Botswana College of Distance & Open Learning

Diploma in Business Management

Business Law

Assignment: 2

Mmoniemang Motsele

Student No: 201006379

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Question 1

a) Distinguish between a contract of agency and a contract of employment

A contract of agency is a contractual agreement which exist between the two legal
persons, the principal and the agent, in which the function of the agent is to form
a contract between his principal and a third party.

A contract of employment is governed by the employment Act in which the

statute is concerned with the fact that there may be inherent inequalities of
bargaining power in favour of the employer. The employment Act acts as a check
on the inequality by requiring that certain provisions be included in the contract,
by providing minimum rights such as maternity leave.

A contract of agency is not governed by any statute but depends on various ways
by which agency relationship can arise such as agency by estoppels (Prevented
from).

In the contract of employment, there is a way of determining the agent

relationship between the employer and the employee. Persons working under a
contract of service are employers and those working under a contract from
services are independent contractors.

b) Define the term Mandate

Mandate: a mandate is a duty to perform a particular task. There can be an

agreement to perform which is contractually binding at law. Failure to perform the
mandate may result in the other party suing for breach of a contract.

If the mandate is warranty such as in Bettin v Gye (1876) a singer agreed to attend for
rehearsals 6 days before the first performance, this was held only to be a breach of a
warranty, which entitled management to nearer damages but not be terminate the
contract.

But if the mandate is a condition a such as in Poussard V Spiers Pond (1876) where
the singer failed to turn up for the first few performances, this was held to be a
breach of a condition , which entitled management to end the contract.

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c) Giving examples, differentiate a special power of attorney and general power of
attorney
Special Power of attorney: is an important legal document that allows or authorizes an
Agent, to perform a particular transaction. Special Power of Attorney would restrict the
authority of the Agent to a specific situation, limited time period or type of legal action.

Generally a Special Power of Attorney is used for the sale of real or personal property,
but it can cover any specific situation or need that may exist. If someone has moved
out of state and wants to sell their house without returning to the state they left just
to sign the real estate documents to close a transaction, they may grant a Special
Power of Attorney only for that purpose.

The following are just a few examples of powers you can grant to your agent:

 to borrow money at an agreeable interest rate, to add and remove from a bank
vault or a deposit box
 to put and move the money from/to your accounts and to make other bank
transactions on your behalf
 to buy, sell, enlarge, reduce, and terminate a business interest
 to buy or sell real estate
 to make transactions with your tangible property, like household items, boats or
cars
 to sign your paychecks
 to make any legal claims
 to perform custodial duties for your children, including housing and schooling
decisions
 to make decisions regarding children’s emergency care

General Power of Attorney

A general power of attorney is one that permits the agent to conduct practically every
kind of business or financial transaction with the principal's assets without any restraints.
Because of the great harm to the principal's financial well-being that an incompetent or
untrustworthy agent can cause with a general power of attorney, the principal should be
extremely careful in choosing an agent. Additionally, the principal should maintain
vigilance over the agent's transactions in the principal's behalf.

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d) Justify the fairness of the doctrine of estoppel (ostensible authority) in the law of
agency
An agency relationship may be formed when the principal holds out to third parties that
a person is his agent, even if the principal and the agent do not agree to form such a
relationship. In such a case, the principal is stopped from denying the agent’s
apparent/ostensible authority.

The fairness is that there must have been a representation by words of conduct by the
principal, which then mislead the third party. The doctrine may not be fair because the
third party may not have acted had he/she known correct facts on the representation. Its
problem is that it misleads the third party into entering contracts they would not have
entered had they know all the facts correctly

Ostensible authority usually arise either

a) where the principal has represented the agent as having authority even though he
has not actually been appointed
b) where the principal revoked the agent’s authority but he third party has not had
notice of this: (Willis Faber & Co v Joyce) and (Monzali v Smith)

e) Negotiorum gestio. Negotiorum gestio is a doctrine whereby one person (the gestor
or manager) may manage the affairs of another who is absent or incapacitated, without
there being any official appointment or contract of mandate. It is based on a sort of
legally presumed mandate. Negotiorum gestio does not arise from a contract. The
person for whom the gestor is acting is also called the principal. The principal must be
absent. The gestio is not entitled to any profit whatsoever for the work performed.

