HIGHER NATIONAL DIPLOMA PROGRAM

Course Tittle
BUSINESS LAW

Course Master

Mr. TEBOH Derrick.

Academic Year 2022/2023

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GENERAL INTRODUCTION
Law affects every aspect of our lives: it governs our conduct from the cradle to the grave. The
influence of the law even extends from before our birth to after our death. We live in a
society which has developed a complex body of rules to control the activities of its
members. There are laws which govern working conditions (e.g. by laying down minimum
standard of health and safety law), laws which regulate leisure pursuit (e.g. b

y banning school on coaches and train travelling to football matches), and law which control
personal relationships (e.g. by prohibiting marriage between close relatives). The legal
world is divided into two blocks: the block of persons and the block of thing. Things are the
entities that portray the prerogative of the subject of law. They do not have legal personality
and they are called the object of law. There are several ways to think about law. In the
domestic legal system, we think of law as the rules that the government tissues to control the
lives of its citizens. Those rules are generally created by the legislature, interpreted by the
judiciary, and enforced by the executive branch, using the police, if necessary, to force
citizens to obey. What is law for the international community if there is no one legislature,
judiciary, executive branch, or police force? International law cannot be considered ‘’Law’’
when applied to states or state action. To be considered ‘’Law’’ these principles and
decisions require enforcement mechanisms that go beyond State consent or the trust and
good will among parties to a treaty.

These are two of laws that originated during the mandatory system that is English law
(common law) and French law (civil law). English law is known as case law or the doctrine
of binding precedent .With such law. Reference was always made to pass judged matters.
Civil law on the other hand is a law that must always be written down in a particular text
which is also known as codification. The

French work ‘’droit’’ law has two English equivalents. It designates both a law and a right.
The former refers to objective law and the letter is the subjective right what then is law?

1.1. The meaning of law

Law can be define as a body of legal rules and regulations adopted by the state
governing the conduct of persons living in a particular society. In every society there
is a law and law varies from one society to another known as ‘’ubi societa ibi jus’’.
The non-respect of law is the application of sanctions. Sanctions can be criminal or
civil. Criminal sanctions are governed by the criminal procedure code whose remedy
are; death sentence, loss of liberty (imprisonment) and payment of fines while civil
sanctions are those governed by the civil code whose remedy is payment damage in
momentary terms to the victim per article 1382 and 1384 of the civil code.

1.2. Classification or branches of Law

There are various ways in which the law may be classified; the most important are as
follows:

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 Public private
law
a. PublicLaw
Public law is concerned with the relationship between the state and its citizens. Or better still
public law is defined as a part of law which governs the relationship between particulars
(individuals) and the stat, between the different organs of the state. The rules of public are
therefore orientated towards the satisfaction of collective interest. Their violation is
sanctioned by the tribunal or courts of administrative order or the constitutional order in the
countries were the constitutional justice is autonomous like a France. Examples of public law
courses are administrative law, constitutional law and public finance law.

b. Private law
Private law is primarily concerned with the rights and duties of individuals towards each
other. The state’s involvement in this area of law is confined to providing a civilized method
of resolving the dispute that has arisen. Thus, the legal process is begun by the aggrieved
citizen and not by the state. Private law is also called civil law and is often contrasted with
criminal law. Private law can also be defined as a part f law which governs the relationship
between individuals or physical and moral persons. These rules of law are orientated towards
the satisfaction of individual interest. Their violation is sanctioned by the tribunal of judicial
order. Examples of private law courses are human right law, labour law, family law, law of
succession; law of obligation etc. Private law is also called civil law and is often contrasted
with criminal law. Criminal law can be both public and private law.

c. Public International Law

This branch of law governs the relationship between the subjects of the international order
such as the state, international organizations and to a lesser extent individuals. However, the
larger part of public international law today is handled by states

d. Private International law

This branch of the law regulates the relationship between private persons of different states.
Private international law can also come into play when the parties are of the same state but the
subject matter (property) is found in another state.
1.3. Aims or finality of law
 Maintenance of public order, peace, tranquility, dignity and sanitation
measures
 Correction of someone’s morality
 Prevention of further commission of crimes
 Resocialisation

1.4. Characteristics of law

Law possesses three main characteristics. It is general, permanent and coercive. Even
though there exist others that will be mentioned here.

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 i. Law is general
Law is general because it is meant to be applied to all those living within the territory of the
state. It is therefore common to all, particularly all those who live within the territory. We say
here that law is objective and impersonal. The general character of law means that the law is
applicable to all in the society without any distinction. This is why article 1 of the Cameroon
penal code affirms that ‘’all men without distinction are equal before the law’’. The general
character of law is a guarantee against arbitral rule and discrimination of persons. It is worth
mentioning the principle f impersonality of law can be a source of injustice. For example the
situation of minors and majors who are insane per article 1384 of the civil code.

ii. Law is obligatory or coercive

The coercive nature of law implies that law is obligatory and imposed on all those living
within the territorial jurisdiction of the state. I has a constraining character due to the aims or
finalities it seeks to pursue or achieve for instance social order, social order, social justice and
social security. Any violation of this law may lead to sanctions. Law may place a number of
obligations which are more or less strict for example a tax payer must pay his tax and if not he
will be sanctioned. On other hand, a medical doctor does not have the obligation to cure his
patients but can only provide the necessary medication that can help the person to recover.

iii. Law is permanent

For law to be permanent it must be in a written form, so that if violated sanctions will be
easily traceable and applicable. This explains why the civil code and criminal procedure code
are in place

iv. The violation of law leads to punishment

The non-respect of law by citizen in a given society always brings about sanctions or
punishment.

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 Chapter One: Contract law
A contract is an everyday activity, we make them to get goods and services such as meals, air
tickets, computers etc. Contract therefore is an agreement that is recognized by law and
consequently can be enforced in a court of law. In a simpler form, a contract is an agreement
between two or more persons where they agree to perform certain obligations in order to
benefit from certain rights. From this definition of a contract three things stand out clearly.
These include;

1) A PROMISE

When parties to a contract come to a negotiation table they make promises which symbolize
the parties’ volition to get into the contract. This is what makes the contract enforceable.

2) AN AGREEMENT

After having made individual promises the parties will now agree on what their respective
rights and obligations under the contract are, as such one party has made an offer and the
other accepts his offer, thus leading to the formation of an enforceable contract.

3) RECOGNITION BY THE LAW

Once an agreement has been reached and the parties are aware of their respective rights and
obligations. The next important issue is what will happen if any of the parties fails to respect
his promise. This creates room for the rules governing contracts to be applied in the
appropriate court of law. This to make sure that the parties receive their due under the
agreement.

SOURCES OF CONTRACT LAW

The sources of contract law are:
-Common law
-Legislation

THE FORMATION OF A CONTRACT

Disputes over contract formation arises when party A accepts that party B has failed to
perform particular obligations that party B owes A under a binding contract may counter
either that, he owes A no contractual obligations or that he does not owe any particular
obligation. At this point three questions arise:

PRECISE CONDITIONS FOR THE FORMATION OF A CONTRACT

A contract is validly formed when the wills of both parties have been freely expressed and
bilaterally accepted. This is possible under the following conditions.
A. Consent
B. Capacity

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 C. Consideration
D. Intentions to create legal relations
E. Offer and
F. Acceptance.

These conditions are now explained below.

A. Consent:

Consent refers to the manifestation of autonomy of will. It equally refers to the willingness of
a party to bind himself to a contract. The parties to a contract must freely give their consent
and willingly engaged in a contractual relationship. In the case of a labour contract, the
employer and the employee must freely give their consent to enter into a labour relationship.
Consent must be given freely and must not be attached to any vice such as fraud,
misrepresentation, violence etc. If any of these vices are associated with consent, the consent
becomes vitiated and hence no valid contract can be formed under such circumstances.

B. Capacity:

Capacity designates the ability of a party to agree to be part of a contract. In an ordinary law
contract, the capacity to contract can be seen from two angles ie age and mental stability.
With regards to age, capacity can only be established if both parties are equal to or above the
age of 21 by reason of Section 1123 of the Civil Code. However, the Civil Code provides in
Section 488 that capacity may be exceptionally established at the age of 18. So therefore, the
ordinary rules of contract law emphasizes that the normal age to contract is 21years or
exceptionally 18years. Looking at mental stability, it is clear that any person who is not
mentally stable does not have sufficient capacity to get into a contract. This is because
mentally deranged persons are not responsible for their actions by reason of Section 78 of the
penal Code.

C. Consideration:

This refers to the price paid by the parties receive their dues from a contract. Consideration
has to be adequate but needs not to be sufficient. This means that whatever a party puts into a
contract must not necessarily correspond with what he receives in that contract. It suffices that
anything put by a party into a contract should be capable of being calculated in economic
terms. Insufficiency of consideration occurs where a party performs an existing obligation in a
contract.

D. Intentions to create legal relations:

Another requirement for the formation of a valid contract is that the parties must have the
intention to create legal relations. This calls into play two powerful presumptions which are:

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  That the parties do not intend to create legal relations when it comes to social and
domestic agreement.
 That the parties do intend to create legal relations when it comes to commercial
agreements

These presumptions call for an inquiry into what the parties actually intended at the time the
contract was made.

*FAMILY AND SOCIAL AGREEMENTS

1. Husband and Wife

In the case of BALFOR V. BALFOR, the husband and wife returned to England on leave
from his employment. The wife remained in England on the doctor advise and the husband
agreed to pay her on allowance of 80€ a month until she rejoined him, when the parties
formally separated she sued for the payments. It was held on appeal that her claim could not
be granted for lack of consideration and the required intention to create legal relation. This
was especially so because the agreement was made when the couple was living in amity.
However, when the parties are separated or are about to be separated there is no room for an
understanding because there is no love, at such it may be safely presumed that they intended
to create a legal relations see the case of MERRITT V. MERRITT

2. Parents and their Children

In the case of JONES V. PADAVATTON, a mother bought a house for her daughter to live
in and maintain herself from the proceed of letting the other rooms, the daughter agreed to
give up her job in Washington to read for an exam in London six year later the daughter had
not still passed her exam, the parties fell out and the daughter was resisting the mothers claim
of possession on the house, she claimed that there was a contractual entitlement to remain on
the premises. The court held that there was no enforceable contract since there was intention
to create legal relation. This was especially so because the parties were in good terms when
the agreement was made see the case of CLEMING V. BEEVES.

*SOCIAL AGREEMENTS
These agreements are unenforceable, this explains why an agreement to share petrol lost
while on a journey has been said to be unenforceable see the case of COWARD V. MOTTO
DEVONSHIRE CLUB.

1-Commercial agreements
Generally the presumption is that commercial agreements are entered into by parties who
intend to create legal relations, thus in EDWARDS V. SKYWAYS. The court held that an
employer promise to pay a sum to employees made redundant was enforceable see also the
decision of the House of Lords in ESSO PETROLIUM LTD V. COMMISSIONERS OF
CUSTOMS AND EXCISE

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The presumption of the enforceability of commercial agreement can be reported in two
instances. They include:

2-Collective agreement between employers and trade unions

such agreements are considered not to have been intended to create legal relations unless they
are in writing expressly stating the contrary case of FORD MOTTOS COMPANY LTD V.
AEF,see section 179 of the trade union and labour relations act 1992.

3-Agreement expressed to be without the intention to create legal relation

For example transactions made through letters of intent or letters of comfort, these
transactions are generally unenforceable see case of GROUP V. BRUNEL UNIVERSITY.

E. Offer:

An offer is a statement of willingness to contract on specified terms made with the intention
that if accepted, it shall become a binding contract-an offer put the offeror at risk, it confers
the power on the offeree to bind the offeror at the precise moment of acceptance. This means
that the offeror looses his ability to withdraw from the contract .He cannot make any further
negotiations with respect to the arrangement.

An offer may be addressed to one particular person, a group of person or to the world at large.
Thus in the case of CARLILL V. CARBOLIC SMOCKE BALL COMPANY LTD, the
defendant advertise that they will pay 100$ to anyone who contracted influenza after using the
smoke ball for a specified period. The plaintiff purchases and used the smoke ball as specified
and contracted influenza-In a court action that followed it was argued by the defendant that an
effective offer cannot be made to the public at large. This argument was however rejected by
the court and it was held that the advertisement constituted an offer to the world at large
which was accepted by the plaintiff who was entitled to the 100$.An offer may be express or
implied from the party conduct, thus a party who makes a mistake in terms of his offer to
another cannot escape liability by claiming that he intended X when it appeared to mean Y,
this because the test is not how an observer will interpret the conduct but rather how and
honest and reasonable person in that position will interpret it. This line of reasoning is meant
to protect honest and reasonable expectations. Consequently a genuine offer must be
distinguished from an invitation to treat.

OFFER DISTINGUISHED FROM AN INVITATION TO TREAT

The party denying the existence of a contract may agree that what the other party purported to
accept was not an offer but something less. This is so because, no offer is made when a party
communicates his proposed terms unless he also communicates his commitment to be bound
on the other acceptance on the terms see the case of HERVEY V. FACEY.

An invitation to treat is an expression of willingness to embark on negotiations with the other

party to see if later an agreement will be reached. The distinction between offer and an
invitation to treat is often hard to draw. This is because it all depends on the intention of the
parties. This notwithstanding there exist some stereo type cases in law. The rules are used to

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determine the difference between an offer and an invitation to treat. This is true in the
following illustrations:
-Advertisement
-Auction sales
-Invitation to tender
-A display of goods

o ADVERTISEMENT AND DISPLAY

The general rule is that display or the advertisement of goods for sales are not offers to sell
those goods but rather are only invitation to treat. This rule prevails even when the word offer
is used especially where it is not used in the legal sense case SPENCER V. HARDING when
there is a display of goods or an advertisement the customer is general considered to have
made an offer when he presents goods at the cash desk. It is only at this juncture that the
trader has the power to choose whether to accept or reject the consumer’s offer case
PHARMACEUTICAL SOCIETY OF GREAT BRITAIN V. POATS CASH CHEMIST,
where under the Pharmacy and Position Act of 1933, certain drugs were required to be sold
under the supervision of registered pharmacist but following boot introduction of self service
shopping they were charged with a breach of this statutory duty. The court however held that
poat did not contravene the act since display and advertisement were not offers but an
invitation to treat.

