Business Law 1 Aba 106

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BONDO UNIVERSITY COLLEGE

BUSINESS LAW ABA 106

THE KENYAN LEGAL SYSTEM:

THE NATURE OF LAW

There are various definitions of Law but none has been generally accepted to the most accurate or

complete definition of law. The following are some of the definitions:

1. The Law may be defined as the body of Principles recognized and applied by

the state in the administration of justice. (Salmond)

2. A law is a rule of conduct imposed and enforced by the sovereign. (Austin). Meaning, a

rule enforced by a court of law in a given territory.

3. Whatever law may not be ------- it may be roughly defined as a body of rules for the

guidance of human conduct which are imposed upon and enforced among the members of a given

state.(Philip S. James)

4. Law consists of a body of rules which are seen to operate as binding rules into

that community by means of which sufficient compliance with the rules may be secured to

enable the set of rules to be seen binding.

5. A collection of rules of a human conduct prescribed by human beings for the

Obedience of human beings.

Purpose of the Law

The main purpose of law is for the maintenance of peace and order. It is also a device

for social control i.e. a device for getting people to do things they would be unlikely to do if left to

personal inclination alone.

The purpose of commercial or business law is to enable business students to understand the legalprinciples relevant to business and acknowledge the basic principles of Law.

CLASSIFICATION OF LAW

In any given state the law may be classified as follows:-

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1. Public Law: it is the branch of law which regulates the relations between citizens

and the state. It also regulates the operations of various organs of the state. This

Includes constitutional law, administrative law and criminal law.

2. Private Law: It is a branch of law that is concerned with the rights and duties of

of one person to another person. It covers the law of contract, tort, succession,

agency, insurance and property.

3. Public International Law: This consists of that body of law which regulates the

relations between states. It is based on custom, treaties and conventions.

4. Private International Law (Conflict of Laws) This branch of the law is mainly

concerned with the determination of what system of law is applicable in a case

where foreign elements are involved. For example X orders a motor vehicle from

Tanzania before the vehicle is delivered to him. Where does he file suit for therefund of his money if the vehicle is not delivered?

5. Criminal Law: This is a branch of the law which defines the things which every

person must do or must not do and defines the type of punishment applicable for

non-compliance. The bulk of criminal law in Kenya is contained in the penal

code.

6. Civil Law: This is the branch of the law which regulates the relations between

private individuals by enforcing obligations or compensating injured parties. It

is defined by customary law, common law and some Acts of parliament. Thisare of law is covered in contracts, succession, employment and sales of goods.

7. Substantive Law: This is a body of legal rules which defines or specify what is

lawful and or unlawful to do. For example under Kenyan Law marriage is

between man and woman above the age of 18 years and should not be between

people who have the same sex or are related in blood.

8. Procedural Law: This is a body of legal rules which define or specify the steps to

be taken or the procedure to be followed, by a person who intends to do an act.

The bulk of these rules are found in the civil procedure and criminal procedure

Codes.

SOURCES OF KENYA LAW

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The phrase source of Kenya Law means the origin of the legal rules which constitute the law of

Kenya. The sources of Kenya law are set out in the Judicature Act 1967 Section 3(1) as follows:

1. The Constitution of Kenya.

A constitution is a formal document which contains a comprehensive frame-work of rules and

principles through which a state operates. The rules in the constitution define the composition and

powers of different organs/ branches of the state and their relationship to each other and to private

citizens.

The Constitution of Kenya establishes the major organs of the government of Kenya as well as

their powers. It is divided into eleven chapters, which deal with various matters. There are three

major organs of the government viz:

a) The legislature is The Parliament of Kenya which, by virtue of Article 93 of the

Constitution is composed of both the National Assembly (a membership of 349

persons, excluding the Speaker who is the ex-officio member Article 97. Of the 349

members, 290 are elected members representing constituencies and 47 are women each

elected from each county and 12 being nominated members who are nominated by

political parties on the strength of their representation in the National Assembly), and

the Senate ( a membership of 67 excluding the Speaker, members of whom shall be 47

senators each elected from each county, sixteen women who shall be nominated by

political parties on the strength of their proportion of members in the Senate, two

members representing the youth and two members representing persons withdisability):but under the former Constitution period up to 2012, they are the elected

members/persons who form parliament or the national assembly (222).

b) The executive under Article 152 it consists of the President, the Deputy President the

A-G, and not fewer than 14 and not more than 22 Cabinet Secretaries,but under the

former Constitution, it is the President, Prime Minister, Vice President, Deputy Prime

Ministers and the Ministers i.e. the cabinet.

c) The judiciary i.e. the officers who are vested with judicial authority as envisaged under

Article 159 i.e. the Judges and the magistrates. These exercise their authority in courts

and tribunals established under the Constitution. They are judges of the Supreme Court,

The Court of Appeal, The High Court, and the Magistrates who run the subordinate

courts and the Kadhis who man the Kadhis courts and the other officers who exercise

judicial authority in tribunals. Under the former Constitution there is no Supreme

Court.

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Some constitutions like that of Kenya are written i.e. a formal document has been drawn up

containing all fundamental laws. Other constitutions are unwritten as in the UK where there is

no single code of laws or written document containing all the constitutional laws.

The constitution is supreme and takes precedence over all other forms of law; written or

unwritten. Under the former Constitution, Section 3 was the Section which gave it supremacy

but now Article 2 of the of the Constitution it is stated at clause 1 that

This constitution is the supreme law of the Republic and binds all persons and state organs

at both levels of government.

And clause 4 states further that Any law, including customary law that is inconsistent with

this Constitution is void to the extent of its inconsistency, and any act or omission in

contravention of this Constitution is invalid.

To amend the Constitution may take either of the two ways depending on whether the

amendment is meant to affect Articles which are to be subject to a referendum of otherwise.The thresholds are given therein (Articles 255, 256 and 257). Amendment may be initiated by

either Parliament known as Parliamentary Initiative, or by the people known as the Popular

Initiative.

Under the former Constitution, to amend any section of it, it required a vote of 65% of all the

members of the National Assembly is required.

The Constitution provides for:

b) The power to create Cabinet Secretaries and gives power to the President to appoint with

the approval of Parliament Cabinet Secretaries, who are not members of Parliament.

c) The power to make laws by Parliament is given by the Constitution (Article 94) and may

be exercised either directly or indirectly.

d) Protection of fundamental rights and freedoms is given in the Chapter of the Bill of Rights

Chapter 4 which contains Articles 19 to 58 which touches on among others the area of

life, personal liberty, equality, privacy, fair hearing, family, environment, movement and

residence, access to information, slavery and forced labour, inhuman treatment, deprivation

of property, conscience, expression, association, and discrimination.

Any other law must comply with these minimum requirements of the constitution, otherwise it

shall be void. Thus the Constitution forms the background against which all laws in Kenya operate.

2. Statutory Laws/Legislation

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These are laws made or passed by parliament in a form of Acts. The Legislative Power of

Parliament is exercised by way of Bills passed by parliament/National Assembly.

A Bill is a draft of a proposed Act of Parliament. There are two types of Bills:

i) Public Bills: are those affecting the general public and are introduced by a

Minister.

ii) Private Bills: are those which cover the interests of a specific section of the

Community. They are also introduced by a minister but is also possible for a private

member of parliament (MP) to introduce A bill on a matter of importance to him which

is not taken up by the government.

Stages of a Bill

a) First Reading: This is a stage where the formal introduction of the Bill is done to

parliament by the Minister or a private member. A suitable date for debate is fixed and

once the bill is approved, it is printed and copies given to the MPs for preparation.

b) Second Reading: At this stage the mover of the bill explains its purpose and the main

policy issues involved. Every member is allowed to participate in the debate but can speak

only once. At the end of the debate a vote on the bill takes place and if the majority votes

for it, the bill passes to the next stage.

c) The committee stage: A committee of the entire house or a small committee considers thedetails of the bill thoroughly and clause by clause.

d) The Reporting stage: Here the chairman of the committee presents the bill back to the

House where the house can be given the opportunity to debate the amendments proposed

by the committee.

e) Third Reading: At this stage, the details of the bill are not debated and only minor drafting

changes are permitted.

f) Presidents Assent: The Bill becomes law when the president signs it. But the president

can refuse to sign it if in his judgment, the bills do not serve the interests of the people. In

this case he has a duty to send it back to parliament giving reasons for his refusal to sign.

