Business Law.pptDDDDDDDDDDDDDDDDDDDDDDDD

Business Law and Ethics
November, 2021
By
Dr.Ryoba Marwa

• What is Law?
 The law is a set of legal rules that governs the way members of
a society act towards one another.
 The Oxford English Dictionary describes law as: The body of
rules, whether formally enacted or customary, which a
particular State or community recognises as governing the
action of its subjects or its members and which it may enforce
by imposing penalties.
 Criminal law is the power of the state to punish people for
causing harm or for being involved in other forms of
unacceptable conduct.
1-1

Functions of law
• Laws are required in society to regulate the behaviour of the
individual, to correspond with what is acceptable to the majority
of individuals. Therefore, the following are functions of law:
i. Preventing Undesirable Behaviour and Securing Desirable
Behaviour. This function is mainly performed by parts of the
criminal law and the law of torts. It is served by prohibitions on
murder, assault, unlawful imprisonment, certain forms of sexual
behaviour, revealing official secret.
ii. Providing Facilities for Private Arrangements between
Individuals.
iii. The Provision of Services and the Redistribution of Goods like
by providing for education, health service, road construction and
maintenance, sewage and rubbish clearing, subsidizing
industries or the arts, the payment of social security benefits.
1-2

iv. Settling Unregulated Disputes. Laws regulating the operation of
courts, tribunals, arbitrators, etc., They fulfil a primary function
inasmuch as they stipulate procedures for settling unregulated
disputes.
v. Protect human rights.
vi. Provide system a system of enforcement.
vii. Provide Remedies
1-3

Classifications of Law
• There are many ways to classify laws. To classify means to put
types of law into distinct categories. These are:
1 Substantive Law or Procedural Law
 A substantive law creates, defines, and regulates rights as
opposed to protective, procedural, or remedial law, which
provides a method of enforcing rights.
 A procedural law prescribes a method of enforcing rights or of
obtaining redress for the invasion of rights.
 The basic function of civil procedural law is to facilitate the
movement of a lawsuit through the legal system.
 Procedural laws are created to ensure that each party will be
afforded fair and impartial treatment. 1-4

2 Civil Law or Criminal Law
• Criminal law deals with crimes in the society. It is the branch of
public law which regulates the relation between the state and
its citizens. It create offences and its punishment.
• Criminal law is an aspect of public law and relates to conduct
which the State considers with disapproval and which it seeks to
control and/or eradicate.
• Specific examples include laws against killing human being,
theft, rape, assault, burglary, and robbery.
1-5

Civil law
 Civil law is Law that governs the private rights of individuals, legal
entities, and government.
 Civil law governs the issues that arise between parties over private
rights.
 A civil case is brought by the injured party for damage to his or her
personal rights, person, or property.
 The purpose of civil law is to settle disputes between individuals
and to provide remedies; it is not concerned with punishment as
such.
 A criminal case is a suit that is brought by the government for
violation or injury to public rights. 1-6

 Procedural law also plays a part in the litigation and includes
the following:
1. the time limit for bringing a lawsuit,
2. the manner in which the lawsuit is begun (e.g., by filing a
complaint or petition),
3. the proper way to inform the defendant that a lawsuit has
been filed,
4. the types of information that each party must release to the
other party,
5. the procedure at trial,
6. the evidence that can be introduced at trial, and
7. the method for appealing the decision if the losing party feels
the decision was unfair.
1-7

Public and Private law
 Public law refer to laws which deal with relationship between
state and individual.
 Public law cover administration, constitution, and criminal acts.
 It controls the actions between the citizens of the state and the
state itself.
 The purpose of public law is to attain what society deems to be
valid public goals.
 Example criminal law, which prohibits conduct deemed injurious
to public order and provides for punishment of those proven to
have engaged in such conduct.
1-8

Private law, is concerned with the recognition and enforcement of
the rights and duties of private individuals. Contract actions are
two basic types of private law.
A contract action involves a claim by one party that another party
has breached an agreement by failing to fulfill an obligation.
Domestic law and International Law
 Domestic laws refer to a body of rules peculiar to a particular
country or state while international law are rules that are
binding on states in their relations with each other
 International law can be divided into public international law,
which governs relationships between countries, and private
international law, which governs which country’s law should
apply to individuals where there are links with at least two
different countries. 1-9

Sources of Business Law
 sources of law are sources of norms systematically treated by
judges as content-independent reasons for action
1 Constitutions
 The United Republic of Tanzania is governed by the Constitution of
the United Republic of Tanzania 1977. The Constitution is the
fundamental law of the country and other laws are made in
furtherance of the Constitution). Thus, the constitution is “the
supreme Law of the Land.
 The Constitution is a source of law in at least two ways.
i. it is a source of law in and of itself; after all, it’s the Constitution,
“the supreme Law of the Land.”
ii. the Constitution is a source of law because it creates and
allocates power between the legislative, executive, and judicial
branches of the government, which are other sources of law.1-10

2 Statutes
 The legislature derives its powers from Article I of the
Constitution. The legislature is a source of law because it enacts
statutes or statutory law.
 A statute is a law passed by a legislature; and statutory law is
the body of law resulting from statutes.
 A statute—or the statutory law—may also be referred to
as legislation.
 Example companies Act and the Contract Act.
1-11

3. Case law/judge-made law
 Tanzania adopted system of law which recognises the
application of case law as the sources of law including the
sources of business law.
 Judicial precedent’ is the body of law resulting from decisions
on points of law made by other courts with regard to the same
circumstances.
 In Tanzania, judgments of the High Court and Court of Appeal
are also sources of law. Judges are required to treat similar
cases in the same way.
1-12

4. Received Laws
 The fourth source is Received Laws established under Section
2.3 of The Judicature and Application Laws Act, Chapter 358 of
the Laws of Tanzania [R.E. 2002] (JALA) these include: Common
Law, and Doctrine of Equity, Statutes of General Application of
England, applicable before the 22 of July 1920, which is deemed
to be the Reception date for English Law in Tanzania.
• Section 2 (3) of the JALA proviso “ provided that the said
common law, doctrine of equity and statute of the general
application shall be in force in Tanzania only so far as the
circumstances of Tanzania and its inhabitants permit, and
subject to such qualifications as local circumstances may render
necessary”
1-13

Common Law
• Common law refers to the body of principles that evolve from
and expand upon judicial decisions that arise during the trial of
court cases.
• Many of the legal principles and rules applied today by courts in
the United Republic of Tanzania have their origins in English
common law
1-14

5. Customary and Islamic Law
• This includes all regular and general public practice recognized
as binding. It is stated under section 11 of JALA.
• Whereby customary law is in effect only when it does not
conflict with statutory law whilst Islamic law is applicable to
Muslims under the Judicature and Applications of Laws Act,
empowering courts to apply Islamic law to matters of
succession in communities that generally follow Islamic law in
matters of personal status and inheritance.
1-15

6. International Law (Treaties and Conventions)
• International Laws are laws made to regulate relationship
among states in the form of Treaties, Declarations, Protocol and
Conventions.
• The Act of Parliament can apply treaties and conventions to
which Tanzania is a party in the Courts in Tanzania only after
ratification.
• Example East Africa Treaties and the UN Conventions.
1-16

Topic Two: Contract Law
Introduction
The law of Contract is the legal mechanism for
facilitating, regulating and enforcing contractual
transactions in market activities. See section 2(1)
(e) of LCA
The law of contracts defines those duties that
individuals or organizations voluntarily assume,
generally through promises.
A contract requires offer, acceptance, intention
to create legal relations, and consideration.

Definition
 A contract is an agreement or set of promises that the law will
enforce (ie, for breach of which the law will provide a remedy).
 A contract is an expression of the joint will of parties engaged in a
transaction.
Form of a contract
 The general rule is that a contract may be made in any form; it
could be made by word of mouth, by conduct, or in writing.
 It is generally left to the parties to decide on the actual form that a
contract is to take
1-19

The legal effect of particular agreements
1. Valid contracts
 These are agreements which the law recognises as being binding
in full.
 By entering into such contractual agreements, the parties establish
rights and responsibilities and the court will enforce these by
either insisting on performance of the promised action or
awarding damages to the innocent party.
2. Void contracts
 This is actually a contradiction in terms, for this type of agreement
does not constitute a contract at all: it has no legal effect.
 Agreements may be void for a number of reasons, including
mistake, illegality, public policy or the lack of a necessary
requirement, such as consideration.
 The ownership of property exchanged does not pass under a void
contract. 1-20

Executed Contract is the contract where one of the parties has
fulfilled his or her side of the bargain, leaving an outstanding
liability on one side only.
Executory contract is a contract where promises are exchanged
but are to be fulfilled in future. Both parties have yet to do the acts
or fulfil the promises that are the subject of the agreement.
Example; a contract for services, where the employer promises to
pay the contractor and the contractor promises to the work.
3. Voidable contracts
 These are agreements which may be avoided, that is, set aside,
by one of the parties. If, however, no steps are taken to avoid
the agreement, then a valid contract ensues.
 Examples of contracts that may be voidable are those which
have been entered into on the basis of fraud, misrepresentation
or duress.
1-21

4. Unenforceable contracts
 These are agreements which, although legal, cannot be sued upon
for some reason.
 Example would be where the time limit for enforcing the contract
has lapsed.
 The title to any goods exchanged under such a contract is treated
as having been validly passed and cannot, therefore, be reclaimed.
1-22

Formation of valid contract
• There are essential elements necessary which make the
contract as binding agreement. These elements are very
important without which the contract may not be enforceable.
These are:
(a) Agreement (offer and acceptance)
(b) Capacity to contract
(c) intention to create legal relations;
(d) Consideration
(e) Lawful object
(f) Free consent
These elements must be present for there to be a legally
enforceable contractual relationship.
1-23