In the same light in the case of PARTRIDGE V. CARITTENDEN, BRANBEN FINTEH

COCKS AND HENS were advertised for sale at a stated price. The advertiser was charged
with the offense of offering for sale of wild life birds contrary to the protection of birds Act of
1954.The advertiser was nonetheless acquitted because the court rigidly applied the rules
according to which advertisement is an invitation to treat and not an offer see also the case of
FISHER V. BELL.

Exceptionally, the court will treat display and advertisement as offer. This especially so when
there are good quality reasons for doing so thus in CHATELTON V. BARRY, it was held that
the display of deck chairs for hirer on a pitch with notices of charges was an offer which was
accepted by a customer taking the chair. This helps the court to accelerate the point of
contract formation in other to keep out the harsh exclusion clause see the case of CARLILL
V. CARBARLEY SMOKE BALL (supra).

o AUCTIONS

According to section 57(2) of the sales of goods Act 1979, a sale by auction involves a
number of steps which can be analyzed as follows:

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*The advertisement that an auction will take place on a given day is merely an invitation to
treat the case of HARRIS V. NICKERSON

*Putting up goods for sale at the auction is also an invitation case of BRITISH CAR
AUCTIONS LTD V. WRIGHT

*A bid from the purchaser is the offer and the fall of the hammer indicates the acceptance.
Here the court will shift the balance in favour of the bidders when the advertisement carried
the words without reserve, these words increase bidder’s expectations:
-The auction will take place
-There will be no minimum price set
-The items will be sold to the highest bidder see case of WARLOW V. HARRISON

o TENDERS

The courts hold that an invitation to tender will not normally amount to a contract with the
party submitting the most favourable tender case of SPENCER V. HARVEY.

However, following HARVELA INVESTMENTS LTD AND ROYAL TRUST COMPANY

OF CANADA LTD it became clear that
*An invitation to tender for a particular project is only an invitation to treat
*The offer is made by the person submitting the tender
*The acceptance is made when the person inviting the tenders accepts one of them

In the above case the first defendant invited the plaintiff and the second defendant to make
competitive bids for a parcel of shares stating that we bind ourselves to accept the highest
offer, the plaintiffs bid 2,175,000$ and the defendant bid 2,100,000$ or 101,000 is excess of
any other offer. This first defendant thinks that they were bound to accept the bid of the
second defendant as being the highest bid. The house of lord held that the invitation to tender
amount to an offer to sell to the highest bidder. At such the first defendant were bound to
accept the plaintiffs bid.

F. Acceptance:

An acceptance is a firm expression of consent to the proposal contained in the offer, it

immediately binds both parties to the contract neither party can get out of it or vary it content.
Accordingly, a valid acceptance must:
-correspond with the offer
-be given in response to an existing offer
-be made by an appropriate method

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-be communicated to the offeror

A VALID ACCEPTANCE MUST CORRESPPOND WITH THE OFFER

By this we mean a purported acceptance which deviates from the terms of the offer is unlikely
to conclude the contract. This has created three situations which need special attention.

*-CONDITIONAL ACCEPTANCE
In this situation the offeree has accepted but his acceptance will take effect only after a certain
condition must have been satisfied. This renders the agreement incomplete and it is not
binding see BRANCA V. COBARRO.

*-A COUNTER OFFER KILLS THE ORIGINAL OFFER

An offered whose response deviate from the offer will usually be considered as haven made a
counter offer. When this is the case the counter offer terminates the original offer so that the
offeree cannot longer accept it after his counter offer is respected.

This is because on receiving the offeree response the offeror is immediately free to deal
elsewhere. This explains why in the case of HYDE V. WRENCH, offered to sell his farm to
H for 1000€ H said he will pay 950€.This was rejected by W, H the agreed to pay 1000€ but
W also rejected this, it was held that H proposal of 950€ amounted to a counter offer which
terminated the original offer making it incapable of subsequent acceptance.

*-REQUEST FOR INFORMATION

The offeree retains the power to accept the original offer if the court finds out that the offeree
response was not a counter offer but rather a request for information see case of
STEVENSON JAQUES AND COMPANY V. MELEEON.

*-A VALID ACCEPTANCE MUST BE MADE IN RESPONSE TO A KNOWN OFFER

This requirement is to the effect that any conduct purporting to be acceptance is ineffective if
it is made without the knowledge of the offer. This is so even if the acceptance matches the
offer, issues of this kind arises in cases of cross offer and offers reward cross offer see case
TIWN V. HOFFMAN, for offers for reward see case of R V.CLARK.

*-A VALID ACCEPTANCE MUST BE MADE IN AN APPROPRIATE WAY

Any words of conduct that objectively shows the offeree intention to accept is enough a
signature on a contractual document is a clear example of an acceptance; a valid acceptance
can be made by conduct provided such conduct is in line with the terms of the contract. See
the case of BROGDEN V. METROPOLITANT RAILWAY COMPANY.

THE COMMUNICATION OF ACCEPTANCE

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The general rule is that the offeree must communicate his acceptance to the offeror.This is
because it is only at this moment that the offeror know that he is bound by a contract. The
method used to communicate an acceptance; it is either instantaneous or postal. Where it is
instantaneous the acceptance takes effect when and where it actually comes to the offeror
intention, when an acceptance is postal, it takes effect when the latter is sent. Consequently,
the offer cannot be rejected or revoked afterword.

Recent development in technology has led to an extensive use of new means of

communication which has led to the split in instantaneous acceptance into two ways
instantaneous acceptance through email, fax 12 way case ENTORES V. MILES FAR EAST
CORPORATIONS,1 way case TENAX SS COMPANY LTD V. THE BRIMNES.

o ACCEPTANCE BY POST

The key question here is to know when an acceptance communicates through a posted letter
takes effect. Under the posted acceptance rule acceptance takes place when the offeree post
his acceptance see case of ADAMS V. LINDSELL.
Also the offeror cannot revoke his offer after the offeree acceptance is posted thus in case of
BYREN V. VANTIENHOVEN,V sent an offer to sell tin plates on the 1st of October .On the
11 of October B immediately sent an acceptance concluding the contract on the 11 October.
However, on the 8th of October V sent a letter revoking the offer but this reached B on the on
the 20 october,it was held that a contract was concluded on the 11 of October since the posted
acceptance rule does not apply to revocation. The revocation only took effect on the 20th of
October by which time a contract was already in existence. The postal acceptance rule does
not apply where.

It is expressly or impliedly excluded in the offer. Consequently in case of HOLWELL

SELUNTED LTD V. HUGES a contract stipulated that it could accept an option to purchase
certain property by notice in writing to H within 6months.H’s solicitor sent an acceptance by
mail to H but it never arrived, the court held that no contract was concluded between the
parties, the requirement of notice in writing was interrupted since it required actual which was
not satisfying.

TERMINATION OF AN OFFER
An offer can be terminated in a number of ways. They include;

 Revocation by the offeror

 Rejection by the offeree
 Lapse of the offer or
 Through the death of either the offeror or offeree.
a) Revocation by the offeror

In principle an offer can be revoke any time before the offeree communicates his acceptance.
This revocation is only effective when it is communicated to the offeree before his acceptance
takes effect, a postal revocation is not effective upon posting rather it only becomes effective

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when it is brought to the knowledge of the offeree as was the case in HENTHORN V.
FRASER.

b) Rejection by the offeree

An offer is terminated as soon as the offeree communicates his rejection in relation to the
offer to the offeror.

c) Lapse of an offer

An offer may lapse on the following grounds:-

 where the period for which the offer is expressed to be expires

 where a condition contained in the term of the offer expired case of FINANCINGS
LTD V. STIMSON
 when a reasonable time has passed RAMS GATE VICTORIA HOTEL COMPANY
V. MONTEFOIRE.In this case M offered to buy shares in a company after 5months
.He head the shares had been allocated to him but he was not bound to accept them
because his offer has lapsed
d) Death of the offeror or offeree

As provided following the case of REYMONDS V. ATHERTON, an offer is generally

terminated by the death of an offeree and vice versa. Here we have the case of COULTHART
V. CLEMENTSON base on this the offeree cannot validly accept whether or not he is aware
that the offeror has died RE WHELON.

However in HERRINGTON V. HEMISGTON, it was held that an offer can remain open if
the offeror could not have terminated it during his life time. This is even more so if the
performance of the contract does not depend on the offeror personality.

CONTENT OF A CONTRACT
Content refers to the terms of a contract. These terms include both the rights and obligations
of the parties, terms are meant to mark out a contract by determining it features, it also
ascertains its boundaries, terms determine the scope of a contract. Contractual terms be they
written, oral or implied do not have the same value, nor do they produce the same effects in
the event of a breach.

o EXPRESS TERMS

These terms are either written or oral, English courts do not insist on contracts taking any of
these forms. This therefore implies that a simple contract may be wholly written or wholly
oral. When a contract is wholly in writing it poses no difficulty when it comes in identifying
the term all these determines on the judge who has to find out see the case of BENTSEN V.
TAYLOR. If the terms of the contract are oral, there may be a problem in ascertaining term,
here the judge are expected to constitute a jury to decide SMITH V. HUGHES.
The court have always thrived in the case of written contracts to limit themselves to the
content of the contract, no party under such circumstances is allowed to introduce verbal

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terms with the intention to add, contradict or vary the existing terms JACOBS V. BATAVIA.
This line of reasoning led to the development of the PAROLE EVIDENCE RULE. The
complex nature of commercial transactions makes it difficult for parties to a contract to
clearly state their intentions.

This has led to the admission of oral evidence in certain circumstances to add, vary or
contradict written terms case of THAKE V. MAURICE.

*SOME EXCEPTIONS TO THE PAROLE EVIDENCE RULE

o Oral evidence may be allowed to prove a custom and as such adding to a written
term.

Where the parties agreed to suspend the operation of a contract until the occurrence of event
oral evidence may be admitted to prove that the set event has not yet occurred and at such the
contract has not gone operational. In this case, it is clear that the oral evidence will not add,
vary or contradict existing terms see the case of PYME V. CAMPBELL.

o Oral evidence may also be allowed to prove a common mistake

Express statements that may be considered as contractual terms

The issue stake here is to determine which of the statements made by the parties may be
considered as a contractual term. Under English law not all statements made by the parties are
relevant some may amount to terms while others are mere representations, breach of a
statement considered to be a term will give rise to a common law remedy. When a contract is
oral it becomes very difficult to determine whether a statement is a term or not to remedy the
situation. The courts have put in place three rules. The rules are:
-At what moment was the statement made?

A statement cannot be a term if it intervenes during preliminary negotiation the case of

BANNBRMAN V. WHITE, ROUTLEDGE V. MCKAY
-Was the moral statement followed by a reduction into writing?

If yes court will then decide whether it was the intention of the parties to the set the contract
wholly in writing or oral, it may happen that the contract was meant to be partly oral and
partly written see the case of ROUTTEDGE V. MCKAY.
-Did the person making the statement have special knowledge or skill as compared to the
other party?

if yes the courts will want to think that the statement was a term the case of BIRCH V.
PARAMOUNT ESTATE

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 CHAPTER TWO: INSURANCE LAW

Introduction
Every risk involves the loss of one or other kind. In older time, the contribution by the
person was made at the time of loss. Today, only one business, which offers all walks of life,
is insurance business. Owing to growing complexity of life, trade and commerce, individuals
and business firms are turning to insurance to manage various risks. Every individual in this
world is subject to unforeseen uncertainties which may make him and his family vulnerable.
At this place, only insurance helps him not only to survive but also recover his loss and
continue his life in a normal manner.
Insurance is an important aid to commerce and industry. Every business enterprise
involves large number of risks and uncertainties. It may involve risk to premises, plant and
machinery, raw material and other things. Goods may be damaged or may be destroyed due
to fire or flood. Some risk can be avoided by timely precautions and some are unavoidable
and are beyond the control of a business. These unavoidable risks can be protected by
insurance.
Terminology used in definition of Insurance
- Insurer or insurance company – The agency involved in Insurance business is known
as insurer
- Insured/ Assured – The person who gets his property/life insured is known as insured
- Policy - The agreement or contract which is put in writing is known as a Policy
- Premium – The consideration in return of which the insurer undertakes to make goods
the loss or give a certain amount in case of life insurance is known as premium
- Cover Note

On the completion of a proposal in respect of an insurance policy by the insured, the

insurers may be desirous of studying the proposal to come to a finding as to whether or not to
accept the risk to be insured. In the interim, the insured may need an immediate insurance
cover as a temporary cover. The temporary cover is referred to as cover note.

Parties
Some insurance transactions may involve more than two parties. In other words, third
parties may be involved in insurance transactions e.g in life insurance policies. The insured
may be different from the person insuring. In other words, the beneficiary of the insurance
policy could be a third party.

Third Parties

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 Where third parties are involved in an insurance contract, the insured can take out an
insurance to provide indemnity for bodily harm or death occasioned to such third parties and
may also include damages to movable and immovable properties belonging to third parties.

A contract of insurance affects parties to it. It cannot be enforced by or against a

person who is not a party even if the contract is made for his benefit. Even if it’s established
that an insured took up a policy of insurance with an insurer, a third party cannot sue the
insurer ab initio as there is no privity of contract between them.

Intermediaries
The business of insurance is conducted through intermediaries who are statutorily
regulated. Some of these intermediaries include agents, insurance brokers and loss adjuster.

Agents
An insurer can carry on their business of insurance through accredited agents who
have the capacity to bind the principal (insurer) in transactions with third parties. Insurance
agents are specifically licensed and authorized by an insurer on its behalf to solicit risk and
collect premiums on behalf of the insurer. He earns a commission and other remuneration
from the insurer for rending such services. A disclosure or representation made by the insured
to an insurance agent shall be deemed to be a disclosure or representation to the insurer
provided the agent is acting with his authority. Where an insurer acts outside the scope of his
authority, the acts done are not binding on the insurer.

Insurance Brokers
An insurance broker is a special class of insurance agent who acts in a professional
capacity as an intermediary to arrange insurance cover for the insured. He utilizes his
professional skills and expertise to ensure that he obtains the most favorable terms and
conditions for his client.

Loss Adjuster
A loss adjuster is an intermediary in an insurance contract who for money or other
valuable consideration engages in the assessment of losses and the adjustment of claims
arising from insurance contracts for or on behalf of any insurer or person in non life insurance
claims.