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Once assent is given the Bill is then entered in the statute book and becomes part of the statute law

of the land, but it only becomes operational on a day published in the Gazette or specified, which is

known as the date of Commencement.

Apart from the laws enacted by the Kenya Government, several British and Indian Acts apply in

Kenya under certain specific legislative provisions, for example, The Indian Transfer of property

Act 1882 and the Married Womens property Act 1882 of England.

3. Subsidiary/delegated Legislation

Due to the volume of work it becomes necessary for parliament to delegate its powers of

legislation to subordinate competent bodies such as State organs, State officers or persons in

authority (under Article 94(5) and (6) of the Constitution, but under the former Constitution the

Ministers or local authorities.

Even so that authority shall have to expressly specify the purpose and objectives for which theauthority is conferred, the limits of the authority, the nature and scope of the law which may be

made, and the principles and standards applicable to the law under the authority.

Nevertheless the Rules, Regulations, orders and or by-laws made by such bodies come under

delegated, indirect or subsidiary legislation.

A court has no power to invalidate an Act of parliament (Except when it is inconsistent with the

constitution) it may declare delegated legislation invalid/void on the ground that they are ultra

vires i.e. beyond the powers contained in the statute, which gave them authority to make such rules

or by-laws.

Advantages of delegated legislation

1. Lack of parliamentary time: Parliament does not have enough time to enact all laws

and rules affecting all internal issues. By delegating some of its law-making authority,

parliament can save time to solve much more possessing problems.

2. Urgency: The procedure of making laws by parliament is slow and parliament may not

be in session to attend to all emergencies. It therefore becomes necessary to delegate.

3. Technicality of subject matter: Sometimes the proposed legislation may be so

technical in nature that it will demand an expert to handle yet parliament may not have

such experts. A minister assisted with experts in his ministry can easily make such

legislation.

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4. Flexibility: Parliament is generally inflexible in its procedure and in case of immediate

repeal or amendment of an Act, it has to follow the laid procedure. A quicker way

would be to have the ministerial rule or regulation in question withdrawn or amended

by the Minister who issued it.

5. Delegated Legislation may provide an opportunity to experiment a particular rule.

6. Parliament may find it impossible to see contingencies in the initial or enabling statute

Disadvantages of Delegated Legislation

1. Legislation is passed in skeleton form, leaving matters of principle to be decided by the

court.

2. There is inadequate parliamentary control of the bodies or authorities that have been

given the powers to make the delegated legislation.

3. Delegated powers may be so wide, thus increasing uncertainty of the law.

4. Delegated powers had been loosely defined, thus detracting from Judicial control, but

now they have been expressly limited under the Constitution (Article 94(5) and (6) and

may have less looseness.

5. There is always lack of publicity and advance consultation with interests affected.

6. The courts do not find it easy to control the making of delegated legislation.

7. To some extent, delegated legislation has a retrospective operation.

8. The ultimate makers of delegated legislation are technical officers in a ministry or localauthority who are not elected and are not accountable to people affected by the rules.

To that extent delegated legislation lacks the democratic spirit that usually inspires and

manifests itself in parliamentary legislation.

Advantages of Acts of Parliament

1. It is democratic in the sense that it reflects the wishes of Kenyans as to what the

law should be as parliament consists of representatives of the people who are

elected.

2. It enables parliament to find legal solutions to any problem that the country may

fall by passing new Acts or amending existing Acts.

3. It is usually a statement of general principles and rules and can therefore be

applied to different situations in a flexible manner as determined by the court in a

particular situation.

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4. It is dynamic since it can be changed as the needs of the Kenyan society change.

5. It gives Kenyans an opportunity to debate the proposed law from the moment they

become aware of it after its publication in the Kenyan Gazette.

Disadvantages of Acts of Parliament

1. Technical bills are passed into law without sufficient debate because the majority

of parliamentarians are not technically competent to appreciate all the issues

involved.

2. Acts of parliament do not reflect the wishes of the people (voters) but the wishes

of the individuals who constitute parliament at any given time. MPs express their

personal views as they do not consult the views of the voters.

3. The process of passing an Act that would substantially confirm to the wishes of

the people affected by it is likely to be very slow. This is because very many

public meetings must be held before a consensus on the proposed law can be

reached e.g. the review of the current constitution and the referendum.

4. Some Acts imposed on the people and reflect the views of the executive or

pundits in the ruling political party.

4. The English Common Law

Common law consists of the ancient customs and usages of England, which have been recognized

and given the force of law. This law does not include legislation. It was developed by judges on

the principle ofstare decisis which means that it is not the result of legislation i.e. the law created

by custom of the people and decisions of the judges.

Common law courts include:

a) The Court of Exchequer it was the first court to be established in the 12 th

Century to deal with disputes concerning the payment of royal revenues.

b) The court of common pleas it was the second court to be established in the

13th Century to deal with all civil cases and matters relating to land.

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c) The Court of Kings Bench this was the last to be established or set up in the

13th Century. It is called Kings Bench because occasionally the King used to

preside over this court. It mainly dealt with criminal matters and civil actions in

which the crown was a party.

The Judicature Act, Cap 8 of the Laws of Kenya does not make any reference to the common law

of Kenya as a source of law. However, it stipulates that the substances of common law shall apply

so far as the circumstances and inhabitants of Kenya permit. It is now embodied mainly in the

reported decision of the East African Courts and it is a source of law in Kenya.

5. The Doctrines of Equity

Equity is a set of rules formulated and administered by the court of chancery before 1873 to

supplement the rules of common law. This court dealt only with those cases where common law

either provided no remedy or provided a remedy which was not adequate. Equity therefore is abody of principles constituting what is fair and right.

Origins of Equity

Citizens dissatisfied with the decision of the Judges of common law often made petitions to the

King in council. The petitions were decided by the King in council. The petitions were decided by

the King himself or by his council. Due to much work, the King later delegated his function to his

lord Chancellor (advisor to the king) a clergyman to decide the appeals applying the rules of

natural justice and morality

The petitions to the Lord Chancellor were made on the following grounds:-

1. The common law courts provided no remedy for certain wrongs e.g. trusts were

not recognized.

2. The remedies provided in certain situations were not satisfactory e.g. in case of

breach of contract, the only remedy available was damages, and specific

performances injunctions were not recognized.

3. The common law courts sometimes acted either under pressure or influence or

bribes of the other party.

The remedies granted by equity courts become known as equitable remedies.

Principles of Equity

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During the early development of equity the early chancellors acted at their own discretion, but

eventually they did follow the decisions of early chancellors. By the 8th century, some firm rules

of equity were established which guided later chancellors in deciding disputes. These rules are

known as equitable maxims which are propositions or general statement of equitable rules.

Some of these maxims include the following:

1. Whoever seeks equity must do equity i.e. anyone who wishes to be treated fairly must treat

others fairly.

2. When the law is equal equity, the law must prevail (The law will determine the

outcome of a controversy in which the merits of both sides are equal).

3. He who comes to equity must come with clean hands i.e. the Plaintiffs must have

acted fairly and honestly.

4. Equity will not suffer a wrong without a remedy (Equitable relief will be awardedwhen there is a right to relief and there is no adequate remedy at law.)

5. Equity regards substance rather than form i.e. equity is more concerned with

fairness and justice than with legal technicalities.

6. Equity aids the vigilant, and not those who rest on their rights i.e. equity will not help

those who neglect their rights for an unreasonable period of time (delay defeats

equity)

The distinction between legal and equitable remedies remains relevant to students of business law,

however, because these remedies differ to seek the proper remedy for a wrong one must know

what remedies are available.

