COMMERCIAL LAW 2

Section A: MCQ

1. c) Damages are the most common remedy for breach of contract.

2. b) Upon delivery of the goods.
3. c) A written contract.
4. b) Limited liability.
5. d) Ensuring effective management and oversight.
6. b) Hedging risks.
7. c) Restore the insured to their pre-loss financial position.
8. b) Artistic and literary works.
9. c) CISG (Vienna Convention).
10. b) Ensuring fair competition.
11. c) Preventing unfair competition.
12. c) Ensuring consumer privacy and data security.
13. c) Payment of damages or reinstatement.
14. b) Profits earned by corporations.
15. b) A security interest in property.
16. c) Delivery terms.
17. b) Ensure fair business practices.
18. c) Online privacy and data.
19. d) Corporate tax planning.
20. b) Land use and development.

Section B: structural questions (30MKS)

1. Discuss the advantages and challenges of using standard international trade terms
(Incoterms) in such contracts. (10 marks)

Advantages of Using Incoterms:

1. Standardization: Incoterms provide a standardized set of rules recognized internationally,

reducing ambiguity in trade terms and facilitating smoother negotiations between parties from
different countries.

2. Clarity: They clearly define the responsibilities of buyers and sellers, including who is
responsible for shipping, insurance, and duties. This clarity helps prevent misunderstandings
and disputes.

3. Risk Management: Incoterms specify when the risk of loss or damage to the goods transfers
from the seller to the buyer, allowing both parties to manage their risks more effectively.
4. Cost Allocation: They help in clearly allocating costs between the buyer and the seller,
ensuring that each party understands their financial responsibilities.

5. Efficiency: Using Incoterms can streamline the contracting process, saving time and reducing
the complexity of drafting and interpreting individual contracts.

6. Legal Reference: Incoterms are recognized by courts and arbitrators worldwide, providing a
reliable legal reference in the event of a dispute.

Challenges of Using Incoterms:

1. Complexity: There are multiple Incoterms (e.g., FOB, CIF, EXW), and choosing the correct
term requires understanding the specific implications of each, which can be complex.

2. Updates: Incoterms are updated periodically (e.g., Incoterms 2010, Incoterms 2020). Staying
current with these changes requires ongoing education and adjustment of contracts.

3. Misapplication: Incorrectly applying or interpreting Incoterms can lead to significant legal and
financial consequences. Parties need to ensure accurate use and understanding of the terms.

4. Cultural Differences: Different countries may have varying interpretations or customary uses
of Incoterms, potentially leading to misunderstandings.

5. Partial Coverage: Incoterms do not cover all aspects of a sale contract (e.g., transfer of
ownership, payment terms), so additional contract terms are necessary.

6. Language Barriers: While Incoterms are designed to be clear, language differences can still
lead to misinterpretation or confusion, particularly if parties do not use a common language
proficiently.

2. Analyze the impact of competition law on market dynamics and consumer welfare. (7
Marks)

Impact on Market Dynamics:

1. Promotion of Fair Competition: Competition laws prevent monopolies and anti-competitive

practices, encouraging a level playing field where businesses compete based on merit,
innovation, and efficiency.

2. Innovation Stimulation: By preventing dominant firms from stifling competition, these laws
encourage innovation, as companies strive to improve products and services to gain a
competitive edge.
3. Market Entry: Competition laws reduce barriers to entry for new firms, fostering a more
dynamic and diverse market environment with more choices for consumers.

4. Price Regulation: Anti-price-fixing provisions ensure that prices are determined by market
forces rather than collusion among competitors, leading to fairer pricing.

Impact on Consumer Welfare:

1. Lower Prices: Enhanced competition typically results in lower prices for consumers, as
companies vie to offer better value to attract more customers.

2. Improved Quality: Competition drives companies to improve the quality of their products and
services, benefitting consumers who receive higher value offerings.

3. Greater Choice: Competition laws foster a variety of choices in the marketplace, allowing
consumers to select products and services that best meet their needs.

4. Consumer Protection: These laws help protect consumers from unfair business practices,
such as predatory pricing, false advertising, and inferior goods.

5. Economic Welfare: Overall, competition laws contribute to economic efficiency and welfare,
as resources are allocated more effectively in competitive markets, enhancing productivity and
growth.