Assurance and Insurance

The two words were used synonymously at one time, but there is fine distinction
between the two. ‘Assurance’ is used in those contracts which guarantee the payment of a
certain sum on the happening of a specified event which is bound to happen sooner or later,
for example attaining a certain age or death. Thus life policies come under ‘assurance’.

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Insurance, on the other hand, contemplates the granting of agreed compensation of the
happening of certain events stipulated in the contract which are not expected but which may
happen, for example risk relating to fire, accident or marine.
Characteristics/Nature of Insurance
The following are the main characteristics of insurance which are applicable to all types of
insurance (life, fire, marine and general insurance).

1. Sharing of Risks

Insurance is a device to share the financial losses which may occur to individual or his
family on the happening of certain events.

2. Co operative Device

Insurance is a co-operative device to spread the loss caused by a particular risk over a
large caused by a particular risk over a large number of persons who are exposed to it and
who agree to insure themselves against the risk.

3. Value of Risk

Risk is evaluated at the time of insurance. There are several methods of valuing the risk.
Higher the risks, higher will be premium

4. Payment on Contingency –

If the contingency occurs, payment is made; payment is made only for insured
contingency. If there is no contingency, no payment is made. In life insurance contract,
payment is certain because the death or the expiry of term will certainly occur. In other
insurance contract like fire, marine, the contingency may or may not occur

5. Amount of Payment of Claim

The amount of payment depends upon the value of loss occurred due to the particular
insured risk. The insurance is there up to that amount. In life insurance, the insurer pays a
fixed sum on the happening of an event or within a specified time. Example – In fire
insurance, if fire occurs and half the property is destroyed, but the whole property is insured,
then payment of claim will be made only for that half building that is destroyed not the whole
amount of insured.

6. Insurance is different from Charity

In charity, there is no consideration but insurance is not given without premium.

7. Large number of Insured Person

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 Insurance is spreading of loss over a large number of persons. The larger the number
of persons, the lower the cost of insurance and amount of premium and incase lower the
number of persons, higher the cost of insurance and amount of premium.

8. Insurance is different from Gambling

In gambling, there is no guarantee of gain, by bidding the person expose himself to

risk of losing. Whereas in insurance, by getting insured his life and property, he protect
himself against the risk of loss.

Benefits of Insurance or Role and Importance of Insurance

Benefit of insurance can be divided into these categories -
1. Benefits to Individual
2 Benefits to Business or Industry
3. Benefits to the Society
It can be explained as follows:
1. Benefits to Individual
(a) Insurance provides security & safety:
Insurance gives a sense of security to the policy holder. Insurance provide security and
safety against the loss of earning at death or in old age, against the loss at fire, against the loss
at damage, destruction of property, goods, furniture etc.
Life insurance provides protection to the dependents in case of death of policyholders
and to the policyholder in old age. Fire insurance insured the property against loss on a fire.
Similarly other insurance provide security against the loss by indemnifying to the extent of
actual loss.
(b) Encourage Savings: Life insurance is best form of saving. The insured person must
regularly save out of his current income an amount equal to the premium to be paid
otherwise his policy get lapsed if premium is not paid on time.
(c) Providing Investment Opportunity: Life insurance provides different policies in which
individual can invest smoothly and with security; like endowment policies, deferred annuities
etc. There is special exemption in the Income Tax, Wealth Tax etc. regarding this type of
investment
2 Benefits to Business or Industry
(a) Shifting of Risk: Insurance is a social device whereby businessmen shift specific risks to
the insurance company. This helps the businessmen to concentrate more on important
business issues.

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(b) Assuring Expected Profits: An insured businessman or policyholder can enjoy normal
expected profits as he would not be required to make provisions or allocate funds for meeting
future contingencies.
(c) Improve Credit Standing: Insured assets are easily accepted as security for loans by the
banks and financial institutions so insurance improve credit standing of the business firm
(d) Business Continuation – With the help of property insurance, the property of business is
protected against disasters and chance of closure of business is reduced
3. Benefits to the Society
(a) Capital Formation: As institutional investors, insurance companies provide funds for
financing economic development. They mobilize the saving of the people and invest these
saving into more productive channels
(b) Generating Employment Opportunities: With the growth of the insurance business, the
insurance companies are creating more and more employment opportunities.
(c) Promoting Social Welfare: Policies like old age pension scheme, policies for education,
marriage provide sense of security to the policyholders and thus ensure social welfare.
(d) Helps Controlling Inflation: The insurance reduces the inflationary pressure in two
ways, first, by extracting money in supply to the amount of premium collected and secondly,
by providing funds for production narrow down the inflationary gap.
Functions of Insurance
Functions of insurance can be divided into parts;
I Primary functions.
II Secondary functions.
I Primary Functions
1. Certainty of compensation of loss
Insurance provides certainty of payment at the uncertainty of loss. The elements of
uncertainty are reduced by better planning and administration. The insurer charges premium
for providing certainty.
2. Insurance provides protection
The main function of insurance is to provide protection against risk of loss. The
insurance policy covers the risk of loss. The insured person is indemnified for the actual loss
suffered by him. Insurance thus provide financial protection to the insured. Life insurance
policies may also be used as collateral security for raising loans.
3. Risk sharing
All business concerns face the problem of risk. Risk and insurance are interlinked with
each other. Insurance, as a device is the outcome of the existence of various risks in our day to

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day life. It does not eliminate risks but it reduces the financial loss caused by risks. Insurance
spreads the whole loss over the large number of persons who are exposed by a particular risk.
II Secondary Functions
1. Prevention of losses
The insurance companies help in prevention of losses as they join hands with those
institutions which are engaged in loss prevention measures. The reduction in losses means
that the insurance companies would be required to pay lesser compensations to the assured
and manage to accumulate more savings, which in turn, will assist in reducing the premiums
2. Providing funds for investment
Insurance provides capital for society. Accumulated funds through savings in the form
of insurance premium are invested in economic development plans or productivity projects.
3. Insurance increases efficiency
The insurance eliminates the worries and miseries of losses. A person can devote his
time to other important matters for better achievement of goals. Businessman feel more
motivated and encouraged to take risks to enhance their profit earning. This also helps in
improving their efficiencies.
4. Solution to social problems
Insurance takes care of many social problems. We have insurance against industrial
injuries, road accident, old age, disability or death etc.
5. Encouragement of savings
Insurance not only provides protection against risks but also a number of other
incentives which encourages people to insure. Since regularity and punctuality of payment of
premium is a perquisite for keeping the policy in force, the insured feels compelled to save.
PARTIES TO INSURANCE CONTRACT
1. Insurer. The party agreed to pay for the loss of the insured
2. Insured: the party who insured his risk of loss with insurer

RIGHTS OF THE INSURER

i. Rights to collect premium from the insured
ii. Right to specify the conditions and benefit under the policy

RIGHTS AND RESPONSIBILITY OF THE INSURED

1- To pay premium
2- Right to collect the money from the insurance company if the loss occurred
3- Obligation to comply with the terms of the contract of insurance

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Principles of Insurance
The basic principles which govern the insurance are -
(1) Utmost good faith
(2) Insurable interest
(3) Indemnity
(4) Contribution
(5) Subrogation
(6) Causa proxima
(7) Mitigation of loss
1. Principle of utmost good faith:
A contract of insurance is a contract of ‘Uberrimae Fidei’ i.e., of utmost good faith.
The hallmark of the contract of insurance is the principle of Uberrimae fidei or utmost good
faith. This means the insured must disclose all material facts of the contract which he knows
or ought to know would influence the judgment of the insurer in determining whether or not
to insure the risk or to insist on a higher premium for accepting to bear the risk. The insurer
also has a duty not to conceal material facts relating to the insurance policy. Failure of either
side to disclose such material facts renders the insurance voidable. Both insurer and insured
should display the utmost good faith towards each other in relation to the contract. In other
words, each party must reveal all material information to the other party whether such
information is asked or not. There should not be any fraud, non disclosure or
misrepresentation of material facts. Example – in case of life insurance, the insured must revel
the true age and details of the existing illness/diseases. If he does not disclose the true fact
while getting his life insured, the insurance company can avoid the contract. Similarly, in case
of the insurance of a building against fire, the insured must disclose the details of the goods
stored, if such goods are of hazardous nature. A material fact means important facts which
would influence the judgment of the insurer in fixing the premium or deciding whether he
should accept the risk, on what terms. All material facts should be disclosed in true and full
form

2. Principle of Insurable Interest

This principle requires that the insured must have a insurable interest in the subject
matter of insurance. Insurance interest means some pecuniary interest in the subject matter of
contract of insurance. Insurance interest is that interest, when the policy holders get benefited
by the existence of the subject matter and loss if there is death or damage to the subject
matter. For example – In life insurance, a man cannot insured the life of a stranger as he has
no insurable interest in him but he can get insured the life of himself and of persons in whose
life he has a pecuniary interest. So in the life insurance interest exists in the following cases:-
- Husband in the life of his wife and wife in the life of her husband
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 - Parents in the life of a child if there is pecuniary benefit derived from the life of
a Child
- Creditor in the life of debtor
- Employer in the life of an employee
- Surety in the life of a principal debtor
In life insurance, insurable interest must be present at the time when the policy is
taken. In fire insurance, it must be present at the time of insurance and at the time if loss if
subject matter. In marine insurance, it must be present at the time of loss of the subject matter.
4. Principle of Indemnity
Indemnity according to the Cambridge International Dictionary is “Protection against
possible damage or loss” and the Collins Thesaurus suggests the words “Guarantee”,
“Protection”, “Security”, “Compensation”, “Restitution” and “Re-imbursement” amongst
others as suitable substitute for the word “Indemnity”. The words protection, security,
compensation etc. are all suited to the subject of Insurance but the dictionary meaning or the
alternate words suggested do not convey the exact meaning of Indemnity as applicable in
Insurance Contracts. In Insurance the word indemnity is defined as “financial compensation
sufficient to place the insured in the same financial position after a loss as he enjoyed
immediately before the loss occurred.” Indemnity thus prevents the insured from recovering
more than the amount of his pecuniary loss. It is undesirable that an insured should make a
profit out of an event like a fire or a motor accident because if he was able to make a profit
there might well be more fires and more vehicle accidents. As in the case of Insurable
Interest, the principle of indemnity also relies heavily on the financial evaluation of the loss
but in the case of life and disablement it is not possible to be precise in terms of money.

This principle is applicable in case of fire and marine insurance only. It is not
applicable in case of life, personal accident and sickness insurance. A contract of indemnity
means that the insured in case of loss against which the policy has been insured, shall be paid
the actual cost of loss not exceeding the amount of the insurance policy. The purpose of
contract of insurance is to place the insured in the same financial position, as he was before
the loss. In life insurance, principle of indemnity does not apply as there is no question of
actual loss. The insurer is required to pay a fixed amount upon in advance in the event of
accident, death or at the expiry of the fixed term of the policy. Thus, a contract of a life
insurance is a contingent contract and not a contract of indemnity.

How is Indemnity Provided?

The Insurers normally provide indemnity in the following manner and the choice is
entirely of the insurer
1) Cash Payment
2) Repairs

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3) Replacement
4) Reinstatement

1. Cash Payment
In majority of the cases the claims will be settled by cash payment (through cheques)
to the assured. In liability claims the cheques are made directly in the name of the third party
thus avoiding the cumbersome process of the Insurer first paying the Insured and he in turn
paying to the third party.

2. Repair
This is a method of Indemnity used frequently by insurer to settle claims. Motor
Insurance is the best example of this where garages are authorized to carry out the repairs of
damaged vehicles. In some countries Insurance companies even own garages and Insurance
companies spend a lot on Research on motor repair to arrive at better methods of repair to
bring down the costs.

3. Replacement
This method of Indemnity is normally not preferred by Insurance companies and is
mostly used in glass Insurance where the insurers get the glass replaced by firms with whom
they have arrangements and because of the volume of business they get considerable
discounts. In some cases of Jewelry loss, this system is used specially when there is no
agreement on the true value of the lost item.

4. Reinstatement
This method of Indemnity applies to Property Insurance where an insurer undertakes
to restore the building or the machinery damaged substantially to the same condition as before
the loss. Sometimes the policy specifically gives the right to the insurer to pay money instead
of restoration of building or machinery. Reinstatement as a method of Indemnity is rarely
used because of its inherent difficulties e.g., if the property after restoration fails to meet the
specifications of the original in any material way or performance level then the Insurer will be
liable to pay damages. Secondly, the expenditure involved in restoration may be much more
than the sum Insured as once they have agreed to reinstate they have to do so irrespective of
the cost.

5. Principle of Contribution
The principle of contribution is a corollary to the doctrine of indemnity. An individual
may have more than one policy on the same property and in case there was a loss and he were
to claim from all the Insurers then he would be obviously making a profit out of the loss
which is against the principle of Indemnity. To prevent such a situation the principle of
contribution has been evolved under common law. Contribution is the right of the insurer to
invite other insurers with which the insured had taken out a policy, to share or contribute to
indemnify an insured for the occurrence of a risk that was insured against.
The right of contribution arises when:

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 (a) There are different policies which related to the same subject matters;
(b) The policies cover the same period which caused the loss;
(c) All the policies are in force at the time of loss; and
(d) One of the insurers has paid to the insured more than his share of loss.