1. Agreement
 This is the first element of the contract. A contract is a legally
binding agreement made between two or more parties who
intend it to have legal effect.
 The agreement must be made between two or more parties.
 These two parties are called the promisor and the promise.
 The parties must be of the same mind in order for the contract
to be binding between them.
 To have agreement, the offeror must make an offer to offeree,
an offer which must be accepted.
1-24

a. Offer
 The first element is an offer by one party that is accepted by the
other party. The offer or the acceptance may occur by the express
words of the parties or by their conduct.
 An offer is a promise to be bound on particular terms, and it must
be capable of acceptance. The person who makes the offer is the
offeror; the person who receives the offer is the offeree.
 The offer sets out the terms upon which the offeror is willing to
enter into contractual relations with the offeree.
 An offer cannot be accepted unless the acceptor is aware of both
its existence and its terms.
 Therefore, offers are effective after they have been
communicated. An offer may be made to (a) a named person or
persons (b) a class of person (c) the whole world. 1-25

 In order to be capable of acceptance, the offer must not be too
vague; each party should know what their rights and obligations
are.
 An offer must be distinguished from the following:
(1) An Invitation To Treat
• This is a statement of intention of willingness to do business
with another person. The person extending the invitation is not
bound to accept any offers made to him. The following are
examples of common situations involving invitations to treat:
i. The display of goods in a shop window is regarded as
invitation to treat
ii. A public advertisement is also invitation to treat
iii. Auctions operate on the basis of the auctioneer inviting, and
accepting offers from the bidders. It is also invitation to treat.
iv. Tenders. An invitation to submit tenders is an invitation to
treat 1-26

Termination of an offer
An offer may be terminated in the following ways:
(a) By rejection: if a person to whom an offer has been made rejects
it, then they cannot subsequently accept the original offer;
(b) By counter-offer: where the offeree tries to change the terms of
the original offer, has the same effect;
(c) By lapse of time: occurs where the parties agree, or the offeror
sets, a time limit within which acceptance has to take place.
(d) By revocation of offer: where the offeror withdraws the offer,
means that the offer cannot be accepted
(e) By death of offeree before acceptance. If offeree die before
making acceptance to the offer, such terminate it.
1-27

b. Acceptance
 Acceptance is when a person to whom an offer is made show
his willingness to be bound by such offer.
 An acceptance must correspond with the terms of the offer.
 Acceptance of the offer is necessary for the formation of a
contract. Once the offeree has assented to the terms offered, a
contract comes into effect.
 Thus, the offeree must not seek to introduce new contractual
terms into the acceptance.
1-28

Essential of acceptance:
a) An offer must be fully communicated to the offeree.
b) An offer must be received by the offeree.
c) An offer will lapse after the passing of a reasonable period of
time.
The Postal Rule
 Where acceptance is through the postal service is complete as
soon as the letter, properly addressed and stamped, is posted.
The contract is concluded, even if the letter is never delivered.
 The postal rule only applies where the parties expect the post
to be used as the means of acceptance.
 It can be excluded by requiring that acceptance is only to be
effective on receipt
1-29

Capacity to enter into contract
• Capacity refers to a person’s ability to enter into a contract. In
general, all adults of sound mind have full capacity.
Minors
• A minor is a person under the age of 18 (the age of majority).
• The law tries to protect such persons by restricting their
contractual capacity and thus preventing them from entering into
disadvantageous agreements.
• Contracts regarded as binding on minors
1. Contracts for necessaries like food and shelter
2. Beneficial contracts of service. A beneficial contract of service,
such as a contract of education or employment, is prima facie
binding on a minor, provided it is substantially for the minor’s
benefit.
1-30

Drunks
• A contract is voidable if:
(i) drunkenness prevents an individual from understanding the
transaction he has entered into; and
(ii) the other party is aware of his level of intoxication.
• Drunks are liable to pay a reasonable price for items considered
necessaries.
• When drunks are sober, they can ratify a contract and be sued
upon it if a breach occurs.
Mental incapacity and intoxication
• A contract by a person who is of unsound mind or under the
influence of drink or drugs is prima facie valid.
1-31

Intention to create legal relations
 An agreement will not constitute a binding contract unless it is one
that can reasonably be regarded as having been made in
contemplation of legal consequences.
 Intention to contract’ means the readiness of a party to accept the
legal consequences of having entered into a contract, particularly
if they do not perform their part of the bargain.
 A person is bound if, and only if, that person consents to the duty.
 In Balfour v. Balfour [1919] 2 KB 571 a husband and wife on leave
from Ceylon agreed that the husband would pay the wife £30 a
month maintenance while she stayed on in England. The court
found there was no intention to create legal relations.
1-32

Domestic and Social agreements
• The presumption is that domestic and social agreements are not
intended to have legal force like the agreements between
husband and wife.
Commercial agreements
• If an agreement can be categorised as a commercial agreement,
then it is presumed that the parties intended to create legal
relations, and the onus of proof on a party who alleges that no
legal effect was intended is a heavy one.
1-33

Consideration
 This is a price of the promise. It is the price for which the promise
of the other is bought, and the promise thus given for value is
enforceable.
 This is an element of bargaining. In Section 2{d) of the Law of
Contract Act, R.E 2019 consideration is defined as follows: When,
at the desire of the promisor, the promisee or any other person
has done or abstained from doing or does or abstains from doing,
or promises to do or to abstain from doing, something, such act or
abstinence or promise.
Types of consideration
1. Executory consideration
• This is the promise to perform an action at some future time. A
contract can thus be made on the basis of an exchange of
promises as to future action.
1-34

2. Executed consideration
 Occurs when one party has completed (executed) their side of
the bargain but the other party’s consideration is still
unperformed (executory).
3. Past consideration
 This category does not actually count as consideration. With
past consideration, the action is performed before the promise
that it is supposed to be the consideration for.
 Such action is not sufficient to support a later promise
1-35

Rules relating to consideration
• To be effective, consideration must comply with certain rules:
(a) consideration must not be past;
(b) performance must be legal;
(c) performance must be possible;
(d) consideration must move from the promisee;
(e) consideration must be sufficient, but need not be adequate
1-36

Lawful object
• Courts will not uphold an agreement which is illegal or contrary
to public policy. Where the contract involves some kind of moral
wrongdoing, it will generally considered to be illegal.
• In this connection, a Court may object to an agreement either
because of a rule of common law or because it is contrary to
statute.
Examples of illegal contracts are contracts to:
• commit crimes or civil wrongs;
• involving sexual immorality
• tending to promote corruption in public life;
• trading with an enemy in wartime
1-37

Free consent
 All the parties must be free to consent or making decision to
enter into the contract.
 contract may not be enforceable if one of the parties did not
genuinely consent to the terms of the contract.
 The agreement must be made without undue influence from
either party in the contract.
1-38

Contents of contracts
 The terms of a contract define the obligations which the parties
to the contract have undertaken.
 It is what this party has agreed to do and it follows from this,
that the total sum of all the terms from all parties is the
contract in its entirety.
 A contract is made up of two terms:-
(a) Conditional terms-fundamental terms
(b) warrant terms= minor terms
1-39

Exemption and exclusion clauses
 An exemption clause is a term in a contract which seek to enable one
of the parties to a contract to exclude their liability.
 They are controlled by a mixture of common law.
 These are terms which attempt to exclude liability for breach of
contract or for breach of a tortious duty of care.
 To be valid, an exemption clause:-
1. Must be incorporated in the contract by signature
2. Reasonable notice of the term must be communicated to the other
party before, or at the time that, the contract is entered into.
1-40

Vitiating factors in contract
1. Mistake
 Very few mistakes will affect the validity of a contract at
common law, but where a mistake is operative, it will render the
contract void.
 Mistakes may be classified into three categories:
(a) Mistake as to the nature of the contract itself.
(b) Unilateral mistakes, i.e. made by one party only.
(c) Bilateral mistakes, i.e. where both parties make a mistake.
2. Misrepresentation
• Misrepresentation is a false statement of fact, made by one
party before, or at the time of, the contract, which induces the
other party to enter into the contract.
 There must be a statement. 1-41

• It is a certain kinds of misleading statements, made before a
contract is entered into, by which persons may be induced to
enter into contract.
Therefore, the statement must be
 false
 one of fact
 addressed to the party misled
 induced the representee to enter into the contract.
1-42

3. Duress
• It is any unlawful actual or threatened violence to the person of
the contracting party which if proved then the contract is
voidable.
4. Undue influence
 Where parties have entered into as a consequence of the undue
influence of the person benefiting from them such contract is
voidable.
 The effect of undue influence is to make a contract voidable,
but delay may bar the right to avoid the agreement.
1-43

DOCTRINE OF PRIVITY OF CONTRACT
• According to the doctrine of privity of contract a person who is
not a party to a contract can neither benefit from the contract
nor be made liable under it.
Exceptions to the doctrine of privity of contract
• To prevent injustice, a number of exceptions to the rule have
been acknowledged to enable beneficiaries to enforce their
rights.
• These are:
1. Agency. Where agents make contracts on behalf of their
principals with third parties, the principals may sue or be sued
on those contracts as if they had made them themselves.
1-44

