SUMMERY OF BUSINESS LAW BOOK
CHAPTER ONE: NATURE OF LAW
1: Definition of law:
 is a general rule of human conduct.
 Is a rule of correcting the procedures.
2: Features of law:
 Permissive laws: Permissive laws give the right or option to their subjects whether to act or
not to act.
 Directive laws: Directive laws gives direct orders to do or act the subject
provided in the law.
 Prohibitive laws: Prohibitive laws stop the subject from doing the act
required not to be done.
 Sanction laws: Sanction laws tell each and every member of society is
required to follow the law.
3: FUNCTIONS OF LAW:
 Distributive justice: Ensures for distributive benefits of community.
 Corrective justice: Seeks to correct the wrong things of society.
 Social control: It controls the behaviors and norms of society.
4: Hierarchies of law in Somaliland:
 Constitutions: Is the main sources of law in our country.
 Proclamations: Is a legal document issued by the legislature.
 Regulation: The parliament is responsible to make the laws to the council of ministries.
5: Classification of law:
 Substantive law: Includes all laws that define, describe, regulate and create
legal rights and obligation.
 Procedural law: Establishes the methods of enforcing the rights and duties
established by the substantive law.
6: Examples of substantive law:
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Constitutional law.
Contract law.
Criminal law
Administrative law.
7: Examples of procedural law:
 Criminal procedure.
 Civil procedure.
 Evidence.
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8: Legal personality: Is a subject of who possess rights and obligation personality.
9: Types of legal personality:
 Natural persons: Refers human being created by Allah since a human being is considering to
have legal personality.
 Artificial persons: Refers to the entities that are purely created by the operations of law.
CHAPTER TWO: NATURES AND FORMATION OF CONTRACT
1: Definition of contract:
 Is an agreement between two parties or more for doing or not doing for something.
 Is agreement enforceable by law?
2: Elements of contract:
 An agreement.
 Legal obligation.
3: Obligation: Is the action which the person legally bound to act/ do.
4: Legal obligation: Describes the obligation or duty that is enforced by a court of law.
5: Moral obligation: Is a duty which one owes, and which ought to perform, but which he
is not legally bound to fulfill.
5.1 Examples of moral obligation:
 Ahmed invites Jamal for dinner in a restaurant. Mr. Jamal accepts the invitation, on the
appointment day. Jamal goes to the restaurant, but unfortunately, Ahmed has canceled the
invitation, in such case Jamal can’t sue Ahmed for the breach of the agreement.
 Warsame promised to his son to give a pocket allowance for 50.000 Somaliland shillings
in every week, in such case if warsame fails to pay for his son the promised amount, his
son has no remedy against his father.
6: Sources of legal obligations:
 Contract: It means you are legally obligated to undertake the contractual
terms that you have agreed upon through your own consent.
 Law: Is an obligation on persons to give or not to give, to do or not to do some
acts recognized in almost all legal systems.
7: Types of Obligations:
 Divisible obligation: This is one whereby a party undertakes to perform its
obligations by dividing into parties.
 Indivisible obligations: This one is the obligation that cant be dividing into parts.
 Positive obligation: Is a situation that the person's obligation is to do or to give something to
others.
 Negative obligation: In this situation that the person's obligation is not doing or not giving
something to others.
8: Types of contract:
 Unilateral obligation: One side of the parties is legally for the contract.
 Bilateral obligation: Only two sides of the parties are legally for the contract.
 Multilateral obligation: This is undertaken by more than two parties are legally for the
contract.
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9: Classification of multilateral obligation:
 Simple joint obligation: Each party of the contract is responsible for his
own share.
 Joint obligations: More than two parties are responsible for the subject of
the contract.
10: Forms of contract:
 Express versus implied: Is a contract which terms of the agreement must be by oral or
written.
 Formal versus informal contract: Is an agreement based on formal
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written with a specific method of creation to be enforceable.
Consent: Is a declaration of intention to be bound by an obligation.
12: Basic requirement of formation of a contract:
12.1: AGREEMENT: An agreement includes offers and acceptance. One party
must offer to enter into a legal agreement, and another party must accept the terms of
the offer.
12.1.1: Terms of contract:
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The
The
The
The
identification of the parties.
identification of the object or subject matter of contract.
consideration to be paid.
time of payment, delivery, and performance.
12.1.2: Elements of agreement:
12.1.2.1: Offer: Is a specific serious proposal that, if accepted, leads to a contract.
12.1.2.1.1 Conditions of offer:
 Offer must be clear.
 Must be a serious intention.
 Bound by the offer.
12.1.2.1.2: Types of offer:
 Specific offer: It is specific if made to a definite or particular person, and he
alone may accept it.
 General offer: An offer is general if addressed to the public or world at large
or to a class of persons.
12.1.2.1.3: Invitation to treat: Is a preliminary to an offer such expressions or
acts of a person to which no legal consequence is intended to attach.
12.1.2.1.4: Situations usually involve an invitation to treat:
 Display of goods on shelves in a shop supermarket, self-service shops.
 An advertisement for goods in a catalog.
 Invitations of tender.
12.1.2.1.5: Termination of an Offer:
 Revocation: An offer can be revoked at any time before it is accepted.
 Rejection: Rejection of an offer terminates the offer, and makes it incapable
of acceptance.