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Question 2
i) The liability of the surety: the consequences of a contract of surety is that, the surety is
liable to the creditor for payment of his/ her debt by the principal debtor, or for a lessor
amount if the surety has only bound himself in respect of the lessor amount.

Because the surety’s obligation is accessory to the principal debt, it becomes enforceable
only if the principal defaults in the performance of the principal obligation. If the
principal debtor is granted an extension of time, the surety may not be held liable in the
meantime. If the debt is for an unliquidated or uncertain amount, the surety is not liable
until amount of the debt has been established by judgment.

ii) Liens: A liens is a right to retain the possession of property (a right of retention). The
possessor of someone else’s property, who has expended money or labours on that
property, acquires the right to retain it in his/her possession until he/she has been
compensated according to agreement. All liens arise by operation of law and not as a
consequence of agreement between the parties. The person claiming the lien must be in
possession of the property which is the object of lien.
There are three types of lien
a. Liens storage or salvage of property (salvage liens)
b. Liens for improvement of property (improvement liens)
c. Liens for contractual debt(debt and creditor liens)

iii) Marking on a cheque: If the payee or bearer, to whom the cheque has been issued,
can transfer the cheque to someone else, to pay a debt. The payee may not do so if
words have been or indicate an intention that it should not be transferable. If a cheque is
marked “not transferable”, then it may not be transferred. A cheque marked “not
negotiable” may still be transferred from one person to another. The only effect of the
marking is that no one can become a holder is due course of it.

iv) Endorsement: An endorsement is an official authority which endorses the cheque. An

endorsement must meet the following conditions for it to be valid for the purposes of
transfer of the cheque.

- The endorsement must be written on a cheque itself, it must be signed by the

endorser and must be of the entire cheque.

- The mere signature of the endorser on the cheque, without additional words, is
sufficient to constitute an endorsement

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 The type of endorsement are; special endorsement, an endorsement in blank and a
restrictive endorsement

v) Sleeping partner: Is a partner who is not engaged in the running of the partnership
business. The partner may contribute money, capital, and assets to the partnership
business but may not be active in running the partnership business. Other partners may
be actively involved in the partnership through management of the partnership business
such partners are called active partners.

vi) Uberrimae fidei: Latin for, utmost good faith. Class of agreements (such as insurance
contracts) in which one party (the promisee, such as an applicant) is under a
fundamental duty to disclose all material facts and surrounding circumstances that could
influence the decision of the other party (the promisor, such as an insurance company)
to enter the agreement. Non-disclosure or a partial-disclosure makes such agreements
voidable.

vii) Bearer document: Is a document such on a cheque which may indicate the payee simply
as “bearer” “cash or bearer” cash order as a specified person or bearer. Bearer means
that payment must be made to the bearer of the cheque (simply any person in possession
of the cheque).

viii) Non- essential elements of a cheque:-

Date: where a cheque or an endorsement on a cheque dated, the stated date will unless
the contrary is proved be deemed to be the true date of such drawing or endorsement. If
the cheque does not state the date on which it was drawn, and the date is necessary to
calculate interest, then the date of issue of cheque is regarded as the date of the cheque.

Place of payment:- A cheque is not valid because the place of payment is not specified.
The printed cheque form will state the branch of the drawer bank on which the cheque is
drawn.

Stamps: Stamping is no longer required for the validity of the cheque

ix) Law Society of Botswana: It aims to regulate the behavior and uphold the standards of legal
practices in Botswana. It is the guardian of the status and dignity of the legal profession and the
public interests in so far as they regulate and participate in the education, admission, monitoring of
conduct and practice of its members. The legal practitioner owes a duty to the public, the court and
to the Law Society.

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x) Partnership: - Is a legal agreement between two to twenty persons for the formation of a
binding agreement. Partnership is run under a partnership deed where partners state
their contributions such as management of the partnership, provision of capital and other
assets to the partnership. The business must be carried out of the joint benefit of all the
parties. The object of the partnership should be to make profit and the contract between
the partners should be a legitimate contract.

b) Compare and contrast a bill of exchange to a cheque.

A bill of exchange is an unconditional order in writing, addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed to
pay on demand.

