Business Law

Business Law — 2023

KNEC Diploma in Supply Chain Management, Module I. Original examination questions with explained model answers for revision.

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March/April 2023

Paper codes: 2903/106 (shared paper)
Time: 3 hours
Instructions: Answer any FIVE questions. All questions carry equal marks. Answer the questions in English.

Question 1(a) — 10 marks

Explain five shortcomings of application of judicial precedents in court cases.

Model answer

1. Rigidity: binding earlier decisions may have to be followed even when a different solution appears better.
2. Complexity: identifying the binding ratio and distinguishing it from other comments can be difficult.
3. Volume: many reports and potentially conflicting authorities increase research time and cost.
4. Dependence on litigation: an unsuitable rule may remain until an appropriate case reaches a court able to change it.
5. Artificial distinctions: courts may draw narrow factual distinctions to avoid an inconvenient precedent, reducing clarity.

Question 1(b) — 10 marks

Subsequent impossibility of performance does not discharge a contract. Explain five exceptions to this rule.

Model answer

These are applications of frustration. A self-induced event, an allocated contractual risk or mere inconvenience/greater expense generally does not qualify.

1. Destruction of essential subject matter without either party’s fault can frustrate the contract, such as destruction of a specifically hired venue.
2. Death or incapacity of a person whose personal performance is essential can discharge the unperformed personal obligation.
3. A subsequent change in law can make the promised performance unlawful.
4. Failure of an event forming the common foundation of the agreement can frustrate its purpose, where the event’s occurrence was fundamental.
5. An unforeseen government intervention, war or comparable event may make performance radically different from what was agreed, beyond ordinary delay or increased expense.

Question 2(a) — 10 marks

Outline five differences between law and morality.

Model answer

Question 2(b) — 10 marks

Explain five reasons why the high court in exercise of its supervisory jurisdiction, makes an order of certiorari.

Model answer

Certiorari quashes an unlawful decision. Judicial review is not simply a rehearing of whether the reviewing court prefers a different factual outcome.

1. Lack of jurisdiction: the decision-maker had no legal power to decide the matter.
2. Excess of jurisdiction: the decision-maker went beyond the limits of its lawful power.
3. Breach of natural justice: a person was denied a fair hearing or the decision was affected by bias.
4. Illegality/error of law: the decision applied an unlawful legal test or misunderstood the governing power.
5. Procedural impropriety or irrational exercise of power: a mandatory procedure was ignored or the decision was so unreasonable that it could not lawfully be sustained.

Question 3(a) — 10 marks

Outline five functions of the legislative arm of Government in Kenya.

Model answer

1. Make, amend and repeal legislation within the constitutional division of functions.
2. Represent the people and, through the Senate, the counties and their interests.
3. Scrutinise executive action and hold the relevant public institutions accountable.
4. Approve taxation, public spending and the national budget through the prescribed processes.
5. Consider and approve appointments or other matters that the Constitution assigns to the relevant House.

Question 3(b) — 10 marks

Explain five defences that can be pleaded by a person accused of trespass to a person.

Model answer

1. Valid consent to the contact or restraint within its agreed scope.
2. Reasonable and proportionate self-defence against an unlawful attack.
3. Reasonable and proportionate defence of another person.
4. Lawful arrest or detention carried out by a person with the necessary legal authority and within its limits.
5. Necessity, such as proportionate emergency action to prevent imminent serious injury when consent cannot practicably be obtained.

Question 4(a) — 10 marks

Highlight six grounds of termination of employment that are considered unfair.

Model answer

1. Pregnancy or a reason connected with pregnancy is not a fair reason for termination.
2. Taking or proposing to take leave to which the employee is legally entitled is protected.
3. Membership or proposed membership of a lawful trade union is protected.
4. Participation in lawful trade-union activities at the permitted time is protected.
5. Initiating or proposing a complaint/legal proceedings against the employer is protected, except where the complaint is shown to be irresponsible and without foundation.
6. Discriminatory grounds such as sex, race, religion, disability or HIV status are not fair grounds for dismissal.

Question 4(b) — 10 marks

Juma made a will in which he bequeathed all his property to his mother and sister. He subsequently married Miriam. Two years later, Juma died in a road accident. At the time of his death, he had not changed his will to include Miriam. Juma’s mother and sister have refused to share Juma’s property with Miriam. Miriam is aggrieved and intends to contest the will in a court of law. Explain the legal principles applicable in this case.

Model answer

1. Under the ordinary statutory succession rules, a will is generally revoked by the testator’s subsequent marriage unless it was made in contemplation of marriage to the specified person.
2. The stated will preceded the marriage to Miriam. There is no stated contemplation-of-marriage clause, so the starting conclusion is that the later marriage revoked it.
3. If it was revoked and there is no later valid will, the estate is administered under intestacy rules. Miriam’s statutory entitlement as surviving spouse cannot be defeated merely by the mother and sister relying on the revoked document.
4. If evidence establishes that the will survived the marriage, Miriam may seek reasonable provision as a dependant where the will did not make adequate provision for her. The court considers the estate and the dependants’ needs and circumstances.
5. The exact distribution requires facts not supplied, including whether Juma left children and whether others qualify as dependants. The mother and sister cannot conclusively determine those entitlements themselves.