 Lapse of time: If an offer is stated to be open for a fixed time, it clearly cannot be accepted
after that time.
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 Death before acceptance: If the two or one of the parties is death then the offer becomes an
acceptance.
12.1.2.1.6: Ways of rejection:
 By a direct intentional refusal of the offer.
 By a counter offer.
12.1.2.1.7: Example of rejection:
 If Osman offers to sell a house to Fadumo for $50000 and Fadumo says, “No,
thank you” Fadumo’s rejection puts Osman’s offer to an end. Fadumo cannot
subsequently accept Osman’s offer, even if Osman had left his offer for a fixed
period which had not expired.
12.1.2.1.8: Ways of termination by death before acceptance:
 Death of both the offeror and the offeree before acceptance terminates the offer.
 Death of the offeree before acceptance terminates the offer whether death is
notified to the offeror or not unless.
12.1. 2..2: Acceptance:
 Acceptance is a positive response to an offer.
 Acceptance is a “Yes” answer to all the contents of the offer.
12.1.2.2.1: Forms of acceptance:
 “Yes,” answer which means accepting the offer as it was made.
 “No” answer which means totally rejecting the offer.
 “Acceptance with reservation” which means having reservation or alternative
proposals for some of the contents of the offer.
12.1.2.2.2 Conditions of a valid acceptance:
 An acceptance must be made by the offeree only: Cannot be
accepted the offer made by other persons.
 Unconditional acceptance: New terms amounts not an acceptance of an offer.
But in fact, becomes itself counter-offer, which as recall, terminates the original
offer.
 Communication of acceptance: An offer, can be communicated in
writing, oral or by a signal. As rule, all forms of acceptance are valid.
 Modes of communication: Whatever communication is preferred by the
parties. Must be obeyed an acceptance must be made in the way the offeror
specified.
12.1.2.2.3: Modes of acceptance of an offer can be communicated:
 Where a particular mode is prescribed: The general rule in respect of
this point is that where a special mode of acceptance of an offer has been
prescribed by the offeror, the offeree is bound to comply with it.
 Where No Particular Mode is Prescribed: The general rule in this
respect is that where the offeror does not state the mode of acceptance of the
offer, the form of communication will depend upon the nature of the offer and
the circumstance in which it is made.
12.1.2.2.4: Silence may also amount to acceptance in the following:
 The presentation is submitted in writing. In principle, the offer can be made verbally, in writing,
by signature or conduct in accordance with the preferences of the exhibitor.
 The presentation must be written in a special document.
 The presentation contains a warning that the silence amounts to acceptance.
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12.1.2.2.5: Example of silence as the amount of acceptance:
 Mohamoud wrote the following e-mail message to his friend Ismail”
“Dear Ismail, how are you doing? I am very fine; I am going to sell my Toyota
Land Cruiser, 2008 model automobile to you to at $300,000. Delivery and
payment date are on January 20, 2011, in Berbera”.
Consideration: Is a value given in return for a promise.
12.2:
12.2.1: Ways of consideration break down:
 The Legal value must be given in the exchange for the promise.
 There must be bargained for the exchange.
12.2.2: Executed consideration: Is when an act is performed already in return for a promise.
12.2.3: Past consideration: Promises made with the respect to events that have already taken place
are unenforceable. Because the element for bargained-for exchange is missing.
12.3: Contractual Capacity: Is the ability to make a legal agreement.
12.3.1: Who Are Competent To contract:
 Minor: Is a person under 18 years that not allowed to entire the contract.
 Mental incompetent person: Is a person who doesn’t understand the consequence
of his action due to mainly mental illness.
 Juridical and legal interdicted person: Is a person that justice not allowed to do the
contract.
12.3.2: Types of mental incompetent person:
 Certified Insanity: According to the civil code, a person may be declared insane person by a
court of law.
 Factual insanity: Contracts concluded by these people may be invalidated if it is proved that
a mentally disordered person didn’t understand the consequence of the contract at the time he
made it.
 Juridical and legal interdicted person: There are also some other persons who
are incompetent to contract, partially or wholly, so that contracts of such
persons are void, such as minors and mentally incompetent person.
12.4: Free and genuine consent: Free consent means there must be a meeting of the minds
whereby parties to a contract have a mutual understanding of the terms of a contract and intend to be
bound by the terms.
12.4.1: Example of free and genuine consent:
 A agrees to sell his house in sheik Madar area for $40.000 B. B agrees to buy
the same. In this case, there is a valid contact since A and Bhave consented to
the same subject matter.
 A, who own three villa houses in Hargeisa offers to sells one, ‘’says villa house
x” to B for $50.000. B agrees to buy the villa house for the price thinking that A
is selling ‘’ villa y’’ there is no consent and hence no contract because A and B
have not agreed to the same thing but to different things.
12.4.1: Mistake: A mistake must be fundamental we mean the mistake must be
related to the terms of the contract as they existed at the time of formation.
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12.4.1.1: Types of mistakes:
 Common mistake:
Arises when both parties understand each other but
they are commonly mistaken about certain facts of the subject.
 Mutual mistake: Is whereby both parties to a contract have a different
understanding of the material subject of the contract.