2. Third-party insurance. A third party may claim under an
insurance policy made for their benefit, even though that party
did not pay the premiums (for example: life assurance and third-
party motor insurance).
3. Assignment of contractual rights. The benefits of a contract
may be assigned to a third party, who may then sue on the
contract (for example: selling debts). The original debtor may be
sued by the new creditor to whom the rights to collect the debt
have been assigned.
4. Trusts. This is an equitable concept by which one person
transfers property to a second person (the trustee), who holds it
for the benefit of others (beneficiaries).
5. Collateral contracts. The performance of one contract between
A and B may indirectly bring another into being between A and
C.
6. The use of negotiable instrument
A third party may be sued or sue in negotiable instruments. 1-45

Discharge of contracts
• Discharge of contract means that the parties to an agreement are
freed from their contractual obligations.
A contract is discharged in one of four ways:
(a) agreement;
(b) performance;
(c) frustration;
(d) breach.
1.Discharge by agreement
• The contract itself may contain provision for its discharge, by
either the passage of a fixed period of time, or the happening of a
particular event.
• One or other of the parties can bring it to an end, as in a contract
of employment. 1-46

2. Discharge by performance
• This is the normal way in which contracts are discharged. As a
general rule, discharge requires complete and exact
performance of the obligations in the contract.
There are four exceptions to the above general rule requiring
complete performance:
(a) where the contract is divisible;
(b) where the contract is capable of being fulfilled by substantial
performance;
(c) where performance has been prevented by the other party;
(d) where partial performance has been accepted by the other
party.
1-47

3. Discharge by frustration
• The doctrine of frustration permits a party to a contract, in the
following circumstances, to be excused performance on the
grounds of impossibility, arising after the formation of the
contract:
(a) destruction of the subject matter of the contract has occurred;
(b) government interference, or supervening illegality, prevents
performance ;
(c) a particular event, which is the sole reason for the
contract, fails to take place
(d) the commercial purpose of the contract is defeated;
(e) in the case of a contract of personal service, the party dies.
1-48

4. Discharge by breach
• Breach of a contract occurs where one of the parties to the
agreement fails to comply, either completely or satisfactorily,
with their obligations under it.
• A breach of contract may occur in three ways:
(a) where a party, prior to the time of performance, states that
they will not fulfil their contractual obligation;
(b) where a party fails to perform their contractual obligation;
• (c) where a party performs their obligation in a defective
manner.
1-49

Remedies for breach of contract
• The principal remedies for breach of contract are:
(a) damages;
(b) quantum meruit;
(c) specific performance;
(d) injunction
1-50

1. Damages
• The estimation of what damages are to be paid by a party in
breach of contract can be divided into two parts: remoteness
and measure of damages.
2. Quantum meruit
• This means that a party should be awarded ‘as much as they
have earned’.
• If the parties enter into a contractual agreement without
determining the reward that is to be provided for performance,
then in the event of any dispute, the court will award a
reasonable sum.
1-52

3. Specific performance
• It will sometimes suit a party to break their contractual
obligations, and pay damages; but, through an order for specific
performance, the party in breach may be instructed to
complete their part of the contract.
4. Injunction
• This is also an equitable order of the court, which directs a
person not to break their contract. It can have the effect of
indirectly enforcing contracts for personal service.
1-53

Topic: Agency Law
Introduction
• The law of agency is the law governing the relationship between
principal, agaent and third party to allow for the smooth flow of
commercial transactions.
• Thus, principals employ the services of agents to act on their
behalf to enter into contracts or dispose of their property.
• Agency is, of necessity and inherently, a legal relationship between
the principal (P), the agent (A) and one or more third parties (T).
• This relationship is governed by three main factors, it is argued:
consent of both P and A, the authority of A to affect P’s legal
position and P’s control of A’s action.
1-55

 There are, of course instances when Agent acts without the
consent of Principal but his actions are still held to be legal.
 Agency is ‘the fiduciary relationship which exists between two
persons, one of whom expressly or impliedly consents that the
other should so act as to affect his relations with third parties, and
the other of whom similarly consents so to act or so acts on his
behalf ’.
 Therefore, agency can be defined as the relationship between the
principal and the third party, the agent being appointed to
represent the principal in dealings with the third party and to act
on the principal’s behalf.
1-56

Agency relations
A=Agent A
P= Principal
T=Third Party 1 2
P 3 T
1. it is the contract which the principal appoint an agent to act on
his behalf.
2. Agent make contract with Third Party for the benefit of the
principal and third party. This is not beficial to Agent
3. It is the contract signed between the principal and third party in
No. 2. 1-57

1. Agent
• A person employed to do any act for another or to represent
another in dealings with a third person is known as an agent.
2. Principal
• The person for whom such an act is done or who is so represented
is called the principal.
ESSENTIALS FOR A VALID AGENCY
1. Agreement between the Principal and the Agent
• s created by an agreement between the principal and the agent.
The agency may be express or implied.
2. Agent Must Act in a Representative Capacity
• An agent must represent his principal and act on his behalf. The
agent must have the power to create a legal relationship of his
principal with the third person. Thus, the agent need not be a
competent person. Even a minor or a lunatic can act as the agent.
1-58

3. Consideration
• The contract of agency can be created without consideration. The
fact that the principal has agreed to be represented by the agent is
a sufficient ‘detriment’ to the principal to support the contract of
agency.
4. Capacity of a Party
• For a valid contract of agency, the principal must be a competent
person to enter into a contract.
• Thus, a minor or a person of unsound mind cannot appoint the
agent.
• A major and a competent agent, working for an incompetent
principal, will be personally liable for his act to the third party.
1-59

Authority of an Agent
 An agent cannot act on behalf of a principal unless he has some
authority to do so
1. Express actual authority
 A contract of agency is created by an express agreement, i.e., the
authority is expressly given by the principal to his agent.
 Such an agreement may be oral or in writing.
 No particular form or words is required for the appointment of the
agent.
1-60

2. Implied actual authority
 An agency agreement may be implied under certain
circumstances from the conduct situation or relationship of the
parties.
 This is especially so when it can be inferred from the conduct of
the parties involved and the circumstances of the case.
 Therefore, this is the authority that a third party is able to assume
that the agent holds, due to his position or role.
Who may employ agent?
 Any person who is of the age of majority according to the law to
which he is subject, and who is of sound mind, may employ an
agent. A minor cannot appoint an agent. The appointment of an
agent involves a contract, and a minor's agreement is void. 1-61

Ways of Creating of agency relationship
• An agent is someone appointed to bring his principal into
contractual relations with third parties.
1. By express in writing
 Any person who is competent to contract and who is of sound
mind may appoint an agent. The appointment may be
expressed in writing or it may be oral. Example a contract of
employment.
 The relationship of principal and agent can only be established
by the consent of the principal and the agent.
2. By implication
 Implied agencies arise from the conduct, situation or
relationship of par ties.
 Whenever a person places another in a situation in which that
other is understood to represent or to act for him, he becomes
1-62

3. By necessity
 It is some extraordinary situation that compels a person to act
as the agent of some person without his consent or authority of
that person.
 Such an agency is created as an agency by necessity.
 To constitute a valid agency by necessity, the following
conditions must be satisfied:
1. There must be an emergency.
2. There was a necessity to act on behalf of the principal.
3. The agent was not in a position to communicate with the
principal.
4. The agent has acted honestly and in the interest of the principal.
1-63

4. By Ratification
 Ratification is the process by which one party accepts
responsibility for the actions of another after the event.
 This may occur where there was no principal/agent relationship at
the time, or where such a relationship did exist but the agent
acted in excess of his authority.
The conditions for ratification are:
i. The Whole Act to be Ratified.
ii. Ratification Must be Done Within a Reasonable Time
iii. Ratification Must be Communicated
iv. Ratification Should Not Put a Third Party to Damages.
v. The Principal Must be in Existence at the Time of the Contract
vi. Ratification must be with Full Knowledge of Facts.
1-64

The doctrine of the undisclosed principal
 This doctrine applies when the third party is unaware that he is
dealing with an agent. In this case the third party can sue the
principal if there is a breach of contract.
 The third party dealing in a transaction where the principal has not
been disclosed has the option of suing either the agent or the
principal, but not both, as they are jointly liable.
 Alternatively, it may be the principal that wishes to sue on the
contract and again this is permissible, subject to the following
conditions:
i. The principal must exist and have capacity at the time the agent
entered the contract.
ii. The contract must not specifically exclude the intervention of an
undisclosed principal, although this must be specific and it is not
sufficient that the agent merely acted as if he was a principal.
1-65

iii. The principal cannot intervene if the third party can
demonstrate that he wished to deal with the agent personally.
iv. If the third party would be materially worse off if the principal
adopted the contract.
Personal liability of an agent
• As discussed above, the agent is not normally liable on a
contract he enters into as an agent.
• There are exceptions to this rule, and an agent will be liable
when:
i. The agent agrees to be liable.
1-66

ii. The agent fails to disclose the agency and the doctrine of the
undisclosed principal will apply.
iii. The agent exceeds his actual authority, although the principal
would be liable on the original contract he will be able to seek
recompense from the agent.
iv. The principal does not exist or lacks capacity.
v. The agent signs a bill of exchange (such as a cheque) without
indicating the agency.
1-67

• Rights and duties of an agent
1. Rights of an agent
I. Right to be given clear instructions. An agent has a right to
receive a clear and precise mandate, setting out the limits of his
authority to act on behalf of the principal.
II. Right to Remuneration
• The agent has a right of remuneration from the principal. The
amount of remuneration can be expressly agreed between the
two parties.
III. Right to Commission
• Commission differs from remuneration in that commission is
usually only payable if the agent has performed precisely and
completely the obligations in the agency agreement.
V. Right to Indemnity
• The agent has a right to be indemnified by the principal for any
loss incurred during the course of carrying out his authorised
1-68

