bbggusiness law note four part II 2.pptx

dfdfdf

1. law of agency 12/21/2023 business law 1 General concept of Agency Agency as the r/ship between two persons, where one (the agent) may act on behalf of the other (principal) and bind the principal by words and actions. Agency deals with cases whereby persons act on the behalf of others legally binding acts. Persons involved in agency: Principal - The person who has been represented by others through an agent is called principal. Agent - An agent is a person employed to do any for another or to represent another in dealings with third person. Third parties

2. Is Agency always possible? 12/21/2023 business law 2 NB. We can’t do everything via agency. Some activities are strictly personal in the sense that they cannot be performed by an agent. These activities include : exercising voting right, giving a testimony before a court of law, making a will and concluding marriage. Furthermore, activities which require specific performance and the personal qualifications of the principal cannot be performed by an agent

3. Why agency 12/21/2023 business law 3 The main function of the agent is to bring his principal into contractual relations with third persons. He is merely a connecting link between the principal and third parties. The following are the importance of agency; In order to reduce the cost and time for transactions . Creation of division of labour and thus, job opportunity to the agents In order to overcome incapacity problems To represent artificial persons Knowledge/skill/experience issue To be represented by attorney

4. Sources of agency 12/21/2023 4 The authority to act on behalf of another may derive from law, contract or court. Authority derived from a contract – I t is the most usual kind of agency. There are two independent contracts. These are; Internal contract [ subordinate contract ] This contract exists between the principal and an agent . The principal concludes a contract with an agent believing that the agent could enable the principal to transact with a third party on his behalf. This contract is essentially concerned with the rights and duties of such parties. business law

5. Cont.… 12/21/2023 5 External contract [ main contract ] It is a contract that exists between the principal and a third party. This relationship is the most crucial aspect as far as the law of agency is concerned. It is concerned with the rights, duties and liabilities that could be created between a principal and a third party through the intermediary of an agent. In this regard, for a direct relationship to be created between the principal and the third party, in principle, the agent must have acted in the name and on behalf of the principal within the scope of his power. business law

6. Cont.… 12/21/2023 Authority Derived from the Law It is agency that emanates from the operation of the law. i.e., agency authority is derived from the law itself. The consent of the principal has no role in creating the agency relationship and it is beyond the principal’s consent that agent – principal relationship comes into existence. It is where a person to be represented is not in a poison to appoint his agent for one thing or another. E.g. The law authorizes parents to represent their minor child who is below the age of eighteen as a (tutor or guardians). business law 6

7. Authority by Judicial Act It is not an agency either by a prior agreement of the parties or by the lawmaker. It is authority granted by the court. The parties involved are the person represented and the curator. This appointment of curator is usually necessitated when the person whose interest(s) are (is) to be represented is not in a position to appoint an agent by reason of being away, ill or any similar causes. In these cases only limited persons (relatives, spouse and nobody) shall apply to a court with jurisdiction for the appointment of an agent to protect the interest of the person to whose benefit a curator is required. 12/21/2023 business law 7

8. Scope of authority 12/21/2023 business law 8 Based on scope of authority, the agency r/ship b/n principal and agency can be classified in to two: General agency - Doesn’t require special authorization undertakes acts of management that are administrative acts not acts of disposition of the thing Acts of management as comprising the collection of debts, the discharge of debts, investment of income, leases for terms not exceeding three years, and any other acts done for the preservation or maintenance of property Functions exercised by the agent regarded by the law to fall in acts of management. These are the sale of crops , the sale of goods intended to be sold, and the sale of perishable commodities

9. 12/21/2023 business law 9 B. Special agency : Special agency is an agency that empowers the agent to dispose the rights of the person represented. Sometimes named as act of disposition . A special agent is a person who is given power by the principal to act in a particular transaction . These include alienation or mortgage of real estate , investment of capital , signing of bills of exchange , effecting settlement and consenting to arbitration, making donations , and bringing or defending lawsuits.

10. Effects of agency 12/21/2023 business law 10 When agency emanates from a contract, the contract may fix the scope of the power of the agent. When an agent acts within the scope of his/her power and in the name of the principal, his/her act is considered as the act of the principal. The principal will be bound by all acts of the agent. When an agent acts beyond his/her power of attorney, the principal have two options: 1. To ratify or approve the act 2. Repudiate the act done beyond power. If not ratified immediately, it will be considered as if repudiated and will have an effect of invalidation i.e. restitution .

11. Ratification 12/21/2023 business law 11 The principal should ratify the acts of the agent : When it is reasonable to admit that, in the circumstances, the principal would have extended the scope of the agent's authority, had he been aware of the situation. When the agent shows that he did not have the time to secure authorization from the principal. When the agent fails to inform the principal forthwith the acts he has done for the principal in a good faith An agent who acted on his/her own name in dealing with third parties will personally enjoy the rights or incur the liabilities.