 Unilateral mistake: Is a mistake whereby one party to a contract makes a
mistake which will unfairly advantage the other party to a contract.
12.4.1.2: Examples of a common mistake:
 A agrees to buy from B his horse, it turns out that the horse was dead at the
time of the bargain, though neither party was aware of the fact. This mistake is
fundamental and the contract is invalid
 A agrees to sell B specific cargo of goods suppose the goods is to be on the way
from London to Hargeisa, but unfortunately that goods lost, neither the party
was aware of the facts.
12.4.1.3: Example of mutual mistake:
 A who owns four land cruisers offers to sell his ‘car x” for 12000. B accepts the
offer thinking A is selling his “car c”. there is a mistake as to the identity of the
subject matter hence there is no contract.
12.4.2: Misrepresentation: Means giving a false statement, which is regarding
the object or subject matter of the contract.
12.4.2.1: Types of misrepresentation:
 Innocent misrepresentation: Is a false statement made in the honest
belief that it is true.
 Fraudulent misrepresentation: In the civil sense, it means a statement
made knowingly or without belief in its truth, or made recklessly to the extent
that the party does not care whether it is true or false.
 Negligent misrepresentation: Is a false statement made honestly yet
without reasonable grounds for belief in its truth.
12.4.3: Durres: If one person compels to another to enter into a contract by threat or force or by an act
of violence, the agreement is said to be obtained under duress.
12.4.4: Undue Influence: Undue influence is the domination of one party over the mind of the
other party to such a degree as to rob him his free will.
12.5: Legality of the Object: Object of a contract is what parties have actually agreed
to undertake. It is the obligation of both parties to the contract. The obligation may be
to do something or to refrain from doing something or to give something to someone.
12.5.1: Freedom of contract is limited by the following:
 Clarity of the object: The object of the contract must be clear from any
valid contract.
 Possibility of the object: The object of a contract must be possible for
doing the contract from both sides.
 The legality of the object: In this case, no person can be bound by
contract to violate any law of the country since such is a contradiction in terms.
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12.5.2: Example o possibility of the object:
 If a person agrees to raise a dead body; to duplicate money by mystery, to bring
the audio-visual image of the dead body; to make a person very rich.
13: Form of Contract: It is the way in which the content of the contract exists or appears to
Others, and consist of the following:
13.1: Written forms of contract: A contract is said to be in writing where the contract contains as
follows:
 The condition of the written form must be readable.
 The writing must be with a special form.
 The parties of the contract must sign the document of the contract.
 Two persons sign the document as witnesses.
13.2: Special form: In this form are Signing or issuing such as a commercial instrument is
concluding a contract.
14: Effects of the contract: As lawmakers, parties to the contract, can repeal or amend the contract
law must be implemented i.e. contract should be performed, violating such a law entails sanction i.e. nonperformance of contract leads to payment of damages.
15: Performance of the contract: Performance of the contract refers to the
fulfillment of the obligations by the parties.
16: Some definition terms depend on the performance of the
contract:
 Who must perform: The contract can be performed by the debtor or
promiser himself, or his agent or legal representatives.
 To whom shall performance be made: The performance can be validly made to the
creditor or any third person authorized by the creditor or the law.
 What to perform: It is a rule of law that performance must exactly be with the
same with the contract.
 When Performance shall be made: The contract happens when the time of
performance is specified with a reasonable time.
 Where the performance shall be carried out: The performance must
be applied for the place described in the contract.
16.1: Example of what to perform:
 Abdulrahman agreed to sell omaar white flour to jama, but since Abdurahman is
unable to get oomaar white flour. He supplied deero white flour of the same
quality. JAMA can refuse the delivery.
 Abdu bought ox Z from faadumo but since ox Z died before delivery, B offered to
deliver ox Y but Abdu may refuse such delivery.
16.2: Example of when the performance shall be made:
 Mussa promises to deliver certain goods, for example, say cement to Ahmed on
January 15 -2010.
16.3: Example of where the performance shall be carried out:
 Muna offers to deliver certain goods to fadumo at her business place in
Hargeisa on 15-1-2011 within the usual business hour. And Faadumo accepts
the offer.
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17: There are two cases under which the promiser himself must
perform his obligation personally:
 First one: is where the contractual terms impose no such restriction. For
example, If the contracting parties have originally agreed to say that he/she by
him/her self and no one else will perform the obligations he/she assumed. He
must discharge his obligations personally.
 Secondly: Is that where personal performance is essential to the creditor.
Personal performance of the debtor is essential where the performance of the
obligation involves or special qualification.
18: Discharge of contract:
The contract may be discharged in the following
ways:
18.1: By performance: A contract is completed, or discharged when both parties have
completed their obligations under the terms of the contract.
18.2: By mutual consent: When the parties of the contract completely agree to end or not complete
the contract.
18.2.1: A contract may terminate by mutual consent in any of the following ways:
 Substitution of a new contract for the original one or between different parties.
 Rescission: Rescission means cancelation of all or some of the terms of the contract.
 Remission: Is the acceptance of lesser sum then what was contracted for or lesser fulfillment
of the promise made.
18.3: By subsequent impossibility: Impossibility of performance, whereby conditions
change to the extent that contractual fulfillment cannot result in the original
intentions of the parties to a contract.