Question 5(a) — 10 marks

In relation to the law of property, outline five rights of a mortgagor.

Model answer

1. Redeem the security by paying the secured debt and lawful charges in accordance with the law.
2. Obtain discharge/release of the charge and return of relevant documents after the secured obligation is satisfied.
3. Retain possession and enjoyment of the property until a lawful right to possession/enforcement is exercised, where the security arrangement leaves possession with the mortgagor.
4. Transfer or otherwise deal with the remaining interest, subject to the charge, lawful consent requirements and the security terms.
5. Receive any surplus sale proceeds after lawful enforcement costs and secured claims have been paid.

Question 5(b) — 10 marks

Aston was appointed as an agent of Pismark supermarket to manage the affairs of the supermarket. He was specifically instructed by the proprietors of the supermarket not to order goods beyond Ksh.700,000, from Dasny manufacturers without the consent of the proprietors. Dasny manufacturers subsequently supplied the goods but the proprietors of Pismark supermarket have refused to pay for the goods. Dasny manufacturers are aggrieved and intend to take legal action against the supermarket. Explain the legal principles applicable in this circumstance.

Model answer

1. Aston has express actual authority subject to the Ksh 700,000 restriction. An order within that authority binds Pismark; an excess order needs consent or another basis of authority.
2. A manager may have apparent authority to order goods of the kind normally required by the supermarket where the proprietors have represented that authority to suppliers. An undisclosed internal restriction does not automatically defeat an innocent supplier’s reliance on that appearance.
3. If Dasny knew of the limit and supplied beyond it without consent, reliance on apparent authority is much weaker; the excess transaction would not normally bind Pismark unless ratified.
4. Pismark may ratify an initially unauthorised order by informed approval or conduct adopting the transaction, such as knowingly accepting its benefits. Aston may remain accountable internally for breach of instructions.
5. The question does not state the order’s amount or whether Dasny knew the restriction. Dasny’s success therefore depends on proving actual/apparent authority or ratification; an excess order cannot simply be assumed.

Question 6(a) — 12 marks

In relation to the law of agency, outline six conditions necessary for ratification of a contract.

Model answer

1. The agent must have purported to act for an identifiable principal, rather than solely on the agent’s own behalf.
2. The principal must have existed when the act was done and have the necessary legal capacity at the relevant times.
3. The principal must ratify with knowledge of the material facts, or knowingly accept the risk of incomplete knowledge.
4. The principal must adopt the whole transaction rather than only its beneficial parts.
5. Ratification must occur within a reasonable time and before intervening rights make retrospective adoption unjust.
6. The transaction must be lawful and one the principal could lawfully have authorised.

Question 6(b) — 8 marks

In relation to the law of succession, highlight four formalities of making a will.

Model answer

This answer addresses a written will; a valid oral will has different statutory requirements.

1. For an ordinary written will, the testator must sign or affix a mark, or another person must sign in the testator’s presence and by the testator’s direction.
2. The signature/mark must be placed so as to show that it was intended to give effect to the document as a will.
3. At least two competent witnesses must each see the testator sign/mark, see the authorised person sign, or receive the testator’s personal acknowledgment of the signature/mark.
4. Each witness must sign in the testator’s presence. The witnesses need not both be present at the same time.

Question 7(a) — 10 marks

In relation to the law of property, explain five types of tenancies.

Model answer

1. Fixed-term tenancy runs for a specified period, subject to its terms and applicable statutory protection.
2. Periodic tenancy renews for successive periods, such as month to month, until validly terminated.
3. Tenancy at will continues by the parties’ consent without a fixed term and may be ended according to the applicable rules.
4. Tenancy at sufferance describes a tenant who entered lawfully but remains after the right to occupy has expired without the landlord’s consent.
5. Tenancy by estoppel arises between parties whose grant/acceptance prevents them from denying the tenancy as against each other, even though the grantor’s title is defective.

Question 7(b) — 10 marks

Some mistakes are operative because they affect the validity of a contract. Explain five such mistakes.

Model answer

A mere mistake about value or a non-fundamental quality normally does not invalidate a contract.

1. Common mistake about existence: both parties contract for specific subject matter that has already ceased to exist, and the risk was not allocated by the agreement.
2. Common mistake about title: parties mistakenly contract to transfer property the buyer already owns, potentially making the assumed transaction fundamentally impossible.
3. Mutual mistake about subject matter: each party reasonably means a different thing and no objective agreement can be identified.
4. Fundamental mistake about identity: one party’s identity is essential and the applicable rules treat the mistaken identity as preventing agreement; face-to-face and written dealings may differ.
5. Mistake about the nature of a signed document: the narrow non est factum defence may apply where, without relevant carelessness, a person signs a document fundamentally different in character from what was believed.