stopped from denying the existence of the agency.

(f) Apparent Agency

This occurs when a principal has not taken due precaution to prevent a situation in which
somebody portrays himself as having authority to act as his agent.

General Agents
A general agent is an agent with authority to perform a series of transactions in the ordinary
course of business, trade or profession usually of continuous nature. Where the appointment
of a general agent is unrestricted, such an agent is a universal agent.

Special Agents
On the contrary, an agent that is appointed for a special purpose or a specific occasion is
called a special agent which is of four types as follows:

(a) Factor
A factor is a mercantile agent who, in the course of his business, has the authority to sell
goods or to consign goods or raise money on security for goods.

(b) Broker
A broker has no possession of goods but is only involved in the negotiation of contracts on
behalf of another for a commission known as brokerage.

(c) Auctioneer
An auctioneer is a person licensed by law and authorised to sell the goods or property of
another person at a public sale. He may or may not have possession of the goods to be sold.
An auctioneer is a double agent because he acts for both the seller and the agent.

(d) Del Credere Agent

A del credere agent is an agent who in return for a higher rate of commission promises to
indemnify the principal if the third party with whom he contracts in respect of goods fails to
pay or deliver under the contract. He is a surety of the buyer.

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 Authority of Agents
Agency relationships are dependent on the nature of authority invested on the agent. The
scope of the agent‟s authority is very important in determining the types of agency which
exists between the principal and agent and accordingly, agency relationships have been
classified as:
i. Actual or Express authority;
ii. Implied Authority;
iii. Apparent authority;
iv. Ostensible authority;
v. Usual authority.

Actual or Express authority

This type of authority is invested on the agent in writing and sometimes by deed under seal.

Implied authority
This form of authority of the agent is usually inferred from the conduct of the parties
especially the principal. An agent may also have the implied authority to acts that are
incidental to the acts for which he has actual authority.

Apparent authority
An agent may by his conduct show to third parties that he has authority to contract for the
principal and thereby make the principal liable.

Ostensible authority
This authority is inferred or observed from the words of the principal and the agent would
also act within the confines of such authority.

Usual authority
This authority would normally derive from the agent‟s normal business for his principal.
Such authority would not be ambiguous.
An agent‟s scope of authority must not exceed that of the principal to act on his own behalf.
Where an agent acts outside the scope of his authority in good faith, the principal would be
bound by the acts. An agent will however be personally liable if he has no authority at all to
act on behalf of another and would indemnify the third parties in damages. An agent who is
employed to act in the course of his work or profession or business has implied authority to
do whatever is usual in such profession or business or trade. An agent‟s illegal act will not
bind his principal; neither can he be remunerated for, or indemnified against an illegal act
committed by him.

Rights and Obligations of Principal and Agent

Agency imposes rights and duties on both the agent and the Principal.
Rights of an Agent
Every agent has some rights, which include the following:
a) As a general rule, an agent is to be indemnified by the principal in the course of the
performance of his duties;
b) An agent is to be paid the reward or commission for work done;
c) An agent is entitled to have his lawful actions ratified by his principal;
d) A disclosed principal must also assume responsibility and liability for the authorised
act of an agent;
e) An agent has the right to enforce a contract against a third party; and

20
 f) An agent has a right of lien over the goods of his principal for his commission and
other moneys due to him.

Duties of an Agent
The duties of an agent include the following:
a) An agent is bound to follow the principal‟s instructions;
b) An agent must not delegate his authority unless he is expressly authorised by his
principal;
c) An agent must act in good faith and avoid conflict of interests;
d) An agent must exercise due care and skill professed by him;
e) An agent must not make secret profit;
f) An agent must not disclose confidential information; and
g) An agent must render an account to the principal as at when due

Duties of the Principal

The duties of the principal depend on the nature and type of the agency. Some of these duties
include the following:
a) Duty to pay the agent‟s fee or commission;
b) Duty to indemnify the agent for all lawful acts carried out by the agent on the
principal‟s behalf;
c) Duty to ratify the act of the agent as the case may be;
d) A disclosed principal must assume responsibility and liability of the authorised act of
the agent; and
e) The principal is liable to third parties under all contracts entered into by the agent
within the agency whether the principal is disclosed or not.
Termination of Agency
An agency relationship may be terminated in the following ways:

(a) Act of the Parties

The parties can bring the contract of agency to an end by mutual agreement of the parties.
This is when the termination is from both of them. In other instances, the termination comes
from only one of the parties. It may either originate from the principal or from the agent. The
termination may be through revocation by the principal by notice or summarily. It may also
be through renunciation of the agency by the agent;

(b) Operation of Law

An agency may be terminated by operation of law under the following circumstances:
i) Through the death of either party
ii) By frustration
iii) Where the subject matter is no longer in existence
iv) By expiration or effuxion of time
v) By subsequent illegality of either the transaction or of the status or capacity of
either party
vi) If the subject matter of the agency is found to be illegal ab initio
vii) Upon the bankruptcy of either the party
viii) On the insanity of either party;

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Topic Five: The Nature and Legal interpretation of Sales of Goods

Introduction
The contract of sale of goods is perhaps the most common of all commercial contracts. The
basic principles which govern this specialised contract are still found within the general
principles of law of contract.
The contract of sales of goods is basically governed by common law, the Sales of Goods Act
of 1893 retained as the Sales of Goods Act in the Laws of the Federation of Nigeria 1990 and
the 2004 Laws of the Federation of Nigeria.
By section 1 (1) of the Sale of Goods Act 1893, it is a contract whereby the seller transfers, or
agrees to transfer, the property in goods to the buyer for a money consideration called the
price. The essence of a sale of goods contract is that the parties intend to transfer ownership
of property in the goods from the seller to the buyer. Where the property in the goods is
transferred from the seller to the buyer, the contract is called a sale, but where the transfer of
the property is to take place at a future time subject to some condition thereafter to be
fulfilled, it is called an agreement.

Classification of Goods
Many of the rules of the applicable statute depend largely upon the type of goods which are
the subject matter of the contract which we have seen, basically, is the transfer of ownership.

The common classification of goods under a contract for sale of goods is as follows:
a) Specific Goods: by section 62 of the Act these are goods which are identified and
agreed on at the time a contract of sale is made. It must thus be perfectly clear which
goods are being sold, e.g. “that blue car there, “in the car sales room or “those baking
items there” on the shelf in the Supermarket.
b) Unascertained goods: If goods are “identified and agreed on ”at the time of sale,
they are specific goods. However, if they are not “identified and agreed on ”they are
unascertained goods, for example, “500 bags of rice out of the bags kept in my
warehouse”.
c) Existing goods: By section 5(1), these are goods which the seller owns or possesses
at the time of the contract and they may be either specific or unascertained; and
d) Future goods: These are goods which the seller is to manufacture or acquire after the
contract of sale is made, and they are generally unascertained goods.

Sale of Goods Distinguished from other forms of Contract

a) Contract of sale and Hire Purchase: A contract of sale and hire purchase are similar
but only to the extent that the end result is transfer of goods. However, while property
is transferred upon sale of goods, in hire purchase, there is no transfer of property
until the last instalment is paid and the hirer exercises the option to purchase;
b) Contract of Sale and Pledge: A pledge is the delivery of goods by a person to
another to secure the repayment of a debt. Unlike sale of goods, there is no absolute
transfer of property in a pledge;
c) Contract of sale and Bailment: bailment is a mere transfer of possession while sale
is a transfer of possession and property (ownership). Bailment is a transaction under
which possession of goods is delivered by a bail or to a bailee on the terms requesting
the bailee to hold on to the goods and later redeliver them as the bailor may direct;

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 d) Contract of sale and Mortgage: A mortgage is transfer of property from the
mortgagor to the mortgagee to secure the repayment of a loan. The subject matter of
the mortgage is redeemable upon the repayment of the debt unlike a sale of goods
contract which permanently transfers the property.

Form of the Contract

A Contract of Sale of goods may be in writing (with or without seal) or by word of mouth or
partly in writing and partly by word of mouth or maybe implied by the conduct of the parties.
It is worthy of note that there are no special rules about the contractual capacity of the parties,
thus the basic law of contract applies.