12. Duties of the parties in agency Duties of the agent Duty of Loyalty- utmost good faith Good faith is acting towards the best interest of the principal. It is a requirement attached to the fiduciary nature of agency relationship. The agent shall make a full disclosure of all material circumstances affecting performance of his duties to the principal. This includes where the agent is in a position in which his own interest may affect the principal. Thus , the principal with such full knowledge can choose whether to consent to the agents acting. 12/21/2023 business law 12

13. 12/21/2023 business law 13 Duty of obedience –as per instruction and Diligence- carefully- care and skill All agents must perform his duty with due care and skill to their principals, whether it is for consideration or gratuitous. A distinction is made however between the standard of care to be observed by a gratuitous agent and that to be observed by one who acts under contract for reward. In the case of agency with consideration (reward) the standard of diligence/care to be observed by the agent is “a bonus pater familias ”. objective standard A gratuitous agent is expected to exercise the standard of care that he would exercise in respect of his own affairs.

14. 12/21/2023 business law 14 Duty of Accounting - The agent is bound to account for money and management of the affairs to the principal interest. The agent is obliged to keep the principal’s property and money separate from his own and from other people’s property and money . He shall keep proper accounts, and be ready to produce them on demand to the principal or a person appointed. The agent is obliged to report to the principal the accomplishments of the affairs. The principal is presumed to praise the acts of the agent unless the agent does not act within the scope and in the name of the principal.

15. 12/21/2023 business law 15 Duty of Non-delegation The general rule is that the agent must perform his undertaking personally. The relationship of the principal and agent is a confidential: the principal imposes trust in the agent of his choice. Hence, the agent should act personally. i.e., the maxim “ delegatus non potest delegare ,” meaning the delegate (agent) cannot appoint a delegate (agent). However, delegation is possible in either of the following cases: Contract, Necessity, Obligations of result

16. 12/21/2023 business law 16 In addition to contractual duties, the principal has the following obligations: Remuneration Representation may be made upon consideration or gratuitous basis. Whether a representation is gratuitous or for consideration may be expressly provided at the formation of the contract or it may be implied at the time of the performance of the contract. Duty to Advance Money The agent may need money to run the representation of the principal. “The principal shall advance to the agent the sums necessary for carrying out the agency .”

17. 12/21/2023 business law 17 Duty to reimburse outlays and Experts The agent may employ his own money or money from other persons for the business of the principal. These outlays/expenses incurred by the agent need to be reimbursed. The principal needs to reimburse the expenses the agent has incurred with the interests it bears calculated from the day where the agent has used the money. Duty to release the Agent from Liabilities and Damages The principal’s duty to indemnify his agent’s losses, liabilities and expenses incurred in the performance of the undertaking may be expressly stated in the contract of agency. But it is more usually implied.

18. 12/21/2023 business law 18 Agent’s Lien Right Failure of principal to discharge his duties gives Agent’s a Lien right The agent is entitled to exercise a lien on goods under his possession where the principal fails to discharged his obligation of paying remuneration, expense, damage or liability payments etc , until the principal has satisfied the due claims of the agent. However, the agent cannot exercise a lien right over the document evidencing agency between the agent and principal.

19. Termination of agency 12/21/2023 business law 19 By law - When the agent or the principal dies , declared absent , becomes incapable or adjudged bankrupt By parties = Termination by agreement- When the agreed time under the contract of agency lapses and when by their mutual agreement the agent and principal terminated the agency. Revocation:- It is termination of agency by the unilateral act of the principal. The principal may at any time restrict or revoke the authority he/she gave to the agent. Renunciation:- it is the unilateral act of the Agent . The agent may renounce the agency by giving notice to the principal of his renunciation.

20. law of sales 12/21/2023 business law 20 Law of sales Regulates the over all relation ship b/n buyer and seller Ethiopian Civil Code (Art 2266) defines a contract of sale as a contract whereby one of the parties, the seller, undertakes to deliver a thing and transfer its ownership to another party, the buyer, in consideration of a price expressed in money which the buyer undertakes to pay him . Different from bartering For valid contract of sales requirements of general contract has to be fulfilled

21. Elements in the definition 12/21/2023 business law 21 It is a contract B/n seller and buyer To deliver and transfer ownership In consideration of a Price to be expressed in terms of money It is a principal contract …does not require another prior contract It is bilatera l…no unilateral sale It is different from an agreement to sale, which only a mere promise to sale- an agreement where transfer of right of property is effected at a future time or after the fulfillment of certain conditions. It involves transfer of ownership It involves money as a must…Vs Barter