VI. Right of lien
• A lien is a right to hold on to property until a debt has been
paid. An agent to whom the principal owes money may have a
lien over the principal’s goods.
1-69

2. Duties of an agent
• The duties may be agreed expressly and set out in the agency
agreement. The basic duties of the agent are:
1. Duty to execute mandate
 The first and the foremost duty of every agent is to carry out the
mandate of his principal. He should perform the work which he
has been appointed to do.
 Any failure in this respect would make the agent absolutely
liable for the principal's loss.
2. Duty to follow instructions
• An agent is bound to conduct the business of his principal
according to the directions given by the principal
3. Duty to exercise reasonable care
• An agent is bound to conduct the business of the agency with as
much skill as is generally possessed by persons engaged in
similar business. The agent is always bound to act with
reasonable diligence, and to use such skill as he possesses. 1-70

4. Agent's duty to communicate with principal.
 It is the duty of an agent, in cases of difficulty, to use all
reasonable diligence of communicating with his principal, and in
seeking to obtain his instructions.
5. Duty not to take a secret profit or bribe
 The duty of the agent not to make any secret profit in the business
of agency. His relationship with the principal is of fiduciary nature
and this requires absolute good faith in the conduct of agency.
6. Duty not to delegate his authority
 Delegatus non potest delegare is a well-known maxim of the law
of agency.
 The principal chooses a particular agent because he has trust and
confidence in his integrity and competence.
 Therefore, the agent cannot further delegate the work which has
1-71

Delegation of Authority
 The rule is that the agent who has obtained power from the
principal to act must act himself.
 He is not entitled to delegate his authority to another person
without the consent of his principal.
 The rule is expressed in Latin maxim—‘Delegatus non-protest
delegare’, i.e., a delegate cannot further delegate. It simply
means that delegated powers cannot further be delegated.
 One cannot delegate that which one has himself undertaken to
do.
 So, the agent cannot, without the permission of the principal,
delegate his authority and ask some other person to do the
thing.
 The agent cannot lawfully employ another to perform acts
which he has expressly or impliedly undertaken to perform
personally.
1-72

7. The duty to accounts.
 This duty requires that the agent keeps his own property separate
from the principal’s property.
 An agent is bound to render proper accounts to his principal on
demand.
 Accounts are necessary for the proper performance of the agent's
other duties, for example, the duty to remit sums to the principal.
1-73

Rights and duties of the principal
The main rights of the principal are:
i. To have his affairs kept secret.
ii. To be kept informed by his agent.
iii. To have his assets kept separate from those of his agent.
The main duties of the principal are:
i. To give his agent a clear and precise mandate.
ii. To indemnify the agent against loss.
iii. To remunerate his agent.
1-74

Termination of agency
A termination of an agency means the end of a relationship of the
principal and his agent. This include:
1. Revocation by the parties
• The principal may revoke the authority given to his agent at any
time before the authority has been exercised so as to bind the
principal.
2 . Death, mental incapacity or bankruptcy of the principal .
• All of these events automatically cancel the agency agreement
and any contracts entered into by the agent are not enforceable
against the principal or his estate.
3. By an Agreement
• The agency can be created by an agreement in the same way it
can be terminated by the agreement.
1-75

4. Frustration
 Where the agency becomes illegal it is automatically terminated,
as seen in the declaration of war between the countries of the
principal and his agent.
5. By Performance
 When the transaction is completed, the agency terminates
automatically.
 Once the contract has been fulfilled (for example the construction
of a building) or the fixed time period has expired, any agency
relationship created by the contract is also terminated
automatically.
By expire of Time
• Where the agency is for a fixed period of time, it terminates on the
expiry of that time. It is not important whether the work is
completed or not. 1-76

By Death or Insanity
• Death or insanity of the principal or the agent terminates the
agency.
By Insolvency
• The agency is terminated when the principal is declared insolvent.
An insolvent cannot enter into the contract.
On Destruction of Subject Matter
• The agency is terminated when the subject matter of the contract
of agency is destroyed.
Effects of termination
• Once the contract is terminated (by performance or otherwise),
then the actual authority of the agent also ceases to exist.
1-77

SALE OF GOODS
Introduction
• A contract of sale of goods is a contract by which the seller
transfers or agrees to transfer the property in goods to the
buyer for a money consideration, called the price. This is
governed by the Sales of Goods Act.
Types of the contract of sale of goods
Agreement to Sell
• Where the transfer of property in goods takes place at a future
date from the seller to the buyer in the contract
Sale
• Where the transfer of property in goods takes place at the time
of contract from the seller to the buyer in the contract. 1-78

Essentials of a contract of sale of goods
(i) Two Parties
There must be two parties. One cannot sell to himself. The seller and
the buyer must be different. A part owner can sell goods to another
part owner.
(ii) Goods
• The subject matter of the contract of sale is goods. The goods must
be movable. Immovable things are out of the purview of the act.
The goods may be present or future.
(iii) Transfer of property
• The seller transfers or agrees to transfer the property in goods. The
transfer of property in goods means the transfer of general
property.
(iv) elements of contract
• All essential elements of a valid contract must be observed because
basically it is a contract. 1-79

Goods
Goods means every kind of movable property other than
actionable claims and money.
TYPES OF GOODS
1. Existing Goods: It means such goods which are in existence at
the time of the contract of sale i.e. owned or possessed by the
seller.
2. Future Goods: It means goods to be manufactured or produced
or acquired by the seller after making the contract of sale.
3. Contingent Goods: It means the goods the acquisition of which
by the seller depends upon a contingency which may or may not
happen.

Price
Consideration under contract of sale is known as price. Price is an
essential element in every contract of sale of goods, a valid sale
cannot take place without a price. The price should be paid or
promised to be paid.
Price is money consideration for the sale of goods and it
constitutes the essence for a contract of sale.
The price may be fixed:
(i) at the time of contract by the parties themselves, or
(ii) may be left to be determined by the course of dealings between
the parties, or
(iii) may be left to be fixed in some way stipulated in the contract,
or
(iv) may be left to be fixed by some third-party.

Terms of the contract of sale
1. Condition term.
 These are terms which are most important for formation of the
contract of sale.
 The breach of a condition brings the contract to an end.
 seller’s breach of an implied condition in a contract for the sale of
goods allows the buyer to repudiate the contract.
2. Warranty term.
 These are minor terms of the contract of sale. The breach of a
warranty does not bring the contract to end.
 The buyer continues to be bound by the terms of the contract
and may only sue for damages arising from the breach.

IMPLIED CONDITIONS
• Following are the implied conditions which are contained in the
Sales of Goods Act:
1. conditions as to title
 There is an implied condition on the part of the seller that the
seller has a right to sell the goods and the seller will have a right to
sell the goods at the time of passing of the ownership in goods.
 If the title of a seller turns out to be defective, the buyer must
return the goods to the true owner and recover the price from the
seller.
2. conditions as to Description
 Where the goods are sold by description, there is an implied
condition that the goods shall correspond to the description. If later
on, the buyer finds that the goods are not as per description, he
may reject the goods and claim a refund of the price.
1-83

3. Sale by Sample
• Where the goods are sold by the sample, followings are the implied
conditions:
a) The bulk shall correspond to the sample in quality.
b) The buyer shall be given a reasonable opportunity to compare the
goods with the sample.
c) The goods shall be free from any defect rendering them un-
merchantable.
4. Sale by Description as well as Sample
 If the sale is by sample as well as description, both the conditions
shall be satisfied.
 The goods must correspond with the sample as well as the
description.
1-84

5. conditions as to quality and fitness for buyer’s purpose
• Where the buyer, expressly or impliedly, tells the seller the
particular purpose for which he needs the goods and relies on the
skill or judgment of the seller, there is an implied condition that the
goods shall be reasonably fit for such a purpose.
Quality of goods
The goods must have merchantable quality, and be fit for a
particular purpose of the buyer.
Quality covers:
(a) fitness for all purposes for which goods of the kind in question are
commonly supplied;
(b) appearance and finish;
(c) free from minor defects;
(d) safety; and
(e) durability.
1-85

Transfer of property
• The essence of a contract for the sale of goods is the transfer of
property (ownership) in goods from the seller to the buyer.
There are primarily 3 stages in the performance of a contract of sale
of goods by a seller:
1.)The transfer of property in the goods.
2.)The transfer of possession in the goods.
3.)The passing of the risk.
 Transfer of property means transfer of ownership. Mere transfer
of possession can not be termed as a sale.

EFFECT OF PERISHING OF GOODS
1. Goods perishing before making a contract
Where in a contract of sale of specific goods, the goods without
the knowledge of the seller have perished at the time of making
the contract, the contract is void.
If the seller was aware of the destruction and still entered into the
contract, he is estopped from disputing the contract.
 Moreover, perishing of goods not only includes loss by theft but
also where the goods have lost their commercial value.
2. Goods perishing after agreement to sell
 Where there is an agreement to sell specific goods, and
subsequently the goods without any fault of any party perish
before the risk passes to the buyer, the agreement is thereby
avoided.

Doctrine of Caveat Emptor
 The doctrine of caveat emptor is a fundamental principle of law
of sale of goods. It means ‘Caution Buyer’ i.e. ‘let the buyer
beware’.
 It implies that while purchasing the goods, the buyer must be
cautious.
 This principle states that, at the time of buying goods, the buyer
must make reasonable examination of the goods to satisfy
himself that the goods are suitable for his purpose.
 It is not the seller’s duty to give to the buyer the goods which are
fit for a suitable purpose of the buyer.
 It is up to the buyer to make proper selection of goods according
to his needs. If he makes a wrong selection, he cannot blame the
seller if the goods turn out to be defective or do not serve his
purpose.