Implied Terms of Contract of Sale of Goods

The following terms are implied in a contract for sale of goods:

(a) Title
There is an implied condition on the part of the seller that he has the right to sell the goods
and pass property at the time of sale. There is also the implied warranty the goods sold are
free from any charge or encumbrance not disclosed or known to the buyer before the contract
is known and that the will enjoy quiet possession of the goods;

(b) Description
Where goods are sold by description, there is an implied condition that the goods supplied
correspond with the description. If goods are sold by sample and description, they must
correspond with both the sample and the description;

(c) Sample
Where the sale is by sample, there is an implied condition that:
i) The bulk of the goods will correspond with the sample and the buyer would have
reasonable opportunity to compare the sample with the bulk; and
ii) The goods are free from any defect which would not be apparent on reasonable
examination of the sample

(d) Quality of Goods

Where a seller sells goods in the course of business, there is an implied condition that the
goods are of satisfactory quality and are fit for the purpose for which they are intended.
Under this, there are two sub-heads, which are:
i) Merchantable Quality: This requires that the goods must be of good quality, but
this implied condition would not apply if the defect could have been revealed by
examination of the goods by the buyer; and

ii) Fitness for Purpose: This is an implied condition that where a buyer makes
known to the seller the purpose for which he requires the goods and that he trusts
the seller‟s skill and judgment, the seller is obliged to ensure that the goods the
purpose for which they were bought.
(e) Existence of Title of the Seller
An implied condition on the part of the seller is that in the case of a sale, he has a right to sell
the goods, and that in the case of an agreement to sell, he will have a right to sell the goods
when the property is to pass. There is thus an implied condition on the part of the seller that
he shall have a right to sell the goods. If therefore the seller has no title, as where the goods
are stolen for example, he is liable to the buyer

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Transfer of property between seller and buyer
The object of a sale of goods contract is to transfer property in goods from the seller to the
buyer. It is thus important to know the precise moment of time at which the property in the
goods passes from the seller to the buyer because in case of the destruction of the goods by
fire or other accidental cause, it is necessary to know which party has to bear the loss since
risk is an incidence of where property lies. It is however important to appreciate the
difference which we had drawn earlier between specific goods and unascertained goods and
to properly understands when property (i.e. ownership in the goods) passes to the buyer from
the seller.

(a) Specific Goods

In a sale of specific or ascertained goods, the property passes to the buyer when the contract
is made and it is immaterial whether the payment has been made or not

(b) Unascertained Goods

Where there is a contract for the sale of unascertained goods, no property in the goods is
transferred to the buyer unless and until the goods are ascertained.

Passing of Risk
Risk covers a wide range of misfortunes that may befall goods from slight damage through
theft to loss or total destruction. Who bears such loss is thus the basic question that arises for
consideration herein.
“Unless otherwise agreed, the goods remain at the seller's risk until the property in them is
transferred to the buyer, but when the property in them is transferred to the buyer, the goods
are at the buyer's risk whether delivery has been made or not
a) Loss occurring before the contract is made: The seller bears this loss
b) Loss occurring between the contract and the passing of property: The seller bears it
c) Loss occurring after the passing of property: The buyer bears the loss

Transfer of Title by a Non-Owner (The nemo dat non habet rule)

Generally, only the owner of goods can validly transfer property or ownership in them to a
third party. The law however allows his agent to do so too. But there are other instances
where property in goods is transferred to a third party by a person who is not the owner or his
agent.
The Exceptions are as follows:
a) Estoppel
If the true owner stands by and allows an innocent buyer to pay over money to a third party,
who professes to have the right to sell an article in the belief that he is becoming the owner of
it, the true owner will be estopped from denying the third party's right to sell. This exception
is provided by the underlined part of section 21 quoted above.

(b) Sales by Mercantile Agent or (Factor)

A mercantile agent is a person who sells or otherwise deals with goods as business and on
behalf of other people. He deals in his own name, independently of his employer, (his
Principal). Anyone dealing with a mercantile agent obtains good title even if the agent was
not authorised to sell. A mercantile agent is also known as a factor.