22. Categories of contract of sales 12/21/2023 business law 22 Sale by sample - refers to the situation where a particular thing is agreed upon to be sold so that it will also be used to conclude a sale contract in respect of the other category it represents. The sample or pattern represents the sale of others. Thus, sale is concluded in respect of the whole thing when the sample conforms to the description in the contract. Sale on trial – it is a conditional sale which is completes only after the thing is taken by the prospective buyer and tried to be suitable. If it is suitable the sale contract becomes intact. Until the trial is made, ownership resides in the prospective seller and so risk remains with him. sale with right of redemption- Right of redemption refers to the right the seller exercises to buy the thing back

23. Obligation of the parties 12/21/2023 business law 23 1. Obligations of the seller Obligation to Deliver the Thing - actual delivery or constructive delivery- handing over of the documents representing the thing Agreed time or delivery of the thing is legally made in simultaneity with payment of the price Agreed place/ delivery is to be made at the place where the seller had his place of business at the time of the contract or, in the absence of such, his normal residence. Obligation to Transfer Ownership- warranty for dispossession Warranty Against Defects and Non-conformity Defects could be of two types: patent and latent . Patent defects are obvious defects that can be noticed too easily.

24. Cont.…. 12/21/2023 business law 24 Latent defects are those that are hidden so that they are discovered through later examination by way of customary usage or expert inspection. The rule of warranty is that for patent defects let the buyer beware ( caveat emptor ) and for latent defects let the seller beware ( caveat venditor ). NB: Non-conformity shows a discrepancy between the thing as described in the contract and the delivered thing in terms of quantity, type, color or other characteristics Expenses of delivery ( that includes counting, measuring and weighing costs), transport (where delivery is carriage-free), customs duties linked to a delay caused by the seller, and those incurred due to the change in business address by the seller, are all borne by the seller.

25. Buyer’s obligations 12/21/2023 business law 25 Obligation to Pay the Price - The place of payment is in principle that fixed in the contract. Where the contract is silent payment is made at the address of the seller which implicitly means his business address Duty to Take Delivery - Where the delivery consists in that of a thing conforming to terms of the contract, the buyer should take it Expenses of making the contract - buyers bear the expenses of the contract of sale itself, expenses for payment, expenses after delivery and expenses of transport where thing is sent to other place than that of delivery. NB: Preservation of the thing is the common duty of the parties. By seller till delivery and by buyer if the thing is to be returned

26. 12/21/2023 business law 26 Non performance of parties obligations leads to: Forced performance- if purchase in replacement is impossible and if done without affecting personal liberty of seller. or Cancellation of the contract or Due to cancellation damages/ compensation shall be paid with interest payment

27. Insurance Insurance may be defined in various ways . a risk transfer mechanism or an economic device whereby insured/assured transfers a risk of a possible financial loss resulting from unforeseeable events affecting property, life or body to a person a risk transfer mechanism or an economic device whereby a person, called the insured/assured transfers a risk of a possible financial loss resulting from unforeseeable events affecting property, life or body to a person called the insurer for consideration. A risk transfer mechanism- Insured/assured-is the person buying a policy from an insurance company Against unforeseen events The insurer- is the insurance company who sell the policy to the insured Consideration- insurance company collects 12/21/2023 business law 27

28. It may be defined as a mechanism through which a risk is distributed among the group of persons who are exposed to the same type of risk. Distinguishing Characteristics of Insurance- An insurance contract is aleatory , -it means the performance of at least one of the parties is dependent on chance or occurrence of certain unforeseen event. For example, assume that Semira pays a premium of Birr 500 for birr 100,000 of homeowners‘ insurance on her home. If her home is totally destroyed by fire shortly thereafter, she would collect an amount that greatly exceeds the premium paid. On the other hand, a homeowner may faithfully pay premiums for many years and never suffer a loss. 12/21/2023 business law 28

29. An insurance contract is a unilateral contract- is a contract in which only one party makes a legally enforceable promise. In this case, only the insurer makes a legally enforceable promise to pay a claim or provide other services to the insured. An insurance contract is a conditional contract- It means the insurer‘s obligation to pay a claim depends on whether or not the beneficiary has complied with all policy conditions. The insurance contract is a contract of adhesion- it means whose terms and conditions are not the result of negotiations between the parties, and one party has to agree to the terms and conditions prepared by the other. 12/21/2023 business law 29