Exceptions to the Doctrine of Caveat Emptor
(1) Where the seller makes a false representation and the buyer
relies on it.
(2) When the seller actively conceals a defect in the goods which is
not visible on a reasonable examination of the same.
(3) When the buyer, relying upon the skill and judgement of the
seller, has expressly or impliedly communicated to him the
purpose for which the goods are required.
(4) Where goods are bought by description from a seller who deals
in goods of that description.

PASSING OF PROPERTY
 The property in the goods passes to the buyer when the contract
is made.
 Where there is a contract for the sale of specific goods not in a
deliverable state, i.e. the seller has to do something to the goods
to put them in a deliverable state, the property does not pass
until that thing is done by seller and buyer has notice of it.
 When there is a sale of specific goods in a deliverable state, but
seller is bound to weigh, measure, test or do something with
reference to the goods for the purpose of ascertaining the price,
the property to the goods for the purpose of ascertaining the
price does not pass until such act or thing is done and the buyer
has notice of it.

Transfer of risk
 The general rule is that risk of accidental loss or destruction
passes with ownership.
 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.
 The risk passes with the ownership. We can say that risk and
ownership go together.
 When the delivery is delayed because of the fault of any party, he
is liable for risk.

Sale by a person who is not the owner of goods
 The general rule is that only the owner of goods can sell the
goods.
 The rule is expressed by the maxim; “Nemo Dat Quod Non
Habet” i.e. no one can pass a better title than he himself has.
DELIVERY OF GOODS
1. payment of price
 The general rule suggests that the delivery of the goods and the
payment of the price are concurrent conditions. The payment of
price and the transfer of ownership has nothing to do with each
other.
2. buyer’s Duty to Demand Goods
• It is the seller’s duty to be ready and willing to deliver the goods
to the buyer. But he is not bound to deliver the goods, unless the
buyer makes a demand for the delivery of the goods.

 If the buyer fails to demand the delivery of goods, the seller is not
liable for breach.
 The buyer must demand the delivery within a reasonable time.
TYPES OR MODE OF DELIVERY
1. Actual Delivery
 It is the delivery where the goods are handed over to the buyer or
his authorized agent.
 It means the goods are physically put in possession of the buyer.
2. Symbolic Delivery
 When the goods are not physically delivered to the buyer but the
transfer of documents of title to the goods.
3. constructive Delivery
Where the third party who is in possession of goods acknowledges to
hold the goods on behalf of the buyer is known as constructive
delivery.
1-93

Delivery of Wrong quantity
• The delivery of wrong quantity means the seller has delivered
the goods in excess or short. If the seller has delivered excess
quantity, the buyer has the following options:
1. To accept the whole of the goods delivered to him.
2. To reject the whole of the goods delivered to him.
3. To accept the contracted quantity and reject the excess.
• If the seller has delivered a short quantity, the buyer has the
following options:
1. To accept the goods delivered to him.
2. To reject the whole quantity delivered to him.
1-94

Acceptance of Goods by the Buyer
Acceptance of the goods by the buyer takes place when the buyer:
(a) intimates to the seller that he has accepted the goods; or
(b) retains the goods, after the lapse of a reasonable time without
intimating to the seller that he has rejected them; or
(c) does any act on the goods which is inconsistent with the
ownership of the seller, e.g., pledges or resells.
If the seller sends the buyer a larger or smaller quantity of goods
than ordered, the buyer may:
(a) reject the whole; or
(b) accept the whole; or
(c) accept the quantity be ordered and reject the rest.
1-95

SUITS FOR BREACH OF CONTRACT
a) Where the property in the goods has passed to the buyer, the
seller may sue him for the price.
b) Where the price is payable on a certain day, the seller may sue for
the price, if it is not paid on that day.
c) Where the buyer wrongfully neglects or refuses to accept the
goods and pay for them, the seller may sue the buyer for damages
for non-acceptance.
d) Where the seller wrongfully neglects or refuses to deliver the
goods to the buyer, the buyer may sue him for damages for non-
delivery.
e) If the buyer has paid the price and the goods are not delivered,
the buyer can sue the seller for the recovery of the amount paid.
In appropriate cases the buyer can also get an order from the
court that the specific goods ought to be delivered.

UNPAID SELLER
 Seller is deemed to be an unpaid seller, when:
a) Whole of the price has not been paid or tendered and seller had
an immediate right of action for the price.
b) bill of exchange or other negotiable instrument was given as
payment, but the same has been dishonoured, unless this
payment was an absolute and not a conditional payment.
Rights of Unpaid Seller against Goods
a) Right of lien or retention.
b) Right of stoppage in transit.
c) Right of resale.
d) Right to withhold delivery

1. Right of Lien or Retention
 It can be exercised on the goods for the price while he is in
possession until the payment of price of such goods.
 This right depends upon physical possession. It can only be
exercised for the nonpayment of price.
 This right is terminated under following circumstances:
a. Where he delivers goods to carrier for the purpose of
transmission to buyer without reserving the disposal right.
b. Where buyer or his agent lawfully obtains possession of goods.
c. Where seller has waived the right of lien.

2. Right of Stoppage in Transit
It means right to stop the further transit of goods, to resume
possession and to hold the same till the price is paid.
It can be exercised in following cases:
(i) Seller must be unpaid.
(ii) He must have parted with the possession of goods.
(iii) Goods are in transit.
This right is lost under following cases:
(i) Buyer taking delivery
(ii) Acknowledgment by carrier
(iii) Delivery to ship
(iv) Wrong denial to deliver by carrier

3. Right of Resale
It can be exercised in following cases:
a. Where the goods are of perishable nature, buyer need not be
informed of the intention of resale.
b. Where he gives notice to the buyer of his intention to resell
the goods, the buyer does not within a reasonable time pay or
tender the price.
c. Where the right is expressly reserved in the contract.

• Rights of Unpaid Seller against Buyer
1. Suit for Price
 Where the property has passed to the buyer and he
wrongfully neglects or refuses to pay for goods.
2. Suit for Damages for Non-Acceptance
 The seller may sue the buyer for non-acceptance, where he
wrongfully neglects or refuses to accept and pay for the goods.
1-101

Business Organizations
In Tanzania there are several forms of business
organizations. These are:-
1.sole proprietorship or the sole
2. Partnership
3. Company/corporation

The choice of business structure
 The choice of business structure depends on a number of factors:
a) The size, type and purpose of the business
b) The expected duration of the enterprise
c) The need for start-up finance
d) Risk and liability factors
e) Ownership and management
f) Taxation
g) Regulation and compliance costs. 1-104

Sole Trade
 A sole trader is a one-person business which is owned and
operated by a natural person (a human!) who contributes the
business capital.
 Because a sole trader operates the business personally and has no
separate legal entity, the operator has unlimited liability, which
means the personal assets of the trader are subject to claims by
the creditors.
 A sole trader may have to register a business name with the
Authority.
 The business name is not a legal entity in its own right.
 The individual is liable to take all the major and minor decisions of
his business.
 The owner take all the profits are not for sharing.

Sole trade
To register the sale trade, the applicant must
obtain;
i. Tax identification Number(TIN) from TRA
ii. a certificate of registration from the Business
Registration Centre from the Local Government
Authority
iii. Pay all local government fees;
iv. Trade name under which the Business to
operate

The advantages of a sole proprietorship include:
 Owners can establish a sole proprietorship easily and
inexpensively.
 the sole proprietor’s full management authority of the
business,
 the minimal formalities and reporting requirements
associated with sole proprietorships,
 the low cost of organizing sole proprietorships,

The disadvantages of a sole proprietorship
include:
Owners are subject to unlimited personal
liability for the debts, losses and liabilities of
the business.
There is difficulty in transferring the proprietary
interest of a sole proprietorship and the
limitations on raising capital for a sole
proprietorship.
the sole proprietorship’s lack of business
continuity,

Partnership
 Partnership is the relation between persons who have agreed to
carry on business in common and the sharing of profits and losses.
Partnership is the result of agreement.
This type of business is appropriate when there is more than one
investor.
The profits and losses made are shared amongst the partners.
ESSENTIAL ELEMENTS OF A PARTNERSHIP
a.) There must be a contract.
b.) Between two or more persons.
c.) Who agree to carry on business.
d.) With the object of sharing profits.
e.) The business must be carried on by all or any of them acting for
all.

KINDS OF PARTNERSHIP:
1.Partnership at will:
Where no provision is made by contract
between the partners for the duration of
their partnership, the partnership is
‘partnership at will.’
2. Particular partnership:
• When a partnership is formed for a
particular period or for a particular venture,
it is called particular partnership.

• Types of partners
I. Active partners. An invested person who is involved in the daily
operations of the partnership. An active partner helps run the
business to enhance his or her returns.
II. Sleeping partner. One who does not take active role in running
the business of the firm, but who has an interest in the concern,
and shares the profits.
III. Nominal partner. Person who has an interest in the success of
a partnership firm but, legally, is not partner because he or she
neither owns a part of the firm nor actively participates in its
affairs.

Partnership Deed
Partnership Deed is a document that outlines in detail the rights
and responsibilities of all parties to a business operation. It has
the force of law and is designed to guide the partners in the
conduct of the business.
Content of Partnership Deed
i. Names and address of the Firm name and its business
ii. Name and address of all partners
iii. Amount of capital be contributed by each partner
iv. Place of business where business carried on
v. Date when partners joined the firm
vi. Duration of partnership
vii. The date of commencement of the business
viii. The rule regarding the operation of the bank account

Advantages of a partnership include that:
i. It is easy to form. A partnership firm can be formed without any
legal formalities and expenses.
ii. It is easy to establish the business and start-up costs are low
iii. Provides an opportunity for Skilled and talented to work together.
iv. It help to make the sufficient finance and skill for running the
business making it easy to expand very easily.
v. The partnership enables partners to provide mutual help to each
other
vi. It provide greater borrowing capacity.
• All losses and risks of the business are shared by all the partners.