(c) Sale in Market Overt

Where goods are sold in market overt, according to the usage of the market, the buyer
acquires a good title to the goods provided he buys them in good faith and without notice of

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any defect or want of title on the part of the seller. This is the most ancient of the exceptions
and was incorporated in the Act upon its enactment. If a person's property was stolen, and
such person was reasonably diligent, such property could be found if it went on display at the
local market. The concept is one of an open public market selling openly to customers who
buy in good faith. The doctrine covers any open, public, legally constituted market. The sale
must take place on the customary market day, during the usual hours of business. The goods
must be on open, public display.

(d) Sale under Voidable Title

If the seller has a voidable title to goods and his title has not been voided at the time of the
sale, the buyer acquires a good title to the goods, provided that he did not know of the seller's
defect of title and bought in good faith.

(e) Sale by Seller in Possession

Where a person having sold goods continues or is in possession of the goods or of the
documents of title to the goods, the delivery or transfer by that person, or by a mercantile
agent acting for him, of the goods or documents of title under any sale, pledge or disposition
thereof, to any person receiving the same in good faith and without notice of the previous
sale, has the same effect as if the person taking the delivery or transfer were expressly
authorised by the owner of the goods to make the same.

(f) Sale by Buyer in Possession

Where a person having bought or agreed to buy goods, obtains with the consent of the seller
possession of the goods or of the documents of title to the goods, the delivery or transfer by
that person, or by a mercantile agent acting for him, of the goods or documents of title under
any sale, pledge or disposition.

(g) Disposition of goods under common law and statutory powers

Examples are:-
i. The right of a pawnbroker to sell unredeemed goods pledged with him.
ii. The right of a hotel to sell the property of guests to satisfy debts.
iii. The right of landlords in certain circumstances to sell tenant's goods for arrears of rent
iv. The rights of repairers such as watch repairers, cobblers, or those of electronic items to
sell uncollected goods.
The exercises of the power of sale by these categories of non-owners are subject to
restrictions such as the need to give notice and time. The Courts also of course can exercise
the rights to dispose perishable goods or unperishable goods in execution of a judgment debt.

BREACH OF CONTRACT AND REMEDIES OF THE PARTIES

Where either of the parties to the contract of a Sale of Goods contract breaches its terms, the
following are the remedies which the law provides.

Buyer’s Rights
a) The right to reject the goods: The buyer can reject the goods if the seller is in breach
of condition, e.g. one of the implied conditions noted above. If he does so, he needs
not pay the price and if he has paid it, he can recover it. The right to reject is lost, if
the goods have been accepted.
b) Action for damages: He can sue for damages for non-delivery of the goods.

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 c) Action for specific performance: The buyer can only exercise this right compelling
the seller to deliver the goods when the goods are specific or ascertained. This remedy
is only also exercisable where damages will not be an adequate remedy.
d) Recovery of purchase price: In this situation, where seller fails to deliver the goods,
the subject matter of the contract, the buyer can sue to recover his purchase price
already paid by him.

Seller's Rights
They are of two kinds. He has right over the goods which are called real rights as against his
rights against the buyer himself which are regarded as personal rights.

Real Rights: An unpaid seller of goods, even though the property in the goods has passed to
the buyer has the following rights.
a) A Lien: A lien is the right to retain possession of the goods, until payment of the
price. It arises by the provision of section 41 of the Act as follows:
i. when the goods have been sold without any stipulation as to credit;
ii. when the goods have been sold on credit but the term of credit has expired;
iii. when the buyer becomes insolvent

By the provisions of section 43 this right is lost:

a) when the goods are delivered to a carrier for the purpose of transmission to the buyer,
without reserving the right of disposal;
b) when the buyer or his agent lawfully obtains his possession of the goods;
c) by waiver
b) Right of stoppage in transit: the right of stopping the goods while they are in transit
and resuming possession of them until payment of the price. It is available when:-
i. the buyer becomes insolvent;
ii. the goods are in transit
c) Right of Resale: There is no general right to resell. The right of alien or that of
stoppage in transit does not also entitle the seller to resell. The seller, even though
unpaid, who resells is generally in breach. He must deliver the goods in return.
However, in the following instances he has a right to resell:
i. where the goods are of a perishable nature;
ii. where he gives notice to the buyer of his intention to resell, and the buyer does not
within a reasonable time pay or tender the price; and
iii. where the seller expressly reserves a right of resale in case the buyer should
default
If the seller however suffers loss from the resale he can claim such from the buyer as
damages.
d) Right of withholding delivery: This right arises where property in the goods has not
passed to the buyer and possession is also with the seller.