30. Significance of insurance business Insurance as a mechanism of transfer of risk has great economic and social benefits to the individual insured, his family and the country in general. The following are some of the major benefits. Indemnification for Losses :- Payment of compensation by the insurer for losses permits individuals and their families to be restored to their original financial position after a loss has occurred. Reduction of Worry and Fear :- it reduces worry and fear, both before and after loss . For instance, if family heads have life insurance for adequate amount to cover the future needs of their families, they are less likely to worry about the financial security of their dependents in the event of their premature death. 12/21/2023 business law 30

31. Source of Investment Funds:- The insurance industry is an important source of funds for capital investment and accumulation. Premiums, which are collected by the insurer in advance, usually at the time of conclusion of the contract and other funds which are not needed to pay for immediate losses and expresses, can be loaned to businesses or investment. Means of Loss Control:- Although the main function of insurance is not to reduce loss but merely to spread/distribute losses among members of the insured group, insurers are nevertheless vitally interested in keeping losses at a minimum . 12/21/2023 business law 31

32. Basic principle of insurance business There are certain fundamental principles (or characteristics) more or less common to all classes of insurance business. Principle of Utmost Good Faith:- Insurance contracts are contracts of utmost good faith. it is the inherent duty of both parties to a contract of insurance to make full and fair disclosure of all material facts relating to the subject matter of the proposed insurance. As insurance contract transfer risk between parties to the contract, unless parties are in a position to disclose every information related to the things/property insured in a good faith, parties, mostly the insurance company may not make a prudent decision to enter in to or otherwise. 12/21/2023 business law 32

33. this duty rests highly on the insured because he knows or is expected to know more about the subject matter. The duty to make a full and true disclosure continues until the contract is concluded, i.e., until the proposal of the insured is accepted by the insurer, whether the policy is then issued or not and it is not a continuing obligation . B. Principle of Indemnity all contracts of insurance are contracts of indemnity, except those of life and personal accident (life and personal accident are not contracts of indemnity True /False ) insurances where no money payment can indemnify for loss of life or bodily injury . 12/21/2023 business law 33

34. In case of loss, the insured can recover from the insurer the actual amount of loss, not exceeding the amount of policy. If there is no loss under the policy, the insurer is under no obligation to indemnify the insured. The purpose of indemnity is to place the insured, after a loss, in the same position he occupied immediately before the event. This is in line with purpose of insurance, i.e., reinstating a person who has suffered a financial loss to his original financial position . C. Principle of Proximate Cause It is the principle which states that the insurer is liable only for those losses which have been proximately caused by the peril insured against. 12/21/2023 business law 34

35. in order to make the insurer liable for a loss, the nearest, immediate, or the last cause has to be looked into, and if it is the peril insured against, the insured can recover . D. Principle of Risk Must Attach:- It is the principle which requires the actual existence of the things against which the insurance policy is bought. If the subject-matter of insurance ceases to exist (e.g. the goods are burnt) or the insured ship has already arrived safely, at the time the policy is effected, no need to enter into the insurance contract. E.g. insurance concluded in respect of goods, which are already lost, damaged, or destroyed, or in respect of goods, which are no longer exposed to a risk, shall be of no effect. 12/21/2023 business law 35

36. E . Mitigation of Loss:- It is the principle which impose an obligation on the policy holder (insured) to take all necessary caution and care to mitigate loss. For example, in the case of a fire insurance policy when the fire occurs, it is the duty of the policyholder to take steps to mitigate or minimize the loss as if he were uninsured and must do his best for safeguarding the remaining property . F. Doctrine of Contribution:- The doctrine of contribution states that in case of double insurance all insurers must share the burden of payment in proportion to the amount assured by each . 12/21/2023 business law 36

37. Double insurance:- occurs where the same risk and the same subject matter must be insured with two or more different insurers. E.g. if Ato Balcha has bought a fire insurance policy from Both Awash Insurance and Ethiopian Insurance corporation for his house. Thus, the two essential conditions required for the application of the doctrine of contribution are: 1. There must be double insurance 2. There must be either over-insurance or only partial loss. If the amount of different policies is just equal to the value of the subject matter destroyed, the different insurers are liable to contribute towards the loss up to the full amount of their respective policies. 12/21/2023 business law 37

38. Reinsurance Reinsurance is an arrangement between two insurers in which an one of the insurer assuming larger risk from the direct insurance business may arrange with another insurer to off load the excess of the undertaken risk over his retention capacity. Thus, by the device of reinsurance the original insurer transfers part of the risk to the reinsurer. A reinsurance contract does not affect the original insurer‘s contractual obligation to the insured under the original contract of insurance . 12/21/2023 business law 38

39. If for any reason, the original policy lapses, the reinsurance also comes to an end. Furthermore , if the original contract is altered without the consent of the reinsurer, the reinsurer is discharged. Hence, a policy of reinsurance is co-extensive with the original policy. 12/21/2023 business law 39