Disadvantages of running business in the name of partnership
are:-
i. the liability of the partners for the debts of the business is
unlimited
ii. each partner is an agent of the partnership and is liable for
actions by other partners
iii. It is difficult in terms of decisions making
iv. It lack of continuity because a partnership gets dissolved on
the death, insolvency, insanity or retirement of any partner.
v. There is no transferability of share
vi. It is very difficult to maintain secrecy
vii. The nature of partnership influence internal conflicts.

Rights of Partners
1. The right to have a separate account that reflects each
partner’s contributions, share of the gains, and share of the
losses in the partnership assets.
2. The right to an equal share of the partnership profits.
3. The right to be repaid contributions and share equally in the
surplus remaining after partnership liabilities are satisfied.
4. The right to reimbursement for certain money spent by the
partner on behalf of the partnership
5. The right of each partner to share equally in the management and
conduct of the business.
6. The right of access to the books and records of the partnership.

Duties of the Partners
1. Duty of absolute good faith
2. Duty to carry on business to the greatest common advantage
3. Duty to render true accounts and full information of all things
affecting the firm .
4. Duty to indemnity for fraud
5. Duty to be diligent
6. Duty to properly use the firm’s property .
7. Duty not to earn personal profits/ not to compete

Partnership Property
• The property of the firm includes all property and rights and
interest in the property originally brought into the stock of the
firm or acquired, by purchase or otherwise, by or for the firm,
or for the purpose and in the course of the business of the firm,
and includes also the goodwill of the business.

Dissolution of firm
Dissolution of partnership between all the partners of the firm is
called as dissolution of the firm.
 Modes of dissolution
i. Dissolution by agreement. A firm may be dissolved with the
consent of all the partners or in accordance with a contract
between the partners.
ii. Compulsory Dissolution. All the partners have been adjudged
insolvent but one. Also happening of event – making
partnership business unlawful or partnership unlawful.
iii. Dissolution by operation of law
 By the death of partner and By the adjudication of a partner
as an insolvent.

Grounds for resolving partnership
 Partner becomes of unsound mind.
Permanent incapacity
Transfer of whole of his interest in the firm to
the third party,
 Loss in the business

Mode of settlement of accounts between partners
 Payment first by profit
 Capital
 Personal assets in proportion to share
In settling the accounts of a firm after dissolution, the following
rules to follow :
(i) To pay the debts of the firm to third parties;
(ii) To pay each partner rateably what is due to him from the firm
for advances as distinguished from capital;
(iii) To pay to each partner rateably what is due to him on account
of capital; and
(iv) To apply the residue, if any, among the partners in the
proportions in which they were entitled to share profits.

Company law
• A company means a group of persons associated together for
the attainment of a common end, social or economic. A
company is an artificial person created by law.
• Company is an artificial being, invisible, intangible and
existing only in the contemplation of the law, Being a mere
creation of law, it possesses only those properties which the
charter of its creation confers upon it either expressly or as
incidental to its very existence”.

Characteristics of a company
1. Separate legal entity
 A company is in law regarded as an entity separate from its
members. It has an independent corporate existence.
2. Limited liability
 A company may be a company limited by shares or a
company limited by guarantee. In a company limited by
shares, the liability of members is limited to the unpaid value
of the shares.
3. Perpetual succession
 Being an artificial person a company never dies, nor does its
life depend on the life of its members. Members may come
and go but the company can go on forever.
4. Common seal
 Since a company has no physical existence, it must act
through its agents and all such contracts entered into by its
agents must be under a seal of the company.

5. Transferability of shares
 The capital of a company is divided into parts called shares.
These shares are, subject to certain conditions, freely
transferable, so that no shareholder is permanently wedded
to the company.
6. Separate property
 As a company is a legal person distinct from its members, it is
capable of owning, enjoying and disposing of property in its
own name.

CORPORATE VEIL
• The consequences which arise from the principle of separate legal
personality are sometimes described as the ‘corporate veil’.
• Incorporating a company is said to establish a veil, or barrier,
between the owners of the company, the shareholders, on the
one hand and the company on the other.
• This flows from the principle of separate legal personality: that
the company as a separate artificial person is responsible for its
debts, property and actions rather than the company’s
shareholders.
• There are, however, exceptional circumstances in which statute or
case law ‘pierces’, or ‘lifts’ or ‘looks behind’ this corporate veil.

LIFTING THE CORPORATE VEIL
Circumstances under which the courts may lift the corporate veil. Put
simply, when this occurs the separate legal personality of the
company is ignored.
1. Where a company is used to perpetuate a fraud and improper
conduct
2. Where a company is used as a sham
3. Where a company is acting as the agent of the share holders
4. where a company is used to avoid legal obligation like pay tax
5. Number of members fall below statutory minimum
6. Company not mentioned on a bill of exchange
7. Public policy may prompt the court to lift veil like trading with
enemy of Tanzania.

Advantages of running business in the form of company:-
i. Limited liability. The shareholders of a corporation are only
liable up to the amount of their investments.
ii. Source of capital. A publicly-held corporation in particular can
raise substantial amounts by selling shares.
iii. Ownership transfers. It is not especially difficult for a
shareholder to sell shares in a corporation, though this is more
difficult when the entity is privately-held.
iv. Perpetual life. There is no limit to the life of a corporation, since
ownership of it can pass through many generations of investors.
v. Ease to transfer ownership without affecting management.
vi. It is ease to borrow from financial institutions

• Disadvantage of company
i. Extra tax return. A company is required to file its tax return
ii. The owner of the company must be very careful to keep
their personal business separate from the business of the
corporation.
iii. There are extra expenses incurred in running the
corporation like hiring lawyer.
iv. There many legal documents required to be prepared before
establishing the corporation.

Types of company
ON THE BASIS OF INCORPORATION
1. Statutory companies
 These are the companies which are created by a special Act of
the legislature e.g. TANESCO, National Insurance Company. These
are mostly concerned with public utilities as railways, and
electricity companies and enterprises of national level
importance.
2. Registered companies
 These are the companies which are formed and registered under
the Companies Act,2002 .

ON THE BASIS OF LIABILITY
1) Companies with limited liability:
(a) LIMITED BY SHARES: Where the liability of the members of a
company is limited to the amount unpaid on the shares ,it is
known as company limited by shares.
(b) LIMITED BY GUARANTEE: Where the liability of the members of
a company is limited to a fixed amount which the members
undertake to contribute to the assets of a company in the
event of its being wound up, the company is called a company
limited by guarantee.

2) Companies with unlimited liability
A company may be formed as unlimited company. In such case
every member is liable for the debts of the company.
ON THE BASIS OF NUMBER OF MEMBERS
(1) PRIVATE COMPANY
A company which has been registered by individual persons in
Tanzania.
 Restricts the right to transfer its shares, if any
 Limits the number of its members to 50.
 Prohibits any invitation to the public to subscribe for any shares
in, or debentures of, the company. Prohibits any invitation or
acceptance of deposits from persons other than its members.
(2) PUBLIC COMPANY: A public company means a company which is
not a private company with the minimum number of 7 person
without restriction on maximum number of members in a public
company.

Government company
A government company means any company in which not less than
51% of the paid-up share capital is held by
a) The central government, or
b) b) Any state government, or governments, or
c) c) Partly by central government and partly by one or more state.
• Foreign company
A foreign company is a company which is incorporated in a country
outside Tanzania under the law of that other country and has
established a place of business in Tanzania.

• Holding companies
A company is known as the holding company of another company if it
has the control over that other company. A company is deemed to
be the holding company of another if, but only if, that other is its
subsidiary.
Subsidiary company
A company is known as a subsidiary of another company when
control is exercised by the holding company over the former called
a subsidiary company.

Formation of a Company
• It may be noted that before a company is actually formed,
certain persons, who wish to form a company, come together
with a view to carry on some business.
•
• There are various stages in formation of company as discussed
hereafter below:-
Stages of formation of a company
There are several stages to be followed in forming a company.
These are:-
Stage One: Promotion
 The promotion of a company refers to all those steps which
are taken from the time of having an idea of starting a
company to the time of actual starting of the company
business.

 Who is a promoter? Promoter is a person who undertakes to form
a new company and carries out all the preliminary work in
connection with its establishment as a going concern.
FUNCTIONS OF PROMOTERS
 To discover an idea for establishing a company.
 To make detailed investigations about the demand for the product,
availability of power, labour, raw material.
 To investigate the idea and know whether the formation of the
company is possible and profitable.
 To find out suitable persons who are willing to act as first directors
of the company.
 To conduct search of the name of company.

 To select bank, legal advisor, auditor, underwriter for the
company.
 To submit all the documents required for incorporation with the
registrar.
 To meet all the preliminary expenses for floating of a company.
 To make contracts with vendors, underwriters, and managing
directors of the company.
 To arrange for the loan etc. from various financial resources.
 To make proper arrangement for the office of the company.