18.34 By operation of law: Discharge by operation of law may take place as follows:
 By death: Death of the promisor results in termination of the contract in
cases involving personal skill or ability.
 By insolvency: The insolvency acts provide for the discharge of contracts under certain
circumstance.
18.4: By breach of a contract: Breach of a contract may arise in two ways:
 Anticipatory breach of a contract: Anticipatory breach of a contract when a party
repudiates it before the time fixed for the performance has arrived.
 Actual breach of contract: The actual breach may take place:
at the time when the performance is due during the performance of the
contract/ actual breach of the contract at the time when the performance is
due.
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19: General Remedies of Non-Performance: We use the following remedies
of a contract to get high performance in the contract:
 Is the enforcement the loser one to perform on his own expenses?
 Canceled the contract, the effect of cancellation is to put the parties the position which would
have existed, had the contract not been made.
 Is damages (compensation). The victim party can claim compensation for the
damage or loss he has incurred as a result of non-performance/uncomplete the
performance of the contract.
CHAPTER THREE: CONTRACT OF SALE OF GOODS
1: Definition of contract of sale:
 Is a legal contract for the purchase of assets (goods or property) by a buyer (or
purchaser) from a seller (or vendor) for an agreed upon value in money (or money
equivalent).
 Is a contract by which one person becomes bound to deliver a subject to another with the view of
transferring the property in consideration of money"
 Is an agreement between a seller and a buyer. The seller agrees to deliver or sell something to a
buyer for a set price that the buyer has agreed to pay. With these contracts, the transfer of
ownership happens when the buyer pays and the seller delivers.
2: Elements of the contract of sales:
2.1: Contract: Contract of sale is a special kind of contract. The parties should
be complete the following:
 The two parties of the contract should not be a minor, insane and infirm, judicially interdicted
person.
 There must be an offer and acceptance.
 The consent of the parties should also be free from defect. Mistake, fraud, duress, undue
influence.
 The obligations of both the buyer and the seller must be defined, lawful and possible.
 Contract of sale is different from general contractors. Contract of sale has seller and buyer; they
can be two persons or more.
2.2: The Thing: The word thing shall, accordingly, refer to goods, as it is only goods.
2.2.1: The things(goods) consist of the following:
 Existing goods: Existing goods are goods, which have a physical existence, the goods should
be in the seller’s ownership when the contract is concluded.
 Future goods: Future goods are goods which do not exist at the time of the contractor are not
in the hands of the seller although they do have material existence.
 Contingent goods: Contingent goods are a type o future goods which depend on a specific
contingency or specific period of time.
2.3: The price (consideration): The contract of sale must contain the amount of price for
goods.
2.4: Transfer of ownership: In a contract of sale, all the ownership rights of the goods must be
transferred by the seller to the buyer. However, the physical delivery of the goods is not required.
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3: Formation of the contract of sale:
 Contract of sale is formed when the parties express their agreement on the subject matter of the
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contract and its price.
The parties must define the subject of their dealing and their agreement shall be in special form
when such form is necessary.
No contract of sale can be formed by mere invitation to treat.
The consent shall be free from defect and the parties shall have the intention to be bound.
Contract of sale is formed when parties specify the price in their contract.
4: Obligations of the seller:
4.1: Obligation to deliver: The seller assumes certain obligations under the contract of sale. These
obligations are the obligation to deliver, the obligation to transfer ownership, the obligation to warrant the
buyer against defects and non-conformity to the contract and other obligations imposed on him by the
contract of sale.
4.1.1: Modes of delivering:
 Actual delivery: Is the physical handing over of the thing directly to the buyer or his
representative.
 Constructive delivery: when the thing is to remain in possession of the seller after the
contract of sale.
 Symbolic delivery: It involves the physical handing over of other things that represent the
things sold. For example, if the seller gives the key to the store to the buyer, he makes symbolic
delivery.
4.2: Obligation to Transfer ownership: The seller shall take the necessary steps for transferring
to the buyer unassailable rights of ownership over the thing. Ownership transfers upon transfer of
possession. However, delivery alone does not transfer ownership. The seller must be the owner of the
thing sold. and the seller.
4.3: Obligation to warranty title, defects, and non – conformity: Warranty is a
contractual promise by the seller regarding the quality, character, or suitability of the goods he has sold.
4.3.1: Classification of warranty:
 Express warranty: Is a statement of facts or a promise to the buyer concerning the goods that
become part of the bargain. The seller who gives an opinion or recommends the goods does not
create an express warranty, a statement by the seller about the quality or character of the goods
might be interpreted as an express warranty.
 Implied warranty: Are responsibilities imposed by law on the seller for the quality of goods
he sold. Implied warranty arises whether or not the seller has made express promises as to the
quality of the goods.
4.4: Other warranties:
 Warranty of dispossession: The seller shall warrant the buyer against any total or partial
dispossession, which he might suffer in consequence of a third party exercising a right he enjoyed
at the time of the contract.
 Warranty against defects in the thing: The seller shall guarantee to the buyer that the
thing sold conforms to the contract and not affected by defects.
 Warrantable non-conformities: The thing is deemed not to conform to the contract
where the seller delivered to the buyer part only of the thing sold or a greater or lesser quantity
than he had undertaken in the contract to deliver or the seller delivered to the buyer a thing
different from that provided in the contract.