5. Principle of Subrogation
Subrogation in insurance parlance refers to the circumstances in which an insurance
company tries to recoup expenses for a claim it paid out when another party should have been
responsible for paying at least a portion of that claim. Subrogation entitles an insurer who has
paid an insured in accordance with an insurance contract to stand in the place of the insured
and exercise the insured’s right and remedies in respect of the subject matter of the insurance.
The doctrine of subrogation is a collorary to the principle of indemnity and applies only to fire
and marine insurance. According to doctrine of subrogation, after the insured is compensated
for the loss caused by the damage to the property insured by him, the right of ownership to
such property passes to the insurer after settling the claims of the insured in respect of the
covered loss. A loss may occur accidentally or by the action or negligence of third party. If
the insured suffer a loss because of action of third party and he is in a position to recover the
loss from the insurer then insured cannot take action against third party, his right is
subrogated (substituted) to the insurer on settlement of the claim. The insurer, therefore, can
recover the claim from the third party. If the insured recovers any compensation for the loss
(due to third party), from the third party, after he has already been indemnified by the insurer,
he holds the amount of such compensation as the trustee if the insurer.The insurer is entitled
to the benefits out of such rights only to the extent of the amount he has paid to the insured as
compensation

6. Principle of Causa Proxima:

Causa proxima, means proximate cause or cause which, in a natural and unbroken
series of events, is responsible for a loss or damage. The insurer is liable for loss only when
such a loss is proximately caused by the peril insured against. The cause should be the
proximate cause and can not the remote cause. If the risk insured is the remote cause of the
loss, then the insurer is not bound to pay compensation. The nearest cause should be
considered while determining the liability of the insured. The insurer is liable to pay if the
proximate cause is insured. Example – In a marine insurance policy, the goods were insured
against damage by sea water, some rats on the board made a hole in a bottom of the ship
causing sea water to pour into the ship and damage the goods. Here, the proximate cause of
loss is sea water which is covered by the policy and the hole made by the rats is a remote
cause. Therefore, the insured can recover damage from the insurer

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Example – A ship was insured against loss arising from collision. A collision took place
resulting in a few days delay. Because of the delay, a cargo of oranges becomes unsuitable for
human consumption. It was held that the insurer was not liable for the loss because the
proximate cause of loss was delay and not the collision of the ship.
7. Principle of Mitigation of Loss
An insured must take all reasonable care to reduce the loss. We must act as if the
property was not insured. Example – If a house is insured against fire, and there is accidental
fire, the owner must take all reasonable steps to keep the loss minimum. He is supposed to
take all steps which a man of ordinary prudence will take under the circumstances to save the
insured property.
Type of Insurance
Insurance cover various types of risks and include various insurance policies which
provide protection against various losses.
There are two different views regarding classification of insurance:-
I. From the business point of view; and
II From the risk points of view
I. Business point of view
The insurance can be classified into three categories from business point of view
1. Life insurance;
2. General Insurance; and
3. Social Insurance.

1. Life Insurance
Life insurance is the contract of insurance in which one party agrees to pay a specified
sum of money on the happening of a specific event. It is contingent upon the duration of
human life in consideration of periodic payment or premium by another party. The concept of
life insurance was contrived to ensure that dependants are not rendered destitute on the death
of their “bread winner” Life insurance policies often include exclusion clauses and limiting
terms to the effect that the insured shall be excluded from liability on the occurrence of
specified incidents including suicide, terrorist attacks, war, riot, fraud and earthquake.
The life insurance contract provide elements of protection and investment after getting
insurance, the policyholder feels a sense of protection because he shall be paid a definite sum
at the death or maturity. Since a definite sum must be paid, the element of investment is also
present. In other words, life insurance provides against pre-mature death and a fixed sum at

25
the maturity of policy. At present, life insurance enjoys maximum scope because each and
every person requires the insurance.
Life insurance is a contract under which one person, in consideration of a premium
paid either in lump sum or by monthly, quarterly, half yearly or yearly installments,
undertakes to pay to the person (for whose benefits the insurance is made), a certain sum of
money either on the death of the insured person or on the expiry of a specified period of time.
Life insurance offers various polices according to the requirement of the persons
-
- Term Assurance
- Whole Life
- Endowment Assurance
- Family Income Policy
- Life Annuity Joint Life Assurance
- Pension Plans
- Unit Linked Plans
- Policy for maintenance of handicapped dependent
- Endowment Policies with Health Insurance benefits
Whole Life Insurance
It provides for the payment of a specified sum of money to named beneficiaries on the
death of the life insurance in consideration of an agreed premium as consideration which may
be paid periodically or as lump sum. It is a medium of providing for ones dependants in case
of premature death which is a necessary end for all mortals.

Endowment Insurance
It provides for the payment of a stipulated sum when the life insured attains a specified
age or on the death of the insured whichever occurs first. Endowment insurance apart from
been a viable arrangement for one’s dependant, could also provide substantial savings for
aged insurer.

Term Insurance
It is a short term insurance transaction where the insurer undertakes to pay the insured
sum on the death of the insured within the term stipulated in the insurance policy. It differs
from the endowment insurance because the sum insured cannot be paid unless the insured dies
within the term stipulated in the policy. It is usually recommended for creditors wishing to
insure the life of their debtors and persons engaged in hazardous activities.
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2. General Insurance: The general insurance includes property insurance, liability
insurance and other form of insurance. Property insurance includes fire and marine insurance.
Property of the individual and business involves various risks like fire, theft etc. This need
insurance Liability insurance includes motor, theft, fidelity and machine insurance
Types of General Insurance policies available are -
- Health Insurance
- Personal Accident Policy
- Group Insurance Policy
- Automobile Insurance
- Worker’s Compensation Insurance
- Liability Insurance
- Aviation Insurance
- Business Insurance
- Fire Insurance Policy
- Travel Insurance Policy
3. Social Insurance
Social insurance provides protection to the weaker sections of the society who is
unable to pay the premium. It includes pension plans, disability benefits, unemployment
benefits, sickness insurance and industrial insurance.
II Risk Points of View
The insurance can be classified into three categories from Risk point of view
1. Property Insurance
2. Liability Insurance
3. Other forms of Insurance
1. Property Insurance
Property of the individual and business is exposed to risk of fire, theft marine peril etc.
This needs insurance. This is insured with the help of:-
(i) Fire Insurance
(ii) Marine Insurance
(iii) Miscellaneous Insurance
(i) Fire Insurance

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 Fire insurance covers risks of fire. It is contract of indemnity. Fire insurance is a
contract under which the insurer agrees to indemnify the insured, in return for payment of the
premium in lump sum or by installments, losses suffered by him due to destruction of or
damage to the insured property, caused by fire during an agreed period of time. It includes
losses directly caused through fire or ignition. There are various types of fire insurance
policies.
- Consequential loss policy
- Comprehensive policy
- Valued policy
- Valuable policy
- Floating policy
- Average policy
(ii) Marine Insurance
Marine insurance was the earliest well organized and developed policy and relates to
coverage against loss of or damage to a ship, goods in transit and damage which occurs to
such goods over waterways, land and air. Marine insurance provides coverage for
transshipped goods to ensure they arrive safety. It is to protect the insured against inherent
risks which occur to goods in transit. Marine insurance is a contract of indemnity and the
most complex of all insurance contracts. It is the oldest form of modern insurance contract.
Marine insurance has been defined as a contract whereby the insurer undertakes to indemnity
the assured in manner and to the extent thereby agreed against marine losses.

Marine insurance is an arrangement by which the insurer undertakes to compensate

the owner of the ship or cargo for complete or partial loss at sea. So it provides protection
against loss because of marine perils. The marine perils are collisions with rock, ship attack
by enemies, fire etc. Marine insurance insures ship, cargo and freight.
The following kinds of marine policies are -
- Voyage policy
- Time policy
- Valued policy
- Hull Policy
- Cargo Policy
- Freight Policy
Types of Marine Insurance Policy explained below
There are different types of marine insurance. They include:

Voyage Policy

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 It covers the subject matter for a specific journey it is usually “at and from” or from
one place to another.

Time Policy
Where the insurance policy covers a definite period of time, the policy is held to be a
time policy. A marine insurance contract for voyage and time policies may be included in the
same policy. Where an insured takes a time policy in a marine insurance certain precautions
have to be taken including the insured ensuring that all the vessels carrying its goods do so
and discharge the goods within the limited period specified in the contract. This is because on
the expiration of the time stipulated, the insurer will not be liable to indemnify the insured for
such a loss. The insured could also ensure that the policy contains a “continuation clause”
which automatically continues the insurance after the expiration of the insured period until the
ship arrives at the port of destination.

Valued or Unvalued Policy

A policy may be either valued or unvalued. A valued policy usually specifies the agreed
value of the subject matter insured. In contrast, an unvalued policy does not specify the value
of the subject matter insured but leaves the insurable value of the subject matter insured to be
subsequently determined.

(iii) Miscellaneous Insurance: It includes various forms of insurance including property

insurance; liability insurance, personal injuries are also insured. The property, goods,
machine, furniture, automobile, valuable goods etc. can be insured against the damage or
destruction due to accident or disappearance due to theft.
Miscellaneous insurance covers
- Motor
- Disability
- Engineering and aviation risks
- Credit insurance
- Construction risks
- Money Insurance
- Burglary and theft insurance
- All risks insurance
2. Liability Insurance
Liability insurance entails the insured obtaining an insurance cover to indemnify him
against legal liabilities arising from third party claims. The amount payable by the insurer is

29
restricted to the insured sum irrespective of the extent of the insured’s liability. Liability
insurance policy includes product liability, employers’ liability and professional liability. It is
utilized in developed countries to afford the insured financial security or protection against
financially crippling legal suits that could arise in the course of practicing a persons’ trade or
occupation.

Liability insurance is insurance cover which protects the insured against risk imposed
by law suits and ancillary claims. It covers legal costs and payments for which the insured is
liable. The insurer is liable to pay the damage of the property or to compensate the loss of
personal injury or death. It includes fidelity insurance, automobile insurance and machine
insurance.
The following are types of liability Insurance:-
- Third party insurance
- Employees insurance
- Reinsurance etc some will be explained below.
Types of Liability Insurance
Liability insurance is classified into

(a)Public Liability:
it is utilized by large organizations to protect themselves against law suit or claims
arising from their activities e.g a company may purchase pollution insurance cover to protect
itself from suits and claims arising from environmental pollution claims. This is due to the
adverse effect on third parties who may be injured or their property damaged. Public liability
insurance is mandate by some countries for certain classes of business

(b)Product Liability:
It is required to be utilized by manufacturers of products and supplier of goods to
provide them additional protection in the event of risk exposure e.g car manufacturers,
pharmaceutical companies, tobacco companies and manufacturers of recreational equipments
etc.

(c)Employers Liability:
Employers are obligated to provide insurance coverage for their employees to protect
them against work place injuries and risks exposure.

(d)Professional Liability:

30
 The coverage is to protect professionals like medical doctors, lawyers, accountants
who are susceptible to legal actions in the course of rendering their professional service.
Medical doctors are often prone to medical malpractice litigation and claims.

(e) General Liability:

General liability is an embracive coverage which includes protection for both public
and product liability.

Other forms of Insurance:

It include export credit insurance, state employee insurance etc. whereby the insurer
guarantees to pay certain amount at the happening of certain events.
The following are other form of Insurance-
- Fidelity Insurance
- Credit Insurance
- Privilege Insurance

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 CHAPTER FOUR: BANKING LAW

INTRODUCTION

Banks have become financial marketplaces, offering services in cash management,

investment advice and brokerage, and business financing.” As a result, the relationship
between businesses and banks is a complex one. These notes will highlight some of the key
legal requirements related to the banking agreement, negotiable instruments etc.
THE HISTORY OF BANKING IN CAMEROON
Pre-colonial Cameroon did not witness the operation of the banking profession as it
exists today. Before her contact with the Europeans, small groups of contributions existed in
which money circulated among members providing credit and saving facilities on interest.
Such groups were generally known as “njangi” or “tontine”.

It was not until the subsequent trade at the coast of Cameroon and the subsequent
German colonization that the country witnessed the creation of the first bank. These were the
German banks of Deutsch westafricanische Handelsgesellschaft M.B.H. Bibundi and
westafricanische pflanzungsgellschaft Victoria.

After the defeat of the Germans by the French and English in 1916, the Germans lost
the colony of Cameroon to the French and English who then proceeded to partition it.

To meet up with the high level of trade at that time, and in their desire to replace the
Germans in all spheres, the British created branches of Barclays Bank (dominion Colonial and
Overseas) in British Cameroons. This was not the only British bank that operated at the time
in British Cameroon. They were later to create branches of the bank of West Africa, even
though its activities were not as extended as those of the Barclays Bank.

In 1959, the government of Southern Cameroons decided to create a national Bank in

order to enhance its economic development. In this regard, the financial secretary and the
Chairman of the Southern Cameroon Development Agency set out proposals for the
establishment of a Commercial Bank in a memorandum which was sent to the central bank of
Nigeria on the 15th of September 1960 for an opinion. The central bank on Nigeria replied
favorably to this wish on the 19th of November 1960 in these terms;

“The interest of the central bank is in seeing that, any bank which may be established,
shall be in a position to carry out its functions on a sound basis and serve the interest of its
depositors and the economy of the country as a whole”.

After some background work following this favorable reply from the central Bank of
Nigeria, Cameroon bank Ltd. Was incorporated on the 29th of July 1961 and started with a
share capital of 250 million francs CFA divided into 250 thousand shares of 1000 francs CFA
each.

32
 Meanwhile, in East Cameroon, where the French were administering, the banque de
l’Afrique Occidentale, a bank created under the French Banking Law of 1921 provided the
economy banking services.

DEFINITION OF BANK OR BANKER

The word “bank” is said to be derived from the Italian word “Banco”- a bench. This is
because the early Jewish Bankers in Lombardy transacted their business at Benches in the
market place. When the banker failed at the time, his “Banco” was brokenup by the people.
Hence the word “Bankrupt”.

It will be extremely difficult to formulate all the embracing definition of a bank on

account of the multifarious tasks performed by these institutions. However, the following
opinion will be helpful.
In the first place, Dr. Hart defines a bank as:

“A person or company carrying on the business of receiving money and collecting

drafts for customers subject to the obligation of honoring cheques drawn upon them from time
to time by the customer to the extent of the amount available on their current account”.
On the other hand, the Halsburg’s law of England defines a banker as:

“An individual partnership or corporation whose sole or predominant business is

banking, That is, the receipt of money on current or deposit account and the payment of
cheques drawn by and the collection of cheques paid in by a customer”.

In conformity with article 46 of Ordinance No 85/002 of 31 August 1985, the

November 9th 1990 Law far from defining banks, classifies them into two categories

- Deposit banks
- Specialized banks

Deposit banks have as mission, the reception of deposits of funds from the public and
the granting of loans to customers. By virtue of the fact that deposit banks grant loans out of
funds deposited by customers’ it is in the interest of depositors that they do not involve
themselves too much in industrial and commercial speculations. Consequently Article 7(1)
forbids deposit banks from investing more than 20percent of their capital in any company.

Specialized Banks are banks which must raise their own capital and have as scope or
activity the granting of medium and long term loans and the taking up of shares in companies.
There is no limitations as to the percentage of capital specialized banks can invest in a
company.

COBAC Regulations R-2009/02 categorizes Credit establishments into universal

banks, specialized banks and financial establishments of financial companies.