6. Statutes of General Application in Force in England on 12th August, 1897

The phrase refers to those statutes that applied to the inhabitants of England generally for example

the married womens property Act 1882 is an English Statute of General Application that is

applicable in Kenya.

These laws are applicable only if:

a) They do not conflict with either the constitution or any other written laws applicable

constitution or any other written laws applicable in Kenya

b) and must have been passed before 12th August, 1897.

c) The circumstances of Kenya and its inhabitants permit. In the case ofI. v I. (High

Court of Kenya at Kisii) A husband made an application to court after divorcing his

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wife for adultery and thereafter applied for determination of the partys interest in the

matrimonial house. The husband argued that the wife was not entitled to any interest in

the house they owned jointly as she had not contributed to its purchase. He contended

that the Married Womens Property Act 1882 of England was not a statute of general

application and in the circumstances of Kenya and its inhabitants do not require that

married women should not be able to hold property and the fact that the majority of the

Countrys inhabitants are subject to customary law is irrelevant as customary law is

subject to any written law.

7. African Customary Law

African Customary Law may be described as the law based on the customs of the ethnic groups

which constitute Kenyas indigenous or African population.

Section 3(2) of the Judicature Act provides as follows:

The High Court and all subordinate courts shall be guided by African customary Law in civil

cases in which one or more of the parties is subject to it, or affected by it, so far as it is applicable

and is not repugnant to justice and morality or inconsistent with any written law, and shall decide

all such cases according to substantial justice without undue regard to technicalities of procedure

and without any delay.

The application of African Customary is however limited as follows:

a) The courts are to be guided by African Customary Law

This provision gives a Judge/ Magistrate discretion whether to allow a particular rule of customary

law to operate or not. The judge is not bound to apply any rule of customary law and may

therefore refuse o apply it if, for example, it is repugnant to justice.

In the case of Wambui Otieno vs- Joash Ougo and Umira Kager Clan the court of appeal

stated that the provision that courts are to be guided by African Customary law means that courts

must have in mind African customary law (unless it is repugnant to justice and morality or

inconsistent with a written law)

b) The law is applicable only in civil cases

The District Magistrates court Act 1967 Sec 2 restricts cases to which African Customary law

may be applied to claims involving any of the following:

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i) Land held under customary law

ii) Marriage, Divorce, maintenance or payment of dowry

iii) Seduction or pregnancy of an unmarried woman or girl

iv) Enticement of or adultery with, a married woman

v) Matters affecting status, particularly the status of women, widows and children,

including guardianship, custody, adoption and legitimacy.

vi) Intestate succession and administration of intestate, so far as it is not governed by any

written law

d) One of the parties must be subject to it or affected by it.

If the plaintiff and the defendant belong to the some ethnic group they are said to be subject to

the customs of the ethnic group which could then be applied to settle the dispute e.g. a dispute

between Luos cannot be settled under Kikuyu customs.

But if the dispute involves parties from different ethnic groups it may be determined according to

the customs of either party, since one could be subject to and the other party would be affected

by the customs.

d) The customary law will only be applied if it is not to repugnant to justice and

morality.

In the case ofMaria Gisese Angoi vs- Marcella Nyomenda Civil Appeal No.1 of 1981 at Kisii

the High Court held that:

The Kisii customary law which allows a widow who has no children or who has only female

children to enter into an arrangement with a girls parents and take the girl to be her wife and then

choose a man from amongst her late husbands clan who will be fathering children for her (i.e. the

widow) was repugnant to justice because it denied the alleged wife the opportunity of freely

choosing her partner.

e) The Customary Law will be applied only if it is not inconsistent with any written

law.

This is because of the constitutional of parliamentary supremacy and the fact that written laws are

made by parliament either directly or indirectly.

If any unwritten law e.g. African Customary is in conflict with a clause in a written law, the

unwritten law will cease to have the force of law from the moment the written law comes into

effect.

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8. Islamic Law

This is the law based on the Holy Koran and the teachings of the prophet Mohammed. This law is

applicable in Kenya under Article 170, clause 5 of the Constitution and then Section 5 of the

Kadhis Courts Act 1967 when it is necessary to determine questions of Muslims Law relating to:

Personal Status Divorce

Marriage Inheritance

and the parties in the case profess the Muslim religion and submit to the jurisdiction of the Kadhis

courts.

9. Hindu Customs

It is applicable under section 5 of the Hindu Marriage and Divorce Act, 1960. Section 2 of the Actdefines a custom as a rule which, having been continuously observed for a long time, has attained

the force of law among a community group or family being a rule that is certain and not

unreasonable, or opposed public policy, and, in the case of a rule applicable only to a family, has

not been discontinued by the family.

10. Case Law and Judicial Precedent

In deciding cases or disputes, Judges of lower courts follow the decision of a higher court if cases

involving similar facts and points of law come before them.

The principle ofstare decisis (Latin meaning to stand on decided cases) or judicial precedent is a

legal rule that requires a judge hearing a case to refer to earlier cases decided by his predecessors

in order to find out if the material facts of any of those cases before him and, in the event of such

finding, to decide the case before him in the same way as the earlier case had been decided.

Thus principle was developed by the English courts as a mechanism for the administration of

justice which will enable Judges to make decisions in an objective or standard manner instead of

subjectively and in a personalized manner.

The material facts of a case and the decision made by the Judge on the basis of those facts are

known as the ratio decidendi of the case.

The ratio decidendi of a decided case constitutes the legal rule or principle for the future cases with

similar material facts i.e. the decision is precedent to be followed when deciding such cases. (We

shall come to this aspect at a later stage- the Administration of the Law)

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FUNDAMENTAL PRINCIPLES OR CONCEPTS

These are concepts or principles which permeate or transcend any law, including Constitutions of

States. They are meant to govern the conduct of any civil and democratic society irrespective of its

laws or circumstances.

A). RULE OF LAW

This is a constitutional principle upon which every constitution is founded. It generally implies a

system of government which is founded on generally accepted legal rules. It means that the

government should run according to the legal rules which have been made by the majority of

elected members.

This means further that the government must run on laws which are made, communicated in

advance to and known by the citizens, meaning run on predetermined rules. Herein it implies thatthere should be no arbitrariness in the way decisions/ or actions in government are made or done.

Prof Wade says that the rule of law requires that the government should be subject to the law

rather than the law subject to the government. He further says that the Rule of Law demands

proper legal limits on the exercise of power. He says that power should be approved by parliament,

within definable limits. It imports the idea of the limits being consistent with natural justice i.e.

the standard is imposed on the administration which commends itself to the public

conscience.

Thus the Rule of Law contrasts itself from the rule of men. Herein the sovereign is the one who

determines what the law is and what is to be applied or done any time he decides. There are no

legal limits to his actions or decisions.

B). SEPARATION OF POWERS

The government is an all-powerful entity. The execution of these powers need to be checked or

controlled or else they be exercised arbitrarily by those in power, otherwise there would be

despotic regimes or authoritarian governments. This concept was first promulgated by the French

philosopher Montesquieu in 1748 in his bookLEspirit Des Lois. In essence he visualized a

government in which political powers inherent in the state were distributed among the Organs of

the State in such a way that no organ had a preponderance of power as compared to the other

organs.

He envisaged three main organs in which these powers would reside and still have the state operate

harmoniously: The EXECUTIVE, PARLIAMENT and the JUDICIARY.

His vision was, in a nutshell, that political powers would be wielded in such a manner that

Parliament would make laws, which laws would be executed by the executive, and interpreted by

the judiciary.

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i. Legislative Powers:

Herein his idea was that the laws which govern people should be made by their representatives

who must be duly elected, not rigged-in, i.e. in free and fair elections. These people form the

National Assembly. Thus the sovereign would not rule using arbitrary rules.

Article 94 gives Parliament, which consists of both the Senate and the National Assembly there

powers, while Articles 97 and 98, 99 and 101 deal with the election of the persons who are to be

members of Parliament.

