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CPA
Foundation Leval
Introduction to Law and Governance May 2019
Suggested Solutions

Introduction to Law and Governance
Revision Kit

QUESTION 1a

Q Analyse the legal principles applicable in the above case and advise Brutus Okeka.
A

Solution


  1. Hire Purchase Agreement: The transaction between Brutus Okeka and Dancing Spoon Ltd. appears to be a hire purchase agreement. This is a contract where the buyer (hirer) agrees to make regular payments to the seller (owner) for the use of an item, and ownership is transferred to the buyer upon completion of the payment terms.
  2. Default and Repossession: If Brutus Okeka has consistently defaulted on his monthly instalments after six months, Dancing Spoon Ltd. may have the right to repossess the radio. This right typically arises from a clause in the hire purchase agreement that allows the owner to retake possession of the goods if the hirer fails to meet payment obligations.
  3. Right to Default Notice: Before repossession, the owner is generally required to provide the hirer with a default notice. This notice informs the hirer of their default and provides them with an opportunity to rectify the situation by making the outstanding payments within a specified timeframe.

Advice for Brutus Okeka:

➫ Review the Hire Purchase Agreement: Carefully review the terms and conditions of the hire purchase agreement you signed with Dancing Spoon Ltd. Pay close attention to provisions related to default, repossession, and any specific rights or remedies available to you as the hirer.

➫ Determine Compliance with Payment Obligations: Evaluate whether you have indeed defaulted on your payment obligations. Check if there were any issues with the payment process or if there were any unforeseen circumstances that led to the default. If you believe you have a legitimate reason for defaulting, gather any evidence or documentation to support your case.

➫ Consult with Dancing Spoon Ltd.: Reach out to Dancing Spoon Ltd. to discuss the situation and express your concerns. Inquire about the possibility of renegotiating the terms of the agreement, such as extending the payment period or modifying the instalment amounts, to make it more manageable for you to fulfill your obligations.

➫ Seek Legal Advice: If you believe your rights have been violated, or if you are unable to come to a satisfactory resolution with Dancing Spoon Ltd., consider consulting with a legal professional who specializes in contract law or consumer protection. They can provide personalized advice based on the specific circumstances and applicable laws in your jurisdiction.

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QUESTION 1b

Q Explain four features necessary for agency of necessity to exist.
A

Solution


Agency by necessity

Agency by necessity refers to a relationship in which an agent works on behalf of a principal without the principal's consent under unusual or emergency situations.

Features necessary for agency of necessity to exist.

  1. There is an agreement between two parties.
  2. When a principal is faced with an emergency
  3. When a principal is not in a position to make a decision in regards to an emergency i.e sick
  4. when it is impossible for the agent to get in touch with the principal before acting on the principal's behalf.
  5. The agent is working in the best interest of the principal

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QUESTION 1c

Q Describe three types of authority that an agent has.
A

Solution


Express Authority

It is the power that the principal expressly grants to the agent to act on behalf of the principal. This may be stated in the agency contract or by clear and unambiguous oral instructions. The result of express authorization is that the agent's behavior can legally represent the principal, and even have legally binding force on the principal in the contract.

Apparent Authority

is the power of an agent to act on behalf of a principal, even if not expressly or impliedly granted. Such power arises only when a third party reasonably infers from the principal's conduct that the principal has delegated such power to the agent. The concept of apparent authority protects third parties who would lose if the agent's signature did not bind the principal after a reasonable observer would have believed it.

Implied Authority

It is a power that an agent is presumed to have in order to conduct business on behalf of a principal but that is not explicitly stated in a contract. The representative has the authority to carry out tasks that are reasonably required to achieve an organization's goals. A contract can be made on behalf of another person or business by implied authority figures, according to contract law.

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QUESTION 2a

Q Advise Rose Nylon.
A

Solution


1. Defamation is the dissemination of false information with the intent to diminish someone's standing in society or at work.

2. The Daily Mail Newspaper's actions constitute defamation.

3. It constitutes defamation libel now that it has been published.

4. For Rose to succeed to sue the company she has to prove the following:

• False statement - That has to be a remark that isn't accurate.

• It referred to her in an action - She must demonstrate that she is the subject of the false statement, either explicitly or implicitly.

• Defamatory - If it causes her to be hated, despised, laughed at, or suffers harm to her career, it is considered defamatory.

• Published /make known to the public - Because it was published, other individuals became aware of it.