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5: Obligation of the Buyer: The main obligations of the buyer under the contract of sale are the
obligation to pay price and the obligation to take delivery of the thing sold.
5.1: Obligation to pay price: The buyer has the obligation to pay the price and take delivery of
the thing.
5.2: Obligation to take delivery of the thing: These necessary steps include the obligation to
go to the place of the business of the seller and physically receive the thing from the seller or to keep the
buyer’s store opened if delivery is to be made at the buyer’s place.
6: Common Obligations: Common Obligations of the Seller and the Buyer
In the preceding discussions, we have discussed the respective obligations of the seller and buyer. The
obligations of the contracting parties are not limited to these obligations. They have some obligations in
common like an obligation to pay expenses, obligation to preserve the thing and obligation to bear the
unpreventable risk of loss and deterioration.
6.1: Obligation to pay expenses:
 Expenses like advocate’s fee for drafting the document incorporating the agreement, expenses for
typing, printing and photocopying the document.
 Brokers expenses.
 Charges by the bank when the money is to be sent to the seller through the bank according to the
contract.
 Expenses for transportation.
7: Transfer of risk under a contract of sales of movables: Risk is the liability of loss or
deteriorations of a thing sold. These risks can be the following:
 The thing sold may be damaged, destroyed.
 lost during transportation.
 Floods, tornadoes or other natural catastrophes may destroy it.
8: The theory of General principle of economic analysis of contract as:
 The risk shall be borne by the person who is in a better position of avoiding the risk or shared
when none of the parties is in a better position of avoiding the risk.
CHAPTER FOUR: CONTRACT OF AGENCY
1: Definition of these terms:
 Principal: Generally, is anyone who has the legal capacity to carry out action can appoint an
agent to do it on their behalf.
 Agent: Is a person who has the authority to act in the name and on behalf of another person
called the principal.
 Agency: The relationship between one person, the agent, having authority to act, and having
consented to act on behalf of another, the principal, in contractual relations with a third party.
 Authority of agent: Is the right to exercise authority. The authority, in relation to the
Agency's law, means the ability of the agent to perform certain acts on behalf of and in the name
of the principal.
2: Formation of the agency relationship: An agency relationship can arise by the acts of the
parties in one of the four ways discussed in the following section:
2.1: Agency by agreement: The agency arising out of bilateral agreements between principal and
agent as articulated in the civil code.
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2.1.1 Elements required for the formation of a valid contract as enumerated under
the civil code. These elements are:
 The parties must be capable of contracting and give their consent sustainable at law.
 The object of the contract must be sufficiently defined, possible, and lawful.
 The contract must be made in the form prescribed by the law.
2.2: Agency by ratification: On occasions’, a person who is in fact not an agent may make a
contract a contract on behalf of another (principle). If the principal approves or affirms that a contract by
word or by action.
2.3: Agency by estoppel: This when a principal causes a third person to believe that another person
is his/her agent, and the third persons deal with the supposed agent, the principle “estopped to deny” the
agency relationship.
2.4: Agency by Operation of Law: This usually happens where a person to be represented
is not in a position to appoint his agent for one thing or another. Moreover, it is due to the necessity to
safeguard the interest of the person to be represented.
3: Scope of agent’s authority:
 General Agency: A general agent is given the power to do a number of
transactions involving a continuity of service. A person, conferred with the
agency in general terms is only empowered to sustain the rights of the
principal.
 Special Agency A special agent is a person who is given power by the
principal to act in a particular transaction. Usually, it does not involve
continuity of services, unlike general agency.
 Actual or real authority: It includes the power to carry out whatever the
principal has expressly mandated the agent to do or impliedly engaged him to
accomplish. Therefore, the actual or real authority of the agent described as the
legal relationship which subsists between the principal and the agent created
by a consensual agreement to which they alone are parties.
 Apparent authority: The apparent refers to the authority which in fact
does not but merely appears to exist. It is essential that the appearance of such
an authority emanated from an independent act of the principal manifested to a
third party. Or apparent authority is not an authority arising from the consent
of the principal whether express or implied according to the rules discussed in
the preceding section.
4: Liability and remedies of the Principal:
4.1: Liability of the principal:
 Selection of agent.
 Supervision of the agent.
 Investigation of the act or omission in question agent.
4.2: Remedies of the principal:
 Dismissal: The principal may determine or bring the agency relationship to
an end or otherwise dismiss the agent from his employment without notice.
 Rescission and Damages: The principal may also rescind any contract
made on his behalf by the agent without authority or in breach of his duty and
this may include claims for damages.
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5: Liability and remedies of the Agent:
5.1: Liability of the agent:
 In cases where a third party is exposed to loss, damage or injury as a result of
the wrongful act or omission by the agent, the latter remains personally liable
to him.
5.2: Remedies of the agent:
 Damages: The agent may sue the principal to recover any loss or injury he
may have suffered as a result of the principal’s failure to perform any of his
duties under the agency arrangement. This may include his right to indemnity.
6: General Duties of agent and principle: Consequently, the rights and
duties arising from such relationship are discernible from the express or implied
agreement between the parties. Hence, there exist rights and obligations with
attendant duties on both parties to one another.