Under the former dispensation, Section 30 of our then Constitution provided for these powers by

saying that they reside in the National Assembly, while Section 31 said that the members of the

National Assembly would be elected in accordance with the provisions of Section 32.

ii. Executive Powers

It is the executive who should execute or bring into operation the laws which have been

promulgated. They are the policy-makers, upon which policies laws are made and finally applied.

In our former Constitutional dispensation (and up to 2012) it was and is the President, who maydelegate these powers to Ministers. The National Accord and Reconciliation Act, Act No.4 of

2008 does include the Prime Minister in this axis of power by calling for consultation between him

and the President, in exercise of the powers. They constitute/form the Cabinet. Sections 23 of that

Constitution provided for the exercise of these powers.

But under the new Constitution, after 2012, it shall be the President, the Deputy President, the

Attorney-General, and not fewer than 14 and not more than 22 Cabinet Secretaries.

Judicial Powers

These are those powers which entail interpreting the laws which have been made and considering

whether they are being applied or executed in accordance with the laid down procedure/principles.

These powers are exercised by the judges/ courts.The judges and magistrates are supposed to exercise these powers without fear or favour or undue

influence. Thus they are supposed to be independent in their decision. The executive and

parliament should not interfere with the exercise of these powers. So the judiciary is called upon to

be independent and impartial.

C). FUNDAMENTAL RIGHTS OF AN INDIVIDUAL

These rights are those from which none, including the state should not derogate, i.e. they should

not under any circumstance be taken away from an individual, only subject to certain conditions

laid down in the law itself. It is important to note that these rights and freedoms as given in the

Constitution have taken effect immediately from the time of Promulgation of the same on 27 th

August 2010 at 10.23am. Therefore it is not important to dwell on what the former Constitution

provided for but rather what the new document gives the citizens. All that is contained between

Articles 19 to 58 of the said law inclusive. They include, but are not limited to life, personal

liberty, equality, privacy, fair hearing, family, environment, movement and residence, access to

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information, slavery and forced labour, inhuman treatment, deprivation of property, conscience,

expression, association, and discrimination.

Article 19 provides that these rights are of the individual and are not given/ granted by the state.

They may extend to others not mentioned in the Constitution but are recognized by other laws as

long as they are not inconsistent to the ones in the Chapter containing them.

They are not supposed to be limited except where the Constitution has expressly stated so. The

state is enjoined to observe, respect, promote and fulfill these rights and freedoms. It includes

making laws, take measures and make policies which will enhance these rights.

Article 22 permits anyone, including a person who is not directly affected, whether by denial,

infringement or violation of the rights, to seek redress in court.

The state or any other person shall not limit the following rights, - but not the freedom from torture

and cruel, inhuman or degrading treatment, freedom from slavery or servitude, right to a fair trial,and the right to an order of habeas corpus meaning produce the body of.

However, the other rights may be limited but in exceptional circumstances (article 24 clause 1),

to wit:

i. if it is reasonable and justifiable,

ii. in an open and democratic society

iii. based on human dignity, equality and freedom,

iv. and must take into account all relevant factors, which should include

- the nature of the right/freedom

- importance of the purpose of the limitation- the need to enjoy the right or freedom does not prejudice the rights and fundamental

freedoms of others

- the relation between the limitation and its purpose and whether there are other less

restrictive means of achieving the purpose.

Thus the freedoms granted to the individual are almost endless in so far as they meet the above

criteria.

Types of Precedents

1. Binding Precedent: is one which a judge must follow whether he approves it or

not. It is binding upon him and excludes his judicial discretion. This includes

decisions of higher courts.

2. Persuasive precedent: is one which a Judge is under no obligation to follow but

may however take into consideration or follow, in the course of considering his

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intended decision. These include courts of the lower court, courts of the same level and

decisions of superior courts of commonwealth.

Obiter Dicta

This is in contrast with ratio decidendi which is a mere saying by the way, a chance remark, which

is not binding upon future courts, though it may be respected according to the reputation of the

judge, the eminence of the court and the circumstances in which it came to be pronounced.

It may also be described as a by the way statement made by a Judge before delivering his

judgment with a view to re-enforcing his reason for the decision that he will make.

The reason for not regarding an obiter dictum as binding is that it was probably made without a full

consideration of the cases on the point and that if very broad in terms, it was probably made

without a full consideration of the cases on the point and that if every broad in terms, it wasprobably made without a full consideration of the consequences that may follow from it concluded

opinion.

Advantages of Stare decisis (Judicial Precedents)

1. It introduces certainty in the administration of justice by avoiding subjective

decisions

2. Flexibility in the administration of justice is achieved through the final court of appeals

freedom to change or depart from its earlier decisions if it appears right todo so, mainly due to changed social and economic conditions.

3. The process of distinguishing cases leads to the development (growth) of detailed

legal principles.

4. Rich in detail: Each principle of law or equity is supported by elaborate judgments of

distinguishing judges. These are of tremendous value to other Judges, lawyers and students of law

to understand, appreciate and apply to practical problems facing them.

Disadvantages

1. Rigidity: Since Judges in courts below the final court of Appeal are not allowed

to depart from their earlier decisions.

2. Over subtlety (fine differences) occasioned by artificial distinguishing of

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similar cases as Judges try to avoid following earlier decisions which they

consider to be unjust or wrong.

3. Bulk and Complexity many cases are being decided every day in Kenya by

different courts and it is therefore impossible to know if a relevant case has been decided.

Departure from Precedent

Although courts are obliged to follow precedent, sometimes a court will depart from the

Rule of precedent if it decides that the precedent should no longer be followed. If a court

Decides that a ruling precedent is simply incorrect or that technology or social changes

Have rendered the precedent inapplicable, the court might rule contrary to the precedent.

When there is no precedent

Occasionally in deciding cases of first impression courts may consider a number of

factors, including legal first impression often result when new practices or technological

developments in society create new types of legal disputes. In such case, the courts

have to decided on a case by case basis what rules should be applied.

Generally in deciding cases of first impression courts may consider a number of factors,

including legal principles an policies underlying previous court decisions or existing

statutes, fairness, social values and customs, Public Policy and data and concepts

drawn from the social sciences.

Note that judges are not free to decide cases on the basis of their own personal views.

In cases of the first impression, as in all cases, Judges must have legal reasons for

deciding as they do on particular issues. When a court issues a written opinion on a case,

the opinion normally contains a carefully reasoned argument justifying the decision.

ADMINISTRATION OF THE LAW

Hereunder we examine the way the law is applied, in the quest to have justice meted out or

realized. The law is ordinarily administered through courts and other quasi-judicial bodies which

have been clothed with the authority to so do. We will thus look into the way the courts interrelate

and the other bodies too relate to the courts as they apply the law.

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THE KENYAN COURTS

The Kenyan courts relate to each other in a n organized and designed hierarchy, which is easily

shown diagrammatically as hereunder (at page 21a)

1. The Constitution has established a new tier of the court which is the highest in the Republic the Supreme Court. This is established under Article 163 thereof. It is the final judicial

authority in the Republic. It is to take effect as soon as a new supporting law is

implemented, but in any event a period of not more than a year from the 27 th August 2010.

It shall be composed of the Chef Justice, the Deputy Chief Justice and five other judges. Its

sittings shall be in an odd number of five.

It shall hear cases involving disputes relating to the election of the President, appeals from

the Court of Appeal, and appeals from any other court or tribunal which the law will

prescribe. This means that the court has original jurisdiction limited only to Presidential

election disputes.

2. The Court of Appeal

This is the second highest court in the hierarchy of Kenyan courts (as soon as Article 163

of the Constitution is effected), as per the current Constitution. This means that in case

anyone has a case for decision, as long as the court is seized of authority to handle it, a

final decision will be made in this court.

This court was established on 28thOctober 1977 (after the break-up of the East African

Community), under Sec. 64(1) of the Constitution, but under the new Constitution it is now

established under Article 164.