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QUESTION 2b

Q Distinguish between "substantive" and "procedural" law.
A

Solution


Substantive law

• consists of precise guidelines for the civil, criminal, and other areas of the law.

• It outlines what constitutes a civil wrong as well as a criminal wrong and offers remedies for each.

Procedural law

• Consists of rules that also determine how legal proceedings are to be conducted.

• It tells how to enforce a right under civil law or prosecute criminals under criminal law.

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QUESTION 2c

Q Explain three reasons why Parliament delegates law making powers.
A

Solution


Reasons why parliament delegates law making powers.

(i). This allows Parliament to save time and focus on matters of national importance.

(ii). Delegation offers flexibility in that it can be changed whenever it becomes impractical.

(iii). Urgent issues that need to be addressed right away require delegation because they cannot be discussed in parliament.

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QUESTION 3a(i)

Q (i) Explain the legal principle in the rule of Rylands V. Fletcher.
A

Solution


Legal principals in the rule of Rylands Vs Fletcher.

• The thing - The thing need not to be dangerous since even harmless things can cause damage which is the natural consequence of its escape.

• Accumulation/collection - The thing must be brought into the land for the defendants purposes. The accumulation must be voluntary.

• Damage - It implies that actual harm must directly affect a person or piece of property and not cause a hindrance to using the land as intended, such as a nuisance.

• Escape - This rule carries no liability, unless there is no escape of the substance from the land.

• Non-natural use of land - This translates that the land is not used in an ordinary way. Land should be used for the general benefits of the community.

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QUESTION 3a(ii)

Q Describe three defences available to a person sued in an action brought under the rule in (a) (i) above.
A

Solution


Defences available to a person sued in an action brought under the rule above

• Act of God-this is where the act is by force of nature.

• Where there is artificial work maintained for the benefit of both plaintiff and defendant e.g. water tank.

• When the escape is due to the plaintiff fault contributory negligence e.g . provoking a dog

• Where the escape is due to the act of a stranger e.g opening the kennel to let out vicious dogs

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QUESTION 3b

Q (b) In relation to the law of contract, explain four elements of an enforceable contract.
A

Solution


Elements of an enforceable contract.

(i). Offer - a clear declaration made by one party to another that it wants to enter into a contract with them.

(ii). Capacity - It is the legal capacity of a party to enter into a contractual relationship.

(iii). The desire to establish legal relations. The formation of legal relations must have been the parties' intention.

(iv). Acceptance - external manifestation of assent by the office.

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QUESTION 3c

Q Examine the principles relating to contractual capacity of minors.
A

Solution


Principles relating to contractual capacity of minors.

(i) Binding contracts - These agreements are enforceable by law, and the infant may bring a lawsuit against them. Both sides are obligated to fulfill their promises. Contracts for the supply of necessities and the supply of other necessities are among them.

(ii) Voidable contracts - The infant has the right to revoke the agreement while still an infant or within a reasonable amount of time after turning majority age. By avoiding the contract, the infant escapes liability on it.

(iii) Void contracts - These are contracts that the law disregards since they neither grant the parties any rights nor subject them to any obligations.

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QUESTION 4a(i)

Q Highlight six types of inventions which might not be patented.
A

Solution


Types of inventions which might not be patented.

• Invention that does not constitute any inventive step and it is obvious.

• Invention that is not industrially applicable and useful.

• Inventions that excludes a statute e.g. guns and ballistics.

• An invention which is obvious.

• An invention that is not new.

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QUESTION 4a(ii)

Q (ii) List four property rights that might be created by a contract over a piece of land.
A

Solution


Property rights that might be created by a contract over piece of land.

• Right to exclude others from using the thing.

• Right to the use of the thing.

• Right to dispense the thing.

• Right to destroy it.

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QUESTION 4b(i)

Q Explain two differences between a "private company" and a "public company".
A

Solution


Differences between a private company and public company.

Public company

• Is a company that has sold all or a portion of itself to the public via an initial public offering.

• Starts operation when it has received a trading license

• Can only be started with at least seven.

• Publicly traded

Private company

• Owned by the company's founders, management, or a group of private investors.

• Starts operation after getting the certificate of incorporation.

• It is started with at least two directors.

• Privately traded

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QUESTION 4b(ii)

Q (ii) An incorporated association is an association of persons recognised as a legal entity which has its own rights and is subject to obligations.

With reference to the above statement, explain two ways in which an incorporated association might be brought into existence.
A

Solution


Ways in which an incorporated association might be brought into existence.