Personal Rights: A seller is also entitled to these personal rights against the buyer where the
buyer breaches the contract:
a) To sue for the Price by section 49 of the Act, this right avails the seller, when the
property in the goods have passed to the buyer and the buyer wrong fully neglects or
refuses to pay for the goods.
b) To sue for Non-Acceptance. This action for damages lies when the buyer refuses or
neglects to accept the goods.

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Topic six: The Definition of Negotiable Instrument and types of Negotiable Instruments

NEGOTIABLE INSTRUMENTS
Negotiable instruments have become the most acceptable way of monetary transactions
today. The meaning, types and characteristics of negotiable instruments are therefore
necessary to look at to ensure a proper understanding of them. It is equally important to be
able to make a distinction among bills of exchange, cheques and promissory notes. Again the
rights and duties of bankers and customers are also relevant and receive attention.

Meaning of Negotiable Instruments

A Negotiable Instrument can be defined as a chose in action relating to financial or
commercial documents which must be in writing. It is transferable with full legal title by
mere delivery of the instrument (but with endorsement by the transferor, if it is an order bill).
They are substitutes for money and as such, the holder takes title free from any defences or
objections to their validity that might have been good against the transferors.
Types of Negotiable Instruments: There are two types of Negotiable Instruments, namely:
i. Bills of Exchange and
ii. Promissory Notes.

BILLS OF EXCHANGE
A bill of exchange is an unconditional order in writing, signed and addressed by one person
(the drawer) to another (the drawee), requiring the drawee to pay on demand, or at a
determinable or fixed future date, a specified sum of money toa third person (the payee). The
payee is frequently the same person as the drawer of the bill. The term bill of exchange
usually refers to foreign exchange transactions, rather than domestic transactions. On
accepting a bill of exchange, the drawee becomes the party primarily responsible for paying
it. The main known example is cheque.

Cheque: A cheque is a financial instrument made payable upon demand on date stated and
drawn on a bank. The issuer of the cheque is the drawer who orders the bank at which he has
an account, referred to as the drawee, to pay a named individual or entity or the bearer of the
cheque, called the payee, a specified sum of money upon presentation of the cheque. A
cheque includes a money order

There are four (4) different types of cheques; Bearer Cheque, Order Cheque, Crossed
Cheques and Banker‟s Draft.

i. Bearer Cheque: This is a cheque made payable to bearer, e.g, a cheque made payable to
“cash” is payable to the holder of the cheque.
A bearer cheque is transferable by mere delivery without any endorsement.

ii. Order Cheque: A cheque drawn in favour of a named person or endorsed by the payee to
another person is an order cheque. The endorsement is by signature of the payee at the back
of the cheque.

iii. Crossed Cheque: A crossed cheque has two parallel transverse lines drawn across the
face of the cheque by the drawer. Crossed cheques cannot be paid over the counter, but
through the drawer‟s bank to the payee‟s bank account.
There are two different types of crossing, which are General Crossing and Special Crossing

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• General Crossing – This makes the cheque not negotiable and non-transferable. The
crossing is with the words “& company” or “ & co” or “a/c payee only” or “ not negotiable”
written between the two parallel transverse lines. Any of these statements on the face of the
cheque precludes the banker from paying the cheque over the counter or to any other person‟s
bank account.