Whereas the drawer in terms of a cheque must always be a bank, the drawer in terms of a
bill may be any natural or juristic person.

A cheque is always payable on demand, the bill may be payable either on demand or at a
fixed or determinable future time. The due date or time of payment of a bill may be either
on demand or at a fixed future time, or at a determinable future time.

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Question 3

a) It is a known that a contract of agency may arise where the principal gives the agent
express authority to act on his behalf. The principal may give the agent an express
mandate, either by word of mouth or it can be done in writing to act on his behalf.

b) Under normal circumstances, it is by implication that the guardian has to act on

behalf of the minor. The guardian has full authority that is he or she is enabled to do
so by law. Clearly in case where a contract of agency is implied by law, the agency will
only be implied for certain purposes. Thus a guardian can only act as an agent in
transactions that are of advantages to the minor or his estate.

c) If Mr. Chamboko concludes a contract with a third party on behalf of Mr. Zero-zero,
without Mr. Zero-zero’s consent, that contract may only become valid if Mr. Zero-
zero later ratifies it. The effect of such ratification is the same as initial consent. It
should be genuinely understood that the person contracting with the third party
must profess to be acting on behalf of the principal. The professed principal must be
named or ascertainable and the contract must have been concluded in the principal’s
name.

d) Every time a new person joins an existing partnership, the original partnership
dissolves and business start again. The death of a partner does not necessarily
impact on the operation of the partnership.

e) A special endorsement specifies the person to whom or to whose, the cheque should
be paid.

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Question 4(a)
Requirements of the law of agency
A legal entity like a company or close corporation cannot itself conclude a contract. The
enterprise must be represented by a natural person or persons. The interests of those
who have no capacity to act can be protected.

Agency makes it possible for juristic acts to be performed on behalf of persons who are
absent:

- Someone should perform an act of representation

- The principal must exist. Anyone with the capacity to perform juristic acts can
appoint an agent to act on his/her behalf.
- The agent must have authority to perform the act.
- The agent must make it clear to third party that he/she is an agent and is acting
for someone else and not in a personal capacity.

The agent needs to identify the principal. The same person can act as a principal and
agent simultaneously. For example if Mr. K and Mr. M wish to buy something jointly,
Mr. K may act in his personal capacity and as Mr. M’s agent in concluding the contract
of sale.

Question 4 (b)

The law of partnership

A partnership is a legal relationship which arises contractually between two or persons
but not more than 20 persons. Parties agree to contribute to a common business with
the object of making a profit for division between each other.
- A partnership is not a separate legal entity with separate legal
personality(Solomon v Solomon)
- A partnership may sue and be sued in its business name
- Litigation need therefore not be in names of all individual partners
- For purposes of sequestration a partnership is treated as an estate which is
separate from those of its members.
- Creation of the partnership must in principle claim against the partnership estate
and private creditors have a claim against the individual estate of the particular
partner.
- A valid partnership may be concluded orally, in writing or tacitly, that is through
conduct
- It is customary that the partnership contract be reduced to writing
- There are three key elements of a partnership agreement
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  Each partner must contribute towards the partnership
 The partnership must have the making of profits to be divided
among the partners as its object
 The partnership business must be carried on of joint benefit of all
the partners

A partnership agreement like any other agreement should not conflict with legislation,
public policy or good morals. A partnership agreement which attempts to create a
partnership between more than twenty partners is therefore invalid

c) Legal tender: Represents bank notes and corns in circulation. Cheques and anything
which is acceptable as a form of payment is legal tender e.g. notes and corns.

d) Personal Security and Real Security

A creditor may also secure performance of a debtor’s obligations by means of real
security. Real security is obtained by a creditor by operation law, the creditor acquires
the right to be reimbursed from the proceeds of (movable or immovable) property
belonging to the debtor in the … of his/ her default. Real security affords a creditor a
limited real right to the thing which forms the subject matter of the security.

Personal security … a creditor a more personal right against the surety.

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References

Business Law, 5th ed., D Kelly A Holmes & R Hayward, Routledge Cavendish, 2005

Smith and Keenan’s Law for Business, Denis Keenan, 13th ed., Pearson Education, 2006

BPP ACCA F4 Study text 4th Ed. June 2009

www.opentuion.com: Introduction to Business Law

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