6.1: Duties of the agent to the principle:
6.1.1: Duty to Perform: The primary duty of an agent particularly where he was
appointed under an agreement with the principal is to execute his agency in
accordance with the terms of such agreement.
6.1.2: Duty of Obedience or Loyalty: The duty of an agent to carry out any
instructions that may be given to him by the principal and cannot depart.
6.1.3: Duty of Care and Skill: The degree of care, skill or diligence required of
an agent may sometimes depend on:
 Whether he is acting for a reward, a higher standard of care, skill or diligence is
required of him.
 If he was a professional, agent or holds himself out as possessing a
professional qualification, he must exhibit such car, skill or diligence as is
usual or necessary or for the proper conduct of the trade, business.
6.1.4: Duty of Personal Performance: In the realm of agency, an agent
cannot entrust to another person or a sub-agent the exercise of authority or duty
entrusted to him by his principal without the latter’s express or implied authority to
do.
6.1.4.1: The recognized exceptions to this general rule include:
 Where custom or usage of the trade, business or profession of the agent or
within which he operates allows.
 Where an emergency has arisen requiring immediate or instantaneous action
in order to preserve or protect the interest of the principal or the agency itself.
 Where the principal ratifies the act of the agent in appointing a sub-agent or an
act or omission of the supposed sub-agent either directly or otherwise.
6.1.5: Duty to Act in Good Faith: This duty of an agent arises principally from
the fiduciary nature or character of the principal-agent relationship. Agency
relationship, as a whole, is based essentially on the trust reposed on the agent by the
principal.
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6.1.5.1: The duty of good faith has many corollaries. These are:
 The agent must avoid a class of personal interest with that of his principal.
 The agent should not make any secret profit or another benefit from his
position as an agent in excess of his agreed commission or remuneration.
 The agent is under an obligation not to take a bribe while executing his agency.
6.1.5.2 Cases where the giving or receiving of bribe is established
against the agent, the principal could exercise the following options:
 Dismiss the agent immediately and without notice.
 Refuse to pay the agent any salary or commission payable or accruing. And
others.
6.1.6: Duty to Account: It is a fundamental obligation of every agent to keep and to
render an appropriate account of his stewardship to his principal whenever he is
called upon to do so. Thus, he must be willing and ready at all times to render an
account of all transactions undertaken by him for and on behalf of his principal.
6.1.6.1: some individual obligations of the agent his principal
relating to the duty to account flow from the general duty to
account:
 Duty to keep the proper account.
 Duty to make books and documents in his possession relating to the execution
of the agency assessable to his principal.
 Duty to keep his personal monies separate from his principal’s money.
6.2: Duties of the Principal to the Agent:
6.2.1: Duty to Remunerate: The remuneration may take the form of an agreed commission or
wages or other benefit agreed between the parties such as some share of the benefits accruing to the
principal from the agency. However, the duty to remunerate is not absolute for the agent’s right to receive
it accrues only if he is entitled to it in accordance with the agency agreement which will also include the
amount payable, the conditions under which it becomes payable and the time of payment.
6.2.2: Duty of reimbursement and Indemnity: In every agency relationship, there is by
implication, a duty on the principal to indemnify the agent of all loses, damages or liabilities sustained by
the agent in the course of discharging his authorized duties.
7: Termination of agency:
7.1: By act on the parties: An agency relationship may be terminated by an act of the principal or
and the agent. Such an act may be an agreement between the two parties or a unilateral act of either of
them.
 Agreement between Principal and Agent: It is generally considered as good sense to
allow the parties the freedom to be able to terminate their relationship when it is no longer
beneficial to them or fulfilling their purpose.
 Revocation by Principal: An agency relationship is generally presumed to have been
created, formed or established for the benefit of the principal. It, therefore, follows that he is
generally also free at any time to revoke the agency or any authority granted to the agent when he
considers that the object or purpose is no longer attainable or when that benefit is no longer
accruing to him.
 Renunciation by Agent: Renunciation occurs where the agent unilaterally terminates his
relationship with his principal. This right is implied in every agency relationship if the agent so
wishes except in cases of irrevocable authority.
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7.1.1: Modes of Renunciation:
 By a written instrument.
 By words of mouth.
 By simply refusing to act.
7.2: By operation of law:
 By Performance: In cases where an agent is given an authority to accomplish or achieve a
specific result reason demands that the authority terminates upon the object of the power is
accomplished.
 By Expiration of Time: It is also generally expected that the authority of an agent which
was conferred on him for a specific period of time terminates or ceases automatically upon the expiration
of that period of time. The agency relationship terminates at the expiration of such period of time
irrespective of whether the task or object contemplated by its creation or formation has been accomplished
or not.
 By Frustration: Where an agency agreement exists between the principal and the agent, it
may be terminated by the operation of the doctrine of frustration, that tells us When the subject
matter comes to an end by reason of circumstances beyond the control of the parties.
 By Death of Principal or Agent: Death is inevitable to every living being
ordinarily. In essence, the termination of an agency relationship by the death of
the principal or agent is automatic. It does not depend on the principal or
agent and indeed on any other party involved, acquiring knowledge or receiving
notices of such death of the deceased party.
 By Insanity of Principal or Agent: One of the basic ingredients of a
valid contract is that the parties to such an agreement must be of sound mind.