• Statutory corporations- They are created by an Act of parliament. A statute creating the corporation gives it a name, stipulates its composition or prescribes its powers and duties. Kenya airways.

• Chartered corporations - Are created under the universitie Act which empowers the president to grant a charter to any university intended to be set up in his opinion the university which shall be of benefit to the country in the development of education.

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QUESTION 5a(i)

Q (i) Outline five remedies of the unpaid seller.
A

Solution


Sale of goods contract.

Remedies of the unpaid seller.

• Right of re-sale.

• Right of stoppage in transit.

• Right to lien-retention of the goods.

• Damages for non-acceptance.

• Auction for price.

• Right to withhold delivery.

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QUESTION 5a(ii)

Q (ii) Explain three ways in which a buyer is deemed to have accepted goods.
A

Solution


Ways in which a buyer is deemed to have accepted goods.

• He intimates to the seller his acceptance.

• In his interactions with other items, he takes any action that is incompatible with the seller's ownership.

• After the specified or appropriate time has passed, he keeps the products without indicating his rejection.

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QUESTION 5a(iii)

Q (iii) Define the term "auction sale"
A

Solution


Definition of auction sale.

An auction is a public sale in which several potential buyers bid on an item and attempt to bid against each other. In the end, the goods are sold to the highest bidder. An auction is over when the auctioneer declares it over by dropping the hammer or by any other customary means.

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QUESTION 5b

Q State four powers of the Court of Appeal,
A

Solution


Powers of the court of appeal

(i) It has only appellate jurisdiction except in contempt cases.

(ii) It has power to hear and determine appeals from the high court, where appeals lie under the law or appeals from any other court as prescribed by law.

(iii) It has power to hear criminal appeals from the high court being appeal from the lower court.

(iv) Order a retrial before a competent court

(v) Reduce the sentence with or without altering the finding.

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QUESTION 5c

Q Discuss three advantages and three disadvantages of tribunals.
A

Solution


Advantages and disadvantages of tribunals.

Advantages

(i) Because these tribunals are not overworked, the judgements are made quickly.

(ii) A specialized tribunal swiftly develops knowledge in its own field even without qualified expertise.

(iii) It is not difficult to follow the procedure because it is simple.

Disadvantages

(i) The fundamental standards of justice might not be met since the proceedings occasionally take place in private.

(ii) Sometimes it is forbidden for the parties to have legal or advocacy representation.

(iii) Sometimes, a tribunal's latitude is so extensive that its decisions may be contradictory and unlawful.

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QUESTION 6a

Q In relation to the law governing negotiable instruments, explain three types of endorsements that might be made on a bill of exchange
A

Solution


Types of endorsements used on a bill of exchange.

Blank - This endorsement has no information about the endorsee. It converts a bearer bill into an order bill.

Special - This is an endorsement that indicates who the bill is payable to or whose order it is.

Conditional - This is an endorsement that makes payment of the bill subject to a set of conditions or releases the endorsee from liability in the event that the bill is dishonored.

Restrictive - This endorsement forbids further discussion of the bill during negotiations. It makes the endorsee the payee who is no longer able to negotiate the bill.

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QUESTION 6b

Q Highlight four similarities between "arbitration" and "mediation" as means of resolving commercial disputes.
A

Solution


Similarities

1. Confidentiality- Both methods involve private discussions with no record of the outcome being made public.

2. Cost-efficiency- The cost-effective methods of resolving conflicts between parties involved in litigation processes include mediation and arbitration;

3. Time - Arbitration and mediation processes are quicker than courtroom litigation. They typically last a couple of days.

4. Informality compared with solved disputes - These techniques are thought of as informal ways for the parties to reach an understanding;

5. Third party existence - A third impartial entity, such as a mediator or arbitrator, should mediate or arbitrate any disputes between the two;

6. Enforceable in law- The decision reached through mediation or arbitration may be enforceable in court.

Differences

1. Decision maker: in arbitration, the arbitrators decide; in mediation, the parties decide.

2. Binding decision: an arbitration ruling usually binds the parties, mediation only helps the parties seek a solution.

3. Costs: arbitration is more expensive than mediation.

4. Formality: arbitration is more formal, with motions and evidentiary hearings; mediation is informal.

5. Attorneys: attorneys often represent parties in arbitration; in mediation parties often represent themselves.

6. Length: an arbitration may involve months of work while a mediation usually occurs over a few trips

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QUESTION 6c

Q Summarise three rights that the guarantor has against the principal debtor.
A

Solution


➦ As a guarantor, an individual assumes responsibility for the debt of another person or entity, known as the principal debtor. While the specific rights of a guarantor can vary depending on the jurisdiction and the terms of the guarantee agreement, here are some common rights that a guarantor may have against the principal debtor:

  1. Right to Demand Repayment: If the principal debtor fails to repay the debt as agreed, the guarantor generally has the right to demand repayment directly from the principal debtor. This right allows the guarantor to seek reimbursement for any amounts paid on behalf of the debtor.
  2. Right of Subrogation: Upon fulfilling the guarantor's obligation, the guarantor may acquire the right of subrogation. This means that the guarantor can step into the shoes of the creditor and exercise any rights or remedies that the creditor would have against the principal debtor. This includes the ability to pursue legal action or recover assets to satisfy the debt.
  3. Right to Exoneration: The guarantor has the right to be relieved of their obligation once the debt has been fully repaid by the principal debtor. This means that the guarantor is released from any further liability for the debt, and their obligation is extinguished.
  4. Right to Receive Information: The guarantor has the right to receive relevant information about the debt, including updates on the principal debtor's payment status and any changes to the terms of the agreement. This allows the guarantor to stay informed about the status of the debt and take appropriate action if necessary.
  5. Right to Setoff: In some cases, if the guarantor has their own claim against the principal debtor, they may have the right to set off their claim against the debt owed. This allows the guarantor to reduce or offset the amount they are obligated to pay as a guarantor.

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QUESTION 7a

Q Explain the concept of causa proxima (proximate cause) as a principle of insurance.
A

Solution


One of the guiding concepts of insurance is the Causa Proxima Principle, or Proximate Cause, which deals with the loss's closest, most immediate, or most proximate cause.

The proximate cause is taken into consideration before determining the insurer's obligation. As a result, the insurer must compensate the insured if a recognized covered risk is the proximate cause of a loss.

Proximate Cause therefore means that if the proximate cause of the loss is insured then the insurer is liable to pay the compensation to the insured.

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QUESTION 7b

Q (b) Describe four consequences of dissolution of a partnership firm.

A

Solution


➦ The dissolution of a partnership firm refers to the termination of the legal relationship among the partners, resulting in the end of the partnership's operations. The consequences of the dissolution can vary depending on the specific terms outlined in the partnership agreement .

Here are some common consequences of the dissolution of a partnership firm:

  1. Termination of Partnership: The dissolution marks the end of the partnership. The partners are no longer bound by the partnership agreement, and they cease to carry on business together as a partnership entity.
  2. Settlement of Assets and Liabilities: Upon dissolution, the partnership's assets and liabilities need to be settled. The partners must identify, evaluate, and distribute the partnership's assets, including cash, property, and other resources, to satisfy any outstanding debts, obligations, and liabilities. This process may involve selling assets, paying off creditors, and addressing any claims against the partnership.
  3. Distribution of Remaining Assets: After settling the partnership's debts and liabilities, the remaining assets are distributed among the partners according to the agreed-upon terms in the partnership agreement or as determined by applicable laws. The distribution may be based on each partner's capital contribution or as per the profit-sharing ratio outlined in the agreement.
  4. Dissolution of Business Operations: The partnership's business operations, contracts, and ongoing projects are typically terminated upon dissolution. The partners are no longer authorized to act on behalf of the partnership, and any unfinished business may need to be concluded or transferred to the partners individually.
  5. Obligations to Third Parties: The partners may still have obligations and liabilities to third parties that arose during the existence of the partnership. Each partner may be personally responsible for any individual obligations or liabilities that they incurred on behalf of the partnership.
  6. Legal Formalities: Depending on the jurisdiction, there may be specific legal formalities to be followed upon dissolution. This can include notifying government authorities, canceling business registrations, filing dissolution documents, and fulfilling any tax-related obligations.

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QUESTION 7c

Q Summarise four actions that cannot be undertaken by a limited partner in a limited partnership.
A

Solution


Actions that cannot be undertaken by a limited partner in a limited company.

• Participate in management meetings.

• Participate in daily operations of the partnership.

• Dissolve partnership by notice.

• Receive back part of his contribution during continuance of the partnership.

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QUESTION 7d

Q List four examples of law which fall under criminal law.
A

Solution


Examples of law which fall under criminal law.
1. Theft.

2. Murder.

3. Rape.

4. Treason.

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