Step 3. To Obtain Notarization of Compliance
 The next step is to obtain a notarized declaration of compliance.
For this, the incorporator should visit a notary for notarization of
the declaration of compliance.
 A declaration stating that all the requirements of the companies
Act and other formalities relating to registration have been
complied with.
Step 4.Apply for Certification
• The fourth step is to apply for a Certificate of Incorporation. This
is done at the Tanzania Investment Centre by submitting the
following to the Registrar of Companies:
• First directors and secretary and intended situation of the
registered office
• Declaration of compliance on application for the registration of
the company

Step 5.Draft Memorandum and Articles of Association
• To prepare the Memorandum and Articles of Association, where the
Memorandum of Association is basically the detailed statement of the objects of
the company whereas the Articles of Association are the detailed statement of
the management structure and processes.
Step 6.Apply for Taxpayer Identification Number (TIN)
• To apply for Taxpayer Identification Number (TIN) at the Tanzania Revenue
Authority (TRA).
Step 7.Secure your Business License
 The seventh step is to apply for a business license at the Ministry of Industry and
Trade (MIT) and Local Government Authorities (LGAs).
 The license is either issued by MIT or LGAs based on the nature of the business.
 The following documents are supposed to be submitted along with the
application (a) Certificate of incorporation, (b) Proof of a suitable company
premises, (c) Memorandum and Articles of Association (MAA), (d) Taxpayer
Identification Number (TIN) and (e) Proof of Tanzanian Citizenship

Step 8.Complete your Value Added Tax (VAT) Registration
• The next step is to apply for VAT registration at the Tanzania
Revenue. VAT registration is a must for business that tends to
have an initial capital of 50 million in the first six months and
100 million in a year. For this, one has to go to the TRA office in
order to obtain the required papers for registration.
Step 9. Register with the Occupational Safety and Health
Authority (OSHA) (wakala wa usalama and afya mahali pa
kazi)
• Any person being the owner of the company must register with
the OSHA. They must complete the application form and
provide the company registration documents.
• Cost of Setting up a Business in Tanzania
i. Notarized declaration of compliance--------10,000 -50,000/=
ii. Certificate of Incorporation---.---------------340,000/=
iii. Business license---------------------------------400,000/=

Stage Three: Capital Raising
 The public company can raise the required funds from the public
by means of issue of shares.
Stage Four: Commencement of business
 This is the last stage of forming a company. At this stage, the
Registrar of Companies in Tanzania will issue a Certificate of
Commencement of Business to a public company. After getting
this certificate, the company can start its business.
Effects of registration:
As soon as a company is registered and a certificate of incorporation
is issued by the register, three important legal consequences:-
 The company acquires a distinct legal entity.
 It secures a perpetual succession.
 Its property is not the property of its shareholders.
 The certificate is conclusive evidence that a company is entitled to
commence business.

Documents o be filed with the Registrar
i. The memorandum of association duly signed by the
subscribers.
ii. The Articles of Association, signed by the subscribers to the
memorandum of association.
Memorandum of association
 This is the fundamental charter which lays daown the basic
principles in relation to a company. It is the constitution of the
company which govern the relationship between the company
and externals.
 It lays fundamental for the functioning of the company. The
company cannot go beyond its memorandum of association.
 It is the basic document, which lays down how the company is
going to be constituted and what work it shall undertake.

 The purpose of memorandum is to enable the members of the
company, its creditors and the public to know that its powers are
and what is the range of its activity.
Contents of Memorandum of Association:
Memorandum of Association is divided into following clauses:
 Name clause
 Registered office clause
 Objects clause
 Capital clause
 Liability clause
 Subscription/association clause.


Articles of Association
 Articles of association is a document which contains the rules
regarding the internal management of the company.
 The articles are subordinate to the Memorandum in importance.
Therefore rules are made in conformity of the objects outlined in
the Memorandum.
Contents of articles of association
Articles of association usually have the following contents:
 Company Share
 Procedure for issuing of shares
 Procedure for transferring shares
 Quorum at a meeting
 Procedure of borrowing
 Procedure of operating company banking account
 Procedure how to remove director of the company

 Qualifications of the director
 Remuneration of manager, Secretary and Managing Director
 procedure of Winding up

MEETINGS
A meeting refer to any gathering or two or more person are
coming together for the transaction of some lawful business of
common concern is called meeting.”
COMPANY MEETINGS:
 The corporate system of business organization is essentially
democratic in structure.
 Officials acting under the orders of the Board of Directors,
which is the executive head of the company, carry on the
business of the company.
 The shareholders are subjects to the provision of Memorandum
of Association and Articles of Association, the final authority as
regards the affairs of the company.

Types of meeting
Annual General Meeting:
 A meeting known as an annual general meeting is Required to be
held by every company, public or private, limited by shares or by
guarantee, with or without share capital or unlimited company
every year.
 The first annual general meeting of a company may be held within
a period of not more than 18 months from the date of its
incorporation. Subject to this provision, a company must hold any
annual general meeting each year.
 Every annual general meeting shall be called during business
hours, on a day which is not a public holiday, at the registered
office of the company or at some other place within the town or
village where the registered office is situated.
 A general meeting may be called by giving not less than 21 days
notice in writing.

Extraordinary General Meeting
 Any meeting of shareholder other than statutory meeting is an
extraordinary general meeting.
 Who may call extraordinary general meeting
 1. By Board of Directors
 2. By shareholders subject to fulfillment of certain provisions
 3. By Company Law Board

Requisites of a Valid Meeting:
(a) Proper Authority
The proper authority to convene a general meeting (whether
statutory, annual general or extraordinary) of a company is a
Board of Director.
(b) Notice of meeting
 A proper notice of the meeting should be given to the
members and all others who are entitled to attend the meeting
 Length of notice. A general meeting of a company may be
called by giving not less than 21 days notice in writing to the
members.
 Contents of notice. Every notice of a company calling a
meeting shall specify the place and the day and hour of the
meeting. It shall also contain a statement of the business to be
transacted at the meeting.

Annual general meeting
An annual general meeting, discuss the following business:
1) The consideration of the accounts, balance sheet and the
reports of the Board of Directors and auditors,
2) The declaration of dividend,
3) The appointment of directors in place of those retiring
4) The appointment of auditor and the fixing of their
remuneration.
Special business
in the case of an annual general meeting, any business other than
the above ordinary business and in the case of any other
meeting, all business, is deemed special.
(1) Removal of director
(2) Issue of right/bonus share,
(3) Election of a person (other than retiring director) as Director.

(c) Quorum of Meeting
 Quorum means the minimum number of members who must be
present in order to constitute a valid meeting and transact thereat.
 The Quorum is generally fixed by the articles if the articles of the
company do not provide for a large quorum the following rules
apply:
(d) Chairman of the meeting
 A chairman is necessary is to conduct a meeting. He is the presiding
officer of the meeting. Unless the Articles of a company otherwise
provide, the members personally present at the meeting shall elect
one of themselves to be the chairman of the meeting on a shoe of
hands.

• Minutes of the meeting
 Minutes are a record of what the company and director do in
meetings.
 Minutes of proceeding of meetings: Every company shall keep a
record of all proceedings of every general meeting and of all
proceedings of every meeting of its Board of Directors and of
every committee of the Board.
 Minutes Books: the book in which the record of the proceedings
of a meeting is kept is known as the minute book.
 Numbering of pages
 Signing of minutes

Proxies
 Proxy is the person appointed to vote and speak on behalf of a
member in General meeting of a company . A member entitled to
attend and vote at a meeting may vote either in person or by Proxy.
 It is also an instrument appointing a person as proxy. The person so
appointed is also called a proxy.
Voting and Poll
 The motions proposed in a general meeting of a company are
decided on the votes of the members of the company.
 The members holding any equity share capital therein have the
right to vote on every motion placed before the company.
 The voting may be:
1.by a show of hands, or
2.by taking a poll

Resolutions
 The Question which generally come for consideration at the
general meeting of the company are presented in the form of
proposals called motions.
 A motion may be proposed by the chairman of the meeting or
by any other member of the company.
Kinds of Resolutions:
1. Ordinary Resolution
2. 2.Special Resolution

Directors
powers of the Board
 the Board of Director of a company is entitled to exercise all such
powers and to do all such acts and things as the company is
authorised to exercise and do.
 Powers to be exercised at Board meeting: The Board of directors
of the company shall exercise the following powers on behalf of
the company by means of resolutions passed at the meetings of
the Board.,
 The Board of Directors has the following powers;
a) Make calls on shareholder in respect of money unpaid on their
shares:
b) Borrow money otherwise than on debentures (say, through
public deposits)
c) Invest the fund of the company
d) Make loans.

SHARE CAPITAL
• This means the capital raised by a company by the issue of
share. The word ‘capital’ in connection with the company is used
in several senses.
• Types of share
1. Preference shares. These are shares, with a preferential right to
be paid dividend during the lifetime of the company.
2. Equity shares. These are share which are not a preference
share. i) with voting rights, or ii) with differential rights as to
dividend, voting or otherwise in accordance with such rules
and subject to such conditions as may be prescribed.

Winding Up/Liquidation of A Company
This is the most common form of insolvency procedure.
Liquidation is the end of the road for a company; it ceases to
exist. The main purpose of winding up of a company is to realize
the assets and pay the debts of the company expeditiously
and fairly in accordance with the law.
Winding up and Dissolution
The terms winding up and dissolution are sometimes erroneously
used to mean the same thing.
Winding up is the first stage in the process whereby assets are
realised, liability are paid off and the surplus, if any, distributed
among its members.
Dissolution is the final stage whereby the existence of the
company is withdrawn by the law.