The judges of the CA should be the Chief Justice and other judges whose minimum

number is twelve. It has jurisdiction to handle appeals from the High Court, in cases where

an appeal lies (where the law provides for it), and appeals from any other court or tribunal

as any Act of Parliament will prescribe. It has no original jurisdiction.

Thus inLeonard Esbon Omolo v. Republic, the appellant filed an appeal in the high court

from a court martial. Being aggrieved by the decision of the High Court, he appealed

further to the Court of Appeal. It was held that he had no right of appeal to the Court of

Appeal because there was no statutory provision for it.

The procedure followed by this court is laid down in the Appellate Jurisdiction Act (Cap 9,

Laws of Kenya).

In all cases with the exception of some applications, the court is constituted by an uneven

number of judges and in these circumstances the decision of the court is by majority.

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It shall be headed by a president elected by the judges of appeal from amongst themselves.

3. The High Court

This is established under Article 165 of the Constitution. It is a superior court of record. Its

composition is the Principal Judge who shall head it and shall be elected by the judges of

the high court from amongst themselves and such number of judges as Parliament may

prescribe.

The court has unlimited original jurisdiction in civil and criminal matters, a question of

infringement, violation, denial of or threat to any right or fundamental freedom in the Bill

of Rights, appeals from a tribunal dealing with the removal of a person from office,

jurisdiction regarding the interpretation of the Constitution, and such other jurisdiction

(original, or appellate) and powers as may be conferred by any other law. In case any court

refers a matter to the High Court for determination, the decision of the High Court binds

that other court.

Its jurisdiction has been specifically excluded from matters which are the preserve of the

Supreme Court under the Constitution, and those matters which fall within the jurisdiction

of the courts specifically set up by law to deal with employment and labour relations, and

the environment and use and occupation of, and title to, land.

At the same time the High Court has jurisdiction, under Article 165(6) and (7) of the

Constitution to supervise any civil or criminal proceedings before any magistrates court or

court martial and make such orders or issue such writs or give such directions as may beappropriate to ensure that justice is administered by that other court.

Similarly the Court can act as a court of admiralty by S. 4 of the Judicature Act for

purposes of exercising admiralty jurisdiction in all matters arising in the high seas or

territorial waters or upon any lake or other navigable inland waters in Kenya. Under this

jurisdiction it will apply the Admiralty Law of England as well as international laws and

comity of nations.

4. The Resident Magistrates Court

These are courts established under the Article 169 of the Constitution and Magistrates

Courts Act (Cap 10, Laws of Kenya). The said law provides that these courts are

subordinate to the High Court. This court is held by a Chief Magistrate, a Senior Principal

Magistrate, Principal Magistrate, a Senior Resident Magistrate or a Resident Magistrate.

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The court handles such civil matters as is provided by the Statute Law (miscellaneous

Amendment) Act, 1993 or as shall be by given or extended by the Chief Justice notice in

the Gazette.

With regard to criminal matters, the court is empowered to pass any sentence as authorized

by law for an offence triable by that court.

5. The District Magistrates Court

These are established under the Magistrates Courts Act, S. 7(1). Such court is held by a

district magistrate who has been assigned to the district in question by the Judicial Service

Commission. They were divided into three classes, based on seniority, as follows: First

Class (senior-most), Second Class (intermediate) and Third Class (least in seniority). In

practice these courts are rare. They used to exist when there were few trained personnel

(lawyers) who could be eligible to be appointed to serve as magistrates. With the avalanche

of trained/ skilled personnel, they are being phased out.

Their territorial jurisdiction was limited to the specific district assigned to each, but it could

be extended by notice in the Gazette, by the Chief Justice.

With regard to criminal appeals, an appeal would lie to the Resident Magistrates Court

within 14 days of the decision being made in case one was convicted by a DM III, all other

cases would be appealed to the High Court. In civil matters, an appeal would lie to the

magistrates court of the first class from a DM III within 28 days from the date of the

decision.

6. Kadhis Courts: These are courts established under Article 169 and is jurisdiction is under170 of the Constitution. Their civil jurisdiction relates to determining questions of Muslim

law relating to:

i. Personal status

ii. Marriage

iii. Divorce

iv. Or inheritance,

and the parties in the case profess the Muslim religion and submit to the jurisdiction of the

Kadhis courts.

These courts do not have criminal jurisdiction.

Appeals from these courts lie to the High Court.

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7. Court Martial

These courts deal with matters relating to the disciplined forces. They are established under

the Armed Force Act, S. 85(1). It is not a permanent court. It is set up as and when issues

arise. It deals with trying persons in the disciplined forces, who are alleged to have

committed an offence. Once the trial is over, the court is dissolved.

The persons presiding over these courts should be at least three, of whom one should be a

judge-advocate, unless the Attorney-General directs otherwise. The judge-advocate shall be

a magistrate or an advocate who shall advise the court on the relevant law and procedure.

The A.f.A provides that a conviction by the Court Martial must be reviewed and confirmed

by a Confirming officer.

An appeal from the court shall lie to the High Court, whose decision shall be final, meaning

there shall be no further appeal there-from.

8. The Industrial Court

This is not part of the judicial system of Kenya. It exercises quasi-judicial powers hence its

name court. It handles trade disputes (between employees and employers, employers and

trade unions, etc). Its decisions are final. It was established under the Trade Disputes Act

(Cap 234 L.o.K, now repealed). It is now operating under the Labor Relations Act, No. 14

of 2007 and Labor Institutions Act (2007). It consists of judges, not less than two in

number and at least eight other persons appointed for terms of not less than three years by

the Ministry of Labour in consultation with the Central Organization of Trade Unions and

Federation of Kenya Employers.

A judge may appoint two assessors if he considers it fit. Once the court makes a decision

(called an award), it notifies the parties, and publishes the award in the Gazette. The

effective date of the award is the date of publication unless otherwise expressly stating it is

retrospective. The terms of the award are incorporated as the terms of the agreement

between the parties to the dispute.

The award of the Industrial Court I final, meaning it cannot be appealed from or reviewed

or be restrained or removed by a prohibition, injunction or certiorari.

9. Tribunals:

These are other special courts established by various Acts of Parliament to deal with

various disputes. They include

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i. The Rent Tribunal

Established under the Rent Restriction Act to

-assess the standard rent of any premises either on application of any persons

interested orsuo motto

-make an order for recovery of possession of premises

- make an order for recovery of arrears of rent, mesne profits and service charges

-where a landlord fails to carry out repairs, to order the landlord to so do within a

certain time or if he fails to, to authorize the tenant to so do and deduct the cost

thereof from the rent.

- permit the levy of distress for rent

- on an application by the tenant, to order a reduction of the standard rent or rentrecoverable if satisfied that the landlord has failed to carry out repairs as required.

-investigate any complaint relating to the tenancy made by either the tenant or

landlord and make such an order as will be just.

The order of the tribunal shall be final and no appeal shall lie there-from to any

court except in

a) Where there is a point of law in question

b) The case of an order made under S. 6(5) after investigating a complaint or othermatter

c) Where the rent exceeds Ksh 1000/= pm, on any point of mixed law and fact

ii. The Business Tribunal

It was established under the Landlord and Tenant (Shops, Hotels and Catering

Establishments) Act. This deals with determining whether or not a tenancy is a

controlled one of not and the rent payable there-under. A controlled tenancy is one

in which the premises are used for a shop, hotel or catering establishment which has

not been reduced into writing, or if reduced into writing it does not exceed five

years. In such tenancies neither the government nor the local authority should be a

party.

An order from this tribunal once filed in the subordinate court of the first class

becomes an enforceable decree of the court.

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An appeal from this tribunal lies to the High Court within thirty days, and the

decision of the High Court shall be final.

iii. The Co-operative Tribunal: Established under the Co-operative Societies Act. It

deals with disputes between

- Members of a co-operative society

- A co-operative society and another

- Members of the co-operative society and the society.

iv. The Land Disputes Tribunal: Established under the Land Disputes Tribunal, Act 10

of 1990. Deals with issues of boundary disputes in land matters.