In an agency situation, this rule is also applicable and where the insanity or
mental incapacity of the principal or the agent occurs, the relationship is
terminated except in cases of irrevocable authority.
 By Bankruptcy of Principal or Agen:t the agency relationship of
principal and agent ordinarily terminates at the bankruptcy of either the
principal or agent. Where the principal becomes bankrupt his estate by law
falls to be administered by his trustee in bankruptcy.
7.2.1: An agency relationship will automatically terminate if its object or subject
matter:
 Becomes unlawful or illegal.
 Ceases to exist by reason of government expropriation.
 The principal or agent becomes an alien enemy.
8: An agency relationship will automatically terminate if its object or
subject matter or the authority of the agent:
 Becomes unlawful or illegal.
 Ceases to exist by reason of government expropriation.
 The principal or agent becomes an alien enemy.
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CHAPTER FIVE: BUSINESS ORGANIZATIONS AND PRIVATE FRANCHISES
1: Definition of business:
 A business is an activity, which is primarily pursued with the object of earning
profits. A business is an activity involves production, exchange of goods and
services to earn profits.
 A business is a state of being busy.
 A business may be defined as human activities directed to words providing or acquiring wealth
through buying and selling goods.
 A business is any activity in which different persons exchange something of value, whether goods
or services or mutual gain or profit.
2: Types of business organization:
2.1: Sole-proprietorship: In this form of organization is single individual promotes and controls the
business undertakings and bears the whole risk himself, he takes all the profits and bears all risk alone.
2.1.1 Advantages of sole-proprietorship:




Hi/She Receives all of the profits.
It is often easier and less costly to start the sole-proprietorship.
It has more flexibility than a partnership or corporation.
The sole proprietor is free to make any decisions concerning the business.
2.1.2: Disadvantages of a sole proprietorship:
 Because he/she takes all the risk.
 Proprietors opportunity to raise capital is limited to personal funds.
 He has a danger of continuity of business due to death.
2.2: Partnership:
A partnership is an association of two or more persons to carry on, as co-owners, a
business and to share its profits and losses.
2.2.1: Types of partnership:
 General partnership: General partnerships are an agreement, between two or more persons
to carry out on business profit. usually referred to simply as partnerships and they have joint
control over its operation and the right to share its profits.
 Limited partnership: A limited partnership consisting of at least one general
partner and one or more limited partners. The general partners assume
management responsibility of the partnership and, as such, have full
responsibility for the partnership and for all the debts of the partnership.
2.3: A company (corporation): Is an association of many persons who
contribute money or money’s worth to common stock, having perceptual existence and
limited liability. Therefore, has an independent legal entity. Its existence depends on
generally upon the state law, and its different country to country.
2.3.1 Advantages of corporation companies:
 Owners have limited liability.
 Easy to transfer ownership.
 Corporations have perpetual lifetimes.
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2.3.2: Disadvantage of the corporation:
 Double taxation of corporate profits.
 States have higher fees.
 Only one class of stock is permitted.
2.3.3 Distinction between Private Limited and Share Company:
 Membership: Only two persons are required to form a private limited company while a share
company requires a minimum of five members to start with. And There is no limit on the
maximum number of members in the Share Company. Whereas a private limited company can
have only 50 members at most.
 Directors: A private limited company is managed by one or more managers while Share
Company is managed by directors whose minimum number shall be three.
 Public subscription: while a share company can invite public to subscribe to its shares and
debentures, a private limited company cannot go to the public to raise its capital.
 Minimum subscription: In share company, all capital must be subscribed and 25% of the
capital must be paid-up before registration. Private Limited Company is registered by fully paidup capital.
2.4: Join venture: Is a relationship in which two or more persons combine their effort
or their property for a single project or transaction, or related series transactions or
projects. Unless otherwise agreed, joint venture’s share lost and profit equally.
2.4.1: Characters of joint ventures:
 A joint venture is not made known to third parties.
 A joint venture does not have legal personality.
2.5: Franchise: A franchise is an arrangement in which the owner of the trademark, trademark’s name
or copyright has licensed others to use it in selling goods or services.
2.5.1: Types of the franchise:
 A distributorship: A distributorship is established when manufacturing concern (franchisor)
licenses a dealer (franchisee) to sell it the product, often a distributorship covers an exclusive
territory.
 A chain style business franchise: Generally, the franchisee is required to follow
standardized or prescribed methods of operation. Often the franchisor requires the franchisee to
maintain certain standards of operation.
 Processing-plant franchise: Is created when the franchisor transmits to the franchise the
essential ingredients’ or the formula to make a particular product. The franchisee then markets
either at wholesale or retail in accordance with the franchisor's standards.
2.5.2 The franchise agreement: Is a relationship is created by a contract between the
franchisor and franchisee. To avoid future problems, arise from the relationship.
2.5.3: Business organization and quality controls: As a general rule, the validity of a
provision permitting the franchisor to enforce certain quality standards is unquestionable, because the
franchisor has a legitimate interest in maintaining of quality product or service in order to protect its name
and reputation.
2.5.4: Termination of the franchisor: The duration of the franchisor is a matter determined
between the parties, often the franchise will start out for a short period, such as a year so that the
franchisor and franchisee can determine whether they want to stay the business with each other.