Universal banks (see article 9 of COBAC Regulation R-2009/02) are those which are
authorized in a general manner to receive funds from the public. They have the right to carry
on all the banking functions as listed above. See article 1 to 5 of COBAC regulations R-
2009/02.
33
 Specialized banks (see article 10 of COBAC Regulation R-2009/02) are also
authorized to receive funds from the public but they can be distinguished from universal bank
by the specific or restrictive character of their scope of activity.

Financial companies: (see article 11 of COBAC Regulation R-2009/02) can only receive short
term funds from the public, generally not exceeding 2 years. They finance their activities with
their own capital and loans from other credit establishments or from other legal means.

They can carry on, only the banking activities that are indicated in their license, or
which are permitted by any statutory, legislative or regulatory dispositions applicable to it.

Specialized financial institutions (see article 12 of COBAC Regulations R-2009/02)

are institutions which can only receive short term funds from the public not exceeding two
years. They assume a mission of public interest decided by a national authority. The modality
for financing their activities as well as any banking activity which they can carry are regulated
by legislative and regulatory text concerning them, of course in respect of the general banking
regulations.
The Cameroonian legislator’s position is similar to that adopted in the French bills of
Exchange Act 1882- that of identifying a bank by looking at the transaction it offers.

DEFINITION OF CUSTOMER
At one time, it was thought that a person became a customer of a bank only when
banking services were habitually performed for him by the bank. The mere opening of an
account by the bank in the customer’s name was considered inadequate for this purpose.

THE NATURE OF THE CONTRACT AND THE RELATIONSHIP BETWEEN BANKER

AND CUSTOMER
THE NATURE OF THE CONTRACT
The contract between the bank and the customer in Cameroon is an example of what is
known in French law as a “Synallagmatic contract” and in English law as a “Bilateral
contract” this is so because it is a contract which creates reciprocal obligations each party
having both rights and duties.

The contractual relationship when the customer opens an account with a bank in Cameroon is
based largely upon the custom and usages have been recognized by the courts, consequently,
they can aptly be regarded as implied terms of the banking contract. As J. Milnes Holden puts
it:

“Little does a new customer realize when, with a minimum of formality, he opens a bank
account that he is entering into a contract, the implied terms of which would if reduced to
writing run into several pages.

THE NATURE OF THE RELATIONSHIP BETWEEN BANKER AND CUSTOMER

As already established, the general relationship a banker and customer is a contractual
one. From this contractual relationship, spring other relationships.

34
Classification of relationship
The relationship between a bank and its customer can be broadly classify in General
and special relationship.

General relationship
The debtor-creditor relationship
This relationship of banker and customer is most easily understood when one reflects
on the nature of the agreement between them. This is agreed that an amount equal to that
deposited has to be repaid by the bank. In the case of a current account, the amount is
repayable without interest against the customer’s demand.

The right to draw on the funds by means of cheque and money transfers constitutes the benefit
derived by the customer from his deposit of his money with the bank.

In the case of a fixed deposit, or of money paid to the credit of a saving account, the amount is
payable either by a determined date or at call with additional of interest. In all these cases, the
bank is entitled to co-mingle the amounts paid in by customers with its general funds and is
therefore entitled to use the money accumulated.

The essence of the contract of banker and customer is therefore the bank’s right to use
the money for its own purposes and its undertaking to repay an amount equal to that paid in
with or without interest. This analysis of the nature of the contract of banker and customer has
lead to the House of Lords to decide that fundamentally, the contract was one of debtor and
creditor.

Creditor-debtor relationship
Lending money is the most important activity of a bank. The resources mobilize by
bank are utilize for lending operations. Customers who receive money from bank must own
money in that bank. In the case of any loan/advances the bank always require for a collateral
security.

Special relationship
In addition to opening of an account or granting loans, banks also act as bailee, trustee,
principal, agent, lessor, and custodian.

Bank as a trustee
A trust is an obligation for one person to hold property on behalf of another. This
trustee is the holder of the settlor property (legal owner) on behalf of the beneficiary. In case
of trust, banker’s customer relationship creates a special contract. When a person entrust
valuable item with another person, with an intention that such an item will be returned on
demand of the keeper.
LESSOR/LESSEE RELATIONSHIP
The lease of immovable property is the transfer of right to enjoy such property within
a given period express or implied or in perpetuity in consideration of a price paid or promise
or of money.

35
 The relationship between the bank and customer is that of lessor and lessee. Bank
lessee hires lockers and gives them the right to enjoy such property during specified period
that is during office hours. Banks have the right to break and open the locker incase the locker
holder default payment of rent. Bank do not assume any liability or responsibility incase to
damage caused to the content kept in the locker.

PRINCIPAL/AGENT RELATIONSHIP
The relationship of creditor and debtor arises out of the deposit of money with the
bank. When the banker is performing certain duties, he frequently acts as an agent. Banks
often collect the proceeds of cheques as agents of their customers. When banks accept the
instructions of customers to purchase and sell stocks and shares, they do so as agents.

BAILOR/BAILEE RELATIONSHIP
Deposit of goods for safe custody is an example of an important type of contract of
quasi contract called bailment, a term which signifies the delivery of goods by one person the
bailor, to another person, the bailee on the terms that in due course they are to be redelivered
to the bailor or to his order. When banks received valuables from customers for safe custody,
a relationship of bailor/bailee is inevitably created between them.

A CUSTODIAN
A custodian is a person who act as a care taker of something for example banks take
care of customers securities.

AS A GUARANTOR
Banks gives guarantee on behalf of their customers and enters into their shoes.

FUNDAMENTAL PRINCIPLES OF BANKING

It is a fact that banking regulation can change depending upon the requirement of
every state. However, there are principles of banking regulation that never change. In other
words, these are the principles which are applied in every state banking regulation. There are
3 fundamental principles of banking regulation.

Meeting the minimum capital ratio requirement

Every banking regulation in the world has the clause to maintain minimum capital
ratio. These clauses are levied so that they can promote their duties of obeying regulators. All
banking institutions must follow these principles in order to remain licensed.

Maintaining market discipline

Another crucial principle of banking regulation which must be used by every bank is
that of maintaining market discipline. These principles compel the bank within the state to
disclose finance similar information yearly or monthly to the public. The reason of these
principles is to make sure that the investors or depositors and the employees of the bank can
access financial risk.

Getting license
No bank in the country is allowed to function without the license by the regulators. The
regulator is responsible for supervising the licensing bank and monitoring their activities.

36
TERMS OF CONTRACT BETWEEN BANKER AND CUSTOMER
The contents of the contract between the banker and customer as seen in the
introduction of this course are hardly embodied in a formal document negotiated between the
banker and the customer. However, since the business of banking is an old one, the courts
have had to settle problems emanating from the relationship between the banker and customer
in the ordinary course of business when a current account of business is opened, may be stated
as follows:

BANKER’S DUTY OF SECRECY:

The Bank is under a legal obligation to keep its customer’s affaire in secret. This duty
of secrecy is easily explained on the basis of economic policy. The bank has in effect, a very
detailed knowledge of its customer’s financial affairs. All these details are acquired by the
bank whilst acting as its customer’s paymasters, and receiver of amounts due to him and
frequently, in its role as a customer’s major or sole financier.

The banker’s duty of secrecy was succinctly enacted by the Cameroonian legislator in
Ordinance No 85/002 of 31st August 1985 relating to the operation of credit establishments.
Article 45 of that ordinance states that:

Each member of the board of Directors and any person who, in any capacity, takes
part in the running or, management or supervision of a credit establishment, or who is an
employee thereof shall be bound by professional secrecy.

The Law governing banking secrecy in Cameroon today, is law No. 2003/004 of 21st
April 2003. Article 3 of this law indicates that secrecy consist of the obligation of
confidentiality imposed on credit establishments in relation to acts, facts and information
concerning their customers which come to their knowledge in the course of exercising their
functions.
Article 4(2) states that, this same obligation extends to individuals who not being part
of the personnel of credit establishment obtained information.

English law governing the Banker’s duty of secrecy has been clearly and
comprehensively laid down in the land mark case of Tournier V. National Provincial and
Union Bank of England, [1924] 1 K.B. 461. In that case, the plaintiff whose account with
the defendant bank manager was heavily overdrawn failed to meet the repayment demands
made by the branch manager. On one occasion, the branch manager, noticed that a cheque
drawn to the plaintiff’s order by another customer was collected for the account of the
bookmaker. The branch manager there upon rang up the plaintiff’s employer’s obsensibly to
ascertain the plaintiff’s private address, but, in the course of the conversation, he disclosed
that he disclosed that the plaintiff’s account was overdrawn and that he had dealings with
book makers. As a result of this conversation, the plaintiff’s contract was not renewed by the
employer’s upon its expiration. The plaintiff consequently brought an action against the bank
for damages for slander and for breach of an implied term of the contract between him and the
bank will not disclose to third party the state of his account or any transaction relating to it.
Judgment was entered for the bank. On appeal the three members of the court of appeal

37
Bankes, Scrutton, and Atkin L J where unanimous in the view that the bank was guilty of a
breach of a duty of secrecy and awarded damages against it. What they differed on was the
type of information which is covered by the banker’s duty of secrecy.

That the duty is not absolute but qualified is the view expressed by the Cameroonian
legislator when the states in the proviso of Article 45 of Ordinance No 85/002 of 31 st August
1985 relating to the operation of credit establishment that;

However, except in cases provided by the law, professional secrecy may not be raised
in respect to the minister in charge of currency and credit, the supervisory board, the national
credit council nor the bank of Central African States.

The qualified nature of the duty of secrecy under the Cameroonian law is also
indicated by section 310 and 311 of the penal Code. This section talk of “whoever without
permission from the person interested in secrecy reveals-“

The exceptions of the banker’s duty of secrecy are of considerable importance that some
details analysis of each is required.
COMPULSION AT LAW
That a bank can be compelled by law to disclose the state of its customer’s
account is recognized by the provision of article 45b of Ordinance No 85/002 of 31 August
1985 when it states that;

However, except in cases provided for by the law, professional secrecy may not
be raised in respect of the minister in charge of money and credit, the supervisory Board, the
national credit council nor the bank of Central African States.

Article 8 of 25 of law No 2003/004 catalogues instances where the bank will be under
compulsion at Law to make disclosure of the customer’s account.

DUTY TO THE PUBLIC TO DISCLOSE

The duty of the public to disclose is the second exception to the bank’s duty of secrecy
as postulated by Bankes L. J .in the Tournier’s case. Jack Vezian holds that disclosure is
allowed wherever the court realizes that other interests to be protected are equal or superior to
the interest of the customer. This would include cases where a garnishee order is served upon
a bank and also cases where information is demanded by the monetary or judicial authorities.

In Tournier’s case Bankes L. J. relied on the words of Lord Finlay in Weld Blundell
V. Stephens, [1920] A.C. 1956, to the effect that danger to the state may supersede the duty
of the secrecy owed by an agent of his principal. See, Article 6 (d) of the 2013 law.

DISCLOSURE IN THE BANK’S OWN INTEREST

The third exception to the bank’s duty of secrecy as brought out by Bankes L.J is where
disclosure is made in the interest of the bank. Whenever there is Litigation between the bank
and the customer, in order to prove its case, has the right to make disclosure which ordinarily
will be sanctioned .for example, if a Bank sues to recover money in lent to a customer, the
bank has the right to disclose in its pleading the state of the customer’s account and the
amount owed by him to the bank.

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DISCLOSURE WITH CUSTOMER’S CONSENT
Disclosure with the customer’s consent is the last exception to the banker’s duty of
secrecy postulated by Bankes L.J. this exception is however not strange under Cameroonian
law sections 310 and 311 of the penal code acknowledges consent of the customer as an
exception of the banker’s duty of secrecy. Both sections talk of “whoever without permission
from the person interested in secrecy reveals any confidential fact…” Jack Vezian equally
acknowledges consent of the customer as an exception to the Banker’s duty of secrecy cannot
be invoked when the customer himself consents expressly or tacitly that information on his
account should be disclosed. In this case, he gives authorization for the duty of secrecy to be
lifted.
English law distinguishes between express and implied consent, and also between
general and special consent.

A customer is said to have expressly consented, when he clearly and definitely

authorizes his bank to disclose his affaires to a third party. An example is the giving of bank
references. It has been said that the extent to which he authorizes the bank to disclose his
affaires to a third party. The decision arrived at by Parcq L.J. in Sunderland V. Barclay Bank
Ltd, was based on the implied consent given the bank by its customers to disclose information
concerning her account to her husband.

There is controversy over disclosure made by the bank to an intending guarantor who
calls all the customer’s Bank and for the purpose of signing a guarantee form asks questions
concerning the way in which the customer impliedly authorized disclosure. This view has
been questioned by lord Chorley Q.C. in the face of this controversy, Banks solve this
problem by arranging a joint meeting between the guarantor, the customer and the banker, at
which the guarantor may in the customer’s presence ask for information on any matter
concerning the customer’s affairs.

SANCTIONS FOR BREACH OF THE BANKER’S DUTY OF SECRECY

See to this effect section 26-29 of law No. 2003/004 of 21 April 2003 on banking
secrecy. Section 26(1) punishes those ever violates the duty of banking secrecy with
imprisonment term of 3 months to 3years or with a fine of 1 million to 10 million CFA francs
or both such imprisonment and fine.

THE STATEMENT OF ACCOUNT

The bank is under a duty to inform the customer of the state of his account. The bank
does this either by furnishing the customer with periodic statements of his current account or
where pass-books are still in use, the customer presents it to the bank from time to time to be
brought up to date.

Article 49 of the 1985 Ordinance states that “Banks shall be bound to prepare monthly
statements which shall be published”. It is not clear whether the statement is the above article
refers to the general balance sheet of the bank or to the individual statement of account of the
customer. There is good reason to believe that it refers to the former given that the former
given that the duty of confidentiality will not warrant individual statements to be published.
However the following Article 1 and 2 of the decision of a general character No 1/78 of 9th

39
March 1978 commercial banks are called upon systematically to send to their customers,
monthly statements of accounts and their opinion on all operations not initiated by the
customer.