10. Arbitration:

An arbitrator is an umpire. He hears and determines a dispute between the parties, in case he iscalled upon. Ordinarily an agreement to a dispute makes it compulsory to seek an arbitrators

decision, which is then is adopted by the court. The effect of an arbitration clause is to prevent

parties from going to court in respect of any dispute covered by the clause.This means settlement of any commercial dispute between two by one or more persons called

arbitrators. If any of the parties disregards the agreement and commences legal proceedings, the

other party may apply to the same court for stay of the proceedings provided the following

conditions are fulfilled.The person appointed to determine differences and disputes is called the Arbitrator, the

proceedings before him are called arbitration and his decision is called an award.

Arbitration Agreement

Arbitration Agreement is a written agreement to refer present or future differences to arbitrationwhether an arbitrator is named or not.

When parties have entered into an agreement to refer all disputes between them either in present or

future, they cannot bring an action in a court of law relating to the same subject matter. If any of

the parties disregards the agreement and commences legal proceedings, the other party may apply

to the same court for stay of the proceedings provided the following conditions are fulfilled.

1. The proceedings relate to the same matter as that covered by the arbitration agreement.2. The applicant who has applied for stay was and is still ready and willing to proceed with

arbitration and to do everything necessary for the purpose.

3. That there is no sufficient reason why the matter should not be referred in accordance with thearbitration agreement.

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4. The party asking for stay must not have delivered his pleading or taken any other steps in the

proceedings.

Ways of making a reference to Arbitration

1. By Order of the Court: The court may refer any specified issue or the whole of the casewhich requires specified technical or scientific or other treatment. But this cannot be done

against the consent of the parties.2. By Certain Statutes: Under certain Acts, the parties are given rights to refer their disputes

arising under statutes to arbitration.

3. By Consent of the Parties: Where parties to commercial agreement have agreed in writing to

submit their dispute for settlement to arbitration, they are under legal duty to do so if any

dispute arises relating to this matter.

Powers of the Court to Appoint Arbitrator

1. Where an arbitration agreement provides for the appointment of a single arbitrator, and theparties have failed to appoint one.

2. If an appointed arbitrator refuses to act or is incapable of action or dies and the vacancy socaused is not filled.

3. Where the reference is to two arbitrators and one is not appointed.

4. Where the parties or two arbitrators are to appoint and umpire or thrall arbitrator and fail toappoint one.

5. Where an appointed umpire or arbitrator refuses to act or is incapable of acting or dies and the

parties or arbitrators do not appoint one.

Advantages of Arbitration

Avoidance of publicity, for the proceedings are held in camera.Simplicity of procedure, as proceedings are more informal.

Avoidance of delay and uncertainty involved in appeals as the award, assuming to be valid, is

final.Reduction of expenses in most cases.

Saving of time as proceedings are quicker than a trial court.

Appointment of a person having the required technical qualification as arbitrator, should the matter

be of a technical nature.Social efficacy (Parties end-up as friends while courts make them enemies), the award of the

arbitrator being the decision by the consent of the parties.

Candor in presenting figures, knowing that trade competitors are not present to gain knowledge tothe detriment of the person giving the evidence.

The parties can fix a convenient time and place for hearing the proceedings.

Disadvantages of Arbitration

1. The arbitrator may be incompetent (both in trade and in the legal aspect of the matter) or

biases.

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2. Injustice may result from the informality of the procedure.

3. Arbitration does not create uniform and well-settled rules of law.

INTERPRETATION OF WRITTEN LAWS

The actual meaning of a written law, rule or any other subordinate legislation may be a cause of a

legal dispute. The words used may have different meanings to different people.

The following rules are used to interpret any written law:

1. The Literal Rule: This rule requires that the primary meaning of the statute

be given to the words. I.e. it requires that the judges to interpret the written

law according to their grammatical or dictionary meaning.

Example: R v Harris (1836)

A bite wound was not considered as a stab, cut or wound as the law required, hence the accused

was acquitted, in this case.

2. The Golden Rule: This is used in order to avoid arriving at an absurd decision

under the literal rule of construction. In Becke vs. Smith, (1836) 2 M&W 195 Justice

Parker said that under this rule the court is ordinarily to adhere to the ordinary meaning of

words used, and to the grammatical construction, unless that is at variance with the

intention of the legislature, to be collected from the statute itself, or leads to any manifestabsurdity or repugnance, in which case the language may be varied or modified.

when this may lead to an irrational result that is unlikely to be the legislatures intention,

the judge can depart from this meaning, to avoid such inconvenience but no further.

3. The Mischief Rule: This rule allows the court to examine the purpose of the

statute in order to discover the mischief or defect in the existing law which this

particular statute was passed to remedy. The Judge should then adopt a construction which

will remove the mischief to be cured and then provide an appropriate remedy.

Smith v Hughes [1960] 2 All E.R. 859, where under the Street Offences Act 1959, it was a

crime for prostitutes to "loiter or solicit in the street for the purposes of prostitution". Thedefendants were calling to men in the street from balconies and tapping on windows. They

claimed they were not guilty as they were not in the "street." The judge applied the

mischief rule to come to the conclusion that they were guilty as the intention of the Act was

to cover the mischief of harassment from prostitutes.

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4. The Ejusdem Generis Rule: is a rule which states that where general words of an Act or

Rule follow particular words, the general words are to be construed as being limited to the

persons or things within the class designated by the particular words. For example in

reference to cows, goats, donkeys, and other animals the general words other animals

would be construed to mean animals of the some genus or species as cows, and would not

include wild animals such as elephants, buffaloes lions etc.

Example: Evans v Cross

The accused was charged with ignoring a traffic sign when he overtook on a road on which was

painted a white line. It was held that he was not guilty because the white painted line was not a

sign in the meaning of the words all signals, warning signposts, signs, or other devices since the

words other devices must be construed ejusdemgeneris the preceding words.

The ejusdem generis rule is related to the Context Rule: Wherein the entire context of the statute

is looked at when ascertaining the meaning of certain word

.

LAW OF PERSONS

A person may be defined as an entity or being which is recognized by law having certain

defined rights and obligations. There are two types of persons in law namely:

a) Natural Person: These are human beings who are capable of rights and are subject

to obligation. The legal personality of natural persons or human beings starts at

birth and ends at death.(2)

b) Corporations: A part from human beings, the law also accords legal personality to

certain offices and groups of persons known as corporations. A corporation is an

association of persons bound together for some particular object, mostly to carry on

business with a view of profit. It is an artificial person created by law with capital

divided into transferable shares and with limited or unlimited liability possessing a

common seal and perpetual succession. A corporation is regarded as a person

because it has legal rights and obligations of the individual who constitute it. A

corporation may be composed of one or several or legal persons.

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It has a legal personality of its own distinct from that of its members. The

Individual members have rights and liabilities of their own apart from

those of the corporation. The corporate body is different in that it has

perpetual succession, it never dies and has a common seal by which to

authenticate its acts. The members may change, but the corporate body

does not.

Salomon vs- Salomon & Co. Ltd.1897 AC 22

S incorporated a company and sold his boot business to it for 30,000. His wife, one

daughter and four sons took up one share of 1 each. S took 20,000 shares of 1 each and

10,000 debentures in the company. The debentures gave S a charge over the assets of

the company as the consideration for the transfer of the business. Subsequently when

the company was wound up, its assets were found to be worth 6,000 and its liabilities

amounted to 17,000 of which 10,000 were due to S (secured by debentures) and 7,000due to unsecured creditors. The unsecured claimed that S and the company was one

and the same person, and that the company was a mere agent for S and hence they

should be paid in priority to S.

Held: that as soon as the company was duly incorporated it became, a separate person

in the eyes law, independent from S and was not his agent. Although S was virtually

the holder of the shares in the company yet he was also a creditor secured by its

debentures and was therefore entitled to repayment in priority to the unsecured

creditors.