3. Discuss key antitrust measures used to prevent monopolistic practices and promote
fair competition in today's global economy. (8 marks)

Key Antitrust Measures:

1. Merger Control:
- Review and Approval: Regulatory authorities review proposed mergers and acquisitions to
prevent the formation of monopolies or entities with excessive market power. This ensures that
mergers do not stifle competition or create unfair market dominance.
- Divestitures: In cases where mergers are allowed, authorities may require divestitures of
certain business units or assets to maintain market competition.

2. Prohibition of Cartels:
- Anti-Collusion Laws: Strict laws prohibit cartels, where companies conspire to fix prices, limit
production, or divide markets. Authorities investigate and penalize such collusive practices to
maintain competitive pricing and availability of goods and services.

3. Abuse of Dominance:
 - Exclusionary Practices: Laws prevent dominant firms from engaging in exclusionary
practices such as predatory pricing, exclusive dealing, and tying arrangements that unfairly limit
competition.
- Fair Access: Dominant firms are often required to provide fair access to essential facilities or
services to competitors, ensuring that they do not use their market position to unfairly
disadvantage others.

4. Market Regulation:
- Sector-Specific Regulation: Certain sectors (e.g., telecommunications, energy) may be
subject to specific regulations to prevent abuse of market power and ensure fair competition.
This includes price caps, mandatory access provisions, and transparency requirements.

5. Consumer Protection:
- Unfair Practices: Antitrust laws also cover unfair trade practices, protecting consumers from
deceptive advertising, fraud, and other practices that distort market competition.
- Price Monitoring: Regulatory bodies monitor and investigate suspicious pricing behaviors to
prevent price gouging and ensure fair pricing for consumers.

6. International Cooperation:
- Cross-Border Enforcement: Given the global nature of many businesses, antitrust authorities
cooperate internationally to tackle anti-competitive practices that transcend borders. This
includes sharing information and coordinating enforcement actions.

4. Compare and contrast the roles and responsibilities of agents and principals in agency
relationships. (6 Marks)

Agents:

1. Roles: Agents act on behalf of the principal to perform tasks, make decisions, and enter into
contracts with third parties. They represent the principal in business transactions and are the
face of the principal in various dealings.

2. Responsibilities:
- Fiduciary Duty: Agents must act in the best interest of the principal, avoiding conflicts of
interest and self-dealing.
- Obedience: Agents must follow lawful instructions given by the principal and act within the
scope of their authority.
- Loyalty: Agents owe a duty of loyalty to the principal, meaning they must prioritize the
principal’s interests above their own.
- Care and Skill: Agents must perform their duties with the same level of care, competence,
and diligence that a reasonable person would exercise in similar circumstances.
- Disclosure: Agents must disclose all relevant information to the principal that affects the
agency relationship or the principal's interests.
Principals:

1. Roles: Principals delegate authority to agents to act on their behalf. They set the objectives,
provide instructions, and supply the necessary resources for agents to perform their tasks.

2. Responsibilities:
- Compensation: Principals must compensate agents for their services as agreed upon in the
agency contract.
- Reimbursement: Principals must reimburse agents for expenses incurred while acting within
the scope of their authority.
- Indemnification: Principals are required to indemnify agents for liabilities or losses incurred
while performing their duties, provided the agent acted within the scope of authority and in good
faith.
- Provision of Information: Principals must provide agents with necessary information and
resources to perform their duties effectively.
- Fair Treatment: Principals should treat agents fairly and not interfere with their ability to
perform their duties.

Comparison:

- Authority: Agents operate under the authority granted by the principal, while principals have
the inherent authority to direct and control the actions of agents.
- Accountability: Agents are accountable to principals for their actions and must adhere to the
principals’ instructions. Principals are accountable for the overall outcomes of the agent's
actions and decisions made on their behalf.
- Decision-Making: Agents make operational decisions within the scope of their authority,
whereas principals make strategic and overarching decisions that guide the agency relationship.

Contrast:

- Initiation of Relationship: The agency relationship is initiated by the principal who appoints the
agent. The agent cannot unilaterally establish the agency relationship.
- Risk Bearing: Principals bear the financial risk associated with the actions of the agent,
whereas agents bear the risk of personal liability if they exceed their authority or breach their
fiduciary duties.