THE BANK’S RIGHT TO RECTIFY ERRORS

The problem usually arises when the bank credits the customer’s account with the
wrong amount or with a sum not due to him. The moment the bank discovers the mistake, it
rectifies the entry if the customer disputes the bank’s right to do so he has to institute
proceedings. Two pleas are open to him. The first is that the bank is estopped from disputing
the correctness of the balance as shown in the pass-book or in the periodic statement. The
second is based on a claim that the balance constitutes an “account settled” or an “account
stated”

THE CUSTOMER’S RIGHT TO DEMAND CORRECTIONS

Sometimes the bank commits errors in statement and pass-books issued to customers.
Once these errors come to the notice of the customer he becomes interested in having the
wrong entry corrected. These errors may come when a customer’s account has been credited
with an amount smaller than that of an item payable to him, or when a customer’s account is
debited with an amount larger than that for which he drew the cheque. The errors could
equally surface where the amount of the customer’s cheque has been fraudulently raised.
Computer faults have been responsible for errors too.

Generally, when customers realize errors and demand corrections, the banks are
prepared to accede to their wishes. This attitude of the banks can be explained by the fact that
they need to inculcate in the customers a certain degree of confidence in dealing with banks.
Once customers do not trust banks, they will find it risky to deposit their liquid assets with
them.

THE BANK’S DUTY TO PAY CHEQUES

This is a fundamental duty of the bank arising from the fact that the FOLEY V. HILL,
(1848) 2 H.L.C. 28, that the relationship between the banker and the customer is basically that
of debtor and creditor.

A cheque is an unconditional order in writing addresses by one person to another who

must be a banker, signed by the person giving it, requiring the banker to pay on demand a sum
certain in money to or to the order of a specified person or to bearer. From the above,
definition, we can discern that Cheque serve two main objectives. The first objective is that it
enables the customer who has a current account to obtain repayment of the fund lent by him to
the bank. In order to do this the customer draws a cheque payable to his own order and cashes
to him at the bank counter. The second objective is that it enables payment of an amount due
from the drawer to a third party. In this case the cheque is drawn to the order of the person
involved.

40
TERMINATION OF A CONTRACT BETWEEN THE BANKER AND THE CUSTOMER
This chapter examines the events that can put an end to the contractual relationship
existing between the bank and the customer. It shall also highlight the problems that could
arise from such termination.

The contractual relationship established between the bank and the customer can be
brought to an end by the occurrence of any of the following event: closure of accounts, death
of the customer, mental incapacity of the customer, bankruptcy of the customer, winding up
of a company, winding up of the bank, a garnishee order, a writ of sequestration and lastly by
the outbreak of war.

CLOSURE OF ACCOUNT
The relationship between banker and customer like any other contractual
relationship may in theory be brought to an end b mental agreement. The day to day
happenings however portrays that it is one of the other party who will always want to put an
end to the relationship and so the contract is usually terminated unilaterally. Consequently it
would be convenient to discuss closure of account under two headings closure of account by
the customer and closure by the bank.

CLOSURE OF ACCOUNT BY CUSTOMER

Suppose a customer is operating a current account and wishes to close it, the
balance standing to a customer’s credit on such account is repayable on demand.
Consequently, he may close his account which is in credit by demanding repayment of the
balance due, less accrued bank charges. It will always be a prudent step for the bank to
insist that the customer notifies in writing the fact that he is closing the account and not
merely withdrawing the available balance.

CLOSURE OF ACCOUNT BY BANKER

The banker, like the customer has the right unilaterally to terminate the contractual
relationship existing between him and the customer. This he could exercise by closure of
account.

DEATH OF CUSTOMER
The contract of banker-customer being of a personal nature terminates automatically
when the customer dies. When the customer dies, the right to receive any sum owed him
passes as a general rule to his personal representative. If he leaves a will and appoints
executors, the credit balance with his bank will vest in the executors as from the date of the
death. But if he dies intestate, all his property including his bank balances will vest in the
president of the family division of the high court until administrators are appointed.

MENTAL INCAPACITY OF THE CUSTOMER

When it is determined that a person is incapable by reason of mental disorder, of
managing, and administering his property and affairs, it becomes the responsibility of the
master of the court of protection to ensure maintenance or other benefits of the patient and
members of his family. In order to do this, the master has the powers to appoint a receiver for
the patient. The receiver’s power and duties are specified in the master’s orders by which he is
appointed, and it is always prudent for the bank to ask to see a copy of the order. A relative of

41
the patient is usually appointed as a receiver. Once a receiver is appointed, the banker should
treat the contract between himself and the customer as determined. What the banks generally
do in this case is to close the customer’s account and transfer any credit balance to a new
account in the name of the receiver. If the patient’s business is to be carried on, a separate
account will usually be opened for business purposes.

BANRUPTCY OF CUSTOMER
In the old case of Vermon V. Hankey, (1787), the decision was arrived at that a
banker can decline to honor his customer’s cheque if he had notice of an act of bankruptcy
committed by the customer. It was further held that if the bank paid a customer’s cheque in
such circumstances, it might be compelled to pay again to the trustee. The position of law has
changed today. A bank will be protected if it continues to pay cheques drawn by a customer
until he learns that a bankruptcy petition has been presented. For the bank to be protected it
must show that payment was made4 before the actual date on which the receiving order was
made, and the payment must be either pursuant to the ordinary course of business or
otherwise bona fide.

WINDING-UP OF COMPANY
Some banks have as customers, companies. The winding-up of a company is likened
to the death of an individual. Once a company is wound up, it ceases to have any legal
existence and all its contractual relationships come to an end. However, during the period
between commencement of winding-up and final dissolution, existing contractual relations of
banker and customer will continue though control of the bank account will pass from the
directors to the liquidators.

Banker’s lien
Lien is the right of a creditor in possession of a good, security or any other assets
belonging to the debtor to retain them until the debt is repaid provided that there is no contract
express or implied to the contrary. It is the right to retain possession of specific good or
securities or other movables of which the ownership is vest onto other persons and the
possession can be return till the owner discharges to the debt or obligation to the possessor.
The creditor (bank) has the right to maintain the security of the debtor. There are two types of
lien.

Particular lien:
A particular lien gives the right to return possession only on those goods in respect of
which the dues have uplifted. It is also termed as ordinary lien

Right of general lien:

Bankers have the right of general lien against its borrowers. General lien confers
banks right in respect of all dues and not for a particular due.

A general lien give the right to return possession of any good under the legal
possession of a creditor until the hold of the debt due from the debtor is paid.

The right of set-off

The bank has the right to set-off the account of its customer.

42
 Right of appropriation
It is a right of the customer to direct his banker against which debt he need to pay
when more than one debt is outstanding. The payment made by him should be appropriate. In
case no such direction is given the bank can exercise its right of approbation and apply it in
payment of any debt.

Distinction between the following words:

- Guarantees and securities

A bank guarantee is a promise from a bank or lending institution that, if a borrower
defaults on repayment of a loan, the bank will cover the loss. A bond is a debt instrument in
which an investor loans money to a corporation or government institution in return for some
amount of interest earned over the life of the bond. So, while a bond is essentially a loan
issued by an entity and invested in by outside investors, a bank guarantee is a promise that can
be included in a bank loan.

Negotiable Instruments
A negotiable instrument is “a written contract containing an unconditional promise
or order to pay a specific sum on demand or on a specified date to a specific person or bearer.
One can also be forced to say a negotiable instrument means a promissory note, bill of
exchange or cheque payable either to order the bearer weather the word order or bear appear
on the instrument or not.

Thus the term negotiable instrument means a written document which creates a right
in favour of some person which is freely transferable.
There are three distinguishable features of a negotiable instrument that are not
common to the ordinary assignment of contractual rights, as discussed below. These are
designed to facilitate the free transfer of negotiable instruments from party to party. Even if an
instrument is not negotiable, in that it fails to meet one or more of the criteria, it still may be
assignable as a contractual right as discussed under contract law.

1. Notice of the assignment need not be given to the original promisor.

This makes a negotiable instrument enforceable at face value and allows the holder to
collect on the instrument even if the original debtor has not been notified of transfer(s) that
have taken place.

2. The assignee may sometimes acquire a better right to sue on the instrument than its
predecessor (assignor) had.
This gives an innocent party who acquires possession of a negotiable instrument the
right to collect on it whether the original contractual obligations have been met or not, unless
there has been fraud or forgery with respect to the instrument. In commercial transactions,
banks and other institutions are willing to discount drafts or cash cheques drawn on other
banks or institutions because the law provides them the protection of holders in due course
and allows them to enforce payment despite defects of title such as a forged signature,

43
incapacity to contract as a result of drunkenness or insanity, or discharge of the instrument by
payment.
For example, where a purchaser pays for goods with a cheque and the goods turn out
to be defective, the purchaser can stop payment on the cheque as long as it is in the hands of
the person/business to whom it is made out. If the cheque has been transferred to an innocent
third party (even the payee’s bank), the purchaser will have to pay and seek recourse through
contractual law against the vendor of the goods.

3. A holder may sue in its own name any other party liable on the instrument without joining
any of the remaining parties.
There are seven essential criteria for negotiable instruments to acquire the desirable
features set out above.

Criteria for Negotiable Instruments

1. The promise or order must be in writing.

2. The obligation must be for money payment.

3. The money promised must be a "sum certain."

4. The promise or order must be unconditional.

5. The money must be payable at a fixed or determinable time or on demand.

6. Negotiation must be of the whole instrument.

7. The instrument must be signed by the drawer or maker (or an authorized agent).

TYPES OF NEGOTIABLE INSTRUMENTS

Promissory note
Sometimes referred to as a note payable, is a legal instrument, in which one party
promises in writing to pay a determinate sum of money to the other, either at a fixed or

44
determinable future time or on demand of the payee, under specific terms.

Bill of exchange
A bill of exchange is an instrument in written form containing an unconditional order sign
by the maker directing a person to pay a certain sum of money only to or to the other of a
certain person or to the bearer of the instrument.

45
 CHAPTER FIVE
LAW OF ARRITRATION
The law governing commercial arbitration in Anglophone Cameroon is essentially statutory.
The relevant statutes are the arbitration Act of 1999 as amended in 2017, by virtue of section
11 of the Southern Cameron High Court Law of 1955 and the OHADA Uniform Act on
Arbitration. The OHADA Uniform Act on Arbitration states in its Article 1 that, the
provisions of this act shall apply to all arbitration Tribunal siting in any of the contracting
states Article 2 goes farther to state that all persons, physical or moral shall be subjects of
arbitration law provided they freely agree to settle their disputes by way of arbitration Thus,
states, other public collectivity and public establishments can equally be parties before an
arbitral tribunal. The OHADA Uniform Act on Arbitration law is therefore the main source of
the law of arbitration in Cameroon.

THE NOTION OF ARBITRATION

Arbitration is a form of alternative dispute resolution mechanism, it is a technique for the
resolution of disputes outside the court, where the parties to a dispute refer it to one or more
person (the arbitrators arbiters or arbitral tribunal, by whose decision the award, they agree to
be bound. It is a resolution technique in which a third party reviews the evidence in the case
and imposes a decision that is legally binding for both sides and enforceable.

ARTICLE 3
Every arbitration agreement shall be in writing, or in any other form evidencing its
existence,in particular, by reference in a contract to a document containing an arbitration
clause.

ARTICLE 4
The arbitration agreement shall be independent of the main contract. Its validity shall be in
accordance with the common intention of the parties, without necessarily referring to the
national law. In any case, the parties may, by mutual agreement, resort to an arbitration
agreement, even when proceedings are already pending before another jurisdiction.

COMPOSITION OF ARBITRAL TRIBUNAL

ARTICLE 5
Arbitrators shall be appointed, removed or replaced in accordance with the agreement of the
parties. Failing such arbitration agreement, or where the arbitration agreement is insufficient:

a) arbitrators thus appointed shall choose the third arbitrator; if a party fails to appoint an
arbitrator within a period of thirty (30) days from the receipt of a request to do so from the
other party, or if the two arbitrators fail to agree upon the third arbitrator within a period of
thirty (30) days from their appointment, the appointment shall be made, upon request of a
party, by the competent judge in the State Party; in an arbitration with three arbitrators,
each party shall appoint one arbitrator and the two
46
b) arbitrator, the latter shall be appointed, upon request of a party, by the competent judge in
the State Party.in an arbitration with a sole arbitrator, if the parties fail to agree upon
appointment of the

ARTICLE 6
Only a natural person may be an arbitrator.

The arbitrator must have full capacity to exercise his civil rights, shall remain independent
and impartial in relation to the parties.

ARTICLE 7
The person who accepts to be an arbitrator shall communicate his acceptance to the parties by
any means evidenced in writing.

Where the arbitrator is aware of any ground for his recusal, he shall so inform the parties and
may accept his mission only with the written consent of the parties.

In case of a dispute, and where the parties have not agreed on the procedure for recusal
(Withdrawal of a judge), the recusal may be brought before the competent judge in the State
Party, whose decision shall not be subject to appeal. Any ground for recusal shall be raised
without delay by the party who intends to rely on such
The recusal of an arbitrator shall be admissible only on grounds disclosed after his
appointment.

ARTICLE 8
The arbitral tribunal shall be composed of either a sole arbitrator or three arbitrators.

Where the parties appoint an even number of arbitrators, the arbitral tribunal shall be
completed by an arbitrator chosen either in accordance with the agreement of the parties or, in
the absence of such agreement, by the appointed arbitrators or, failing an agreement between
the appointed arbitrators, by the competent judge in the State Party.

The same procedure shall apply in case of recusal, incapacity, death, resignation or removal of
an arbitrator.

ARBITRAL PROCEEDINGSCHAPTER III

ARTICLE 9
The parties shall be accorded equal treatment and each party shall be given full opportunity of
presenting his case.
ARTICLE 10
Where the parties have agreed to submit to arbitration by an arbitration institution, they shall
be deemed to have submitted to the rules of the said institution unless they have expressly
agreed to exclude some of the rules.

47
Arbitral proceedings shall be deemed to commence when one of the parties refers the dispute
to the arbitrator or arbitrators in accordance with the arbitration agreement or in the absence
of such appointment, as soon as one of the parties commences the procedure for the
composition of the arbitral tribunal.

ARTICLE 11
The arbitral tribunal shall rule on its own jurisdiction, including any objections with respect to
the existence or validity of the arbitration agreement. An objection that the arbitral tribunal
lacks jurisdiction shall be raised before the submission of the statement of defence except the
facts on which it is based were revealed subsequently. The arbitral tribunal may rule on its
own jurisdiction in an award on the merits or in a partial

ARTICLE 12
If the arbitration agreement is silent on the time-limit, the mission of the arbitrators shall not
competent judge in the State Party at the request of one of the parties, or by the arbitral
tribunal itself. The legal or agreed time-limit may be extended, either by agreement of the
parties, or by the

ARTICLE 13
Where a dispute, pending before an arbitral tribunal in accordance with an arbitration
agreement, is submitted to a national court, the latter shall, upon request of one of the parties,
decline its jurisdiction.