Who can Petition for Winding Up?
1. The company
2. Any creditor or creditors including any
contingent or prospective creditor or
creditors
3. Any contributor or contributories
4. The Registrar
5. Any person authorized by the central
government

Types of liquidation:
(a) compulsory liquidation (CL) – commenced against an insolvent
company by a third party;
(b) creditors’ voluntary liquidation (CVL) – commenced by an
insolvent company, usually in response to creditor pressure; and
(c) members’ voluntary liquidation (MVL) – commenced by a solvent
company that wishes to cease trading.

Compulsory liquidation
Compulsory liquidation is normally a result of a hostile process
initiated against the company’s wishes. In a CL, the company is
insolvent. The process is commenced by the presentation at
court of a winding-up petition. The petitioner must be able to
prove one or more of the following grounds:
i. The company is unable to pay its debts i.e (i) the creditor
having demanded money and the company (without
reasonable excuse) having failed to comply with that demand;
and (ii) the company admitting it cannot pay the debt (eg, in
open correspondence);
ii. Special resolution
iii. Default in filing statutory report or holding statutory meeting
iv. Failure to commence business with in time
v. iv. Reduction of membership

Voluntary liquidation
• There are two types of voluntary liquidation, creditors’ and
members’. Both are voluntary in the sense that the directors
start the process, rather than a creditor.
• A solvent company may want to wind itself up for a number of
reasons, for example:
(a) the company is small and the directors (who are the only
shareholders) all want to retire;or
(b) a group of companies has become unwieldy and some of the
companies within it are redundant.

Modes of Winding Up
1. By the Court i.e. compulsory winding up.
 Winding up by the court or by the compulsory winding up is
initiated by an application by way of petition to the appropriate
Court for a winding up order.
 A winding up petition has to be resorted to only when other
means of healing an ailing company are of absolutely no avail.
2 Voluntary winding up, which may be either.
The companies are usually wound up voluntarily as it is an easier
process of winding up. In voluntary winding up the company
and its creditors are left to settle their affairs without going to a
court, although they may apply to the court for directions or
orders, as and when necessary

(a) Members voluntary winding up.
When the company is solvent and is able to pay its liabilities in full, it
need not consult the creditors or call their meeting.
(b) Creditor’s voluntary winding up.
Where a declaration of solvency of the company is not made and
delivered to the registrar in a voluntary winding up it is a case of
creditor’s voluntary winding up.
3. Winding up subject to the supervision of the court.
Grounds for winding up
i. Special resolution
ii. Default in filing statutory report or holding statutory meeting
iii. Failure to commence business with in time
iv. iv. Reduction of membership
v. v. Inability to pay debts

Negotiable Instruments
Introduction
 Negotiable instrument is a written and signed unconditional
promise or order to pay a specified sum of money on demand or
at a definite time payable to order or bearer.
 Although the Act mentions only these three instruments (such as
a promissory note, a bill of exchange and cheque).
 Characteristics of a Negotiable Instrument
1. Written Instrument.-The instrument must be in writing and
signed. This is, of course, in the interest of accuracy.
2. Unconditional Order or Promise.
 There must always be an unconditional promise or order to pay
in money.

3. Definite Amount.
The amount of the payment must be definite, otherwise there
would be no certainty as to the value of the paper.
4. Definite Date.
It must be payable at a time definitely stated, or which may be
certainly determined. Any ambiguity as to the date of payment is
fatal.
5. Name of Person to Whom Order is Directed and payee.
The instrument must designate the person who is authorized to
make the payment and receive payment.

Parties to Negotiable Instrument
1. Drawer/maker
• The drawer is normally the person responsible for bringing the
negotiable instrument into existence.
2. Drawee
• The drawee (the person charged with making payment on the
instrument), by merely acting in that capacity, does not incur any
liability on the instrument.
3. payee
• The original payee of the bill, cheque or note in whose possession
the instrument remains cannot be a holder in due course since
the instrument has to be negotiated and the payee of the
instrument cannot therefore claim the protection given to a
holder in due course.
• As a holder the payee may sue on the instrument in his own name

Bill of Exchange
 A bill of exchange is an unconditional order in writing, 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 sum certain in money to or to
the order of a specified person, or to bearer.
 It is a legally binding, written document which instructs a party to
pay a predetermined sum of money to the second(another) party.
Some of the bills might state that money is due on a specified
date in the future, or they might state that the payment is due on
demand.
 A bill of exchange is used in transactions pertaining to goods as
well as services. It is signed by a party who owes money (called
the payer) and given to a party entitled to receive money (called
the payee or seller), and thus, this could be used for fulfilling the
contract for payment

Cheques
 A cheque refers to an instrument in writing which contains an
unconditional order, addressed to a banker and is signed by a
person who has deposited his money with the banker.
 This order, requires the banker to pay a certain sum of money on
demand only to to the bearer of cheque (person holding the
cheque) or to any other person who is specifically to be paid as
per instructions given.
Promissory notes
 A promissory note refers to a written promise to its holder by an
entity or an individual to pay a certain sum of money by a pre-
decided date.
 In other words, Promissory notes show the amount which
someone owes to you or you owe to someone together with the
interest rate and also the date of payment.

Elements of Negotiable Instrument
1. Must be in writing
• The bill must be written and that includes typing or printing.
2. Must be an order
• The instrument must be an unequivocal mandate ordering the
bank to make payment.
3 . Must be unconditional
• A negotiable instrument, including a cheque, must be an
‘unconditional order’ and the Act
• provides that an ‘instrument expressed to be payable on a
contingency is not a bill, and the happening of the event does not
cure the defect.’
4. Must be addressed by one person to another
• A cheque is a bill of exchange drawn by one person on another,
which must be a bank, whereas an ordinary bill of exchange may
be drawn on anyone.

5. Must be signed by the drawer
• Section 23 of the Bills of Exchange Act provides that no one will
be liable on a bill either as drawer, endorser or acceptor of a bill
unless he signs the instrument. An agent acting within the
authority vested in him may place such a signature on the
instrument so that the agent’s principal, the bank’s customer, is
liable on the instrument.
6. Must require payment on demand or at a fixed or determinable
future time
• This requirement recognises the distinction between those bills
which are required to be paid on demand, commonly referred to
as sight bills, and those which are known as term bills, i.e. payable
at a date in the future.
• The payment is made in the following ways: payable on demand,
payable at a fixed future time.

7. Must be for a sum certain in money
• The payment must be money which include any legal tender
including foreign currency.
8. Must require payment to or to the order of a specified person or
bearer. Section 7(1) of the Act requires that the payee ‘must be
named.

Transferable and negotiable instruments
 A particular feature of negotiable instruments, and what
distinguishes them from other contracts, is their negotiability.
 Negotiation allows the transfer of title to, and rights under, the bill
from one person to another.
 The transferee of a negotiable instrument therefore takes free
from defects of title of any prior parties and free from defects
available between them, if he is a holder in due course.
 These features of negotiable instruments make them an attractive
method of payment.
 Thus, for example, a buyer of goods may be reluctant to pay for
them until after he expects to receive the goods, or until he can
arrange resale, or until he can use them in some way to make a
profit.

Negotiation
 Section 31 of the Bills of Exchange Act provides that negotiation
takes place when a bill is transferred from one person to another
in such a way that the transferee becomes the holder.
Transfer of Negotiable Instruments.
 A negotiable instrument is transferred by endorsement and
delivery for value, before maturity and without notice of any defects.
 An instrument is endorsed by the payee writing upon the back his
name and such other direction as he may see fit.
 In order to preserve its character of negotiability an instrument
must be transferred for a valuable consideration
Liability of Endorsers.
Unless an endorsement be without recourse, each endorser
become surety for the payment of the instrument when due.

Negotiation
• Section 31 of the Bills of Exchange Act provides that negotiation
takes place when a bill is transferred from one person to another
in such a way that the transferee becomes the holder.
• The term ‘transfer’ mean the payee or endorsee of a bill, or note,
who is in possession of it, or the bearer.
Liabilities of the parties to a bill of exchange
• The drawer of the bill performs a dual function namely:
(i) on due presentation he instructs the drawee to honour the
instrument, and
(ii) he undertakes that on due presentation that the bill of exchange
will be accepted, where an acceptance is required, and paid.

• Therefore, the requirements for incurring liability on a bill of
exchange are:
a) That the person concerned must have contractual capacity.
b) That he has placed his signature on the document.
c) That it has been delivered to a holder.
d) That consideration was received for the instrument.
Endorser
• The liability of the endorser is similar to that of the drawer.
.

ENDORSEMENT
 The word ‘endorsement’ in its literal sense means, writing on the
back of an instrument.
Essentials of a valid endorsement
The following are the essentials of a valid endorsement:
1. It must be on the instrument.
2. It must be made by the maker or holder of the instrument.
3. It must be signed by the endorser.
4. It must be completed by delivery of the instrument.
Who may endorse? The payee of an instrument is the rightful
person to make the first endorsement.
Forged or unauthorised signatures
• Section 24 of the Bills of Exchange Act provides that a forged or
unauthorised signature is ‘wholly inoperative’ and no right to
retain the bill, or to give a discharge, or to enforce payment
against any party can be acquired through or under the signature.

Forged or unauthorised signatures
• Section 24 of the Bills of Exchange Act provides that a forged or
unauthorised signature is ‘wholly inoperative’ and no right to
retain the bill, or to give a discharge, or to enforce payment
against any party can be acquired through or under the signature
Lost instruments
 Where the holder of a bill or note loses it, the finder gets no title
to it. The finder cannot lawfully transfer it.
 The man who lost it can recover it from the finder.
Dishonour of a Negotiable Instrument
 When a negotiable instrument is dishonoured, the holder must
give a notice of dishonour to all the previous parties in order to
make them liable.
 A negotiable instrument can be dishonoured either by non-
acceptance or by non-payment.

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