Types of Corporations

a) Corporation Sole: Is one which consists of one human member at a time,

such a member being the holder of an office which is held in succession

by one person at a time some corporations sole are creature of the common law e.g.

the office of a Bishop. There cannot be more than one Bishop in a Diocese at the

same time. The living official comes and goes out but the offspring of the law

remains forever. Other Corporations Sole are created by the constitution or an Act

of Parliament e.g. the office of the President, office of the Public Trustee.

These corporations are not common in the business world.

b) Corporation Aggregate: Most corporations are corporations aggregate.

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These types of corporations consist of two or more members at the same time.

Example includes public and private companies. These are also statutory

corporations and registered companies under the Co-operative Societies Act.

c) Statutory corporations. has various names.

1. Statutory company or corporation It is a company that comes into existence through anenabling statute hence statutory company.

2. Parastatal Corporation - Intended to meaning that the state is involved in its making i.e.

state.

3. Public Corporation Used to denote that this is an enterprise in which members of public

have an interest hence public corporation.

The Chartered Company/ corporation

This form of a company is a very old type which does not exist today because businessmen prefer

to trade through modern companies e.g. Registered Company and not through this old archaic type.

This Company is a feature of 16th, 17th and 18th Cs it existed during the colonial period. The

English practice was as follows if the people wanted to create such a company.

1. A group of people had to come together and to carry out business.2. To raise capital for intended business.

3. To draw the business objects in detail.4. To petition the crown to grant them a charter or a letter patent that legally will bind them in

the name they have chosen.

5. The crown either granted or rejected the petition for charters. If it granted, then from the

date as indicated in the Charter, the company was deemed to have been formed to engagein business ex.

The British East India Company was incorporated by the grant of a charter granted by Queen

Elizabeth 1 on 31-12-1600A.D. It was made of 127 shareholders and among them they had

contributed 72,000 as Capital and their main object was to engage in business of gold and spices

from the far East or as the Charter indicated, be engaged in spice business with any country the

East of Cape of Good Hope.

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The Queen granted them the Charter to last for 15 years from the time of formation and she

outlawed any other British Company from rivaling the BEI Co. in the designated territory. So the

BEI Co. had exclusive business.

CREATION OF CORPORATIONS

A corporation can be created in the following way

a) Through other Acts of Parliament

Corporations can be created by Acts of Parliament in Kenya. This includes state corporations.

Examples include Kenya Meat Commission, Pyrethrum Board of Kenya, Kenya Airways etc. The

powers of these corporations are defined by the incorporating Act ad they cannot do any activity

which is not expressly or implied authorized by the Act. A statute creating the corporation gives it

a name stipulates its composition, principles its powers and duties.

b) By Registration Under the Companies Act

Registered Companies are created by registration under the Companies Act Cap 486 Laws of

Kenya companies can be public or private.

How to register a company

The three main stages-

-Promotion

-Registration- reservation of name, presentation of documents (all documents), payment of stamp

duty,

-Issue of certificate of incorporation

-If private start business,

-If public issue a prospectus then get certificate of commencement: The process (in brief)

Promotion

The steps involved in the promotion of a company are stated as follows:-

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1. Discovery of idea it involves a preliminary analysis and verification of the

proposed idea to find out whether the business would be profitable or not.

2. Detailed investigation intensive investigation with a view to ascertaining the

soundness of the proposition in terms of probable cost of production, the estimated

selling price of the goods or services proposed to be made available

And amount of profit. Study market demand.

3. Assembling the promoter arranges for the acquisition of necessary men,

materials, machinery, money and managerial ability.

4. Financing of proposition through public financing by issuing a document

known as prospectus

5. Registration or Incorporation the promoters take the following steps for

registration or incorporation of a company

- Name of the company

- Presentation of documents to the registrar of companies, and these are the documents to

present:

- The Memorandum of Association

- Articles of Association

- Statement of companys nominal capital/authorized capital

- Declaration compliance

- A list of directors

When the requisite documents are filed with the Registrar, the Registrar shall satisfy himself that

the statutory requirements regarding registration have been duly complied will he then issue a

certificate of incorporation.

Commencement of business stage

If it is a public company, it has to undergo a further stage, the Capital Subscription stage:

In the capital subscription stage, the company makes necessary arrangements for raising the capital

of the company. After incorporation the affairs of the company are taken over by the directors.

Usually the promoters are the first directors of the company. In order to make necessary

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arrangements for raising the capital of the company a meeting of the board of directors will be

convened to deal with the following business:

1. Appointment of secretary and fixing the terms and conditions of hisappointments

2. Appointment of bankers, brokers, solicitors and auditors

3. Adoption of preliminary contracts entered by the promoters on behalf of the c

company in reincorporation stage.

4. Adoption of underwriting contracts in order to secure minimum subscription

5. Adoption of the draft prospectus or statement in lieu of prospectus

6. Appointment of managing director or manager and other responsible officersof the company

7. Approval of the design of the common seal of the company and authorizing

custody thereof

8. Listing of shares on the stock exchange

Thus a public company can start business only after it obtains a certificate of commencement of

business.

SOME ADVANTAGES / CONSEQUENCES OF INCORPORATION

1. Limited liability

The liability of all the members of a limited company is limited to the amount of their shares

therein. This enables even not too enterprising people to invest part of their money in industrial

ventures carried on by limited companies because they know beforehand that their liability is

limited.

2. Transferability of shares

Shares in a company can be transferred (subject to any restrictions in the Articles of association)from one person to another without the consent of the other members.

3. Separate legal entity

A company as is already illustrated both by the Act and the case law, has separate legal entity from

its members and its existence is not affected by death, insanity or bankruptcy of a member i.e. a

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company has perpetual succession but the members will always come and go but the company will

continue to exist.

4. Control

The control of a company can be secured by the acquisition of the majority of the companysshares hence carry the voting powers.

5. Permanent existence/ perpetual succession

The life of the company is permanent. The company act creates the company and dissolves it. The

death, insolvency or the transfer of shares of members does not affect the existence of the

company. It may be stated that members may come, members may go, but the company goes for

ever.

6. Separation of ownership and management

The shareholders who are the owners of the company cannot participate in the management of the

companys business. They can elect their representatives to the Board of Directors, which

manages the affairs of the company. This has led to the recognition of the fact that ownership and

management of business are specialized functions.

7. Expert management

Since a company carries a business on a large scale and has huge financial resources, it can afford

the services of the experts. This will lead towards professionalism in management which is

necessary for efficient management of any business.

8. Public confidence

The formation and running a company is regulated by the provisions of companies Act and various

acts. Provisions regarding appointment and remuneration of directors, compulsory audit and

publication of accounts, protection of minority shareholders and so have created greater public

confidence in companies.

9. Social advantages

A company is also beneficial from the societys point of view. It mobilizes the scattered savings of

public and invests them in sound industrial and commercial ventures. It provides employment to alarge number of people. Economics of large-scale operation lead to economic use of national

resources and provisions of goods and services to the public at cheaper prices.

Suing or being sued:

The entity is capable of suing or being sued it its own name.

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These advantages apply in respect of a registered co-operative society, with one or two minor

differences.

UNINCORPORATED ASSOCIATIONS

An incorporated association is one which has no Corporate Status i.e. it has no legal personalityand cannot therefore own property or enter into contracts or sue or be sued in its own name. Such

associations include clubs, societies, trade unions, partnerships etc. These associations consist of

groups of individuals is regarded as the joint property is held on behalf of all the members by

trustees. The members are individually responsible for their own torts or the torts authorized by

them. For example in the case ofBrown vs- Lewis, 1896 the committee of a football club

authorized the repair of a football stand for use by the public. The repair was faultily done and a

member of the public was injured. When the stand collapsed, it was held that the committee

authorizing the repair was liable for the injuries sustained by the member of the public

THE LAW OF CONTRACT

Nature of Contract

The law of contract is that branch of the law which determines the circumstances in which

promises made by parties shall be legally binding on them. Its rules define the remedies that are

available in a court of law against a person who fails to perform his contract, and the conditions

under which the remedies are available. It is the most important branch of business law. It is in

particular important to people engaged in trade, commerce and industry as bulk of their business

transactions are based on contracts.