Where the dispute has not yet been referred to an arbitral tribunal, the national court shall
none the less decline jurisdiction unless the arbitration agreement is manifestly null and void.

In any event, the national court shall not of its own motion decline jurisdiction.

However, the existence of an arbitration agreement shall not prevent a court, upon request of
one party, in the event of recognised urgency or where the measures shall be executed in a
State which is not a party to OHADA, from ordering interim or conservatory measures, as
long as this does not involve the hearing on the merits of the substantive dispute, over which
the arbitral tribunal has exclusive jurisdiction.

ARTICLE 14
The parties may, directly or by reference to a set of arbitration rules, determine the rules of
procedure; they may also subject this procedure to a procedural law of their choice. Failing
such agreement, the arbitral tribunal may conduct the arbitration in such a manner as it
considers appropriate. The burden of proof shall lie on the parties to establish the facts relied
on in support of their claim or defence.

The arbitrators may request the parties to furnish an explanation of the facts in issue and to
adduce by any legally admissible means, any evidence which they consider necessary in
support of their claim or defence.

48
They shall not in their decisions rely on grounds, explanations or documents referred to or
tendered by the parties unless each party has been given an opportunity of presenting its
observations thereon.

They shall not base their decision on grounds raised of their own motion without having
invited the parties to present their observations in relation thereto on motion or upon
application, request the assistance of the competent judge in the State Party. Where the
assistance of the court is necessary to obtain evidence, the arbitral tribunal may of its
arbitration, shall be deemed to have waived the right to raise it. A party who, knowingly, fails
to raise, without delay, an irregularity and proceeds with the relating to handwriting
verification or a forgery. Unless agreed otherwise, the arbitrators shall equally have
jurisdiction to rule upon objections

ARTICLE 15

The arbitrators shall apply the law designated by the parties as applicable to the substance of
the dispute or failing such designation, the arbitrators shall, where applicable apply, the law
considered applicable to the transaction most appropriately take into account international
trade customs and usages

They shall also decide as amicable compounders where the parties have given them such
powers.

ARTICLE 16
The arbitral proceedings shall terminate upon the expiration of the time limit for the
arbitration, except in case of extension by agreement of the parties or by order of the arbitral
tribunal.
The arbitral proceedings shall also terminate where the claim is admitted, in case of
withdrawal by the claimant or an amicable settlement or when a final award is made.

ARTICLE 17
The arbitral tribunal shall fix the date to which the matter may be adjourned for deliberation.
After this date, no claims or further submissions may be made.
No observations may be made or documents produced unless expressly requested in writing
by the arbitral tribunal.
ARTICLE 18
The deliberations of the arbitral tribunal shall be in secret.

THE ARBITRAL AWARD

ARTICLE 19
The arbitral award shall be made in accordance with the procedure and form agreed upon by
the parties.

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In the absence of such agreement, the award shall be made by a majority of the arbitrators
when the arbitral tribunal is composed of three arbitrators.

ARTICLE 20
The arbitral award shall contain the following particulars:

- the full names of the arbitrator (s) who made the award; - the date of the award,
- the seat of the arbitral tribunal;
- the full names or company name of the parties as well as, their residence or registered
office. - where applicable, the full names of counsel or any person who represented or
assisted the parties;

- a summary of the respective claims and defences of the parties, their submissions as well
as the stages of the proceedings.
The arbitral award shall state the reasons upon which it is based.

ARTICLE 21
The arbitral award shall be signed by the arbitrator or arbitrators.

However, where a minority of the arbitrators refuses to sign the arbitral award, mention shall
be made of such refusal and the arbitral award shall have the same effect as if it had been
signed by all the arbitrators.

ARTICLE 22
The award renders the arbitrator functus officio in relation to the dispute.

However, the arbitrator has the power to interpret the award or to correct material errors and
omissions in the award.
Where the arbitrator omits to rule on any aspect of the claim, he may do so in an additional
award.

In notification of the award. The tribunal shall rule within 45 days either of the above
mentioned cases, the application shall be filed within 30 days of Where the arbitral tribunal
can no longer be convened, the action shall be brought before the competent judge of the State
Party.

ARTICLE 23
The award has, from the moment it is made, res judicata effect with respect to the dispute
which
ARTICLE 24
The arbitration may grant provisional enforcement of the arbitral award if such provisional
enforcement has been requested, or they may reject such request, by a reasoned decision. The
arbitrators may grant provisional enforcement of the arbitral award if such provisional

APPEAL AGAINST THE ARBITRAL AWARD

ARTICLE 25

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An arbitral award shall not be subject to opposition, or appeal in a Court of Appeal or to the
Highest Appellate Court.
It may be subject of an application for annulment filed before the competent judge in the State
Party.

The decision of the competent judge in the State Party shall only be appealable before the
Common Court of Justice and Arbitration.

The arbitral award may be the subject of an intervention filed before the arbitral tribunal by
any natural or corporate person who was not given notice of the proceedings and whose rights
are imperilled as a result of the award.

It may also be subject to an application for review before the arbitral tribunal upon the
discovery of facts which may decisively influence the award but which at the time of the
award were unknown to the arbitral tribunal and to the party applying for the revision.

ARTICLE 26
- An application for annulment shall be admissible only in the following cases :
- if the arbitral tribunal has ruled without an arbitration agreement or on the basis of a void
or expired agreement;
- if the arbitral tribunal was improperly constituted or the sole arbitrator was irregularly
appointed;
- if the arbitral tribunal failed to comply with its assigned mission ;
- if the principle of adversary proceeding has not been respected;
- if the arbitral tribunal has violated a rule of international public policy of the States
signatories of the Treaty;
- if the award does not state the reasons on which it is based.
ARTICLE 27
award bearing an exequatur.no longer be admissible if it is not brought within one month of
the date of notification of the application for annulment shall be admissible immediately the
award is rendered.
ARTICLE 28
Except where provisional enforcement has been ordered by the arbitral tribunal, an
application for determination of the application by the competent judge in the State Party.

The competent judge shall also have jurisdiction to rule over disputes relating to provisional
enforcement.
ARTICLE 29
Where the arbitral award has been declared null and void, it shall be incumbent on the most
diligent party, if he so desires, to commence fresh arbitration proceedings in conformity with
the provisions of this Uniform Act.

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RECOGNITION AND ENFORCEMENT OF ARBITRAL AWARDS
ARTICLE 30
The arbitral award may be forcefully executed only by virtue of an order of exequatur granted
by the competent judge of the State Party.

ARTICLE 31
Recognition and exequatur of the arbitral award presuppose that its existence is proven by the
party relying thereupon.

The existence of the arbitral award is established by the production of the original together
with the arbitration agreement, or by copies of the said documents accompanied by proof of
their authenticity.

If the said documents are not in French, the party shall produce a translation certified by a
translator registered on the list of experts established by the competent courts. contrary to a
rule of international public policy of the States Parties. The recognition and exequatur shall be
refused only where the arbitral award is manifestly

ARTICLE 32
The decision to refuse the exequatur shall only be subject to appeal before the Common Court
of Justice and Arbitration sitting as the Highest Appellate Court.
The decision to grant the exequatur shall not be subject to any appeal.
It shall be brought in front of the competent judge of the State Party.

ARTICLE 33
The dismissal of the application for annulment shall automatically validate the arbitral award
as well as the decision granting the exequatur.

ARTICLE 34

Arbitral awards rendered on the basis of rules other than those of the present Uniform Act
shall be recognized in the States Parties in accordance with any international conventions that
maybe applicable and, failing any such conventions, in accordance with the provisions of this
Uniform Act.

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 CHAPTER SIX:
THE GENERAL TAX LAW OF CAMEROON.

A tax is a compulsory financial contribution by citizens of a country to enable the

government of a country meet up with public expenditures. Taxes are therefore
required to cover government expenditures. For a long time government
imposes taxes to raise revenue to cover the cost of administration and defense,
but nowadays, taxes are no longer imposed solely for the purpose of covering the
cost of administration and defense but also for the purpose of furthering social
and economic policy. The reason why government imposes taxes are as follows:

• To cover the cost of general administration, defence and provision of social

services,

• To check the consumption of commodities regarded as harmful to the

society,

• To redistribute labour,
• To reduce inequality in income.
3.1 TYPES OF TAXES IN CAMEROON.

A major part of government revenue is derived from taxes. Taxes in

Cameroon are of two main types, namely; direct taxes and indirect taxes. Direct
taxes are those levied on income, such as personal income tax, company tax and
capital gain tax. These taxes are all levied directly on the person receiving
income and paid by him directly to the taxation department, although most people
who work and receive wages or salary have their income tax deducted from their
pay by their employers. Indirect taxes on the other hand are those imposed on
goods and services. They are paid only when particular purchases are made.

Categories of Direst Taxes in Cameroon.

In Cameroon, there are two categories of direct taxes, namely company law and
personal income tax.

1. Company tax:

The Cameroon general tax Code in its section 2 stipulates that „ a tax shall be

53
levied on all profits, or income made by companies and other corporate bodies.
This tax shall be known as company tax‟. The following types of companies
and associations are exempted from paying company tax; cooperative societies
engaged in the production, processing, conservation and sale of agricultural,
livestock products, mutual aid societies and associations, nonprofit making
associations, council, regions, schools and clubs. All other forms of companies
and associations not listed above are liable to pay company tax in Cameroon.
Section 15 of the Cameroon general tax code states that, „the company tax shall
be assessed on the profits realized during the twelve month period, corresponding
to the financial year. The rate of company tax in Cameroon is 35% of the profit
made by the company or association during the period of assessment. Section 17
of the General Tax Code is to the effect that in calculating company tax, any
fraction of the taxable profit less than 1000 FRS shall be disregarded. It should be
noted that the rate of 35% is levied only on the net profit of the company. By
virtue of section 21 of the General Tax Code, company tax shall be paid on the
initiative of the tax payer as follows, one installment representing one percent of
the turn over realized during each month shall be paid not later than the 15 th of
the following month, such installments shall be paid at the end of the financial
year and the balance paid in one installment not later than the 15th of March of the
following financial year.

2. Personal Income Tax.

This is a kind of direct tax levied on the income of income earners in

Cameroon. It falls more heavily on the highest income earners. It is steeply
progressive; hence the most equitable form of taxation in Cameroon. Section 24
of the General Tax code states that, „A personal income tax, assessed on the
basis of the net total income earned is hereby instituted‟. Section 24(2) of the
same law stipulates that, the net total income: salaries, pension, and annuities,
income from stock and shared income from real estate, profit from
commercial activities, profit from farming businesses, profit from non-
commercial and related professions. By virtue of section 25 of the
General Tax Code, personal income tax is payable by every natural person resident
in Cameroon, except otherwise provided for by an international convention.
The following categories of persons are however exempted from personal
income tax; diplomatic and consular staff of foreign nationality subject to
reciprocity.

Indirect Taxes in Cameroon.

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 1. Value Added Tax

This is an indirect tax imposed on consumers‟ expenditure in Cameroon. It is

applied over the whole field of consumer transactions, services as well as goods.
All natural and moral persons who habitually or occasionally carry out taxable
transactions falling within the scope of VAT shall be levied. Section 126(1) of
the General Tax Code provides that „only transactions carried out within the
context of an economic activity against payment shall be liable to VAT. Section
126(2) of the same Code defines economic activities as all activities relating
to production, importation, provision of services, and distribution, including
mining, agricultural, forestry and handicraft activities. All such economic
activities carried out in Cameroon which are by law exempted from VAT shall
be liable to pay VAT irrespective of the nationality of the tax payer.

2. Excise Duty:

Excise duty is a kind of government tax levied on certain goods manufactured,

sold, or used within the country. Products such as tobacco, drinks, frozen
chicken and meat are targets of excise duties. Section 133(3) of the General
Tax Code stipulates that, „the following shall constitute liability to excise duty:

• The supply of goods and services by the producer or the distributor, or by

the wholesaler, in the case of sale or exchange of goods,
• The putting of goods to home use, in the case of imports.

Exemptions to VAT and Excise duty.

Section 128 of the Cameroon General Tax Code stipulates that the following
shall be exempted from VAT because the transactions are subject to payment of
specific taxes exclusive of tax on turnover:
Sale of mining products, interest on external loans, interest on deposits with
financial institutions by non- professionals of the financial sector, transfer of
rights over real estate and transfer of business assets subject to transfer of duty,
international traffic transactions such as ships, boats and aircraft, importations or
sale by the state of fiscal stamps, postage stamps and stamped papers, money
paid by the treasury to the central bank, which has currency issuing privilege,
tuition and boarding fees collected within the normal framework of the activities
of school and universities duly authorized, pesticides, fertilizers and farm input,
sale of products for refueling of aircraft companies which have registered office
in Cameroon, consumption of water up to 10cubic liters a month and electricity

55
of up to 110kw a month, composition, printing, import and sale of newspapers
and periodicals, except proceeds from advertising inputs and capital goods for
these transactions, imports exempted by the CEMAC Customs Code in its article
241, tests, consultations, health care, hospitalization, medical and biomedical
analysis, life and health insurance commissions, HIV/AIDs control equipment
and materials.

Rate of VAT and Excise Duty.

Section 142(1) of the General Tax Code provides that VAT and excise duty rates
shall be fixed as follows:

a. Value Added Tax:

- General rate = 19.25%
- Zero rate = 0%
b. Excise duty = 25%
- Abated rate (reduced) = 12.5%

Section 142(4) states that the Zero VAT rate shall apply to exports of taxable
products and similar transactions, notably transactions carried out by the free
trade zones, and exports and processing zones. Section 154 of the general tax
code stipulates that „council revenue shall comprise:

- Fiscal revenue,
- Proceeds from use of council property and services,
- Rebates (discounts), dues, police fines assigned by the state,
- Miscellaneous and casual revenue.

The fiscal revenue provided for in section 154(1) above shall comprise:
revenue from the discharge of tax, revenue from business and liquor licenses,
revenue from cattle taxes, revenue from additional council tax, and revenue from
direct and indirect council taxes.