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2.5.5: Franchise agreement will termination by the following:




Death.
Disability of the franchise,
Insolvency of the franchise.
Breach of the franchise agreement.
3: Memorandum of association: It is a document which sets out the constitution of the business
organization and is really the foundation on which the structure of the business organization.
3.1: Contents of a memorandum of association:
 Name clause: A company being a legal person, must have a name to establish it identify. The
general rule is that a company may be registered with any name it likes. But no company
registered by name which in the opinion of the registration office is undesirable and in particular
which is identical with or which too nearly resemble the name of an existing company.
 Object clause: This clause is the most important clause in the memorandum of association of
a company because it not only shows the object or objects for which the company is formed but
also determines the extent of the powers which the company can exercise in order to achieve the
object or objects.
 Liability clause: This clause has to state the nature of liability that the members incur. In the
cause of a company limited by shares, the members are liable only to the amount unpaid on the
shares were taken by them. If his shares are fully paid up his liability is nil.
 Capital Clause: The memorandum of a company limited by shares must state the prescribed
and paid-up capital and nominal value of each share.
3.2: Purpose of memorandum Association:
 The intending partner/ shareholder, who contemplate the investment of his capital shall know
within what field it is to be put at risk. Thus, he can find out from the memorandum the field in.
 Anyone who deals with the company shall know without reasonable doubt whether the
contractual relationship into which he contemplates entering with the company is one relating to a
matter within its corporate objects.
3.3: Articles of association: The articles of association are the rules and regulations of a company
framed for the purpose of internal management of its affairs. It deals with the rights of members of the
company inter se.
3.3.1: Articles in relation to memorandum: The memorandum of association is the charter of
the company and an extremely important document in relation to the affairs of the company. The articles
are subject to the memorandum and cannot confer wider powers on the company than those given in the
memorandum. And contains the following terms:
 The articles contain rules governing the internal management of the company.
 Implementation of the purposes of the company as specified in the memorandum.
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CHAPTER SIX:
NEGOTIABLE INSTRUMENTS
1: Definition of negotiable instruments:
 It is a written document by which a right is created in favor of a person.
2: Commercial instruments:
 Is an incorporating right for payment of a specified amount of money. They are issued
and negotiated on the basis and with the purpose of performing an obligation that can be
performed by payment of a certain amount of money. Hence, they are used as a substitute
for money.
3: Types of commercial instruments:
3.1: Bills of exchange: It is a negotiable instrument incorporating an unconditional order, addressed
by one person to another, signed by the person giving it, requiring the person to whom it is addressed to
pay on demand or at a fixed or determinable future time a certain sum in money to or to the order of a
specified person.
3.1.1: Conditions of bills of exchange:








The term “bill of exchange”.
An unconditional order to pay a certain sum in money.
The name of the person who is to pay.
The time of payment.
The place of payment.
The name of the person to whom or to whose order payment is made.
The date when and the place where the bill is issued.
The signature of the person who issues the bill.
3.2: Promissory note: Is a document incorporate an unconditional promise in writing made by one
person to another signed by the maker, engaging to pay, on demand or at a fixed or determinable future
time.
3.2.1: Conditions of promissory note:







The term “promissory note”.
An unconditional promise to pay a sum certain in money.
The time of payment.
The place of payment.
The name of the person to whom or to whose order payment is to be made.
The date when and the place where the note is issued.
The signature of the person who issues the instrument.
3.3: Checks: The check is an unconditional order in writing, addressed by one person, the drawer, to a
banker, signed by the drawer, requiring the bank to pay, on demand, a sum certain in money to or to the
order of specified person.
3.3.1: The main differences between checks and bills:
 Cheeks:
 A check is always drawn on a banker and is always payable on demand.
 A check can be crossed in several ways.
 Acceptance is not necessary for a check since it is payable on demand.

Bills:
 Bills of exchange may be drawn on anyone.
 Bills may be made payable on demand or at fixed or a determinable future time Bills
cannot be crossed in several ways.
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3.3.2: Crossed cheek: A cross check is a check containing two parallel lines drawn across its face by
the drawer or holder. A check may be crossed generally or especially.
3.3.3: Types of the crossed cheek:
 General crossed check: A general crossed can only be paid to a bank, which is the banker
of the payee or holder, or to a person who is the customer of the drawer.
 Special crossed check: A special crossed check can only be paid to the bank specified in
the crossing. Such a bank may have the check collected by another bank.
3.3.4: Condition of crossed cheeks:
 Two parallel lines only: Where the word “bank’ or ‘banker’ is inserted between the
lines. The crossing shall be special where the name of a specific bank is inserted between the
lines.
3.3.5: Purpose of crossing checks:
 Is to make sure that the check is paid to the intended person by preventing payment to other
persons into whose hands the check might fall.
 It also helps to avoid or at least minimize risks associated with loss or theft of checks.
3.4: A certificate of deposit: It is an instrument containing an acknowledgment by a bank that it
has received a sum of money on deposit and a promise to repay the sum of money.
 THE END OF SUMMARY OF THE BUSINESS BOOK.
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FROM THE BOOK OF COURSE.
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BUSINEADMISTRATION(MANAGEMENT).
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