• Special Crossing – This crossing has same features of general crossing, but also with a
specified banker written between the two parallel transverse lines, as the drawee to pay the
payee by interbank transfer of funds.

iv. Banker’s Draft

i. Banker‟s Draft is a written order for the payment of money drawn by one person, through a
bank, directing the bank to pay a third person through the payee‟s bank account a sum of
money on date specified.
ii. Travellers Cheque is a written order to its foreign branch for the payment of money drawn
by a local bank on that foreign branch, directing the foreign branch to pay the holder of the
instrument, specified amount stated on specified date.

PROMISORY NOTES
A promissory note is a written instrument containing an unconditional promise by a party,
called the maker, who signs the instrument, to pay to another, called the payee, a definite sum
of money either on demand or at a specified or ascertainable future date. The note may be
made payable to the bearer, to a party named in the note, or to the order of the party named in
the note. A promissory note differs from an IOU in that the former is a promise to pay and the
latter is a mere acknowledgment of a debt. A promissory note is negotiable by endorsement if
it is specifically made payable to the order of a person. A promissory note must contain an
undertaking to pay.

a. Order Paper and Bearer Paper

Order Paper and Bearer Paper may look similar, but there is a very important difference
between the two, which is NEGOTIABILITY. An order paper is made payable to a specified
individual or entity, while a bearer paper is payable to bearer or cash. An order paper is
negotiated by endorsing it to another person, which entails signing the back of the instrument
and transferring it to another. An order paper, “to order of John”is negotiated by John
endorsing the back of the instrument, transferring it to another person. John in addition to his
endorsement may write “Pay to the order of Jeff”. To effect negotiation and therefore
transferability of a bearer paper, all which is required is delivery of possession of the
instrument to the one to whom it is being transferred.

b. Certificate of Deposit (Treasury Bill)

Certificate of deposit (Treasury bill) is a financial instrument which a banker uses to
acknowledge the receipt of a deposit from the depositor and promises to repay the deposited
sum to the deposit or upon demand.

NEGOTIABILITY
In order to be negotiable, (capable of being transferred, or ‟transferability”), the
instrument must be in writing, contain an unconditional promise to pay a certain sum in
money, on demand or at a fixed and determinable future time; It must be made payable to
bearer or order and be signed by the maker of a promissory note or the drawer of a bill of
exchange.

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ENDORSEMENT
A valid endorsement must be written on the bill itself and signed by the endorser. It
must be an endorsement of the entire bill, and where it is payable to the order of two or more
payees or endorsees who are not partners, all must endorse. An endorsement may be special,
blank or restrictive.
A special endorsement specifies the person to whom or to whose order the bill is to be
payable. An endorsement in blank specifies no endorsee and a bill so endorsed becomes
payable to the bearer. When a bill has been indorsed in blank, any holder may convert the
blank endorsement into a special endorsement by writing above the endorser's signature
directing to pay the bill to, or to the order of, himself or some other person. A restrictive
endorsement prohibits the further negotiation of the bill or expresses that it is a mere
authority to deal with the bill as directed and not a transfer of property. The endorsement may
be “for deposit only”, “pay to Charles, in trust for Linda”, “for deposit to my account with
Standard Chartered Bank”.

PARTIES TO A BILL OF EXCHANGE

There are three (3) main parties to a bill of exchange, which are the Drawer, Drawee and
Payee.
a. The Drawer
The drawer of a bill of exchange is the person that makes the order to pay, by signing the bill
personally or through his authorised representative. The order is an undertaking by the drawer
to pay the payee personally, the sum stated on the bill if the drawee refuses to do pay the
payee.
b. The Drawee
The drawee is the person on whom the bill is drawn to pay the payee. If there are several
drawees, the liability to pay the payee is joint and several.
c. The Payee
The payee is the beneficiary of the bill, whose name must be stated on the bill if the
It is an order bill. But if it is a bearer bill, there is no need to name the payee.
d. Other ancillary parties
There are other ancillary parties to a bill of exchange, but of less importance, which include
an Endorser and an Acceptor.
i. Endorser and Endorsee
An endorser is a payee who endorses or countersigns a bill to make it negotiable or
deliverable to another person. The person to whom such bill is endorsed is the endorsee.
ii. Acceptor
An acceptor of a bill is the drawee who accepts to take over the obligation and gives more
security to the payee. Acceptance is usually done in writing by stating “Accepted” on the face
of the bill.
HOLDER OF A BILL OF EXCHANGE
A holder of a bill of exchange is the payee or endorsee who is in possession of the bill.
A holder for value is the person who has given value of the bill for which value had earlier
been given by a previous holder. A holder in due course is a person who has possession of the
bill, or a person to whom a bill has been negotiated, which is complete and regular on the
face it. A bill is said to be complete and regular on its face when there is no apparent
irregularity either in the drawing or in its endorsement.
A bill payable on demand must be presented within a reasonable length of times, else it
lapses. But if a bill is payable on a fixed date or at sight, it does not lapse until the last
statutory three days of grace has expired.