4. Business License Tax

56
Any natural person, or corporate person of Cameroonian or foreign nationality
carrying on in Cameroon any trade, industry, or profession not listed in the
exemptions provided for in the Cameroon General Tax Code shall be liable to
pay business license. The mere fact of carrying on such activities habitually and
gainfully shall entail payment of the business license. The business license shall
be assessed on turnover. The amount of turnover is in seven categories as
seen below. As regards vehicle and goods carriers, the business license shall be
assessed on the basis of the number of states or per load of the vehicle.

a. Liquor License

Section 182 of the General Tax Code states that ‘any natural person or corporate
body authorized to engage in wholesale or retail sale in any capacity what so ever,
or in the production of alcoholic or non- alcoholic beverages shall be liable to
liquor license. Liquor license shall be payable by importers, producers and
dealers who sell drinks subject to a license. It shall be personal and payable
annually. Off-license dealers shall not pay liquor tax except where they
carry out activities that can classify them as on-license.
5. Cattle Tax:
Section 197 of the General Tax Code provides that every owner of livestock
shall pay an annual tax called cattle tax per head of livestock owned. The said
cattle tax shall be assessed in each administrative unit on the basis of
census made on the oral or written declaration of persons liable to pay to the
sub-Divisional Officer appointed for that purpose. The annual amount of cattle
tax shall be 200 FRS per cattle. Failure to pay shall lead to seizure of cattle.
Any concealment of taxable livestock or falsified information shall give rise
to an additional tax by way of penalty as provided for under section 202 of the
General Tax Code.

3.2 Tax disputes and sanctions for tax evasion.

If a tax payer fails to pay the sum mentioned in the notice issued within the time
limit stated in the notice, the competent tax revenue collector of the area
concerned shall issue a warning to the tax payer. This warning shall represent
an order to pay. This warning shall be delivered by a bailiff directly to the tax
payer himself or his representative. This warning shall indicate all sums claimed
showing clearly the principal, penalties and cost. It shall state that, ‘this order is an
obligation to pay the debt concerned within 8 days failing which your

57
movable property shall be seized’. Where the taxpayer does not pay the sum
stated in the warning, the competent tax revenue collector shall take other
measures, namely, seizure and sale of movable property.
However, where the taxpayer offers to pay wholly or partially, the competent
tax revenue collector of the area shall be authorized to stay execution. A
claim for a movable property seized may only be made to the competent court
within one month of seizure.
Where a tax revenue collector cannot discharge his duty because the doors of the
business premises are locked or refusal by the tax payer to open them, the tax
collector shall put a guard at the door and notify an administrative authority who
shall order the premises to be opened in his presence or in the presence of his
representative. Measures shall be taken to prevent the secret removal of objects
consulting the guarantee of the debt.
Sanctions For Tax Evasion

1. Sale of Seized property

The sale of seized property must be expressly authorized by the director general of
taxes. It shall be conducted by an auctioneer. The sale shall be interrupted at once
the proceeds of the sale are sufficient to pay the taxes, penalties and cost of
execution. The proceeds shall be paid immediately to the revenue collector
who shall issue a receipt.
2. Freezing of bank accounts
Section 76 of the Manual of Tax gives the territorial competent to Tax revenue
Collectors to freeze a taxpayer’s bank account without prejudice to other
penalties in case of non-settlement after notification of the sum dully authorized.

3. Closure of Establishment

The competent collector of taxes is empowered by section 77 of the Manual of

Tax Procedures to automatically and immediately close down the
establishment of any taxpayer whose tax has been dully assessed and notified to
him, but he failed to pay. The closure shall not cancel all other penalties provided
for by the law. The closure of an establishment shall end as the full amount of
taxes due is paid.
4. Impoundment of a vehicle

Any vehicle owner who fails to pay his taxes on the vehicle shall have the vehicle

58
impounded by taxation officials. The impoundment shall end as soon as the full
amount of taxes is paid. The full payment of taxes shall not exonerate him from
paying impoundment fee.
5. Exclusion from Public Contracts.

Failure to pay duties and taxes on the vehicle shall entail temporary ban from
submitting a tender for public contracts. The director general of taxes shall
publish a list of taxpayers banned from applying to be awarded public contracts
every year. This is provided for under section 79 of the Manual of Tax
Procedures.
Section 106 of the Manual of Tax Procedures stipulates that late payment of
tax shall
entail application of an interest tax in arrears of 1.5% per month for the entire
period of late or
non profit.

Principal Penalty for the Non payment of taxes.

Section 107 of the Manual of Tax Procedures provide that „without

prejudices to the tax
penalties in force, a prison term of from one to five years or a fine of 500.000frs
to 5million or
both such fine and imprisonment shall be inflicted upon whoever:

- Evades fraudulently, or attempts to evade fraudulently the issue, payment of

taxes and

duties referred to in the General Tax code.

- Refuses expressly to file his return within the prescribed time frame,
- Cancels a part of taxable amount,
- Organizes his solvency or obstructs tax recovery.

It should be noted that tax collectors benefit from protection under sections 152
and 158 of the Cameroon Penal Code. Any person or persons who disrespects,
abuses, assailts or organizes resistance against tax collectors shall be punished
with imprisonment term of 5-15 years as provided for under section 158 of the
penal code.

59
Settlement of tax Dispute.

Section 116 of the Manual Tax Procedures stipulates that „any taxpayer who feels
wrongly taxed or overtaxed may submit a written claim to the head of the
principal tax centers of the place of assessment within a period of 90 days from
the date of issue of notice. The head of the principal taxation centre shall respond
within a maximum of 30 days, where the claim is justified, the head of the
principal tax center shall grant tax relief up to 30.000.000frs. Where the
taxpayer is not satisfied with the decision taken, he may forward his case to the
director general of taxes within 30 days of reception of the unsatisfactory decision
and the director general shall have sixty days within which to response. Where
the tax payer is not satisfied with the decision of the director general of
Taxation, he may forward his matter to the minister in charge of finance. Where
the claim of the taxpayer is justifiable, the n=minister may grant him tax
relief of more than 100.000.000 frs. Section 126 of the Manual of Tax
Procedures provides that the decisions rendered by taxation authorities on a
tax payers‟ complaint may be attached before the administrative bench of the
Supreme Court.

CHAPTER SEVEN:

INTELLECTUAL PROPERTY LAW.

A significant concern to business men today is the need to protect their rights in
intellectual property. Intellectual property is any property resulting from
intellectual and creative process of an individual’s mind. The information
contained in books and computer files is intellectual property. The software
you use, the film you see, the music you listen to, are all forms of intellectual
property. In fact, in today’s information age, it should come as no surprise that
the value of world’s intellectual property may now exceed the value of physical
property such as machines and houses. The Cameroon law calls for the
promotion of the progress of science and useful arts, by securing for limited
time to authors and inventors the exclusive right to their respective writing
and discoveries. Law protecting patents, trademarks and copyright are
explicitly designed to protect and reward inventive and artistic creativity.
60
An understanding of intellectual property law is important because intellectual
property has taken on increasing significance, not only in Cameroon but
worldwide. Today, ownership rights in intangible intellectual property are more
important to the prosperity of many Cameroonian companies than are tangible
assets. As you will read in this chapter, protecting these assets in today’s online
world has proven particularly challenging. This is because internets capacity is
profoundly different from anything we have had in the past.

Intellectual property (IP) is a juridical concept which refers to creations of the

mind for which exclusive rights are recognized. Under intellectual property
law, owners are granted certain exclusive rights to a variety of intangible
assets, such as musical, literary and artistic works; discoveries and inventions;
and words, phrases, symbols and designs. Common types of intellectual
property rights include copyrights, trademarks, patents, industrial design rights and
in some jurisdictions trade secrets.

Intellectual property law in Cameroon is governed by a series of

international treaties and conventions signed or ratified by Cameroon. The
principal ones include World Intellectual
Property Organization (WIPO) treaties, and the African Intellectual Property
Organization
(AIPO) treaty of 1977 which, was ratified by Cameroon through Decree No
79/4669 of 19th
December 1979. It is interesting to note that the Cameroon Penal Code in its
articles 327, 328,
329 and 330 severely punishes the violation of intellectual property rights.
Intellectual property law is that branch of law which protects author, inventors,
creators, e.t.c, in the production and enjoyment of fruits of their intellectual or
inventive or creative works.
Examples of intellectual property rights include the following;

4.1 TRADE MARKS

A trademark, as defined, is „any word, name, symbol, or device or any

combination, used or intended to be used, in commerce to identify and
distinguish the goods of one manufacturer or seller from goods manufactured
or sold by others‟. Computer-related objects that may be protected by

61
trademarks include corporate brands and operating system logos.

A trademark is any distinctive word, name, mark, motto, device, or emblem that a
manufacturer stamps, prints or otherwise affixes to the goods he produces so that
the goods and their origins may be identified in the market place, trademarks are
highly protected in Cameroon. This is so because by using another trademark, a
business could lead consumers to believe that its goods were made by the other
business, the law seeks to avoid this kind of confusion. In the cyber space,
trademarks are sometimes referred to as „cyber marks‟. Cyber marks owners
have the right to use the mark as part of the domain name. In the real world, one
business can often use the same name as another without causing any conflict,
particularly if the businesses are small and their goods and services are different
and the area where they do business are separate. In the online world, there is
only one area of business, which is the cyber space. Thus, a dispute between
parties over which one has the right to use a particular domain name becomes
common.

As earlier stated, a trademark is any design or special name used to distinguish

manufacturers goods from others. A person who trades under a name that closely
resembles that of another with the aim of causing confusion in the minds of
customers will be stopped from using the name. A trademark, which is registered,
enjoys legal protection and monopoly and any infringement to it is actionable.

Sanctions for infringement:

Article 330 of the Cameron Penal Code provides that who so ever forges a
registered trademark or uses any trademark so forged shall be punished with
imprisonment for from one month to one year or with a fine of from fifty
thousand to one hundred and fifty thousand or with both imprisonment and
fine.

4.2 PATENTS

A patent is defined by the U.S Patent and Trademark Office (PTO) as „the grant of
property right to the inventor‟. A patent grant confers upon the owner „the right to
exclude others from making, using, offering for sale, selling, or importing the
invention‟. Examples of computer-related objects that may be protected by
patents are computer hardware and physical devices in firmware. A patent is

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a grant from the government that gives an inventor the exclusive right to make
use and sell an invention for a period of ten years from the date of filling of
application for the patent. Patents for designers as opposed to inventors are
given for 14 years. For either a regular patent or design patent, the application
must demonstrate that the invention discovery, process, or design is genuine,
original, new, useful and not obvious in the light of current technology.

Under the patent and design Act of 1970, patent can be granted to a patentee only
if the invention meets the following requirements: The invention is new and
results from an inventive activity capable of industrial application. An invention
capable of industrial application simply means it can be manufactured or used in
any kind of industry including agric industries. For patent letters to be granted,
an application must have been tabled before the competent minister. It must
contain certain information and fees.

Duration and Infringement.

A patent is valid for ten years from the date of award of patent letters. It may
be extended for five more years on application and payment fee. The Cameroon
Penal Code in its article 328 stipulates that whoever infringes a patent, or who
conceals, sells, exports, imports any object constitution such infringement shall
be punished with fine of form 50.000-300.000frs, and in some cases the
offender may be punished in addition with imprisonment for from one –six
months. Article 328(4) provides that no prosecution may be commenced except
upon complain by the patentee.

4.3 COPYRIGHT.

A copyright is a form of protection granted to the authors of „original works of

authorship,‟ both published and unpublished. A copyright protects a tangible
form of expression rather than the idea or subject matter itself. Under the
original copyright Act of 1909, publication ws generally the key to obtaining a
federal copyright. However, the Copyright Act of 1976 changed this
requirement, and copyright protection now applies to any original work
of authorship immediately from the time that its created in a tangible form.

Copyright is an intangible property right granted to authors and originators of

literacy or artistic production. Copyright is granted an author for life and fifty

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years after his death. For copyright owed by publishing houses, the copyright
expires after 95 years from the date of publication or 120 years from the date of
creation, whichever is first. For works by more than one author, the copyright
expires after 50 years after the death of the last surviving author. Works that
are copyrightable include books, records, films, art works, architectural plans,
menus, music, videos, product packaging and computer software. To be
protected by copyright, the work must be original. Registration is not required.

This is the sole legal right held for a certain number of years by the author or
composer of a literary or artistic work or by someone delegated by him, to
print, publish, sell, broadcast, perform, film or record his work or any part of it.
However, for the above works to be eligible for copyright, they must be original in
character and has been written down or recoded.

Violation of Copyright.

Articles 34, 35 and 36 of the Bangui Treaty of 1977 creating the African
Intellectual Property
Organization (AIOP) state the duration of copyright as follows: throughput the
life of the author
and 50 years after his death and the last co-surviving author.

The Cameroon Penal Code in its article 327 prescribes that whoever in
disobedience of the laws and regulations governing copyright shall be punished
with imprisonment for from 3 months -2 years and with a fine of from 20.000frs-
500.000frs. The court shall order the confiscation of the matter constituting the
infringement.
4.4. TRADE SECRETS.

A trade secret is proprietary or business-related information that a company or

individual uses and has exclusive rights to. To be considered a trade secret,
the information must meet the following requirements:

- Must be genuine and not obvious: Any unique method of accomplishing

a task would constitute a trade secret, especially if it is backed up by
copyrighted, patented or copyrighted proprietary software or methods that
give an organization a competitive advantage.

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- Must provide the owner a competitive or economic advantage and, therefore,
have value to the owner: Google’s indexing algorithms are not universally known.
Some secrets are protected.
- Must be reasonably protected from disclosure: This doesn’t mean that it
must be kept absolutely and exclusively secret, but the owner must exercise due
care in its protection.

REVISION QUESTIONS.

1. What are the requirements for negotiability?

2. Differentiate between a bill of exchange and a certificate of deposit.
3. What are the requirements for negotiability?
4. What is a commercial dispute and how can it be resolved?
5. What are the advantages of non pacific mode of settling disputes over
pacific modes.
6. _________is a type of tax in Cameroon.
7. What mechanisms have been put in place to sanction tax defaulters?
8. What is patent and how is it different from trade mark?
9. What is a trade mark?
10. Define the following:
a) Trade mark, patent, negotiable instruments, arbitral award, conciliation,
arbitration.

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