The law relating to contracts is contained in the Law of Contract Act, Cap 23 Laws of Kenya. The

Act deals with the general principles of the law of contract. The Act does not profess to be a

complete and exhaustive code. Some of the contracts not dealt with by the Act are those relating to

partnership, Sale Goods, Negotiable instruments, and Insurance.

The law of contract differs from other branches of law in an important respect. It does not lay

down a number of rights and duties, which the law will enforce. It consists rather of a number of

limiting principles, subject to which the parties may create rights and duties for themselves which

the law will uphold. The parties to a contract, in a sense, make the law for themselves. So long as

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they do not infringe some legal prohibitions they can make what rules they like in respect of the

subject matter of their agreement and the law will give effect to their decisions.

Definition of contract

A contract is an agreement between two or more parties which is intended to create legally binding

obligations. This definition shows that a contract essentially consists of two elements;

a) An agreement: which is a promise made by one party and is accepted by another. A

promise is an assurance that one will or will not do something in the future.

b) Obligation: for an agreement to become a contract, it must give rise to a legal obligation or duty

i.e. a legal tie which imposes upon a party the necessity of doing or abstaining from doing a

definite act(s).

The essence of an agreement is the meeting of the minds of the parties in full and final agreement,there must, in fact be consensus ad idem. Before there can be an agreement between the parties,

there must be consensus ad idem. This means that the parties to the agreement must have agreed

about the subject matter of the agreement in the same sense and at the same time. Unless there is

consensus ad idem, there can be no contract.

Example;

A, who own two houses one in Nairobi and another in Nakuru intends to sell to B the house in

Nakuru. B thinks he is purchasing the house in Nairobi. There is no consensus ad idem andconsequently no contract.

In order to determine whether, in any agreement, there is the existence of consensus ad idem, it is

usual to employ the language of offer and acceptance. For example if A says to B will you

purchase my car for Kshs.100,000/=? And B says, Yes to it, there is consensus ad idem and an

agreement comes into existence.

An agreement which gives rise to a social obligation is not a contract because it does not give rise

to contractual obligations and hence is not enforceable in a court of law.

For example:

a) Domestic arrangements: engagements of purely domestic nature are often not intended to be

binding in law but are intended to rely on bonds of mutual trust and affection.

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Case: Balfour vs- Balfour (1919) 2 KB 571 in which a husband who was a civil servant in Sri

Lanka went to England with his wife. When his leave was nearing its end and he hat to return to

home, he promised his wife who, on the doctors advice had to remain in England, a household

allowance of 30 pounds a month till she joined him. Later the parties separated and the wife sued

for the allowance. Held: domestic agreements such as this one was outside the realm of contract

altogether.

b) A Gentlemans promise in which A promises to lend his bicycle to B on a weekend but

subsequently refuses to do so. B cannot enforce this before a court of law.

c) Social invitation: in which C invites friend D to a party at his house and when D arrives he finds

C is not at home.

The word binding is used in the definition of a contract for there are some contracts which are

valid (e.g. social agreements) but are not enforceable.

Example of a Binding Obligation: A agrees to sell his car to B for Kshs.100,000/= This agreement

gives rise to an obligation on the part of A to deliver the car to B and on the part of B to pay

Kshs.1`00,000/= to A. This agreement is a contract.

An agreement therefore may be a social agreement or a legal agreement. However a social

agreement does not give rise to contractual obligations and is not enforceable in a court of law. It

is only those agreements which are enforceable in a court of law which are contracts.

Note: A contract = Agreement + Enforceability at law. Thus all contracts are agreements but allagreements are not necessarily contracts.

ESSENTIALS OF VALID CONTRACT

1. Agreement: There must be an agreement between two or more parties. One party

making the offer i.e. proposal and the other accepting it. Note that nobody can

agree with himself, though he may resolve to do an act hence essence of at least two

parties. When an offer and acceptance correspond in every respect, there is an agreement

between the parties.

2. Intention to create legal relationships: when two parties enter into an agreement, their

intention must be to create legal relationship between them. If there is no such intention on

the part of the parties, there is no contract between them. Intention to create legal

relationship therefore means that the parties must intend that if one of them fails to fulfill a

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promise undertaken by the agreement, he shall be answerable for that failure in law. Social

agreement does not contemplate legal relationship.

3. Lawful consideration: For an agreement to be enforceable by law, it must be

supported by consideration i.e. an advantage or benefit moving from one party to another

or something in return or something of value received or promised, such as money, to

convince a person to make a deal. The agreement is enforceable only when both parties

give something and get something in return a promise to do something getting nothing in

return, is usually not enforceable by law.

4. Capacity of the Parties (competency): Both parties entering into the contract must have the

contractual capacity to do so; the law must recognize them as possessing characteristics

that qualify them as competent parties. Every person is competent to contract if he is of the

age of majority and sound mind.

5. Free and genuine consent: There must be a free and genuine consent of the parties to the

agreement. Consent is said to be free when they are of the same mind, when they agree

about the subject matter of the contract in the same sense and at the same time. There is

absence of free consent if the agreement is induced by coercion, undue influence, fraud,

mistake or duress.

6. Lawful Object: The Object of the agreement must be lawful i.e. the object must not be

illegal, immoral or opposed to public policy. If an agreement suffers from any legal flow,

it would not be enforceable by law.

7. Agreement should not be declared void: the agreement should not have been

expressly declared void by any law in force in Kenya.

8. Certainty and possibility of performance: The agreement must be certain and not

vague or indefinite. If it is vague and it is not possible to ascertain its meaning it

cannot be enforced. For example A agrees to sell to B a hundred tons of oil. There is

nothing whatsoever to show what kind of oil is intended. The agreement is void for

uncertainty.

9. Legal formalities: A contract may be made by words spoken or written. As

regards legal effects, there is no difference between a contract in writing, and one made

by word of mouth. However, for the interest of parties it is important that the contract be in

writing, signed, stamped and registered so as to comply with statutory requirements. For

example a contract for sale and purchase of land must

be evidenced in writing.

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CLASSIFICATIO N OF CONTRACTS

Contract may be classified according to their:

1. Enforceability

a) Validity: A contract becomes valid when all the essential elements are available. if one or

more elements is/are missing the contract is said to be void, voidable, illegal or

unenforceable.

b) Void contract: is not a contract at all. It produces no legal obligations on the part

of any of the parties for example; a contract can be void because the purpose of the

contract is illegal. It is void ab initio i.e. from the very beginning. It is a nullity.

c) Voidable contract: This is an agreement which is enforceable by law at the option of one

or more of the parties thereto but not at the option of the other(s). The contract is valid but

can be avoidable at the option of one or both of the parties. The party having the option

can elect either to avoid any duty to perform or to ratify (make valid) the contract.

If the contract is avoided, both parties are released from it. If it is ratified, both parties must full

perform their respective legal obligation.

The contract may be avoided when an essential element of free consent in a contract is missing, the

contact is avoidable at the option of a party who did not genuinely consent, he may rescind thecontract or elect to be bound by it.

For example, A promises to sell his car to B for Kshs.200,000/=. His consent is obtained by force.

The contract is void able at the option of A. He may avoid the contract or elect to be bound by it.

d) Illegal Agreement: is one which goes contrary to some rule of basic public policy,

Immoral or criminal in nature.

Example: B borrows Kshs.10,000/= from A and enters into a contract with an alien to import

prohibited goods. A knows of the purpose of the loan. The transaction between A and B is

collateral to the main agreement. It is illegal since the main agreement is illegal.

d) Unenforceable contract: is one which cannot be enforced in a court of law because

of some technical defect such as absence of writing or where the remedy has been

barr

Documents

Business Law 1 Aba 106