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NOTING AND PROTESTING
Noting and protesting are only applicable to foreign bills of exchange. Noting is the process
by which a dishonoured foreign bill is delivered to the court through a legal practitioner or a
Notary Public. Protest is the formal certification of the dishonour of a bill and must be lodged
at the place where the bill was dishonoured.

TYPE OF BILLS OF EXCHANGE

a. Inland Bill
Inland bill is a local bill either drawn or payable in the country, or drawn on a person resident
in the country.
b. Foreign Bill
A foreign bill is any other than an inland bill. A foreign bill must be noted and protested if it
is dishonoured, either by non-acceptance or non-payment, otherwise the bill becomes
discharged and the drawer and the endorsers will be free from liabilities.
c. Inchoate or Incomplete Bill
A bill, which is defective or lacking in some material particular, is referred to as Inchoate or
Incomplete bill. e.g, if amount in figure is different from amount written in words on the bill.
The defect must be rectified within a reasonable time to make it valid.
d. Accommodation Bill
A bill signed by a person who has not received value for the bill, but merely signs it for the
purpose of fixing his name on the bill, is referred to as accommodation bill.
That person who signed the bill is called accommodation party.
RIGHTS AND DUTIES OF PARTIES TO A BILL OF EXCHANGE
a. Holders
The rights and powers of the holder of a bill include suing on the bill in his own name. The
holder in due course as a transferee generally takes free of claims and defences between the
original parties to the instrument and may enforce payment against all parties liable on the
bill. Claims relating to ownership, lien on the instrument or right of rescission of
endorsement can be sustained against the holder in due course if they arise subsequent to
taking but not claim arising before taking.
b. Dishonour
A bill is dishonoured by non-acceptance when it is duly presented for acceptance and such
acceptance is refused or cannot be obtained or when presentment for acceptance is excused
and the bill is not accepted. Also, a bill is dishonoured by non-payment when it is duly
presented for payment and payment is refused or cannot be obtained and when presentment is
excused and the bill is overdue and unpaid. When a bill has been dishonoured by non-
acceptance or by non-payment, notice of dishonour must be given to the drawer and each
endorser, and any drawer or endorser to whom such notice is not given is discharged.

Discharge
A negotiable instrument may be discharged in the following ways:
a. Full Payment of the Instrument
Full payment of the instrument in due course by the drawee or acceptor in good faith and
without notice of any defect discharges liability on it
b. Express Waiver or Renunciation
Where the holder absolutely and unconditionally renounces his rights against the acceptor,
the instrument stands discharged. The waiver must be in writing unless the bill is delivered up
to the acceptor.

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c. Alteration
Any material alteration on the instrument discharges any party whose obligation is affected
by the alteration.
d. Cancellation
An instrument is discharged by intentional and apparent cancellation of the instrument by the
holder or his agent.
e. Acceptance
When an instrument which was previously dishonoured by a person who was not originally
liable is subsequently honoured, it becomes discharged.
f. Negotiation.
Negotiation is when the acceptor returns a statute instrument to the drawer, or when an
acceptor becomes the holder of the bill or at maturity. These situations also discharge
obligations on the instrument.
g. Lost and Replaced Instrument
When an instrument with the holder is lost, and is replaced by the drawer, obligations on the
lost instrument is discharged. In such a case, the holder must indemnify the drawer, if the
instrument is later found and its proceeds claimed by another person.

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